false --12-31 2023 FY true false 0000889348

 2023-06-30

 2024-04-04

 2021-12-31

 2021-12-31

 2021-12-31

 2021-12-31

 cvu: GovernmentSubcontractsMember

 cvu: GovernmentSubcontractsMember

 cvu: PrimeGovernmentContractsMember

 cvu: PrimeGovernmentContractsMember

 cvu: CommercialContractsMember

 cvu: CommercialContractsMember

 us-gaap: TransferredOverTimeMember

 us-gaap: TransferredOverTimeMember

 us-gaap: TransferredAtPointInTimeMember

 us-gaap: TransferredAtPointInTimeMember

 cvu: FavorableAdjustmentMember

 cvu: FavorableAdjustmentMember

 cvu: UnfavorableAdjustmentMember

 cvu: UnfavorableAdjustmentMember

 us-gaap: MachineryAndEquipmentMember

 us-gaap: MachineryAndEquipmentMember

 us-gaap: MachineryAndEquipmentMember
 srt: MinimumMember

 us-gaap: MachineryAndEquipmentMember
 srt: MaximumMember

 us-gaap: ComputerEquipmentMember

 us-gaap: ComputerEquipmentMember

 us-gaap: FurnitureAndFixturesMember

 us-gaap: FurnitureAndFixturesMember

 us-gaap: VehiclesMember

 us-gaap: VehiclesMember

 us-gaap: LeaseholdImprovementsMember

 us-gaap: LeaseholdImprovementsMember

 us-gaap: PropertyPlantAndEquipmentMember

 us-gaap: PropertyPlantAndEquipmentMember

 cvu: WeldingMetallurgyIncMember

 2018-12-30

 2016-03-24

 2016-03-24

 us-gaap: PrimeRateMember

 cvu: PrimeRateOneMember

 cvu: PrimeRateTwoMember

 cvu: PrimeRateThreeMember

 cvu: PrimeRateFourMember

 srt: MaximumMember

 2022-08-19

 2022-08-18
 2022-08-19

 2022-11-09
 2022-11-10

 2022-11-09
 2022-11-10

 2023-03-21

 cvu: PeriodOneMember

 cvu: PeriodTwoMember

 cvu: PeriodThreeMember

 cvu: PeriodFourMember

 cvu: PeriodFiveMember

 2023-03-21

 cvu: FirstInstallmentMember

 2023-03-21

 cvu: SecondInstallmentMember

 2023-03-21

 us-gaap: DebtInstrumentRedemptionPeriodOneMember

 us-gaap: DebtInstrumentRedemptionPeriodTwoMember

 us-gaap: DebtInstrumentRedemptionPeriodThreeMember

 srt: MinimumMember

 2024-02-19

 cvu: PeriodOneMember

 cvu: PeriodTwoMember

 cvu: PeriodThreeMember

 cvu: PeriodFourMember

 cvu: PeriodFiveMember

 cvu: PeriodSixMember

 cvu: PeriodSevenMember

 2021-10-27
 2021-10-28

 us-gaap: PrimeRateMember

 us-gaap: PrimeRateMember

 srt: ScenarioPreviouslyReportedMember

 srt: RestatementAdjustmentMember

 us-gaap: StateAndLocalJurisdictionMember

 us-gaap: TaxYear2018Member

 us-gaap: TaxYear2018Member

 us-gaap: TaxYear2017Member

 us-gaap: DomesticCountryMember

 us-gaap: TaxYear2017Member

 us-gaap: StateAndLocalJurisdictionMember

 us-gaap: CostOfSalesMember

 us-gaap: CostOfSalesMember

 us-gaap: SellingGeneralAndAdministrativeExpensesMember

 us-gaap: SellingGeneralAndAdministrativeExpensesMember

 us-gaap: RestrictedStockUnitsRSUMember

 us-gaap: RestrictedStockUnitsRSUMember

 us-gaap: RestrictedStockUnitsRSUMember

 us-gaap: ShareBasedCompensationAwardTrancheOneMember

 us-gaap: ShareBasedCompensationAwardTrancheTwoMember

 cvu: PerformanceEquityPlan2009Member

 2009-12-31

 cvu: PerformanceEquityPlan2009Member

 2016-12-31

 us-gaap: EmployeeStockOptionMember

 2020-10-01
 2020-12-31

 2020-12-31

 2023-04-01
 2023-06-30

 2023-06-30

 us-gaap: RestrictedStockMember

 us-gaap: RestrictedStockMember

 us-gaap: RestrictedStockMember

 2023-05-16
 2023-05-17

 2021-05-19
 2021-05-20

 UNITED
STATES

 SECURITIES
AND EXCHANGE COMMISSION

 Washington,
D.C. 20549

 Form

 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF

 THE
SECURITIES EXCHANGE ACT OF 1934

 For
the fiscal year ended December 31, 2023

 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.)

Heartland Blvd., Edgewood, New York 11717

 (Address
of principal executive offices)

 (631) 586-5200

 (Registrant's
telephone number, including area code)

 Securities
registered pursuant to Section 12(b) of the Act:

 Title of
 Each Class

 Trading Symbol(s)

 Name of each
 exchange on which registered

 Common Stock,
 $.001 par value

 CVU

 NYSE American

 Securities
registered pursuant to Section 12(g) of the Act: None

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 Yes
 No

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 Yes No

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes No

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes No

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 Accelerated
 filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.

by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).

 Yes
 No

 As
of June 30, 2023 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate
market value of the registrant's common stock (based on its reported last sale price on NYSE American on June 30, 2023 of
$3.89) held by non-affiliates of the registrant was $ 46,445,647.

 As
of April 4, 2024, the registrant had 12,854,428 shares of common stock, $.001 par value, outstanding.

 Documents
Incorporated by Reference:

 Portions
of the CPI Aerostructures, Inc. Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after
the year covered by this Annual Report on Form 10-K with respect to the registrant's 2024 Annual Meeting of Stockholders
are incorporated by reference into Part III hereof.

 CPI

 FORM

 ANNUAL
REPORT

 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2023

 TABLE
OF CONTENTS

 FORWARD-LOOKING STATEMENTS

 Item 1.

 BUSINESS

 Item 1A.

 RISK FACTORS

 Item 1B

 UNRESOLVED STAFF COMMENTS

 Item 1C

 CYBERSECURITY

 Item 2.

 PROPERTIES

 Item 3.

 LEGAL PROCEEDINGS

 Item 4.

 MINE SAFETY DISCLOSURES

 Item 5.

 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Item 6.

 [RESERVED]

 Item 7.

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 Item 7A.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Item 8.

 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 Item 9.

 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 Item 9A

 CONTROLS AND PROCEDURES

 Item 9B.

 OTHER INFORMATION

 Item 9C

 DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 Item 10.

 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 Item 11.

 EXECUTIVE COMPENSATION

 Item 12.

 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 Item 13.

 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 Item 14.

 PRINCIPAL ACCOUNTANT FEES AND SERVICES

 Item 15.

 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 Item 16.

 FORM 10-K SUMMARY

 INDEX TO FINANCIAL STATEMENTS

 FORWARD
LOOKING STATEMENTS

 This
Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. When used in this Annual Report on Form 10-K and in future filings by us with the Securities and Exchange Commission
("SEC"), the words or phrases "believe", "intend", "plan", "will",
"will likely result", "we expect", "could", "will continue", "anticipated",
"estimated" or similar expressions are intended to identify forward-looking statements. In addition, any statements
that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions,
are forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties.
There can be no assurance that future developments will be those that have been anticipated. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements. Further, such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated
or projected. Numerous factors, including the risk factors described in "Item 1A: Risk Factors" in this Annual Report
on Form 10-K, could cause our actual results to differ materially from those expressed in our forward-looking statements. We assume
no obligation to revise or update any forward looking statements for any reason except as required by law.

 The
forward-looking statements contained in this Form 10-K speak only as of the date of its filing. Except where required by applicable
law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-K to reflect
subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The
forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the federal
securities laws.

 You
should read the financial information set forth below in conjunction with our consolidated financial statements and notes thereto.

 EXPLANATORY
NOTE

 During our review of the Company's (defined
below) deferred income tax positions as of December 31, 2023, we determined that, due to the inadequate review, assessment of and reporting
of the Company's temporary differences between book and taxable income, the Company's December 31, 2022 deferred tax assets
and deferred tax liabilities balances as previously reported by the Company in Note 11 "Income Taxes" of the Company's
financial statements which were included within the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2022, require restatement. The restatement of these balances has no impact to the Company's previously reported net deferred tax
asset on its December 31, 2022 balance sheet and no impact to the Company's previously reported net income, earnings per share or
cash flow for the twelve months ended December 31, 2022. The restatement of the aforementioned balances, as well as additional details
regarding the restatement adjustments, appears in Note 11 "Income Taxes" of the Company's financial statements included
within this Annual Report on Form 10-K.

 Company management has determined that a material
weakness exists in the Company's internal controls relating to the review, assessment of and reporting of the Company's temporary
differences between book and taxable income and has included disclosure of this material weakness in Management's Annual Report
on Internal Control over Financial Reporting included in Part II Item 9A in this Annual Report on Form 10-K. Except as described above
and as amended in this Annual Report on From 10-K, we have not amended and do not intend to amend any of our previously filed Annual
Reports on Form 10-K or Quarterly Reports on Form 10-Q.

 PART
I

 Item 1.
 BUSINESS

 General

 CPI
Aerostructures, Inc., including its wholly owned subsidiary Welding Metallurgy, Inc. ("WMI") and Compac Development
Corporation, a wholly owned subsidiary of WMI (collectively, "CPI Aero", the "Company", "us",
or "we") is a manufacturer of structural assemblies, integrated systems, and kitted components for the domestic and
international aerospace and defense ("A&D") markets. Our products are generally used by customers in the production
of fixed wing aircraft, helicopters, electronic warfare ("EW") systems, intelligence, surveillance, and reconnaissance
("ISR") systems, missiles, and other sophisticated A&D products. We are primarily a Tier 1 supplier to Original
Equipment Manufacturers ("OEMs"). We are also a Tier 2 supplier to larger Tier 1 manufacturers and a prime contractor
to the United States ("U.S.") Department of Defense ("DOD"), primarily the U.S. Air Force ("USAF").
Our products are used by OEMs within both commercial aerospace and national security markets. In addition to our assembly operations,
we provide manufacturing engineering, program management, supply chain management, kitting, and maintenance repair and overhaul
("MRO") services.

 CPI
Aero has over 43 years of experience as a contractor. Our team possesses extensive technical expertise, program and supply chain
management, and integration capabilities. Our competitive advantage lies in our ability to offer large contractor capabilities
with the flexibility and responsiveness of a small company, while staying competitive in cost and delivering superior quality
products.

 We
maintain a website located at www.cpiaero.com. Our corporate filings, including our Annual Reports on Form 10-K, our Quarterly
Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed by our officers and directors under
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any amendments to those
filings, are available, free of charge, on our website as soon as reasonably practicable after we electronically file such material
with the SEC. The contents of our website are not incorporated in or otherwise to be regarded as a part of this Annual Report
on

Form 10-K.

 History

 Conceived
and started as a technical consulting firm on January 11, 1980, within a few years, Composite Products International Inc. ("CPI")
was manufacturing aircraft structural components for U.S. military aircraft under contract to the U.S. Government. By the late
1980s, CPI was also providing structural components for civil aircraft in the commercial market.

 In
the 1990s, CPI became a publicly traded company and changed its name to CPI Aerostructures, Inc. ("CPI Aero"). The
Company continued to grow, both in size and in its business. U.S. Government contracts served as the mainstay of CPI Aero's
business, and the Company continued to grow its presence in the commercial market as well. Commitment to customer satisfaction
and pride in a job well done propelled CPI Aero to the forefront as a reputable and hardworking supplier to OEMs.

 On
September 5, 2000, CPI Aero shares were listed on the American Stock Exchange (now known as NYSE American). We also started to
focus on diversifying our business model to pursue more commercial contracts. In 2007, the Company won three major contracts and
experienced great growth and expansion.

 In
2018, CPI Aero acquired Welding Metallurgy Inc. This allowed for a small but strategically important amount of vertical integration
in complex fusion welding and large diameter tube bending capability. The acquisition included Miller Stuart and Compac Development
Corp., two other business lines that added fabrication of electrical cables, harnesses and enclosures to the Company's capabilities.

 Today,
CPI Aero continues to engage in traditional high quality structural assembly manufacturing while incorporating the latest in technology
to improve quality and streamline production. Our success is rooted in our core company values, the dedication and skill of our
employees, and our commitment to providing our customers the full-service solution they require.

 Products
and Services

 We
offer design, engineering, manufacture, build, MRO services, and supply chain and kitting services capabilities to the A&D
industry as follows:

 Aerostructures: New Production and Repair/Overhaul of Fielded Wing Structures and other Control
 Surfaces, Rudder Island, Engine Inlets/Nacelles, Engine Exhaust Manifolds, Aircraft Doors
 and Windows, Aircraft Steps and Racks, and other Aircraft Secondary Structures

 Aerosystems:
 Airborne Pod Structures and Integration of Internal Systems, Radar Housing Structures,
 Panel Assemblies, Mechanical Door Locking Systems, and Canopy Lifting Systems

 Large
 Diameter Tube Bending: Complex Ducts and Tubes in Steel, Aluminum, Titanium,
 and Nickel Alloys

 Complex
 Specialty Welding: Fusion Welded Fluid Tanks and Resistance Welding (Spot and
 Seam)

 Electrical
 Cables, Harness, and Enclosures: Wire Harnesses, Power Control Systems, Fuel
 Management Systems, Power Distribution Systems, Fully Integrated Electrical Control Systems,
 and enclosures

 Engineering
Services and Capabilities

 As
a build-to-print structural component manufacturer, CPI Aero's engineering focus is on executing customer contracts through
product realization, and to support collaborative design development using design for manufacturing and assembly ("DFMA"),
geometric dimensioning & tolerancing ("GD&T"), and tooling concept support. Although not vertically
integrated, CPI Aero has a deep well of experience on various types of detail part manufacturing that allows us to provide detailed
design for manufacturing input during the design refinement process.

 We
have significant experience working in a full model-based definition environment, both CATIA and NX, due to our long sustainment
support on older airframes. CPI Aero also possesses the capability to work with traditional blueprints, mylars and loft. The Company
has executed several projects where older engineering data sets were "rehabilitated" to fully model-based datasets
per customers' requests.

 CPI
Aero is capable and has experience in designing many types of assembly type tools up to and including large floor mounted, articulated
tooling at high levels of precision. We are also capable of designing various types of tooling that can be 3D printed for rapid
response. Understanding our customers' product performance needs and combining product GD&T layout and final tooling
definitions and requirements helps us maximize product realization success.

 Overall,
CPI Aero's engineering team is dedicated to providing our customers an experience where our activities are an extension
of their business and complement their engineering goals.

 Business
Strategy

 CPI
Aero is committed to achieving revenue, gross profit margin, and earnings growth through the successful implementation of our
business development strategy. CPI Aero's future strategic direction is tied to aerostructures, aerosystems, supply chain,
and kitting services, and a deeper market penetration of formerly acquired businesses in welding, tube bending, wire harnesses,
and electronics. To accomplish this strategy, we are focused on executing on our current customer programs while pursuing new
aerospace build-to-print opportunities - in both new production and MRO statements of work.

 We
believe that there has been a shift in the market for more build-to-print contracts by OEMs versus the recent past trend of design
and build contracts. This trend fits in well with CPI Aero's strengths. In addition, we expect to identify and close contracts
for which we can provide more value added content to our customer (like integrating sub-assemblies into higher level Aerostructures
and Aerosystems statements of work) and we intend to pursue statements of work that require proportionately higher CPI Aero value
added content.

 Another
tenet of the CPI Aero business development strategy is portfolio reshaping of our existing business by identifying and closing
long-term agreements or multi-year contracts, which provides an opportunity to firm-up supplier agreements and secure supplier
capacity.

 The
final element of CPI Aero's business development strategy is to build upon the Company's existing customer relationships
and to develop relationships with new customers. We intend to increase customer engagements by deploying our business development
personnel to solidify existing customer relationships which have been established by performance excellence, transparency and
trust over many years and multiple programs. We have also added additional resources to our business development function to cultivate
new relationships with new customers.

 We
will make sure each customer has the best possible buying experience, by ensuring we are a best value partner through the delivery
of high quality products delivered on time. The CPI Aero team will always work in a collaborative way to meet customers'
needs and solve their problems.

 The
Market

 We
have positioned the Company to take advantage of opportunities in the military aerospace market to a broad customer base, thereby
reducing the impact of direct government contracting limitations. Our success as a subcontractor to defense prime contractors
has provided us with opportunities to also act as a subcontractor to prime contractors in the production of commercial aircraft
structures.

 Over
time, our Company has expanded in both capabilities and size, as evidenced by our growth in our operational, global supply chain
management, program management, and engineering capabilities, as well as the growth in our manufacturing shop floor size and equipment
base. These expansions have provided us the ability to supply larger and more complex Aerostructures and Aerosystems products
in support of our government-based programs as well as to pursue opportunities within the commercial and business jet markets.
Our capabilities have also allowed us to obtain MRO, kitting, tube bending, welding, and electronics related contracts.

 Competition

 We
face competition in our role as both a prime contractor to the U.S. Government and as a Tier 1 or Tier 2 subcontractor to military
and commercial aircraft manufacturers. With respect to Aerostructures products, we often compete against much larger Tier 1 suppliers,
such as Triumph Group, Spirit Aerosystems, Kaman Aerospace, GKN Aerospace, Ducommun, and LMI Aerospace. We believe that we can
compete effectively with these larger companies by delivering products with the same level of quality and performance at a better
value for our customer. With respect to Aerosystems products, such as our portfolio of EW and ISR integrated pod structures, we
find more limited competition and are not aware of competition from any of the Aerostructures companies mentioned above. In these
cases, we typically compete with the internal manufacturing arm of our customers. We believe our unique skills related to integrated
pod structures combined with a very efficient and generally much lower cost structure create a competitive advantage for bidding
on Aerosystems contracts.

 For
certain unrestricted contracts for the U.S. Government, we may compete against well-established prime contractors, including Northrop
Grumman, Lockheed Martin, and Boeing. All of these competitors possess significantly larger infrastructures, greater resources
and the capabilities to respond to much larger contracts. We believe that our competitive advantage lies in our ability to offer
large contractor capabilities with the flexibility and responsiveness of a small company, while staying competitive in cost and
delivering superior quality products. While larger prime contractors compete for significant modification awards, they generally
do not compete for awards in smaller modifications, spares and replacement parts, even for aircraft for which they are the original
manufacturer. In certain instances, the large prime contractors often subcontract much of the work they win to their Tier 1 suppliers
so we also may act as a subcontractor to them in these situations. Furthermore, in some cases these prime contractors are not
permitted to bid, for example when the U.S. Government designates a contract as a Small Business Set-Aside. In these restricted
contracts for the U.S. Government, CPI Aero typically competes against numerous small business competitors. We believe we compete
effectively against the smaller competitors because of our 40 years of experience and expertise in responding to requests for
proposals for government contracts.

 Our
Customers

 Approximately
$6.0 million and $6.1 million of our revenue for the years ended December 31, 2023 and 2022, respectively, were from customers
outside the U.S. All other revenue for the years ended December 31, 2023 and 2022 has been attributable to customers within the
U.S. We have no assets outside the U.S.

 We
have positioned our Company to take advantage of opportunities in the military aerospace market to a broad customer base, which
we believe will reduce the potential impact of industry consolidation. Our success as a subcontractor to defense prime contractors
has provided us with opportunities to also act as a subcontractor to prime contractors in the production of commercial aircraft
structures, which we believe will also reduce our exposure to defense industry consolidation, government spending decisions, and
other defense industry risks.

 Our
OEM customers in the defense sector include leading prime defense contractors such as:

 Lockheed
 Martin Corporation - we provide products used in the production of Lockheed Martin
 Corporation's ("Lockheed Martin") F-35 Joint Strike Fighter and an
 international variant of the F-16 Fighting Falcon. We also provide structural assemblies
 to Sikorsky, a Lockheed Martin company ("Sikorsky"), for many of their military
 helicopter platforms including the UH-60 BLACK HAWK, CH-53E and CH-53K, and a special
 purpose helicopter;

 RTX
 Corporation, formerly Raytheon Technologies – we provide products to two
 business divisions of RTX Corporation: Raytheon (Next Generation Jammer – Mid-Band
 pod, Advanced Tactical Pods, Intelligence, Surveillance and Airborne Reconnaissance Pods,
 Missile Wings and Components, and Radar Racks) and Collins Aerospace (RF Enclosures);

 The
 Boeing Company - we provide critical wing structure for The Boeing Company's
 ("Boeing") A-10 re-wing program and welded structures for the CH-47 Chinook
 helicopter; and

 Northrop
 Grumman Corporation – we provide structural components and kits for the
 Northrop Grumman Corporation ("NGC") E-2D Advanced Hawkeye, various integrated
 radar and laser pod structures, welded tubes, and welded fluid tanks for a classified
 program.

 81%
and 82% of our revenue in 2023 and 2022, respectively, was generated by subcontracts with defense prime contractors.

 Our
OEM customers in the civil aviation market include:

 Embraer
 S.A. Executive Jets – we provide engine inlet assemblies for Embraer S.A.'s
 ("Embraer") Phenom 300 business jet.

 5%
and 7% of our revenue in 2023 and 2022, respectively, was generated by commercial contract sales.

 CPI
Aero also is a prime contractor to the DOD, primarily through contracts directly with the USAF and the Defense Logistics Agency
("DLA"), providing supply chain management, assembly & integration, and kitting services for the F-16 and T-38
programs. 14% and 10% of our revenue in 2023 and 2022, respectively, were generated by direct government sales.

 Significant
Contracts

 Our
most significant contracts are described below:

 Military
Aircraft – Subcontracts with Prime Contractors

 E-2D
Advanced Hawkeye: The NGC E-2D Advanced Hawkeye is an all-weather, carrier-based tactical Airborne Early Warning aircraft.
The twin turboprop aircraft was designed and developed in the 1950s by the Grumman Aircraft Company for the U.S. Navy. The U.S.
Navy aircraft has been progressively updated with the latest variant, the E-2D, first flying in 2007. In 2008, we received an
initial $7.9 million order from NGC to provide structural kits used in the production of Outer Wing Panels ("OWP")
of the E-2D. We initially valued the long-term agreement at approximately $98 million over an eight-year period, with the potential
to be in excess of $195 million over the life of the aircraft program. In February of 2019, we announced a new multi-year award
valued at up to approximately $47.5 million. In June 2020, we announced that we had received firm orders valued in excess of $43
million and $5 million in long-lead funding in anticipation of purchase orders for OWP structural components and kits. In 2021,
we received additional orders valued at approximately $11 million. Since 2008, the cumulative orders we have received on this
program through December 31, 2023 exceed $209 million. We anticipate shipping against these orders into 2025.

 In
addition, in 2015 we won an award to supply structural components and kits for the Wet Outer Wing Panel ("WOWP") on
the E-2D Advanced Hawkeye airborne early warning and control ("AEW&C") aircraft that will be manufactured for
the Japan Air Self Defense Force ("JASDF"). We are responsible for component source selection, supply chain management,
delivery of kits, and providing manufacturing engineering services to NGC during the integration of the components into the WOWP
E-2D. In late 2019, CPI Aero received additional WOWP kit requirements increasing the total value of this program for the JASDF
to be in excess of $20 million. CPI completed deliveries in support of this contract in 2023.

 In
February 2020, the Company's subsidiary WMI received approximately $4 million in purchase orders from NGC to produce numerous
welded structures and tubes for the E-2D Advanced Hawkeye. Under the terms of the purchase orders, WMI manufactured more than
140 different items in support of the production of at least 25 E-2D aircraft. CPI received follow-on orders for additional quantities
of welded products in 2023 and anticipates additional orders in 2024.

 ALQ-249
Next Generation Jammer – Mid-Band Pod ("NGJ-MB"): The Raytheon NGJ-MB pod is an external jamming pod
that will disrupt and degrade enemy aircraft and ground radar and communication systems, and will replace the ALQ-99 system on
the U.S. Navy's EA-6B Growler carrier-based electronic warfare aircraft. The U.S. Navy plans to install these pods on 139
EA-18G Growlers during the production phase. There are two pods per aircraft. There are also 11 EA-18Gs operated by the Royal
Australian Air Force. Raytheon received a $1 billion sole source contract from the U.S. Navy in April 2016, and CPI Aero has a
contract with Raytheon to assemble the pod structural housing and air management system ("AMS") and integrate customer
furnished equipment. In 2019, Raytheon authorized CPI Aero to begin production of pod structures and AMS components for the System
Demonstration and Test Article ("SDTA") phase of the NGJ-MB program. All SDTA pods and AMS components orders received
were valued in excess of $60 million and completed delivery as of December 31, 2022.

 On
November 16, 2021 the Company announced it was authorized by Raytheon to start the production phase of the program. The Company
was awarded low rate production ("LRIP") I and II orders valued at approximately $18.5 million. LRIP III, for which
the Company was awarded an order of approximately $14.0 million in October 2022, and later definitized at $32.5 million. In November
2023, RTX issued a Memorandum for Record for Lot4 with an anticipated Program Value of $32 million and an initial funding limit
of $16 million. We believe that the total value of the NGJ-MB program through production will be in excess of $210 million through
2030.

 A-10
Thunderbolt II "Warthog": The Boeing A-10 Thunderbolt II, also known as the Warthog, is a twin-engine aircraft
that provides close-air support of ground forces and employs a wide variety of conventional munitions including general-purpose
bombs. This simple, effective and survivable single-seat aircraft can be used against all ground targets, including tanks and
other armored vehicles. On August 21, 2019, Boeing announced that it had received an Indefinite Delivery/Indefinite Quantity ("IDIQ")
contract award from the USAF with a maximum contract value of $999 million to manage the production of up to 112 new wing sets
and spares kits for A-10 aircraft, and the USAF ordered 27 wing sets from Boeing immediately at contract award. In 2019, CPI Aero
announced the receipt of an IDIQ contract with a maximum ceiling value of $48 million from Boeing for structural assemblies for
the A-10. Under the terms of the IDIQ contract, CPI Aero will manufacture major structural subassemblies of the A-10 aircraft's
wing. The Company also announced that it had received initial purchase orders under the IDIQ contract valued at approximately
$6 million for the production of four shipsets of assemblies and associated program start-up costs. In May 2020, CPI Aero announced
the receipt of additional purchase orders totaling approximately $14 million from Boeing. In March of 2022, CPI Aero announced
the receipt of additional purchase orders totaling approximately $3.2 million, bringing the total purchase orders received to
$23.4 million.

Lightning II: The Lockheed Martin F-35 Lightning II is a family of single-seat, single-engine, all-weather stealth multirole
fighter aircraft that provides unmatched multi-role capability, survivability, and connectivity with data sharing capabilities
essential for joint all-domain operations. Current DOD plans call for acquiring a total of 2,456 F-35s. U.S. allies are expected
to purchase hundreds of additional F-35s, with eight nations participating as cost-sharing partners in the program with the United
States, and six other nations allied with the U.S. purchasing the F-35 via foreign military sales agreements with the DOD. In
2015, CPI Aero was awarded a multi-year contract to supply four different lock assemblies for the arresting gear door on the F-35C
Carrier Take Off and Landing variant. CPI Aero made its first delivery under that contract in May 2017. In 2018, the Company received
a new long-term agreement valued at approximately $8 million for lock assemblies to be delivered between 2020 and 2024. In November
2017, CPI Aero was awarded an additional $15.8 million multi-year contract to manufacture canopy activation drive shaft assemblies
for the F-35A, F-35B, and F-35C variants.

 UH-60
"BLACK HAWK": The Sikorsky UH-60 BLACK HAWK helicopter is the leader in multi-mission rotary wing aircraft.
Among the mission configurations it serves are troop transport, medical evacuation, electronic warfare, attack, assault support,
and special operations. More than 4,000 BLACK HAWK helicopters are in use today, operating in 29 countries. CPI Aero manufactures
several different structural assemblies, including welded structure for the BLACK HAWK. The majority of CPI Aero's contracts
for the BLACK HAWK are as a Tier 1 supplier to Sikorsky. The Company also is a Tier 2 supplier to GKN Aerospace for products ultimately
used on the BLACK HAWK. In 2017, CPI Aero received an approximately $21 million long-term agreement through 2022 for the production
of fuel panel assemblies, work it has performed for Sikorsky since 2010. Also in 2017, the Company received an $8 million long-term
agreement through 2022 to manufacture machine gunner window assemblies for the BLACK HAWK, continuing work it has performed since
2010. A third five-year long-term agreement was awarded in January 2022, also for gunner window assemblies, estimated at $13.6
million with a period of performance from 2023-2027. Also, since October 2018, CPI Aero has received multiple purchase orders
totaling $22 million for hover infrared suppression system ("HIRSS") module assemblies for use as spares on older
variants of the BLACK HAWK. The HIRSS is a defensive countermeasures system that is integral to the survival of the BLACK HAWK
by reducing the opportunity for an infrared-seeking threat system to acquire, lock onto, track, and destroy the aircraft. Finally,
in May 2021, the Company announced receiving a multi-year contract valued at up to $17.2 million for the repair and overhaul
of outboard stabilator assemblies in support of the Sikorsky MH-60 SEAHAWK.

 F-16V
Fighting Falcon: The Lockheed Martin F-16 is the world's most successful, combat-proven multirole fighter. Approximately
3,000 operational F-16s are in service today in 25 countries. The F-16V is a new variant, sold exclusively to international air
forces and is the most technologically advanced fourth generation fighter in the world. In 2019, the Company announced it had
been awarded a multi-year contract by Lockheed Martin to manufacture rudder island and drag chute canister ("RI/DCC")
assemblies for the F-16V. The RI/DCC is a large structural sub-assembly that is installed on the tail section of the aircraft.
Deliveries began in 2021 and will continue through 2024. In June 2020, the Company announced that it had been awarded an order
from Lockheed Martin as part of the previously announced multi-year contract to manufacture RI/DCC assemblies for new production
F-16 Block 70/72 aircraft, in March 2021 the Company announced that it had received an additional order for these assemblies for
$9.2 million and in November 2022, the Company announced another follow-on order for these assemblies for $4 million. On August
28, 2023 CPI announced the receipt of a 2nd Multiyear long-term agreement with not-to-exceed funding of $34.4M. The total value
of the RI/DCC program, including both multi-year contracts is approximately $59.3 million.

 CH-53K
King Stallion: The CH-53K is a heavy-lift helicopter being developed by Sikorsky for the U.S. Marine Corps. We manufacture
composite electronics racks as a Tier 2 supplier to Spirit AeroSystems, Inc., the manufacturer of the CH-53K cockpit and cabin.
Through December 31, 2023, we had received orders valued at more than $2.7 million from Spirit AeroSystems, Inc.

 In
addition, the Company also manufactures welded tubes for the CH-53K as a Tier 1 supplier to Sikorsky. In August 2023, CPI received
a Long-term Agreement with a ceiling price of $17.4 million and a funding limit of $7.3 million. These tubes will be required
for the multi-year on this program. A component of this statement of work also includes CPI Aero intellectual property.

 Undisclosed
Pod Structure: In 2019, the Company received an initial purchase order from Raytheon to manufacture pod structures for
an undisclosed application. The value of the order was approximately $2.3 million for manufacturing engineering services, development
of assembly tooling, and the production of the prototypes. The undisclosed pod structure is currently under development. In October
2021, the Company announced that Raytheon awarded the Company an approximately $6.1 million contract modification that changes
the scope of work the Company would perform and increases the quantity of pods to be produced. The program value as of December
31, 2023 was $8.4 million.

 Undisclosed
Vehicle: In 2018, the Company started production of a welded tank for NGC for an undisclosed application on an undisclosed
platform. The total value of orders received as of December 31, 2023 is $3.2 million.

 B-52
Radar Rack: In late 2021, the Company received an initial purchase order from Raytheon to manufacture radar rack structures
for the B-52 Radar Modernization Program. The value of the order was approximately $4.0 million for manufacturing engineering
services, development of assembly tooling, and the production of the initial units. The non-recurring and tooling phase of the
program was completed and the initial 11 racks will be delivered in 2024.

 Military
Aircraft – Prime Contracts with U.S. Government

 T-38
Pacer Classic III, Phase 2: For more than 50 years, the NGC T-38 has been the principal supersonic jet trainer used by
the USAF. The T-38C Pacer Classic III Fuselage Structural Modification Kit Integration program ("PC III") and the
Talon Repair Inspection and Maintenance ("TRIM") program are expected to increase the structural service life of the
T-38 beyond 2030. In 2015, CPI Aero was awarded Phase 2 of PC III and has received purchase orders valued at approximately $2.0
million from the USAF to provide structural modification kits for the PC III aircraft structural modification program.

 T-38
Pacer Classic III, Phase 3 and TRIM: In July 2019, the Company announced a new $65.7 million IDIQ contract from the USAF
for the final phase of PC III as well as TRIM. The TRIM program is a separate USAF structural modification effort that will extend
the structural service life of T-38A and T-38 model types, as well as T-38C models that were not modified during PC III. Through
December 31, 2020, the Company had received orders valued at approximately $15.3 million for the PC III, Phase 3 and TRIM programs,
and in 2021, the Company announced it had received three separate orders for additional requirements valued at approximately $16.2
million. Through December 2023, CPI has received funded orders under this long term agreement totaling $48.3 million.

 Commercial
Aircraft – Subcontracts with Prime Contractors

 Embraer
Phenom 300: The Phenom 300 is a twin-engine, executive jet produced by Brazilian aircraft company Embraer that can carry
between six and ten passengers and a crew of two. We have been producing engine inlet assemblies for Embraer under a long-term
agreement we entered into in 2012. In January 2024, we celebrated the delivery of the 800th Shipset of Inlets. In 2023, we received
funded orders totaling $4.4 million.

 Backlog

 We
produce custom assemblies pursuant to long-term contracts and customer purchase orders. Funded backlog consists of aggregate funded
values under such contracts and purchase orders, excluding the portion previously included in operating revenues pursuant to Accounting
Standards Codification Topic 606 ("ASC 606"). Unfunded backlog is the estimated amount of future orders under the
expected duration of the program. Substantially all of our unfunded backlog is subject to termination at will and rescheduling,
without significant penalty. Funds are often appropriated for programs or contracts on a yearly or quarterly basis, even though
the contract may call for performance that is expected to take a number of years. Therefore, our funded backlog does not include
the full value of our contracts.

 The
total backlog at December 31, 2023 is $513,351,000.

 Our
total backlog as of December 31, 2023 and 2022 was as follows:

 Backlog (Total)

 2023

 2022

 Funded

 $
 118,218,000

 $
 122,148,000

 Unfunded

 395,133,000

 392,352,000

 Total

 $
 513,351,000

 $
 514,500,000

 Approximately
97% and 98% of the total amount of our backlog at December 31, 2023 and 2022 was attributable to government contracts. Our backlog
attributable to government contracts at December 31, 2023 and 2022 was as follows:

 Backlog
 (Government)

 2023

 2022

 Funded

 $
 115,681,000

 $
 119,133,000

 Unfunded

 383,574,000

 384,652,000

 Total

 $
 499,255,000

 $
 503,785,000

 Our
backlog attributable to commercial contracts at December 31, 2023 and 2022 was as follows:

 Backlog
 (Commercial)

 2023

 2022

 Funded

 $
 2,537,000

 $
 3,015,000

 Unfunded

 11,559,000

 7,700,000

 Total

 $
 14,096,000

 $
 10,715,000

 Material
and Parts

 We
subcontract production of substantially all parts incorporated into our products to third-party manufacturers under firm fixed
price orders. Our decision to purchase certain components generally is based upon whether the components are available to meet
required specifications at a cost and with a delivery schedule consistent with customer requirements. From time to time, we are
required to purchase custom made parts from sole suppliers and manufacturers in order to meet specific customer requirements.

 We
obtain our raw materials from several commercial sources. Although certain items are only available from limited sources of supply,
we believe that the loss of any single supplier would not have a material adverse effect on our business.

 Government
Regulation

 Environmental
Regulation

 We
are subject to regulations administered by the U.S. Environmental Protection Agency, the U.S. Occupational Safety and Health Administration,
various state, county, and local agencies acting in cooperation with federal and state authorities. Among other things, these
regulatory bodies impose restrictions to control air, soil, and water pollution, to protect against occupational exposure to chemicals,
including health and safety risks, and to require notification or reporting of the storage, use, and release of certain hazardous
chemicals and substances. The extensive regulatory framework imposes compliance burdens and risks on us. Governmental authorities
have the power to enforce compliance with these regulations and to obtain injunctions or impose civil and criminal fines in the
case of violations.

 The
Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") imposes strict, joint and
several liability on the present and former owners and operators of facilities that release hazardous substances into the environment.
The Resource Conservation and Recovery Act of 1976 ("RCRA") regulates the generation, transportation, treatment, storage,
and disposal of hazardous waste. In New York State, the handling, storage, and disposal of hazardous substances are governed by
the Environmental Conservation Law, which contains the New York counterparts of CERCLA and RCRA. In addition, the Occupational
Safety and Health Act, which requires employers to provide a place of employment that is free from recognized and preventable
hazards that are likely to cause serious physical harm to employees, obligates employers to provide notice to employees regarding
the presence of hazardous chemicals and to train employees in the use of such substances.

 Our
operations require the use of a limited amount of chemicals and other materials for painting and cleaning, including solvents
and thinners, which are classified under applicable laws as hazardous chemicals and substances. We follow all federal, state and
local rules and regulations regarding the disposal of these chemicals and associated waste. We have obtained a permit from the
Town of Islip, New York, Building Division in order to maintain a paint booth containing flammable liquids.

 Federal
Aviation Administration Regulation

 We
are subject to regulation by the Federal Aviation Administration ("FAA") under the provisions of the Federal Aviation
Act of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are
subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for
noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in the termination of or our
disqualification from some of our contracts, which could have a material adverse effect on our operations.

 Government
Contract Compliance

 Our
government contracts and sub-contracts 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 Federal Acquisition
Regulation ("FAR"), which provide 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, we may be audited in respect of the direct and allocated indirect costs attributed thereto. These audits
may result in adjustments to our contract costs. Additionally, we may be subject to U.S. Government inquiries and investigations
because of our participation in government procurement. Any inquiry or investigation can result in fines or limitations on our
ability to continue to bid for government contracts and fulfill existing contracts. We believe that we are in compliance with
all federal, state, and local laws and regulations governing our operations and have obtained all material licenses and permits
required for the operation of our business.

 The
U.S. Government generally has the ability to terminate our contracts, in whole or in part, without prior notice, for convenience
or for default based on performance. If a U.S. Government contract were to be terminated for convenience, we generally would be
protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated
profit that would have been earned had the contract been completed. In the unusual circumstance where a U.S. Government contract
does not have such termination protection, we attempt to mitigate the termination risk through other means. Termination resulting
from our default may expose us to liability and could have a material adverse effect on our ability to compete for other contracts.
The U.S. Government also has the ability to stop work under a contract for a limited period of time for its convenience. In the
event of a stop work order, we generally would be protected by provisions covering reimbursement for costs incurred on the contract
to date and for costs associated with the temporary stoppage of work on the contract. However, such temporary stoppages and delays
could introduce inefficiencies for which we may not be able to negotiate full recovery from the U.S. Government, and could ultimately
result in termination for convenience or reduced future orders on certain contracts. Additionally, we may be required to continue
to perform for some period of time on certain of our U.S. Government contracts, even if the U.S. Government is unable to make
timely payments.

 Insurance

 We
maintain a $2.0 million general liability insurance policy, a $100 million products liability insurance policy, and a $5.0 million
umbrella liability insurance policy. Additionally, we maintain $10.0 million of director and officers' liability insurance.
We believe this coverage is adequate for claims that have been and may be brought against us, and for the types of products presently
marketed because of the strict inspection standards imposed on us by our customers before they take possession of our products.
Additionally, the FAR generally provide that we will not be held liable for any loss of or damage to property of the U.S. Government
that occurs after the U.S. Government accepts delivery of our products and that results from any defects or deficiencies in our
products unless the liability results from willful misconduct or lack of good faith on the part of our managerial personnel.

 Proprietary
Information

 None
of our current assembly processes or products is protected by patents. We rely on proprietary know-how and information and employ
various methods to protect the processes, concepts, ideas, and documentation associated with our products. These methods, however,
may not afford complete protection and there can be no assurance that others will not independently develop such processes, concepts,
ideas, and documentation.

 CPI
Aero is a registered trademark of the Company.

 Human
Capital Management

 Our
ability to attract, develop and retain top talent across all of our business functions, and particularly in highly technical areas,
has a significant impact on organizational success. Accordingly, our human capital management strategy places a significant focus
on both attracting a diverse, highly skilled workforce and engaging and developing talent from within by creating a work environment
that promotes inclusion and equitability. By providing our valued employees the opportunity to enhance their skillsets, develop
their careers and pursue excellence through numerous training and development opportunities, we consistently emphasize the importance
of innovation and continuous improvement throughout our organization. We continue to pursue opportunities that enable us to build
our talent pipeline, particularly for skilled labor, including running an apprentice training program several times over the course
of the year and forging relationships with local high school and trade schools.

 We
attract and compensate our employees by offering a competitive total rewards package which includes benefits, resources, and programs
that support health, physical, mental, and financial wellness. The benefits package we offer, coupled with employee recognition
opportunities and employee engagement activities help create a comprehensive employee experience. We periodically benchmark our
benefits programs and associated costs to remain competitive.

 As
of December 31, 2023, we had 203 full-time employees as compared to 208 full-time employees as of December 31, 2022. On an as-needed
basis, we employ temporary personnel with specialized disciplines to fill staffing gaps. We do not have any employees represented
by a union, and we believe that our relations with our employees are good. We provide our team members with ongoing opportunities
to share thoughts and perspectives on company and employment-related matters through surveys, all-hands meetings, and management
open door policies. Our management, with oversight from the Compensation and Human Resources Committee of our board of directors,
monitors the hiring, retention, and management of our employees and regularly conducts succession planning to ensure that we continue
to cultivate the pipeline of talent needed to operate our business.

 Diversity
and Inclusion

 We
value diversity and inclusion in our workforce as we understand that diversity of background, thought, and experience leads to
greater innovation and improved business results. We are committed to increasing and retaining diversity at all levels of our
workforce, and focus on diversity and inclusion throughout our recruitment, hiring, and
onboarding processes. Over the last year, we have increased diversity on our board of directors to 29% up from 17% in 2022. Our
executive management team is comprised of 40% diverse employees.

 Across
our total employee population and based on employees who self-identify, as of December 31, 2023, approximately 21% of our workforce
are female, 34% are multicultural and 5% are veterans.

 Safety

 Ensuring
the safety and well-being of our employees is a top priority. The goal of our safety program is to increase safety knowledge and
awareness throughout the organization to ensure occupational health, reduce risk, and prevent incidents. We regularly benchmark
our safety performance, self-audit our safety compliance, and provide our employees with safety-related training. We conduct an
investigation, including root cause analysis and corrective action, any time a safety incident or a near miss occurs.

 Our
Safety Committee is comprised of employees from various disciplines throughout the organization who meet on a regular basis to
execute continuous improvement strategies, develop methods to increase ownership of safety throughout the organization, establish
new safety initiatives, and assess safety performance.

 We
monitor the effectiveness of our safety program by comparing recordable incidents and incident severity year over year. We measure
the number of safety incidents with the total recordable incident rate ("TRIR") metric and the severity of incidents
with the days away restricted and transferred ("DART") metric. The table below represents our result from the two
most recent calendar years:

 Safety
 Metric

 2023

 2022

 TRIR

 2.9

 2.6

 DART

 1.0

 1.3

 TRIR
= total number of recordable cases x 200,000 / total hours worked

 DART
= number of cases with days away from work x 200,000 / total hours worked by all employees

 Community
Involvement

 Having
a positive impact on the community around us is one of our most important values. We donate to local charitable organizations,
such as United Way of Long Island, through both monetary contributions, as well as "drives" to collect and deliver
employee donated food and school supplies. We actively engage and educate local high school students from surrounding districts
about the manufacturing and engineering industry and career trajectory. This includes, hosting educational experiences and shop
tours with high school and trade school classes. Members of our leadership team participate on the boards of the local aviation
college and trade associations that support and advance the interests of the local community.

 Item
 1A.
 RISK
FACTORS

 In
addition to other risks and uncertainties described in this Annual Report on Form 10-K, the following material risk factors should
be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating
results, liquidity, and financial condition. As a result of the risk factors set forth below, actual results did and could continue
to differ materially from those projected in any forward-looking statements.

 Risks
Related to Our Business

 We
depend on government contracts for a significant portion of our revenues.

 We
are a supplier, either directly or as a subcontractor, to the U.S. Government and its agencies. We depend on government contracts
for a significant portion of our business. If we are suspended or barred from contracting with the U.S. Government, if our reputation
or relationship with individual federal agencies were impaired, or if the U.S. Government otherwise ceased doing business with
us or significantly decreased the amount of business it does with us, our business, prospects, financial condition, and operating
results would be materially adversely affected.

 We
face risks relating to government contracts.

 The
funding of U.S. Government programs is subject to congressional budget authorization and appropriation processes. For many
programs, the U.S. Congress appropriates funds on a fiscal year basis even though a program may extend over several fiscal years.
Consequently, programs are often only partially funded initially and additional funds are committed only as Congress makes further
appropriations. Appropriations are driven by numerous factors, including geopolitical events, macroeconomic conditions, the ability
of the U.S. Government to enact relevant legislation, such as appropriations bills and continuing resolutions, the threat or existence
of a government shutdown and potential downgrades of the United States' credit rating, and risks relating to the upcoming
U.S. presidential election. We cannot predict the extent to which total funding and/or funding for individual programs will be
included, increased or reduced in budgets approved by Congress or be included in the scope of separate supplemental appropriations. In
the event that appropriations for any of our programs becomes unavailable, or is reduced or delayed, our contract or subcontract
under such program may be terminated or adjusted by the U.S. Government, which could have a material adverse effect on our
future sales under such program, and on our financial position, results of operations and cash flows.

 We
also cannot predict the impact of potential changes in priorities due to military transformation and planning and/or the nature
of war-related activity on existing, follow-on, or replacement programs. A shift of government priorities to programs in which
we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset
by other programs and opportunities, could have a material adverse effect on our financial position, results of operations, and
cash flows.

 In
addition, the U.S. Government generally has the ability to terminate contracts, completely or in part, without prior notice,
for convenience or for default based on performance. In the event of termination for the U.S. Government's convenience,
contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those
costs but not the anticipated profit that would have been earned had the contract been completed. Termination by the U.S. Government
of a contract for convenience could also result in the cancellation of future work on that program. Termination by the U.S. Government
of a contract due to our default could require us to pay for re-procurement costs in excess of the original contract price, net
of the value of work accepted from the original contract. Termination of a contract due to our default may expose us to liability
and could have a material adverse effect on our ability to compete for contracts. Additionally, we are a subcontractor on some
U.S. Government contracts. In these arrangements, the U.S. Government could terminate the prime contract for convenience or otherwise,
without regard to our performance as a subcontractor. We can give no assurance that we would be awarded new U.S. Government contracts
to offset the revenues lost as a result of the termination of any of our U.S. Government contracts.

 We
have risks associated with competing in the bidding process for contracts.

 We
obtain many of our contracts through a competitive bidding process. In the bidding process, we face the following risks:

 we
 must bid on programs in advance of their completion, which may result in unforeseen technological
 difficulties or cost overruns;

 we
 must devote substantial time and effort to prepare bids and proposals for competitively
 awarded contracts that may not be awarded to us; and

 awarded
 contracts may not generate sales sufficient to result in profitability.

 Further
consolidation in the aerospace industry could adversely affect our business and financial results.

 The
A&D industry has experienced significant consolidation, including among our customers, competitors, and suppliers. While we
believe we have positioned our Company to take advantage of opportunities to market to a broad customer base, which we believe
will reduce the potential impact of industry consolidation, there can be no assurance that industry consolidation will not impact
our business. Consolidation among our customers may result in delays in the awarding of new contracts and losses of existing business.
Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely
affect our ability to compete successfully. Consolidation among our suppliers may result in fewer sources of supply and increased
costs to us.

 We
depend upon a select base of large prime defense contractors for the majority of our revenue, which subjects us to unique risks
which may adversely affect us.

 We
currently generate a majority of our revenues by producing products for numerous programs under contracts with three prime defense
contractors to the U.S. Government. These significant customers – Lockheed Martin, Raytheon and NGC – constituted
approximately 30%, 26% and 12%, respectively of our 2023 revenue. Our revenues from these customers are diversified over several
different A&D products, programs, and subsidiaries within these customers, however, any significant change in production rates
by any of these customers would have a material effect on our results of operations and cash flows. There is no assurance that
our current significant customers will continue to buy products from us at current levels, that we will retain any or all our
existing significant customers, or that we will be able to form new relationships with other customers upon the loss of one or
more of our existing significant customers.

 We
are subject to strict governmental regulations relating to the environment, which could result in fines and remediation expenses
in the event of non-compliance.

 We
are required to comply with extensive and frequently changing environmental regulations at the federal, state, and local levels.
Among other things, these regulatory bodies impose restrictions to control air, soil, and water pollution, to protect against
occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage,
use, and release of certain hazardous substances into the environment. This extensive regulatory framework imposes significant
compliance burdens and risks on us. In addition, these regulations may impose liability for the cost of removal or remediation
of certain hazardous substances released on or in our facilities without regard to whether we knew of, or caused, the release
of such substances. Furthermore, we are required to provide a place of employment that is free from recognized and preventable
hazards that are likely to cause serious physical harm to employees, provide notice to employees regarding the presence of hazardous
chemicals and to train employees in the use of such substances. Our operations require the use of a limited amount of chemicals
and other materials for painting and cleaning that are classified under applicable laws as hazardous chemicals and substances.
If we are found not to comply with any of these rules, regulations, or permits, we may be subject to fines, remediation expenses,
and the obligation to change our business practice, any of which could result in substantial costs that would adversely affect
our business operations and financial condition.

 We
may be subject to fines and disqualification for non-compliance with Federal Aviation Administration ("FAA") regulations.

 We
are subject to regulation by the FAA under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes
standards and licensing requirements for aircraft and aircraft components. We are subject to inspections by the FAA and may be
subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations. Our failure
to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which
could have a material adverse effect on our operations and financial condition.

 If
our subcontractors or suppliers fail to perform their contractual obligations, our contract performance, and our ability to obtain
future business and our profitability could be materially and adversely impacted.

 Most
of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services that we must
provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the
quality and timeliness of work performed by the subcontractor, customer concerns about the subcontract, our failure to extend
existing task orders or issue new task orders under a subcontract, our hiring of personnel of a subcontractor, or disputes concerning
payment. A failure by one or more of our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or
perform the agreed-upon services may materially and adversely affect our ability to fulfill our obligations as the prime contractor.
Subcontractor performance deficiencies could result in a customer eliminating our ability to progress bill or terminate our contract
for default. A prohibition on progress billing may have an adverse effect upon our cash flow and profitability and a default termination
could expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders. In
addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our
customers' needs and may have a material adverse effect upon our profitability.

 Due
to fixed contract pricing, increasing contract costs exposes us to reduced profitability and the potential loss of future business.

 Operating
margin is adversely affected when contract costs that cannot be billed to customers are incurred. This cost growth can occur
if estimates to complete a contract increase due to technical challenges or if initial estimates used for calculating the contract
price were incorrect. The cost estimation process requires significant judgment and expertise. Reasons for cost growth may
include unavailability and productivity of labor, the nature and complexity of the work to be performed, the effect of change
orders, the availability and cost of materials, the effect of any delays in performance, availability, and timing of funding from
the customer, natural disasters, pandemics, and the inability to recover any claims included in the estimates to complete. A significant
increase in cost estimates on one or more programs could have a material adverse effect on our financial position or results of
operations.

 We
use estimates when accounting for contracts. Changes in estimates may affect our profitability and our overall financial position.

 We
primarily recognize revenue from our contracts over the contractual period pursuant to ASC 606. Pursuant to ASC 606, revenue and
gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs
at the completion of the contract. Recognized revenues that will not be billed under the terms of the contract until a later date
are recorded on our consolidated balance sheet as an asset captioned "Contract assets." Contracts where billings to
date have exceeded recognized revenues are recorded on our consolidated balance sheet as a liability captioned "Contract
liabilities." Changes to the original estimates may be required during the term of the contract. Estimates are reviewed
quarterly and the effect of any change in the estimated gross margin percentage for a contract is reflected in the consolidated
financial statements for the period the change becomes known. ASC 606 requires the use of considerable estimates in determining
revenues and profits and in assigning the amounts to accounting periods. As a result, there can be a significant disparity between
earnings (both for accounting and taxes) as reported and actual cash received by us during any reporting period.

 We
continually evaluate all the issues related to the assumptions, risks and uncertainties inherent with the application of ASC 606;
however, there is no assurance that our estimates will be accurate. If our estimates are not accurate or a contract is terminated,
we will be forced to adjust revenue in later periods. Furthermore, even if our estimates are accurate, we may have a shortfall
in our cash flow and we may need to borrow money to pay for costs until the reported earnings materialize to actual cash receipts.

 If
the contracts associated with our backlog were terminated, our financial condition and results of operations would be adversely
affected.

 The
maximum contract value specified under each contract that we enter is not necessarily indicative of the revenues that we will
realize under that contract. Because we may not receive the full amount we expect under a contract, we may not accurately estimate
our backlog because the earnings of revenues on programs included in backlog may never occur or may change. Cancellations of pending
contracts or terminations or reductions of contracts in progress could have a material adverse effect on our business, prospects,
financial condition, or results of operations.

 We
may be unable to attract and retain personnel who are key to our operations.

 Our
success, among other things, is dependent on our ability to attract and retain highly qualified senior officers and employees
at all levels. Competition for key personnel is intense. Our ability to attract and retain senior officers and experienced, top
rate employees is dependent on several factors, including prevailing market conditions and compensation and benefit packages offered
by companies competing for the same talent and our reputation in the industry. If our reputation is adversely affected, we may
be unable to recruit, hire, and retain talented personnel. The inability to hire and retain these people may adversely affect
our production operations and other aspects of our business.

 We
are subject to intense competition for the skilled technicians necessary to manufacture our products.

 We
are subject to intense competition for the services of skilled technicians necessary to manufacture our products. The demand for
these individuals may increase as other manufacturers seek to bring to the U.S. manufacturing processes currently outsourced overseas.
If the U.S. economy continues to undergo a period of inflation, our labor costs may increase which could have a material adverse
effect on our business, financial condition, and results of operations.

 We
are subject to the cyclical nature of the commercial aerospace industry, and any future downturn in the commercial aerospace industry
or general economic conditions, including inflation could adversely impact the demand for our products.

 Our
business may be affected by certain characteristics and trends of the commercial aerospace industry or general economic conditions
that affect our customers, such as the current inflationary and high interest rate environment in the U.S. and the resultant impacts
on the supply chain, the labor market and the general economy, as well as fluctuations in the aerospace industry's business
cycle, varying fuel and labor costs, intense price competition and regulatory scrutiny, certain trends, including a possible decrease
in aviation activity and a decrease in outsourcing by aircraft manufacturers, or the failure of projected market growth to materialize
or continue. If these characteristics and trends adversely affect customers in the commercial aerospace industry, they may reduce
the overall demand for our products.

 Our
working capital requirements may negatively affect our liquidity and capital resources.

 Our
working capital requirements can vary significantly, depending in part on the timing of new program awards and the payment terms
with our customers and suppliers. If our working capital needs exceed our cash flows from operations, we would look to our cash
balances and availability for borrowings under our credit facility to satisfy those needs, as well as potential sources of additional
capital, which may not be available on satisfactory terms and in adequate amounts, if at all. See "Risks Related to Our
Indebtedness and Liquidity" below.

 We
incur risks associated with new programs.

 New
programs with new technologies typically carry risks associated with design changes, development of new production tools, increased
capital and funding commitments, ability to meet customer specifications, delivery schedules and unique contractual requirements,
supplier performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate
costs associated with such programs. In addition, any new program may not generate sufficient demand or may experience technological
problems or significant delays in the regulatory or other certification or manufacturing and delivery schedule. If we were unable
to perform our obligations under new programs to the customer's satisfaction, if we were unable to manufacture products
at our estimated costs, or if a new program in which we had made a significant investment was terminated or experienced weak demand,
delays, or technological problems, then our business, financial condition and results of operations could be materially adversely
affected. This risk includes the potential for default, quality problems, or inability to meet specifications, as well as our
inability to negotiate final pricing for program changes and could result in low margin or forward loss contracts, and the risk
of having to write-off contract assets if they were deemed to be unrecoverable. In addition, beginning new work on existing programs
also carries risk associated with the transfer of technology, knowledge, and tooling.

 To
perform on new programs, we may be required to expend up-front costs which may not have been negotiated in our selling price.
Additionally, we may have made margin assumptions related to those costs, that in the case of significant program delays and/or
program cancellations, or if we are not successful in negotiating favorable margin on scope changes, could cause us to experience
margin degradation which may be material, for costs that are not recoverable. Such charges and the loss of up-front costs could
have a material adverse impact on our liquidity.

 We
are presently classified as a small business and the loss of our small business status may adversely affect our ability to compete
for government contracts.

 We
are presently classified as a small business under the North American Industry Classification Systems ("NAICS") industry
and product specific codes that are regulated in the U.S. by the Small Business Administration ("SBA"). We are not
considered a small business under all NAICS codes. While we do not presently derive a substantial portion of our business from
contracts that are set aside for small businesses, we are able to bid on small business set-aside contracts as well as contracts
that are open to non-small business entities. As the NAICS codes are periodically revised, it is possible that we may lose our
status as a small business. The loss of small business status would adversely affect our eligibility for special small business
programs and limit our ability to collaborate with other business entities which are seeking to team with small business entities
as may be required under a specific contract.

 Cyber
security attacks, internal system or service failures and technological changes, including the use of machine learning and generative
artificial intelligence, may adversely impact our business and operations.

 Any
system or service disruptions, including those caused by projects to improve our information technology systems, if not anticipated
and appropriately mitigated, could disrupt our business, and impair our ability to effectively provide products and related services
to our customers and could have a material adverse effect on our business. We could also be subject to systems failures, including
network, software, or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses,
natural disasters, power shortages, or terrorist attacks. Cyber security threats are evolving and include, but are not limited
to, malicious software, phishing, and other unauthorized attempts to gain access to sensitive, confidential, or otherwise protected
information related to us or our products, customers, or suppliers, or other acts that could lead to disruptions in our business.
Because the techniques used by cyber-attackers to access or sabotage networks change frequently and may not be recognized until
launched against a target, we may be unable to anticipate these tactics. Any such failures to prevent or mitigate cyber-attacks
could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs, or subject us to claims
and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt
or suspend our operations or otherwise adversely affect our business. Although we utilize various procedures and controls to monitor
and mitigate the risk of these threats, including contracting with an outside cyber security firm to provide constant monitoring
of our systems, and training our employees to recognize attacks, there can be no assurance that these procedures and controls
will be sufficient. Our property and business interruption insurance may be inadequate to compensate us for all losses that may
occur because of any system or operational failure or disruption which could adversely affect our business, results of operations,
and financial condition. Moreover, expenditures incurred in implementing cyber security and other procedures and controls could
adversely affect our results of operations and financial condition.

 Our
ability to utilize our tax benefits could be substantially limited if we fail to generate sufficient income or if we experience
an "ownership change".

 As of December 31, 2023, we had approximately
$74.7 million of gross net operating losses ("NOLs") for federal tax purposes and approximately $17.3 million of post-apportionment
NOLs for state tax purposes. As a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act
of 2020, NOLs arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs
totaled approximately $60.3 million; these NOLs will expire in varying amounts from 2034 through 2039, if not utilized, and can offset
100% of future taxable income for regular tax purposes. Our NOLs arising in 2018, 2019 and 2020 can generally be carried back five years,
carried forward indefinitely and can offset 100% of taxable income for tax years before January 1, 2021 and up to 80% of taxable income
for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried
forward indefinitely and can offset up to 80% of future taxable income.

 Our
ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their
expiration. In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of
the Internal Revenue Code ("Section 382"). In general, an ownership change under Section 382 occurs if 5% shareholders
increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a
relevant lookback period. The Company completed a Section 382 analysis for the year ended December 31, 2022, and believes that
no ownership change occurred during the relevant lookback period through December 31, 2023 that would limit our ability to use
our NOLs.

 Product
liability claims in excess of insurance could adversely affect our financial results and financial condition.

 We
face potential liability for property damage, personal injury, or death as a result of the failure of products designed or manufactured
by us. Although we currently maintain product liability insurance (including aircraft product liability insurance), any material
product liability not covered by insurance could have a material adverse effect on our financial condition, results of operations,
and cash flows.

 Increased
scrutiny from investors, lenders, regulators and other market participants regarding our environmental, social, governance, sustainability
or climate responsibilities could expose us to additional costs and adversely impact our liquidity, results of operations, reputation,
employee retention, and stock price.

 There
is an increasing focus from certain investors, customers, and other key stakeholders concerning corporate responsibility, specifically
related to environmental, social, and governance ("ESG") factors. Some investors may use ESG criteria to guide their
investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibilities
are inadequate.

 The
ESG factors by which companies' corporate responsibility practices are assessed may change. This could result in greater
expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we are unable to satisfy the
new corporate responsibility criteria, investors may view our policies related to corporate responsibility as inadequate. We risk
damage to our reputation in the event our corporate responsibility procedures or goals do not meet the standards or goals set
by various constituencies. In addition, if our competitors' corporate responsibility performance is perceived to be greater
than ours, potential or current investors may elect to invest in our competitors instead. Further, in the event we communicate
certain initiatives or goals related to ESG, we could fail, or be perceived to have failed, in our achievement of such initiatives
or goals. If we fail to satisfy the expectations of investors and other key stakeholders, or our initiatives are not executed
as planned, our reputation, employee retention, and willingness of our customers and suppliers to do business with us, financial
results, and stock price could be materially and adversely affected.

 Risks
Related to Our Indebtedness and Liquidity

 We
obtained amendments to and received waivers of and consents to non-compliance with certain covenants under our credit facility
with BankUnited and there can be no assurance that we will not fall out of compliance with our covenants in the future.

 The
Company was not in compliance with certain financial covenants under our credit facility (the "BankUnited Facility"
or the "Credit Agreement") with BankUnited, N.A. ("BankUnited") for the quarter ended March 31, 2022,
and financial statement submission covenants for the quarters ended March 31, 2022 and June 30, 2022 and obtained amendments to
and received waivers of and consents to the non-compliance, as described in more detail in Note 8 to our consolidated financial
statements included in Part II Item 8 of this Annual Report on Form 10-K. There can be no assurance that we will be in compliance
with our covenants in the future or that BankUnited will grant further waivers if we fall out of compliance or consents to future
non-compliance. If we fall out of compliance with our banking covenants, BankUnited may declare a default under the BankUnited
Facility and, among other remedies, could declare the full amount of the BankUnited Facility immediately due and payable and could
foreclose against our collateral. If this were to occur, we may be unable to secure outside financing, if needed, to fund
ongoing operations and for other capital needs. Any sources of financing that may be available to us could also be at higher costs
and require us to satisfy more restrictive covenants, which could limit or restrict our operations, cash flows, and earnings.
We cannot ensure that additional financing would be available to us or be sufficient or available on satisfactory terms.

 Our
capital requirements, liquidity and financial condition raise significant risks as to our ability to continue as a going concern.

 Our
working capital requirements can vary significantly, depending in part on the timing of the conclusion of mature programs and
new program awards and the payment terms with our customers and suppliers. There is currently no availability for borrowings under
the BankUnited Facility and the Company finances its operations from internally generated cash flow. Notes 8 and 9 to our consolidated
financial statements included in Part II - Item 8 of this Annual Report on Form 10-K includes a discussion regarding the BankUnited
Facility and recent amendments thereto.

 Our
consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. If we become unable to continue
as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution
could be significantly lower than the values reflected in our consolidated financial statements. I t
is management's estimation that there will likely not be any individual conditions or combination of events that will occur
in the coming year which would cause the Company to be unable to continue as a going concern.

 Our
cost of borrowing under the Credit Agreement is based on the Prime Rate of interest per annum published in the Money Rates section
of The Wall Street Journal (the "Prime Rate") plus the margin charged by our lender, and increases in the Prime Rate
negatively impact our profitability.

 Interest
rates under our Credit Agreement are based on the Prime Rate, and as a result, we have exposure to interest rate risk. Certain
central banks, such as the U.S. Federal Reserve, effected multiple interest rate increases in 2022 and 2023. Increases in interest
rates increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness.

 We have identified material weaknesses in our internal control
over financial reporting over a number of years which adversely affected our ability to report our financial condition and results of
operations in a timely and accurate manner. The material weaknesses led to multiple restatements of our consolidated financial statements.
The material weaknesses and restatements have resulted in our failure to meet SEC reporting obligations, affected and may continue to
affect investor confidence, our stock price and our ability to raise capital in the future, and have resulted and may continue to result
in stockholder litigation.

 We have reported material weaknesses in
internal control over financial reporting and did not maintain effective disclosure controls and procedures for reporting periods
from 2018 through September 2023. The material weaknesses led to our restatement of our consolidated financial statements for the
nine months ended September 30, 2018 and the years ended December 31, 2018, 2019 and 2020. Although these material weaknesses have
been remediated as of December 31, 2023, these material weaknesses and restatements have affected investor confidence, our stock
price, and resulted in the past in our failure to meet various SEC reporting requirements and stockholder litigation.

 As described in Item 9A of this Annual Report
on Form 10-K, we identified a material weakness in our internal control over financial reporting of income taxes, which led to the restatement
within Note 11 "Income Taxes" of the financial statements within this Annual Report on Form 10-K the Company's December
31, 2022 deferred tax assets and deferred tax liabilities balances. The Company is in the process of remediating this material weakness.

 If a future failure in internal control should
occur, it may cause us to fail to meet SEC reporting obligations, negatively affect the accuracy of our financial statements and disclosures,
investor and customer confidence, our ability to raise capital in the future and result in events of default under our banking agreement,
any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties and
additional stockholder litigation, and have a material adverse impact on our business and financial condition.

 Risks
Related to Global Events

 The
ongoing war between Russia and Ukraine, and the retaliatory measures imposed by the U.S., United Kingdom, European Union and other
countries and the responses of Russia to such measures have caused significant disruptions to domestic and foreign economies.

 The
invasion of Ukraine by the Russian Federation had an immediate impact on the global economy resulting in higher prices for oil
and other commodities. The U.S., United Kingdom, European Union, and other countries responded to Russia's invasion of Ukraine
by imposing various economic sanctions and bans. Russia has responded with its own retaliatory measures. These measures have impacted
the availability and price of certain raw materials and transportation costs. The invasion and retaliatory measures also disrupted
economic markets. The global impact of these measures is continually evolving and cannot be predicted with certainty and there
is no assurance that Russia's invasion of Ukraine and responses thereto will not further disrupt the global economy and
supply chain. Further, there is no assurance that even when the invasion of Ukraine ceases, that nations will not continue to
impose sanctions and bans on other nations.

 While
these events have not interrupted our operations or materially impacted our ability to obtain raw materials, these or future developments
resulting from the invasion of Ukraine such as a cyberattack on the U.S., us or our suppliers, could make it difficult for or
increase the cost of certain raw materials and transportation costs, or make it difficult to access debt and equity capital on
attractive terms, if at all, and impact our ability to fund business activities and repay debt on a timely basis.

 Russia's
invasion of Ukraine may alter countries' willingness to rely on others as the source of certain products and material.

 Historically,
prime contractors and OEMs in the U.S. A&D industry have relied upon suppliers outside the U.S. for products and raw materials.
Russia's invasion of Ukraine and the economic disruption resulting from retaliatory measures may cause many of these companies
to rethink these strategies and seek sources of supply within the U.S. To the extent they do so, it could disrupt domestic markets
for raw materials and supplies, and the market for the skilled laborers we need to manufacture our products.

 We
cannot forecast with any certainty whether the disruptions caused by the Russian invasion of Ukraine, restrictions imposed by
various governments in response thereto and resulting changes in business practices, may materially impact our business and our
consolidated financial position, results of operations, and cash flows.

 The
conflict between Israel and Hamas, rising tensions between China and Taiwan, the ongoing war between Russia and Ukraine, and terrorist
acts and acts of war may seriously harm our business, results of operations and financial condition.

 U.S.
and global responses to actual or potential military conflicts such as Russia's invasion of Ukraine, terrorism, perceived
nuclear, biological, and chemical threats and other global political crises increase uncertainties with respect to the U.S. and
other business and financial markets. Several factors associated, directly or indirectly, with actual or potential military conflicts,
terrorism, perceived nuclear, biological, and chemical and cyber threats, and other global political crises and responses thereto,
may adversely affect the mix of products purchased by defense departments in the U.S. or other countries to platforms not serviced
by us. A shift in defense budgets to product lines we do not produce could have a material adverse effect on our business, financial
condition and results of operations.

 Item 1B.
 UNRESOLVED
STAFF COMMENTS

 Not
applicable.

 Item 1C.
 CYBERSECURITY

 Cybersecurity
risk management is an important part of our overall risk management efforts. We maintain a cybersecurity program that is comprised
of policies, procedures, controls and plans whose objective is to help us prevent and effectively respond to cybersecurity threats
or incidents. Through our cybersecurity risk management process, we continuously monitor cybersecurity vulnerabilities and potential
attack vectors to company systems. We maintain various measures to safeguard against cybersecurity threats such as monitoring
systems, security controls, policy enforcement, data encryption, employee training, tools and services from third-party providers
and management oversight to assess, identify and mitigate risks from cybersecurity threats. We conduct regular testing of these
controls and systems including vulnerability scanning, penetration testing and simulating the execution of parts of our disaster
recovery plan. All employees are required to pass a mandatory cybersecurity training course on an annual basis and we regularly
conduct phishing simulations to train our employees on how to recognize phishing attempts.

 We
have implemented cybersecurity frameworks, policies and practices which incorporate industry-standards and contractual requirements.
We also contractually flow cybersecurity regulatory requirements to our subcontractors as required by the Defense Federal Acquisition
Regulation Supplement and other government agency specific requirements. These contractual flow downs include the requirement
that our subcontractors implement certain information security controls. Additionally, we gather information and review the SOC-2
reports of certain third-parties who integrate with our systems, such as our payroll processor, managed solutions provider and
software as a service providers on an annual basis to identify and manage risk. We continuously evaluate and seek to improve and
mature our cybersecurity processes. We apply lessons learned from our defense and monitoring efforts to help prevent future attacks
and utilize data analytics to detect anomalies and search for cyber threats. Additionally, our Internal Audit function regularly
assesses our program effectiveness through audits of systems and processes to help maintain compliance with policies.

 Cybersecurity
threats of all types, such as attacks from computer hackers, cyber criminals, nation-state actors, social engineering and other
malicious internet-based activities, continue to increase. We believe that our current preventative actions and response planning
provide adequate measures of protection against cybersecurity risks. While we have implemented measures to safeguard our information
technology systems, the evolving nature of cybersecurity attacks and vulnerabilities means that these protections may not always
be effective. In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to
materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot
eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents.
For additional information about these risks, see Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

 Governance

 Our
board of directors has oversight of our strategic and business risk management and oversees management's execution of our
cybersecurity risk management program. The board receives regular updates from management on our cybersecurity risks. In addition,
management updates the board as necessary, regarding any material cybersecurity incidents, as well as incidents with lesser impact
potential. Management is responsible for identifying, assessing, and managing cybersecurity risks on an ongoing basis, establishing
processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate mitigation measures,
maintaining cybersecurity policies and procedures, and providing regular reports to our board of directors. In the event of an
incident, we intend to follow our incident response plan, which outlines the steps to be followed from incident detection to mitigation,
recovery and notification, including notifying functional areas (e.g. legal), as well as senior leadership and the board, as appropriate.

 Our
Vice President of Human Resources & Administration ("VP HR&A") leads our cybersecurity program and is responsible
for our overall information security strategy, policy, security engineering, operations and cyber threat detection and response.
The VP HR&A manages a team of information technology professionals with broad experience, including in cybersecurity threat
assessments and detection, mitigation technologies, incident response, insider threats and regulatory compliance.

 Our
cybersecurity program is regularly assessed through management self-evaluation and ongoing monitoring procedures to evaluate our
program effectiveness, including assessments associated with internal controls over financial reporting as well as vulnerability
management through active discovery and testing to validate patching and configuration.

 Item
 2.
 PROPERTIES

 CPI
Aero's executive offices and production facility is situated in an approximately 171,000 square foot building located at
91 Heartland Blvd., Edgewood, New York 11717. We use approximately 131,000 square feet of this building for manufacturing space
and 40,000 square feet for offices and laboratories for engineering and design work. CPI Aero occupies this facility under a lease
that expires on April 30, 2026.

 Item
 3.
 LEGAL
 PROCEEDINGS

 This
information is set forth in Note 16 to our Consolidated Financial Statements, which is hereby incorporated by reference.

 Item
 4.
 MINE
 SAFETY DISCLOSURES

 Not
applicable.

 PART
II

 Item
 5.
 MARKET
 FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
 OF EQUITY SECURITIES

 Our
shares of common stock are listed on the NYSE American exchange under the symbol "CVU". On March 28, 2024, there were 171
holders of record of our shares of common stock. We believe there are substantially more beneficial holders of our common stock.

 Dividend
Policy

 To
date, we have not paid any dividends on our common stock. Any payment of dividends in the future is within the discretion of our
board of directors (subject to the limitation on dividends contained in the BankUnited Facility, as described more fully in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations) and will depend on our
earnings, if any, our capital requirements and financial condition and other relevant factors. Our board of directors does not
intend to declare any cash or other dividends in the foreseeable future, but intends instead to retain earnings, if any, for use
in our business operations.

 Recent
Sales of Unregistered Securities

 There
have been no sales of unregistered equity securities for the three months ended December 31, 2023. There have been no repurchases
of our outstanding common stock during the three months ended December 31, 2023.

 Securities
Authorized for Issuance under Equity Compensation Plans

 The
following table sets forth certain information at December 31, 2023 with respect to our equity compensation plans that provide
for the issuance of options, warrants or rights to purchase our securities:

 Plan Category

 Number of Securities to
 be Issued upon Exercise of
 Outstanding Options,
 Warrants and Rights

 Weighted-Average
 Exercise Price of
 Outstanding Options,
 Warrants and Rights

 Number of Securities
 Remaining Available for
 Future Issuance under
 Equity Compensation
 Plans (excluding
 securities reflected in the
 first column)

 Equity Compensation Plans Approved by

Security Holders

 —

 $
 —

 621,419

 Equity Compensation Plans Not Approved by

Security Holders

 —

 —

 —

 Total

 —

 $
 —

 621,419

 Long-term
equity incentives are an important component of compensation and are designed to align the interests of our executive officers
and directors who receive long-term equity awards with the Company's long-term performance and to increase shareholder value.
The Company has awarded long-term incentive compensation pursuant to two plans:

 2016
Long-Term Incentive Plan. The 2016 Long-Term Incentive Plan, as amended, authorizes the grant of 2,200,000 shares of
our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock,
stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the Company. As of December
31, 2023, we have granted 1,580,945 shares under this plan and 619,055 shares remained available for grant under this plan.

 Performance
Equity Plan 2009. The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation
rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2023, we have
granted 497,636 shares under this plan and 2,364 shares remained available for grant.

 Item 6.
 [RESERVED]

 Not
applicable.

 Item 7.
 MANAGEMENT'S
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 The
following discussion and analysis of our financial condition and results of operations should be read together with our consolidated
financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained
in this discussion and analysis includes forward-looking statements involving risks and uncertainties and should be read together
with the "Risk Factors" section of this Annual Report on Form 10-K. Such risks and uncertainties could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis.

 Recent
Developments

 On
February 20, 2024, the Company entered into a Thirteenth Amendment to the Credit Agreement (the "Thirteenth Amendment").
Under the Thirteenth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Company's
existing revolving line of credit to August 31, 2025; and (b) setting the aggregate maximum principal amount of all revolving
line of credit loans to $19,800,000 from January 1, 2024 through March 31, 2024, $19,080,000 from April 1, 2024 through June 30,
2024, $18,360,000 from July 1, 2024 through September 30, 2024, $17,640,000 from October 1, 2024 through December 31, 2024, $16,920,000
from January 1, 2025 through March 31, 2025, $16,200,000 from April 1, 2025 through June 30, 2025 and $15,480,000 thereafter,
and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each
such period.

 Business
Operations

 We
are engaged in the contract production of structural aircraft parts for fixed wing aircraft and helicopters in both the commercial
and defense markets. We also have a strong and growing presence in the aerosystems sector of the market, with our production of
various reconnaissance pod structures and fuel panel systems. Within the global aerostructure and aerosystem supply chain, we
are either a Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major Tier 1 manufacturers. We also are a prime contractor
to the U.S. DOD, primarily the USAF. In conjunction with our assembly operations, we provide engineering, program management,
supply chain management and kitting, and MRO services.

 Critical
Accounting Estimates

 The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting
period. Significant estimates and assumptions include revenue recognition, the valuation of deferred income taxes, and the valuation
of inventory. Actual results could differ from those estimates.

 We
believe that the following discussion addresses our critical accounting policies which require management's most difficult,
subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain. For more discussion of these and other significant accounting policies, refer to Part
II, Item 8, Note 1 " Principal Business Activity and Summary of Significant Accounting
Policies" in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Recognition

 In
accordance with ASC 606, the Company recognizes revenue when it transfers control of a promised good or service to a customer in an amount
that reflects the consideration it expects to be entitled to in exchange for the good or service. The majority of the Company's
performance obligations are satisfied over time as the Company (i) sells products with no alternative use to the Company and (ii) has
an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date. Under the over time revenue
recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred
and an estimate of costs to complete and resulting total estimated costs at completion. See Part II, Item 8, Note 1 "Principal
Business Activity and Summary of Significant Accounting Policies" in the notes to the consolidated financial statements included
in this Form 10-K for additional information regarding the Company's revenue recognition policy.

 Deferred
Income Taxes – Valuation Allowance

 On
a quarterly basis, we assess the likelihood that we will be able to recover our deferred tax assets against future sources of
taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available
evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not
be realized.

 Assessing the realizability of deferred tax assets
requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally,
more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative
evidence to overcome. As of December 31, 2023, the Company achieved three years of consecutive book and taxable 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, $14,170,891 of the valuation allowance was released during the fourth
quarter of 2023, leaving a balance in the valuation allowance of $569,143 as of December 31, 2023.

 Inventory

 Inventory
is stated at the lower of cost or estimated net realizable value. Cost is determined using the weighted average 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.

 Results
of Operations

 The
following discussion provides an analysis of our results of operations and should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.

for the year ended December 31, 2023 was $86,466,321 compared to $83,335,764 for the year ended December 31, 2022, representing
an increase of $3,130,557, or 3.8%. The increase was primarily related to increases in the
Raytheon - SDTA program and the T-38 Pacer Classic program, partly offset by decreases
in the Sikorsky HIRRS program.

generated from prime government contracts for the year ended December 31, 2023 was $11,842,145 compared to $8,663,308 for the
year ended December 31, 2022, an increase of $3,178,837, or 36.7%. This increase is primarily a result of increased revenue recognized
on the T-38 Pacer Classic program.

generated from government subcontracts for the year ended December 31, 2023 was $69,672,602 compared to $69,023,729 for the year
ended December 31, 2022, an increase of $648,873, or 0.9%. The increase in revenue was primarily related to increases in the Raytheon
- SDTA program and the Lockheed Martin F-16 Rudder Island program, partly offset by decreases in the Sikorsky HIRRS program
and the NGC E-2D WOWP program.

generated from commercial contracts for the year ended December 31, 2023 was $4,951,574 compared to $5,648,727 for the year ended
December 31, 2022, a decrease of $697,153, or 12.3%. The decrease in revenue resulted from decreased revenue recognized on the
Gulfstream G650 program, which concluded in 2022.

 Cost
of sales

 Cost
of sales for the year ended December 31, 2023 was $69,400,693 compared to $67,031,502 for the year ended December 31, 2022, an
increase of $2,369,191 or 3.5%.

 The
components of cost of sales were as follows:

 Years ended

 December 31, 2023

 December 31, 2022

 Procurement

 $
 46,020,628

 $
 46,094,088

 Labor

 7,054,308

 6,829,405

 Factory overhead

 16,028,140

 15,730,682

 Other cost of sales

 297,617

 (1,622,673
)

 Cost of sales

 $
 69,400,693

 $
 67,031,502

 Procurement
for the year ended December 31, 2023 was $46,020,628 compared to $46,094,088 for the year ended December 31, 2022, a decrease
of $73,460 or 0.2%. This decrease is primarily the result of a decrease in procurement for the Lockheed Martin F-16 Rudder Island
program, the Raytheon - SDTA program, the NGC E-2D MYP II OWP program and the NGC
E2D WOWP program, the Bell AH-1Z program, the Gulfstream G650 program and the Raytheon B-52 Radar Rack program, partly
offset by increases in the Sikorsky HIRRS program and the Raytheon Next Generation Jammer – Mid-Band pod program.

 Labor
costs for the year ended December 31, 2023 were $7,054,308 compared to $6,829,405 for the year ended December 31, 2022, an increase
of $224,903 or 3.3%. The increase is primarily the result of higher labor cost incurred on the Boeing A-10 Warthog program.

 Factory
overhead costs for the year ended December 31, 2023 were $16,028,140 compared to $15,730,682 for the year ended December 31, 2022,
an increase of $297,458 or 1.9%. The increase is primarily the result of higher overhead rates incurred on the Raytheon Next Generation
Jammer – Mid-Band pod program, the Sikorsky – Gunner Windows program and the Lockheed Martin F-16 Rudder Island program.

 Other
cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory levels, changes in inventory
valuation, changes to inventory reserves, changes in loss contract provisions and direct charges to cost of sales. For the year
ended December 31, 2023, there were costs in the amount of $297,617 compared to a reduction of costs in the amount of $1,622,673
for the year ended December 31, 2022, an increase of $1,920,290 or 118.3%. The increase is primarily the result of a higher level
of cost decrease in 2022 related to changes in inventory levels and loss contract reserve reductions.

 Gross
profit

 Gross
profit for the year ended December 31, 2023 was $17,065,628 compared to $16,304,262 for the year ended December 31, 2022, an increase
of $761,366 or 4.7%. Gross profit percentage ("gross margin") for the year ended December 31, 2023 was 19.7% compared
to 19.6% for year ended December 31, 2022.

 Favorable/(Unfavorable)
Adjustments to Gross Profit

 During
the years ended December 31, 2023 and 2022, we made changes in estimates to various contracts. Such changes in estimates resulted
in changes in total gross profit as follows:

 Years Ended

 2023

 2022

 Favorable adjustments

 $
 2,601,615

 $
 4,962,675

 (Unfavorable) adjustments

 (4,052,117
)

 (3,207,099
)

 Net adjustments

 $
 (1,450,502
)

 $
 1,755,576

 Selling,
general and administrative expenses

 Selling,
general and administrative expenses ("SG&A") for the year ended December 31, 2023 were $10,758,624 compared to
$11,410,067 for the year ended December 31, 2022, a decrease of $651,443 or 5.7%. The decrease was primarily due to decreased
insurance expense and legal fees.

 Interest
expense

 Interest
expense for the year ended December 31, 2023 was $2,455,214, compared to $2,271,101 for the year ended December 31, 2022, an increase
of $184,113 or 8.1%. The increase is the result of higher year-over-year interest rates charged on our outstanding debt under
the Credit Agreement, partially offset by a year-over-year decrease in the amount of our outstanding debt under the Credit Agreement.

 Income
before provision for income taxes

 Income
before provision for income taxes for the year ended December 31, 2023 was $3,851,790 compared to $2,623,094 for the year ended
December 31, 2022, an increase of $1,228,696 or 46.8%. The increase was driven by the aforementioned increase in gross profit
and decrease in SG&A, partially offset by the increase in interest expense described above.

 Provision
(benefit) for income taxes

 The income tax (benefit) for the year ended December 31, 2023 was ($13,349,414),
which was an effective tax (benefit) rate of (346.6%), as compared to the income tax (benefit) of ($6,553,131) for the year ended December
31, 2022, which was an effective tax (benefit) rate of (249.8%). The income tax (benefit) in 2023 and 2022 was primarily due to reductions
of the Company's deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023 and the fourth quarter
of 2022 of $14,170,891 and $6,473,532, respectively.

 Net
income

 Net income for the year ended December 31, 2023 was $17,201,204 compared
to $9,176,225 for the year ended December 31, 2022, an increase of $8,024,979 or 87.5%. The increase in net income was driven by the aforementioned
increase in gross profit, decrease in SG&A and the 2023 income tax (benefit), partially offset by the aforementioned increase in interest
expense.

 Earnings
per share

 Basic earnings per share was $1.40 for the
year ended December 31, 2023 calculating utilizing 12,311,219 weighted average shares outstanding as compared to $0.74 for the year
ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding, an increase of $0.66 per share, or
88.8%. Diluted earnings per share was $1.38 for the year ended December 31, 2023 calculated utilizing 12,471,961 weighted average
shares outstanding as compared to $0.74 for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares
outstanding, an increase of $0.64 per share, or 86.4%.

 Business
Outlook

 The
statements in the "Business Outlook" section and other forward-looking statements of this Annual Report on Form 10-K
are subject to revision during the course of the year in our quarterly earnings releases and SEC filings and at other times.

 Liquidity
and Capital Resources

 General. At December 31,
2023, we had working capital of $15,402,381 compared to working capital of $12,896,602 at December 31, 2022, an increase of $2,505,779,
or 19.4%. This increase is primarily the result of an increase in contract assets and cash, partially offset by an increase in accrued
expenses and accounts payable and a decrease in current portion of long-term debt.

 Cash
Flow. A large portion of our cash is used to pay for materials and processing costs associated with contracts that are
in process and which do not provide for progress payments. Costs for which we are not able to bill on a progress basis are components
of contract assets on our consolidated balance sheet and represent the aggregate costs and related earnings for uncompleted contracts
for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation
of billings in accordance with contract terms.

 Because
ASC 606 requires us to use estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods,
there can be a significant disparity between earnings (both for accounting and tax purposes) as reported and actual cash that
we receive during any reporting period. Accordingly, it is possible that we may have a shortfall in our cash flow and may need
to borrow money or take steps to defer cash outflows until the reported earnings materialize into actual cash receipts.

 Several
of our programs require us to expend up-front costs that may have to be amortized over a portion of production units. In
the case of significant program delays and/or program cancellations, we could experience margin degradation, which may be material
for costs that are not recoverable. Such charges and the loss of up-front costs could have a material impact on our liquidity
and results of operations.

 We
continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well
as exploring alternative funding sources.

 At
December 31, 2023, our cash balance was $5,094,794 compared to $3,847,225 at December 31, 2022, an increase of $1,247,569, or
32.4%. The increase was driven by $3,928,341 in cash provided by operations, partly offset by our pay down of outstanding debt
during 2023 of $2,679,766.

 BankUnited
Facility

 This
information is set forth in Note 8 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report
on Form 10-K which is hereby incorporated by reference.

 Leases

 This
information is set forth in Note 10 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report
on Form 10-K which is hereby incorporated by reference.

 Liquidity

 Our
working capital requirements can vary significantly, depending in part on the timing of the conclusion of mature programs and
new program awards and the payment terms with our customers and suppliers. There is currently no availability for borrowings under
the BankUnited Facility and the Company finances its operations from internally generated cash flow. Note 8 to our consolidated
financial statements included in Part II - Item 8 includes a discussion regarding the BankUnited Facility and recent amendments
thereto which provide, among other things, for increases in principal payments and the interest rate on the loans provided for
therein. Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date
of the Credit Agreement to August 31, 2025, (ii) obtained and regularly seeks additional progress payment and advance payment
customer contract funding provisions, (iii) maintained procedures to minimize investments in inventory and contract assets, (iv)
remained focused on its military customer base and (v) maintained its approximately $118.2 million backlog of funded orders, 98%
of which are for military programs. Based upon the aforementioned factors, it is management's estimation that there will
likely not be any individual conditions or combination of events that will occur in the coming year which would cause the Company
to be unable to meet its obligations or otherwise continue as a going concern. However, there can be no assurance that such plans
will accomplish their intended goals.

 Contractual
Obligations

 The
table below summarizes information about our contractual obligations as of December 31, 2023 and the effects these obligations
are expected to have on our liquidity and cash flow in the future years.

 Payments Due By Period

 Contractual Obligations

 Total

 Less than 1
 year

 1-3 years

 4-5 years

 After 5
 years

 Line of credit

 $
 20,040,000

 $
 2,400,000

 $
 17,640,000

 $
 —

 $
 —

 Finance Leases

 70,981

 44,498

 26,483

 —

 —

 Operating Leases

 5,482,708

 2,228,784

 3,244,696

 9,228

 —

 Insurance Financing Agreement

 280,910

 280,910

 —

 —

 —

 Total Contractual Cash Obligations

 $
 25,874,599

 $
 4,954,192

 $
 20,911,179

 $
 9,228

 $
 —

 Inflation

 Inflation
historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its
impact on interest rates, the supply chain, the labor market and general economic conditions, are factors that the Company actively
monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company. The majority of the
Company's long term contracts with its customers reflect fixed pricing and its long term contracts with its suppliers reflect
fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals.

 Item
 7A.
 QUANTITATIVE
 AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 Interest
Rate Risk

 We
are exposed to interest rate risk on variable-rate credit facilities for which there was $20,040,000 outstanding at December 31,
2023. Additionally, if we were to refinance our long-term debt, it may be refinanced at higher interest rates.

 Item
 8.
 FINANCIAL
 STATEMENTS AND SUPPLEMENTARY DATA

 This
information appears following Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference.

 Item
 9.
 CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 None.

 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 not effective due to the material weakness described
below.

 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 not effective at the reasonable assurance level as of December 31, 2023 because of the material
weakness described below.

 A material weakness is
a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim consolidated financial statements will not be prevented or detected
on a timely basis.

 In connection with management's
evaluation of the Company's internal control over financial reporting described above, management identified a material weakness
in its internal controls relating to the inadequate review, assessment of and reporting of the Company's temporary differences between
book and taxable income. This material weakness led to the need to restate within Note 11 "Income Taxes" of this Annual Report
on Form 10-K the Company's December 31, 2022 deferred tax assets and deferred tax liabilities balances, which had no impact to the
Company's previously reported net deferred tax asset on its December 31, 2022 Balance Sheet and no impact to the Company's
previously reported Net Income, Earnings Per Share or Cash Flow for the twelve months ended December 31, 2022. The restatement of the
aforementioned balances, as well as additional details regarding the restatement adjustments, appears in Note 11 "Income Taxes"
of this Annual Report on Form 10-K. The Company is in the process of remediating the aforementioned material weakness. The Company's
remediation plans currently include conducting a comprehensive review of the scope and work of its outside tax advisor, providing additional
education and training in tax accounting to the its finance personnel and requiring additional review of, approval over and documentation
of the work product of its tax advisor and tax accounting preparors.

 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,
2023.

 Notwithstanding the conclusion
by our management that our controls and procedures as of December 31, 2023 were not effective, as described above with respect to income
tax accounting, 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.

 CPI is a non-accelerated
filer for 2023. As such, CPI is not subject to the requirement to have an auditor attestation report on internal control over financial
reporting in the 10-K filed in 2024 for 2023.

 Changes
in Internal Control Over Financial Reporting

 Other than as disclosed above, there were no changes
in our internal control over financial reporting during the quarter ended December 31, 2023 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

 During the quarter ended December 31, 2023, we
implemented additional internal controls related to the reconciliation of accounts receivable that include more timely account reconciliation
and transactional reviews, and strengthening oversight controls over the accounts receivable and billing function.

 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

herein by reference from the Company's definitive proxy statement, which will be filed no later than 120 days after December 31,
2023.

 Item 11.
 EXECUTIVE
COMPENSATION

herein by reference from the Company's definitive proxy statement, which will be filed no later than 120 days after December 31,
2023.

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

herein by reference from the Company's definitive proxy statement, which will be filed no later than 120 days after December 31,
2023.

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

herein by reference from the Company's definitive proxy statement, which will be filed no later than 120 days after December 31,
2023.

 Item 14.
 PRINCIPAL
ACCOUNTANT FEES AND SERVICES

herein by reference from the Company's definitive proxy statement, which will be filed no later than 120 days after December 31,
2023.

 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

Balance Sheets as of December 31, 2023 and 2022

Statements of Operations for the Years Ended December 31, 2023 and 2022

Statements of Shareholders' Equity for the Years Ended December 31, 2023 and 2022

Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

 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

 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

 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

 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

 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

 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

 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).

 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.

 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).

 10.3.1

 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).

 10.3.2

 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).

 10.3.3

 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).

 10.4.1

 Amended
 and Restated Credit Agreement, dated as of March 24, 2016, among CPI Aerostructures, Inc., the several lenders from time to
 time party thereto, and BankUnited, N.A. (incorporated by reference from Exhibit 10.1 to the Company's Current Report
 on Form 8-K filed on March 28, 2016).

 10.4.2

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

 10.4.3

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

 10.4.4

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

 10.4.5

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

 10.4.6

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

 10.4.7

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

 10.4.8

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

 10.4.9

 Waiver
 and Eighth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company's
 Current Report on Form 8-K filed on October 28, 2021).

 10.4.10

 Consent,
 Waiver and Ninth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the
 Company's Current Report on Form 8-K filed on April 12, 2022).

 10.4.11

 Consent,
 Waiver and Tenth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the
 Company's Current Report on Form 8-K filed on August 19, 2022).

 10.4.12

 Eleventh
 Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company's
 Current Report on Form 8-K filed on November 11, 2022).

 10.4.13

 Twelfth
 Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company's
 Current Report on Form 8-K filed on March 23, 2023).

 10.4.14

 Thirteenth
 Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company's
 Current Report on Form 8-K filed on February 21, 2024.

 10.5

 Amended
 and Restated Continuing General Security Agreement among CPI Aerostructures, Inc. and BankUnited N.A. (incorporated by reference
 to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 28, 2016).

 21*

 Subsidiaries of the Registrant.

 23.1*

 Consent of RSM US 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*

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

 101.INS*

 Document.

 101.SCH*

 Extension Scheme Document.

 101.CAL*

 Extension Calculation Linkbase Document.

 101.DEF*

 Extension Definition Linkbase Document.

 101.LAB*

 Extension Label Linkbase Document.

 101.PRE*

 Extension Presentation Linkbase Document.

 104*

 Cover page

 *

 Filed herewith.

 **

 Management contract compensatory plan or arrangement.

 ***

 Furnished herewith.

 Item 16.
 FORM
10-K SUMMARY

 None

 CPI

TO FINANCIAL STATEMENTS

 Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)

 Financial Statements:

 Consolidated Balance Sheets as of December 31, 2023 and 2022

 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2023 and 2022

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

 Notes to Consolidated Financial Statements

 - F-29

 F- 1

 Report
of Independent Registered Public Accounting Firm

 Stockholders and the Board of Directors of CPI
Aerostructures, Inc.

 Opinion on the Financial Statements

 We have audited the accompanying consolidated
balance sheets of CPI Aerostructures, Inc. and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements
of operations, shareholders' equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 Restatement

 As discussed in Note 11 to the financial statements,
the 2022 financial statements have been restated to correct a misstatement.

 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
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess
the risks of material misstatement of the 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 audits 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 audits provide a reasonable basis for our opinion.

 F- 2

 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.

 Deferred Tax Asset Valuation Allowance

 As described in Note 1 and Note 11 of the financial
statements, the Company's net deferred tax asset of approximately $19.9 million is net of a valuation allowance of approximately
$0.6 million as of December 31, 2023. The Company recognizes deferred tax assets and liabilities for the expected future income tax
consequences of events that have been recognized in the Company's financial statements. Valuation allowances are provided for deferred
tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. In evaluating the
realizability of deferred tax assets in future periods, the available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, loss carrybacks and tax-planning strategies are considered.

 We identified management's determination
of the value of deferred tax assets as a critical audit matter as there is significant judgment required by management to conclude that
it is more likely than not that these deferred tax assets will be realized in future periods. In addition, the auditing of these elements
involved complex and subjective auditor judgment, including the need to involve personnel with specialized skill and knowledge.

 Our audit
procedures related to the realization of the Company's net deferred tax assets included the following, among others:

 Evaluated the reasonableness of management's
estimate in regard to the ability to generate future taxable income and utilize the deferred tax assets by evaluating the forecast of
future taxable income, including testing of management's assumptions used in their projections.

 Utilized personnel with specialized knowledge and
skill in accounting for income taxes to assist in the evaluation of management's assessment of positive and negative evidence and
their conclusion that it is more likely than not that the Company will realize a benefit from its net deferred tax assets.

 Revenue Recognition

 As described in Note 2 of the financial statements,
revenue for the year ended December 31, 2023 was $86.5 million, including $82.7 million of revenue recognized using an over time revenue
recognition model. As described in Note 1 of the financial statements, the majority of the Company's revenues are from long-term contracts
with performance obligations 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
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.

 Given the complexity and significant estimates
and assumptions management makes regarding revenue and costs associated with long-term contracts with performance obligations satisfied
over time, we identified revenue recognition over these contracts as a critical audit matter. Auditing these estimates required a high
degree of auditor judgement and increased audit effort.

 F- 3

 Our audit procedures related to the Company's
revenue, costs and profit for these contracts included the following, among others:

 Obtained an understanding of management's process related to the accounting
for contract revenue including cost to complete estimates for long-term contracts with performance obligations satisfied over time.

 Performed substantive test of details on a sample of contracts with customers
to ensure modifications were agreed to by the customer.

 Performed journal entry testing related to revenue.

 Tested the accuracy and completeness of the costs incurred to date on a sample
of contracts.

 Performed procedures, including a retrospective and prospective review, over
estimated costs to complete on a sample of contracts.

 On a sample of contracts, we evaluated whether the revenue recognition over
time on contracts was appropriate based on the terms and conditions.

 Tested the mathematical accuracy of management's calculation of revenue
recognized on a sample basis.

 Performed procedures to evaluate the reasonableness of the significant assumptions
used to estimate contract costs to complete on a sample of contracts.

 /s/ RSM US LLP

 We have served as the Company's auditor since
2021.

 New York, New York

 April 5, 2024

 F- 4

 CPI

 CONSOLIDATED
BALANCE SHEETS

 2023

 2022

 ASSETS

 Current Assets:

 Cash

 $
 5,094,794

 $
 3,847,225

 Accounts receivable, net

 4,352,196

 4,857,772

 Insurance recovery receivable

 —

 3,600,000

 Contract assets, net

 35,312,068

 27,384,540

 Inventory

 1,436,647

 2,493,069

 Refundable income taxes

 40,000

 40,000

 Prepaid expenses and other current assets

 678,026

 975,830

 Total Current Assets

 46,913,731

 43,198,436

 Operating lease right-of-use assets

 4,740,193

 6,526,627

 Property and equipment, net

 794,056

 1,124,556

 Deferred tax asset

 19,938,124

 6,574,463

 Goodwill

 1,784,254

 1,784,254

 Other assets

 189,774

 238,744

 Total Assets

 $
 74,360,132

 $
 59,447,080

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current Liabilities:

 Accounts payable

 $
 10,487,012

 $
 8,029,996

 Accrued expenses

 10,275,695

 7,344,590

 Litigation settlement obligation

 —

 3,600,000

 Contract liabilities

 5,937,629

 6,001,726

 Loss reserve

 337,351

 576,549

 Current portion of line of credit

 2,400,000

 1,200,000

 Current portion of long-term debt

 44,498

 1,719,766

 Operating lease liabilities

 1,999,058

 1,817,811

 Income taxes payable

 30,107

 11,396

 Total Current Liabilities

 31,511,350

 30,301,834

 Line of credit, net of current portion

 17,640,000

 19,800,000

 Long-term operating lease liabilities

 3,100,571

 5,077,235

 Long-term debt, net of current portion

 26,483

 70,981

 Total Liabilities

 52,278,404

 55,250,050

 Commitments and Contingencies (see note 16)

 Shareholders' Equity:

 Common stock - $.001 par value; authorized 50,000,000 shares, 12,771,434 and 12,506,795 shares, respectively, issued and outstanding

 12,771

 12,507

 Additional paid-in capital

 73,872,679

 73,189,449

 Accumulated deficit

 ( 51,803,722
)

 ( 69,004,926
)

 Total Shareholders' Equity

 22,081,728

 4,197,030

 Total Liabilities and Shareholders' Equity

 $
 74,360,132

 $
 59,447,080

 see
notes to CONSOLIDATED financial statements

 F- 5

 CPI

 CONSOLIDATED
STATEMENTS OF OPERATIONS

 Years
ended December 31, 2023 and 2022

 2023

 2022

 $
 86,466,321

 $
 83,335,764

 Cost of sales

 69,400,693

 67,031,502

 Gross profit

 17,065,628

 16,304,262

 Selling, general and administrative expenses

 10,758,624

 11,410,067

 Income from operations

 6,307,004

 4,894,195

 Interest expense

 ( 2,455,214
)

 ( 2,271,101
)

 Income before benefit for income taxes

 3,851,790

 2,623,094

 Benefit from income taxes

 ( 13,349,414
)

 ( 6,553,131
)

 Net income

 $
 17,201,204

 $
 9,176,225

 Income per common share-basic

 $
 1.40

 $
 0.74

 Income per common share-diluted

 $
 1.38

 $
 0.74

 Shares used in computing income per common share:

 Basic

 12,311,219

 12,389,890

 Diluted

 12,471,961

 12,389,890

 see
notes to CONSOLIDATED financial statements

 F- 6

 CPI

 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY

 Years
ended December 31, 2023 and 2022

 Common
 Stock Shares

 Common
 Stock
 Amount

 Additional Paid-in
 Capital

 Accumulated
 Deficit

 Total
 Shareholders'
 Equity (Deficit)

 Balance at January 1, 2022

 12,335,683

 $
 12,336

 $
 72,833,742

 $
 ( 78,181,151
)

 $
 ( 5,335,073
)

 Net income

 —

 —

 —

 9,176,225

 9,176,225

 Issuance of common stock upon settlement of restricted stock, net

 171,112

 —

 —

 Stock-based compensation expense

 —

 —

 355,707

 —

 355,707

 Balance at December 31, 2022

 12,506,795

 12,507

 73,189,449

 ( 69,004,926
)

 4,197,030

 Net income

 —

 —

 —

 17,201,204

 17,201,204

 Issuance of common stock upon settlement of restricted stock, net

 264,639

 —

 —

 Stock-based compensation expense

 —

 —

 770,362

 —

 770,362

 Shares withheld for tax withholdings

 —

 —

 ( 87,132
)

 —

 ( 87,132
)

 Balance at December 31, 2023

 12,771,434

 $
 12,771

 $
 73,872,679

 $
 ( 51,803,722
)

 $
 22,081,728

 see
notes to CONSOLIDATED financial statements

 F- 7

 CPI

 CONSOLIDATED
STATEMENTS OF CASH FLOWS

 Years
ended December 31, 2023 and 2022

 2023

 2022

 Cash flows from operating activities:

 Net income

 $
 17,201,204

 $
 9,176,225

 Adjustments to reconcile net income to net cash provided by operating activities:

 Depreciation and amortization

 470,950

 688,096

 Amortization of debt issuance costs

 103,304

 133,997

 Stock-based compensation expense

 770,626

 355,878

 Deferred income taxes

 ( 13,363,661
)

 ( 6,574,463
)

 Bad debt expense

 —

 72,099

 Changes in operating assets and liabilities:

 Decrease in accounts receivable

 505,576

 37,843

 Decrease (increase) in insurance recovery receivable

 3,600,000

 ( 750,000
)

 Increase in contract assets

 ( 7,927,528
)

 ( 2,925,201
)

 Decrease in inventory

 1,056,422

 1,535,856

 Decrease (increase) in prepaid expenses and other current assets

 297,804

 ( 350,755
)

 Decrease in operating right-of-use assets

 1,786,434

 1,270,141

 Increase (decrease) in accounts payable and accrued expenses

 5,107,211

 ( 1,157,019
)

 (Decrease) increase in litigation settlement obligation

 ( 3,600,000
)

 596,741

 (Decrease) increase in contract liabilities

 ( 64,097
)

 878,960

 Decrease in lease liabilities

 ( 1,795,417
)

 ( 1,131,135
)

 Decrease in loss reserve

 ( 239,198
)

 ( 919,165
)

 Increase in income taxes payable

 18,711

 6,231

 Net cash provided by operating activities

 3,928,341

 944,329

 Cash flows from investing activities:

 Purchase of property and equipment

 ( 140,450
)

 ( 40,789
)

 Net cash used in investing activities

 ( 140,450
)

 ( 40,789
)

 Cash flows from financing activities:

 Principal payments on line of credit

 ( 960,000
)

 ( 250,000
)

 Principal payments on long-term debt

 ( 1,719,766
)

 ( 3,115,181
)

 Proceeds from insurance financing obligation

 330,482

 —

 Repayments of insurance financing obligation

 ( 49,572
)

 —

 Taxes paid related to net share settlement of equity awards

 ( 87,132
)

 —

 Debt issuance costs

 ( 54,334
)

 —

 Net cash used in financing activities

 ( 2,540,322
)

 ( 3,365,181
)

 Net increase (decrease) in cash

 1,247,569

 ( 2,461,641
)

 Cash at beginning of year

 3,847,225

 6,308,866

 Cash at end of year

 $
 5,094,794

 $
 3,847,225

 Supplemental disclosure of cash flow information:

 Cash paid during the year for interest

 $
 2,454,065

 $
 1,792,858

 Cash paid for income taxes

 $
 4,364

 $
 25,291

 See
notes to CONSOLIDATED financial statements

 F- 8

 CPI

 NOTES

 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, 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.

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. 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
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 as a percentage of total
estimated costs at completion of the contract.

 The
Company also has contracts that are considered point in time. Under the point in time revenue recognition model, revenue is recognized
when control of the components has transferred to the customer; in most cases this will be based on shipping terms.

 The
majority of the Company's revenues are from long-term contracts with the U.S. government and commercial contractors. The
Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For the Company,
the contract under ASC 606 is typically established upon execution of a purchase order either in accordance with a long-term customer
contract or on a standalone basis.

 To
determine the proper revenue recognition for our contracts, we must evaluate whether two or more contracts should be combined
and accounted for as a single contract, and whether the combined or single contract should be accounted for as one performance
obligation or more than one performance obligation. This evaluation requires significant judgment and the decision to combine
a group of contracts or to separate a contract into multiple performance obligations could change the amount of revenue and profit
recorded in a period. A performance obligation is a promise within a contract to transfer a distinct good or service to the customer
in exchange for payment and is the unit of account for recognizing revenue. The Company's performance obligations in its
contracts with customers are typically the sale of each individual product contemplated in the contract or a single performance
obligation representing a series of products when the contract contains multiple products that are substantially the same. The
Company has elected to account for shipping performed after control over a product has transferred to a customer as fulfillment
activities. When revenue is recognized in advance of incurring shipping costs, the costs related to the shipping are accrued.
Shipping costs are included in costs of sales. The Company provides warranties on many of its products; however, since customers
cannot purchase such warranties separately and they do not provide services beyond standard assurances, warranties are not separate
performance obligations.

 F- 9

 CPI

 NOTES

 A
contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the
performance obligation is satisfied. For contracts with more than one performance obligation, the Company allocates the transaction
price to each performance obligation based on its estimated standalone selling price. When standalone selling prices are not available,
the transaction price is allocated using an expected cost plus margin approach as pricing for such contracts is typically negotiated
on the basis of cost.

 The
contracts with the U.S. government typically are subject to the Federal Acquisition Regulation ("FAR"), which provides
guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government
contracts. The pricing for commercial contractors are based on the specific negotiations with each customer and any taxes imposed
by governmental authorities are excluded from revenue. The transaction price is primarily comprised of fixed consideration as
the customer typically pays a fixed fee for each product sold. The Company does not adjust the amount of revenue to be recognized
under a customer contract for the effects of the time value of money when the timing difference between receipt of payment and
transferring the good or service is less than one year.

 The
majority of the Company's performance obligations are satisfied over time as the Company (i) sells products with no alternative
use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed
to date. The Company uses the cost-to-cost input method to measure progress for its performance obligations because it best depicts
the transfer of control to the customer which occurs as the Company incurs costs on its contracts.

 The
Company generally utilizes the portfolio approach to estimate the amount of revenue to recognize for its contracts and groups
contracts together that have similar characteristics. Contract gross profit margins are calculated using the estimated costs for
either the individual contract or the portfolio as applicable. Significant judgment is used to determine which contracts are grouped
together to form a portfolio. The portfolio approach is utilized only when the result of the accounting is not expected to be
materially different than if applied to individual contracts.

 The
Company's contracts are often modified to account for changes in contract specifications and requirements. The Company considers
contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations.
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.

 The
Company also has contracts that are considered point in time. Under the point in time revenue recognition model, revenue is recognized
when control of the components has transferred to the customer.

 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

 NOTES

 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 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.

 F- 11

 CPI

 NOTES

 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, 2023
and 2022, the Company had $ 4,943,628 and $ 3,763,608, 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.

 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. The ROU
asset is amortized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying
asset and interest on the lease liability.

 At
December 31, 2023, the Company has right of use assets and lease liabilities of $ 4,740,193 and $ 5,099,629, respectively. At December
31, 2022, the Company had right of use assets and lease liabilities of $ 6,526,627 and $ 6,895,046, 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, 2023 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.

 F- 12

 CPI

 NOTES

 Long-Lived
Assets

 The
Company reviews its long-lived assets 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 flows 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, 2023, 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.

 At
December 31, 2023 and 2022, the fair values of the Company's current assets and current liabilities approximated their carrying
values because of the short-term nature of these instruments.

 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.

 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 160,742 and 0 incremental shares
used in the calculation of diluted income per common share for the years ended December 31, 2023 and 2022, respectively.

 F- 13

 CPI

 NOTES

 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.

 Prior
Period Reclassification

 Certain
amounts in prior periods have been reclassified to conform with current period presentation within the Consolidated
Statement of Shareholder's Equity and the Consolidated Statements of Cash Flows.

 Recently
Issued Accounting Standards – Adopted

 In
2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (ASU 2016-13), using a modified retrospective method, which did not result in a material impact on the Company's
consolidated financial statements.

 Recently
Issued Accounting Standards – Not Adopted

 In
December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses
on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity ("PBE") to disclose,
on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories
with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.
In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local,
and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs,
the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may
apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and
continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing
the revised disclosures for all period presented. We expect this ASU to only impact our disclosures with no impacts to our results
of operations, cash flows, and financial condition.

 F- 14

 CPI

 NOTES

 2.
 REVENUE

 Disaggregation
of Revenue

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

 Year Ended

2023

2022

 Government subcontracts

 $
 69,672,602

 $
 69,023,729

 Prime government contracts

 11,842,145

 8,663,308

 Commercial contracts

 4,951,574

 5,648,727

 Total

 $
 86,466,321

 $
 83,335,764

 Year Ended

 December 31, 2023

 December 31, 2022

 Revenue recognized using over time revenue recognition model

 $
 82,713,436

 $
 75,911,241

 Revenue recognized using point in time revenue recognition model

 3,752,885

 7,424,523

 Total

 $
 86,466,321

 $
 83,335,764

 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, 2023 and 2022:

 Years Ended

 2023

 2022

 Favorable adjustments

 $
 2,601,615

 $
 4,962,675

 (Unfavorable) adjustments

 ( 4,052,117
)

 ( 3,207,099
)

 Net adjustments

 $
 ( 1,450,502
)

 $
 1,755,576

 F- 15

 CPI

 NOTES

 Favorable
adjustments during the year ended December 31, 2023 included the NGC E-2D MY2 Outer Wing Panel ("OWP") and NGC E-2D
Wet Outer Wing Panel programs. Unfavorable adjustments during the year ended December 31, 2023 included the Boeing A-10 and Embraer
Phenom 300 programs. Favorable adjustments during the year ended December 31, 2022 included the Raytheon NGJ Pods/AMS and Lockheed
Margin F-16 Rudder Island programs. Unfavorable adjustments during the year ended December 31, 2022 included the NGC E-2D MY2
OWP and Embraer Phenom 300 programs.

 Transaction
Price Allocated to Remaining Performance Obligations

 As
of December 31, 2023, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately
$ 118.2 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, 2023.

 3.
 CONTRACT
ASSETS AND LIABILITIES

 Contract
assets represent revenue recognized on contracts in excess of amounts invoiced to the customer and the Company's right to
consideration is conditional on something other than the passage of time. Amounts may not exceed their net realizable value. Under
the typical payment terms of our government contracts, the customer retains a portion of the contract price until completion of
the contract, as a measure of protection for the customer. Our government contracts therefore typically result in revenue recognized
in excess of billings, which we present as contract assets. Contract assets are classified as current 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

 2023

 2022

 2021

 Contract assets

 $
 35,312,068

 $
 27,384,540

 24,459,339

 Contract liabilities

 5,937,629

 6,001,726

 5,122,766

 Contract
assets at December 31, 2023 increased $ 7,927,528 from December 31, 2022 due to the recognition of revenue during 2023 upon the
satisfaction or partial satisfaction of performance obligations for which we had not yet billed our customers as of December 31,
2023, primarily on our T-38 Pacer Classic program, our Lockheed Martin F-16 Rudder Island program and our NGC E-2D Advanced Hawkeye
OWP program.

 Contract
liabilities decreased $ 64,097 during 2023, primarily due to revenue recognized on these performance obligations in excess of payments
received.

recognized for the year ended December 31, 2023, that was included in the contract liabilities balances as of January 1, 2023
was $ 3,816,336. Revenue recognized for the year ended December 31, 2022, that was included in the contract liabilities balances
as of January 1, 2022 was $ 3,598,601.

 F- 16

 CPI

 NOTES

 4.
 ACCOUNTS
RECEIVABLE

 Accounts
receivable consists of trade receivables as follows:

 2023

 2022

 Billed receivables

 $
 4,444,504

 $
 5,139,757

 Less: allowance for expected credit losses

 ( 92,308
)

 ( 281,985
)

 Total accounts receivable, net

 $
 4,352,196

 $
 4,857,772

 5.
 INVENTORY

 The
components of inventory consist of the following:

 2023

 2022

 Raw materials

 $
 1,187,008

 $
 1,892,157

 Work in progress

 75,795

 685,438

 Finished goods (Includes completed components)

 1,617,077

 3,038,859

 Gross inventory

 $
 2,879,879

 $
 5,616,454

 Inventory reserves

 ( 1,443,233
)

 ( 3,123,386
)

 Inventory, net

 $
 1,436,647

 $
 2,493,069

 6.
 PROPERTY
AND EQUIPMENT

 The
components of property and equipment consist of the following:

 Estimated

 2023

 2022

 Useful Life (years)

 Machinery and equipment

 $
 4,004,779

 $
 3,978,662

 5 to 7

 Computer equipment

 4,242,437

 4,191,040

 Furniture and fixtures

 709,350

 709,350

 Automobiles and trucks

 13,162

 13,162

 Leasehold improvements

 2,692,552

 2,629,615

 Lesser of lease term or 10 years

 Total gross property and equipment

 11,662,280

 11,521,829

 Less accumulated depreciation and amortization

 ( 10,868,224
)

 ( 10,397,273
)

 Total property and equipment, net

 $
 794,056

 $
 1,124,556

 Depreciation
expense for the years ended December 31, 2023 and 2022 was $ 470,950 and $ 563,096, respectively.

 F- 17

 CPI

 NOTES

 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

 On
March 24, 2016, the Company entered into an Amended and Restated Credit Agreement with the lenders named therein and BankUnited,
N.A. ("BankUnited") as Sole Arranger, Agent and a Lender, dated as of March 24, 2016 (as amended, the "Credit
Agreement" or the "BankUnited Facility"). The BankUnited Facility originally provided for a revolving credit
loan commitment of $ 30 million (the "Revolving Loan") and a $ 10 million term loan ("Term Loan").
The Revolving Loan bears interest at a rate based upon a pricing grid, as defined in the Credit Agreement.

 On
April 12, 2022, the Company entered into a Consent, Waiver and Ninth Amendment (the "Ninth Amendment") to the Credit
Agreement. Under the Ninth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving
Loan and the Term Loan to September 30, 2023, (b) providing for the repayment of an additional $ 750,000 of the principal
balance of the Term Loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31,
2023 in addition to $ 200,000 regular monthly principal payments through December 31, 2022 and (c) increasing the interest
on the Revolving Loan and the Term Loan as follows: through June 30, 2022, Prime Rate (as defined in the Credit Agreement) plus 2.5 %;
from July 1, 2022 through August 31, 2022, Prime Rate plus 5 %; from September 1, 2022 through October 31, 2022,
Prime Rate plus 6 %; from November 1, 2022 through December 31, 2022, Prime Rate plus 7 %; and from January 1, 2023 through
September 30, 2023, Prime Rate plus 8 %. Additionally, under the Ninth Amendment, the Credit Agreement financial covenants
were amended. BankUnited also waived or consented to certain covenant non-compliance, waived temporarily or consented to, late
delivery of certain financial information and waived permanently late delivery of certain pro-forma budget information.

 F- 18

 CPI

 NOTES

 On
August 19, 2022, the Company entered into a Consent, Waiver and Tenth Amendment (the "Tenth Amendment") to the Credit
Agreement. Under the Tenth Amendment, the parties amended the Credit Agreement by (a) increasing the maximum leverage ratio applicable
for the fiscal quarter ending September 30, 2022 to 5.0 to 1.0, (b) waiving and/or consenting to the exclusion from the Company's
covenant compliance requirements for the fiscal quarters ended December 31, 2021, March 31, 2022, June 30, 2022 and September
30, 2022 up to (i) $ 566,025 of losses incurred and reserves taken under the Borrower's welded product contracts, and (ii)
$ 367,045 of reserves taken with respect to the Borrower's welded product inventory, and (c) waiving and/or consenting to
the exclusion from the Company's covenant compliance requirements for the fiscal quarters ended March 31, 2022, June 30,
2022, September 30, 2022 and December 31, 2022 up to $ 795,997 of accrued severance and COBRA costs and employer taxes incurred
by the Company during the fiscal quarter ending March 31, 2022. Additionally, under the Tenth Amendment, BankUnited waived or
consented to late delivery of certain financial information required by the Credit Agreement.

 On
November 10, 2022, the Company entered into an Eleventh Amendment to the Credit Agreement (the "Eleventh Amendment").
Under the Eleventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan
and the Term Loan to November 30, 2023 or with respect to the Term Loan, if earlier, until the outstanding principal balance is
paid in full (the "Term Loan Maturity Date"), (b) providing for regular monthly principal payments of $ 200,000 on
the Term Loan from January 1, 2023 through the Term Loan Maturity Date (in addition to the Company's existing obligation
to make two principal payments on the term loan of $ 250,000 on each of December 31, 2022 and March 31, 2023) and (c) decreasing
the interest rate on the Revolving Loan and on the Term Loan to the Prime Rate plus 3.5 % effective as of November 1, 2022.

 On
March 23, 2023, the Company entered into a Twelfth Amendment to the Credit Agreement (the "Twelfth Amendment"). Under
the Twelfth Amendment, the parties amended the Credit Agreement by: (a) extending the maturity date of the Company's existing
revolving line of credit and its existing term loan to November 30, 2024 (under the terms of the Credit Agreement, the outstanding
principal balance of the term loan will be repaid by June 30, 2023); (b) providing for reduction of the aggregate maximum principal
amount of all revolving line of credit loans to $ 20,520,000 from October 1, 2023 through December 31, 2023, $ 19,800,000 from January
1, 2024 through March 31, 2024, $ 19,080,000 from April 1, 2024 through June 30, 2024, $ 18,360,000 from July 1, 2024 through September
30, 2024, and $ 17,640,000 from October 1, 2024 and thereafter, and for payments to be made by the Company to comply therewith
(if any such payments are necessary), on the first day of each such period; and (c) payment of a $ 250,000 capitalized fee incurred
in connection with the Eighth Amendment to the Credit Agreement in two installments, the first installment to be paid on June
1, 2023 in the amount of $ 116,667 and the second installment to be paid July 1, 2023 in the amount of $ 133,333, together with
all unpaid interest accrued at the term loan interest rate on the capitalized fee through each such date.

 The
Credit Agreement, as amended, requires us to maintain the following financial covenants (subject to the exclusions provided for
in the previous paragraph): (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four
quarter period ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to
1.0 for the trailing four quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter;
(b) maximum leverage ratio of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to
1.0 for the trailing four quarter period ended June 30, 2022, 5.0 to 1.0 for the trailing four quarter period ended September
30, 2022 and 4.0 to 1.0 for the trailing four quarter periods thereafter; (c) minimum net income after taxes as of the end of
each fiscal quarter being no less than $ 1.00 commencing June 30, 2022; and (d) a minimum adjusted EBITDA at the end of each
quarter of no less than $ 1.0 million (waived for the quarter ended March 31, 2022). The additional principal payments,
increase in interest and an amendment fee provided for in the Eighth and Ninth Amendments are excluded for purposes of calculating
compliance with each of the financial covenants.

 On
February 20, 2024, the Company entered into a Thirteenth Amendment to the Credit Agreement (the "Thirteenth Amendment").
Under the Thirteenth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Company's
existing revolving line of credit to August 31, 2025; and (b) setting the aggregate maximum principal amount of all revolving
line of credit loans to $ 19,800,000 from January 1, 2024 through March 31, 2024, $ 19,080,000 from April 1, 2024 through June 30,
2024, $ 18,360,000 from July 1, 2024 through September 30, 2024, $ 17,640,000 from October 1, 2024 through December 31, 2024, $ 16,920,000
from January 1, 2025 through March 31, 2025, $ 16,200,000 from April 1, 2025 through June 30, 2025 and $ 15,480,000 thereafter,
and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each
such period.

 As
of December 31, 2023 and December 31, 2022, the Company had $ 20,040,000 and $ 21,000,000, respectively, outstanding under the BankUnited
Revolving Loan Facility. $ 2,400,000 of the revolving line of credit matures and is payable by December 31, 2024 and the remaining
balance of $ 17,640,000 of the revolving line of credit matures and is payable by August 31, 2025.

 The
BankUnited Facility is secured by all of the Company's assets.

 F- 19

 CPI

 NOTES

 9.
 DEBT

 As
described above, in connection with the Twelfth Amendment, the Company and BankUnited agreed to amend the Credit Agreement by:
(a) extending the maturity date of the Company's existing revolving line of credit and its existing term loan to November
30, 2024 (under the terms of the Credit Agreement, the outstanding principal balance of the term loan will be repaid by June 30,
2023); (b) providing for reduction of the aggregate maximum principal amount of all revolving line of credit loans to $ 20,520,000
from October 1, 2023 through December 31, 2023, $ 19,800,000 from January 1, 2024 through March 31, 2024, $ 19,080,000 from April
1, 2024 through June 30, 2024, $ 18,360,000 from July 1, 2024 through September 30, 2024, and $ 17,640,000 from October 1, 2024
and thereafter, and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first
day of each such period; and (c) payment of a $ 250,000 capitalized fee incurred in connection with the Eighth Amendment to the
Credit Agreement in two installments, the first installment to be paid on June 1, 2023 in the amount of $ 116,667 and the second
installment to be paid July 1, 2023 in the amount of $ 133,333, together with all unpaid interest accrued at the term loan interest
rate on the capitalized fee through each such date.

 As
described above, in connection with the Eleventh Amendment, the Company and BankUnited agreed to amend the Credit Agreement by
(a) extending the maturity date of the Revolving Loan and the Term Loan to November 30, 2023 or with respect to the Term Loan,
if earlier, until the outstanding principal balance is paid in full (the "Term Loan Maturity Date"), (b) providing
for regular monthly principal payments of $ 200,000 on the Term Loan from January 1, 2023 through the Term Loan Maturity Date (in
addition to the Company's existing obligation to make two principal payments on the term loan of $ 250,000 on each of December
31, 2022 and March 31, 2023) and (c) decreasing the interest rate on the Revolving Loan and on the Term Loan to the Prime Rate
plus 3.5 % effective as of November 1, 2022.

 As
described above, in connection with the Tenth Amendment, the Company and BankUnited agreed to amend the Credit Agreement by (a)
amending the maximum leverage ratio applicable for the fiscal quarter ending on September 30, 2022, and (b) consenting to and
waiving certain covenant non-compliance under the Credit Agreement. Under the Tenth Amendment, there are no changes to interest
rates or repayment schedule and the terms pertaining to interest rates and repayment schedule remain the same as described below
as per the Ninth Amendment. The Tenth Amendment had no effect on the interest rates on the Revolving Term Loan or Term Loan.

 As
described above, in connection with the Ninth Amendment, the Company and BankUnited agreed to extend the maturity dates of the
Revolving Loan and Term Loan to September 30, 2023, provide for the repayment of an additional $ 750,000 of the principal balance
of the term loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31, 2023 (in addition to
the $ 750,000 in additional principal payments as required by the Eighth Amendment due on November 30, 2021, December 31, 2021
and March 31, 2022), as well as the $ 200,000 regular monthly principal payments paid monthly through maturity, increase the interest
on the Revolving Loan and on the Term Loan as follows: through June 30, 2022, Prime Rate (as defined in the Credit Agreement)
plus 2.5 %; from July 1, 2022 through August 31, 2022, Prime Rate plus 5 %; from September 1, 2022 through October 31, 2022,
Prime Rate plus 6 %; from November 1, 2022 through December 31, 2022, Prime Rate plus 7 %; and from January 1, 2023 through
September 30, 2023, Prime Rate plus 8 %, waive or consent to certain covenant non-compliance, and waive temporarily or consented
to, late delivery of certain financial information and waived permanently late delivery of certain pro-forma budget information.
The BankUnited Facility, as amended, requires us to maintain the financial covenants described in the preceding note.

 In
2022, as consideration for the lenders entering into the Ninth Amendment, the Company paid a $ 62,833 fee to the lenders. The Company
has cumulatively paid approximately $ 962,000 of total debt issuance costs in connection with the BankUnited Facility of which
approximately $ 82,000 and $ 131,000 is unamortized and included in other assets at December 31, 2023 and 2022, respectively.

 F- 20

 CPI

 NOTES

 The
maturities of the long-term debt (excluding unamortized debt issuance costs) as of December 31, 2023, are as follows:

 Year ending December 31,

 2024

 $
 44,498

 2025

 26,483

 Total

 $
 70,981

 Included
in the long-term debt are financing leases and notes payable totaling $ 70,981 and $ 207,414 at December 31, 2023 and 2022, respectively,
including a current portion of $ 44,498 and $ 136,433, respectively.

 The
BankUnited Facility is secured by all of the Company's assets and both the Revolving Loan and Term Loan bear interest at
the Prime Rate + 3.50 %. The Prime Rate was 8.50 % as of December 31, 2023 and as such, the Company's interest rate on the
Revolving Loan and Term Loan was 12.00 % as of December 31, 2023.

 During
the year ended December 31, 2023, the Term Loan was fully repaid. At December 31, 2022, the Term Loan had an aggregate principal
balance due of $ 1,583,333, payable in monthly installments, as defined in the Credit Agreement.

 10.
 LEASES

 The
Company leases manufacturing and office space under an agreement classified as an operating lease. On November 10, 2022, the Company
executed the second amendment to the lease agreement for its manufacturing and office space, which extends the lease agreement's
expiration date to April 30, 2026. The 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
Company also leases office equipment in agreements classified as operating leases.

 For
the years ended December 31, 2023 and 2022, the Company's operating lease expense was $ 2,142,338 and $ 2,101,596, respectively.

 Future
minimum lease payments under non-cancellable operating leases as of December 31, 2023 were as follows:

 Year ending December 31,

 2024

 $

 2,228,784

 2025

 2,283,354

 2026

 850,276

 2027

 111,065

 2028

 9,226

 Total undiscounted
 operating lease payments

 5,482,705

 Less imputed interest

 ( 383,076

)

 Present value of operating lease payments

 $

 5,099,629

 F- 21

 CPI

 NOTES

 The
following table sets forth the ROU assets and operating lease liabilities as of December 31, 2023 and 2022:

 2023

 2022

 Assets

 ROU assets, net

 $
 4,740,193

 $
 6,526,627

 Liabilities

 Current operating lease liabilities

 $
 1,999,058

 $
 1,817,811

 Long-term operating lease liabilities

 3,100,571

 5,077,235

 Total lease liabilities

 $
 5,099,629

 $
 6,895,046

 The
Company's weighted average remaining lease term for its operating leases is 2.5 years as of December 31, 2023. The Company's
weighted average discount rate for its operating leases is 5.43 % as of December 31, 2023.

 11.
 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 2019. However, net operating losses
utilized from prior years in subsequent years' tax returns are subject to examination until three years after the filing
of subsequent years' tax returns. The statute of limitations expiration in foreign jurisdictions for corporate tax returns
generally ranges between two and five years depending on the jurisdiction.

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

 Year ended December 31,

 2023

 2022

 Current:

 State

 $
 14,248

 $
 21,332

 Deferred:

 Federal

 ( 12,608,425
)

 ( 6,428,448
)

 State

 ( 755,237
)

 ( 146,015
)

 Total

 $
 ( 13,349,414
)

 $
 ( 6,553,131
)

 F- 22

 CPI

 NOTES

 The
difference between the income tax provision computed at the federal statutory rate and the actual tax benefit is accounted for
as follows:

 2023

 2022

 Taxes computed at the federal statutory rate

 $
 808,876

 $
 550,850

 State income tax, net

 ( 585,381
)

 ( 98,499
)

 Research and development tax credit

 ( 133,089
)

 ( 190,656
)

 Change in valuation allowance

 ( 13,531,626
)

 ( 6,616,952
)

 Other

 88,308

 51,696

 Accrued loss reserve adjustment

 —

 ( 253,738
)

 Permanent differences

 3,498

 4,168

 Benefit for income taxes

 $
 ( 13,349,414
)

 $
 ( 6,553,131
)

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

 Deferred Tax Assets:

 2023

 2022

(As Restated)

 Allowance for credit losses

 $
 20,632

 $
 60,100

 Capitalized R&D

 1,420,263

 864,969

 Credit carryforwards

 2,278,642

 2,193,146

 Inventory reserve

 350,073

 722,991

 Accrued payroll

 151,986

 267,819

 Loss contracts reserve

 75,402

 46,205

 Restricted stock

 94,809

 92,677

 Acquisition costs

 74,136

 77,762

 Lease liability

 1,139,836

 1,469,551

 Accrued legal

 —

 159,849

 Disallowed interest expense

 1,067,063

 943,089

 Net operating loss carryforward

 16,356,545

 17,513,901

 Other

 45,057

 20,659

 Deferred tax assets

 23,074,444

 24,432,718

 Valuation allowance

 ( 569,143
)

 ( 14,740,034
)

 Deferred Tax Liabilities:

 Prepaid expenses

 143,126

 207,980

 Revenue recognition

 1,224,106

 1,341,105

 Property and equipment

 140,449

 178,107

 ROU asset

 1,059,496

 1,391,029

 Deferred tax liabilities

 $
 2,567,177

 $
 3,118,221

 Net deferred tax assets

 $
 19,938,124

 $
 6,574,463

 F- 23

 CPI

 NOTES

 During our review of the Company's deferred
income tax positions as of December 31, 2023, we determined that the following adjustments are needed to our previously reported December
31, 2022 deferred tax assets and liabilities balances, with no impact to our net deferred tax assets, due to the inadequate review, assessment
of and reporting of the Company's temporary differences between book and taxable income. More specifically, the adjustments are
required due to computational errors and incomplete analyses. Accordingly, we have restated the balances as previously reported, where
needed, as follows:

 Deferred Tax Assets:

 2022 (as Previously Reported)

 Restatement Adjustments

 2022 (As Restated)

 Allowance for credit losses

 $
 60,100

 $
 —

 $
 60,100

 Capitalized R&D

 864,969

 —

 864,969

 Credit carryforwards

 2,193,146

 —

 2,193,146

 Inventory reserve

 1,130,788

 ( 407,797
)

 722,991

 Accrued payroll

 267,819

 —

 267,819

 Loss contracts reserve

 46,205

 —

 46,205

 Restricted stock

 160,989

 ( 68,312
)

 92,677

 Acquisition costs

 77,762

 —

 77,762

 Lease liability

 1,469,551

 —

 1,469,551

 Accrued legal

 159,849

 —

 159,849

 Disallowed interest expense

 1,268,226

 ( 325,137
)

 943,089

 Net operating loss carryforward

 19,493,530

 ( 1,979,629
)

 17,513,901

 Other

 20,659

 —

 20,659

 Deferred tax assets

 27,213,593

 ( 2,780,875
)

 24,432,718

 Valuation allowance

 ( 14,916,923
)

 176,889

 ( 14,740,034
)

 Deferred Tax Liabilities:

 Prepaid expenses

 207,980

 —

 207,980

 Revenue recognition

 3,966,404

 ( 2,625,299
)

 1,341,105

 Property and equipment

 156,794

 21,313

 178,107

 ROU asset

 1,391,029

 —

 1,391,029

 Deferred tax liabilities

 $
 5,722,207

 $
 ( 2,603,986
)

 $
 3,118,221

 Net deferred tax assets

 $
 6,574,463

 $
 —

 $
 6,574,463

 As
of December 31, 2023, the Company had approximately $ 74.7 million of gross net operating loss carryforwards ("NOLs")
for federal tax purposes and approximately $ 17.3 million of post apportionment NOLs for state tax purposes. The Federal NOLs begin
to expire in 2034. Losses generated in 2018 and forward of $ 14.4 million have an indefinite life and can offset up to 80 % of taxable
income in the future. Federal NOLs generated prior to 2018 can offset 100 % of future taxable income. The state NOLs begin to expire
in 2034.

 As
a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, federal NOLs
arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled
approximately $ 60.3 million; these NOLs will expire in varying amounts from 2034 through 2039, if not utilized, and can offset
100% of future taxable income for regular tax purposes. Our NOLs arising in 2018, 2019 and 2020 can generally be carried back
five years, carried forward indefinitely and can offset 100% of taxable income for tax years before January 1, 2021 and up to
80% of taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021, cannot be carried back,
can generally be carried forward indefinitely and can offset up to 80% of future taxable income. The state NOLs begin to expire
in 2034.

 Our
ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their
expiration. In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of
the Internal Revenue Code ("Section 382"). In general, an ownership change under Section 382 occurs if 5% shareholders
increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a
relevant lookback period. The Company has completed a Section 382 analysis for the year ended December 31, 2022, and believes
that no ownership change occurred during the relevant lookback period that would limit our ability to use our NOLs. The sale of
additional equity securities in the future may trigger an ownership change under IRC Section 382, which could significantly limit
our ability to utilize our tax benefits.

 The
Company will recognize a tax benefit in the consolidated financial statements for an uncertain tax position only if management's
assessment is that the position is "more likely than not" (i.e., a likelihood greater than 50%) to be allowed by the
tax jurisdiction based solely on the technical merits of the position. The term "tax position" refers to a position
in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current
or deferred income tax assets and liabilities for financial reporting purposes.

 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, 2023, the Company
achieved three years of consecutive book and taxable 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, $ 14,170,891 of the valuation allowance was released during the fourth quarter of fiscal 2023, leaving a balance in
the valuation allowance of $ 569,143 as of December 31, 2023.

 The
income tax (benefit) for the year ended December 31, 2023 was $ ( 13,349,414), an effective tax (benefit) rate of ( 346.6 %). The
tax (benefit) was mostly the result of the aforementioned reduction in the valuation allowance on deferred tax assets. Management makes these estimates quarterly in order to determine the appropriate level of valuation allowance
to include in the Company's financial statements at the balance sheet date.

 F- 24

 CPI

 NOTES

 12. ACCRUED
EXPENSES

 Accrued
expenses consists of the following:

 2023

 2022

 Accrued purchases

 $
 7,132,847

 $
 4,153,237

 Accrued payroll

 1,143,913

 1,285,122

 Accrued insurance

 855,190

 837,371

 Accrued interest

 601,200

 703,354

 Accrued professional fees and other

accrued expenses

 542,545

 365,506

 Total

 $
 10,275,695

 $
 7,344,590

 13.
 STOCK-BASED
COMPENSATION

 Stock-based
compensation expense for restricted stock in the consolidated statements of operations is summarized as follows:

 2023

 2022

 Cost of sales

 $
 65,470

 $
 36,794

 Selling, general and administrative

 705,156

 319,084

 Total stock-based compensation expense

 $
 770,626

 $
 355,878

 The
Company grants restricted stock units ("RSUs") to its board of directors as partial compensation. 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, 2023:

 RSUs

 Weighted Average
 Grant Date
 Fair
Value

of RSUs

 Non-vested – January 1, 2023

 —

 $
 —

 Granted

 173,718

 $
 3.43

 Vested

 ( 139,969
)

 $
 3.43

 Forfeited

 ( 33,749
)

 $
 3.42

 Non-vested – December 31, 2023

 —

 $
 —

 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, 2023, the weighted average remaining amortization period was 2.7 years.

 The
following table summarizes activity related to outstanding Restricted Stock Awards for the year ended December 31, 2023:

 Restricted Stock Awards

 Weighted Average
 Grant Date
 Fair Value of
 Restricted Stock
 Awards

 Non-vested – January 1, 2023

 130,583

 $
 2.37

 Granted

 111,447

 $
 3.82

 Vested

 ( 39,331
)

 $
 3.07

 Forfeited

 ( 35,628
)

 $
 2.04

 Non-vested – December 31, 2023

 167,071

 $
 3.25

 F- 25

 CPI

 NOTES

 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, 2023, the weighted average remaining amortization period was 2.9 years.

 The
following table summarizes activity related to outstanding PRSAs for the year ended December 31, 2023:

 PRSAs

 Weighted Average
 Grant Date
 Fair
Value

of PRSAs

 Non-vested – January 1, 2023

 31,737

 $
 2.65

 Granted

 48,050

 $
 3.27

 Vested

 ( 20,971
)

 $
 2.65

 Forfeited

 ( 10,766
)

 $
 2.65

 Non-vested – December 31, 2023

 48,050

 $
 3.27

 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, 2023, unamortized stock-based compensation costs related to restricted share arrangements was $ 274,415.

 In
addition, our income tax liabilities for 2023 and 2022 were reduced by $ 174,617 and $ 101,497, respectively, due to recognized
tax benefits on stock-based compensation arrangements.

 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, 2023.

 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 619,055 shares available for grant under the 2016
Plan as of December 31, 2023.

 F- 26

 CPI

 NOTES

 14.
 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, 2023 and 2022 amounted to $ 300,600 and $ 343,077, respectively.

 15.
 MAJOR
CUSTOMERS

 For
the year ended December 31, 2023, 30 %, 26 %, 13 %, and 12 % of our revenue was generated from our four largest customers. For the
year ended December 31, 2022, 35 %, 17 %, 12 % and 10 % of our revenue was generated from our four largest customers.

 At
December 31, 2023, 30 %, 17 %, 12 %, and 11 % of accounts receivable were due from our four largest customers. At December 31, 2022,
 38 %, 21 %, 17 %, and 13 % of accounts receivable were due from our four largest customers.

 At
December 31, 2023, 26 %, 23 %, 18 %, and 15 % of our contract assets were related to our four largest customers. At December 31, 2022,
 27 %, 20 %, 16 %, and 16 % of our contract assets were related to our four largest customers.

 16.
 COMMITMENTS
AND CONTINGENCIES

 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.

 Termination
of Shareholder Derivative Actions and Class Action Lawsuit

 Termination
of Shareholder Derivative Actions

 In
2020 and 2021, four shareholder derivative actions were filed against certain current and former members of our board of directors
and certain of our current and former officers. All
four of the actions—each described in further detail below—were based on substantially
the same allegations and claims – specifically, that the defendants allegedly breached their fiduciary duties and/or violated
securities laws by permitting false and misleading statements to be included in the Company's registration statement and
prospectus supplements issued in connection with the Company's October 16, 2018 securities offering and/or by permitting
false and misleading statements to be made in the Company's periodic reports filed between March 22, 2018 and February 14,
2020.

 The
first action (captioned Moulton v. McCrosson, et.al., No. 20-cv-02092) was filed on May 7, 2020, in the U.S. District
Court for the Eastern District of New York. It purported to assert derivative claims against the individual defendants for violations
of Section 10(b) and 21D of the Exchange Act, breach of fiduciary duty, and unjust enrichment and sought to recover on behalf
of the Company for any liability the Company might incur as a result of the individual defendants' alleged misconduct. The
complaint also sought declaratory, equitable, injunctive, and monetary relief, as well as attorneys' fees and other costs.

 The
second action (captioned Woodyard v. McCrosson, et al., Index No. 613169/2020) was filed on September 17, 2020, in
the Supreme Court of the State of New York (Suffolk County). It purported to assert derivative claims against the individual defendants
for breach of fiduciary duty and unjust enrichment and sought to recover on behalf of the Company for any liability the Company
might incur as a result of the individual defendants' alleged misconduct, along with declaratory, equitable, injunctive,
and monetary relief, as well as attorneys' fees and other costs.

 The
third action (captioned Berger v. McCrosson, et al., No. 1:20-cv-05454) was filed on November 10, 2020, in the U.S.
District Court for the Eastern District of New York. The complaint, which was based on the shareholder's inspection of certain
corporate books and records, purported to assert derivative claims against the individual defendants for breach of fiduciary duty
and unjust enrichment, and sought to implement reforms to the Company's corporate governance and internal procedures and
to recover on behalf of the Company an unspecified amount of monetary damages. The complaint also sought equitable, injunctive,
and monetary relief, as well as attorneys' fees and other costs.

 F- 27

 CPI

 NOTES

 On
March 19, 2021, the parties to the Moulton and Berger actions filed a joint stipulation consolidating the actions
(under the caption In re CPI Aerostructures Stockholder Derivative Litigation, No. 20-cv-02092) and staying the consolidated
action.

 The
fourth action (captioned Wurst, et al. v. Bazaar, et al., Index No. 605244/2021) was filed on March 24, 2021, in the
Supreme Court of the State of New York (Suffolk County). The complaint purported to assert derivative claims against the individual
defendants for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and sought to recover on behalf of
the Company for any liability the Company might incur as a result of the individual defendants' alleged misconduct. The
complaint also sought declaratory, equitable, injunctive, and monetary relief, as well as attorneys' fees and other costs.

 On
June 13, 2022, plaintiffs in the consolidated federal action informed the court that the Company and all defendants had reached
an agreement in principle with all plaintiffs to settle the shareholder derivative lawsuits described above. On June 16, 2022,
plaintiffs in the consolidated federal action filed an unopposed motion for preliminary approval of the settlement. On February
14, 2023, the magistrate judge recommended that the court grant the motion in its entirety. On March 6, 2023, the Court granted
preliminary approval of the proposed settlement.

 On
May 17, 2023, plaintiffs in the consolidated federal action filed an unopposed motion for final approval of the settlement. The
magistrate judge held a final approval hearing on June 7, 2023. On October 27, 2023, the magistrate judge recommended that the
Court grant the final approval motion in its entirety. On December 11, 2023, the Court adopted that recommendation and entered
orders granting final approval to the settlement and closing the case.

 Pursuant
to the settlement agreement, after the federal court's final approval of the settlement, the plaintiffs in the Woodyard
 and Wurst state-court actions voluntarily requested that those actions be dismissed. The parties to the Woodyard
 action filed a stipulation of dismissal on December 15, 2023, and the Court entered an order dismissing the action on December
19, 2023. The parties to the Wurst action filed a stipulation of dismissal on December 14, 2023, and the Court entered
an order dismissing the action on December 18, 2023.

 As
part of the settlement, the Company agreed to undertake (or confirm that it has undertaken already) certain corporate governance
reforms. In addition, the Company and/or its insurer have agreed to pay a total of $ 585,000 in attorneys' fees to plaintiffs'
counsel. The Company's insurer paid the full amount due of $ 585,000. Because the settlement amount was transferred to counsel
for plaintiffs on May 5, 2023 from the escrow account established for this purpose, we relieved from our balance sheet, as of
that date, the amounts previously owed from our directors' and officers' insurance carrier and to that plaintiff.

 Termination
of Class Action Lawsuit

 A
consolidated class action lawsuit (captioned Rodriguez v. CPI Aerostructures, Inc., et al., No. 20-cv-01026) was
filed in the U.S. District Court for the Eastern District of New York against the Company; Douglas McCrosson, the Company's
former Chief Executive Officer; Vincent Palazzolo, the Company's former Chief Financial Officer; and the two underwriters
of the Company's October 16, 2018 offering of common stock, Canaccord Genuity LLC and B. Riley FBR. The Amended Complaint
in the action asserted claims on behalf of two plaintiff classes: (i) purchasers of the Company's common stock issued
pursuant to and/or traceable to the Company's offering conducted on or about October 16, 2018; and (ii) purchasers of the
Company's common stock between March 22, 2018 and February 14, 2020. The Amended Complaint alleged that the defendants violated
Sections 11, 12(a)(2), and 15 of the Securities Act by negligently permitting false and misleading statements to be included in
the registration statement and prospectus supplements issued in connection with its October 16, 2018 securities offering. The
Amended Complaint also alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 10b-5 promulgated by the SEC, by making false and misleading statements in
the Company's periodic reports filed between March 22, 2018 and February 14, 2020. Plaintiff sought unspecified compensatory
damages, including interest; rescission or a rescissory measure of damages; unspecified equitable or injunctive relief; and costs
and expenses, including attorney's fees and expert fees. On February 19, 2021, the Company moved to dismiss the Amended
Complaint. Plaintiff submitted a brief in opposition to the motion to dismiss on April 23, 2021.

 On
May 20, 2021, the parties reached a settlement in the amount of $ 3,600,000, subject to court approval. On July 9, 2021, Plaintiff
filed an unopposed motion for preliminary approval of the settlement. On November 10, 2021, a magistrate judge recommended that
the court grant the motion for preliminary approval in its entirety. The Court adopted the recommendation on May 27, 2022, and
entered an order granting preliminary approval of the settlement on June 7, 2022. On August 5, 2022, the Plaintiff filed an unopposed
motion for final approval. The magistrate judge held a hearing on the final approval motion on September 9, 2022. On February
16, 2023, the magistrate judge recommended that the Court grant the final approval motion in its entirety. The Court adopted that
recommendation in its entirety on March 10, 2023, and terminated the case on March 13, 2023. On May 5, 2023, the Settlement Amount
was transferred to plaintiff's counsel from the escrow account established for this purpose.

 F- 28

 CPI

 NOTES

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

 The
attorneys' fees for both the class action lawsuit and the shareholder derivative actions were covered and paid by our directors'
and officers' insurance carrier, after satisfaction of our $ 750,000 retention. As of December 31, 2023, we had previously
paid and accrued to our financial statements covered expenses totaling $ 750,000, and had therefore met our insurance carrier's
directors' and officers' retention requirement, which capped the Company's expenses pertaining to the class
action suit at $ 750,000. Because the Settlement Amount was transferred to counsel for plaintiff in the class action lawsuit on
May 5, 2023, from the escrow account established for this purpose, we have relieved from our balance sheet, as of that date, the
amounts previously owed from our directors' and officers' insurance carrier and to that plaintiff.

 F- 29

 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 5,
 2024

 CPI
 AEROSTRUCTURES, INC.

 (Registrant)

 By:

 /s/
 Andrew L. Davis

 Andrew
 L. Davis

 Chief
 Financial Officer and Secretary

 (Principal
 financial and accounting officer)

 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:

 Signature

 Title

 Date

 /s/Carey
Bond

 Vice Chairman of
 the Board of Directors

 2024

 Carey
 Bond

 /s/
 Richard Caswell

 Director

 2024

 Richard Caswell

 /s/
 Andrew L. Davis

 Chief
 Financial Officer and Secretary

 April
 5, 2024

 Andrew L. Davis

 (Principal Financial
 and Accounting Officer)

 /s/
 Michael Faber

 Director

 2024

 Michael Faber

 /s/Dorith
 Hakim

 Chief
 Executive Officer and President

 2024

 Dorith Hakim

 (Principal Executive Officer)

 /s/
 Pamela Levesque

 Director

 2024

 Pamela Levesque

 /s/
 Rick Rosenjack

 Director

 April
5, 2024

 Rick Rosenjack

 /s/ Terry Stinson

 Chairman of the
 Board of Directors

 April
5, 2024

 Terry
 Stinson