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Item 9A. Controls and Procedures

2026-03-31 compared with 2025-03-31 · 918 added, 1065 removed, 365 unchanged (84% of the section changed)

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

AND PROCEDURES

of Disclosure Controls and Procedures

management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our

disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation,

our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were

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.

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,

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.

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

GAAP and includes those policies and procedures that:

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

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

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

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

filer for 2024.

As such, CPI is not subject to the requirement to have an auditor attestation report on internal control over financial

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

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.

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.

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.

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, 2025.

the second quarter, a material weakness was identified concerning the application of ASC-470 – Debt, more specifically as it relates

to 470-10-45-11, that if a company is in violation of a debt covenant and it is probable that the borrower will not be able to comply

with the covenant at measurement dates within the next twelve months, this debt shall be classified as short term.

Due to the financial

impact of the Boeing A-10 program, the Company was not able to meet the financial covenants for the second quarter and therefore obtained

a waiver to remediate the non-compliance.

Because the waiver did not extend for twelve months from the date of the Company’s financial

statements, there was a potential misclassification of short-term and long-term debt.

August 19, 2025, the Company executed a Fifteenth Amendment to the Credit Agreement (the “Fifteenth Amendment”).

The amendment

revised certain financial covenants to reflect specified adjustments for the quarters ended March 31, 2025 and June 30, 2025.

These covenant-based

adjustments were designed to offset the effect of the termination of the Company’s Boeing A-10 Program on covenant compliance

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.

Company implemented new controls designed to remediate the aforementioned material weakness pertaining to the application of ASC-470

– Debt during the quarter ended September 30, 2025.

As of December 31, 2025 the Company believes it has fully remediated the identified

material weakness.

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, 2025, 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.

Company is a non-accelerated filer.

Accordingly, it is not required to obtain an auditor attestation report on internal control over

financial reporting for the year ended December 31, 2025.

in Internal Control Over Financial Reporting

There were no changes in our internal control

over financial reporting during the quarter ended December 31, 2025 that materially affected, or are reasonably likely to materially affect,

our internal control over financial reporting.

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.

DISCLOSURE REGARDING FOREIGN

JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS

AND CORPORATE GOVERNANCE

information required by this Item 10 is incorporated herein by reference from the Company’s definitive proxy statement for its

2026 Annual Meeting of Shareholders or will be included in an amendment to this Annual Report on Form 10-K, in either case, to be filed

with the Securities and Exchange Commission not later than 120 days after December 31, 2025.

Trading Policy and Procedures

Company has adopted an insider trading policy governing the purchase, sale, and other dispositions of the Company’s securities

by its directors, officers, and employees.

The Company believes that its insider trading policy is reasonably designed to promote compliance

with applicable insider trading laws, rules, and regulations.

The Company’s insider trading policy is filed as Exhibit 19 to the

Company’s Annual Report on Form 10-K for the year ended December 31, 2024 and is incorporated herein by reference.

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.

information required by this Item 11 is incorporated herein by reference from the Company’s definitive proxy statement for its

2026 Annual Meeting of Shareholders or will be included in an amendment to this Annual Report on Form 10-K, in either case, to be filed

with the Securities and Exchange Commission not later than 120 days after December 31, 2025.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

information required by this Item 12 is incorporated herein by reference from the Company’s definitive proxy statement for its

2026 Annual Meeting of Shareholders or will be included in an amendment to this Annual Report on Form 10-K, in either case, to be filed

with the Securities and Exchange Commission not later than 120 days after December 31, 2025.

CERTAIN RELATIONSHIPS AND

RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

information required by this Item 13 is incorporated herein by reference from the Company’s definitive proxy statement for its

2026 Annual Meeting of Shareholders or will be included in an amendment to this Annual Report on Form 10-K, in either case, to be filed

with the Securities and Exchange Commission not later than 120 days after December 31, 2025.

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

information required by this Item 14 is incorporated herein by reference from the Company’s definitive proxy statement for its

2026 Annual Meeting of Shareholders or will be included in an amendment to this Annual Report on Form 10-K, in either case, to be filed

with the Securities and Exchange Commission not later than 120 days after December 31, 2025.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents

are filed as part of this report:

The following documents are

filed as part of this report:

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

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2025 and 2024

Statements of Operations for the Years Ended December 31, 2025 and 2024

Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024

Statements of Cash Flows for the Years Ended December 31, 2025 and 2024

to Financial Statements

Financial Statement Schedules:

The following Exhibits are filed as part of this report:

of Incorporation of the Company, as amended, (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report

on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of Composite of Precision Industries, Inc., dated May 9, 1989 (incorporated

by reference to Exhibit 3.1.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of Consortium Products International, Inc., dated June 30, 1992 (incorporated

by reference to Exhibit 3.1.2 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated August 7, 1992 (incorporated by reference

to Exhibit 3.1.3 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated June 3, 1997 (incorporated by reference

to Exhibit 3.1.4 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated June 16, 1998 (incorporated by reference

of Incorporation of the Company, as amended, (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form

10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of Composite of Precision Industries, Inc., dated May 9, 1989 (incorporated by reference

to Exhibit 3.1.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

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).

of Amendment of the Certificate of Incorporation of Consortium Products International, Inc., dated June 30, 1992 (incorporated by

reference to Exhibit 3.1.2 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated August 7, 1992 (incorporated by reference to

Exhibit 3.1.3 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated June 3, 1997 (incorporated by reference to Exhibit

3.1.4 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

of Amendment of the Certificate of Incorporation of CPI Aerostructures, Inc., dated June 16, 1998 (incorporated by reference to Exhibit

3.1.5 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K/A

filed on November 24, 2021).

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

1 unchanged sentence

Securities of the Registrant.

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

April 30, 2009).

2016 Long-Term Incentive Plan, as amended (incorporated by reference from Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on June 28, 2023).

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

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).

2025 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Proxy Statement filed on April 30, 2025).

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

4 unchanged sentences

and CPI Aerostructures, Inc.

(incorporated by reference

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

(incorporated by reference to Exhibit

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

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

2 unchanged sentences

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

and Restated Credit Agreement, dated as of March 24, 2016, among CPI Aerostructures, Inc., the several lenders from time to

time party thereto, and BankUnited, N.A.

(incorporated by reference from Exhibit 10.1 to the Company’s Current Report

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

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

Current Report on Form 8-K filed on May 10, 2016).

Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.4.3 to the Company’s

Annual Report on Form 10-K filed on August 25, 2020).

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

Current Report on Form 8-K filed on August 16, 2018).

Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.2 to the Company’s

Current Report on Form 8-K filed on December 27, 2018).

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

Current Report on Form 8-K filed on June 26, 2019).

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

Current Report on Form 8-K filed on August 24, 2020).

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

Current Report on Form 8-K filed on May 17, 2021).

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

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

Waiver and Ninth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the

Company’s Current Report on Form 8-K filed on April 12, 2022).

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

Current Report on Form 8-K filed on November 11, 2022).

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

Current Report on Form 8-K filed on March 23, 2023).

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

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

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

(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.

Third Lease Amendment, dated April 15, 2025 between Heartland Boys II L.P.

and CPI Aerostructures, Inc.

(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 15, 2025).

Loan and Security Agreement by and between CPI Aerostructures, Inc.

and Western Alliance Bank, dated as of December 12, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 12, 2025.

Severance and Change in Control Agreement, dated December 8, 2025, between the Company and Robert Mannix, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 9, 2025.

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

Insider Trading Policy (incorporated by reference to Exhibit 19 to the Company’s Annual Report on Form 10-K filed on March 31, 2025.

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K filed on March 31, 2025).

Consent of CBIZ CPAs P.C.

Consent of Marcum LLP

Consent of RSM US LLP.

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

2 unchanged sentences

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

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

Clawback Policy Relating to the Recovery of excessive Incentive-Based Compensation from Executive Officers in the Event of an Accounting Restatement (incorporated by reference to Exhibit 97 to Company’s Annual Report on Form 10-K filed on March 31, 2025).

Instanse Document.

12 unchanged sentences

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Financial Statements:

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 Consolidated Financial Statements

of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial

Balance Sheets as of December 31, 2025 and 2024

Statements of Operations for the Years Ended December 31, 2025 and 2024

Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024

Statements of Cash Flows for the Years Ended December 31, 2025 and 2024

to Consolidated Financial Statements

of Independent Registered Public Accounting Firm

To the Shareholders and Board

of Directors of

the Shareholders and Board of Directors of

CPI Aerostructures, Inc.

and Subsidiaries

Opinion on the Financial Statements

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 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.

on the Financial Statements

We have audited the accompanying consolidated balance sheet of CPI Aerostructures,

and Subsidiaries (the “Company”) as of December 31, 2025, the related consolidated statements of operations, shareholders’

equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as 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, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with

accounting principles generally accepted in the United States of America.

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.

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.

Accordingly, we express no such opinion.

Our audit included performing

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

that respond to those risks.

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

financial statements.

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

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

We believe that our audit provides a reasonable basis for

Critical Audit Matters

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

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 our opinion.

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

(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.

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.

As discussed 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, 2025, the Company recognized approximately $68.6 million of revenue over time.

Subjective 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.

The principal

consideration in determining revenue recognition related to long term contracts with performance obligations satisfied over time was a

critical audit matter was the complexity and subjective nature of management’s estimates regarding the initial costs and expected

costs to complete.

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

• Obtaining an understanding of management’s process in developing

· Obtained 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 substantive test of details on a sample of contracts with

customers to ascertain that contract terms and any modifications were agreed to by the customer and that over-time revenue

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

· Evaluated 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, 2025 by comparing the estimated costs to complete at December 31, 2025 to actual costs incurred

subsequent to December 31, 2025;

· Performed inquiries with the Company’s program management regarding

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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

· 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.

CBIZ CPAs P.C.

We have served as the Company’s auditor since 2024 (such date takes

into account the acquisition of the attest business of Marcum llp by CBIZ CPAs P.C.

November 1, 2024).

March 31, 2026

of Independent Registered Public Accounting Firm

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

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 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

We have 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, 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.

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.

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.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

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

to those risks.

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

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

presentation of 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 our opinion.

/s/ RSM US LLP

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

New York, New York

April 5, 2024

/s/ Marcum llp

We have served as the Company’s auditor from 2024 to 2025.

Melville, New York

March 31 , 2026

AEROSTRUCTURES, INC.

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Current Assets:

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

Accounts receivable, net

Contract assets, net

Prepaid expenses and other current assets

Total Current Assets

Operating lease right-of-use assets

Property and equipment, net

Deferred tax asset, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion

of line of credit

Current portion

of long-term debt

Operating lease

Current portion of line of credit

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current

Line of credit,

net of current portion

Long-term operating

lease liabilities

Long-term debt,

net of current portion

Total Current Liabilities

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 15)

Shareholders’

Common stock - $ .001

Commitments and Contingencies (see note 15)

Shareholders’ Equity:

Preferred stock - $ 0.01 par value;

authorized 5,000,000

shares, 0 shares, issued and outstanding

Common stock - $ .001 par value;

authorized 50,000,000 shares, 13,155,061 and 12,978,741 shares, respectively, issued and outstanding

Additional paid-in

Additional paid-in capital

Accumulated deficit

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( 48,504,388 )

Total Shareholders’

Total Liabilities

and Shareholders’ Equity

notes to CONSOLIDATED financial statements

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

accompanying notes are an integral part of the consolidated financial statements.

AEROSTRUCTURES, INC.

3 unchanged sentences

Cost of sales

Selling, general

and administrative expenses

Income from operations

Selling, general and administrative expenses

(Loss) income from operations

Interest expense

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

( 1,567,840 )

( 2,288,834 )

(Loss) income before benefit (provision) for income taxes

( 1,744,222 )

Benefit (provision) for income taxes

( 1,143,454 )

Net (loss) income

$ ( 843,361 )

(Loss) income per common share-basic

(Loss) income per common share-diluted

Shares used in computing (loss) income per common share:

accompanying notes are an integral part of the consolidated financial statements.

AEROSTRUCTURES, INC.

3 unchanged sentences

Shareholders’

Equity (Deficit)

Balance at January 1, 2024

5 unchanged sentences

Balance at December 31, 2024

( 48,504,388 )

Net (loss) income

Issuance of common stock upon settlement of

4 unchanged sentences

$ ( 49,347,749 )

notes to CONSOLIDATED financial statements

accompanying notes are an integral part of the consolidated financial statements.

AEROSTRUCTURES, INC.

2 unchanged sentences

ended December 31, 2025 and 2024

Cash flows from operating

Adjustments to reconcile net income to net cash

provided by operating activities:

Cash flows from operating activities:

Net (loss) income

$ ( 843,361 )

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Depreciation and amortization

2 unchanged sentences

Deferred income taxes

( 1,057,220 )

Provision for credit losses

Changes in operating assets and liabilities:

Decrease in accounts receivable

Decrease in insurance recovery receivable

Decrease (increase) in contract assets

(Increase) decrease in accounts receivable

( 1,979,189 )

(Increase) decrease in contract assets

Decrease in inventory

Decrease in prepaid expenses and other current

Decrease in operating right-of-use assets

(Decrease) increase in accounts payable and

accrued expenses

(Increase) decrease in prepaid expenses and other current assets

( 1,638,161 )

Decrease in litigation settlement obligation

Decrease in operating right-of-use assets

(Decrease) increase in accounts payable and accrued expenses

( 1,730,794 )

3 unchanged sentences

( 1,503,703 )

Decrease in loss reserve

( 1,999,057 )

Increase (decrease) in loss reserve

Increase in income taxes payable

Net cash provided by operating activities

Net cash (used in) provided by operating activities

( 5,200,025 )

Cash flows from investing activities:

2 unchanged sentences

Cash flows from financing activities:

Principal payments on line of credit

Repayments on line of credit

( 17,390,000 )

Principal payments on long-term debt

( 2,650,000 )

Repayments on long-term debt

Proceeds from line of credit

Proceeds from 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

Net cash used in financing activities

Net cash provided by (used in) financing activities

( 2,758,912 )

Net increase in cash

Net (decrease) increase in cash

( 4,591,764 )

Cash at beginning of year

3 unchanged sentences

Cash paid for income taxes

notes to CONSOLIDATED financial statements

Supplemental disclosure of non-cash item:

Increase to operating right-of-use asset and operating lease liability from

lease amendment

accompanying notes are an integral part of the consolidated financial statements.

AEROSTRUCTURES, INC.

5 unchanged sentences

(“WMI”) and Compac Development

Corporation, a wholly owned subsidiary of WMI (collectively the “Company”).

Corporation (“Compac”), a wholly owned subsidiary of WMI (collectively the “Company”).

supplier of aircraft parts for fixed wing aircraft and helicopters in both the commercial and defense markets.

1 unchanged sentence

complex aerostructure assemblies, as well as aerosystems.

Additionally, CPI supplies parts for maintenance, repair and overhaul

(“MRO”) and kitting contracts.

operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating

decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance.

Operating segments may be aggregated only to a limited extent.

The Company’s CODM, the Chief Executive Officer, reviews

financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

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

Additionally, CPI supplies parts for maintenance, repair and overhaul (“MRO”)

and kitting contracts.

operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision

maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance.

segments may be aggregated only to a limited extent.

The Company’s CODM, the Chief Executive Officer, reviews financial information

presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

The Company has determined

that it has a single operating and reportable segment.

of Presentation and Principles of Consolidation

accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted

in the United States of America (“U.S.

GAAP”) and applicable rules and regulations of the United States Securities

and Exchange Commission (“SEC”).

The consolidated financial statements include the accounts of the Company and its

wholly-owned subsidiaries.

accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the

United States of America (“U.S.

GAAP”) and applicable rules and regulations of the United States Securities and Exchange

Commission (“SEC”).

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

1 unchanged sentence

GAAP requires the use of estimates by management.

Actual results could

differ from these estimates.

Actual results could differ

from these estimates.

Company follows Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

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

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 and an estimate of costs

to complete and resulting total estimated costs at completion.

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.

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 and an estimate of costs to complete and resulting total estimated costs at

Company also has contracts that are considered point in time.

Under the point in time revenue recognition model, revenue is recognized

when control of the components has transferred to the customer;

when control of the product has transferred to the customer;

in most cases this will be based on shipping terms.

1 unchanged sentence

government and commercial contractors.

Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified,

payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

For the Company,

the contract under ASC 606 is typically established upon execution of a purchase order either in accordance with a long-term customer

contract or on a standalone basis.

determine the proper revenue recognition for our contracts, we must evaluate whether two or more contracts should be combined

and accounted for as a single contract, and whether the combined or single contract should be accounted for as one performance

obligation or more than one performance obligation.

This evaluation requires significant judgment and the decision to combine

a group of contracts or to separate a contract into multiple performance obligations could change the amount of revenue and profit

recorded in a period.

A performance obligation is a promise within a contract to transfer a distinct good or service to the customer

in exchange for payment and is the unit of account for recognizing revenue.

The Company’s performance obligations in its

contracts with customers are typically the sale of each individual product contemplated in the contract or a single performance

accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms

are identified, the contract has commercial substance and collectability of consideration is probable.

For the Company, the contract

under ASC 606 is typically established upon execution of a purchase order either in accordance with a long-term customer contract or

on a standalone basis.

evaluation to determine the proper revenue recognition for our contracts requires significant judgment and evaluation to combine a

group of purchase orders from a single customer for the same performance obligation or to separate a contract into multiple

performance obligations.

A performance obligation is a promise within a contract to transfer a distinct good or service to the

customer in exchange for payment and is the unit of account for recognizing revenue.

The Company’s performance obligations in

its contracts with customers are typically the sale of each individual product contemplated in the contract or a single performance

obligation representing a series of products when the contract contains multiple products that are substantially the same.

9 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS

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

performance obligation is satisfied.

For contracts with more than one performance obligation, the Company allocates the transaction

price to each performance obligation based on its estimated standalone selling price.

When standalone selling prices are not available,

the transaction price is allocated using an expected cost plus margin approach as pricing for such contracts is typically negotiated

on the basis of cost.

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

obligation is satisfied.

For contracts with more than one performance obligation, the Company allocates the transaction price to each

performance obligation based on its estimated standalone selling price.

When standalone selling prices are not available, the transaction

price is allocated using an expected cost plus margin approach as pricing for such contracts is typically negotiated on the basis of

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 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.

The pricing for commercial contractors is 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

use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed

The Company uses the cost-to-cost input method to measure progress for its performance obligations because it best depicts

the transfer of control to the customer which occurs as the Company incurs costs on its contracts.

Company generally utilizes the portfolio approach to estimate the amount of revenue to recognize for its contracts and groups

contracts together that have similar characteristics.

Contract gross profit margins are calculated using the estimated costs for

either the individual contract or the portfolio as applicable.

Significant judgment is used to determine which contracts are grouped

together to form a portfolio.

The portfolio approach is utilized only when the result of the accounting is not expected to be

materially different than if applied to individual contracts.

use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to

The Company uses the cost-to-cost input method to measure progress for its performance obligations because it best depicts the

transfer of control to the customer which occurs as the Company incurs costs on its contracts.

Company’s contracts are often modified to account for changes in contract specifications and requirements.

1 unchanged sentence

contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations.

The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to

which it relates, are recognized prospectively when the remaining goods or services are distinct and on a cumulative catch-up

basis when the remaining goods or services are not distinct.

Company also has contracts that are considered point in time.

Under the point in time revenue recognition model, revenue is recognized

when control of the components has transferred to the customer.

The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it

relates, are recognized prospectively when the remaining goods or services are distinct and on a cumulative catch-up basis when the remaining

goods or services are not distinct.

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

1 unchanged sentence

variable consideration using the most likely amount based on an assessment of all available information (i.e., historical experience,

current and forecasted performance) and only to the extent it is probable that a significant reversal of revenue recognized will

not occur when the uncertainty is resolved.

current and forecasted performance) and only to the extent it is probable that a significant reversal of revenue recognized will not

occur when the uncertainty is resolved.

applying the cost-to-cost input method, the Company compares the actual costs incurred relative to the total estimated costs expected

at completion to determine its progress towards satisfying its performance obligation and to calculate the corresponding amount

of revenue to recognize.

For any costs incurred that do not depict the Company’s performance in transferring control of

goods or services to the customer, the Company excludes such costs from its input method measure of progress as the amounts are

not reflected in the price of the contract.

Costs that are inputs to the satisfaction of a performance obligation include labor,

materials and subcontractors’ costs, other direct costs and an allocation of indirect costs.

at completion to determine its progress towards satisfying its performance obligation and to calculate the corresponding amount of revenue

to recognize.

For any costs incurred that do not depict the Company’s performance in transferring control of goods or services

to the customer, the Company excludes such costs from its input method measure of progress as the amounts are not reflected in the price

of the contract.

Costs that are inputs to the satisfaction of a performance obligation include labor, materials and subcontractors’

costs, other direct costs and an allocation of indirect costs.

to the original estimates may be required during the life of the contract.

Estimates are reviewed quarterly and the effect of

any change in the total estimated costs expected at completion for a contract is reflected in revenue in the period the change

becomes known.

ASC 606 involves considerable use of estimates and judgment in determining revenues, costs and profits and in assigning

the amounts to accounting periods.

Estimates are reviewed quarterly and the effect of any

change in the total estimated costs expected at completion for a contract is reflected in revenue in the period the change becomes

ASC 606 involves considerable use of estimates and judgment in determining revenues, costs and profits and in assigning the

amounts to accounting periods.

For instance, management must make assumptions and estimates regarding labor productivity and

availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance

obligation, execution by our subcontractors, the availability and timing of funding from the customer, and overhead cost rates,

among other variables.

The Company continually evaluates all of the factors related to the assumptions, risks and uncertainties

inherent with the application of the cost-to-cost input method;

however, it cannot be assured that estimates will be accurate.

If estimates are not accurate, or a contract is terminated which will affect estimates at completion, the Company is required

to adjust revenue in the period the change is determined.

availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the

performance obligation, execution by our subcontractors, the availability and timing of funding from the customer, and overhead cost

rates, among other variables.

The Company continually evaluates all of the factors related to the assumptions, risks and

uncertainties inherent with the application of the cost-to-cost input method;

however, it cannot be assured that estimates will be

If estimates are not accurate, or a contract is terminated which will affect estimates at completion, the Company is

required to adjust revenue in the period the change is determined.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

in the current period.

A significant change in one or more estimates could affect the profitability of one or more of our performance

If estimates of total costs to be incurred exceed estimates of total consideration the Company expects to receive,

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

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

incurred if the contract had not been obtained.

The Company does not typically incur contract acquisition costs or contract fulfillment

costs that are subject to capitalization in accordance with the guidance in Accounting Standards Codification Subtopic 340-40,

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

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

current period.

A significant change in one or more estimates could affect the profitability of one or more of our performance obligations.

If estimates of total costs to be incurred exceed estimates of total consideration the Company expects to receive, a provision for the

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

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

if the contract had not been obtained.

The Company does not typically incur contract acquisition costs or contract fulfillment costs

that are subject to capitalization in accordance with the guidance in Accounting Standards Codification Subtopic 340-40, “Other

Assets and Deferred Costs—Contracts with Customers.”

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.

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.

For example, costs such as those related to charitable contributions, advertising, interest expense, and public relations are unallowable,

and therefore not recoverable through sales.

During and after the fulfillment of a government contract, the Company may be audited in

respect to the direct and allocated indirect costs attributable thereto.

These audits may result in adjustments to the Company’s

contract cost, and/or revenue.

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

3 unchanged sentences

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

As of December 31, 2024

and 2023, the Company had $ 5,270,629 and $ 4,943,628 , respectively, of uninsured balances.

The Company limits its credit risk by

selecting financial institutions considered to be highly credit worthy.

As of December 31, 2025 and 2024,

the Company had $ 760,921 and $ 5,270,629 , respectively, of uninsured balances.

The Company limits its credit risk by selecting financial

institutions considered to be highly credit worthy.

for Credit Losses

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

The adequacy of the allowance is

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

issues by account, if applicable.

The adequacy of the allowance is assessed

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

by account, if applicable.

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

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

the weighted average cost method.

The Company capitalizes labor, material, subcontractor

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

The Company regularly reviews

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

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

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

weighted average cost method.

The Company capitalizes labor, material, subcontractor and overhead

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

The Company regularly reviews inventory quantities

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

If the Company’s review

indicates a reduction in usability below carrying value, it reduces its net inventory to its net realizable value.

and Equipment

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

Depreciation is computed utilizing the straight-line method

over the estimated useful life of the asset.

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

or estimated useful life of the asset.

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

and maintenance are expensed as incurred.

Company leases a building and various equipment.

Under ASC 842, Leases (“ASC 842”), at contract inception we determine

whether the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease.

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

Depreciation is computed utilizing the straight-line method over

the estimated useful life of the asset.

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

useful life of the asset.

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

expensed as incurred.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

Company’s obligation to make lease payments arising from the lease.

The determination of the length of lease terms is affected

by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The existence

of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising

an option in a lease.

ROU assets and liabilities are recognized at commencement date and measured as the present value of lease

payments to be made over the lease term.

As the interest rate implicit in the lease is not readily available for most of the Company’s

leases, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments.

The estimated

incremental borrowing rate is derived from information available at the lease commencement date.

The lease ROU asset recognized

at commencement is adjusted for any lease payments related to initial direct costs, prepayments, and lease incentives.

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.

Company leases a building and various equipment.

Under ASC 842, Leases (“ASC 842”), at contract inception we determine whether

the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease.

Operating leases are

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

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

obligation to make lease payments arising from the lease.

The determination of the length of lease terms is affected by options to extend

or terminate the lease when it is reasonably certain that the Company will exercise that option.

The existence of significant economic

incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease.

assets and liabilities are recognized at commencement date and measured as the present value of lease payments to be made over the lease

As the interest rate implicit in the lease is not readily available for most of the Company’s leases, the Company uses its

estimated incremental borrowing rate in determining the present value of lease payments.

The estimated incremental borrowing rate is

derived from information available at the lease commencement date.

The lease ROU asset recognized at commencement is adjusted for any

lease payments related to initial direct costs, prepayments, and lease incentives.

Operating 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, 2025, the Company has right of use assets and lease liabilities of $ 9,515,207 and $ 9,787,505 , respectively.

5 unchanged sentences

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

Goodwill is not amortized

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

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

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

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

If the carrying amount of a reporting unit exceeds the reporting

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

Company performed its annual impairment assessment of goodwill as of December 31, 2024 and concluded that goodwill was not impaired.

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

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

Goodwill is not amortized but instead

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

has determined that it has a single operating and reporting unit, and assesses during its evaluation whether it believes it is more likely

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

reporting unit with its carrying value.

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

amount by which the carrying value exceeds the fair value is recognized as an impairment loss.

The Company performed its annual impairment

assessment of goodwill as of December 31, 2025 and 2024 and concluded that goodwill was not impaired.

The Company assessed goodwill using

qualitative factors to determine whether it was more likely than not that the fair value is less than its carrying value (step 0) and

determined that no further testing was required.

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.

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, 2025 and 2024, the Company determined that long-lived assets were not impaired.

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

Level 1 refers to fair

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

Level 2 refers to fair values estimated using

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

December 31, 2024 and 2023, the fair values of the Company’s current assets and current liabilities approximated their carrying

values because of the short-term nature of these instruments.

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

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

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

Net income per common share is computed by dividing net income

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

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

Diluted income

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

There were 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.

Level 1 refers to fair values

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

Level 2 refers to fair values estimated using significant other

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

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

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for future

tax consequences attributable to the temporary differences between the consolidated financial statements carrying amounts of assets

and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities

are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes

the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely

than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes the effect of an income

tax position only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.

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

treasury stock method in the calculation of earnings per share.

Net income per common share is computed by dividing net income by the

weighted average number of common shares outstanding during the period.

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

Diluted income per common

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

There were 0 and 116,024 incremental shares used in the calculation

of diluted income per common share for the years ended December 31, 2025 and 2024, respectively.

taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for future tax

consequences attributable to the temporary differences between the consolidated financial statements carrying amounts of assets and liabilities

and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using

enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled.

on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all

of the deferred tax assets will not be realized.

The Company recognizes the effect of an income tax position only if, based on its merits,

the position is more likely than not to be sustained on audit by the taxing authorities.

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

1 unchanged sentence

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

Under the provisions of ASC 718,

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

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

Under the provisions of ASC 718, stock-based

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

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

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

1 unchanged sentence

of ownership and generally vest over the requisite service period.

The Company recognizes forfeitures at the time the forfeiture

The Company recognizes forfeitures at the time the forfeiture occurs.

and Development

Customer-funded

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

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

accounted for principally by the over time revenue recognition method.

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

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

Period Reclassification

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

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

meeting certain defined performance or other specifications, such as designs, and such contractual arrangements are accounted for principally

by the over time revenue recognition method.

Customer-funded R&D is included in the “Revenue” and “Cost of sales”

line items in our Consolidated Statements of Operations.

Issued Accounting Standards – Adopted

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.

December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-09,

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure

of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company adopted ASU 2023-09 for the

year ended December 31, 2025, and applied the new disclosure requirements prospectively while disclosures for the year ended December

31, 2024 remain presented on a pre-adoption basis.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Issued Accounting Standards – Not Adopted

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

September 2025, the FASB issued ASU No.

2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”).

This guidance removes all references to

prospective and sequential stages (referred to as “project stages”) throughout ASC 350-40 and clarifies the threshold entities

apply to begin capitalizing costs.

Under ASU 2025-06, cost capitalization should only commence when both management has authorized and

committed to funding a software project and it is probable the project will be completed and the software will be used to perform the

function intended.

ASU 2025-06 is effective for annual reporting periods beginning after December 15, 2027 and interim reporting periods

within those annual reporting periods.

Entities may apply the guidance using a prospective, modified transition or retrospective approach.

Early adoption is permitted as of the beginning of an annual reporting period.

The Company is currently evaluating the preferred transition

approach and assessing the impact of the ASU on our disclosures and financial statements, including the timing of adoption.

July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical

expedient to measure credit losses on accounts receivable and contract assets.

The ASU is effective for annual periods beginning after

December 15, 2025, and interim periods within those annual reporting periods.

Early adoption is permitted.

The Company is currently evaluating

the timing of the adoption and the impact of this ASU on its consolidated financial statements and related disclosures.

January 2025, the FASB issued ASU 2025-01, “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.

Clarifying the Effective Date,” which clarifies that all public business entities should initially adopt the

disclosure requirements in the final annual reporting period beginning after December 15, 2026, and interim reporting periods within

annual reporting periods beginning after December 15, 2027.

The new guidance is effective for fiscal years beginning after December 15,

2026, which is our annual period beginning January 1, 2027, and interim reporting periods beginning after December 15, 2027, which will

be our interim period beginning January 1, 2028.

Early adoption of ASU 2024-03 (described below) is permitted.

We are evaluating the

impact of this standard in conjunction with ASU 2024-03 below.

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

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, which will be our interim period beginning

January 1, 2028.

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.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which focuses

on the rate reconciliation and income taxes paid.

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

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

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

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

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

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

An entity may

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

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

the revised disclosures for all period presented.

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

of operations, cash flows, and financial condition.

We are evaluating the impact of ASU 2025-01 in conjunction with ASU 2024-03.

AEROSTRUCTURES, INC.

4 unchanged sentences

Government subcontracts

Prime government

Prime government contracts

Commercial contracts

Revenue recognized using

over time revenue recognition model

Revenue recognized using over time revenue

recognition model

Revenue recognized using point in time revenue

3 unchanged sentences

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

Due to the nature of the work required to be performed

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

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

As part of this process, management

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

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

The risks and

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

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

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

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

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

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

Due to the nature of the work required to be performed on

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

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

As part of this process, management reviews

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

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

The risks and opportunities

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

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

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

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

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

overhead cost rates, among others.

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

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

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

A significant change in one or more of these

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

Our EAC adjustments also include the establishment

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

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

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

A significant change in one or more of these estimates

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

Our EAC adjustments also include the establishment of,

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

EAC adjustments had the following impact on our gross profit during the years ended December 31, 2025 and 2024 :

Net adjustments

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.

$ ( 10,171,038 )

$ ( 3,750,020 )

unfavorable adjustments during the year ended December 31, 2025 compared to the year ended December 31, 2024 were driven primarily by

an unfavorable adjustment associated with the termination of the Boeing A-10 program, program costs on the NGJ Mid-Band Pod, and T-38

Classic Structural Modification Kits.,

AEROSTRUCTURES, INC.

4 unchanged sentences

$ 91.8 million.

This represents the amount of revenue the Company expects to recognize in the future on contracts with unsatisfied

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

CONTRACT ASSETS

AND LIABILITIES

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

consideration is conditional on something other than the passage of time.

This represents the amount of revenue the Company expects to recognize in the future on contracts with unsatisfied or

partially satisfied performance obligations as of December 31, 2025.

CONTRACT ASSETS AND

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

is conditional on something other than the passage of time.

Amounts may not exceed their net realizable value.

the typical payment terms of our government contracts, the customer retains a portion of the contract price until completion of

the contract, as a measure of protection for the customer.

Our government contracts therefore typically result in revenue recognized

in excess of billings, which we present as contract assets.

Under the typical payment

terms of our government as well as military contractor contracts, the customer retains a portion of the contract price until completion

of the contract, as a measure of protection for the customer.

Our government and military contract or contracts therefore typically result

in revenue recognized in excess of billings, which we present as contract assets.

Contract assets are classified as current assets.

The Company’s

contract liabilities represent customer payments received or due from the customer in excess of revenue recognized.

Contract liabilities

are classified as current liabilities.

Company’s contract liabilities represent customer payments received or due from the customer in excess of revenue recognized.

liabilities are classified as current liabilities.

Schedule of contract assets and liabilities

1 unchanged sentence

Contract liabilities

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

assets at December 31, 2025 increased $ 838,064 from December 31, 2024 due to the timing of billings as compared to the recognition of

revenue during 2025 upon the satisfaction or partial satisfaction of performance obligations.

liabilities decreased $ 802,281 during 2025, primarily due to revenue recognized on these performance obligations in excess of payments

recognized for the year ended December 31, 2025, that was included in the contract liabilities balances as of January 1, 2025 was $ 1,937,639 .

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

was $ 5,635,629 .

Revenue recognized for the year ended December 31, 2023, that was included in the contract liabilities balances

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

ACCOUNTS RECEIVABLE

4 unchanged sentences

Billed receivables

allowance for expected credit losses

allowance for expected

credit losses

Total accounts receivable, net

CPI AEROSTRUCTURES, INC.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

4 unchanged sentences

Finished goods

PROPERTY AND EQUIPMENT

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

( 11,718,618 )

( 11,298,230 )

Total property and equipment, net

1 unchanged sentence

Company acquired WMI on December 20, 2018.

The acquisition was accounted for as a business combination in accordance with ASC

The acquisition was accounted for as a business combination in accordance with ASC Topic 805.

Accordingly, the Company recorded the fair value of the assets and liabilities assumed at the date of acquisition.

As a result of the acquisition 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,

(“BankUnited”) as Sole Arranger, Agent and a Lender, dated as of March 24, 2016 (as amended, the “Credit

Agreement” or the “BankUnited Facility”).

The BankUnited Facility originally provided for a revolving credit

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

The Revolving

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

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

Alliance Bank Loan and Security Agreement

December 12, 2025, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Western

Alliance Bank (the “Bank”).

The Loan and Security Agreement provides for a revolving line of credit in the maximum principal

amount of $ 10,000,000 (the “Revolving Line”) and a term loan in the original principal amount of $ 10,000,000 (the “Term

Loan” and, together with the Revolving Line, the “Credit Facilities”).

WMI and Compac, have guaranteed the Company’s

obligations under the Loan and Security Agreement.

under the Credit Facilities bear interest at a variable rate equal to the 1-month Term Secured Overnight Financing Rate (“SOFR”)

plus an applicable margin as set forth in the Loan and Security Agreement.

During the continuance of an event of default, all outstanding

obligations bear interest at a rate equal to 5 % above the rate otherwise applicable.

SOFR Rate was 3.9 % as of December 31, 2025 and as such, the Company’s interest rate on the Revolving Loan and Term Loan was 6.4 %

as of December 31, 2025.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

the Twelfth Amendment, the parties amended 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, 2023);

(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 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.

Credit Agreement, as amended, requires us to maintain the following financial covenants (subject to the exclusions provided for

in the previous paragraph):

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

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

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

(b) maximum leverage ratio

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

period ended June 30, 2022, 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;

Credit Facilities mature on December 12, 2030.

The Term Loan was funded in full on the closing date and is repayable in scheduled quarterly

installments beginning on April 5, 2026.

Maturities on long term debt are as follows:

under the Revolving Line may be made, repaid and reborrowed from time to time before the maturity date, subject to the other conditions

set forth in the Loan and Security Agreement.

Voluntary prepayments of the Credit Facilities are permitted at any time without premium

or penalty, other than customary breakage amounts, and the Loan and Security Agreement requires mandatory prepayments in certain circumstances.

Loan and Security Agreement requires the Company to pay an unused commitment fee equal to 0.40 % per annum on the unused portion of the

Revolving Line and to pay fees and charges in connection with any letters of credit and any cash management services provided by the

Bank and to reimburse the Bank’s expenses as provided in the Loan and Security Agreement.

Company’s obligations under the Loan and Security Agreement, and the guaranties of WMI and Compac, are secured by a first-priority

security interest in substantially all of the personal property assets of the Company and the guarantors, in each case subject to permitted

liens and customary exclusions as set forth in the Loan and Security Agreement and related security documents.

Loan and Security Agreement contains customary affirmative, negative and financial covenants.

Among other things, these covenants impose

limitations, subject to agreed exceptions, on the ability of the Company and its subsidiaries to incur additional indebtedness, grant

liens, make certain investments, dispose of assets, pay dividends and other restricted payments, enter into certain transactions with

affiliates and effect certain mergers or other fundamental changes.

The Loan and Security Agreement also includes quarterly tested financial

covenants, including a minimum Consolidated Fixed Charge Coverage Ratio of 1.25 to 1.00 and a maximum Funded Leverage Ratio that is initially

3.75 to 1.00 through December 31, 2026 and is reduced to 3.50 to 1.00 from January 1, 2027 onward, in each case as defined in and calculated

under the Loan and Security Agreement.

Loan and Security Agreement includes customary events of default, including payment defaults, covenant defaults, certain cross-defaults,

certain events of bankruptcy or insolvency, certain unsatisfied judgments, certain ERISA events and certain change-of-control events.

If an event of default occurs and is continuing, the Bank may, subject to the terms of the Loan and Security Agreement, declare all or

a portion of the outstanding obligations under the Credit Facilities to be immediately due and payable, terminate the commitments and

exercise other rights and remedies available to it, including with respect to the collateral.

of Amended and Restated Credit Agreement .

to the Loan and Security Agreement, the Company was a party to an Amended and Restated Credit Agreement on March 24, 2016 with the lenders

named therein and BankUnited, N.A.

as Sole Arranger, Agent and a Lender, dated as of March 24, 2016 (as amended, the “BankUnited

The BankUnited Facility originally provided for a revolving credit loan commitment of $ 30 million (the “BankUnited

Revolving Loan”) and a $ 10 million term loan (“BankUnited Term Loan”).

The BankUnited Revolving Loan bore interest

at a rate based upon a pricing grid, as defined in the BankUnited Facility.

BankUnited Facility, as amended, required us to maintain the following financial covenants:

(a) minimum debt service coverage ratio of

no less than 1.5 to 1.0 for trailing four fiscal quarter periods;

(b) maximum leverage ratio of no less than 4.0 to 1.0 for trailing

four fiscal quarter periods;

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”).

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

existing revolving line of credit to August 31, 2025 ;

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

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

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

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

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

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.

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 + 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.

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.

a minimum adjusted EBITDA at the end of each fiscal quarter of no less than $ 1 .0 million.

December 12, 2025, in connection with entering into the Loan and Security Agreement, the Company used a portion of the proceeds of the

Credit Facilities, including the full $ 10 million amount of the Term Loan and borrowings under the Revolving Line in the approximate

principal amount of $ 6,220,722 to repay in full all outstanding obligations under BankUnited Facility.

Upon such repayment, the BankUnited

Facility and the related loan documents were terminated in accordance with their terms, and all liens and security interests securing

the obligations thereunder were released.

The Company did not incur any early termination or prepayment penalties in connection with

the termination of the BankUnited Facility.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

Company anticipates using the remaining availability under the Credit Facilities for working capital and general corporate purposes,

in each case to the extent permitted under the Loan and Security Agreement.

of December 31, 2025 the Company had $ 18,373,672 outstanding under the Loan and Security Agreement;

$ 8,373,672 under the Revolving Line

and $ 10,000,000 under the Term Loan.

Both loans mature December 12, 2030.

As of December 31, 2024, the Company had an aggregate of $ 17,390,000

outstanding under the BankUnited Facility.

Company has cumulatively paid approximately $ 243,220 of total debt issuance costs in connection with the Loan and Security Agreement

of which approximately $ 243,220 is unamortized and $ 121,610 is included in other assets and $ 121,610 is reflected as a reduction of the

Term Loan at December 31, 2025.

in the long-term debt are financing leases and notes payable totaling $ 0 and $ 26,483 at December 31, 2025 and 2024, respectively, including

a current portion of $ 0 and $ 26,483 , respectively.

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

On November 10, 2022, the Company

executed the second amendment to the lease agreement for its manufacturing and office space, which extends the lease agreement’s

expiration date to April 30, 2026 .

The company entered into an

amendment to the lease agreement for its operating facility on April 15, 2025 that extends the term of the lease until April

The lease agreement does not include any renewal options.

The agreement provides for an initial

monthly base amount plus annual escalations through the term of the lease.

In addition to the monthly base amounts in the lease

agreement, the Company is required to pay real estate taxes and operating expenses during the lease terms.

The agreement provides for an initial monthly base amount

plus annual escalations through the term of the lease.

In addition to the monthly base amounts in the lease agreement, the Company

is required to pay real estate taxes and operating expenses during the lease terms.

The result of the lease amendment was an

increase of ROU assets and lease liabilities of $ 8,190,636 .

Company also leases office equipment in agreements classified as operating leases.

2 unchanged sentences

Year ending December 31,

Total undiscounted

operating lease payments

Total undiscounted operating

lease payments

Less imputed interest

( 2,764,330 )

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, 2025 and 2024:

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 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.

Company’s weighted average remaining lease term for its operating leases is 5.5 years as of December 31, 2025.

The Company’s

weighted average discount rate for its operating leases is 9.52 % as of December 31, 2025.

Cash paid for operating leases the year ended

December 31, 2025 and 2024 was $ 2,283,354 and $ 2,228,784 , respectively.

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

ASC 740 is an asset and liability approach that requires the

recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our

consolidated financial statements or tax returns.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized

in the consolidated financial statements.

The interpretation prescribes a recognition threshold and measurement attribute for

the consolidated financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

ASC 740 is an asset and liability approach that requires the recognition

of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our consolidated financial

statements or tax returns.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial

The interpretation prescribes a recognition threshold and measurement attribute for the consolidated financial statements

recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

Company files income tax returns in the U.S.

federal jurisdiction and in various state jurisdictions.

The Company generally is

no longer subject to U.S.

The Company generally is no longer

subject to U.S.

or state examinations by tax authorities for taxable years prior to 2021.

However, net operating losses

utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing

of subsequent years’ tax returns.

The statute of limitations expiration in foreign jurisdictions for corporate tax returns

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

However, net operating losses utilized from

prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’

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

Year ended December 31,

AEROSTRUCTURES, INC.

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TO CONSOLIDATED FINANCIAL STATEMENTS

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

difference between the income tax provision (benefit) computed at the federal statutory rate and the actual tax benefit for 2025 after

the adoption of ASU 2023-09 is as follows:

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:

Dollar Amount

statutory rate

$ ( 366,287 )

State income tax, net *

Research and Development credit

Change in valuation allowance

Nontaxable or Nondeductible Items

Other Reconciling Items

Effective Tax Rate

$ ( 900,861 )

* For the year ended

December 31, 2025, state taxes in Texas and Mississippi made up the majority of the state and local income tax.

reconciliation of the difference between the provision for income taxes and the expected tax provision as presented in 2024 prior to

the adoption of ASU 2023-09 is as follows:

Year ended December 31,

Taxes computed at the federal statutory rate

2 unchanged sentences

Change in valuation allowance

( 13,531,626 )

Permanent differences

Provision (Benefit) for income taxes

$ ( 13,349,414 )

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

accordance with the adoption of ASU 2023-09, below is a summary of income taxes paid, net of refunds received, by jurisdiction for the

year ended December 31, 2025;

New York State

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

Deferred Tax Assets:

Allowance for credit losses

Capitalized R&D

Credit carryforwards

Inventory reserve

Accrued payroll

Loss contracts reserve

Restricted stock

Acquisition costs

Lease liability

4 unchanged sentences

Deferred Tax Liabilities:

Prepaid expenses

Revenue recognition

Property and equipment

Deferred tax liabilities

Net deferred tax assets

of December 31, 2024, the Company had approximately $ 66 .0 million of gross net operating loss carryforwards (“NOLs”)

for federal tax purposes and approximately $ 18 .0 million of post apportionment NOLs for state tax purposes.

The Federal NOLs begin

to expire in 2034.

Losses generated in 2018 and forward of $ 14.4 million have an indefinite life and can offset up to 80 % of taxable

income in the future.

of December 31, 2025, the Company had approximately $ 68,200,000 of gross net operating loss carryforwards (“NOLs”) for federal

tax purposes and approximately $ 18,300,000 of post apportionment NOLs for state tax purposes.

The Federal NOLs begin to expire in 2034.

Losses generated in 2018 and forward of $ 16,700,000 have an indefinite life and can offset up to 80 % of taxable income in the future.

Federal NOLs generated prior to 2018 can offset 100 % of future taxable income.

The state NOLs begin to expire

The state NOLs begin to expire in 2034 .

reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance of gross unrecognized tax benefits as of beginning of year

Changes to unrecognized tax benefits for prior years

Changes to unrecognized tax benefits for current year

Balance of gross unrecognized tax benefits as of end of year

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.

Company classifies interest relating to tax matters and tax penalties as a component of income tax expense in its Consolidated Statements

of Operations.

As of December 31, 2025, there were $ 130,000 of unrecognized tax benefits that, if recognized, $ 103,000 would affect the

effective tax rate.

Related to the unrecognized tax benefits, the Company accrued interest and penalties of $ 13,000 and $ 0 , respectively,

during the years ended December 31, 2025 and 2024.

AEROSTRUCTURES, INC.

1 unchanged sentence

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

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

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.

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.

As of December 31, 2025, the Company reported three years of cumulative

book 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 be realized.

As such, $ 292,183 of the valuation allowance

has been released, leaving an ending valuation allowance balance of $ 681,184 against federal R&D credits and state NOLs.

ACCRUED EXPENSES

expenses consists of the following:

3 unchanged sentences

Accrued interest

Accrued professional fees and other accrued

Accrued professional fees and other accrued expenses

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.

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,

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.

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.

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 221,596 shares available for grant under the 2016 Plan as of December 31, 2025.

June 24, 2025, the shareholders of the Company approved the 2025 Long-Term Incentive Plan (the “2025 Plan”) at the Company’s

2025 annual meeting of shareholders.

The 2025 Plan had previously been approved by the Company’s Board of Directors (the “Board”)

on April 28, 2025, upon the recommendation of the Company’s Compensation and Human Resources Committee, subject to shareholder

The 2025 Plan is intended to advance the Company’s interests by providing equity-based incentives to attract, retain,

and motivate employees, officers, directors, and consultants.

The plan authorizes the issuance of up to 800,000 shares of the

Company’s common stock and allows for a variety of award types, including stock options, stock appreciation rights, restricted

stock, restricted stock units, performance shares, and other stock-based awards.

The 2025 Plan is administered by the Company’s

Compensation and Human Resources Committee, which has broad authority to determine the terms of individual awards, including eligibility,

size, vesting conditions, performance criteria, and other terms.

Awards may generally not be transferred and are subject to forfeiture

under certain conditions.

The Company had 622,024 shares

available for grant under the 2025 Plan as of December 31, 2025.

AEROSTRUCTURES, INC.

6 unchanged sentences

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

These RSUs vest

For 2025, these RSUs vest

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

11 unchanged sentences

Non-vested – December 31, 2025

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

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

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

income during the performance period.

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

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

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

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

The PRSAs granted under this program will vest

on the fourth anniversary of the grant date, subject to the aforementioned performance criteria.

At December 31, 2025, the weighted average

remaining amortization period was 1.9 years.

following table summarizes activity related to outstanding PRSAs for the year ended December 31, 2025:

Weighted Average

Non-vested – January 1, 2025

1 unchanged sentence

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

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

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

of December 31, 2025, unamortized stock-based compensation costs related to restricted share arrangements was $ 184,689 .

addition, our income tax liabilities for 2024 and 2023 were reduced by $ 138,296 and $ 174,617 , respectively, due to recognized

tax benefits on stock-based compensation arrangements.

EMPLOYEE BENEFIT

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

Internal Revenue Code (the “Code”).

On October 1, 1998, the Company amended and standardized its plan as required

Pursuant to the amended plan, qualified employees may contribute a percentage of their pretax eligible compensation

to the Plan and the Company will match a percentage of each employee’s contribution.

Additionally, the Company has a profit-sharing

plan covering all eligible employees.

addition, our income tax liabilities for 2025 and 2024 were reduced by $ 181,487 and $ 138,296 , respectively, due to recognized tax

benefits on stock-based compensation arrangements.

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

Revenue Code (the “Code”).

On October 1, 1998, the Company amended and standardized its plan as required by the Code.

to the amended plan, qualified employees may contribute a percentage of their pretax eligible compensation to the Plan and the Company

will match a percentage of each employee’s contribution.

Additionally, the Company has a profit-sharing plan covering all eligible

Contributions by the Company are at the discretion of management.

The amount of contributions

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

The amount of contributions recorded by the Company during

the years ended December 31, 2025 and 2024 amounted to $ 302,912 and $ 305,934 , respectively.

the year ended December 31, 2025, 38 %, 20 %, 11 %, and 11 % of our revenue was generated from our four largest customers.

For the year ended

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

December 31, 2025, 53 %, 17 %, and 12 % of accounts receivable were due from our three largest customers.

At December 31, 2024, 21 %, 18 %,

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

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

in the ordinary course of its business.

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

and the amount of the loss can be reasonably estimated.

The Company reviews these accruals at least quarterly and adjusts them

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

To the extent

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

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

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

accruals have not been made.

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

of Shareholder Derivative Actions

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

and certain of our current and former officers.

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

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

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

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

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

first action (captioned Moulton v.

McCrosson, et.al.

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

District Court

for the Eastern District of New York.

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

of Section 10(b) and 21D of the Exchange Act, breach of fiduciary duty, and unjust enrichment and sought to recover on behalf

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

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

second action (captioned Woodyard v.

McCrosson, et al.

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

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

It purported to assert derivative claims against the individual defendants

for breach of fiduciary duty and unjust enrichment and sought to recover on behalf of the Company for any liability the Company

might incur as a result of the individual defendants’ alleged misconduct, along with declaratory, equitable, injunctive,

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

third action (captioned Berger v.

McCrosson, et al.

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

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.

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

an agreement in principle with all plaintiffs to settle the shareholder derivative lawsuits described above.

On June 16, 2022,

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

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

On March 6, 2023, the Court granted

preliminary approval of the proposed settlement.

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

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

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

Court grant the final approval motion in its entirety.

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

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

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

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

The parties to the Woodyard

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

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

an order dismissing the action on December 18, 2023.

16 %, 12 %, 12 %, and 12 % of accounts receivable were due from our six largest customers.

December 31, 2025, 27 %, 21 %, 19 %, and 17 % of our contract assets were related to our four largest customers.

At December 31, 2024, 31 %,

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

December 31, 2025, no vendors accounted for more than 10% of accounts payable.

At December 31, 2024, 13 %, 12 %, 11 % and 11 % of our accounts

payable was from our top 4 largest vendors.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Because the settlement amount was transferred to counsel

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

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

of Class Action Lawsuit

consolidated class action lawsuit (captioned Rodriguez v.

CPI Aerostructures, Inc., et al.

20-cv-01026) was filed

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

Douglas McCrosson, the Company’s former

Chief Executive Officer;

Vincent Palazzolo, the Company’s former Chief Financial Officer;

and the two underwriters of the

Company’s October 16, 2018 offering of common stock, Canaccord Genuity LLC and B.

The Amended Complaint in the

action asserted claims on behalf of two plaintiff classes:

(i) purchasers of the Company’s common stock issued pursuant

to and/or traceable to the Company’s offering conducted on or about October 16, 2018;

and (ii) purchasers of the Company’s

common stock between March 22, 2018 and February 14, 2020.

The Amended Complaint alleged that the defendants violated Sections

11, 12(a)(2), and 15 of the Securities Act by negligently permitting false and misleading statements to be included in the registration

statement and prospectus supplements issued in connection with its October 16, 2018 securities offering.

The Amended Complaint

also alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), and Rule 10b-5 promulgated by the SEC, by making false and misleading statements in the Company’s periodic

reports filed between March 22, 2018 and February 14, 2020.

Plaintiff sought unspecified compensatory damages, including interest;

rescission or a rescissory measure of damages;

unspecified equitable or injunctive relief;

and costs and expenses, including attorney’s

fees and expert fees.

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

Plaintiff submitted a brief in

opposition to the motion to dismiss on April 23, 2021.

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

On July 9, 2021, Plaintiff

filed an unopposed motion for preliminary approval of the settlement.

On November 10, 2021, a magistrate judge recommended that

the court grant the motion for preliminary approval in its entirety.

The Court adopted the recommendation on May 27, 2022, and

entered an order granting preliminary approval of the settlement on June 7, 2022.

On August 5, 2022, the Plaintiff filed an unopposed

motion for final approval.

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

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

The Court adopted that

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

On May 5, 2023, the Settlement Amount

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

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

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

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

As of December 31, 2023, we had previously

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

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

action suit at $ 750,000 .

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

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

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

COMMITMENTS AND CONTINGENCIES

On May 7, 2025, the Company submitted to The Boeing Company a Request for

Equitable Pricing Adjustment on the Boeing A-10 program addressing higher manufacturing costs on its 2019 firm fixed price contract.

Subsequently,

on July 14, 2025, the Company received a Termination Notice from The Boeing Company with respect to the Boeing A-10 program directing

the Company to scrap and return materials and tooling to the Air Force prior to August 15, 2025 when funding would no longer be available,

as well as a claim for damages incurred by Boeing as a result of the alleged contract default.

The Company continues to have correspondence

with the Boeing Company over the termination of the Boeing A10 program.

In light of these events, and in conjunction with the Air Force’s

decision to accelerate the retirement of the Boeing A-10 fleet, the Company evaluated the situation and recognized an adjustment to its

contract revenues and costs to address the contract termination during the quarter ended June 30, 2025.

The Company will continue to evaluate

the customers claim and will recognize any contingent losses, if required, in the period in which additional losses become both probable,

and reasonably estimable.

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

the ordinary course of its business.

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

of the loss can be reasonably estimated.

The Company reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations,

settlements, rulings, advice of legal counsel, and other relevant information.

To the extent new information is obtained and the Company’s

views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company’s

accrued liabilities would be recorded in the period such determination is made.

For some matters, the amount of liability is not probable

or the amount cannot be reasonably estimated and, therefore, accruals have not been made.

Segment reporting

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.

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

to be signed on its behalf by the undersigned, thereunto duly authorized.

AEROSTRUCTURES, INC.

Philip Passarello

Financial Officer

financial and accounting officer)

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

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

Chairman of the

Board of Directors

March 31, 2025

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, 2025 and 2024.

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

on its behalf by the undersigned, thereunto duly authorized.

CPI AEROSTRUCTURES,

Hakim Chief Executive Officer and President

Executive Officer)

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated:

Chairman of the Board of

Richard Caswell

March 31, 2025

Richard Caswell

March 31, 2025

Michael Faber

Chief Executive

Officer and President

March 31, 2025

(Principal Executive

March 31, 2025

Chief Executive Officer

and President

(Principal Executive Officer)

/s/ Pamela Levesque

Pamela Levesque

Philip Passarello

Chief Financial

March 31, 2025

Philip Passarello

(Principal Financial

and Accounting Officer)

Robert Mannix

Chief Financial Officer

Robert Mannix

Financial Officer and

Accounting Officer)

Rick Rosenjack

March 31, 2025

Rick Rosenjack

Terry Stinson

Vice Chairman

of the Board of Directors

March 31, 2025

Vice Chairman of

the Board of Directors

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