CPI AEROSTRUCTURES INC 10-K

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our shares of common stock are listed on the NYSE American exchange under the symbol “CVU”. On March 28, 2025, there were 157 holders of record of our shares of common stock. We believe there are substantially more beneficial holders of our common stock. Dividend Policy To date, we have not paid any dividends on our common stock. Any payment of dividends in the future is within the discretion of our board of directors (subject to the limitation on dividends contained in the BankUnited Facility, as described more fully in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) and will depend on our earnings, if any, our capital requirements and financial condition and other relevant factors. Our board of directors does not intend to declare any cash or other dividends in the foreseeable future, but intends instead to retain earnings, if any, for use in our business operations. Sales of Unregistered Securities and Repurchase of Equity Securities There were no sales of unregistered equity securities and no repurchases of our outstanding common stock during the year ended December 31, 2024. 19 Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth certain information at December 31, 2024 with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities: Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) Equity Compensation Plans Approved by Security Holders — $ — 310,458 Equity Compensation Plans Not Approved by Security Holders — — — Total — $ — 310,458 Long-term equity incentives are an important component of compensation and are designed to align the interests of our executive officers and directors who receive long-term equity awards with the Company’s long-term performance and to increase shareholder value. The Company has awarded long-term incentive compensation pursuant to two plans: 2016 Long-Term Incentive Plan. The 2016 Long-Term Incentive Plan, as amended, authorizes the grant of 2,200,000 shares of our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the Company. As of December 31, 2024, we have granted 1,891,906 shares under this plan and 308,094 shares remained available for grant under this plan. Performance Equity Plan 2009 . The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2024, we have granted 497,636 shares under this plan and 2,364 shares remained available for grant. Item 6. [RESE RVED] Not applicable. Item 7. MANAGEMENT’S DIS CUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis includes forward-looking statements involving risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K. Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Recent Developments On 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 (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. 20 Business Operations We are engaged in the contract production of structural aircraft assemblies for fixed wing aircraft and helicopters in both the commercial and defense markets. We also have a strong and growing presence in the aerosystems sector of the market, with our production of various reconnaissance pod structures and fuel panel systems. Within the global aerostructure and aerosystem supply chain, we are either a Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major Tier 1 manufacturers. We also are a prime contractor to the U.S. DOD, primarily the USAF. In conjunction with our assembly operations, we provide engineering, program management, supply chain management and kitting, and MRO services. Critical Accounting Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include revenue recognition, and the valuation of deferred income taxes. Actual results could differ from those estimates. We believe that the following discussion addresses our critical accounting policies which require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For more discussion of these and other significant accounting policies, refer to Part II, Item 8, Note 1 “ Principal Business Activity and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Revenue Recognition In accordance with ASC 606, the Company recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to be entitled to in exchange for the good or service. The majority of the Company’s performance obligations are satisfied over time as the Company (i) sells products with no alternative use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date. Under the over time revenue recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred and an estimate of costs to complete and resulting total estimated costs at completion. See Part II, Item 8, Note 1 “Principal Business Activity and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in this Form 10-K for additional information regarding the Company’s revenue recognition policy. Deferred Income Taxes – Valuation Allowance On a quarterly basis, we assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized. Assessing the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative evidence to overcome. 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 of 2023. 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. Results of Operations The following discussion provides an analysis of our results of operations and should be read in conjunction with the accompanying consolidated financial statements and notes thereto. Revenue Revenue for the year ended December 31, 2024 was $81,078,864 compared to $86,466,321 for the year ended December 31, 2023, representing a decrease of $5,387,457, or 6.2%. The decrease was primarily related to various programs that neared completion in 2024 including NGC E-2D and Sikorsky HIRRS programs coupled with the timing of work performed on the Lockheed Martin F-16 program. These decreases were partly offset by NGJ Mid Band production and Sikorsky Welded Tubes. 21 Revenue generated from prime government contracts for the year ended December 31, 2024 was $11,677,152 compared to $11,842,145 for the year ended December 31, 2023, a slight decrease of $164,993, or 1.4%. This decrease is the result of decreased revenue recognized on the T-38 Pacer Classic program. Revenue generated from government subcontracts for the year ended December 31, 2024 was $64,704,370 compared to $69,672,602 for the year ended December 31, 2023, a decrease of $4,968,232, or 7.1%. The decrease was primarily related to various programs that neared completion in 2024 including NGC E-2D and Sikorsky HIRRS programs coupled with the timing of work performed on the Lockheed Martin F-16 program. These decreases were partly offset by NGJ Mid Band production and Sikorsky Welded Tubes. Revenue generated from commercial contracts for the year ended December 31, 2024 was $4,697,342 compared to $4,951,574 for the year ended December 31, 2023, a decrease of $254,232 or 5.1%. The decrease in revenue resulted from decreased revenue recognized on the timing of work performed on the Embraer Phenom 300 Inlet program. Cost of sales Cost of sales for the year ended December 31, 2024 was $63,840,803 compared to $69,400,693 for the year ended December 31, 2023, a decrease of $5,559,890 or 8.0%. The components of cost of sales were as follows: Years ended December 31, 2024 December 31, 2023 Procurement $ 40,100,196 $ 46,020,628 Labor 7,303,563 7,054,308 Factory overhead 16,154,150 16,028,140 Other cost of sales 282,894 297,617 Cost of sales $ 63,840,803 $ 69,400,693 Procurement for the year ended December 31, 2024 was $40,100,196 compared to $46,020,628 for the year ended December 31, 2023, a decrease of $5,920,432 or 12.9%. This decrease is primarily the result of a decrease in procurement for the NGC E-2D MYP II OWP program, Sikorsky HIRRS program, USAF T-38 Pacer Classic Structural Modification Kits program, offset by an increase in our Raytheon NGJ – Mid Band Pods program and Sikorsky Welded Tubes . Labor costs for the year ended December 31, 2024 were $7,303,563 compared to $7,054,308 for the year ended December 31, 2023, an increase of $249,255 or 3.5%. The increase is primarily the result of work performed on the Boeing A-10 program, offset by decreases on our Raytheon NGJ – Mid Band Pods program due to efficiencies. Factory overhead costs for the year ended December 31, 2024 were $16,154,150 compared to $16,028,140 for the year ended December 31, 2023, an increase of $126,010 or 0.8%. Other cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory levels, changes in inventory valuation, changes to inventory reserves, changes in loss contract provisions and direct charges to cost of sales. For the year ended December 31, 2024, there were costs in the amount of $282,894 compared to $297,617 for the year ended December 31, 2023, a decrease of $14,723 or 4.9%. Gross profit Gross profit for the year ended December 31, 2024 was $17,238,061 compared to $17,065,628 for the year ended December 31, 2023, an increase of $172,433 or 1.0%. Gross profit percentage (“gross margin”) for the year ended December 31, 2024 was 21.3% compared to 19.7% for year ended December 31, 2023. 22 Favorable/(Unfavorable) Adjustments to Gross Profit During the years ended December 31, 2024 and 2023, we made changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as net unfavorable adjustments totaling $3,750,020 and 1,450,502 for the years ended December 31, 2024 and December 31, 2023. Selling, general and administrative expenses Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2024 were $10,506,439 compared to $10,758,624 for the year ended December 31, 2023, a decrease of $252,185 or 2.3%. The decrease was primarily due to a reduction of consulting and legal fee expenses. Interest expense Interest expense for the year ended December 31, 2024 was $2,288,834, compared to $2,455,214 for the year ended December 31, 2023, a decrease of $166,380 or 6.8%. The decrease is the result of a year-over-year decrease in the amount of our outstanding debt under the Credit Agreement coupled with a lower year-over-year interest rates charged. Income before provision for income taxes Income before provision for income taxes for the year ended December 31, 2024 was $4,442,788 compared to $3,851,790 for the year ended December 31, 2023, an increase of $590,998 or 15.3%. The increase was driven by the aforementioned increase in gross profit and decreases in both SG&A and interest expense described above. Provision (benefit) for income taxes The income tax (benefit) for the year ended December 31, 2024 was $1,143,454, which was an effective tax (benefit) rate of 25.7%, as compared to the income tax (benefit) of ($13,349,414) for the year ended December 31, 2023, which was an effective tax (benefit) rate of (346.6%). The income tax recorded in 2024 and income tax benefit realized in 2023 was primarily due to federal and state statutory rates in 2024 and the reduction of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023, respectively. Net income Net income for the year ended December 31, 2024 was $3,299,334 compared to $17,201,204 for the year ended December 31, 2023, a decrease of $13,901,870 or 80.8%. The decrease in net income was driven by the 2023 income tax benefit. Earnings per share Basic earnings per share was $0.26 for the year ended December 31, 2024 calculating utilizing 12,593,213 weighted average shares outstanding as compared to $1.40 for the year ended December 31, 2023 calculated utilizing 12,311,219 weighted average shares outstanding, an decrease of $1.14 per share, or 81.4%. Diluted earnings per share was $0.26 for the year ended December 31, 2024 calculated utilizing 12,709,237 weighted average shares outstanding as compared to $1.38 for the year ended December 31, 2023 calculated utilizing 12,471,961 weighted average shares outstanding, an decrease of $1.12 per share, or 81.2%. Decrease in the basic and diluted earnings per share are due to the reduction of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023 which favorably impacted 2023 by $1.12 per share. Business Outlook The statements in the “Business Outlook” section and other forward-looking statements of this Annual Report on Form 10-K are subject to revision during the course of the year in our quarterly earnings releases and SEC filings and at other times. Liquidity and Capital Resources General At December 31, 2024, we had working capital of $17,122,111 compared to working capital of $15,402,381 at December 31, 2023, an increase of $1,719,730, or 11.2%. The increase is primarily the result of an increase in net contract assets and a decrease to accrued expenses offset by decreases in accounts receivable and inventory, and an increase in accounts payable. Cash Flow A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments. Costs for which we are not able to bill on a progress basis are components of contract assets on our consolidated balance sheet and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms. Because ASC 606 requires us to use estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods, there can be a significant disparity between earnings (both for accounting and tax purposes) as reported and actual cash that we receive during any reporting period. Accordingly, it is possible that we may have a shortfall in our cash flow and may need to borrow money or take steps to defer cash outflows until the reported earnings materialize into actual cash receipts. 23 Several of our programs require us to expend up-front costs that may have to be amortized over a portion of production units. In the case of significant program delays and/or program cancellations, we could experience margin degradation, which may be material for costs that are not recoverable. Such charges and the loss of up-front costs could have a material impact on our liquidity and results of operations. We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources. At December 31, 2024, our cash balance was $5,490,963 compared to $5,094,794 at December 31, 2023, an increase of $396,169 or 7.8%. The increase was driven by $3,558,935 in cash provided by operations, partly offset by our pay down of outstanding debt during 2024 of $2,694,498 and purchase of equipment of $403,854. BankUnited Facility This information is set forth in Note 8 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report on Form 10-K which is hereby incorporated by reference. Leases This information is set forth in Note 9 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report on Form 10-K which is hereby incorporated by reference. Liquidity Our working capital requirements can vary significantly, depending in part on the timing of the conclusion of mature programs and new program awards and the payment terms with our customers and suppliers. There is currently no availability for borrowings under the BankUnited Facility and the Company finances its operations from internally generated cash flow. Note 8 to our consolidated financial statements included in Part II - Item 8 includes a discussion regarding the BankUnited Facility and recent amendments thereto which provide, among other things, for increases in principal payments and the interest rate on the loans provided for therein. Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to August 31, 2026, (ii) obtained and regularly seeks additional progress payment and advance payment customer contract funding provisions, (iii) maintained procedures to minimize investments in inventory and contract assets, (iv) remained focused on its military customer base and (v) maintained its approximately $85.0 million backlog of funded orders, 97% of which are for military programs. Based upon the aforementioned factors, it is management’s estimation that there will likely not be any individual conditions or combination of events that will occur in the coming year which would cause the Company to be unable to meet its obligations or otherwise continue as a going concern. However, there can be no assurance that such plans will accomplish their intended goals. Contractual Obligations The table below summarizes information about our contractual obligations as of December 31, 2024 and the effects these obligations are expected to have on our liquidity and cash flow in the future years. Payments Due By Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years Line of credit $ 17,390,000 $ 2,750,000 $ 14,640,000 $ — $ — Finance Leases 26,483 26,483 — — — Operating Leases 3,100,572 2,162,154 938,418 — — Insurance Financing Agreement 278,679 278,679 — — — Total Contractual Cash Obligations $ 20,795,734 $ 5,217,316 $ 15,578,418 $ — $ — Inflation Inflation historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its impact on interest rates, supply chain, labor markets and general economic conditions, are factors that the Company actively monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company. The majority of the Company’s long term contracts with its customers and suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals. 24 Item 7A. QUANTITATIVE AND QUALITATIVE DISC LOSURE ABOUT MARKET RISK Interest Rate Risk We are exposed to interest rate risk on variable-rate credit facilities for which there was $17,390,000 outstanding at December 31, 2024. Additionally, if we were to refinance our long-term debt, it may be refinanced at higher interest rates. Item 8. FINANCIAL STATEMENTS AND SUPPLEM ENTARY DATA This information appears following Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WIT H ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE See the company’s current Report on Form 8-K filed June 17, 2024.