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Item 9A. Controls and Procedures

2026-04-07 compared with 2021-11-24 · 1085 added, 3356 removed, 177 unchanged (96% of the section changed)

AND PROCEDURES

Evaluation of Disclosure Controls and

Our management evaluated the effectiveness

of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31,

Based on this evaluation of our disclosure controls and procedures, management has concluded that our disclosure controls

and procedures were not effective due to the material weaknesses described below which resulted in reporting errors requiring the

restatements of our financial statements described in this Comprehensive Form 10-K for the years ended December 31, 2020 and December

31, 2019 and for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020.

Management’s Annual Report on

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; and

● 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 not effective at the reasonable assurance

level as of December 31, 2020 and December 31, 2019 because of the material weakness described below.

A material weakness

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

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

prevented or detected on a timely basis.

In connection

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

has identified the deficiencies described below that constitute a material weakness in our internal control over financial reporting

as of December 31, 2020 and December 31, 2019.

One of these deficiencies led to material errors

in our previously issued consolidated financial statements, which in turn led to the restatement of those previously issued consolidated

financial statements, as described in Part II, Item 8, Note 17 “Restatement of Previously Issued Consolidated Financial Statements”

in the notes to the consolidated financial statements included in this Comprehensive Form 10-K/A.

Environment, Risk Assessment, Control Activities and Monitoring

We did not maintain

effective internal control over financial reporting related to control environment, risk assessment, control activities and monitoring:

● There were insufficiently documented Company accounting policies

and insufficiently detailed Company procedures to put policies into effective action.

● The design and implementation of internal controls related to cut-off

procedures were not sufficient to ensure proper accounting for in-transit items.

● The design and implementation of internal controls related to monitoring

and review of inventory costing were not sufficient to ensure proper valuation of appropriately stated inventory costs.

● The design and implementation of internal controls related to the establishment, and monitoring and

review, of loss contract and excess and obsolete reserves were not sufficient to ensure proper accounting for the associated

● The information technology general controls associated with proper change

management were not sufficient to ensure the accuracy and adequacy of the resulting changes.

● The design and implementation of internal controls related to

preparation and review of financial statements and the related disclosures were not sufficient to ensure the completeness and

accuracy of those financial statements and required disclosures.

Accounting for Inventory and related

IT environment

During the first quarter of 2021, we identified

material weaknesses from the month end closing process and INFORXA module used by the Company to maintain the perpetual inventory

The following issues were identified which led to the need to restate the financial results for the twelve months ended

December 31, 2020 and December 31, 2019, and the financial results for the three months ended March 31, 2020, June 30, 2020 and

September 30, 2020:

● Double Labor and Overhead:

The Company’s

perpetual inventory system did not work as intended to ensure the correct amount of labor incurred is accounted for in inventory,

and it did not include any control or reporting to detect that a reversing transaction in the coding was not occurring, which

resulted in duplicate labor applied to inventory.

The Company did not have a control in place to adequately review and approve

the reasonableness of the entries posted to the general ledger to record differences in cost of goods sold for the differences

between general ledger inventory and the perpetual inventory system’s balances.

● Unit of measure:

As part of the first quarter

2021 closing process, we identified that that the perpetual inventory included some unit of measure errors which were not detected

and corrected within the 2020 general ledger.

Units of Measure (“UM”) were not consistent between quantities ordered

and quantities received for certain classes of purchased parts.

This resulted in overstatements of inventory values due to UM’s

not being consistent with unit prices on purchase orders to suppliers.

Errors occurred when the need for corrections to unit costs

went undetected until a subsequent quarter as a result of (a) only having a detective control in place to scan for apparent UM

issues that stand out when our accounting department reviews the month-end perpetual inventory reports, and (b) not having a comprehensive

enough list of the commodity codes in the UM conversion tables within the perpetual inventory system.

● Average Cost:

The pre-implementation testing that

was performed in the test environment on an INFORXA Software Patch that was written and went live into the system in July 2020

did not detect that the system as patched would erroneously omit the reset of one field used by the system in calculating the

average cost per unit correctly, thus causing the live system as patched to perform incorrect average cost calculations on some

● Inventory Accrual:

The monthly journal entry log used

to manage the month end close process did not contain the requirement to determine and post a month end QC01 (inventory received

in-house awaiting quality inspection) inventory accrual.

An automated accrual for goods received, not yet in inventory does not

occur until after the parts have passed QC.

Until the parts pass QC, they are in the warehouse location “QC01”.

the Company needs to record an accrual to increase its purchases of inventory for those goods in QC01 at each balance sheet date

since there is no automated accrual performed by the perpetual inventory system.

● Deferral of Under-Absorbed Overhead in the Balance

The monthly journal entry log used to manage the month end close process did not contain the requirement to determine

and post a full absorption adjustment (under/over absorbed overhead deferral into inventory).

As such, the company did not have

a process to record over or under absorbed overhead at the end of each quarter.

● Loss Contract Reserve for Contracts where Revenue

and Costs are Recognized on a Point-in-Time Basis (“Non-POC Contracts”):

There was no evaluation of Non-POC Contracts

to determine if a loss reserve should be established and maintained for Non-POC Contracts which management has reason to believe

may result in losses.

● Excess and Obsolete Inventory Reserve:

no process for evaluating and recording reserves against inventory for excess and obsolete inventory.

efforts underway for the 2020 and First Quarter 2021 Material Weaknesses

During 2021, we

have begun to implement new controls designed to remediate the 2020 material weaknesses described above under Control Environment,

Risk Assessment, Control Activities and Monitoring and Accounting for Inventory & related IT environment ,

● The recruitment and hiring of a new Chief Financial Officer

● The recruitment and hiring of a new Controller

● Newly designed month-end accruals for in-transit inventory

● Diagnosis, design, testing and implementation of software changes to our perpetual inventory system

to correct the Inventory Costing Errors

● The implementation of new operating procedures related to inventory management and costing

● The implementation of new accounting procedures related to ensure sufficient reserves are established

and maintained for::

o any anticipated contract losses

o any reductions in the market values of inventory below cost

o any excess or obsolete inventory

Notwithstanding the conclusion by our management

that our controls and procedures as of December 31, 2020 and December 31, 2019 were not effective, and notwithstanding the material

weaknesses in our internal control over financial reporting described above, management believes that the consolidated financial

statements and related financial information included in this Comprehensive Form 10-K/A 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.

Remediation of Previously Reported 2019

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.

In connection

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

has concluded that the material weaknesses reported in its Annual Report on Form 10-K for the period ended December 31, 2019 had

been remediated and that internal controls put in place to prevent future occurrences of these material weaknesses were effective

as of December 31, 2020.

During the course of 2020, we have implemented

measures to remediate the underlying causes that gave rise to the previously disclosed material weaknesses and material errors.

These measures include the Welding Metallurgy operations as they were incorporated into CPI Aero’s operations as of December

As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional

measures to further the overall objective to design and operate internal controls that mitigate identified risks and enable an

effective system of internal control over external financial reporting.

CPI Aero is a non-accelerated filer for

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

reporting in the Annual Report on Form 10-K and Comprehensive Form 10-K/A filed in 2021 for 2020.

Accordingly, based upon its internal

testing which is performed by a national public accounting and advisory firm, management believes that as of December 31, 2020,

it has successfully remediated the internal control weaknesses which gave rise to the material errors in our prior financial statements.

● Revenue Recognition Accounting:

During 2020, Management, with

advice from a leading global accounting and advisory firm, reviewed and updated its revenue recognition policies to be compliant

with ASC Topic 606.

In addition, the Company has updated its procedures and implemented new controls to remediate the identified

weakness and to prevent the material error which occurred in prior periods with regards to revenue recognition wherein revenue

and associated estimated margins were not constrained to firm orders received.

Current procedures and controls now reconcile EAC

revenue with firm funded purchase orders received from customers, which constrains revenue to firm funded orders as required by

ASC Topic 606.

Standardized templates have been developed to assist the evaluation process, based upon the overall updated policies

and procedures including daily decision guidelines.

Testing has shown that the previously identified Revenue Recognition material

weakness has been remediated.

● Accounting for Significant Non-Routine Complex Transactions:

The Company has established a

policy with regards to accounting for significant, non-routine, complex transactions which states that prior to any future requirement

for accounting for significant, non-routine, complex transactions, the Company will engage experienced professionals and outline

and execute a set of controls unique to each transaction to ensure that the non-routine complex transaction is recorded in a proper

In 2020 there were no non-routine complex transactions but the Company believes the controls and procedures implemented

will allow for proper identification and accounting for those transaction.

● Information Technology General Controls (ITGC):

For years subsequent to 2019,

the Company has implemented an improved 404 compliant ITGC testing program.

The Company has identified relevant ITGCs for key financial

systems relating to Change Management, Logical Security, Physical Security, and Computer Operations.

We have engaged a national

public accounting and advisory firm to test the design, implementation and operating effectiveness of the controls.

Changes in Internal Control Over Financial

the remediation efforts underway as referred to above, and the First Quarter 2021 Material Weaknesses referred to above,

There were no changes in our internal control over financial reporting during the quarter ended December

31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

other than as described above.

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

1 unchanged sentence

JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the name,

age, and position of each of the Company’s named executive officers and members of the board of directors:

& Board Committees

Vice Chairman of the board of directors

Compensation & Human Resources Committee (Chair),

Nominating & Corporate Governance Committee, Strategic Planning Committee, Oversight Committee (Chair)

Audit & Finance Committee (Chair)

Chief Financial Officer and Secretary

Michael Faber

Audit & Finance Committee, Nominating & Corporate

Governance Committee (Chair)

Kenneth Hauser

Senior Vice President of Operations

Douglas McCrosson

Chief Executive Officer, President, and Director Strategic Planning Committee

Walter Paulick

Audit & Finance Committee, Nominating & Corporate

Governance Committee, Oversight Committee

Thomas Powers

Former Acting Chief Financial Officer and Secretary*

Eric Rosenfeld

Compensation & Human Resources Committee, Nominating

& Corporate Governance Committee, Strategic Planning Committee (Chair)

Terry Stinson

Chairman of the board of directors

Compensation & Human Resources Committee, Strategic

Planning Committee

Powers served as our Acting Chief Financial Officer and Secretary from February 12, 2020 to

October 22, 2021.

Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February

10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019.

Certain individual experiences, qualifications,

and skills of our directors that contribute to the board of directors’ effectiveness as a whole are described in the biographies

set forth below.

Bond is the Non-Executive

Vice Chairman of the board of directors, a position which he has held since August 2020.

Bond has been a director since December

2016, chair of our Compensation & Human Resources Committee since June 2019, and chair of the Oversight Committee since March

Bond’s career as a corporate executive in the aviation industry has spanned over 30 years, where he has held successful

leadership roles in several areas such as aircraft development and production, sales, service, and profit and loss ownership.

Bond spent 10 years at Sikorsky Aircraft Corporation, a corporation specializing in designing, manufacturing and servicing helicopters,

as Vice President, Corporate Strategy, Chief Marketing Officer, and President, Commercial Systems and Services.

Bond currently

serves on the board of directors of TECT Aerospace, NWI Aerostructures and NWI Precision, business units of TECT Corporation, a

conglomerate of privately held aerospace companies.

Bond has also served on the board of directors of domestic and international

companies, namely Shanghai Sikorsky Aircraft Company Limited, New Eclipse Aerospace, and PZL Mielec Aircraft Company.

holds a Masters of Business Administration from Texas Christian University.

Bond brings to our board of directors a seasoned

expertise in the aerospace industry, an internationally-minded approach to business development, and general business acumen.

Caswell has been a director

since November 2020.

Caswell served as a senior advisor of Bombardier Inc.

from 2015-2020.

From 1993-2015, Mr.

Caswell served

in several senior finance roles at United Technologies Corporation (now Raytheon Technologies Corporation, NYSE:

RTX), including

as Chief Financial Officer and Vice President, Finance of the Power, Controls & Sensing Systems segment of United Technologies

Aerospace Services, as Chief Financial Officer and Vice President, Finance of Sikorsky Aircraft, and as Chief Financial Officer

of Pratt & Whitney Canada.

Previously, from 1983-1993, Mr.

Caswell worked at Price Waterhouse (now PricewaterhouseCoopers),

where he was a certified public accountant and where he held positions of increasing responsibility from staff auditor to senior

audit manager.

Caswell received a B.A.

in economics from Alfred University and an M.S.

in accounting from Syracuse University.

Caswell brings to our board of directors a substantial financial background and extensive experience in financial planning,

mergers and acquisitions, U.S.

government contracting, tax and accounting matters.

Davis was appointed as

our Chief Financial Officer and Secretary in October 2021.

Davis has been employed by the Company since May 2021.

Davis served as chief financial officer of Altice Technical Services, a division of Altice USA, Inc.

one of the largest broadband communications and video services providers in the United States.

From 2007 to 2017, Mr.

at Emerson Radio Corporation, an NYSE-listed distributor of consumer electronics, first as vice president of finance and corporate

controller and then as executive vice president and chief financial officer, a position he held for more than six years.

holds a Master of Business Administration degree from University of Connecticut in finance and a Bachelor of Business Administration

degree in accounting from Iowa State University.

Michael Faber has been a director

since August 2013 and chair of our Nominating & Corporate Governance Committee since June 2014.

Since 1996, Mr.

Faber has served

as Chief Executive Officer of NextPoint Management Company, Inc., an investment and strategic advisory firm, advising family offices

on a variety of issues, including asset manager selection and oversight, direct investing, and trust and estates.

Additionally,

Faber currently serves as a lead director of Invesque, Inc., a director of Capitalworks Emerging Markets Acquisition Corp.,

as a senior advisor to a family office with more than $2 billion in assets and as a director or senior advisor to a number of private

companies and asset management firms.

From 1990 to 2008, Mr.

Faber was a General Partner of the NextPoint and Walnut family of

investment funds, focusing on private equity, venture capital, and structured investments.

Previously, Mr.

Faber was a senior advisor

to the law firm of Akerman, of counsel to the law firm of Mintz Levin, an attorney with the law firm of Arnold & Porter, and

a senior consultant to The Research Council of Washington, the predecessor to The Corporate Executive Board Company.

has served on audit and compensation committees for a number of companies.

Faber is an honors graduate and John M.

of the University of Chicago Law School and attended the Johns Hopkins University School of International Studies and the State

University of New York.

Faber brings to our board of directors his legal and financial expertise as well as his years of investment

and general business experience.

Kenneth Hauser has been our Senior

Vice President of Operations since 2020.

Prior to that he was Vice President of Global Supply Chain Management since 2013.

to that, he held the position of Director, Global Supply Chain Management for which he was hired in 2011.

Prior to joining CPI

Hauser had a 30-year career at Northrop Grumman where he held various management positions for Manufacturing/Operations

and Global Supply Chain.

Hauser’s last position with Northrop Grumman was as the E-2D Global Supply Chain Program Manager,

where he had responsibility for cost, quality and schedule performance of all procured parts and major aircraft structures.

Hauser holds a Bachelor of Technology in Management of Technology from State University of New York at Farmingdale and a Master

of Science in Management of Technology from Polytechnic University.

Douglas McCrosson has been our Chief

Executive Officer, President and a director since March 2014.

McCrosson joined the Company in 2003 as Director of Business

During his tenure, he has held positions of increasing responsibility, including Vice President of Business Development

and Senior Vice President of Operations, where he headed CPI’s business development, engineering, procurement and manufacturing

Subsequently, he was promoted to the position of Chief Operating Officer in January 2010 before becoming President

and Chief Executive Officer.

He has 35 years of aerospace experience, having started his career as a mechanical engineer at Grumman

Corporation, now Northrop Grumman.

McCrosson holds a Bachelor of Science degree in mechanical engineering from the State University

of New York at Buffalo and a Master of Science degree in Management from the New York University Polytechnic School of Engineering.

He has served as a member of the Board of Governors of the Aerospace Industries Association, a trade association representing major

aerospace and defense manufacturers and suppliers in the United States.

He is a member of the board of directors of the Long Island

Association, the leading business association in the Long Island region and he serves the local community as a Director of United

Way of Long Island.

McCrosson provides our board of directors with unique knowledge of the Company’s business, operations

and management and his other extensive experience in the Company’s industry.

Walter Paulick has been a director

since April 1992.

He served as the chair of our Nominating & Corporate Governance Committee from March 2004 until June 2015

and as chair of our Audit Committee from June 2006 until April 2007.

Paulick is a self-employed real estate development consultant.

From 1982 to November 1992, Mr.

Paulick was a vice president of Parr Development Company, Inc., a real estate development company.

From 1974 to 1982, Mr.

Paulick was a vice president of National Westminster U.S.A.

Paulick holds an Associate degree in Applied

Science from Suffolk Community College and a Bachelor of Business Administration from Dowling College.

Paulick’s background

in banking and real estate development, and his general business knowledge provides our board of directors with a diverse perspective

on the Company’s industry and business in our region.

Thomas Powers served as our Acting

Chief Financial Officer and Secretary from February 2020 to October 2021.

Powers has been employed by the Company since January

2019, serving as Director of Financial Planning and Analysis until February 2020.

Prior to joining the Company, Mr.

Powers worked

for Triumph Group, a multi-billion dollar publicly owned aerospace manufacturer, where he last served as Vice President of Financial

Planning and Analysis.

At Triumph, he previously held positions of Group Controller, Division Controller and served as Interim

Chief Financial Officer.

Rosenfeld is the Chairman

Emeritus of our board of directors.

Rosenfeld served as the non-executive chairman of our board of directors from January 2005

until November 2018.

He has also served as chair of our Strategic Planning Committee since April 2003.

Rosenfeld has been the

President and Chief Executive Officer of Crescendo Partners, L.P., a New York based investment firm, since its formation in November

Prior to forming Crescendo Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company,

Oppenheimer & Co., Inc., for 14 years.

Rosenfeld is the Chief SPAC Officer of Legato Merger Corp., a special purpose acquisition

company formed in June 2020.

Rosenfeld currently serves as a director for several companies, including Primo Water Corporation

(formerly Cott) (NYSE:

PRMW), a leading water service company, Pangea Logistics Solutions Ltd.

PANL) (and Quartet Merger

prior to its merger with Pangea Logistics Solutions Ltd., for which he also served as Chief Executive Officer), a maritime

logistics and shipping company, and Aecon Group, Inc.

ARE), a construction company, and Algoma Steel, Inc., a fully integrated

producer of hot and cold rolled steel products.

Rosenfeld previously served on the board of directors of several companies,

including Canaccord Genuity (TSE:

CF), a financial services company, Absolute Software Corporation (TSE:

ABT), a provider of security

and management for computers and ultra-portable devices, NextDecade LLC (Nasdaq:

NEXT) (and Harmony Merger Corp.

prior to its merger

with NextDecade LLC, for which he also served as Chief Executive Officer), a natural gas company, SAExploration Holdings Inc.

SAEX) (and Trio Merger Corp.

prior to its merger with SAEX, for which he also served as Chief Executive Officer), a geophysical

services company, Primoris Services Corporation (Nasdaq:

PRIM) (and Rhapsody Acquisition Corporation prior to its merger with PRIM,

for which he also served as Chief Executive Officer), a holding company for specialty contractor and infrastructure businesses,

DALSA Corp., a digital imaging and semiconductor manufacturer, and Hill International Inc.

HIL) (and Arpeggio Acquisition

prior to its merger with HIL, for which he also served as Chief Executive Officer), a construction project management firm.

Rosenfeld has also served as the Chief SPAC Officer of Legato Merger Corp, a blank check corporation that later merged with

Algoma Steel, Inc.

He was also the Chief Executive Officer of Allegro Merger Corp., a blank check company previously listed on

Rosenfeld is a regular guest lecturer at Columbia Business School and has served on numerous panels at Queen’s

University Business Law School Symposia, McGill Law School, the World Presidents’ Organization and the Value Investing Congress.

He is a senior faculty member at the Director’s College.

He has also been a guest host on CNBC.

Rosenfeld received an

in economics from Brown University and an M.B.A.

from the Harvard Business School.

Rosenfeld provides our board of directors

with expertise in finance and financial markets and with experience derived from his service on the boards of other public and

private companies.

Terry Stinson is the Non-Executive

Chairman of the Board, a position which he has held since November 2018.

Stinson was the chair of the compensation committee

of the board from June 2014 until June 2018 and has been a director since June 2014.

Stinson is Chief Executive Officer of

his own consulting practice, Stinson Consulting, LLC, a position he has held since 2001.

Stinson Consulting is engaged in strategic

alliances and marketing for the aerospace industry.

From January 2013 until May 31, 2014, he served as Executive Vice President

of AAR CORP., an international, publicly traded aerospace manufacturing and services company.

Stinson currently serves as an

independent consultant to AAR CORP.

From August 2007 until January 2013, Mr.

Stinson served as Group Vice President of AAR CORP.

From 2002 to 2005, Mr.

Stinson served as Chief Executive Officer of Xelus, Inc., a collaborative enterprise service management

solution company.

From 1998 to 2001, Mr.

Stinson was Chairman and Chief Executive Officer of Bell Helicopter Textron Inc., the

world’s leading manufacturer of vertical lift aircraft, and served as President from 1996 to 1998.

From 1991 to 1996, Mr.

Stinson served as Group Vice President and Segment President of Textron Aerospace Systems and Components for Textron Inc.

1986 to 1996, he was President of the Hamilton Standard division of United Technologies Corporation, a defense supply company.

Stinson previously served as a director of Lennox International Inc., a company engaged in the design and manufacture of heating,

ventilation, air conditioning, and refrigeration products, serving on such company’s Board Governance, Compensation, and

Human Resources Committees.

Stinson previously served as a director of Triumph Group, Inc., a company engaged in the manufacturing

and repair of aircraft components, subassemblies, and systems, from September 2003 to March 2008.

As a former senior executive

of two Fortune 500 companies, Mr.

Stinson contributes to our board of directors his extensive management and marketing experience

in the aerospace industry, as well as his general business acumen and experience developed by serving on other public company boards.

Family Relationships

There are no family relationships among

any of the Company’s directors or Named Executive Officers.

Independence of Directors/Audit Committee Financial Expert

Our common stock is listed on the NYSE

American LLC exchange (“NYSE American”), a stock exchange affiliated with the New York Stock Exchange.

we follow the rules of the NYSE American exchange in determining whether a director is independent.

The NYSE American exchange

listing standards define an “independent director” generally as a person, other than an officer or employee of the

Company, who does not have a relationship with the Company that would interfere with the director’s exercise of independent

Our board of directors consults with our legal counsel to ensure that our board of directors’ determinations are

consistent with NYSE American exchange rules and all relevant securities and other laws and regulations regarding the independence

of directors.

Consistent with these considerations, the Nominating & Corporate Governance Committee determined on April 26,

2021 that Carey Bond, Richard Caswell, Michael Faber, Walter Paulick, Eric Rosenfeld, and Terry Stinson will be independent directors

of the Company for the ensuing year.

The remaining director, Douglas McCrosson, is not independent because he is currently employed

All members of our Audit & Finance, Compensation & Human Resources, and Nominating & Corporate Governance Committees

are independent.

Our board of directors has determined that each of Messrs.

Caswell and Faber, members of our Audit & Finance

Committee, meet the criteria of an “Audit Committee Financial Expert” under applicable SEC rules.

Code of Ethics

Our board of directors has adopted a written

code of ethics which applies to our directors, officers, and employees, and which is designed to deter wrongdoing and to promote

ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports that we file or submit to the SEC and others,

compliance with applicable government laws, rules, and regulations, prompt internal reporting of violations of the code, and accountability

for adherence to the code.

A copy of the code of ethics may be found on our website at www.cpiaero.com/board.html .

Leadership Structure

Our board of directors has determined to

keep separate the positions of board chairman and principal executive officer at this time.

This permits our principal executive

officer to concentrate his efforts primarily on managing the Company’s business operations and development.

This also allows

us to maintain an independent chairman of the board who oversees, among other things, communications and relations between our

board of directors and senior management, consideration by our board of directors of the Company’s strategies and policies,

and the evaluation of our principal executive officers by our board of directors.

Changes to Shareholder Director Nomination Procedures

There have been no material changes to

the procedures by which shareholders may recommend director nominees to our Board.

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

Compensation Objectives

Our executive compensation program is designed

to attract, retain, and motivate highly qualified executive officers in the competitive aerospace and defense industry.

Additionally,

a substantial portion of total compensation of our Named Executive Officers is variable and delivers rewards based on Company and

individual performance.

Company performance is measured against metrics established by the Compensation & Human Resources Committee

Such metrics typically focus on the achievement of financial targets such as revenue and free cash flow, to align our

executives’ pay with the Company’s financial results and the creation of shareholder value.

Individual performance

is measured against each individual’s contributions to the Company’s overall success.

As in prior years, the Compensation

& Human Resources Committee continued to engage the services of Talent & Rewards LLC, an independent compensation consulting

firm in 2020 to provide advice and guidance in evaluating and adjusting the compensation of our Named Executive Officers.

There are three major components to our

compensation program for our Named Executive Officers:

● Base Salary - fixed compensation, designed to recognize responsibilities, experience, and performance.

● Short-Term Cash Incentives - annual cash incentive, as a percentage of base salary, paid upon the

achievement of Company performance goals set by the Compensation & Human Resources Committee during the first fiscal quarter.

This variable at-risk compensation motivates and rewards executives with respect to short-term performance

● Long-Term Equity Incentives - annual grants of restricted stock, 50% of which is subject to time-based

vesting, and 50% of which vests upon the achievement of Company financial performative-metric thresholds set by our Compensation

& Human Resources Committee.

This variable at-risk compensation aligns executive interests with long-term shareholder value

Summary Compensation Table

The following table sets forth the compensation paid to or earned

by each of our Named Executive Officers for each of the fiscal years ended December 31, 2020 and 2019.

Douglas McCrosson – Chief Executive Officer

Thomas Powers* – Former Acting Chief Financial Officer

Vincent Palazzolo* – Former Chief Financial Officer

Dan Azmon* – Former Chief Financial Officer

Kenneth Hauser – Sr.

Vice President of Operations

* Thomas Powers served as our Acting Chief

Financial Officer from February 12, 2020 to October 22, 2021.

Previously, Dan Azmon served as our Chief Financial Officer from

November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004

until November 2019.

(1) Reflects actual base salary amounts paid to for each of the years indicated.

(2) Reflects grant date fair market value of restricted stock grants awarded to our Named Executive

Officers as part of their performance-based annual bonus.

(3) Represents amounts awarded in cash to our Named Executive Officers as part of their performance-based

annual bonus.

Awards were earned in the year provided, but were not made until the following fiscal year.

(4) Reflects the grant date fair value of 42,009 shares of restricted stock granted to Mr.

on August 26, 2020, which shares are subject to time-based and performance-based vesting over four years.

Does not reflect the

forfeiture of 5,251 shares by Mr.

McCrosson on April 21, 2021, in accordance with the terms of his restricted stock award agreement

with the Company.

(5) Reflects the grant date fair value of 42,009 shares of restricted stock granted to Mr.

on April 2, 2019, which shares are subject to time-based and performance-based vesting over four years.

Does not reflect the forfeiture

of 5,251 shares by Mr.

McCrosson on August 26, 2020 and 5,251 shares on April 21, 2021, in accordance with the terms of his restricted

stock award agreement with the Company.

McCrosson and the Compensation & Human Resources Committee agreed that Mr.

McCrosson would

forego $97,783 and $224,457 of short-term incentive cash bonus that Mr.

McCrosson earned for 2019 and 2020, respectively, in consideration

of the recent decline in the Company’s stock price and the challenges the Company is facing due to, among other things, economic

conditions and uncertainties resulting from the COVID-19 pandemic.

(7) Represents (a) $12,393 of an automobile lease, insurance, and maintenance attributable to personal

(b) $6,968 of disability insurance premiums;

and (c) $5,418 of 401(k) contributions.

(8) Represents (a) $17,156 of an automobile lease, insurance, and maintenance attributable to personal

(b) $6,222 of disability insurance premiums;

and (c) $5,459 of 401(k) contributions.

(9) Reflects the grant date fair value of (i) 9,346 shares of restricted stock granted to Mr.

on August 26, 2020, which shares are subject to time-based vesting over one year and (ii) 8,654 shares of restricted stock granted

Powers on August 26, 2020, which shares are subject to time-based and performance-based vesting over four years.

reflect the forfeiture of 1,082 shares by Mr.

Powers on April 21, 2021, in accordance with the terms of his restricted stock agreement

with the Company.

(10) Represents $4,384 of 401(k) contributions.

(11) Represents a pro-rated amount of Mr.

Palazzolo’s annual base salary of $286,048 through his

termination by the Company without cause in November 2019.

(12) Reflects the grant date fair value of 16,542 shares of restricted stock granted to Mr.

on April 2, 2019, which shares are subject to time-based and performance-based vesting over four years.

Does not reflect the aggregate

of 38,906 shares which Mr.

Palazzolo forfeited upon his termination by the Company without cause in November 2019 in accordance

with the terms of his restricted stock award agreements with the Company.

(13) Includes an aggregate severance payment of $339,614 and the following perquisites paid in 2019:

(a) $16,476 of an automobile lease, insurance, and maintenance attributable to personal use;

(b) $5,082 of disability insurance

and (c) $4,950 of 401(k) contributions.

(14) Represents five and a half weeks’ pro-rated salary at an annual rate of $300,000.

(15) Represents six weeks’ pro-rated salary at an annual rate of $300,000.

(16) Represents the equity portion of a signing bonus.

Such amount was subsequently forfeited when Mr.

Azmon resigned.

(17) Represents the non-equity portion of a signing bonus.

Such amount was subsequently forfeited when

Azmon resigned.

(18) Represents $860 of 401(k) contributions.

(19) Represents (a) $505 of an automobile lease, insurance and maintenance attributable to personal

use and (b) $72 of disability insurance premiums.

(20) Reflects the grant date fair value of 8,487 shares of restricted stock granted to Mr.

August 26, 2020, which shares are subject to time-based and performance-based vesting over four years.

Does not reflect the forfeiture

of 1,061 shares by Mr.

Hauser on April 21, 2021, in accordance with the terms of his restricted stock award agreement with the

(21) Reflects the grant date fair value of 8,487 shares of restricted stock granted to Mr.

April 2, 2019, which shares are subject to time-based and performance-based vesting over four years.

Does not reflect the forfeiture

of 1,061 shares by Mr.

Hauser on August 26, 2020 and 1,061 shares on April 21, 2021, in accordance with the terms of his restricted

stock award agreement with the Company.

(22) Represents (a) $4,440 of an automobile lease, insurance and maintenance attributable to personal

use, (b) $881 of disability insurance premiums, and (c) $4,595 of 401(k) contributions.

(23) Represents (a) $1,920 of an automobile lease, insurance and maintenance attributable to personal

use and (b) $881 of disability insurance premiums.

Compensation Arrangements

for Named Executive Officers

Douglas McCrosson

McCrosson entered into a Severance

and Change in Control Agreement with us (the “Severance and Change in Control Agreement”), the details of which are

outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change

in Control Agreement, Mr.

McCrosson is prohibited from disclosing confidential information and he has agreed not to compete with

us without our consent during the term of employment and for 18 months thereafter, so long as we make severance payments to Mr.

McCrosson pursuant to the agreement.

During 2019, Mr.

McCrosson’s base

salary was $365,761.

He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary

upon the attainment of Company growth targets measured by pre-tax income, cash flow from operations, revenue, and book to bill

ratio, plus an additional non-discretionary performance based cash bonus equal to 3% of his base salary upon the attainment of

each of four performance objectives, for an aggregate of 12%.

McCrosson and the Compensation & Human Resources Committee

agreed that Mr.

McCrosson would forego $97,783 of short-term incentive cash bonus that Mr.

McCrosson earned for 2019 in consideration

of the recent decline in the Company’s stock price and the challenges the Company is facing due to, among other things, economic

conditions and uncertainties resulting from the COVID-19 pandemic.

In addition, during 2019, Mr.

McCrosson was awarded an aggregate

of 42,009 shares of restricted stock (with a fair market value on the date of grant of $274,319) pursuant to the Company’s

2016 long-term incentive plan.

The shares of restricted stock vest on a four year schedule, as follows:

50% of the shares are subject

to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report

on Form 10-K each year;

the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement

of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources

Committee no later than 90 days following January 1 of the applicable fiscal year.

The fiscal 2019 metrics were growth targets

measured by revenue, pre-tax income, and cash flow from operations.

The 2019 performance-based vesting metrics were not all met

and, therefore, Mr.

McCrosson forfeited 18,930 shares of restricted stock, representing the performance-based portion of the restricted

stock granted in 2019, 2018, 2017, and 2016.

During 2020, Mr.

McCrosson’s base

salary was $365,761.

He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary

upon the attainment of Company growth targets measured by the Company’s ending cash balance at December 31, 2020, amount

of accounts payable delinquency at December 31, 2020, book to bill ratio, and full-year earnings per share.

McCrosson and the

Compensation & Human Resources Committee agreed that Mr.

McCrosson would forego $224,457 of short-term incentive cash bonus

McCrosson earned for 2020 in consideration of the recent decline in the Company’s stock price and the challenges

the Company is facing due to, among other things, economic conditions and uncertainties resulting from the COVID-19 pandemic.

addition, during 2020, Mr.

McCrosson was awarded an aggregate of 42,009 shares of restricted stock (with a fair market value on

the date of grant of $138,630) pursuant to the Company’s 2016 long-term incentive plan.

The shares of restricted stock vest

on a four year schedule, as follows:

50% of the shares are subject to time-based vesting, and vest in four equal annual installments

on the day after the filing of the Company’s Annual Report on Form 10-K each year;

the remaining 50% of the shares are subject

to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal

year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable

The fiscal 2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash,

and 2020 net profit.

The 2020 performance-based vesting metrics were not all met and, therefore, Mr.

McCrosson forfeited 18,982

shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2020, 2019, 2018, and

Thomas Powers

Powers entered into a Severance

and Change in Control Agreement with us, the details of which are outlined below under the heading “Payments upon Termination

or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr.

Powers is prohibited from disclosing

confidential information and he has agreed not to compete with us without our consent during the term of employment and for 12

months thereafter, so long as we make severance payments to Mr.

Powers pursuant to the agreement.

Thomas Powers served as our Acting Chief

Financial Officer from February 12, 2020 to October 22, 2021.

During 2020, Mr.

Powers’ base salary was $223,560, representing

a ten and a half month pro-rated amount of his annual base salary of $225,000 as Acting Chief Financial Officer and one and a half

months as our Director of Financial Planning and Analysis.

He was entitled to receive a non-discretionary performance based cash

bonus equal to 25% of his base salary upon the attainment of Company growth targets measured by the Company’s ending cash

balance at December 31, 2020, amount of accounts payable delinquency at December 31, 2020, full-year earnings per share, reduction

of the Company’s bank debt, and management of expenses.

On August 26, 2020, Mr.

Powers received a one-time equity award of

9,346 shares of restricted stock (with a fair market value on the date of grant of $30,842) pursuant to the Company’s 2016

long-term incentive plan.

The shares of restricted stock will vest one year from the date of grant, subject to Mr.

continuing employment with us.

In addition, during 2020, Mr.

Powers was awarded an aggregate of 8,654 shares of restricted stock

(with a fair market value on the date of grant of $28,558) pursuant to the Company’s 2016 long-term incentive plan.

of restricted stock vest on a four year schedule, as follows:

50% of the shares are subject to time-based vesting, and vest in

four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year;

the remaining

50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric

thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following

January 1 of the applicable fiscal year.

The fiscal 2020 metrics were growth targets measured by accounts payable delinquency,

the ratio of bank debt to cash, and 2020 net profit.

The 2020 performance-based vesting metrics were not all met and, therefore,

Powers forfeited 1,082 shares of restricted stock, representing the performance-based portion of the restricted stock granted

Vincent Palazzolo

Vincent Palazzolo served as our Chief Financial

Officer from 2004 until November 2019.

During 2019, Mr.

Palazzolo’s base salary was $272,195, representing an eleven-month

pro-rated amount of his annual base salary of $286,048 through his termination in November 2019.

Upon his termination, Mr.

was entitled to severance payments in an amount of $339,614 and forfeited an aggregate of 38,906 shares of restricted stock.

Azmon served as our Chief Financial

Officer from November 2019 until his resignation on February 10, 2020.

During 2019, Mr.

Azmon received a base salary of $34,615,

representing a two-month pro-rated amount of his annual base salary of $300,000.

Azmon also received a cash signing bonus in

the amount of $30,000 and an equity grant of 10,000 shares of restricted common stock, which shares were subject to cliff vesting

on November 18, 2022 subject to Mr.

Azmon’s continuing employment with the Company.

Azmon’s resignation on

February 10, 2020, he repaid the cash signing bonus and forfeited the equity portion of his signing bonus.

Kenneth Hauser

Hauser entered into a Severance

and Change in Control Agreement with us, the details of which are outlined below under the heading “Payments upon Termination

or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr.

Hauser is prohibited from disclosing

confidential information and he has agreed not to compete with us without our consent during the term of employment and for 12

months thereafter, so long as we make severance payments to Mr.

Hauser pursuant to the agreement.

During 2019, Mr.

Hauser’s base salary

was $221,677.

He was entitled to receive a non-discretionary performance based cash bonus targeted at 25% of his base salary upon

the attainment of Company targets measured by revenue, inventory levels, and product deliveries, among other measures.

year ended December 31, 2019, Mr.

Hauser received $48,171 in performance-based cash compensation, which was paid in 2020.

during 2019, Mr.

Hauser was awarded an aggregate of 8,487 shares of restricted stock (with a fair market value on the date of grant

of $55,419) pursuant to the Company’s 2016 long-term incentive plan.

The shares of restricted stock vest on a four year schedule,

50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the

filing of the Company’s Annual Report on Form 10-K each year;

the remaining 50% of the shares are subject to performance

based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified

by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year.

fiscal 2019 metrics were growth targets measured by revenue, pre-tax income, and cash flow from operations.

The 2019 performance-based

vesting metrics were not all met and, therefore, Mr.

Hauser forfeited 3,904 shares of restricted stock, representing the performance-based

portion of the restricted stock granted in 2019, 2018, 2017, and 2016.

During 2020, Mr.

Hauser’s base salary

was $230,000.

He was entitled to receive a non-discretionary performance based cash bonus equal to 35% of his base salary upon

the attainment of Company growth targets determined by the Company’s Chief Executive Officer.

In addition, during 2020, Mr.

Hauser was awarded an aggregate of 8,487 shares of restricted stock (with a fair market value on the date of grant of $28,007)

pursuant to the Company’s 2016 long-term incentive plan.

The shares of restricted stock vest on a four year schedule, as

50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing

of the Company’s Annual Report on Form 10-K each year;

the remaining 50% of the shares are subject to performance based vesting,

and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our

Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year.

2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit.

The 2020 performance-based vesting metrics were not all met and, therefore, Mr.

Hauser forfeited 3,805 shares of restricted stock,

representing the performance-based portion of the restricted stock granted in 2020, 2019, 2018, and 2017.

Outstanding Equity Awards at Fiscal Year-End

The following tables summarize the outstanding stock awards

as of December 31, 2020 for each Named Executive Officer.

Number of Shares of

Stock Unvested (#) (1)

Equity Incentive Plan

Unearned Shares (#) (2)

Market Value of

Shares Unvested ($) (3)

Equity Incentive

or Payout Value of

Unearned Shares ($) (3)

Douglas McCrosson – Chief Executive Officer

Thomas Powers – Former Acting Chief Financial Officer

Dan Azmon – Former Chief Financial Officer*

Kenneth Hauser – Sr.

Vice President of Operations

* Dan Azmon served as our Chief

Financial Officer from November 2019 until his resignation on February 10, 2020.

(1) Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive

plan which have yet to vest.

The shares of restricted stock vest on a four year schedule, as follows:

50% of the shares are subject

to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report

on Form 10-K each year;

the remaining 50% of the shares are subject to performance-based vesting, and vest upon the achievement

of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources

Committee no later than 90 days following January 1 of the following fiscal year.

The fiscal 2016 metrics were growth targets measured

by EBITDA and revenue, the fiscal 2017 metrics were growth targets measured by revenue and year-end inventory, the fiscal 2018

metrics were growth targets measured by backlog, revenue, and year-end inventory, the fiscal 2019 metrics were growth targets measured

by measured by revenue, pre-tax income, and cash flow from operations, and the fiscal 2020 metrics were growth targets measured

by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit.

(2) Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive

plan which were forfeited in 2017, 2018, 2019, and 2020, and shares of restricted stock withheld to satisfy tax obligations.

not include shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were forfeited

in 2021 (as such shares had not been forfeited as of December 31, 2020).

(3) Calculated using the closing price per share of the Company’s common stock on the last date

of fiscal year 2020.

(4) Represents a one-time equity award of restricted stock which was made to Mr.

Powers on the filing

date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Such shares will vest one year from

the grant date, subject to Mr.

Powers’ continuing employment with the Company.

(5) Represents a one-time equity award of restricted stock which was made to Mr.

Azmon on November

Such shares were subject to cliff vesting on November 18, 2022 and were forfeited upon Mr.

Azmon’s resignation

from the Company on February 10, 2020.

Pension Benefits

Other than our 401(k) plan, we do not maintain any other plan

that provides for payments or other benefits at, following, or in connection with retirement.

Payments upon Termination or Change in Control

The Severance and Change in Control agreements

with our Named Executive Officers provide for varying types and amounts of payments and additional benefits upon termination of

employment, depending on the circumstances of the termination.

● Termination without cause .

If employment is terminated by the Company other than for cause,

as defined in the agreements, then (i) with respect to Mr.

McCrosson, he is entitled to (x) continued salary for 18 months, (y)

any earned cash bonus not yet paid for the fiscal year most recently ended prior to the date of termination, and (z) a prorated

cash bonus calculated using the cash bonus amount earned for the year most recently ended prior to the date of termination, and

(ii) with respect to Mr.

Powers or Mr.

Hauser, he is entitled to (x) continued salary for 12 months, (y) any earned cash bonus

not yet paid for the fiscal year most recently ended prior to the date of termination, and (z) a prorated cash bonus calculated

using the cash bonus amount earned for the year most recently ended prior to the date of termination.

A non-competition provision

will apply for as long as severance payments are being paid.

Any unvested restricted stock will be forfeited and any unexercised

options will expire.

● Termination for cause, or if the executive quits .

If one of our Named Executive Officers

voluntarily terminates his employment, or if the Company terminates his employment for cause, he is not entitled to any severance

payments and is not bound by a non-compete clause, however he is still bound by any confidentially and non-disparagement duties.

Any unvested restricted stock will be forfeited and any unexercised options will expire.

● Termination for disability .

If one of our Named Executive Officers is terminated because

of a disability, as defined in the Severance and Change in Control agreements, then he will receive severance as if he had been

terminated without cause.

● Termination following a change in control .

If the employment of one of our Named Executive

Officers is terminated within 18 months following a change in control by the Company other than for cause or disability or by him

for good reason (all such terms as defined in the Severance and Change in Control Agreements), he is entitled to (i) his base salary

earned through the date of termination, (ii) any earned cash bonus not yet paid for the fiscal year most recently ended prior to

the date of termination, and (iii) a prorated portion of the his annual cash bonus for the portion of the year he worked, assuming

all applicable targets had been met.

In addition, he will be entitled to a change in control payment:

McCrosson, in

an amount equal to two times total compensation (base salary plus cash bonus) for either the fiscal year most recently ended prior

to the date of termination or the preceding fiscal year, whichever is the highest total compensation;

Powers or Mr.

Hauser, in an amount equal to one and one-half times his base salary for the fiscal year most recently ended prior to the date

of termination.

Upon any change in control, all outstanding stock options and restricted stock will vest immediately for such Named

Executive Officer.

Health insurance and other fringe benefits will continue for the Named Executive Officer for a period of six

months after termination.

The following table summarizes the amounts

payable upon termination of employment for our Named Executive Officers, assuming termination occurred on December 31, 2020 under

the current Severance and Change in Control Agreements with each such Named Executive Officer.

For purposes of presenting amounts

payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (the

single sum does not reflect any discount).

To the extent the termination accelerates vesting of equity awards, the value presented

below is based upon the Company’s stock price as of December 31, 2020, and assumes the achievement of all applicable performance

Potential Termination Payments

Douglas McCrosson

Thomas Powers

Kenneth Hauser

Compensation of Directors

Directors who are employees of the Company

do not receive separate compensation for their service as a director.

Our non-executive directors receive a mix of cash compensation

and stock compensation for their service to our Company.

Each year, our Compensation & Human Resources Committee determines

the total amount of non-executive director compensation, as well as the allocation among cash and stock compensation, and takes

into consideration, among other things, the Company’s performance relative to its guidance, the extent to which director

compensation aligns the interests of our directors with the interests of our shareholders, compensation awarded to directors of

similarly sized companies in our industry, and past practices.

Our Compensation & Human Resources Committee is also tasked

with reviewing the compensation paid to non-executive directors and making recommendations to our board of directors for any adjustments

deemed necessary as a result of their review.

In December 2018, our board of directors determined that the following structure

would properly incentivize non-executive directors and adequately recognize the additional work performed by board committee chairs:

Chairman of the Board, $200,000;

Chair of each of the Audit & Finance Committee and Strategic Planning Committee, $140,000

Chair of the Compensation & Human Resources Committee, $125,000;

Chair of the Nominating & Corporate Governance Committee,

and all other non-executive directors, $100,000 each.

In August 2020, our board of directors created a new position of

Non-Executive Vice Chairperson of the Board and set the compensation for such role at $165,000.

Bond was appointed to serve

as Non-Executive Vice Chairperson of the Board in August 2020.

The following table summarizes the compensation

of our non-executive directors for the year ended December 31, 2020.

Fees Earned or

Paid in Cash ($)

Stock Awards ($) (1)

Carey Bond (2)

Janet Cooper (3)

Richard Caswell (4)

Michael Faber

Walter Paulick

Eric Rosenfeld

Terry Stinson

Represents stock awarded to directors during 2020 in the form of RSUs, all of which had vested by December 31, 2019.

The Company accounts for compensation expense associated with RSUs based on the fair value of the units on the date of grant.

Bond became Chairman of the Oversight Committee in March 2020 and Non-Executive Vice Chairman of the Board in August 2020.

Includes the pro-rated portion of his additional compensation.

Cooper was chair of our Audit & Finance Committee until October 2020.

Caswell joined our board of directors and became chair of the Audit & Finance Committee in November 2020.

Represents the pro-rated portion of compensation.

Non-Employee Director Stock Ownership

In July 2019, upon the recommendation of

the Compensation & Human Resources Committee, our board of directors revised its stock ownership policy for non-employee directors.

Under the prior policy, non-employee directors were required to own stock of the Company valued at least four times his or her

annual cash compensation before and following any stock sales.

In order to better align the long-term interests of non-employee

directors with our shareholders, our board revised the policy as follows:

non-employee directors are now expected to own shares

of stock equal to five times the then cash portion of the annual non-employee director’s compensation within five years of

joining the board.

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

The table and accompanying footnotes below set forth certain

information as of November 17, 2021, with respect to the ownership of our common stock by:

● each person or group who beneficially owns more than 5% of our common stock;

● each of our directors and our director nominees;

● each of our Named Executive Officers;

● all of our directors and executive officers as a group.

A person is deemed to be the beneficial

owner of securities that can be acquired by the person within 60 days from the record date.

Accordingly, common stock issuable

upon exercise of options that are currently exercisable, or exercisable within 60 days of November 17, 2021, have been included

in the table with respect to the beneficial ownership of the person owning the options.

Name and Address of Beneficial Owner (1)

Shares Beneficially

Directors and Named Executive Officers:

Douglas McCrosson

Thomas Powers

Kenneth Hauser

Richard Caswell

Michael Faber

Walter Paulick

Eric Rosenfeld

Terry Stinson

All current directors and named executive officers as a group (nine persons)

Five Percent Holders:

Royce & Associates, LLC

* Less than 1%

(1) Unless otherwise noted, the business address of each of the following persons is c/o CPI Aerostructures,

Inc., 91 Heartland Blvd., Edgewood, New York 11717.

(2) Unless otherwise noted, we believe that all persons named in the table have sole voting and investment

power with respect to all common stock beneficially owned by them, subject to community property laws, where applicable.

to our executive officers, this includes both time-based and performance-based restricted stock awards that are forfeitable until

the vesting date or performance certification date, as applicable.

It does not include portions of restricted stock awards which

have been forfeited.

With respect to our non-executive directors, this includes time-based restricted stock units (“RSUs”).

RSUs are granted on the first day of the year and vest quarterly upon completion of service as a director.

Such shares of restricted

stock and such RSUs are included herein because they confer voting rights and therefore may be deemed to be beneficially owned

under Rule 13d-3(a)(1) promulgated under the Exchange Act.

(3) As of November 17, 2021, there were 12,312,347 shares of our common stock issued and outstanding.

Each person beneficially owns a percentage of our outstanding common stock equal to a fraction, the numerator of which is the number

shares of our common stock held by such person plus the number of shares of our common stock that such person can acquire within

60 days the record date upon the exercise of options, if applicable, and the denominator of which is 12,312,347 (the number of

shares of our common stock outstanding) plus the number of shares of our common stock such person can so acquire during such 60-day

(4) Includes an aggregate of 125,522 shares subject to time-based or performance-based vesting.

(5) Includes an aggregate of 26,391 shares subject to time-based or performance-based vesting.

(6) Includes an aggregate of 31,241 shares subject to time-based or performance-based vesting.

(7) Represents 272,078 shares of common stock owned individually and 510,270 shares of common stock

held by Crescendo Partners II, L.P.

Series L (“Crescendo Partners II”).

Rosenfeld is the senior managing member

of the sole general partner of Crescendo Partners II.

Rosenfeld disclaims beneficial ownership of the shares held by Crescendo

Partners II, except to the extent of his pecuniary interest therein.

(8) The information with respect to Royce & Associates, LLC is derived from an Amendment to Schedule

13G/A filed with the SEC on January 21, 2021.

The business address of Royce & Associates, LLC is 745 Fifth Avenue, New York,

CERTAIN RELATIONSHIPS

AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related-Party Policy .

Our Code of Ethics requires us to avoid,

wherever possible, all related-party transactions that could result in actual or potential conflicts of interest, except under

guidelines approved by our board of directors (or our Audit & Finance Committee).

SEC rules generally define related-party

transactions as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar

year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as

a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member of the persons referred to

in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director

or a less than 10% beneficial owner of another entity).

A conflict of interest situation can arise when a person takes actions

or has interests that may make it difficult to perform his or her work objectively and effectively.

Conflicts of interest may also

arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

Our Audit & Finance Committee, pursuant

to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such

transactions.

Our Audit & Finance Committee considers all relevant factors when determining whether to approve a related-party

transaction, including whether the related-party transaction is on terms no less favorable than terms generally available to an

unaffiliated third-party under the same or similar circumstances and the extent of the related-party’s interest in the transaction.

No director may participate in the approval of any transaction in which he or she is a related-party, but that director is required

to provide our Audit & Finance Committee with all material information concerning the transaction.

Additionally, we require

each of our directors and executive officers to complete a directors’ and officers’ questionnaire annually that elicits

information about related-party transactions.

These procedures are intended to determine whether any such related-party transaction

impairs the independence of a director or presents a conflict of interest on the part of a director, employee, or officer.

Related-Party Transactions .

There were no related-party transactions

during the year ended December 31, 2020.

PRINCIPAL ACCOUNTANT FEES

CohnReznick LLP (“CohnReznick”) has served as our

independent registered public accounting firm since 2004.

The following

fees were invoiced by CohnReznick to the Company for services which CohnReznick rendered related to the following 2020 and 2019

Year Ended December 31,

Audit Fees (1)

Audit-Related Fees (2)

All Other Fees

Audit fees consist of fees billed for professional services by CohnReznick for audit and quarterly review of the Company’s consolidated financial statements during the years ended December 31, 2020 and 2019, and related services normally provided in connection with statutory and regulatory filings or engagements.

Audit-related fees represent the aggregate fees billed for assurance and related professional services rendered by CohnReznick that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.” For the year ended December 31, 2020, audit-related fees included fees incurred in connection with the audit of the Company’s restatement of its financial statements and advice regarding the application of generally accepted accounting principles for the Company’s completed acquisition of Welding Metallurgy, Inc.

Pre-Approval Policies and Procedures .

accordance with Section 10A(i) of the Exchange Act, before we engage our independent registered public accounting firm to render

audit or non-audit services, the engagement is approved by our Audit & Finance Committee.

Our Audit & Finance

Committee approved all of the fees referred to in the rows titled “Audit Fees” and “Audit-Related Fees”

in the table above.

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

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

(a) 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, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Operations for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

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:

Certificate of Incorporation of the Company, as amended, (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Certificate of Amendment of the Certificate of Incorporation of Composite of Precision Industries, Inc., dated May 9, 1989 (incorporated by reference to Exhibit 3.1.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Certificate of Amendment of the Certificate of Incorporation of Consortium Products International, Inc., dated June 30, 1992 (incorporated by reference to Exhibit 3.1.2 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated August 7, 1992 (incorporated by reference to Exhibit 3.1.3 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated June 3, 1997 (incorporated by reference to Exhibit 3.1.4 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated June 16, 1998 (incorporated by reference to Exhibit 3.1.5 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020).

Amended and Restated By-laws of the Company.

Securities of the Registrant.

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

2016 Long-Term Incentive Plan, as amended (incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on April 15, 2021).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

filed on November 24, 2021).

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

Current Report on Form 8-K filed on November 22, 2021).

of the Registrant (incorporated by reference from Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed

on March 31, 2026).

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.

and CPI Aerostructures, Inc.

(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 10-Q for the quarter ended June 30, 2011).

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

(incorporated by reference to Exhibit

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

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

and CPI Aerostructures, Inc.

(incorporated by reference to Exhibit

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

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

and CPI Aerostructures, Inc.(incorporated by reference from

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

Amended and Restated Credit Agreement, dated as of March 24, 2016, among CPI Aerostructures, Inc., the several lenders from time to time party thereto, and BankUnited, N.A.

(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 28, 2016).

First Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 10, 2016).

Second Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.4.3 to the Company’s Annual Report on Form 10-K filed on August 25, 2020).

Third Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 16, 2018).

Fourth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 27, 2018).

Fifth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 26, 2019).

Waiver and Sixth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 24, 2020).

Waiver and Seventh Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 17, 2021).

Waiver and Eighth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K filed on October 28, 2021).

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

and BankUnited N.A.

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

Subsidiaries of the Registrant.

Consent of CohnReznick LLP.

and CPI Aerostructures, Inc.

(incorporated by reference

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

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

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

Certifcation of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

Certification Pursuant to 18 U.S.C.

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

XBRL Instanse Document.

XBRL Taxonomy Extension Scheme Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

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.

Taxonomy Extension Scheme Document.

Taxonomy Extension Calculation Linkbase Document.

Taxonomy Extension Definition Linkbase Document.

Taxonomy Extension Label Linkbase Document.

Taxonomy Extension Presentation Linkbase Document.

page formatted as Inline XBRL and contained in Exhibit 101.

Filed herewith.

*** XBRL information is furnished and not filed or part of a registration statement or prospectus

for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the

Securities Exchange Act of 1934, as amended, and otherwise as subject to liability under these sections.

Management contract compensatory plan or arrangement.

Furnished herewith.

FORM 10-K SUMMARY

AEROSTRUCTURES, INC.

1 unchanged sentence

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Financial Statements:

Consolidated Balance Sheets as of December 31, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Operations for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated)

Notes to Consolidated Financial Statements

AEROSTRUCTURES, INC.

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

the Shareholders and Board of Directors of

CPI Aerostructures, Inc.

and Subsidiaries

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 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

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:

· 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 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

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

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

· Tested the existence, accuracy, and completeness of costs incurred to date

on a sample of contracts;

· Tested the mathematical accuracy of managements calculations of revenue

recognized on a sample basis.

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

The Board of Directors and Stockholders of

To the Shareholders and Board of Directors of

CPI Aerostructures, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of CPI Aerostructures, Inc.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related

consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended, and the related notes (collectively

referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and

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

Restatement of Previously Issued Consolidated

Financial Statements

Subsequent to the issuance of the Company’s

consolidated financial statements on April 15, 2021, management determined that these consolidated financial statements contained errors

as discussed in Note 17 to the consolidated financial statements.

The accompanying consolidated financial statements have been restated

to correct these errors.

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 consolidated financial statements are

the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements

based on our audits.

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 audits in accordance with

the standards of the PCAOB.

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

consolidated 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 audits 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.

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 audits included performing procedures to

assess the risks of material misstatement of the consolidated 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

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated 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 consolidated 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 consolidated 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.

Critical Audit Matter Description

The majority of the Company’s revenues

for its contracts are recognized over-time as the Company (i) sells products with no alternative use to the Company and (ii) has an enforceable

right to recover costs incurred plus a reasonable profit margin for work completed to date.

The Company uses the cost-to-cost 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.

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

at completion.

Given the complexity of the estimates regarding

the revenue and costs associated with such contracts, auditing these estimates required extensive audit effort and a high degree of auditor

judgement to devise, execute and evaluate the results of appropriate audit procedures.

How the Critical Audit Matter was Addressed

Our principal audit procedures related to the

Company’s revenue, costs and profit for these contracts included the following:

· We obtained an understanding of and evaluated the design and implementation

of the controls that address the risk of material misstatement of contract revenue including those associated with cost to complete estimates

for long-term fixed price contracts.

· We selected a sample of contracts with customers and performed the following:

o Evaluated whether the recognition of revenue over time on such contracts

was appropriate based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred

as progress was made toward fulfilling the performance obligation.

o Compared the transaction price to the consideration to be received based

on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

o Tested the accuracy and completeness of the costs incurred to date for the

performance obligation.

o Evaluated the estimates of total cost and profit for the performance obligation

§ Comparing costs incurred to date to the costs management estimated to be

incurred to date.

§ Comparing management’s estimates for selected contracts to cost and

profit estimates for similar current and historic performance obligations.

§ Performing retrospective reviews of management’s judgments and estimates

and comparing actual performance to estimated performance, when evaluating the thoroughness and precision of management’s estimation

§ We analytically evaluated selected quarter over quarter changes in contract

profit estimates by obtaining explanations from the Company’s project managers regarding timing and amount of costs incurred and

corroborating and assessing the reasonableness of these responses by obtaining documents such as signed purchase orders and contract change

o Tested the mathematical accuracy of management’s calculation of revenue

recognized during the period for the performance obligations.

Critical Audit Matter Description

Management has concluded that there were sufficient

resources available to meet its obligations and fund operations for at least one year from the date the consolidated financial statements

were available to be issued and expects to be in compliance with the required debt covenants established under its credit facility.

Company’s strategies include significant judgments and estimates involved in the execution of their business plans which include

the ability to maintain and grow its funded backlog orders.

We identified liquidity as a critical audit

matter due to the significant management estimates supporting their conclusion that they will remain in compliance with the established

debt covenant requirements and have sufficient liquidity to sustain normal operations for at least one year from the date the consolidated

financial statements were available to be issued.

This in turn led to a high degree of auditor subjective judgement to evaluate the evidence

supporting the liquidity considerations and related conclusion.

Management’s liquidity conclusion is relevant to the users of the

consolidated financial statements and that also impacted our assessment of liquidity as a critical audit matter.

How the Critical Audit Matter was Addressed

Our principal audit procedures related to the

Company’s liquidity evaluation included the following:

· Obtained an understanding of the Company’s process to estimate future

cash flows, including methods, inputs and significant assumptions used in developing the liquidity assessment.

· Evaluated the reasonableness of management’s income statement, balance

sheet, and cash flow projections for at least one year from the date the consolidated financial statements were available to be issued

by comparing the forecasted financial information to historical results, funded and unfunded backlog, newly obtained contracts as well

as considered the Company’s ability to exit loss contracts and the overall change in business strategies to primarily focus on government

versus commercial contracts.

· Evaluated the adequacy of the Company’s disclosure of these circumstances

in the consolidated financial statements.

· Evaluated the impact of actual results incurred to date on the Company’s

projections and covenant calculation through the date the consolidated financial statements were available to be issued.

and Associated Reserves

Critical Audit Matter Description

As disclosed in the notes to the consolidated

financial statements, inventories are stated at the lower of weighted average cost or net realizable value.

As disclosed in the Note 17

to the consolidated financial statements, the Company identified inventory costing errors which, had they been appropriately accounted

for, would have affected the Company’s previously reported inventory valuation.

In connection with the identification of costing

errors, the Company assessed the impact on estimated sales margins of their existing inventory, which resulted in the identification of

future contractual losses.

As a result, the Company recorded a contractual loss liability and a charge was recorded to cost of sales for

estimated losses in instances where the estimated costs to satisfy the contractual performance obligations are in excess of the contract

consideration.

Also related thereto, the Company recorded a write-down for other reserves on inventories based on historical open backlogs

and historical forecasts for future demand and market conditions.

The complexity of the restated valuation of

inventories as well as the evaluation of the established loss contracts and other related reserves required extensive audit effort and

a high degree of auditor judgment.

How the Critical Audit Matter was Addressed

Our principal audit procedures related to the

Company’s valuation of inventory and associated reserves as well as the financial reporting of such included the following:

· We obtained an understanding of and evaluated the design

and implementation of the controls that address the risk of material misstatement of the restatement

adjustments .

· For selected non-percentage of completion contracts with customers, we performed

the following:

o Compared the open quantities at each historical reporting period and respective

transaction price to the consideration to be received based on current rights and obligations under the contracts and any modifications

that were agreed upon with the customers.

o We assessed the Company’s contract costs by comparing them to costed

inventory and production estimates.

· For selected inventory items, we performed the following:

o We re-evaluated our previously performed procedures over the specific restated

inventory costing adjustments and re-evaluated our conclusions.

We also selected additional items to test, including as described below.

o We tested the completeness and accuracy of the data associated with the

inventory costing adjustments by tracing to the underlying invoice documentation, time cards and payroll support.

o We tested that the Company appropriately accounted for overhead costs by

obtaining supporting documentation for the actual costs incurred, comparing to amounts recorded and considered the propriety of the amounts

o We recalculated the required write-downs and losses and compared the results

to the recorded amounts.

· We evaluated the adequacy of the Company’s disclosure of these circumstances

in the consolidated financial statements.

/s/ CohnReznick LLP

We have served as the Company’s auditors

New York, New York

April 15, 2021, except for the effects on

the consolidated financial statements and related footnotes of the restatement described in Notes 17 and 18, as to which the date is

November 24, 2021.

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.

/s/ Marcum llp

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

Melville, New York

March 31 , 2025

AEROSTRUCTURES, INC.

1 unchanged sentence

BALANCE SHEETS

(As Restated – see Note 17)

Current Assets:

Restricted cash

Accounts receivable, net

Contract assets

Refundable income taxes

Contract assets, net

Prepaid expenses and other current assets

2 unchanged sentences

Property and equipment, net

Intangibles, net

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Deferred tax asset, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

2 unchanged sentences

Contract liabilities

Current portion of line of credit

Current portion of long-term debt

2 unchanged sentences

Total Current Liabilities

Line of credit

Line of credit, net of current portion

Long-term operating lease liabilities

1 unchanged sentence

Total Liabilities

Shareholders’ Deficit :

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;

4 unchanged sentences

( 48,504,388 )

Total Shareholders’ Deficit

( 12,983,732 )

( 10,040,323 )

Total Liabilities and Shareholders’ Deficit

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.

1 unchanged sentence

STATEMENTS OF OPERATIONS

Years ended December 31,

ended December 31, 2025 and 2024

Cost of sales

Selling, general and administrative expenses

Loss from operations

( 2,286,212 )

( 4,731,173 )

Other expense:

(Loss) income from operations

Interest expense

1 unchanged sentence

( 2,288,834 )

Total other expense, net

( 1,421,955 )

( 2,015,185 )

Loss before provision for income taxes

( 3,708,167 )

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

( 1,744,222 )

Provision for/ (benefit from) income taxes

Benefit (provision) for income taxes

( 1,143,454 )

Net (loss) income

$ ( 843,361 )

Loss per common share-basic

Loss per common share-diluted

Shares used in computing loss per common share:

notes to CONSOLIDATED financial statements

(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.

AND SUBSIDIARIES

STATEMENTS OF SHAREHOLDERS’ DEFICIT

ended December 31, 2020 (As Restated see Note 17) and 2019 (As Restated see Note 17)

Additional Paid-in

STATEMENTS OF SHAREHOLDERS’ EQUITY

ended December 31, 2025 and 2024

Shareholders’

1 unchanged sentence

$ ( 51,803,722 )

$ ( 3,933,405 )

Net loss (as restated)

( 6,750,235 )

Costs related to stock offering

Common stock issued as employee compensation

Issuance of common stock upon settlement of

restricted stock, net

Stock-based compensation expense

Shares withheld for tax withholdings

Balance at December 31, 2024

( 48,504,388 )

( 10,040,323 )

Net loss (as restated)

( 3,654,753 )

Net (loss) income

Issuance of common stock upon settlement of

restricted stock, net

Stock-based compensation expense

Shares withheld for tax withholdings

Balance at December 31, 2025

$ ( 49,347,749 )

$ ( 12,983,732 )

notes to CONSOLIDATED financial statements

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

AEROSTRUCTURES, INC.

1 unchanged sentence

STATEMENTS OF CASH FLOWS

Years ended December 31,

(As Restated – see Note 17)

ended December 31, 2025 and 2024

Cash flows from operating activities:

$ ( 3,654,753 )

Net (loss) income

$ ( 843,361 )

Adjustments to reconcile net loss to net cash used in operating activities:

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

Depreciation and amortization

Amortization of debt issuance costs

Cash expended in excess of rent expense

Stock-based compensation expense

Common stock issued as employee compensation

Bad debt (recovery) expense

Deferred income taxes

( 1,057,220 )

Provision for credit losses

Changes in operating assets and liabilities:

Decrease in accounts receivable

(Increase) decrease in accounts receivable

( 1,979,189 )

(Increase) decrease in contract assets

Decrease in inventory

(Increase) decrease in prepaid expenses and other current assets

( 1,638,161 )

(Increase) decrease in inventory

Decrease in operating right-of-use assets

(Decrease) increase in accounts payable and accrued expenses

( 1,730,794 )

Decrease in prepaid expenses and other current assets

Decrease in refundable income taxes

Increase (decrease) in accounts payable and accrued expenses

(Decrease) in contract liabilities

( 3,506,966 )

(Decrease) in lease liabilities

( 1,503,703 )

(Decrease) increase in loss reserve

( 1,999,057 )

Decrease in income taxes payable

Net cash used in operating activities

Increase (decrease) in loss reserve

Increase in income taxes payable

Net cash (used in) provided by operating activities

( 5,200,025 )

3 unchanged sentences

Cash flows from financing activities:

Payment of line of credit

( 1,300,000 )

Proceeds from line of credit

Proceeds from PPP loan

Payment of long-term debt

Repayments on line of credit

( 17,390,000 )

( 2,650,000 )

Stock offering costs paid

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

Debt issuance costs

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of year

Supplemental schedule of noncash investing activities:

Equipment acquired under capital lease

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

Net cash provided by (used in) financing activities

( 2,758,912 )

Net (decrease) increase in cash

( 4,591,764 )

notes to CONSOLIDATED financial statements

Cash at beginning of year

Cash at end of year

Supplemental disclosure of cash flow information:

Cash paid during the year for interest

Cash paid for income taxes

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.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company consists of CPI Aerostructures,

(“CPI”) and Welding Metallurgy, Inc.

(“WMI”), a wholly owned subsidiary acquired on December 20, 2018

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

CPI is a U.S.

supplier of aircraft parts for fixed wing aircraft

and helicopters in both the commercial and defense markets.

We manufacture complex aerostructure assemblies, as well as aerosystems.

Additionally, we supply parts for maintenance, repair and overhaul (“MRO”) and kitting contracts.

An 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, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial

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

The accompanying consolidated financial

statements include the accounts of the Company and its wholly owned subsidiaries.

All inter-company accounts and transactions have

been eliminated in consolidation.

Use of Estimates

The preparation of financial statements

in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires

the use of estimates by management.

Actual results could differ from these estimates.

Business Combinations

The Company applied acquisition

accounting for the WMI acquisition in accordance with Accounting Standards Codification 805, “Business Combinations”

Acquisition accounting requires that the assets acquired and liabilities assumed be recorded at their

respective estimated fair values at the date of acquisition.

The excess purchase price over fair value of the net assets acquired

is recorded as goodwill.

In determining estimated fair values, we are required to make estimates and assumptions that affect the

recorded amounts including, but not limited to, expected future cash flows, discount rates, remaining useful lives of long-lived

assets, useful lives of identified intangible assets, replacement or reproduction costs of property and equipment and the amounts

to be recovered in future periods from acquired net operating losses and other deferred tax assets.

Our estimates in this area

impact, among other items, the amount of depreciation and amortization, impairment charges in certain instances if the asset becomes

impaired, and income tax expense or benefit that we report.

Our estimates of fair value are based upon assumptions believed to

be reasonable, but which are inherently uncertain.

Revenue Recognition

Effective January

1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC

606”), using the modified retrospective method.

In accordance with ASC 606, the Company recognizes revenue when it transfers

control of a promised good or service to a customer in an amount that reflects the consideration it expects to be entitled to in

exchange for the good or service.

The majority of the Company’s performance obligations are satisfied over-time as the Company

(i) sells products with no alternative use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable

profit margin for work completed to date.

Under the over-time revenue recognition model, revenue and gross profit are recognized

over the contract period as work is performed based on actual costs incurred and an estimate of costs to complete and resulting

total estimated costs at completion.

In 2020, the Company corrected its application of ASC 606, which

resulted in a restatement of its previously issued consolidated financial statements for 2018 and the first three quarters of 2019.

See Note 2, “Revenue Recognition”,

for additional information regarding the Company’s revenue recognition policy.

CPI AEROSTRUCTURES,

BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company consists of CPI Aerostructures, Inc.

(“CPI”), Welding Metallurgy, Inc.

(“WMI”) and Compac Development

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.

CPI manufactures

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.

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.

All intercompany accounts and transactions have been eliminated in consolidation.

preparation of financial statements in conformity with U.S.

GAAP requires the use of estimates by management.

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 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 product has transferred to the customer;

in most cases this will be based on shipping terms.

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

government and commercial contractors.

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.

Company has elected to account for shipping performed after control over a product has transferred to a customer as fulfillment

When revenue is recognized in advance of incurring shipping costs, the costs related to the shipping are accrued.

Shipping costs are included in costs of sales.

The Company provides warranties on many of its products;

however, since customers

cannot purchase such warranties separately and they do not provide services beyond standard assurances, warranties are not separate

performance obligations.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s government contracts

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 Federal Acquisition Regulation (“FAR”), which

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 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.

The Company considers

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.

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

The Company generally estimates

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.

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.

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

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

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.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

When contractual terms allow,

the Company invoices its customers on a progress basis.

The Company maintains its cash

in six financial institutions.

government contracts.

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

and therefore not recoverable through sales.

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

respect to the direct and allocated indirect costs attributable thereto.

These audits may result in adjustments to the Company’s

contract cost, and/or revenue.

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

Company maintains its cash in multiple financial institutions.

The balances are insured by the Federal Deposit Insurance Corporation

From time to time, the Company’s

balances may exceed these limits.

As of December 31, 2020 and 2019, the Company had $ 6,024,418 and $ 4,020,203 , respectively, of

uninsured balances.

The Company limits its credit risk by selecting financial institutions considered to be highly credit worthy.

Accounts Receivable

Accounts receivable are reported

at their outstanding unpaid principal balances.

up to the limit of $ 250,000 .

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

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

Inventories are reported at

lower of cost or net realizable value using weighted average actual cost.

Property and Equipment

Property and equipment are recorded at

Depreciation and amortization of property

and equipment is provided by the straight-line method over the shorter of estimated useful lives of the respective assets or the

life of the lease, for leasehold improvements.

The Company leases a building and equipment.

Under 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 ROU assets and operating lease liabilities in our consolidated

balance sheets.

ROU 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.

and operating 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.

For operating leases, lease expense is

recognized on a straight-line basis over the lease term.

For finance leases, lease expense comprises the amortization of the ROU

assets recognized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying

asset and interest on the lease liability.

Variable lease payments not dependent on a rate or index are recognized when the event,

activity, or circumstance in the lease agreement upon which those payments are contingent is probable of occurring and are presented

in the same line of the consolidated balance sheet as the rent expense arising from fixed payments.

The Company has lease agreements

with lease and non-lease components.

Non-lease components are combined with the related lease components and accounted for as lease

components for all classes of underlying assets.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

On January 1, 2019, the Company recognized

right of use assets and lease liabilities in the range of approximately $ 5.3 million to $ 5.9 million , respectively, on its consolidated

balance sheet using an estimated incremental borrowing rate of 6 %.

At December 31, 2020 the Company has right of use assets and

lease liabilities of approximately $ 4.1 million and $ 4.4 million respectively.

Long-Lived Assets

The Company reviews its long-lived assets

and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset

may not be fully recoverable.

As a result of its review, the Company does not believe that any such change has occurred.

changes in circumstance are present, a loss is recognized to the extent the carrying value of the asset is in excess of the fair

value of cash flows expected to result from the use of the asset and amounts expected to be realized upon its eventual disposition.

Short-Term Debt

The fair value of the Company’s short-term

debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities.

Using this method,

the fair value of the Company’s short-term debt was not significantly different than the stated value at December 31, 2020

At December 31, 2020 and 2019, the fair

values of cash, accounts receivable and accounts payable approximated their carrying values because of the short-term nature of

these instruments .

Carrying Amount

Line of credit and long-term debt

We estimated the fair value of debt using

market quotes and calculations based on market rates.

Loss Per Share

Basic loss per common share

is computed using the weighted-average number of shares outstanding.

Diluted loss per common share is computed using the weighted-average

number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock.

were no incremental shares that were used in the calculation of diluted loss per common share in 2020 and 2019.

Since the Company

is in a loss position no incremental shares were used in the calculation of diluted loss per share since these shares would be

considered anti-dilutive.

Income 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’s policy is

to record estimated interest and penalties related to uncertain tax positions in income tax expense.

CPI AEROSTRUCTURES,

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.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued Accounting

Standards Update No.

2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment

(“ASU-2017-04”).

ASU 2017-04 is intended to simplify how all entities assess goodwill for impairment.

This is accomplished

by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting

unit’s “implied” goodwill.

The goodwill impairment test consists of one step comparing the fair value of a reporting

unit with its carrying amount.

An entity should recognize a goodwill impairment charge for the amount by which the carrying amount

exceeds the reporting unit’s fair value.

An entity may still perform the optional

qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired.

ASU 2017-04 eliminates the requirement to perform a qualitative assessment for any reporting unit with zero or negative carrying

The Company adopted ASU-2017-4 for the year ended December 31, 2020.

The outbreak of the COVID-19 coronavirus

was declared a pandemic by the World Health Organization during our first quarter of 2020.

During the latter part of our first

quarter and subsequent to our quarter end, the COVID-19 pandemic grew, causing non-essential businesses to shut down and many people

to observe the shelter-in-place directive from our state government.

Our business and operations and the industries in which we

operate have been impacted by public and private sector policies and initiatives in the U.S.

to address the transmission of COVID-19,

such as the imposition of travel restrictions and the adoption of remote work.

The COVID-19 pandemic has contributed to a general

slowdown in the global economy, has adversely impacted the businesses of certain of our customers and suppliers, and, if it continues

for an extended period of time, it could adversely impact our results of operations and financial condition.

In response to the

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

We have also been taking actions to preserve

capital and protect the long-term needs of our businesses, including negotiating progress payments with our customers and reducing

discretionary spending.

At December 31, 2020, our cash balance

was $ 6,033,537 compared to $ 4,052,109 at December 31, 2019, an increase of $ 1,981,428 .

Our accounts receivable balance at December

31, 2020 decreased to $ 4,962,906 from $ 7,029,602 at December 31, 2019.

At December 31, 2020, we had working capital of $ 7,674,974

compared to working capital of $ 11,551,636 at December 31, 2019.

On August 24, 2020, the Company entered

into a Sixth Amendment and Waiver (the “Sixth Amendment”) its Amended and Restated Credit Agreement (as amended from

time to time the “Credit Agreement”) with the Lenders named therein and BankUnited, N.A.

(“BankUnited”)

as Sole Arranger, Agent and Collateral Agent (the “BankUnited Facility”).

Under the Sixth Amendment, the parties amended

the Credit Agreement by extending the maturity date of the Revolving Loan and Term Loan to May 2, 2022 and making conforming changes

to the repayment schedule of the Term Loan, by increasing the Term Loan $ 6 .0 million and reducing the Revolving Loan by $ 6 .0 million.

The maturities of the Term Loan are included in the maturities of long-term debt.

The BankUnited Facility, as amended by the Sixth

Amendment, required us to maintain the following financial covenants:

(a) maintain a debt service coverage ratio of no less than

1.5 to 1.0 at December 31, 2020 and no less than 1.25 to 1.0 for the trailing four quarter period at the end of each quarter thereafter;

(b) maintain a minimum net income, after taxes, of no less than $ 1.00 ;

ratio at the end of each quarter for the trailing four quarter period of no more than 4.0 to 1.0;

(d) maintain a minimum adjusted

EBITDA at the end of each quarter of no less than $ 1 million ;

and (e) maintain a minimum liquidity of $ 3 million at all times.

As of December 31, 2020 and 2019, the Company had $ 20.7 million and $ 26.7 million respectively as outstanding under

the BankUnited Facility.

Our working capital requirements can vary

significantly, depending in part on the timing of new program awards and the payment terms with our customers and suppliers.

continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as

exploring alternative funding sources.

The Company currently has a shareholders’ deficit and has experienced continuing losses

from operations and negative cash flows from operations for the year ended December 31, 2020 which collectively represent

significant risks to the Company to continue to operate as a going concern.

To address these matters, the Company has (a) negotiated

a revised credit facility with BankUnited effective October 28.

2021, (b) in the fourth quarter exited an unprofitable program to

avoid continuing cash losses, (c) obtained and is seeking additional progress payment and advance payment customer contract funding

provisions, (d) initiated new procedures to reduce investments in inventory and contract assets, (e) remained focused on its

military segment which has proven to be less susceptible to COVID-19 related impacts and (f) maintained a strong (approximately

million) backlog of funded orders, 98 %

of which are for military programs.

Based upon management’s assessment of the identified significant risks and the execution

of the plans described above, management believes that substantial risk does not exist as to whether the Company’s liquidity

and debt resources will be sufficient to meet its obligations and covenant requirements as a going concern for at least one year

from the date these financial statements were available to be issued.

CPI AEROSTRUCTURES,

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

Assets under finance leases, which primarily represent machinery

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

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

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

Goodwill is not amortized but instead

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

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, 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.

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.

AND SUBSIDIARIES

On May 11, 2021, the Company entered into

a Waiver and Seventh Amendment (“Seventh Amendment”) to the Credit Agreement.

Under the Seventh Amendment, the parties

amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022 , and (b)

amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to 4.0 to 1.0, determined at the

end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31,

2021, determined on an annualized basis for the three-quarter period then ended).

Additionally, under the Seventh Amendment, BankUnited

waived late delivery of certain financial information.

On October 28, 2021, the Company entered

into a Waiver and Eighth Amendment (the “Eighth Amendment”).

Under the Eighth Amendment, the parties amended the Credit

Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31, 2022, (b) reducing the

availability under the Revolving Loan from $ 24 million to $ 21 million while eliminating the requirement to maintain a minimum $ 3 .0

million in a combination of Revolving Loan availability and unrestricted cash, (c) providing for the repayment of an additional

$ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November 30, 2021, December 31, 2021 and

March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity, (d) amending the minimum debt service

coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of 1.5 to 1.0, and (e)

amending the maximum leverage ratio covenant as follows:

for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0;

fiscal quarter ending June 30, 2021 - 4.75 to 1.0;

for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal

quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing

four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for

the three-quarter period then ended).

Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance

and waived temporarily, late delivery of certain financial information.

BUSINESS COMBINATION

In December 2018, the Company completed

the acquisition of WMI from Air Industries for a purchase price of $ 7.9 million , subject to a potential post-closing working capital

Of the purchase price, $ 2 million was placed in escrow at closing and was to be released after the completion of the

working capital adjustment and for indemnification contingencies.

Air Industries objected to the Company’s calculation of

the post-closing working capital adjustment and rejected the determination of BDO USA, LLP (“BDO”), the independent

accountant appointed by the parties to resolve the dispute.

On September 27, 2019, the Company filed a notice of motion in the

Supreme Court of the State of New York, County of New York, against Air Industries seeking, among other things, a judgment against

Air Industries in the amount of approximately $ 4.1 million.

In October 2019, Air Industries and the Company jointly authorized

the release to the Company of approximately $ 619,000 from escrow, which represented the value of certain undisputed items.

The remaining escrowed amount of approximately $ 1,381,000 is shown as restricted cash on the consolidated balance sheet.

additional disputed amount of approximately $ 2.1 million is not on the Company’s consolidated balance sheet due to the

uncertainty of collection.

The Company and Air Industries entered

into a settlement agreement (“Settlement Agreement”) dated as of December 23, 2020, to resolve the post-closing working

capital adjustment dispute in exchange for the release to the Company of the $ 1,381,000 cash remaining in escrow.

was released from escrow to the Company on December 28, 2020.

As part of the settlement agreement the Company agreed to give up

the right to pursue the additional disputed working capital amount of approximately $ 2.1 million.

CPI AEROSTRUCTURES,

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

Under the provisions of ASC 718, stock-based

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

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

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

These awards are restricted as to the transfer

of ownership and generally vest over the requisite service period.

The Company recognizes forfeitures at the time the forfeiture 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.

Issued Accounting Standards – Adopted

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

REVENUE RECOGNITION

Contracts with Customers and Performance

The majority of the Company’s revenues

are from long-term contracts with the U.S.

government and commercial contractors.

The 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.

To 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 obligation representing a series of products when the contract

contains multiple products that are substantially the same.

The Company has elected to account for shipping performed after control

over a product has transferred to a customer as fulfillment activities.

When revenue is recognized in advance of incurring shipping

costs, the costs related to the shipping are accrued.

Shipping costs are included in costs of sales.

The Company provides warranties

on many of its products;

however, since customers cannot purchase such warranties separately and they do not provide services beyond

standard assurances, warranties are not separate performance obligations.

A 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.

The contracts with the U.S.

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

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 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.

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.

The 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.

The Company’s

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

The Company considers contract

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

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.

The 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, in most cases this will be based on shipping terms.

CPI AEROSTRUCTURES,

TO CONSOLIDATED FINANCIAL STATEMENTS

Issued Accounting Standards – Not Adopted

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):

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.

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

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

Contract Estimates

Certain contracts contain forms of variable

consideration, such as price discounts and performance penalties.

The Company generally estimates 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

In 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.

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.

Changes 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 estimated gross

margin percentage 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.

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.

When 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.

Contract Acquisition Costs and Fulfillment Costs

Contract 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

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.”

Disaggregation of Revenue

The following table presents the Company’s

revenue disaggregated by contract type:

December 31, 2020

December 31, 2019

Aerostructure

Kitting and Supply Chain Management

CPI AEROSTRUCTURES,

TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregation

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

Government subcontracts

Prime government contracts

Commercial contracts

Revenue recognized using over time revenue

recognition model

Revenue recognized using point in time revenue

recognition model

Favorable/(Unfavorable)

Adjustments to Gross Profit

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

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

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

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

As part of this process, management reviews

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

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

The risks and opportunities

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

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

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

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

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

overhead cost rates, among others.

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

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

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

A significant change in one or more of these estimates

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

Our EAC adjustments also include the establishment of,

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

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

Net adjustments

$ ( 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.

AND SUBSIDIARIES

Transaction Price Allocated to Remaining

Performance Obligations

As of December 31, 2020, the aggregate

amount of transaction price allocated to the remaining performance obligations was approximately $ 170 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, 2020.

The Company estimates that it will recognize approximately 54 % of this amount in fiscal year

2021, approximately 28 % in fiscal year 2022 and the remainder in fiscal year 2023.

CONTRACT ASSETS AND LIABILITIES

Contract 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

Price Allocated to Remaining Performance Obligations

of December 31, 2025, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately

$ 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, 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.

Under 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.

Contract assets are classified as current.

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.

Revenue recognized for the year ended December

31, 2020, that was included in the contract liabilities balance as of January 1, 2020 was $ 3.6 million and as of January 1, 2019

was $ 5.2 million .

RECONCILIATION OF CASH AND RESTRICTED CASH

The following table provides a reconciliation of cash and restricted cash reported within the statement of cash flows that sum to the total of the same such amounts shown in the statement of cash flows :

Restricted cash

Total cash and restricted cash shown in the statement of cash flow

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.

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

Contract assets

Contract liabilities

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 .

ACCOUNTS RECEIVABLE

Accounts receivable consists of trade receivables

receivable consists of trade receivables as follows :

December 31, 2025

December 31, 2024

December 31, 2023

Billed receivables

allowance for doubtful accounts

allowance for expected

credit losses

Total accounts receivable, net

CPI AEROSTRUCTURES,

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

The components of inventory consisted of the

TO CONSOLIDATED FINANCIAL STATEMENTS

components of inventory consist of the following:

Raw materials

Work in progress

Finished goods (Includes completed components)

Gross inventory

Inventory reserves

( 2,730,222 )

( 2,826,718 )

Inventory, net

Finished goods

PROPERTY AND EQUIPMENT

Schedule of property plant and equipment

components of property and equipment consist of the following :

Useful Life (years)

10 unchanged sentences

Total property and equipment, net

Depreciation and amortization

expense for the years ended December 31, 2025 and 2024 was $ 420,387 and $ 430,006 , respectively.

During the years ended December

31, 2020 and 2019, the Company acquired $ 134,900 and $ 399,800 , respectively, of property and equipment under capital leases.

INTANGIBLES AND GOODWILL

Schedule of intangibles and goodwill

amortization of intangibles

Total intangibles, net

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

As discussed in Note 1, the Company completed

the WMI Acquisition on December 20, 2018.

Company acquired WMI on December 20, 2018.

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, the Company

recorded Goodwill of $ 1,784,254 as a result of adjustments to the fair value of the acquired WMI inventory.

The Company’s

intangible asset is comprised of the value of the customer relationships acquired as part of the WMI Acquisition.

The useful life

is four years representing the remaining economic life.

Amortization expense for the years ended

December 31, 2020 and December 31, 2019 was $ 125,000 and $ 125,000 , respectively.

LINE OF CREDIT

On March 24, 2016, the Company entered

into the Credit Agreement.

The BankUnited Facility 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.

On August 24, 2020, the Company entered

into a Sixth Amendment and Waiver to the Credit Agreement (the “Sixth Amendment”).

Under the Sixth Amendment, the parties

amended the Credit Agreement by extending the maturity date of the Company’s Revolving Loan and Term Loan to May 2, 2022

and making conforming changes to the repayment schedule of the Term Loan.

The availability under the Revolving Loan was reduced

by $ 6 million , to $ 24 million , and the outstanding principal amount on the Term Note was increased to approximately $ 7,933,000 .

On May 11, 2021, the Company entered into

a Waiver and Seventh Amendment (“Seventh Amendment”) to the Credit Agreement.

Under the Seventh Amendment, the parties

amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022 , and (b)

amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to 4.0 to 1.0, determined at the

end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31,

2021, determined on an annualized basis for the three-quarter period then ended).

Additionally, under the Seventh Amendment, BankUnited

waived late delivery of certain financial information.

On October 28, 2021, the Company entered

into a Waiver and Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement.

Under the Eighth Amendment, the

parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31,

2022 , (b) reducing the availability under the Revolving Loan from $ 24

million to $ 21

million while eliminating the requirement to maintain a minimum $ 3.0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing

for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November

30, 2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity,

the minimum debt service coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of

1.5 to 1.0, and (e) amending the maximum leverage ratio covenant as follows:

for the fiscal quarter ending on March 31, 2021 - 5.0

for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0;

for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0

and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the

trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized

basis for the three-quarter period then ended).

Additionally, under the Eighth Amendment, BankUnited waived certain covenant

non-compliance and waived temporarily, late delivery of certain financial information.

The BankUnited Facility, as amended,

requires us to maintain the following financial covenants:

minimum debt service coverage ratio of no less than 1.5 to 1.0 at December 31, 2020 and for the trailing four quarter period at the

end of each quarter after June 30, 2021;

(b) a minimum net income, after taxes, of no less than $ 1.00 ;

for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0;

for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0;

for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0

to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal

quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended);

and (d) a minimum adjusted

EBITDA at the end of each quarter of no less than $ 1 million .

CPI AEROSTRUCTURES,

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.

AND SUBSIDIARIES

As of December 31, 2020 and December 31,

2019, the Company had $ 20.7 million and $ 26.7 million , respectively, outstanding under the BankUnited Revolving Loan Facility.

The BankUnited Facility is secured by all

of the Company’s assets.

LONG-TERM DEBT

As described above, in connection with the

Eighth Amendment, the Company and BankUnited agreed to extend the maturity dates of the Revolving Loan and Term Loan to December

31, 2022 and provide for the repayment of an additional $ 750,000

of the principal balance of the term loan in three installments of $ 250,000

on November 30, 2021, December 31, 2021 and March 31, 2022 (i.e.

in addition to the approximate $ 200,000

regular monthly principal payments paid monthly through maturity) The availability under the Revolving Loan was reduced from $ 24

million to $ 21

million while eliminating the requirement to maintain a minimum $ 3 .0

million in a combination Revolving Loan availability and unrestricted cash.

The BankUnited Facility, as amended, requires us to

maintain the financial covenants described in the preceding note.

The Company paid to BankUnited, commitment

and agent fees in the amount of $ 107,540 in 2020, together with out of pocket costs, expenses, and reasonable attorney’s

fees incurred by BankUnited in connection with the Sixth Amendment.

The Company paid to BankUnited, commitment and agent fees in

the amount of $ 25,000 in 2019, together with out of pocket costs, expenses, and reasonable attorney’s fees incurred by BankUnited

in connection with the Fifth Amendment.

The Company has cumulatively paid approximately $ 596,000 of total debt issuance costs in

connection with the BankUnited Facility of which approximately $ 84,000 is included in other assets at December 31, 2020.

On April 10, 2020, we entered into the

Paycheck Protection Program (PPP) Loan, with BNB Bank (now part of Dime Community Bank) as the Lender, in an aggregate principal

amount of $ 4,795,000 , pursuant to the Paycheck Protection Program under the CARES Act.

The PPP Loan is evidenced by the Note.

to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent ( 1 %) per annum, with the first six months

of interest deferred, has an initial term of two years , and is unsecured and guaranteed by the Small Business Administration (SBA).

The Note provides for customary events of default including, among other things, cross-defaults on any other loan with the Lender.

The PPP Loan may be accelerated upon the occurrence of an event of default.

On November 2, 2020, the Company applied

to the Lender for full forgiveness of the PPP Loan as calculated in accordance with the terms of the CARES Act, as modified by

the Paycheck Protection Flexibility Act.

We were notified by our lender that our application was accepted and forwarded to the

SBA, from whom, we are currently awaiting a response.

All amounts are classified as current or long term in accordance with the

On July 13, 2021, the Company received

notification through Dime that the PPP Loan and accrued interest thereon have been fully forgiven by the SBA and that the forgiveness

payment date was July 1, 2021.

The forgiveness of the PPP Loan will be recognized during the Company’s third fiscal quarter

ending September 30, 2021.

See Note 18, “Subsequent Events”.

The maturities of the long-term debt (excluding

unamortized debt issuance costs) as of December 31, 2020, are as follows:

Year ending December 31,

Included in the long-term debt are financing

leases and notes payable of $ 678,428 and $ 546,100 at December 31, 2020 and 2019, respectively, including a current portion of $ 255,833

and $ 384,619 , respectively.

CPI AEROSTRUCTURES,

TO CONSOLIDATED FINANCIAL STATEMENTS

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;

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.

AND SUBSIDIARIES

The Company leases a building and equipment.

Under 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 financing lease.

Operating leases are included in ROU assets and operating lease liabilities in our consolidated

balance sheets.

The Company leases manufacturing and office

space under an agreement classified as an operating lease.

The lease agreement expires on April 30, 2023 and 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 Company also leases office equipment

in agreements classified as operating leases.

For the years ended December 31, 2020 and

2019, the Company’s operating lease expense was $ 1,625,539

and $ 1,761,374 ,

respectively.

Future minimum lease payments under non-cancellable

operating leases as of December 31, 2020 were as follows :

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.

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 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.

the years ended December 31, 2025 and 2024, the Company’s operating lease expense was $ 2,379,916 and $ 2,137,830 , respectively.

minimum lease payments under non-cancellable operating leases as of December 31, 2025 were as follows:

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

The following table sets forth the ROU

assets and operating lease liabilities as of December 31, 2020 and 2019 :

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

1 unchanged sentence

Long-term operating lease liabilities

Total ROU liabilities

The right-of-use assets under operating

leases was $ 4,075,048 and $ 3,886,863 at

December 31, 2020 and 2019, respectively.

The non-cash amortization expense of these assets under operating leases was $ 1,783,280 and

$ 1,761,374 for the

years ended December 31, 2020 and 2019, respectively.

The Company’s weighted average remaining

lease term for its operating leases is 2.3 years.

On November 10, 2021, 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.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

We 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

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.

The Company files income tax returns in

Total lease liabilities

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

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 2014 tax return was under audit by the IRS and the Company

has received notification that the returns will be accepted as filed.

The Company generally is no longer subject to U.S.

examinations by tax authorities for taxable years prior to 2017.

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.

The provision (benefit) for income taxes

consists of the following :

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’

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

Year ended December 31,

The difference between the income

tax provision computed at the federal statutory rate and the actual tax provision (benefit) is accounted for as follows :

Taxes computed at the federal statutory rate

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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,

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

State income tax, net

1 unchanged sentence

Change in valuation allowance

Refund from IRS audit

Permanent differences

Provision (Benefit) for income taxes

The components of deferred income tax assets

and liabilities are as follows :

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 doubtful accounts

Capitalized R&D

Credit carryforwards

Inventory reserve

Loss contracts reserve

Restricted stock

Acquisition costs

Lease liability

3 unchanged sentences

Valuation allowance

( 22,704,931 )

( 21,632,564 )

Deferred Tax Liabilities:

Prepaid expenses

Revenue recognition

Property and equipment

Deferred tax liabilities

Net deferred tax assets (liabilities)

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

As of December 31, 2020, the Company had

approximately $ 92.4 million of gross net operating loss carryforwards (“NOLs”) for federal tax purposes and approximately

$ 38.4 million of post apportionment NOLs for state tax purposes.

As a result of the Tax Cuts and Jobs Act

of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, NOLs arising before January 1, 2018, and NOLs arising

after January 1, 2018, are subject to different rules.

Our pre-2018 NOLs totaled approximately $ 78.8 million ;

these NOLs will expire

in varying amounts from 2030 through 2039, if not utilized, and can offset 100 % of future taxable income for regular tax purposes.

Our NOLs arising in 2018, 2019 and 2020 can generally be carried back five years, carried forward indefinitely and can offset 100 %

of future taxable income for tax years before January 1, 2021 and up to 80 % of future taxable income for tax years after December

Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely and

can offset up to 80 % of future taxable income.

Net deferred tax assets

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 have

an indefinite life .

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 in 2034 .

Our ability to fully recognize the benefits

from our NOLs is dependent upon our ability to generate sufficient income prior to their expiration.

In addition, our NOL carryforwards

may be limited if we experience an ownership change as defined by Section 382 of the Internal Revenue Code (“Section 382”).

In general, an ownership change under Section 382 occurs if 5% shareholders increase their collective ownership of the aggregate

amount of our outstanding shares by more than 50 percentage points over a relevant lookback period.

For the year ended December

31, 2020 we have determined that no ownership change occurred during the relevant lookback period that would limit our ability

to use our NOLs, however the sale of additional equity securities in the future may trigger an ownership change under IRC Section

382 which could significantly limit our ability to utilize our tax benefits.

The Company will recognize a tax benefit in the consolidated

financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely

than not” (i.e., a likelihood greater than 50%) to be allowed by the tax jurisdiction based solely on the technical merits

of the position.

The term “tax position” refers to a position in a previously filed tax return or a position expected

to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial

reporting purposes.

The provision for income tax benefit for the

year ended December 31, 2020 was a benefit of $ 53,414 ,

an effective tax rate of 1.44 % .

The tax benefit consists of a refund received from the 2014 NOL carryback claim and state minimum taxes.

In February 2019, the Company

received information that the net operating loss carryback that was utilized in 2014 was under examination and could possibly be partially

disallowed by the Internal Revenue Service (“IRS”).

This adjustment was an issue of timing of the loss and had no income

tax provision effect.

In June 2020, the Company received a letter from the IRS stating that the returns will be accepted as filed.

September 2020, the Company received additional refunds related to the tax years under examination.

The examination is now closed and

there is no uncertain tax position recorded for this item.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

On March 27, 2020, the Coronavirus Aid,

Relief, and Economic Security Act, or the CARES Act, was enacted and signed into law, and GAAP requires recognition of the tax

effects of new legislation during the reporting period that includes the enactment date.

The CARES Act, among other things, includes

changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and

Jobs Act, including, permitting net operating losses, or NOLs, carryovers and carrybacks to offset 100% of taxable income for taxable

years beginning before 2021.

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each

of the five preceding taxable years to generate a refund of previously paid income taxes.

The CARES Act provides other reliefs

and stimulus measures.

We have evaluated the impact of the CARES Act, and do not expect that any provision of the CARES Act would

result in a material cash benefit to us or have a material impact on our financial statements or internal controls over financial

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

STOCK-BASED COMPENSATION

accounts for stock-based compensation based on the fair value of the stock or stock based instrument on the date of grant.

Company’s net loss for the years ended December 31, 2020 and 2019, includes approximately $ 711,000 and $ 763,000 of stock

based compensation expense, respectively, for the grant of RSUs and shares.

In January 2020, the Company granted 73,551

restricted stock units (“RSUs”) to its board of directors as partial compensation for the 2020 year.

RSUs vest quarterly

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

In August 2020, the Company granted 2,617 RSUs to one of its board members

as partial compensation for the 2020 year.

In October 2020, the company granted 949 shares of common stock to one of its board

members as partial compensation for the 2020 year.

In November 2020, the Company granted 5,758 shares of common stock to one of

its board members as partial compensation for the 2020 year.

In January 2019, the Company granted 75,353 RSUs to its board of directors

as partial compensation for the 2019 year.

In April 2019, the Company granted 6,677 RSUs to one of its board members as partial

compensation for the 2019 year.

In June 2019, a board member retired and 6,596 of his unvested RSUs were forfeited.

In June 2019,

two board members were granted an additional 2,725 RSUs as partial compensation for the 2019 year.

RSUs vest quarterly on a straight-line

basis over a one-year period.

The Company’s net loss for the years ended December 31, 2020 and 2019 includes approximately

$ 532,000 and $ 498,000 , respectively, of non-cash compensation expense related to the RSU grants to the board of directors.

expense is recorded as a component of selling, general and administrative expenses.

In February 2020, a former CFO forfeited

10,000 shares of common stock upon his resignation.

In August 2020, the Company granted 84,383 shares of common stock to various

officers and employees.

In the event that any of these employees voluntarily terminates their employment prior to certain dates,

portions of the shares may be forfeited.

In addition, if certain Company performance criteria are not achieved, portions of these

shares may be forfeited.

These shares will be expensed during various periods through March 2024 based upon the service and performance

In August 2020, the Company granted 9,346 shares to an employee.

The shares will be fully vested August 26, 2021.

August 2020, 66,242 of the shares granted in 2016, 2017, 2018 and 2019, respectively, were forfeited because the Company failed

to achieve certain performance criteria for the year ended December 31, 2019.

In April 2019, the Company granted 94,972

shares of common stock to various officers and employees.

In the event that any of these employees voluntarily terminates their

employment prior to certain dates, portions of the shares may be forfeited.

In addition, if certain Company performance criteria

are not achieved, portions of these shares may be forfeited.

These shares will be expensed during various periods through March

2023 based upon the service and performance thresholds.

Additionally 29,306 of the shares granted in 2016, 2017 and 2018, were

forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2018.

Employees returned

9,806 common shares to pay withholding taxes.

The Company granted 4,950 shares of common stock to various employees.

2019, 38,906 shares were forfeited as a result of the termination of employment of an officer.

In December 2019, the Company granted

10,000 RSU’s to the new CFO.

The Company’s net loss for the years

ended December 31, 2020 and 2019 includes approximately $ 179,000 and $ 265,000 respectively, of non-cash compensation expense related

to the RSU grants to the officers and employees.

This expense is recorded as a component of cost of goods sold of approximately

$ 57,000 and $ 79,000 respectively, and as a component of selling, general and administrative expenses of approximately $ 122,000

and $ 186,000 respectively.

During the year ended December 31, 2019,

35,000 stock options were exercised, pursuant to the provisions of the stock option plan, where the Company received no cash and

34,478 shares of its common stock in exchange for the 35,000 shares issued in the exercise.

There were no stock options outstanding

as of December 31, 2019.

In 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 46,230 shares available for grant under the 2009 Plan as of December 31, 2020.

In 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 plan.

The Company has

797,993 shares available for grant under the 2016 Plan as of December 31, 2020.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

EMPLOYEE BENEFIT PLAN

On 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.

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.

Contributions

by the Company are at the discretion of management.

The amount of contributions recorded by the Company in 2020 and 2019 amounted

to $ 288,553 and $ 412,990 , respectively.

MAJOR CUSTOMERS

For the year ended December 31,

2020, 35 %, 11 %, 11 % and 9 % of our revenue were generated from our four largest customers.

For the year ended December 31, 2019,

28 %, 18 %, 13 % and 12 % of our revenue were generated from our four largest customers.

At December 31, 2020, 29 %, 24 %

15 % and 13 % of accounts receivable were due from our four largest customers.

At December 31, 2019, 29 %, 24 %, 13 % and 12 % of accounts

receivable were due from our four largest customers.

At December 31, 2020, 39 %, 20 %,

12 % and 9 % of our contract assets were related to our four largest customers.

At December 31, 2019, 50 %, 12 %, 11 %, and 7 % of our

contract assets were related to our four largest customers.

LEGAL PROCEEDINGS

Class Action Lawsuit

As previously disclosed, a consolidated

class action lawsuit has been filed against the Company, Douglas McCrosson, the Company’s 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 asserts 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

through February 14, 2020.

The Amended Complaint alleges 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 alleges that the defendants violated

Sections 10(b) and 20(a) of 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 through February 14, 2020.

Plaintiff seeks unspecified compensatory

damages, including interest;

rescission or a rescissory measure of damages;

unspecified equitable or injunctive relief;

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

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

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

On May 20, 2021, the parties reached a settlement, subject to

court approval.

On July 9, 2021, Plaintiff filed an unopposed motion for preliminary approval of the settlement.

After satisfaction

of our $ 750,000 retention, of which approximately $ 150,000 remained as of November 15, 2021, the settlement will be covered in

large part by our directors’ and officers’ insurance.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Shareholder Derivative Action

Four shareholder derivative actions have

been filed against current members of our board of directors and certain of our current and former officers.

The first action (captioned Moulton v.

McCrosson, et.al., No.

20-cv-02092) was filed in the United States District Court for the Eastern District of New York, and purports

to assert derivative claims against the individual defendants for violations of Section 10(b) and 21(d) of the Exchange Act and

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

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

The complaint also seeks declaratory,

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

On October 26, 2020, the plaintiff

filed an amended complaint.

On January 27, 2021, the Court stayed the action pursuant to a joint stipulation filed by the parties.

The second action (captioned Woodyard v.

McCrosson, et al., Index No.

613169/2020) was filed on September 17, 2020, in the Supreme Court of the State of New York (Suffolk

County), and purports to assert derivative claims against the individual defendants for breach of fiduciary duty and unjust enrichment,

and seeks to recover on behalf of the Company for any liability the Company might incur as a result of the individual defendants’

alleged misconduct, along with declaratory, equitable, injunctive and monetary relief, as well as attorneys’ fees and other

On December 22, 2020, the parties filed a joint stipulation staying the action pending further developments in the class

The third action (captioned Berger v.

1:20-cv-05454) was filed on November 10, 2020, in the United States District Court for the Eastern District of New

York, and purports to assert derivative claims against current and former members of our board of directors, and certain of our

current and former officers.

The complaint, which is based on the shareholder’s inspection of certain corporate books and

records, purports to assert derivative claims against the individual defendants for breach of fiduciary duty and unjust enrichment,

and seeks to implement reforms to the Company’s corporate governance and internal procedures and to recover on behalf of

the Company an unspecified amount of monetary damages.

The complaint also seeks equitable, injunctive, and monetary relief,

as well as attorneys’ fees and other costs.

On March 19, 2021, the parties to the Moulton

and Berger actions filed a joint stipulation consolidating the actions and staying the consolidated action pending further developments

in the class action.

The fourth action (captioned Wurst v.

et al., Index No.

605244/2021) was filed on March 24, 2021, in the Supreme Court of the State of New York (Suffolk County), and

purports to assert derivative claims against the Company’s current and former executive officers, certain board members,

and the Company as a nominal defendant.

The complaint purports to assert derivative claims against the individual defendants for

breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks to recover on behalf of the Company for any

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

The complaint also seeks

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

On April 12, 2021, the

parties filed a joint stipulation staying the action pending further developments in the class action.

Each of these derivative actions is based

substantially on the same facts alleged in the class action complaint summarized above.

SEC Investigation

As previously disclosed, on May 22, 2020,

the Company received a subpoena from the Securities and Exchange Commission (the “Commission”) Division of Enforcement

(the “Division”) seeking documents and information relating, among other things, to previously disclosed errors in

and restatement of the Company’s financial statements, the Company’s October 16, 2018 equity offering and the recent

separation of the Company’s former Chief Financial Officers.

By letter dated March 12, 2021 and received on March 16, 2021,

the Division Staff notified the Company that the Division has concluded its investigation and, based on the information the Division

has as of such date, it does not intend to recommend an enforcement action by the Commission against the Company.

The Division’s

notice was provided under the guidelines described in the final paragraph of Securities Act Release No.

5310 which states in part

that the notice “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately

result from the staff’s investigation.”

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL

As previously

reported, on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors

of CPI Aerostructures, Inc.

(the “Company”), determined, based on the recommendation of management and in consultation

with CohnReznick LLP (“CohnReznick”), the Company’s independent registered public accounting firm, that the

Company’s financial statements which were included in its Annual Report on Form 10-K for the year ended December 31, 2020 and

Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the

Securities and Exchange Commission (the “SEC”) should no longer be relied upon due to errors in such financial

statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing

Errors”) and that management’s reports on the effectiveness of internal control over financial reporting, press

releases, and investor communications describing the Company’s financial statements for such periods should no longer be

The Company’s management identified the Inventory Costing Errors during its inventory testing procedures for the

preparation of the Company’s financial statements for the quarterly period ended March 31, 2021.

At the time of the June 2021

disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported

on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million.

The Company has now

determined that the Inventory Costing Errors increased 2020 net loss by $ 2,010,084 .

The correction of the Inventory Costing Errors resulted in the

determination that certain contracts were in a loss position and certain inventory items required additional reserves.

re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded

that increases to these reserves were required.

The insufficient reserves resulting from such reserve increases are referred to

as “Additional Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient

Reserves.” It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves

was during the fourth quarter of 2019.

On November 16, 2021, the Audit and Finance Committee determined,

based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial

statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K

for the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating

to the recording and reporting of the Insufficient Reserves, that, similarly, management’s reports on the effectiveness of

internal control over financial reporting, press releases, and investor communications describing the Company’s financial

statements for such period should no longer be relied upon, and stated that the Company expected

to restate its Annual Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports

on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original

Forms 10-Q”) by filing a comprehensive Form 10-K/A.

Company, upon conducting an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined

that net loss for the years ended December 31, 2020 and 2019 is $ 324,231 and $ 2,189,728 , respectively, greater than the net loss

reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on

Form 10-K for the fiscal year ended December 31, 2019.

both the Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended

December 31, 2020 and 2019 is $ 2,334,315

and $ 2,300,083 ,

respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and

the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and net loss for the quarters ended March

31, 2020 and June 30, 2020 is $ 544,836

and $ 763,730 ,

respectively, greater than the net loss reported in the respective Quarterly Reports on Form 10-Q for such periods and the net

income for the quarter ended September 30, 2020 is $ 24,556

more than the net income reported in the Quarterly Report for such period.

Inventory Costing Errors resulted from software processing and coding errors, inconsistent units of measure being used for quantities

ordered and quantities received of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods

received and the Company not having a procedure to address over or under absorbed overhead costs at the end of accounting periods.

The Inventory Costing Errors affected the income reported with respect to the Company’s product lines for which revenue

is recognized when a product ships to customers, which accounted for approximately 15 % of total 2020 revenue (the “Non-POC

The Inventory Costing Errors did not affect income reported with respect to the Company’s products for

which revenue is recognized over time using percentage of completion accounting (the “POC Contracts”).

The Loss Contract

Reserve and the Additional Inventory Reserves also only affect the income reported with respect to the Company’s Non-POC

Contracts, and do not affect the income reported with respect to the Company’s POC Contracts.

The Inventory Costing Errors

and the Insufficient Reserves did not affect either prior reported revenue or cash flow for fiscal 2020 and 2019.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

has considered the effect of the Inventory Costing Errors and the Insufficient Reserves on the Company’s prior conclusions

of the adequacy of its internal control over financial reporting and disclosure controls and procedures as of the end of each

of the applicable periods.

As a result of the Inventory Costing Errors and the Insufficient Reserves, management has determined

that a material weakness existed in the Company’s internal control over financial reporting as of the end of the quarterly

periods ended March 31, 2020, June 30, 2020, September 30, 2020 and for the years ended December 31, 2020 and 2019.

Item 9A – Controls and Procedures within this Comprehensive Form 10-K/A for a description of these matters.

a result of the restatement included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting

herein net loss for the years ended December 31, 2020 and December 31, 2019 which is $ 2,334,315 and $ 2,300,083 , respectively,

greater than the net loss reported in the Original Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal

year ended December 31, 2019, net loss for the quarters ended March 31, 2020 and June 30, 2020 which is $ 544,836 and $ 763,730 ,

respectively, greater than the net loss reported in the respective Original Forms 10-Q, and net income for the quarter ended September

30, 2020 which is $ 24,556 greater than the net income reported in the Original Form 10-Q.

The Inventory Costing Errors and the

Insufficient Reserves did not affect reported revenue or cash flows for the years ended December 31, 2020 or December 31, 2019,

or for the quarters ended March 31, June 30 and September 30, 2020.

2019 Restatement

The following

is a discussion of the restatement adjustments that were made to the Company’s previously issued December 31, 2020 and December

31, 2019 consolidated financial statements due to the Inventory Costing Errors, Loss Contract Reserve and Additional Inventory

(a) Inventory

Costing Errors

The Company determined that the Inventory

Costing Errors resulted in incorrectly reported inventory values and reported income for the annual periods ended December 31,

2020 and December 31, 2019, and the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020.

The Inventory

Costing Errors were comprised of the following:

1) Labor costs for work in process

were overstated in the detailed inventory records due to an automated reversing entry not processing correctly;

2) A customized IT program to

calculate weighted average cost was not tested thoroughly enough, which allowed errors in average cost calculations to occur in

certain situations;

3) Units of Measure were not

consistent between quantities ordered and quantities received for certain classes of purchased parts, which resulted in overstatements

of inventory values due to units of measure not being consistent with unit prices on purchase orders to suppliers;

4) The cost of goods received

which had not yet processed through the Company’s quality inspection process at the time of the period-end accounting closes

were not properly accrued to the period financial statements;

5) The Company did not have a

process to address over-absorbed or under-absorbed overhead costs at the end of each accounting period.

(b) Loss Contract

After correcting its financial statements

for the Inventory Costing Errors, the Company determined that is was a party to some contracts to deliver product upon which the

Company would lose money, and thus the Company’s Loss Contract Reserve was increased accordingly for the year ended December

31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020.

Inventory Reserves

After correcting its financial statements

for the Inventory Costing Errors, the Company determined that its inventory required additional reserves to reflect current market

value and demand, and thus the Company’s Inventory Reserves were increased accordingly for the year ended December 31, 2020

and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020.

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

(d) Income taxes

There were no material tax adjustments

to the Company’s Provision for/(benefit from) income taxes or Net deferred tax assets (liabilities) related to the impact

of the 2020 and 2019 Restatement.

The following tables present the impact of the restatement on

the Company’s previously reported financial statements as of December 31, 2020;

September 30, 2020;

June 30, 2020 and March

31, 2020 and December 31, 2019:

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

on Consolidated Balance Sheets

The effect of

the Restatement described above on the accompanying consolidated balance sheets as of December 31, 2020;

September 30, 2020;

March 31, 2020 and December 31, 20019 are as follows :

Consolidated Balance Sheet as at December 31, 2020

As Previously

Costing Errors

Loss Contract

Additional Inventory

Current Assets:

Accounts receivable, net

Contract assets

( 1,875,950 )

( 1,305,683 )

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

$ ( 1,875,950 )

$ ( 1,305,683 )

Operating lease right-of-use assets

Property and equipment, net

Intangibles, net

$ ( 1,875,950 )

$ ( 1,305,683 )

Liabilities and Shareholders’ Deficit

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current Liabilities

Line of credit

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Liabilities

Shareholders’ Deficit:

Additional paid-in capital

Accumulated deficit

( 80,367,126 )

( 2,120,439 )

$ ( 1,208,276 )

( 1,305,683 )

( 85,001,524 )

Total Shareholders’ Deficit

( 8,349,334 )

( 2,120,439 )

( 1,208,276 )

( 1,305,683 )

( 12,983,732 )

Total Liabilities and Shareholders’ Deficit

$ ( 1,875,950 )

$ ( 1,305,683 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Balance Sheet as at September 30, 2020

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Additional Inventory Reserve

Current Assets:

Restricted cash

Accounts receivable, net

Contract assets

( 1,226,852 )

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

( 1,226,852 )

Operating lease right-of-use assets

Property and equipment, net

Intangibles, net

$ ( 962,577 )

$ ( 1,226,852 )

Liabilities and Shareholders’ Deficit

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current Liabilities

Line of credit

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Liabilities

Shareholders’ Deficit:

Additional paid-in capital

Accumulated deficit

( 81,640,829 )

( 1,049,044 )

$ ( 1,308,197 )

( 1,226,852 )

( 85,224,922 )

Total Shareholders’ Deficit

( 9,656,892 )

( 1,049,044 )

( 1,308,197 )

( 1,226,852 )

( 13,240,985 )

Total Liabilities and Shareholders’ Deficit

$ ( 962,577 )

$ ( 1,226,852 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Balance Sheet as at June 30, 2020

As Previously

Inventory Costing

Loss Contract

Additional Inventory

Current Assets:

Restricted cash

Accounts receivable, net

Contract assets

( 1,157,695 )

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

( 1,157,695 )

Operating lease right-of-use assets

Property and equipment, net

Intangibles, net

$ ( 794,960 )

$ ( 1,157,695 )

Liabilities and Shareholders’ Deficit

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current Liabilities

Line of credit

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Liabilities

Shareholders’ Deficit:

Additional paid-in capital

Accumulated deficit

( 82,456,038 )

$ ( 1,514,356 )

( 1,157,695 )

( 86,064,687 )

Total Shareholders’ Deficit

( 10,613,202 )

( 1,514,356 )

( 1,157,695 )

( 14,221,851 )

Total Liabilities and Shareholders’ Deficit

$ ( 794,960 )

$ ( 1,157,695 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Balance Sheet as at March 31, 2020

As Previously

Inventory Costing

Loss Contract

Additional Inventory

Current Assets:

Restricted cash

Accounts receivable, net

Contract assets

( 1,094,244 )

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

( 1,094,244 )

Operating lease right-of-use assets

Property and equipment, net

Intangibles, net

$ ( 353,212 )

$ ( 1,094,244 )

Liabilities and Shareholders’ Deficit

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current Liabilities

Line of credit

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Liabilities

Shareholders’ Deficit:

Additional paid-in capital

Accumulated deficit

( 81,859,207 )

( 1,324,321 )

( 1,094,244 )

( 84,704,126 )

Total Shareholders’ Deficit

( 10,205,574 )

( 1,324,321 )

( 1,094,244 )

( 13,050,493 )

Total Liabilities and Shareholders’ Deficit

$ ( 353,212 )

$ ( 1,094,244 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Balance Sheet as at December 31, 2019

As Previously

Inventory Costing

Loss Contract

Additional Inventory

Current Assets:

Restricted cash

Accounts receivable, net

Contract assets

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

Operating lease right-of-use assets

Property and equipment, net

Intangibles, net

$ ( 110,355 )

$ ( 874,778 )

Liabilities and Shareholders’ Deficit

Current Liabilities:

Accounts payable

Accrued expenses

Contract liabilities

Current portion of long-term debt

Operating lease liabilities

Income taxes payable

Total Current Liabilities

Line of credit

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Liabilities

Shareholders’ Deficit:

Additional paid-in capital

Accumulated deficit

( 79,046,688 )

( 1,314,950 )

( 81,346,771 )

Total Shareholders’ Deficit

( 7,740,240 )

( 1,314,950 )

( 10,040,323 )

Total Liabilities and Shareholders’ Deficit

$ ( 110,355 )

$ ( 874,778 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Impact on Consolidated Statements

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.

The effect of the Restatement described

above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2020 is as follows :

Consolidated Statement of Operation For the twelve months ended December 31, 2020

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cost of sales

( 2,009,998 )

Selling, general and administrative expenses

Profit (loss) from operations

( 2,009,998 )

( 2,286,212 )

Other expense:

Interest expense

( 1,421,955 )

Loss before provision for income taxes

( 1,373,938 )

( 2,009,998 )

( 3,708,167 )

Benefit from income taxes

$ ( 1,320,438 )

$ ( 2,010,084 )

$ ( 430,905 )

$ ( 3,654,753 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

The effect of the Restatement described

above on the accompanying consolidated statement of operations for the three and nine months ended September 30, 2020 is as follows :

Consolidated Statement of Operation For the three months ended September 30, 2020 (Unaudited)

As Previously

Inventory Costing

Loss Contract

Inventory Reserve

Cost of sales

Selling, general and administrative expenses

Other expense:

Interest expense

Income before

provision for income taxes

Provision for income

$ ( 112,446 )

Income per common share - basic

Income per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Operation For the nine months ended September 30, 2020 (Unaudited)

As Previously Reported

Loss Contract

Inventory Reserve

Cost of sales

Selling, general and administrative expenses

Loss from operations

( 1,498,622 )

( 2,782,632 )

Other expense:

Interest expense

( 1,085,805 )

Loss before provision for income taxes

( 2,584,427 )

( 3,868,437 )

Provision for income

$ ( 2,594,141 )

$ ( 938,689 )

$ ( 352,074 )

$ ( 3,878,151 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

The effect of the Restatement described

above on the accompanying consolidated statement of operations for the three and six months ended June 30, 2020 is as follows :

Consolidated Statement of Operation For the three months ended June 30, 2020 (Unaudited)

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cost of sales

Selling, general and administrative expenses

Loss from operations

Other expense:

Interest expense

Profit before provision for income

( 1,359,039 )

Provision for income taxes

$ ( 596,831 )

$ ( 510,244 )

$ ( 190,035 )

$ ( 1,360,561 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Operation For the six months ended June 30, 2020 (Unaudited)

As Previously

Inventory Costing

Loss Contract

Inventory Reserve

Cost of sales

Selling, general and administrative expenses

Loss from operations

( 2,630,453 )

( 3,939,019 )

Other expense:

Interest expense

Loss before provision for income taxes

( 3,407,250 )

( 4,715,816 )

Provision for income taxes

$ ( 3,409,350 )

$ ( 826,243 )

$ ( 199,406 )

$ ( 282,917 )

$ ( 4,717,916 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

The effect of the Restatement described

above on the accompanying consolidated statement of operations for the three months ended March 31, 2020 is as follows :

Consolidated Statement of Operation For the three months ended March 31, 2020 (Unaudited)

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cost of sales

Selling, general and administrative expenses

Loss from operations

( 2,395,271 )

( 2,940,107 )

Other expense:

Interest expense

Loss before provision for income taxes

( 2,811,941 )

( 3,356,777 )

Provision for income taxes

$ ( 2,812,519 )

$ ( 315,999 )

$ ( 219,466 )

$ ( 3,357,355 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

The effect of the Restatement described

above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2019 is as follows :

Consolidated Statement of Operation For the twelve months ended December 31, 2019

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cost of sales

( 1,314,950 )

Selling, general and administrative expenses

Loss from operations

( 2,431,090 )

( 1,314,950 )

( 4,731,173 )

Other income (expense):

Interest expense

( 2,104,851 )

Loss before provision for income taxes

( 4,446,275 )

( 1,314,950 )

( 6,746,358 )

Provision for income taxes

$ ( 4,450,152 )

$ ( 110,355 )

$ ( 1,314,950 )

$ ( 874,778 )

$ ( 6,750,235 )

Loss per common share - basic

Loss per common share - diluted

CPI AEROSTRUCTURES,

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.

AND SUBSIDIARIES

Cumulative Effect of Prior Period

The following table presents

the impact of the Restatement on the Company’s shareholders’ deficit as of December 31, 2019 (as restated) and December

31, 2020 (as restated) :

Common Stock Shares

Additional Paid-in Capital

Accumulated Deficit

Total Shareholders’ Deficit

December 31, 2019

(As previously reported)

$ ( 79,046,688 )

$ ( 7,740,240 )

Inventory Costing Errors

Loss Contract Reserve

( 1,314,950 )

Inventory Reserve

Cumulative restatement adjustments

( 2,300,083 )

December 31, 2019

(As Restated)

$ ( 81,346,771 )

$ ( 10,040,323 )

Net Loss (as previously reported)

$ ( 2,812,519 )

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cumulative restatement adjustments

Net Loss (as restated)

( 3,357,355 )

March 31, 2020

(As Restated)

$ ( 84,704,126 )

$ ( 13,050,493 )

Net Loss (as previously reported)

$ ( 596,831 )

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cumulative restatement adjustments

Net Loss (as restated)

( 1,360,561 )

Stock-based compensation

June 30, 2020

(As Restated)

$ ( 86,064,687 )

$ ( 14,221,851 )

Net Income (as previously reported)

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cumulative restatement adjustments

Net Income (as restated)

Stock-based compensation

September 30, 2020

(As Restated)

$ ( 85,224,922 )

$ ( 13,240,985 )

Inventory Costing Errors

( 1,071,395 )

Loss Contract Reserve

Inventory Reserve

Cumulative restatement adjustments

( 1,050,305 )

Net income (as restated)

TO CONSOLIDATED FINANCIAL STATEMENTS

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:

Accrued purchases

Accrued payroll

Accrued insurance

Accrued interest

Accrued professional fees and other accrued expenses

STOCK-BASED COMPENSATION

December 31, 2020

(As Restated)

$ ( 85,001,524 )

$ ( 12,983,732 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

on Consolidated Statement of Cash Flows

of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December

31, 2020 is as follows :

Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cash flows from operating activities:

$ ( 1,320,438 )

$ ( 2,010,084 )

$ ( 430,905 )

$ ( 3,654,753 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt issuance cost

Cash expended in excess of rent expense

Stock-based compensation expense

Bad debt expense

Changes in operating assets and liabilities:

Decrease in accounts receivable

Increase in contract assets

( 4,448,831 )

Increase in inventory

( 3,676,535 )

( 1,480,035 )

Decrease in prepaid expenses and other current assets

Decrease in refundable income taxes

Increase in accounts payable and accrued expenses

Decrease in contract liabilities

( 1,911,158 )

Decrease in loss reserve

( 1,849,992 )

( 1,956,666 )

Decrease in income taxes payable

Net cash used in operating activities

( 1,602,455 )

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from PPP loan

Payments on long-term debt

( 2,337,473 )

Debt issuance costs

Net cash provided by financing activities

Net increase in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of year

schedule of noncash investing activities:

Equipment acquired under capital lease

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

$ ( 488,052 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Cash Flows

of the Restatement described above on the accompanying consolidated statement of cash flows for the nine months ended September

30, 2020 is as follows:

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (Unaudited)

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cash flows from operating activities:

$ ( 2,594,141 )

$ ( 938,689 )

$ ( 352,074 )

$ ( 3,878,151 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt issuance cost

Cash expended in excess of rent expense

Stock-based compensation expense

Bad debt expense

Changes in operating assets and liabilities:

Increase in accounts receivable

Increase in contract assets

( 3,128,460 )

Increase in inventory

( 2,850,707 )

( 1,646,411 )

Decrease in prepaid expenses and other current assets

Decrease in refundable income taxes

Increase in accounts payable and accrued expenses

Decrease in contract liabilities

( 1,092,266 )

Decrease in loss reserve

( 1,081,516 )

( 1,088,269 )

Net cash used in operating activities

( 3,283,377 )

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from PPP loan

Payments on long-term debt

( 1,855,209 )

Debt issuance costs

Net cash provided by financing activities

Net decrease in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of year

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

$ ( 449,749 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Cash Flows

of the Restatement described above on the accompanying consolidated statement of cash flows for the six months ended June 30, 2020

is as follows:

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (Unaudited)

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cash flows from operating activities:

$ ( 3,409,350 )

$ ( 826,243 )

$ ( 199,406 )

$ ( 282,917 )

$ ( 4,717,916 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt issuance cost

Cash expended in excess of rent expense

Stock-based compensation expense

Bad debt expense

Changes in operating assets and liabilities:

Decrease in accounts receivable

Increase in contract assets

Increase in inventory

( 1,767,122 )

Increase in prepaid expenses and other current assets

Decrease in refundable income taxes

Increase in accounts payable and accrued expenses

Decrease in contract liabilities

Decrease in loss reserve

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from PPP loan

Payments on long-term debt

( 1,237,726 )

Net cash provided by financing activities

Net increase in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of year

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

$ ( 449,749 )

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Cash Flows

of the Restatement described above on the accompanying consolidated statement of cash flows for the three months ended March 31,

2020 is as follows:

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 (Unaudited)

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cash flows from operating activities:

$ ( 2,812,519 )

$ ( 315,999 )

$ ( 219,466 )

$ ( 3,357,355 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt issuance cost

Amortization of right of use asset

Stock-based compensation expense

Bad debt expense

Changes in operating assets and liabilities:

Decrease in accounts receivable

Increase in contract assets

Increase in inventory

( 1,048,752 )

Decrease in prepaid expenses and other current assets

Decrease in refundable income taxes

Increase in accounts payable and accrued expenses

Increase in contract liabilities

Decrease in loss reserve

Net cash used in operating activities

( 1,427,522 )

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Payments on long-term debt

Debt issuance costs

Net cash used in financing

Net decrease in cash and restricted cash

( 2,053,412 )

Cash and restricted cash at beginning of year

Cash and restricted cash at end of period

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

CPI AEROSTRUCTURES,

AND SUBSIDIARIES

Consolidated Statement of Cash Flows

of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December

31, 2019 is as follows:

Consolidated Statements of Cash Flows for the twelve months ended December 31, 2019

As Previously Reported

Inventory Costing Errors

Loss Contract Reserve

Inventory Reserve

Cash flows from operating activities:

$ ( 4,450,152 )

$ ( 110,355 )

$ ( 1,314,950 )

$ ( 874,778 )

$ ( 6,750,235 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of debt issuance cost

Cash expended in excess of rent expense

Stock-based compensation expense

Common Stock Issued as Employee Compensation

Changes in operating assets and liabilities:

Decrease in accounts receivable

Decrease in contract assets

Decrease in inventory

Decrease in prepaid expenses and other current assets

Decrease in refundable income taxes

Decrease in accounts payable and accrued expenses

Decrease in contract liabilities

( 1,968,872 )

Decrease in loss reserve

( 1,012,597 )

Decrease in income taxes payable

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from Line of Credit

Payments of Line of Credit

( 1,300,000 )

Payments on long-term debt

( 2,436,786 )

Debt issuance costs

Stock offering costs paid

Net cash provided by financing activities

Net decrease in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of year

Supplemental schedule of noncash investing activities:

Equipment acquired under capital lease

Supplemental schedule of cash flow information:

Cash paid during the year for interest

Cash (received) from income taxes

$ ( 378,652 )

SUBSEQUENT EVENTS

Protection Program (PPP) Loan

April 10, 2020, the Company obtained a loan from Dime Community Bank (formerly BNB Bank) as the lender (“Dime”), in

the principal amount of $ 4,795,000 pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic

Security (CARES) Act as administered by the U.S.

Small Business Administration (“SBA”).

In November 2020, the Company

submitted its forgiveness application and the loan necessity questionnaire to the SBA through Dime.

July 13, 2021, the Company received notification through Dime that the PPP Loan and accrued interest thereon have been fully forgiven

by the SBA and that the forgiveness payment date was July 1, 2021.

The forgiveness of the PPP Loan will be recognized during the

Company’s third fiscal quarter ending September 30, 2021.

due to Inventory Costing Errors and Insufficient Reserves

As previously reported,

on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors of CPI Aerostructures,

(the “Company”), determined, based on the recommendation of management and in consultation with CohnReznick LLP (“CohnReznick”),

the Company’s independent registered public accounting firm, that the Company’s financial statements which were included in

its Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Reports on Form 10-Q for the quarters ended March 31,

2020, June 30, 2020, and September 30, 2020 as filed with the Securities and Exchange Commission (the “SEC”) should no longer

be relied upon due to errors in such financial statements relating to the recording and reporting of inventory costing and related internal

controls (the “Inventory Costing Errors”) and that management’s reports on the effectiveness of internal control over

financial reporting, press releases, and investor communications describing the Company’s financial statements for such periods

should no longer be relied upon.

The Company’s management identified the Inventory Costing Errors during its inventory testing procedures

for the preparation of the Company’s financial statements for the quarterly period ended March 31, 2021.

At the time of the June

2021 disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported

on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million.

The Company has now determined

that the Inventory Costing Errors increased 2020 net loss by $ 2,010,084 .

The correction of the Inventory Costing Errors resulted

in the determination that certain contracts were in a loss position and certain inventory items required additional reserves.

re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded

that increases to these reserves were required.

The insufficient reserves resulting from such reserve increases are referred to as “Additional

Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient Reserves.”

It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves was during the fourth

quarter of 2019.

On November 16, 2021, the Audit and Finance Committee

determined, based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial

statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K for

the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating to the recording

and reporting of the Insufficient Reserves, that, similarly, management’s reports on the effectiveness of internal control over

financial reporting, press releases, and investor communications describing the Company’s financial statements for such period should

no longer be relied upon, and stated that the Company expected to restate its Annual Report on Form

10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports on Form 10-Q for the quarters ended March

31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original Forms 10-Q”) by filing a comprehensive

The Company, upon conducting

an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined that net loss for the years

ended December 31, 2020 and 2019 is $ 324,231 and $ 2,189,728 , respectively, greater than the net loss reported in the Annual Report on

Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December

Considering both the

Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended December 31, 2020

and 2019 is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal

year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and net loss

for the quarters ended March 31, 2020, June 30, 2020 is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the

respective Quarterly Reports on Form 10-Q for such periods and the net income for the quarter ended September 30, 2020 is $ 24,556 more

than the net income reported in the Quarterly Report for such period.

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,

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.

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.

AND SUBSIDIARIES

The Inventory Costing Errors

resulted from software processing and coding errors, inconsistent units of measure being used for quantities ordered and quantities received

of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods received and the Company not having

a procedure to address over or under absorbed overhead costs at the end of accounting periods.

The Inventory Costing Errors affected the

income reported with respect to the Company’s product lines for which revenue is recognized when a product ships to customers, which

accounted for approximately 15 % of total 2020 revenue (the “Non-POC Contracts”).

The Inventory Costing Errors did not affect

income reported with respect to the Company’s products for which revenue is recognized over time using percentage of completion

accounting (the “POC Contracts”).

The Loss Contract Reserve and the Additional Inventory Reserves also only affect the income

reported with respect to the Company’s Non-POC Contracts, and do not affect the income reported with respect to the Company’s

POC Contracts.

The Inventory Costing Errors and the Insufficient Reserves did not affect either prior reported revenue or cash flow for

fiscal 2020 and 2019.

Management has considered

the effect of the Inventory Costing Errors and the Insufficient Reserves on the Company’s prior conclusions of the adequacy of its

internal control over financial reporting and disclosure controls and procedures as of the end of each of the applicable periods.

result of the Inventory Costing Errors and the Insufficient Reserves, management has determined that a material weakness existed in the

Company’s internal control over financial reporting as of the end of the quarterly periods ended March 31, 2020, June 30, 2020,

September 30, 2020 and for the years ended December 31, 2020 and 2019.

See Part II Item 9A – Controls and Procedures within this

Comprehensive Form 10-K/A for a description of these matters.

As a result of the restatement

included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting herein net loss for the years

ended December 31, 2020 and December 31, 2019 which is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in

the Original Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, net loss for the

quarters ended March 31, 2020 and June 30, 2020 which is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the

respective Original Forms 10-Q, and net income for the quarter ended September 30, 2020 which is $ 24,556 greater than the net income reported

in the Original Form 10-Q.

The Inventory Costing Errors and the Insufficient Reserves did not affect reported revenue or cash flows for

the years ended December 31, 2020 or December 31, 2019, or for the quarters ended March 31, June 30 and September 30, 2020.

This Comprehensive Form 10-K/A

contains our audited restated annual financial statements as of and for the years ended December 31, 2020 and 2019, as well as our unaudited

restated quarterly financial statements as of and for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020.

The restatement

is discussed in more detail within Note 17, “Restatement of Previously Issued Consolidated Financial Statements”.

Amendments to BankUnited Facility

On May 11, 2021, we entered into the Seventh Amendment.

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

Term Loan to July 31, 2022 , and (b) amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to

4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal

quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended).

Additionally, under the Seventh

Amendment, BankUnited waived late delivery of certain financial information.

On October 28, 2021, we entered into the Eighth Amendment.

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

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

the requirement to maintain a minimum $ 3 .0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing

for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November 30,

2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity, (d) amending the

minimum debt service coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of 1.5 to

1.0, and (e) amending the maximum leverage ratio covenant as follows:

for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0;

the fiscal quarter ending June 30, 2021 - 4.75 to 1.0;

for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal

quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter

period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter

period then ended).

Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived temporarily,

late delivery of certain financial information.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

Cost of sales

Selling, general and administrative

Total stock-based compensation expense

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

For 2025, these RSUs vest

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

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

Non-vested – January 1, 2025

Non-vested – December 31, 2025

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

These shares have various vesting

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

In the event that the employee’s

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

December 31, 2025, the weighted average remaining amortization period was 2.3 years.

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

Non-vested – January 1, 2025

Non-vested – December 31, 2025

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

American Delinquency Notices

On May 25, 2021, we received a notice from NYSE American

LLC stating that our failure to timely file our Quarterly Report on Form 10-K for the three months ended March 31, 2021 caused us to be

out of compliance with the NYSE American LLC’s continued listing standards under the timely filing criteria included in Section

1007 of the Company Guide.

In accordance with Section 1007 of the Company Guide, we will have until November 24, 2021 as an Initial Cure

Period to file the Form 10-Q with the SEC.

If we fail to file the Form 10-Q during the Initial Cure Period, the NYSE American exchange

may, in its sole discretion, provide an Additional Cure Period of up to six months.

We have requested an Additional Cure Period.

However, there can be no assurance that NYSE American will grant us the Additional Cure Period or that we will be able to file the Form

10-Q within the Additional Cure Period.

If we are not granted an Additional Cure Period or if we are unable to file the Form 10-Q within

the Additional Cure Period, our common stock may be delisted from the NYSE American exchange.

On September 17, 2021, we received notice from NYSE

American LLC indicating that the Company does not meet the continued listing standards set forth in Part 10 of the Company Guide.

Company is not in compliance with Section 1003(a)(i) of the Company Guide since it has stockholders’ equity of less than $ 2 .0 million

and losses from continuing operations and/or net losses in two of its three most recent fiscal years and Section 1003(a)(ii) of the Company

Guide since it has stockholders’ equity of less than $ 4 .0 million and losses from continuing operations and/or net losses in three

of its four most recent fiscal years.

The Company has therefore become subject to the procedures and requirements of Section 1009 of the

Company Guide and was required to, and timely did, submit a plan to NYSE American LLC addressing how the Company intends to regain compliance

with the continued listing standards by March 17, 2023 (the “Plan”).

On November 19, 2021, we received notice from NYSE American

LLC that has accepted the Plan, subject to periodic review, including quarterly monitoring, for compliance with the Plan.

If the Company

is not in compliance with the continued listing standards by March 17, 2023 or if the Company does not make progress consistent with the

Plan during the plan period, the NYSE Regulation staff may initiate delisting proceedings, as appropriate.

See “Risk Factors - If our common stock is delisted

from the NYSE American exchange, our business, financial condition, results of operations and stock price could be adversely affected,

and the liquidity of our stock and our ability to obtain financing could be impaired.”.

Extension of Lease Agreement on Corporate Headquarters,

Manufacturing and Office Space

On November 10, 2021, 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.

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:

Non-vested – January 1, 2025

Non-vested – December

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

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 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, 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 %,

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.

AND SUBSIDIARIES

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.

November 24, 2021

AEROSTRUCTURES, INC.

Financial Officer and Secretary

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:

Terry Stinson

of the Board of

November 24, 2021

Chairman of the Board of Directors

Douglas McCrosson

Executive Officer and

November 24, 2021

(Principal Executive Officer)

Financial Officer and Secretary

Financial and Accounting Officer)

November 24, 2021

Walter Paulick

November 24, 2021

Eric Rosenfeld

November 24, 2021

Michael Faber

November 24, 2021

Richard Caswell

November 24, 2021

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 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,

Robert Mannix

Chief Financial Officer

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/A

Item 9A. Controls and Procedures