UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Commission file number 1-11398 CPI AEROSTRUCTURES, INC. (Exact name of registrant as specified in its charter) New York 11-2520310 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 91 Heartland Blvd., Edgewood, New York 11717 (Address of principal exe ...

Part I - Financial Information [Item 1 – Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201%20%E2%80%93%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for CPI Aerostructures, Inc., with restated 2020 comparative periods due to inventory costing errors and insufficient reserves [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a summary of the company's financial position, highlighting key assets, liabilities, and shareholders' deficit Consolidated Balance Sheet Highlights (in USD) | Metric | September 30, 2021 (Unaudited) | December 31, 2020 (Restated) | | :--- | :--- | :--- | | **Total Assets** | **$49,664,398** | **$46,509,449** | | Total Current Assets | $42,944,810 | $37,687,226 | | **Total Liabilities** | **$54,643,749** | **$59,493,181** | | Total Current Liabilities | $29,815,315 | $30,012,252 | | **Total Shareholders' Deficit** | **($4,979,351)** | **($12,983,732)** | - Total assets increased by approximately **$3.16 million**, primarily due to higher accounts receivable and contract assets. Total liabilities decreased by approximately **$4.85 million**, while the total shareholders' deficit improved significantly, decreasing by approximately **$8 million** from year-end 2020[9](index=9&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, gross profit, and net income for the reported periods Statement of Operations Summary (in USD) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 (Restated) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 (Restated) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$23,898,748** | **$25,576,718** | **$77,018,684** | **$62,175,872** | | Gross Profit | $3,651,984 | $4,207,031 | $12,168,674 | $6,176,354 | | Income (Loss) from Operations | $886,135 | $1,156,387 | $3,334,331 | ($2,782,632) | | Other Income | $4,795,000 | $0 | $4,795,000 | $0 | | **Net Income (Loss)** | **$5,425,255** | **$839,765** | **$7,280,949** | **($3,878,151)** | | **EPS (Diluted)** | **$0.44** | **$0.07** | **$0.60** | **($0.33)** | - Revenue for the third quarter of 2021 decreased by **6.6% YoY**, while revenue for the first nine months increased by **23.9% YoY**. Net income saw a substantial increase in both the three and nine-month periods, largely driven by **$4.795 million in 'Other income'** recognized in Q3 2021 from the forgiveness of a PPP loan[12](index=12&type=chunk)[67](index=67&type=chunk) [Consolidated Statements of Shareholders' Deficit](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Deficit) This section outlines changes in the company's shareholders' deficit, reflecting the impact of net income and other equity adjustments - The accumulated deficit improved from **($85,001,524)** at the beginning of 2021 to **($77,720,575)** at September 30, 2021. This improvement was primarily due to a cumulative net income of **$7,280,949** recorded during the nine-month period[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for the Nine Months Ended September 30 (in USD) | Metric | 2021 | 2020 (Restated) | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,313,333) | ($3,283,377) | | Net cash used in investing activities | ($19,305) | ($11,888) | | Net cash (used) provided by financing activities | ($1,590,318) | $2,832,251 | | **Net decrease in cash** | **($2,922,956)** | **($463,014)** | | Cash at beginning of period | $6,033,537 | $5,432,793 | | **Cash at end of period** | **$3,110,581** | **$4,969,779** | - Despite a significant net income of **$7.28 million** for the first nine months of 2021, net cash used in operating activities was **$1.31 million**. This was influenced by non-cash income from PPP loan forgiveness **($4.8M)** and increases in accounts receivable and contract assets[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, including significant accounting policies and material events - The Company has identified a significant risk to its ability to continue as a going concern due to a shareholders' deficit and prior losses. Management believes this risk is mitigated through actions like extending its credit facility, securing customer funding, and focusing on its strong military backlog[24](index=24&type=chunk) - As of **September 30, 2021**, the company's backlog of remaining performance obligations was approximately **$138 million**, which is expected to be recognized as revenue by **2025**[45](index=45&type=chunk) - On July 13, 2021, the Company received notification that its **$4,795,000 Paycheck Protection Program (PPP) loan** and accrued interest were fully forgiven. This was recognized as other income in the third quarter[67](index=67&type=chunk) - A class action lawsuit was settled for **$3,600,000**. After the company's **$750,000 retention**, the remainder will be paid by its directors' and officers' insurance carrier[84](index=84&type=chunk) - Financial statements for 2020 and 2019 were restated due to 'Inventory Costing Errors' and 'Insufficient Reserves', which increased the reported net loss for 2020 by **$2,334,315** and for 2019 by **$2,300,083**. These errors did not affect previously reported revenue or cash flow[99](index=99&type=chunk)[100](index=100&type=chunk) [Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202%20%E2%80%93%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, liquidity, and capital resources, highlighting the impact of restatements, delisting risks, and the PPP loan forgiveness on results [Recent Developments](index=32&type=section&id=Recent%20Developments) This section outlines significant recent events impacting the company, including delisting notices, financial restatements, and credit facility amendments - The company received delinquency notices from NYSE American for failure to timely file its quarterly and annual reports. It also failed to meet continued listing standards related to minimum stockholders' equity and recent losses, creating a risk of delisting[148](index=148&type=chunk)[151](index=151&type=chunk) - Financial statements for 2019 and 2020 were restated due to significant 'Inventory Costing Errors' and 'Insufficient Reserves', which led to a material weakness in internal controls and increased previously reported net losses[153](index=153&type=chunk)[154](index=154&type=chunk)[157](index=157&type=chunk) - The company entered into multiple amendments (Seventh, Eighth, and Ninth) to its BankUnited credit facility to extend maturity dates to **September 30, 2023**, and modify financial covenants[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - The company's **$4,795,000** PPP loan was fully forgiven in July 2021, which was recognized as income in the third quarter[169](index=169&type=chunk) [Backlog](index=38&type=section&id=Backlog) This section provides an overview of the company's funded and unfunded backlog, indicating future revenue potential Backlog Summary (in USD) | Backlog Type | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Funded | $137,699,000 | $169,567,000 | | Unfunded | $267,770,000 | $306,618,000 | | **Total** | **$405,469,000** | **$476,185,000** | - Total backlog decreased from **$476.2 million** at year-end 2020 to **$405.5 million** at the end of Q3 2021. Approximately **96% of the total backlog** is attributable to government contracts[176](index=176&type=chunk)[177](index=177&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue, gross profit, and net income performance for the current and comparative periods Revenue Performance (YoY) | Period | Revenue (2021) | Revenue (2020, Restated) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $23,898,748 | $25,576,718 | -6.6% | | Nine Months Ended Sep 30 | $77,018,684 | $62,175,872 | +23.9% | - Gross profit for Q3 2021 decreased **13.2% YoY** to **$3.65 million**, while for the nine-month period it increased **97% YoY** to **$12.17 million**, driven by higher revenue and a more favorable program mix[199](index=199&type=chunk)[200](index=200&type=chunk) - Net income for Q3 2021 was **$5.4 million**, a **541% increase** from **$0.8 million** in Q3 2020. This was primarily due to the **$4.795 million forgiveness of the PPP loan**[205](index=205&type=chunk)[209](index=209&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations, including working capital and cash balances - Working capital increased by **71.1%** to **$13.1 million** at **September 30, 2021**, from **$7.7 million** at **December 31, 2020**[211](index=211&type=chunk) - The cash balance decreased from **$6.0 million** at the end of **2020** to **$3.1 million** at **September 30, 2021**[216](index=216&type=chunk) - Management believes existing resources, including the amended BankUnited Facility, are sufficient to meet working capital needs for at least the next **12 months**[218](index=218&type=chunk)[227](index=227&type=chunk) [Item 3 – Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company for this reporting period - The company has indicated that there are no quantitative and qualitative disclosures about market risk to report[231](index=231&type=chunk) [Item 4 – Controls and Procedures](index=47&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, particularly concerning inventory accounting and IT controls, with remediation efforts underway - Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of **September 30, 2021**, due to identified material weaknesses[233](index=233&type=chunk) - Material weaknesses were identified in several areas, including: insufficiently documented accounting policies, inadequate cut-off procedures, poor monitoring of inventory costing, insufficient processes for establishing loss reserves, and weak IT general controls[239](index=239&type=chunk) - Specific issues leading to the restatement included duplicate labor costs in inventory, unit of measure errors, incorrect average cost calculations, and failure to properly accrue for inventory or defer under-absorbed overhead[241](index=241&type=chunk)[243](index=243&type=chunk) - Remediation efforts initiated in 2021 include hiring a new CFO and Controller, designing new month-end accruals, implementing software changes, and establishing new procedures for inventory management and reserve accounting[244](index=244&type=chunk) Part II - Other Information [Item 1 – Legal Proceedings](index=52&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) This section refers to Note 12 for details on legal proceedings, including a settled class action lawsuit largely covered by insurance - For information on legal proceedings, the report directs readers to Note 12, Commitments and Contingencies, in the financial statements[256](index=256&type=chunk) [Item 1A – Risk Factors](index=53&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) This section updates and adds to the company's risk factors, including potential delisting, going concern issues, geopolitical disruptions, and increased competition for skilled labor - An amended risk factor highlights the significant risk of the company's common stock being delisted from the NYSE American due to late filings and failure to meet continued listing standards for stockholders' equity[259](index=259&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk) - A new risk factor addresses the significant risk to the company's ability to continue as a going concern, citing its shareholders' deficit, prior losses, and negative cash flows[267](index=267&type=chunk)[268](index=268&type=chunk) - New risks related to the Russian invasion of Ukraine are disclosed, including potential disruptions to economies, supply chains, and the availability and price of raw materials[270](index=270&type=chunk)[271](index=271&type=chunk) - The company notes increased competition for skilled machinists and growing scrutiny from stakeholders regarding Environmental, Social, and Governance (ESG) responsibilities as new risk factors[281](index=281&type=chunk)[283](index=283&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=55&type=section&id=Other%20Items%20(Items%202%2C%203%2C%204%2C%205%2C%206)) This section covers remaining Part II items, noting no unregistered sales, defaults, or mine safety disclosures, and lists the exhibits filed with the report - There were no unregistered sales of equity securities, defaults upon senior securities, or other material information to report under Items 2, 3, and 5[286](index=286&type=chunk)[287](index=287&type=chunk)[289](index=289&type=chunk) - Item 6 lists the exhibits filed with the Form 10-Q, which include Section 302 and 906 certifications by the CEO and CFO, as well as Inline XBRL documents[290](index=290&type=chunk)

Financial Performance - Revenue for the three months ended June 30, 2021, was $22.30 million, up 19.00% from $18.70 million for the same period in 2020[8]. - Gross profit for the six months ended June 30, 2021, was $8.52 million, compared to $1.97 million for the same period in 2020, indicating a significant improvement[8]. - Net income for the three months ended June 30, 2021, was $623,151, compared to a net loss of $1.36 million for the same period in 2020[8]. - For the six months ended June 30, 2021, the net income was $1,855,694 compared to a net loss of $4,717,916 for the same period in 2020[14]. - For the six months ended June 30, 2021, the Company reported total revenue of $53,119,936, an increase from $36,599,154 for the same period in 2020, representing a growth of approximately 45%[41]. Assets and Liabilities - Total assets increased to $50.07 million as of June 30, 2021, compared to $46.51 million as of December 31, 2020, representing an increase of 3.56%[7]. - Current liabilities increased to $34.68 million as of June 30, 2021, from $30.01 million as of December 31, 2020, reflecting a rise of 15.00%[7]. - The company reported a total shareholders' deficit of $10.56 million as of June 30, 2021, improved from a deficit of $12.98 million as of December 31, 2020[7]. - The current portion of long-term debt increased to $8.17 million as of June 30, 2021, compared to $6.50 million as of December 31, 2020[7]. - The carrying amount of short-term borrowings and long-term debt as of June 30, 2021, was $32,510,485, compared to $33,445,446 as of December 31, 2020, showing a decrease of approximately 3%[52]. Cash Flow and Financing - The company’s cash position decreased to $2.60 million as of June 30, 2021, down from $6.03 million as of December 31, 2020[7]. - Net cash used in operating activities was $(2,486,631) for the six months ended June 30, 2021, compared to $(852,182) for the same period in 2020[14]. - The company reported a net cash decrease of $(3,433,544) during the period, with cash at the end of the period amounting to $2,599,993[14]. - Payments on long-term debt amounted to $(1,196,276) during the period[14]. - The company received full forgiveness of a $4,795,000 PPP Loan on July 1, 2021, which will be recognized in the third fiscal quarter ending September 30, 2021[63]. Inventory and Contract Management - The net inventory as of June 30, 2021, was $5,281,161, a decrease from $6,386,288 as of December 31, 2020, reflecting a reduction of approximately 17%[45]. - The Company’s contract assets represent revenue recognized on contracts in excess of amounts invoiced, which is typical for government contracts, indicating a strong position in contract management[43]. - The company has maintained procedures to reduce investments in inventory and contract assets[22]. - The Company recognized approximately $1.5 million and $2.6 million of revenue for the periods ended June 30, 2021 and 2020, respectively, that was included in the contract liabilities balance as of January 1, 2021 and 2020[44]. Customer Concentration - The company's two largest customers accounted for 35% and 23% of revenue for the six months ended June 30, 2021[68]. - At June 30, 2021, 33% of accounts receivable was from the company's largest customer[69]. Compliance and Governance - The company received a notice from NYSE American indicating noncompliance with continued listing standards due to stockholders' equity of less than $2.0 million and losses in two of the last three fiscal years[113]. - The company submitted a plan to regain compliance with NYSE listing standards by March 17, 2023, subject to quarterly monitoring[113]. - The company is required to maintain a minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four-quarter period ended September 30, 2022[59]. Operational Adjustments - A cost reduction initiative was initiated in Q1 2022, including headcount reduction and operational efficiency improvements, expected to positively impact financial results starting in Q2 2022[115]. - The company has negotiated amendments to its credit agreement to extend the maturity date to September 30, 2023[22]. - The Company’s leverage ratio covenant was amended to 4.0 to 1.0 for fiscal quarters ending on and after March 31, 2021[56].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission File Number: 1-11398 CPI AEROSTRUCTURES, INC. (Exact name of registrant as specified in its charter) New York 11-2520310 (State or oth ...

United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 Commission file number 1-11398 CPI AEROSTRUCTURES, INC. (Exact name of registrant as specified in its charter) New York 11-2520310 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 91 Heartland Blvd., Edgewood, New York 11717 (Address of principal exe ...

Information contained herein is proprietary to CPI Aero and may be subject to ITAR regulations 1 Expertise in Aerospace Technologies 2020 Q3 Results Presentation Speakers: Douglas McCrosson, President & Chief Executive Officer Tom Powers, Acting Chief Financial Officer Monday, January 4, 2021 LISTED NYSE AMERICAN Disclosure Statements This presentation contains forward-looking statements that are based on current expectations of management and certain assumptions that are subject to risks and uncertainties. ...

Financial Data and Key Metrics Changes - Revenue for Q3 2020 increased by 12.7% to $25.6 million compared to $22.7 million in Q3 2019 [19] - Revenue from defense programs surged by 38%, while revenue from commercial aviation contracts decreased by $3.9 million [19] - Gross profit more than doubled to $4.2 million, reflecting higher revenue and a favorable program mix [21] - Net income improved to $800,000 or $0.07 per share, compared to a net loss of $1.3 million or $0.11 per share in Q3 2019 [22] Business Line Data and Key Metrics Changes - Revenue from military contracts increased by $6.8 million or 38%, primarily due to the Northrop Grumman E-2D program [20] - Revenue from commercial programs declined, particularly from the G-650 and Embraer business jet programs [20] Market Data and Key Metrics Changes - The total backlog at the end of Q3 2020 was $536.9 million, with a funded defense backlog of $183.6 million [18] - The book-to-bill ratio for the 12 months ended September 30 was a strong 1.4 [18] Company Strategy and Development Direction - The company is focused on liquidity, balance sheet improvement, and margin expansion for 2020 and 2021 [27] - Strategic moves were made to eliminate unprofitable business and settle disputes, which had previously diverted resources [33] - The company expects to ramp up production on newer defense programs and improve fixed cost absorption and profitability [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for a strong finish to 2020 and positive momentum heading into 2021, citing a solid defense backlog [17][34] - The company anticipates higher revenue, operating income, and operating cash flow for 2021 compared to 2020 [34] Other Important Information - The company resumed work on the Gulfstream G650 program, receiving new purchase orders totaling approximately $3.6 million [12] - The company exited the program with Honda Aircraft Company, which is expected to have a positive effect on Q4 2020 results [16] - A settlement of a working capital dispute with Air Industries added $1.4 million to liquidity [17] Q&A Session Summary Question: Was there anything unusual in the strong revenue growth in Q3? - Management confirmed that there was nothing pulled forward from Q4 and attributed the growth to the Northrop Grumman E-2D program and improved working capital management [38][39] Question: What is the expected revenue cadence into 2021? - Management indicated that activity levels are expected to increase in Q4 2020 and into Q1 2021, with strong business momentum [42] Question: Can you clarify the cash flow situation? - Management confirmed that excluding one-time charges, the company would have been positive in cash flow for the first nine months of 2020, and expects improved cash flow in 2021 [43][46] Question: What can be expected from the A-10 program in 2021? - The A-10 program has a significant backlog and is expected to be profitable in 2021, with anticipated revenue growth of around $4 million to $5 million [48]

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) This part provides the unaudited consolidated financial statements and related notes, detailing the company's financial performance and position [Item 1 – Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201%20%E2%80%93%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited consolidated financial statements, including balance sheets, operations, shareholders' deficit, and cash flows, with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' deficit at specific reporting dates Consolidated Balance Sheet Highlights | Metric | Sep 30, 2020 (Unaudited) ($) | Dec 31, 2019 (Note 1) ($) | | :------------------------------------ | :----------------------- | :-------------------- | | Total Assets | $47,687,612 | $44,339,580 | | Total Liabilities | $57,344,504 | $52,079,820 | | Total Shareholders' Deficit | $(9,656,892) | $(7,740,240) | - Total assets increased by **$3.35 million**, driven by increases in current assets such as contract assets and inventory[9](index=9&type=chunk) - Total liabilities increased by **$5.26 million**, primarily due to higher accounts payable and the current portion of long-term debt[9](index=9&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section presents the company's revenues, costs, and net income or loss over specific periods, reflecting operational performance Consolidated Statements of Operations Highlights | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 9 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2019 ($) | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $25,576,718 | $22,689,762 | $62,175,872 | $64,779,858 | | Gross profit | $4,182,475 | $1,932,113 | $7,460,364 | $6,659,171 | | Income (loss) from operations | $1,131,831 | $(874,385) | $(1,498,622) | $(1,600,774) | | Net income (loss) | $815,209 | $(1,255,051) | $(2,594,141) | $(3,070,934) | | Income (loss) per common share – basic | $0.07 | $(0.11) | $(0.22) | $(0.26) | - Net income for the three months ended September 30, 2020, was **$815,209**, a significant improvement from a net loss of **$(1,255,051)** in the prior year period[10](index=10&type=chunk) - For the nine months ended September 30, 2020, the net loss decreased to **$(2,594,141)** from **$(3,070,934)** year-over-year[10](index=10&type=chunk) [Consolidated Statements of Shareholders' Deficit](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Deficit) This section details changes in the company's shareholders' deficit, reflecting impacts from net losses and equity transactions Shareholders' Deficit Evolution | Metric | January 1, 2020 ($) | September 30, 2020 ($) | | :-------------------------- | :-------------- | :----------------- | | Total Shareholders' Deficit | $(7,740,240) | $(9,656,892) | - The total shareholders' deficit increased from **$(7,740,240)** at January 1, 2020, to **$(9,656,892)** at September 30, 2020[13](index=13&type=chunk) - This change was primarily influenced by net losses incurred during the period, partially offset by net income in the third quarter and stock-based compensation expenses[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (9 Months Ended Sep 30) | Cash Flow Activity | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(3,283,377) | $(4,039,916) | | Net cash used in investing activities | $(11,888) | $(334,909) | | Net cash provided by financing activities | $2,832,251 | $715,219 | | Net decrease in cash and restricted cash | $(463,014) | $(3,659,606) | | Cash and restricted cash at end of period | $4,969,779 | $2,468,536 | - Net cash used in operating activities decreased by **$756,539** for the nine months ended September 30, 2020, compared to the prior year[16](index=16&type=chunk) - Net cash provided by financing activities significantly increased, primarily due to **$4.8 million** in proceeds from the PPP loan[16](index=16&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements [Note 1. Interim Financial Statements](index=8&type=section&id=1.%20INTERIM%20FINANCIAL%20STATEMENTS) This note describes the company's operating segments, going concern risks, the WMI acquisition settlement, and the impact of the COVID-19 pandemic - The Company operates as a single operating and reportable segment, comprising CPI Aerostructures, Inc., Welding Metallurgy, Inc. (WMI), and Compac Development Corporation[18](index=18&type=chunk)[19](index=19&type=chunk) - Management identified significant going concern risks due to continuing losses and negative cash flows but believes mitigation plans (revised credit facility, exiting unprofitable programs, customer funding, inventory reduction, military segment focus, strong backlog) are sufficient[23](index=23&type=chunk) - The WMI acquisition dispute was settled on December 23, 2020, resulting in the release of **$1.38 million** from escrow to the Company[27](index=27&type=chunk) - The COVID-19 pandemic has led to anticipated supply chain disruptions, employee absenteeism, and reduced commercial aircraft orders, though the Company is classified as an essential business[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2. Revenue Recognition](index=9&type=section&id=2.%20REVENUE%20RECOGNITION) This note details the company's revenue recognition policies, primarily for long-term contracts, and disaggregates revenue by contract type - The majority of revenue is recognized over time for long-term contracts, primarily with the U.S. government, using the cost-to-cost input method[31](index=31&type=chunk)[39](index=39&type=chunk) Revenue Disaggregation by Contract Type (3 Months Ended Sep 30) | Contract Type | 2020 ($) | 2019 ($) | | :------------------------------------ | :------- | :------- | | Aerostructures | 8,855,694 | 9,351,578 | | Aerosystems | 4,303,930 | 7,721,955 | | Kitting and Supply Chain Management | 12,417,094 | 5,616,229 | | **Total** | **25,576,718** | **22,689,762** | Revenue Disaggregation by Contract Type (9 Months Ended Sep 30) | Contract Type | 2020 ($) | 2019 ($) | | :------------------------------------ | :------- | :------- | | Aerostructures | 25,353,015 | 30,121,858 | | Aerosystems | 7,814,912 | 22,267,233 | | Kitting and Supply Chain Management | 29,007,945 | 12,390,767 | | **Total** | **62,175,872** | **64,779,858** | - The aggregate transaction price allocated to remaining performance obligations was approximately **$190 million** as of September 30, 2020, with **15%** expected to be recognized in fiscal year 2020 and the remainder by fiscal year 2022[51](index=51&type=chunk) [Note 3. Leases](index=12&type=section&id=3.%20LEASES) This note describes the company's operating leases for manufacturing, office space, and equipment, including associated expenses and liabilities - The Company leases manufacturing and office space, and office equipment, classified as operating leases[53](index=53&type=chunk)[54](index=54&type=chunk) Operating Lease Expenses and Liabilities | Metric | Amount ($) | | :------------------------------------ | :----------- | | Operating lease expense (9 months ended Sep 30, 2020) | $1,324,831 | | Operating lease expense (3 months ended Sep 30, 2020) | $441,610 | | ROU assets (Sep 30, 2020) | $2,730,567 | | Total ROU liabilities (Sep 30, 2020) | $3,033,709 | - The weighted average remaining lease term for operating leases is **1.6 years**[58](index=58&type=chunk) [Note 4. Reconciliation of Cash and Restricted Cash](index=13&type=section&id=4.%20RECONCILIATION%20OF%20CASH%20AND%20RESTRICTED%20CASH) This note reconciles cash and restricted cash balances, detailing changes and the nature of restricted funds Cash and Restricted Cash Reconciliation | Metric | Sep 30, 2020 ($) | Dec 31, 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Cash | $3,589,095 | $4,052,109 | | Restricted cash | $1,380,684 | $1,380,684 | | Total cash and restricted cash | $4,969,779 | $5,432,793 | - Total cash and restricted cash decreased by **$463,014** from December 31, 2019, to September 30, 2020[59](index=59&type=chunk) - Restricted cash remained constant at **$1,380,684**, related to the WMI acquisition escrow[59](index=59&type=chunk) [Note 5. Inventory](index=13&type=section&id=5.%20INVENTORY) This note provides a breakdown of inventory components and analyzes changes in inventory levels Inventory Components | Component | Sep 30, 2020 ($) | Dec 31, 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Raw materials | $1,948,486 | $881,761 | | Work in progress | $2,973,107 | $1,916,209 | | Finished goods | $3,820,500 | $3,093,416 | | **Total** | **$8,742,093** | **$5,891,386** | - Total inventory increased by **$2,850,707 (48.4%)** from December 31, 2019, to September 30, 2020, with significant increases across all categories[60](index=60&type=chunk) [Note 6. Stock-Based Compensation](index=14&type=section&id=6.%20STOCK-BASED%20COMPENSATION) This note details stock-based compensation expenses, including RSU grants, common stock grants, and forfeitures - In August 2020, the Company granted **2,617 RSUs** to a board member, resulting in approximately **$17,600** of non-cash compensation expense for the nine months ended September 30, 2020[64](index=64&type=chunk) - Also in August 2020, **84,383 shares** of common stock were granted to employees, leading to approximately **$46,300** in SG&A and **$14,800** in cost of sales compensation expense for the nine months ended September 30, 2020[65](index=65&type=chunk) - Shares granted in prior years (2016-2019) totaling **31,757** were forfeited in August 2020 due to the Company's failure to achieve certain performance criteria for the year ended December 31, 2019[67](index=67&type=chunk) [Note 7. Fair Value](index=14&type=section&id=7.%20FAIR%20VALUE) This note discusses the fair value of financial instruments, including cash, receivables, payables, and debt - The fair values of cash, accounts receivable, and accounts payable approximated their carrying values due to their short-term nature[68](index=68&type=chunk) Fair Value of Debt | Debt Type | Sep 30, 2020 Carrying Amount ($) | Sep 30, 2020 Fair Value ($) | Dec 31, 2019 Carrying Amount ($) | Dec 31, 2019 Fair Value ($) | | :------------------------------------ | :--------------------------- | :---------------------- | :--------------------------- | :---------------------- | | Short-term borrowings, PPP loan, long-term debt | $33,927,711 | $33,927,711 | $30,987,918 | $30,987,918 | - The fair value of debt was estimated using market quotes and calculations based on market rates, matching its carrying amount for both periods[69](index=69&type=chunk) [Note 8. Contract Assets and Contract Liabilities](index=15&type=section&id=8.%20CONTRACT%20ASSETS%20AND%20CONTRACT%20LIABILITIES) This note defines and explains contract assets and liabilities, including revenue recognized from contract liabilities - Contract assets represent revenue recognized in excess of amounts invoiced, where the right to consideration is conditional on factors other than the passage of time[72](index=72&type=chunk) - Contract liabilities represent customer payments received or due in excess of revenue recognized[72](index=72&type=chunk) - Revenue recognized from contract liabilities was approximately **$3.6 million** for the nine months ended September 30, 2020, compared to **$5.2 million** for the same period in 2019[73](index=73&type=chunk) [Note 9. Income (Loss) Per Common Share](index=15&type=section&id=9.%20INCOME%20(LOSS)%20PER%20COMMON%20SHARE) This note describes the computation of basic and diluted income (loss) per common share - Basic and diluted income (loss) per common share are computed using the weighted average number of common shares outstanding, adjusted for incremental shares from options and unvested RSUs[74](index=74&type=chunk) - No incremental shares were used in the calculation of diluted income (loss) per common share for the three and nine months ended September 30, 2020, as the Company was in a loss position[74](index=74&type=chunk) [Note 10. Debt](index=15&type=section&id=10.%20DEBT) This note details changes to the company's credit agreement, including loan conversions, maturity extensions, amended covenants, and the PPP loan - On August 24, 2020, the Company entered into a Sixth Amendment to its Credit Agreement with BankUnited, converting **$6 million** of the Revolving Loan into the Term Loan[76](index=76&type=chunk)[77](index=77&type=chunk) - The Revolving Loan commitment was permanently reduced to **$24 million**, and the maturity date for both the Revolving Note and Term Note was extended to May 2, 2022[77](index=77&type=chunk)[78](index=78&type=chunk) - Financial covenants were amended, including changes to the fixed charge coverage ratio, leverage covenant waiver, and reduced minimum quarterly EBITDA to **$1 million**. The Company was in compliance with all covenants as of September 30, 2020[78](index=78&type=chunk) - The Company obtained a **$4.8 million** PPP Loan on April 10, 2020, bearing **1%** interest, and applied for full forgiveness on October 16, 2020[84](index=84&type=chunk) Long-Term Debt Maturities (Excluding Debt Issuance Costs) | Period (Twelve months ending Sep 30) | Amount ($) | | :------------------------------------ | :----------- | | 2021 | $5,377,559 | | 2022 | $7,641,681 | | 2023 | $132,220 | | 2024 | $37,566 | | **Total** | **$13,189,026** | [Note 11. Major Customers](index=16&type=section&id=11.%20MAJOR%20CUSTOMERS) This note identifies the company's major customers and their respective contributions to revenue, contract assets, and accounts receivable - For the nine months ended September 30, 2020, the Company's three largest customers accounted for **39%**, **12%**, and **10%** of revenue, respectively[86](index=86&type=chunk) - As of September 30, 2020, **32%**, **23%**, and **15%** of contract assets were from the Company's three largest customers[86](index=86&type=chunk) - At September 30, 2020, **47%** and **21%** of accounts receivable were from the Company's two largest customers[87](index=87&type=chunk) [Note 12. Income Taxes](index=17&type=section&id=12.%20INCOME%20TAXES) This note outlines the company's accounting policies for income taxes, including deferred taxes, valuation allowances, and uncertain tax positions - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences and operating loss/tax credit carryforwards[90](index=90&type=chunk) - A valuation allowance is applied when it is not more likely than not that some portion or all of the deferred tax assets will be realized[90](index=90&type=chunk) - Estimated interest and penalties related to uncertain tax positions are recorded in income tax expense[90](index=90&type=chunk) [Note 13. Subsequent Events](index=17&type=section&id=13.%20SUBSEQUENT%20EVENTS) This note discloses significant events occurring after the reporting period, including NYSE compliance and a stock plan amendment - The Company expects to regain compliance with NYSE American's timely filing criteria upon filing this Quarterly Report, after receiving an extension until January 15, 2021, for previous delinquencies[91](index=91&type=chunk) - On October 6, 2020, stockholders approved an amendment to the 2016 Long-Term Incentive Plan, increasing the total shares available for issuance by **800,000** to **1,400,000 shares**[92](index=92&type=chunk) [Note 14. Commitments and Contingencies](index=17&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details the company's legal proceedings, including class action lawsuits, shareholder derivative actions, an SEC investigation, and a settlement agreement - The Company is a defendant in a consolidated class action lawsuit alleging securities law violations related to false/misleading statements in financial reports and offering documents[93](index=93&type=chunk) - Multiple shareholder derivative actions have been filed against current and former directors/officers for breach of fiduciary duty and other claims, seeking recovery on behalf of the Company[96](index=96&type=chunk)[97](index=97&type=chunk) - The SEC Division of Enforcement issued a subpoena on May 22, 2020, seeking documents related to financial statement errors, restatement, the 2018 equity offering, and former CFO separations[99](index=99&type=chunk) - A Settlement and Release Agreement was entered into with Honda Aircraft Company, Inc. on December 23, 2020, terminating an unprofitable program and requiring HACI to purchase approximately **$0.6 million** of inventory[100](index=100&type=chunk) [Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202%20%E2%80%93%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, discussing business activities, COVID-19 impact, backlog, and liquidity [Business Operations and COVID-19 Impact](index=19&type=section&id=Business%20Operations%20and%20Impact%20of%20the%20COVID-19%20Pandemic%20on%20Third%20Quarter%20Results%20and%20Forward-Looking%20Impacts) This section describes the company's core business in aerospace manufacturing and the operational impacts and mitigation strategies related to the COVID-19 pandemic - The Company is engaged in contract production of structural aircraft parts and aerosystems for both commercial and defense markets, serving as a Tier 1/Tier 2 supplier and prime contractor to the U.S. Department of Defense[104](index=104&type=chunk) - Despite being classified as an 'essential business,' the COVID-19 pandemic has caused supply chain disruptions, employee absenteeism, and reductions in commercial aircraft orders, primarily affecting approximately **10%** of total business[105](index=105&type=chunk)[106](index=106&type=chunk) - Mitigating steps include curtailing discretionary spending, deferring business travel, implementing a hiring freeze, and managing material flow to preserve cash[106](index=106&type=chunk) [Recent Developments](index=20&type=section&id=Recent%20Developments) This section highlights key recent events, including a PPP loan, credit facility amendment, backlog reduction, and a working capital dispute settlement - The Company received a **$4.8 million** PPP Loan on April 10, 2020, and applied for full forgiveness on October 16, 2020[108](index=108&type=chunk) - A Sixth Amendment to the BankUnited Credit Facility on August 24, 2020, converted **$6 million** of revolving loan balance to term loan, reduced revolving availability to **$24 million**, and extended maturity to May 2, 2022[109](index=109&type=chunk)[110](index=110&type=chunk) - The Gulfstream G650 program experienced **$3.6 million** in backlog reduction due to COVID-19 related cancellations by Triumph Group, but Gulfstream Aerospace intends to continue purchasing components[111](index=111&type=chunk) - The working capital dispute with Air Industries Group was settled on December 23, 2020, resulting in the release of **$1.38 million** cash from escrow to the Company[112](index=112&type=chunk) [Backlog](index=21&type=section&id=Backlog) This section presents the company's total and funded backlog, highlighting changes and the proportion attributable to government contracts Total Backlog | Backlog Type | Sep 30, 2020 ($) | Dec 31, 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Funded | $189,600,000 | $147,647,000 | | Unfunded | $347,300,000 | $414,231,000 | | **Total** | **$536,900,000** | **$561,878,000** | - Total backlog decreased by **$24.98 million**, while funded backlog increased by **$41.95 million**, primarily driven by government contracts[114](index=114&type=chunk)[115](index=115&type=chunk) - Approximately **89%** of the total backlog at September 30, 2020, was attributable to government contracts[115](index=115&type=chunk) [Critical Accounting Policies](index=22&type=section&id=Critical%20Accounting%20Policies) This section confirms that there have been no significant changes to the company's critical accounting policies during the reporting quarter - There have been no significant changes to the application of the Company's critical accounting policies during the quarter ended September 30, 2020[117](index=117&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including detailed discussions of revenue, cost of sales, gross profit, SG&A, income before taxes, and net income [Revenue Analysis](index=22&type=section&id=Revenue) This section analyzes revenue performance, highlighting increases in government contracts and decreases in commercial subcontracts Revenue Performance | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Total Revenue | $25,576,718 | $22,689,762 | 12.7% | | Government subcontracts | $20,887,968 | $16,179,389 | 29.0% | | Direct military contracts | $3,778,686 | $1,702,951 | 121.9% | | Commercial subcontracts | $910,064 | $4,807,422 | -81.1% | - Total revenue for the three months ended September 30, 2020, increased by **12.7%** primarily due to new multi-year awards for the Northrop Grumman E2D program and increases in T-38 Pacer, Northrop Grumman WOWP, and F16 Rudder Island programs[118](index=118&type=chunk)[120](index=120&type=chunk) - Year-to-date revenue decreased by **4%** to **$62,175,872**, mainly driven by declines in the Raytheon NGJ Pod and G650 programs[119](index=119&type=chunk) - Commercial subcontract revenue saw a significant decrease of **81.1%** for the quarter and **55.9%** year-to-date, primarily from lower G650 and Embraer program revenue[124](index=124&type=chunk)[125](index=125&type=chunk) [Cost of Sales Analysis](index=23&type=section&id=Cost%20of%20Sales) This section analyzes changes in cost of sales components, including procurement, labor, and factory overhead, and their impact on margins Cost of Sales Components (3 Months Ended Sep 30) | Component | 2020 ($) | 2019 ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Procurement | $17,478,009 | $11,941,699 | 46.3% | | Labor | $1,670,761 | $1,967,144 | -15.2% | | Factory OH | $4,596,516 | $5,164,788 | -11.0% | | Inventory Change | $(1,083,585) | $1,647,414 | -165.8% | | Other | $(1,267,458) | $36,604 | -3561.9% | | **Total Cost of Sales** | **$21,394,243** | **$20,757,649** | **3.1%** | - Cost of sales for the three months ended September 30, 2020, increased by **3.1%**, which was substantially less than the revenue increase, indicating improved margin contribution from higher-margin defense programs[127](index=127&type=chunk) - Procurement costs increased significantly by **46.3%** for the quarter, primarily due to the E2D and WOWP programs, while labor costs decreased by **15%** due to lower requirements on certain programs[129](index=129&type=chunk)[131](index=131&type=chunk) - Year-to-date cost of sales decreased by **5.8%** to **$54,715,508**, also attributed to more margin contribution from higher margin defense programs[128](index=128&type=chunk) [Gross Profit Analysis](index=25&type=section&id=Gross%20Profit) This section analyzes gross profit performance, highlighting significant increases driven by a favorable mix of higher-margin defense programs Gross Profit Performance | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Gross Profit | $4,182,475 | $1,932,113 | 116.5% | | Metric | 9 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2019 ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Gross Profit | $7,460,363 | $6,659,171 | 12.0% | - Gross profit for the three months ended September 30, 2020, increased by **116.5%**, primarily due to increased revenue from higher margin defense programs[139](index=139&type=chunk) - Year-to-date gross profit increased by **12%**, driven by a favorable mix of higher margin defense programs, despite lower overall revenue[140](index=140&type=chunk) - Net adjustments to gross profit from changes in estimates for the nine months ended September 30, 2020, resulted in an unfavorable impact of **$(736,267)**, compared to a favorable impact of **$190,233** in the prior year[141](index=141&type=chunk) [Selling, General and Administrative Expenses](index=25&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) This section analyzes the increase in SG&A expenses, primarily attributed to higher professional fees related to financial restatements SG&A Expenses | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | SG&A Expenses | $3,050,644 | $2,806,498 | 8.7% | | Metric | 9 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2019 ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | SG&A Expenses | $8,958,986 | $8,259,945 | 8.5% | - SG&A expenses increased by **8.7%** for the three months and **8.5%** for the nine months ended September 30, 2020, primarily due to higher professional fees related to the restatement of prior period financial statements[143](index=143&type=chunk)[144](index=144&type=chunk) [Income (Loss) Before Provision for Income Taxes](index=25&type=section&id=Income%20(Loss)%20Before%20Provision%20for%20Income%20Taxes) This section analyzes the company's income or loss before taxes, highlighting improvements driven by gross profit and lower interest expense Income (Loss) Before Provision for Income Taxes | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Income (Loss) Before Taxes | $822,823 | $(1,252,580) | $2,075,403 | | Metric | 9 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2019 ($) | Change ($) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Income (Loss) Before Taxes | $(2,584,427) | $(3,065,150) | $480,723 | - Income before taxes for the three months ended September 30, 2020, significantly improved by **$2,075,403**, driven by increased gross profit and lower interest expense, despite higher SG&A[145](index=145&type=chunk) - The year-to-date loss before taxes decreased by **$480,723**, attributed to a favorable program mix and lower interest expense, offset by increased SG&A[146](index=146&type=chunk) [Provision for Income Taxes](index=26&type=section&id=Provision%20for%20Income%20Taxes) This section details the provision for income taxes, primarily related to state minimum and franchise taxes Provision for Income Taxes (9 Months Ended Sep 30) | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Provision for Income Taxes | $9,714 | $5,784 | - The provision for income taxes for the nine months ended September 30, 2020, was **$9,714**, primarily related to state minimum and franchise taxes[148](index=148&type=chunk) [Net Income (Loss)](index=26&type=section&id=Net%20Income%20(Loss)) This section presents the company's net income or loss and earnings per share, highlighting improvements over prior periods Net Income (Loss) and EPS | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 9 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2019 ($) | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | $815,209 | $(1,255,051) | $(2,594,141) | $(3,070,934) | | Basic EPS | $0.07 | $(0.11) | $(0.22) | $(0.26) | - The Company reported net income of **$815,209 ($0.07 per basic share)** for the three months ended September 30, 2020, a significant improvement from a net loss in the prior year[149](index=149&type=chunk) - The year-to-date net loss decreased to **$(2,594,141) ($(0.22) per basic share)** from **$(3,070,934) ($(0.26) per basic share)** in the prior year[150](index=150&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity position, including working capital, cash flow, credit facilities, and contractual obligations [General Liquidity](index=26&type=section&id=General) This section discusses working capital changes and potential cash flow shortfalls due to revenue recognition disparities and program delays Working Capital | Metric | Sep 30, 2020 ($) | Dec 31, 2019 ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Working Capital | $12,485,031 | $13,851,719 | -9.9% | - Working capital decreased by **9.9%** to **$12,485,031** at September 30, 2020[151](index=151&type=chunk) - The Company notes potential cash flow shortfalls due to disparities between reported earnings (ASC 606 estimates) and actual cash receipts, and risks impairment charges for unrecoverable up-front costs on delayed/cancelled programs[153](index=153&type=chunk)[154](index=154&type=chunk) [Cash Flow Analysis](index=26&type=section&id=Cash%20Flow) This section analyzes cash and restricted cash balances, including the impact of a government receipt and the release of restricted funds Cash and Restricted Cash Balances | Metric | Sep 30, 2020 ($) | Dec 31, 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Cash balance | $3,589,095 | $4,052,109 | | Restricted cash | $1,380,684 | $1,380,684 | - The cash balance decreased to **$3,589,095** at September 30, 2020, excluding a **$2.6 million** U.S. Government receipt received on October 5, 2020[157](index=157&type=chunk) - Restricted cash of **$1,380,684** was released to the Company on December 28, 2020, following a settlement[157](index=157&type=chunk) - Management believes existing resources, including **$3.3 million** of availability under the BankUnited Facility, will be sufficient to meet working capital needs for at least the next **12 months**[158](index=158&type=chunk) [Bank Credit Facilities](index=27&type=section&id=Bank%20Credit%20Facilities) This section details the BankUnited Credit Agreement amendments, covenant compliance, and outstanding loan balances - The Sixth Amendment to the BankUnited Credit Agreement waived covenant violations for late financial statement delivery and past financial covenants, with testing resuming for the quarter ending September 30, 2020[160](index=160&type=chunk) - As of September 30, 2020, the Company was in compliance with all tested covenants[160](index=160&type=chunk) - The Company had **$20.7 million** outstanding under the Revolving Loan (**4%** interest) and a Term Loan with an aggregate principal of **$7.93 million**, both maturing on May 2, 2022[161](index=161&type=chunk) [Contractual Obligations](index=27&type=section&id=Contractual%20Obligations) This section refers to the Annual Report on Form 10-K for detailed information concerning contractual obligations - For detailed information concerning contractual obligations, the Company refers to its Annual Report on Form 10-K for the year ended December 31, 2019[162](index=162&type=chunk) [Item 3 – Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no quantitative or qualitative disclosures about market risk applicable to the company for the reporting period - This item is not applicable to the Company[163](index=163&type=chunk) [Item 4 – Controls and Procedures](index=27&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) This section details management's evaluation of disclosure controls and procedures, identifying material weaknesses and outlining remediation efforts [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section presents management's conclusion on the ineffectiveness of internal control over financial reporting and disclosure controls due to material weaknesses - Management concluded that the Company's internal control over financial reporting was not effective as of December 31, 2019, December 31, 2018, and September 30, 2020, due to material weaknesses[168](index=168&type=chunk)[187](index=187&type=chunk) - Disclosure controls and procedures were also concluded to be not effective as of September 30, 2020, due to these material weaknesses[179](index=179&type=chunk)[187](index=187&type=chunk) - The evaluation excluded the WMI acquisition for the first year subsequent to acquisition, in accordance with SEC guidance[168](index=168&type=chunk) [Material Weaknesses](index=29&type=section&id=Material%20Weaknesses) This section identifies material weaknesses in the control environment, risk assessment, control activities, monitoring, revenue recognition, and IT general controls - Material weaknesses were identified in the control environment, risk assessment, control activities, and monitoring, stemming from insufficient personnel knowledge, lack of technical proficiency, and inadequately documented policies/procedures[171](index=171&type=chunk) - Deficiencies in revenue recognition accounting controls led to material errors and the restatement of prior financial statements, specifically regarding proper determination of contract performance period/value and constraining revenue to funded contract values[170](index=170&type=chunk)[172](index=172&type=chunk) - A material weakness existed in accounting for significant, non-routine, complex transactions due to a lack of controls and qualified external resources[173](index=173&type=chunk) - Ineffective Information Technology General Controls (ITGCs) were identified in areas such as access to programs/data, program change-management, and computer operations[175](index=175&type=chunk) [Remediation Efforts](index=30&type=section&id=Remediation%20Efforts%20to%20Address%20Material%20Weaknesses) This section outlines the company's remediation efforts, including hiring finance professionals, updating revenue recognition policies, and redesigning internal controls - The Company hired experienced professionals for key finance leadership positions (CFO, Controller, Director of Financial Planning & Analysis) to enhance technical proficiency and oversight[178](index=178&type=chunk) - Revenue recognition policies and procedures were reviewed and updated in Q2 2020, now constraining revenue recognition to funded contract values[178](index=178&type=chunk) - Ongoing efforts include redesigning and implementing internal controls, evaluating and revising the SOX Program, and establishing a policy to engage experienced professionals for future complex transactions[178](index=178&type=chunk) - An improved 404 compliant ITGC testing program will be implemented for years subsequent to 2019 with assistance from experienced professionals[178](index=178&type=chunk) [Changes in Internal Control Over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms that no material changes occurred in internal control over financial reporting during the quarter, apart from ongoing remediation - Other than the ongoing remediation efforts, there were no changes in internal control over financial reporting during the quarter ended September 30, 2020, that materially affected or are reasonably likely to materially affect the controls[181](index=181&type=chunk) [Part II - Other Information](index=31&type=section&id=Part%20II%20-%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and other relevant information [Item 1 – Legal Proceedings](index=31&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) This section refers to Footnote 14 – Commitments and Contingencies in the financial statements for details regarding legal proceedings - For information regarding legal proceedings, refer to Footnote 14 – Commitments and Contingencies[182](index=182&type=chunk) [Item 1A – Risk Factors](index=31&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) This section outlines various material risks that could significantly impact the company's business, operating results, liquidity, and financial condition [Risks Related to Financial Restatement and Internal Controls](index=31&type=section&id=Risks%20Related%20to%20the%20Restatement%20of%20our%20Prior%20Period%20Consolidated%20Financial%20Statements%20and%20Material%20Weaknesses%20in%20our%20Internal%20Controls) This section details risks associated with financial restatements and internal control weaknesses, including impacts on investor confidence, litigation, and regulatory scrutiny - The restatement of prior financial statements and identified material weaknesses have eroded investor confidence, negatively impacted stock price, hindered capital raising, and led to stockholder litigation and regulatory investigations[185](index=185&type=chunk) - Ongoing remediation efforts for internal control weaknesses are costly, divert management attention, and do not guarantee future effectiveness, potentially impacting financial reporting accuracy and timeliness[189](index=189&type=chunk)[192](index=192&type=chunk)[194](index=194&type=chunk) - Past covenant violations under the BankUnited credit facility due to financial errors were waived, but future non-compliance could lead to default and adverse financial consequences[196](index=196&type=chunk)[197](index=197&type=chunk) - The Company is ineligible to use Form S-3 for **12 months** after regaining current filer status, increasing future capital raising costs and time[199](index=199&type=chunk) - Risk of delisting from the NYSE American exchange if compliance with listing standards is not maintained, which would adversely affect stock liquidity and capital access[201](index=201&type=chunk)[203](index=203&type=chunk) [Risks Related to COVID-19](index=34&type=section&id=Risks%20Related%20to%20COVID-19) This section outlines risks from the COVID-19 pandemic, including supply chain disruptions, reduced commercial demand, liquidity challenges, and PPP loan forgiveness uncertainty - The COVID-19 pandemic has caused and could continue to cause disruptions in the supply chain, increased costs, delays, and limitations on customer performance, including timely payments[205](index=205&type=chunk) - Reduced demand in the commercial air industry due to lower aircraft deliveries is impacting the Company's commercial business[205](index=205&type=chunk) - Liquidity could be adversely affected by slower production schedules and potential customer payment delays, possibly necessitating additional funding which may be difficult to obtain[206](index=206&type=chunk) - There is no assurance that the **$4.8 million** PPP Loan will be fully forgiven; if not, it must be repaid over **two years**[210](index=210&type=chunk) [Risks Related to Legal Proceedings](index=35&type=section&id=Risks%20Related%20to%20Legal%20Proceedings) This section details risks from ongoing class action and shareholder derivative lawsuits, as well as an SEC investigation, potentially leading to significant expenses and penalties - The Company faces ongoing class action and shareholder derivative lawsuits related to financial restatements and internal control issues, which could result in significant expenses and diversion of management attention[211](index=211&type=chunk) - An SEC investigation is underway, seeking documents related to financial errors, restatement, and executive changes, with unpredictable length, scope, and potential impact, including regulatory penalties[212](index=212&type=chunk) [General Business Risks](index=36&type=section&id=General%20Risks%20Related%20to%20our%20Business) This section covers general business risks, including dependence on government contracts, competitive bidding, industry consolidation, regulatory compliance, supplier performance, and revenue recognition estimates - The Company heavily depends on government contracts, which are subject to congressional budget authorization, appropriation processes, and potential termination for convenience or default, impacting future sales and financial stability[214](index=214&type=chunk)[215](index=215&type=chunk)[218](index=218&type=chunk) - Risks associated with competitive bidding include unforeseen technological difficulties, cost overruns, substantial bid preparation efforts for unawarded contracts, and insufficient profitability[219](index=219&type=chunk) - Industry consolidation among customers, competitors, and suppliers could adversely affect business by delaying contracts, increasing competition, and raising supply costs[220](index=220&type=chunk) - Non-compliance with extensive environmental and FAA regulations could result in fines, remediation expenses, and disqualification from contracts[222](index=222&type=chunk)[224](index=224&type=chunk) - Failure of subcontractors or suppliers to perform contractual obligations could materially and adversely impact contract performance, future business, and profitability[226](index=226&type=chunk) - Fixed contract pricing exposes the Company to reduced profitability and potential loss of future business if contract costs increase due to technical challenges or incorrect initial estimates[227](index=227&type=chunk) - The use of estimates in revenue recognition (ASC 606) involves significant judgment, and inaccurate estimates or contract terminations could affect profitability and cash flow[229](index=229&type=chunk)[231](index=231&type=chunk) - The Company's ability to utilize its net operating loss (NOL) carryforwards may be substantially limited if it fails to generate sufficient income or experiences an 'ownership change' as defined by Section 382 of the Internal Revenue Code[244](index=244&type=chunk)[245](index=245&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[246](index=246&type=chunk) [Item 3 – Defaults Upon Senior Securities](index=41&type=section&id=Item%203%20%E2%80%93%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities to report[247](index=247&type=chunk) [Item 4 – Mine Safety Disclosures](index=41&type=section&id=Item%204%20%E2%80%93%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - This item is not applicable to the Company[248](index=248&type=chunk) [Item 5 – Other Information](index=42&type=section&id=Item%205%20%E2%80%93%20Other%20Information) This section states that there is no other information to report for the period - No other information to report[250](index=250&type=chunk) [Item 6 – Exhibits](index=42&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various certifications and Inline XBRL documents - Includes Section 302 Certifications by Chief Executive Officer and President, and Chief Financial Officer[251](index=251&type=chunk) - Includes Section 906 Certification by Chief Executive Officer and Chief Financial Officer[251](index=251&type=chunk) - Attached as Exhibit 101 are various financial statements and notes formatted in Inline XBRL[251](index=251&type=chunk) [Signatures](index=43&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q, certifying its submission - The report was signed by Douglas J. McCrosson, Chief Executive Officer and President, and Thomas Powers, Acting Chief Financial Officer, on December 31, 2020[255](index=255&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission File Number: 1-11398 CPI AEROSTRUCTURES, INC. (Exact name of registrant as specified in its charter) New York 11-2520310 (State or othe ...

Information contained herein is proprietary to CPI Aero and may be subject to ITAR regulations 1 Expertise in Aerospace Technologies 2020 Q2 Results Presentation Speakers: Douglas McCrosson, President & Chief Executive Officer Tom Powers, Acting Chief Financial Officer November 12, 2020 LISTED NYSE AMERICAN Disclosure Statements This presentation contains forward-looking statements that are based on current expectations of management and certain assumptions that are subject to risks and uncertainties. There ...