CVU filing — read by section

Item 9A. Controls and Procedures

Item 9A. 
 CONTROLS
 AND PROCEDURES 

 Evaluation
of Disclosure Controls and Procedures 

 Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were
effective to provide reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's (SEC) rules and forms and (2) accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. 

 Management’s
Annual Report on Internal Control over Financial Reporting 

 Management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting,
as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our principal executive
and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. GAAP and includes those policies and procedures that: 

 ● 
 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 effective at the
reasonable assurance level as of December 31, 2025. 

 During
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. 

 26 

 On
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 

 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. 

 The
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. 

 Conclusion 

 As
described above, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of December 31, 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. GAAP. 

 The
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. 

 Changes
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.

 Item 9B. 
 OTHER INFORMATION 

 None . 

 Item 9C. 
 DISCLOSURE REGARDING FOREIGN
 JURISDICTIONS THAT PREVENT INSPECTIONS 

 None. 

 PART
III 

 Item 10. 
 DIRECTORS, EXECUTIVE OFFICERS
 AND CORPORATE GOVERNANCE 

 The
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. 

 Insider
Trading Policy and Procedures 

 The
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. 

 27 

 Item 11. 
 EXECUTIVE COMPENSATION 

 The
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. 

 Item 12. 
 SECURITY OWNERSHIP OF CERTAIN
 BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

 The
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. 

 Item 13. 
 CERTAIN RELATIONSHIPS AND
 RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 

 The
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. 

 Item 14. 
 PRINCIPAL ACCOUNTANT FEES AND SERVICES 

 The
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. 

 PART
IV 

 Item 15. 
 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

 (a) 
 The following documents are
 filed as part of this report: 

 (1)
Financial Statements: 

 Report
 of Independent Registered Public Accounting Firm 
 
 Consolidated
 Balance Sheets as of December 31, 2025 and 2024 
 
 Consolidated
 Statements of Operations for the Years Ended December 31, 2025 and 2024 
 
 Consolidated
 Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024 
 
 Consolidated
 Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 
 
 Notes
 to Financial Statements 
 
 (2)
Financial Statement Schedules: 

 None. 

 (3)
The following Exhibits are filed as part of this report: 

 Exhibit
 No. 
 
 Description 

 3.1 
 
 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). 

 3.1.1 
 
 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). 

 3.1.2 
 
 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). 

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

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

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

 28 

 3.2 
 
 Amended
 and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K/A
 filed on November 24, 2021). 

 3.2.1 
 
 Amended
 Article V, Section 6 of Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s
 Current Report on Form 8-K filed on November 22, 2021). 

 4.1 
 
 Securities
 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). 

 10.1** 
 
 Performance
 Equity Plan 2009 (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on April 30,
 2009). 

 10.2** 

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

 10.3** 
 
 2025 Long-Term Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Proxy Statement filed on April 30, 2025). 
 
 10.4.1 
 
 Agreement
 of Lease, dated June 30, 2011, between Heartland Boys II L.P. and CPI Aerostructures, Inc. (incorporated by reference to Exhibit
 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2011). 

 10.4.2 
 
 Lease
 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). 

 10.4.3 
 
 Second
 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). 

 10.4.4 
 
 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). 
 
 10.5 
 
 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. 

 10.6** 
 
 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. 

 10.7** 
 
 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. 

 19 
 
 Insider Trading Policy (incorporated by reference to Exhibit 19 to the Company’s Annual Report on Form 10-K filed on March 31, 2025. 
 
 21 
 
 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). 

 23.1* 

 23.2* 
 
 Consent of CBIZ CPAs P.C. 

 Consent of Marcum LLP 
 
 31.1* 
 
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

 31.2* 
 
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

 32.1*** 
 
 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 905 of the Sarbanes-Oxley Act of 2002. 

 97 
 
 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). 

 101.INS* 
 
 XBRL
 Instanse Document. 

 101.SCH* 
 
 XBRL
 Taxonomy Extension Scheme Document. 

 101.CAL* 
 
 XBRL
 Taxonomy Extension Calculation Linkbase Document. 

 101.DEF* 
 
 XBRL
 Taxonomy Extension Definition Linkbase Document. 

 101.LAB* 
 
 XBRL
 Taxonomy Extension Label Linkbase Document. 

 101.PRE* 
 
 XBRL
 Taxonomy Extension Presentation Linkbase Document. 

 104* 
 
 Cover
 page formatted as Inline XBRL and contained in Exhibit 101. 

 * 
 Filed herewith. 

 ** 
 Management contract compensatory plan or arrangement. 

 *** 
 Furnished herewith. 

 Item 16. 
 FORM 10-K SUMMARY 

 None 

 29 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 INDEX
TO FINANCIAL STATEMENTS 

 Report
 of Independent Registered Public Accounting Firm (PCAOB ID: 199 ) 
 
 F-2 

 Report
 of Independent Registered Public Accounting Firm (PCAOB ID: 688) 
 
 F-4 

 Consolidated Financial
 Statements: 
 
 Consolidated
 Balance Sheets as of December 31, 2025 and 2024 
 
 F-5 

 Consolidated
 Statements of Operations for the Years Ended December 31, 2025 and 2024 
 
 F-6 

 Consolidated
 Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024 
 
 F-7 

 Consolidated
 Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 
 
 F-8 

 Notes
 to Consolidated Financial Statements 
 
 F-9 - F-26 

 F- 1 

 Report
of Independent Registered Public Accounting Firm 

 To
the Shareholders and Board of Directors of

 CPI Aerostructures, Inc. and Subsidiaries 

 Opinion
on the Financial Statements 

 We have audited the accompanying consolidated balance sheet of CPI Aerostructures,
Inc. and Subsidiaries (the “Company”) as of December 31, 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. 

 Basis
for Opinion 

 These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. 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.

 Critical
Audit Matters 

 The critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate. 

 Revenue
Recognition 

 Description
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. 

 F- 2 

 The
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
 conditions; 

 · 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; and 

 · Tested the mathematical accuracy of managements calculations of revenue
recognized on a sample basis. 

 /s/
CBIZ CPAs P.C. 

 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. effective
November 1, 2024). 

 Melville,
New York 

March 31, 2026 

 F- 3 

 Report
of Independent Registered Public Accounting Firm 

 To the Shareholders and Board of Directors of

 CPI Aerostructures, Inc. and Subsidiaries 

 Opinion on the Financial Statements 

 We have audited the accompanying consolidated balance
sheet of CPI Aerostructures, Inc. and Subsidiaries (the “Company”) as of December 31, 2024, the related consolidated statements
of operations, shareholders’ equity and cash flow for the year ended December 31, 2024, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flow for the year
ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

 Basis for Opinion 

 These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. 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.

 /s/ Marcum llp 

 Marcum llp 

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

 Melville, New York

March 31 , 2025

 F- 4 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
BALANCE SHEETS 

 December 31,
 2025 
 December 31,
 2024 

 ASSETS 
 
 Current Assets: 
 
 Cash 
 $ 899,199 
 $ 5,490,963 

 Accounts receivable, net 
 5,764,928 
 3,716,378 

 Contract assets, net 
 33,670,354 
 32,832,290 

 Inventory 
 800,823 
 918,288 

 Prepaid expenses and other current assets 
 2,272,696 
 634,534 

 Total Current Assets 
 43,408,000 
 43,592,453 

 Operating lease right-of-use assets 
 9,515,207 
 2,856,200 

 Property and equipment, net 
 412,553 
 767,904 

 Deferred tax asset, net 
 19,894,796 
 18,837,576 

 Goodwill 
 1,784,254 
 1,784,254 

 Other assets 
 229,691 
 143,615 

 Total Assets 
 $ 75,244,501 
 $ 67,982,002 

 LIABILITIES AND SHAREHOLDERS’ EQUITY 
 
 Current Liabilities: 
 
 Accounts payable 
 $ 14,724,293 
 $ 11,097,685 

 Accrued expenses 
 4,763,719 
 7,922,316 

 Contract liabilities 
 1,628,382 
 2,430,663 

 Loss reserve 
 138,426 
 22,832 

 Current portion of line of credit 
 — 
 2,750,000 

 Current portion of long-term debt 
 187,500 
 26,483 

 Operating lease liabilities 
 1,434,385 
 2,162,154 

 Income taxes payable 
 142,540 
 58,209 

 Total Current Liabilities 
 23,019,245 
 26,470,342 

 Line of credit, net of current portion 
 8,373,672 
 14,640,000 

 Long-term operating lease liabilities 
 8,353,120 
 938,418 

 Long-term debt, net of current portion 
 9,690,890 
 — 

 Total Liabilities 
 49,436,927 
 42,048,760 

 Commitments and Contingencies (see note 15) 
 
 Shareholders’ Equity: 
 
 Preferred stock - $ 0.01 par value; authorized 5,000,000 
 shares, 0 shares, issued and outstanding 
 — 
 — 
 
 Common stock - $ .001 par value; authorized 50,000,000 shares, 13,155,061 and 12,978,741 shares, respectively, issued and outstanding 
 13,155 
 12,979 

 Additional paid-in capital 
 75,142,168 
 74,424,651 

 Accumulated deficit 
 ( 49,347,749 ) 
 ( 48,504,388 ) 

 Total Shareholders’ Equity 
 25,807,574 
 25,933,242 

 Total Liabilities and Shareholders’ Equity 
 $ 75,244,501 
 $ 67,982,002 

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

 F- 5 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF OPERATIONS 

 Years
ended December 31, 2025 and 2024 

 2025 
 2024 

 Revenue 
 $ 69,262,124 
 $ 81,078,864 

 Cost of sales 
 58,706,055 
 63,840,803 

 Gross profit 
 10,556,069 
 17,238,061 

 Selling, general and administrative expenses 
 10,732,451 
 10,506,439 

 (Loss) income from operations 
 ( 176,382 ) 
 6,731,622 

 Interest expense 
 ( 1,567,840 ) 
 ( 2,288,834 ) 

 (Loss) income before benefit (provision) for income taxes 
 ( 1,744,222 ) 
 4,442,788 

 Benefit (provision) for income taxes 
 900,861 
 ( 1,143,454 ) 

 Net (loss) income 
 $ ( 843,361 ) 
 $ 3,299,334 

 (Loss) income per common share-basic 
 $ ( 0.07 ) 
 $ 0.26 

 (Loss) income per common share-diluted 
 $ ( 0.07 ) 
 $ 0.26 

 Shares used in computing (loss) income per common share: 
 
 Basic 
 12,788,937 
 12,593,213 

 Diluted 
 12,788,937 
 12,709,237 

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

 F- 6 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY 

 Years
ended December 31, 2025 and 2024 

 Common
 Stock Shares 
 Common 
 Stock
 Amount 
 
 Additional 

Paid-in 
 Capital 
 Accumulated
 Deficit 
 Total
 Shareholders’
 Equity 

 Balance at January 1, 2024 
 12,771,434 
 $ 12,771 
 $ 73,872,679 
 $ ( 51,803,722 ) 
 $ 22,081,728 

 Net income 
 — 
 — 
 — 
 3,299,334 
 3,299,334 

 Issuance of common stock upon settlement of

restricted stock, net 
 207,307 
 208 
 — 
 — 
 208 

 Stock-based compensation expense 
 — 
 — 
 604,474 
 — 
 604,474 

 Shares withheld for tax withholdings 
 — 
 — 
 ( 52,502 ) 
 — 
 ( 52,502 ) 

 Balance at December 31, 2024 
 12,978,741 
 12,979 
 74,424,651 
 ( 48,504,388 ) 
 25,933,242 

 Net (loss) income 
 — 
 — 
 — 
 ( 843,361 ) 
 ( 843,361 ) 

 Issuance of common stock upon settlement of

restricted stock, net 
 176,320 
 176 
 — 
 — 
 176 

 Stock-based compensation expense 
 — 
 — 
 806,434 
 — 
 806,434 

 Shares withheld for tax withholdings 
 — 
 — 
 ( 88,917 ) 
 — 
 ( 88,917 ) 

 Balance at December 31, 2025 
 13,155,061 
 $ 13,155 
 $ 75,142,168 
 $ ( 49,347,749 ) 
 $ 25,807,574 

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

 F- 7 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF CASH FLOWS 

 Years
ended December 31, 2025 and 2024 

 2025 
 2024 

 Cash flows from operating activities: 
 
 Net (loss) income 
 $ ( 843,361 ) 
 $ 3,299,334 

 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: 
 
 Depreciation and amortization 
 420,387 
 430,006 

 Amortization of debt issuance costs 
 75,260 
 46,159 

 Stock-based compensation expense 
 806,610 
 604,682 

 Deferred income taxes 
 ( 1,057,220 ) 
 1,100,548 

 Provision for credit losses 
 ( 69,360 ) 
 144,565 

 Changes in operating assets and liabilities: 
 
 (Increase) decrease in accounts receivable 
 ( 1,979,189 ) 
 491,253 

 (Increase) decrease in contract assets 
 ( 838,064 ) 
 2,479,778 

 Decrease in inventory 
 117,466 
 518,359 

 (Increase) decrease in prepaid expenses and other current assets 
 ( 1,638,161 ) 
 83,492 

 Decrease in operating right-of-use assets 
 1,531,629 
 1,883,993 

 (Decrease) increase in accounts payable and accrued expenses 
 380,037 
 ( 1,730,794 ) 

 (Decrease) in contract liabilities 
 ( 802,281 ) 
 ( 3,506,966 ) 

 (Decrease) in lease liabilities 
 ( 1,503,703 ) 
 ( 1,999,057 ) 

 Increase (decrease) in loss reserve 
 115,594 
 ( 314,519 ) 

 Increase in income taxes payable 
 84,331 
 28,102 

 Net cash (used in) provided by operating activities 
 ( 5,200,025 ) 
 3,558,935 

 Cash flows from investing activities: 
 
 Purchase of property and equipment 
 ( 65,036 ) 
 ( 403,854 ) 

 Net cash used in investing activities 
 ( 65,036 ) 
 ( 403,854 ) 

 Cash flows from financing activities: 
 
 Repayments on line of credit 
 ( 17,390,000 ) 
 ( 2,650,000 ) 

 Repayments on long-term debt 
 ( 26,483 ) 
 ( 44,498 ) 

 Proceeds from line of credit 
 8,373,672 
 — 

 Proceeds from long-term debt 
 10,000,000 
 — 

 Proceeds from insurance financing obligation 
 369,467 
 326,125 

 Repayments of insurance financing obligation 
 ( 281,496 ) 
 ( 338,037 ) 

 Taxes paid related to net share settlement of equity awards 
 ( 88,917 ) 
 ( 52,502 ) 

 Debt issuance costs 
 ( 282,946 ) 
 — 

 Net cash provided by (used in) financing activities 
 673,297 
 ( 2,758,912 ) 

 Net (decrease) increase in cash 
 ( 4,591,764 ) 
 396,169 

 Cash at beginning of year 
 5,490,963 
 5,094,794 

 Cash at end of year 
 $ 899,199 
 $ 5,490,963 

 Supplemental disclosure of cash flow information: 
 
 Cash paid during the year for interest 
 $ 1,932,764 
 $ 2,356,447 

 Cash paid for income taxes 
 $ 71,475 
 $ 5,484 

 Supplemental disclosure of non-cash item: 
 
 Increase to operating right-of-use asset and operating lease liability from
 lease amendment 
 $ 8,190,636 
 — 

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

 F- 8 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 

 1. 
 PRINCIPAL
 BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 The
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”). 

 CPI
is a U.S. 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. 

 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 for purposes of making operating decisions and assessing financial performance. The Company has determined
that it has a single operating and reportable segment. 

 Basis
of Presentation and Principles of Consolidation 

 The
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. 

 Use
of Estimates 

 The
preparation of financial statements in conformity with U.S. GAAP requires the use of estimates by management. Actual results could differ
from these estimates. 

 Revenue
Recognition 

 The
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
completion. 

 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 product has transferred to the customer; in most cases this will be based on shipping terms. 

 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. 

 An
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. 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. 

 F- 9 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 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 directly with the U.S. government or subcontracted through its prime contractors, typically are subject to the Federal Acquisition
Regulation (“FAR”), which provides guidance on the types of costs that are allowable in establishing prices for goods and
services provided under U.S. government contracts. The pricing for commercial contractors 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. 

 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’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. 

 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 is resolved. 

 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. 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. 

 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 total estimated costs expected at completion for a contract is reflected in revenue in the period the change becomes
known. ASC 606 involves considerable use of estimates and judgment in determining revenues, costs and profits and in assigning the
amounts to accounting periods. For instance, management must make assumptions and estimates regarding labor productivity and
availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the
performance obligation, execution by our subcontractors, the availability and timing of funding from the customer, and overhead cost
rates, among other variables. The Company continually evaluates all of the factors related to the assumptions, risks and
uncertainties inherent with the application of the cost-to-cost input method; however, it cannot be assured that estimates will be
accurate. If estimates are not accurate, or a contract is terminated which will affect estimates at completion, the Company is
required to adjust revenue in the period the change is determined. 

 F- 10 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 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 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.” 

 Government
Contracts 

 The
Company’s government contracts and subcontracts are subject to the procurement rules and regulations of the U.S. government. Many
of the contract terms are dictated by these rules and regulations. Specifically, cost-based pricing is determined under the FAR, which
provides guidance on the types of costs that are allowable in establishing prices for goods and services under U.S. government contracts.
For example, costs such as those related to charitable contributions, advertising, interest expense, and public relations are unallowable,
and therefore not recoverable through sales. During and after the fulfillment of a government contract, the Company may be audited in
respect to the direct and allocated indirect costs attributable thereto. 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. 

 Cash 

 The
Company maintains its cash in multiple financial institutions. The balances are insured by the Federal Deposit Insurance Corporation
up to the limit of $ 250,000 . From time to time, the Company’s balances may exceed these limits. As of December 31, 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. 

 Allowance
for Credit Losses 

 The
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. 

 Inventory 

 Inventories,
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. 

 Property
and Equipment 

 Property
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. 

 F- 11 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Leases 

 The
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. 

 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. 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. 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. 

 At
December 31, 2025, the Company has right of use assets and lease liabilities of $ 9,515,207 and $ 9,787,505 , respectively. At December
31, 2024, the Company had right of use assets and lease liabilities of $ 2,856,200 and $ 3,100,572 , respectively. 

 Finance
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. 

 Goodwill 

 Goodwill
represents the excess of purchase price of an acquisition over the fair value of net assets acquired. Goodwill is not amortized but instead
is assessed for impairment annually as of December 31 st and when events and circumstances warrant an evaluation. The Company
has determined that it has a single operating and reporting unit, and assesses during its evaluation whether it believes it is more likely
than not that the fair value of this reporting unit is greater than or less than its carrying amount by comparing the fair value of this
reporting unit with its carrying value. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the
amount by which the carrying value exceeds the fair value is recognized as an impairment loss. 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. 

 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 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 

 The
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. 

 The
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. 

 F- 12 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Earnings
per Share 

 The
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. 

 Basic
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. 

 Income
Taxes 

 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. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The Company recognizes the effect of an income tax position only if, based on its merits,
the position is more likely than not to be sustained on audit by the taxing authorities. 

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

 Stock-Based
Compensation 

 The
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). 

 Restricted
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. 

 Research
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. 

 Recently
Issued Accounting Standards – Adopted 

 In
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. ASU 2023-09
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. 

 F- 13 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Recently
Issued Accounting Standards – Not Adopted 

 In
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. 

 In
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. 

 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 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. 

 In
November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic
220-40): Disaggregation of Income Statement Expenses , which requires disclosure in the notes to the financial statements of specified
information about certain costs and expenses. In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive
Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date , which amends the effective date of ASU
2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December
15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, 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. 

 F- 14 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 

 2. 
 REVENUE 

 Disaggregation
of Revenue 

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

 Year Ended 

 December 31,
 2025 
 December 31,
 2024 

 Government subcontracts 
 $ 55,547,679 
 $ 64,704,370 

 Prime government contracts 
 7,415,434 
 11,677,152 

 Commercial contracts 
 6,299,011 
 4,697,342 

 Total 
 $ 69,262,124 
 $ 81,078,864 

 Year Ended 

 December 31, 

2025 
 December 31, 

2024 

 Revenue recognized using over time revenue

recognition model 
 $ 68,638,307 
 $ 80,123,031 

 Revenue recognized using point in time revenue

recognition model 
 623,817 
 955,833 

 Total 
 $ 69,262,124 
 $ 81,078,864 

 Favorable/(Unfavorable)
Adjustments to Gross Profit 

 We
review our Estimates at Completion (“EAC”) at least quarterly. Due to the nature of the work required to be performed on
many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many
inputs, and requires significant judgment by management on a contract-by-contract basis. As part of this process, management reviews
information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program
schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities
relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or
reductions in scheduled deliveries, technical requirements, customer activity levels, and related variable consideration. Management
must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability,
the complexity and scope of the work to be performed, the availability and cost of materials including any impact from changing costs
or inflation, the length of time to complete the performance obligation, the availability and timing of funding from our customer, and
overhead cost rates, among others. 

 Changes
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. 

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

 Years Ended 

 December 31, 
 2025 
 December 31,
 2024 

 Net adjustments 
 $ ( 10,171,038 ) 
 $ ( 3,750,020 ) 

 Net
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., 

 F- 15 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Transaction
Price Allocated to Remaining Performance Obligations 

 As
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. 

 3. 
 CONTRACT ASSETS AND
 LIABILITIES 

 Contract
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 as well as military contractor contracts, the customer retains a portion of the contract price until completion
of the contract, as a measure of protection for the customer. Our government and military contract or contracts therefore typically result
in revenue recognized in excess of billings, which we present as contract assets. Contract assets are classified as current assets. The
Company’s contract liabilities represent customer payments received or due from the customer in excess of revenue recognized. Contract
liabilities are classified as current liabilities. 

 Schedule of contract assets and liabilities 

 December 31, 
 2025 
 
 December 31, 
 2024 
 
 December 31,
 2023 

 Contract assets 
 $ 33,670,354 
 $ 32,832,290 
 $ 35,312,068 

 Contract liabilities 
 1,628,382 
 2,430,663 
 5,937,629 

 Contract
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. 

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

 Revenue
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 . 

 4. 
 ACCOUNTS RECEIVABLE 

 Accounts
receivable consists of trade receivables as follows : 

 December 31, 2025 
 December 31, 2024 
 December 31, 2023 

 Billed receivables 
 $ 5,910,717 
 $ 3,931,527 
 $ 4,444,504 

 Less: allowance for expected

credit losses 
 ( 145,789 ) 
 ( 215,149 ) 
 ( 92,308 ) 

 Total accounts receivable, net 
 $ 5,764,928 
 $ 3,716,378 
 $ 4,352,196 

 F- 16 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 

 5. 
 INVENTORY 

 The
components of inventory consist of the following: 

 December 31, 

 2025 
 2024 

 Raw materials 
 $ 524,883 
 $ 414,806 

 Work in progress 
 7,547 
 60,719 

 Finished goods 
 268,393 
 442,763 

 Inventory 
 $ 800,823 
 $ 918,288 

 6. 
 PROPERTY AND EQUIPMENT 

 The
components of property and equipment consist of the following : 

 December 31, 
 Estimated 

 2025 
 2024 
 Useful Life (years) 

 Machinery and equipment 
 $ 4,275,455 
 $ 4,247,671 
 5 to 7 

 Computer equipment 
 4,430,313 
 4,393,060 
 5 to 10 

 Furniture and fixtures 
 709,350 
 709,350 
 7 

 Automobiles and trucks 
 13,162 
 13,162 
 5 

 Leasehold improvements 
 2,702,891 
 2,702,891 
 Lesser of lease term or 10 years 

 Total gross property and equipment 
 12,131,171 
 12,066,134 
 
 Less accumulated depreciation and amortization 
 ( 11,718,618 ) 
 ( 11,298,230 ) 
 
 Total property and equipment, net 
 $ 412,553 
 $ 767,904 
 
 Depreciation
expense for the years ended December 31, 2025 and 2024 was $ 420,387 and $ 430,006 , respectively. 

 7. 
 GOODWILL 

 The
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 of WMI on December 30, 2018, the Company recorded goodwill of $ 1,784,254 . 

 8. 
 LINE OF CREDIT AND LONG-TERM
 DEBT 

 Western
Alliance Bank Loan and Security Agreement 

 On
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. 

 Borrowings
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. 

 The
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. 

 F- 17 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 The
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: 

 Period 
 Year Ended 

December 31, 

 2026 
 $ 187,500 

 2027 
 $ 250,000 

 2028 
 $ 437,500 

 2029 
 $ 687,500 

 2030 
 $ 8,437,500 

 Total 
 $ 10,000,000 

 Borrowings
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. 

 The
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. 

 The
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. 

 The
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. 

 The
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. 

 Termination
of Amended and Restated Credit Agreement . 

 Previous
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
Facility”). 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. 

 The
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; (c) minimum net income after taxes as of the end of each fiscal quarter being no less than $ 1.00 ; and (d)
a minimum adjusted EBITDA at the end of each fiscal quarter of no less than $ 1 .0 million. 

 On
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. 

 F- 18 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 The
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. 

 As
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. 

 The
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. 

 Included
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. 

 9. 
 LEASES 

 The
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
30, 2031 . 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 .

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

 For
the years ended December 31, 2025 and 2024, the Company’s operating lease expense was $ 2,379,916 and $ 2,137,830 , respectively. 

 Future
minimum lease payments under non-cancellable operating leases as of December 31, 2025 were as follows: 

 Year ending December 31, 
 
 2026 
 
 $ 2,304,533 
 
 2027 
 
 $ 2,336,077 
 
 2028 
 
 $ 2,300,990 
 
 2029 
 
 $ 2,360,515 
 
 2030 
 
 $ 2,431,331 
 
 Thereafter 
 
 $ 818,389 
 
 Total undiscounted operating
 lease payments 
 
 $ 12,551,835 
 
 Less imputed interest 
 
 ( 2,764,330 ) 
 
 Present value of operating lease payments 
 
 $ 
 $ 9,787,505 
 
 F- 19 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 The
following table sets forth the ROU assets and operating lease liabilities as of December 31, 2025 and 2024: 

 2025 
 2024 

 Assets 
 
 ROU assets, net 
 $ 9,515,207 
 $ 2,856,200 

 Liabilities 
 
 Current operating lease liabilities 
 $ 1,434,385 
 $ 2,162,154 

 Long-term operating lease liabilities 
 8,353,120 
 938,418 

 Total lease liabilities 
 $ 9,787,505 
 $ 3,100,572 

 The
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. 

 10. 
 INCOME TAXES 

 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 returns. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial
statements. The interpretation prescribes a recognition threshold and measurement attribute for the consolidated financial statements
recognition and measurement of a tax position taken, or expected to be taken, in a tax return. 

 The
Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The Company generally is no longer
subject to U.S. or state examinations by tax authorities for taxable years prior to 2021. However, net operating losses utilized from
prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’
tax returns. 

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

 Year ended December 31, 
 
 2025 
 
 2024 
 
 Current: 
 
 State 
 
 $ 
 156,360 
 
 $ 
 42,906 
 
 Deferred: 
 
 Federal 
 
 ( 792,252 ) 
 
 624,509 
 
 State 
 
 ( 264,969 ) 
 
 476,039 
 
 Total 
 
 $ 
 ( 900,861 ) 
 
 $ 
 1,143,454 
 
 F- 20 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 The
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, 
 2025 
 Dollar Amount 
 
 2025 
 Percent 
 
 Tax at U.S. statutory rate 
 $ ( 366,287 ) 
 21.0 % 

 State income tax, net * 
 ( 85,801 ) 
 4.9 % 

 Tax Credits 
 
 Research and Development credit 
 ( 201,413 ) 
 11.5 % 

 Change in valuation allowance 
 ( 250,616 ) 
 14.4 % 

 Nontaxable or Nondeductible Items 
 
 Other 
 2,215 
 - 0.1 % 

 Other Reconciling Items 
 
 Other 
 1,041 
 - 0.1 % 

 Effective Tax Rate 
 $ ( 900,861 ) 
 51.6 % 

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

 A
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, 
 2024 

 Taxes computed at the federal statutory rate 
 $ 932,985 

 State income tax, net 
 409,967 

 Research and development tax credit 
 ( 145,954 ) 

 Change in valuation allowance 
 ( 20,846 ) 

 Other 
 ( 43,413 ) 

 Permanent differences 
 10,715 

 Provision (Benefit) for income taxes 
 $ 1,143,454 

 F- 21 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 In
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; 

 2025 

 Texas 
 $ 55,040 

 New York State 
 13,646 

 Other 
 2,789 

 Total 
 $ 71,475 

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

 Deferred Tax Assets: 
 2025 
 2024 

 Capitalized R&D 
 $ 1,281,291 
 $ 1,705,529 

 Credit carryforwards 
 2,626,043 
 2,424,596 

 Lease liability 
 2,214,682 
 461,967 

 Disallowed interest expense 
 1,041,530 
 709,604 

 Net operating loss carryforward 
 15,121,147 
 14,643,979 

 Other 
 688,706 
 676,435 

 Deferred tax assets 
 22,973,399 
 20,622,110 

 Valuation allowance 
 ( 681,184 ) 
 ( 973,367 ) 

 Deferred Tax Liabilities: 
 
 ROU asset 
 2,153,067 
 610,258 

 Other 
 244,352 
 200,909 

 Deferred tax liabilities 
 $ 2,397,419 
 $ 811,167 

 Net deferred tax assets 
 $ 19,894,796 
 $ 18,837,576 

 As
of December 31, 2025, the Company had approximately $ 68,200,000 of gross net operating loss carryforwards (“NOLs”) for federal
tax purposes and approximately $ 18,300,000 of post apportionment NOLs for state tax purposes. The Federal NOLs begin to expire in 2034.
Losses generated in 2018 and forward of $ 16,700,000 have an indefinite life and can offset up to 80 % of taxable income in the future.
Federal NOLs generated prior to 2018 can offset 100 % of future taxable income. The state NOLs begin to expire in 2034 . 

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

 2025 
 2024 

 Balance of gross unrecognized tax benefits as of beginning of year 
 $ — 
 $ — 

 Changes to unrecognized tax benefits for prior years 
 130,000 
 — 

 Changes to unrecognized tax benefits for current year 
 — 
 — 

 Balance of gross unrecognized tax benefits as of end of year 
 $ 130,000 
 $ — 

 The
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. 

 The
Company classifies interest relating to tax matters and tax penalties as a component of income tax expense in its Consolidated Statements
of Operations. As of December 31, 2025, there were $ 130,000 of unrecognized tax benefits that, if recognized, $ 103,000 would affect the
effective tax rate. Related to the unrecognized tax benefits, the Company accrued interest and penalties of $ 13,000 and $ 0 , respectively,
during the years ended December 31, 2025 and 2024. 

 F- 22 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Assessing
the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the
deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive
and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback
and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent
years, as a significant piece of negative evidence to overcome. 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. 

 11. 
 ACCRUED EXPENSES 

 Accrued
expenses consists of the following: 

 December 31, 
 2025 
 
 December 31,
 2024 

 Accrued purchases 
 $ 2,567,454 
 $ 4,683,246 

 Accrued payroll 
 670,350 
 1,323,018 

 Accrued insurance 
 621,288 
 803,185 

 Accrued interest 
 54,666 
 487,428 

 Accrued professional fees and other accrued expenses 
 849,961 
 625,439 

 Total 
 $ 4,763,719 
 $ 7,922,316 

 12. 
 STOCK-BASED COMPENSATION 

 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 2,364 shares available for grant under the 2009 Plan as of December 31,
2025. 

 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 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. 

 On
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
approval. 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. 

 F- 23 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Stock-based
compensation expense for restricted stock in the consolidated statements of operations is summarized as follows: 

 2025 
 2024 

 Cost of sales 
 $ 25,167 
 $ 3,675 

 Selling, general and administrative 
 781,443 
 601,007 

 Total stock-based compensation expense 
 $ 806,610 
 $ 604,682 

 The
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. 

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

 RSUs 
 
 Weighted
 Average 

 Grant
 Date 

 Fair
Value

of RSUs 
 
 Non-vested – January 1, 2025
 
 — 
 
 $ 
 — 
 
 Granted 
 
 122,224 
 
 $ 
 4.29 
 
 Vested 
 
 ( 118,520 ) 
 
 $ 
 4.29 
 
 Forfeited 
 
 ( 3,704 ) 
 
 $ 
 4.29 
 
 Non-vested – December 31, 2025 
 
 — 
 
 $ 
 — 
 
 The
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. At
December 31, 2025, the weighted average remaining amortization period was 2.3 years. 

 The
following table summarizes activity related to outstanding Restricted Stock Awards for the year ended December 31, 2025: 

 Restricted
 
Stock Awards 
 
 Weighted
 Average 

 Grant
 Date 

 Fair
 Value of 

 Restricted

Stock Awards 
 
 Non-vested – January 1, 2025
 
 152,875 
 
 $ 
 2.86 
 
 Granted 
 
 108,328 
 
 $ 
 2.89 
 
 Vested 
 
 ( 64,507 
 ) 
 
 $ 
 2.81 
 
 Forfeited 
 
 ( 48,569 
 ) 
 
 $ 
 2.78 
 
 Non-vested – December 31, 2025 
 
 148,127 
 
 $ 
 2.92 
 
 F- 24 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 The
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
period. 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. 

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

 PRSAs 
 
 Weighted
 Average 

 Grant
 Date 

 Fair
 Value 

 of PRSAs 
 
 Non-vested – January 1, 2025
 
 44,076 
 
 $ 
 2.98 
 
 Granted 
 
 57,376 
 
 $ 
 2.96 
 
 Vested 
 
 — 
 
 $ 
 — 
 
 Forfeited 
 
 ( 44,076 
 ) 
 
 $ 
 2.98 
 
 Non-vested – December
 31, 2025 
 
 57,376 
 
 $ 
 2.96 
 
 The
fair value of all RSUs, PRSAs and Restricted Stock Awards is based on the closing price of our common stock on the grant date. All RSUs,
PRSAs, and Restricted Stock Awards vest and settle in common stock (on a one-for-one basis). 

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

 In
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. 

 13. 
 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 during
the years ended December 31, 2025 and 2024 amounted to $ 302,912 and $ 305,934 , respectively. 

 14. 
 MAJOR
 CUSTOMERS 

 For
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. 

 At
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. 

 At
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. 

 At
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. 

 F- 25 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS 

 15. 
 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. 

 The
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. 

 16. 
 Segment reporting 

 We
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. 

 Our
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. 

 As
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. 

 F- 26 

 Pursuant
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. 

 Dated: April 6 ,
 2026 
 CPI AEROSTRUCTURES,
 INC. 

 (Registrant) 

 By: 
 /s/
 Robert Mannix 

 Robert
Mannix 

 Chief Financial Officer
 
 F- 27
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
CPI AEROSTRUCTURES INC 10-K/A

Item 9A. Controls and Procedures
