CPI Aerostructures, Inc.
Annual Report 2014

2 0 1 4   A N N U A L   R E P O R T

O U R  C O M P A N Y

O U R  M I S S I O N

CPI Aerosturctures, Inc. (“CPI Aero”) is engaged in the con-

Our mission is to exceed the expectations of our customers 

tract production of structural aircraft parts principally for the 

by manufacturing the highest quality aerospace structural 

U.S. Air Force and other branches of the U.S. armed forces, 

products while providing a low risk, collaborative and 

either as a prime contractor or as a subcontractor for other 

completely satisfying customer experience.  As a result, we 

defense prime contractors.  CPI Aero also acts as a subcon-

will be able to grow our business with existing customers, 

tractor to prime aircraft manufacturers in the production 

earn the trust of new customers, generate sustainable cash 

of commercial aircraft parts.  CPI Aero has over 35 years of 

flow, improve the lives of our employees and their families 

aerospace manufacturing experience.  Our competitive ad-

and increase the value of the corporation.

vantage 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.  

C O M P A R I S O N   O F   5   Y E A R   C U M U L A T I V E   T O T A L   R E T U R N *

$300

260

220

180

140

100

$180

150

120

90

60

30

0

12/09

12/10

12/11

12/12

12/13

12/14

CPI Aerostructures, Inc.

Russell MicroCap

S&P 600 Aerospace & Defense

*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends. 
Fiscal year ending December 31. 

Copyright© 2015 Russell Investment Group. All rights reserved.
Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

12/07

12/08

12/09

12/10

12/11

12/12

CPI Aerostructures, Inc.

Russell MicroCap

S&P 600 Aerospace & Defense

 
2 0 1 4  H I G H L I G H T S

•  Ended 2014 with funded backlog of $120.6 million,  

•  2014 commercial revenue of $36.9 million, up 37.6%  

up $10.2 million for the year

as compared to 2013 commercial revenue

•  In 2014, received $92.9 million in new contract awards 

•  2015 guidance: record revenue of $92.0 million -  

for commercial and defense programs

$102.0 million; net income of $7.2 million - $8.0 million

•  2014 year-end results included a one-time, non-cash 

•  In 2015, expects to realize approximately $9 million in 

charge related to the A-10 Wing Replacement Program

tax refund and over $5 million in tax loss carry forwards 
related to the A-10 WRP

TO  OUR SHAREHOLDERS: In this letter I will address our 

Looking beyond 2015, we see continued strength in pro-

performance in 2014, our expectations for 2015 and our 

duction rates of our business jet programs, steady produc-

outlook over the longer-term.  I am proud to report that 

tion on our more mature programs and exciting opportuni-

despite the challenges related to military budget cuts, in 

ties in new programs we are targeting for both the defense 

many respects 2014 was a year of significant accomplish-

and commercial markets. 

ments which have positioned CPI Aero for a great future. 

Defense Market: Challenges and Opportunities

2014 Results and Expectations for 2015 and Beyond

Despite military budget cuts, the defense market has been 

We ended 2014 with a large backlog of over $404 million 

and will continue to be an integral part of our business.  

(of which over $120 million is funded), new contract awards 

The Defense market remains an incredibly large market 

of approximately $93 million and a significant bid pipeline 

with great potential in certain segments. We are targeting 

with over 70% for Tier 1 level work and several bids for 

programs with long-term opportunities- mainly programs 

large commercial airliners. Our top and bottom lines for 

for national security platforms for which we already provide 

2014 were affected by a one-time, non-cash $44.7 million 

products or for new programs well supported in the DOD’s 

adjustment to revenue and $31.4 million adjustment to net 

budget plans.

income, related to revised estimates of a significantly short-

er life and lower production quantity A-10 Wing Replace-

As a result of our efforts, we recently received three 

ment Program (WRP). However,  we expect to generate the 

defense-related program awards: a $53.5 million contract 

highest revenue in our history in 2015. 

from the Defense Logistics Agency to provide structural 

2015 revenue is expected to be in the range of $92.0 mil-

craft maintenance, repair and overhaul (MRO) operations, 

lion to $102.0 million, with performance for the second 

a $49 million contract for the T-38 Pacer Classic II program 

half of the year to be much stronger than the first half due 

and an $86.1 million contract from Northrop Grumman 

to the timing of delivery orders associated with several 

Corporation for Outer Wing Panel (OWP) kits for the E-2D 

recently announced major programs. Gross margin will 

Advanced Hawkeye. These recent wins added over $188 

wing components and logistical support for global F-16 air-

continue to be affected by the A-10 WRP and is expected 

million in backlog until 2022.

to be in the range of 19.0% to 21.0%, lower than our his-

torical margin. In 2015, we expect to generate net income 

Going forward, we see growth in the near-term for our 

in the range of $7.2 million to $8.0 million. Also due to the 

military helicopter and our Intelligence, Surveillance, and 

recovery of previously paid income taxes and the use of tax 

Reconnaissance pod business segments.  Furthermore, we 

loss carry forwards related to our A-10 WRP, our cash flow 

are pursuing work on other high-priority weapons systems 

for 2015 is expected to be between $13 million and  

such as the F-35 and CH-53K and we continue to see an 

$15 million.   

increasing demand from Sikorsky for our Maintenance, 

Repair, and Overhaul services.

 
Douglas McCrosson
Chief Executive Officer and President

Eric Rosenfeld
Chairman of the Board of Directors

Commercial Programs
Commercial programs remain an important segment 

expect to receive in 2015, to further invest in new and 

advanced technologies and facility improvements and 

of our business as well and we will continue to increase 

for providing continued skills training programs to 

our efforts to further diversify our customer base and 

ensure our workers are the best trained and best pre-

programs within this market.  Going forward, commer-

pared in the industry.

cial programs are expected to generate a higher per-

centage of total revenue and our intention is to work 

toward having about 40% of our revenue derived from 

commercial aircraft. 

Currently, all of our non-military programs are within 

business jets and civilian helicopters but we are bid-

ding for work on many current and future business and 

regional jet aircraft including offerings from Cessna, 

Gulfstream, Embraer, and Bombardier. Also, we have 

submitted a number of proposals for large commercial 

aircraft at the Tier 2 level for structure on a variety of 

recently introduced large commercial airliners, includ-

ing the Boeing 787. 

.

Expanding Our Capabilities

Looking Ahead

On behalf of the Board of Directors and the entire man-

agement team, we would like to thank our customers, 

employees and shareholders for their continued support 

and dedication. 

Looking back at everything we have accomplished over 

the last few years and the opportunities ahead of us, we 

couldn’t be more proud and optimistic about the bright 

future of CPI Aero.  Our vision for the future is clear, our 

strategy is sound and we are well-positioned to con-

tinue to deliver best-in-class services and products to 

our customers, further grow our business and increase 

shareholder value.

Our growth strategy and vision for the future is being 

Sincerely yours,

supported by investments in new automated manu-

facturing technologies and production floor software. 

These investments will increase output, improve quality, 

and lower production costs which are crucial factors in 

successfully competing and winning larger and more 

complex awards for military and commercial programs, 

in both domestic and international markets.  We plan to 

use a portion of the cash income tax benefit of approxi-

mately $14 million related to the A-10 WRP, which we 

Douglas McCrosson

Chief Executive Officer and President

Eric Rosenfeld

Chairman of the Board of Directors

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014

Commission file number 1-11398

CPI AEROSTRUCTURES, INC.

(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of
incorporation or organization)

11-2520310
(I.R.S. Employer
Identification No.)

91 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

Name of each exchange on which registered

Common Stock, $.001 par value

NYSE MKT

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

the

is not

the registrant

required to file reports pursuant

to Section 13 or Section 15(d) of

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3)
Indicate by check mark if
Act. Yes (cid:2) No (cid:3)
Indicate 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, and (2) has been subject
to such filing requirements for the past
90 days. Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes (cid:3) No (cid:2)
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of
the Exchange Act (check one):
Large accelerated filer □
Non-accelerated filer □
(do not check if a smaller reporting company)

Accelerated filer (cid:3)
Smaller reporting company □

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes (cid:2) No (cid:3)
As of June 30, 2014 (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 the NYSE MKT of $12.67) held by non-affiliates of
the registrant was $98,094,700.
As of February 27, 2015, the registrant had 8,500,555 common shares, $.001 par value, outstanding.

Documents Incorporated by Reference:
Part III (Items 10, 11, 12, 13 and 14) from the definitive Proxy Statement for the 2015 Annual Meeting of Shareholders to be filed
with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year covered by this
report.

CPI AEROSTRUCTURES, INC.
FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . .

Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . .

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . .

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1

7

11

11

11

11

12

12

13

14

19

19

19

20

22

23

23

23

23

23

23

24

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[This page intentionally left blank.] 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART I

Item 1.

BUSINESS

General
CPI Aerostructures, Inc. (‘‘CPI Aero(cid:5)’’ or the ‘‘Company’’) is a United States (‘‘U.S.’’) manufacturer of
structural aircraft parts for fixed wing aircraft and helicopters in both the commercial and defense markets. We
have also recently expanded our presence in the aerosystems segment of the defense market, with our
production of various reconnaissance pod structures and fuel panel systems. Within the global aerostructure
supply chain, we are either a Tier 1 supplier to aircraft original equipment manufacturers (‘‘OEMs’’) or a
Tier 2 subcontractor to major Tier 1 manufacturers. We also are a prime contractor to the U.S. Department of
Defense, primarily the Air Force. In conjunction with our assembly operations, we provide engineering,
program management, supply chain management, and maintenance repair and overhaul (‘‘MRO’’) services.

Among the key programs that CPI Aero supplies are the E-2D Advanced Hawkeye surveillance aircraft,
the
the A-10 Thunderbolt attack jet,
S-92(cid:5) helicopter,
the
HondaJet-Advanced Light Jet, the MH-53 and CH-53 variant helicopters, the C-5A Galaxy cargo jet, the F-16
fighter aircraft, the Embraer Phenom 300 light business jet and the New Cessna Citation X+.

the UH-60 BLACK HAWK(cid:5) helicopter,
the AH-1Z ZULU attack helicopter,

the MH-60S mine countermeasure helicopter,

the Gulfstream G650,

We act as a subcontractor to leading defense prime contractors such as Northrop Grumman Corporation
(‘‘NGC’’), The Boeing Company (‘‘Boeing’’), Lockheed Martin Corporation (‘‘Lockheed’’), Sikorsky Aircraft
Corporation (‘‘Sikorsky’’) and Bell Helicopter (‘‘Bell’’). 5%, 66% and 63% of our revenue in 2014, 2013 and
2012,
respectively, was generated by subcontracts with defense prime contractors. Our 2014 defense
subcontractor revenue was significantly decreased because of the change in estimate on the A-10 program,
described in Management’s Discussion and Analysis of Financial Condition and Results of Operations
(‘‘MD&A’’).

We also operate as a subcontractor to prime commercial contractors, including Sikorsky, Honda Aircraft
in the
Company,
production of commercial aircraft parts. 93%, 32% and 30% of our revenue in 2014, 2013 and 2012
respectively, was generated by commercial contract sales.

(‘‘Embraer’’) and The Triumph Group (‘‘Triumph’’),

(‘‘Honda’’), Embraer S.A.

Inc.

We also perform as a prime contractor supplying aircraft structural parts directly to the U.S. Government. In
this role, we have delivered skin panels, leading edges, flight control surfaces, engine components, wing tips,
cowl doors, nacelle assemblies and inlet assemblies for military aircraft such as the C-5A cargo jet, the T-38
‘‘Talon’’ jet trainer, the C-130 ‘‘Hercules’’ cargo jet, the A-10 attack jet, and the F-16. 2%, 2% and 7% of our
revenue in 2014, 2013 and 2012 respectively, was generated by prime government contract sales.

CPI Aero has over 35 years of experience as a contractor, completing over 2,500 contracts to date. Most
members of our management team have held management positions at large aerospace contractors, including
NGC, Lockheed and The Fairchild Corporation. Our technical team possesses extensive technical expertise
and program 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.

CPI Aero was incorporated under the laws of the State of New York in January 1980 under the name
Composite Products International, Inc. CPI Aero changed its name to Consortium of Precision Industries, Inc.
in April 1989 and to CPI Aerostructures, Inc. in July 1992. In January 2005, we began doing business under
the name CPI Aero(cid:5), a registered trademark of the Company. Our principal office is located at 91 Heartland
Blvd., Edgewood, New York 11717 and our telephone number is (631) 586-5200.

We maintain a website located at www.cpiaero.com. Our corporate filings, including our Annual Report 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, 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 Securities and Exchange Commission. We do not intend for
information contained in our website to be a part of this Annual Report on Form 10-K.

1

Significant Contracts

Some of our significant contracts are as follows:

Military Aircraft — Subcontracts with Prime Contractors

E-2D ‘‘Hawkeye’’ The NGC E-2 Hawkeye is an all-weather, carrier-based tactical Airborne Early Warning
aircraft. The twin turboprop aircraft was designed and developed in the 1950s by Grumman for the United
States Navy as a replacement for the E-1 Tracer. The United States 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 for 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. The cumulative orders we have received on this program through
January 2015 exceed $140 million.

A-10 ‘‘Thunderbolt’’ The A-10 Thunderbolt II is a single-seat,
twin-engine, straight-wing jet aircraft
developed by Fairchild-Republic for the United States Air Force to provide close air support of ground forces
by attacking tanks, armored vehicles, and other ground targets with a limited air interdiction capability. It is
the first U.S. Air Force aircraft designed exclusively for close air support. In 2008, we received an initial
order of $3.2 million from the Integrated Defense Systems unit of Boeing in support of its $2 billion award to
produce up to 242 enhanced wings for the A-10. As of February 2015, we estimate that this contract will be
terminated at approximately 130 ship sets valued at approximately $54 million.

UH-60 ‘‘BLACK HAWK’’ The UH-60 BLACK HAWK helicopter is the leader in multi-mission-type
aircraft. Among the mission configurations its serves are troop transport, medical evacuation, electronic
warfare, attach, assault support and special operations. More than 3,000 BLACK HAWK helicopters are in use
today, operating in 29 countries. We have long-term agreements from Sikorsky to manufacture gunner window
assemblies, fuel panel assemblies, and perform MRO on stabilators for the BLACK HAWK helicopter for a
period of five years.

F-16 ‘‘Fighting Falcon’’ The Lockheed Martin Fighting Falcon is a single-engine multirole fighter aircraft.
Originally developed by General Dynamics for the US Air Force (‘‘USAF’’), over 2,900 F-16 aircraft are
flown by the USAF and by air forces around the world today. CPI has a contract with United Technologies
Aerospace Systems to manufacture pod structures for the DB-110 reconnaissance system, which is used
primarily on exported F-16 aircraft.

Commercial Aircraft — Subcontracts with Prime Contractors

Gulfstream G650 In March 2008, Spirit Aerosystems (‘‘Spirit’’) awarded us a contract to provide leading
edges for
In
December 2014, Spirit transferred its work-scope on this program to Triumph. We will continue to provide
leading edges for the G650 as our purchase orders and long term agreement have transferred to Triumph.

the Gulfstream G650 business jet, a commercial program that Spirit was supporting.

HondaJet(cid:6) advanced light business jet In May 2011 Honda, Inc. awarded us a contract to manufacture
engine inlets and flaps and vane assemblies for the HondaJet advanced light business jet. We have received
approximately $11.5 million in orders on this program through December 2014. We estimate the potential
value of this program to be approximately $70 million.

Embraer Phenom 300 In May 2012 Embraer. awarded us a contract to manufacture engine inlets for the
Embraer Phenom 300 business jet. We have received approximately $14.8 million in orders on this program
through December 2014. We estimate the potential value of the program to be in excess of $40 million.

Cessna Citation X In November 2012, Cessna Aircraft Company (‘‘Cessna’’) awarded us a contract to supply
structural assemblies, predominately wing spars, for Cessna’s flagship aircraft, the newly-relaunched Cessna
Citation X. We have received approximately $13.5 million in orders on this program through December 2014.
We estimate the value of the contract, over a seven-year period, to be approximately $41 million.

2

Military Aircraft — Prime Contracts with U.S. Government

C-5A ‘‘Galaxy’’ The C-5A Galaxy cargo jet is one of the largest aircraft in the world and can carry a
maximum cargo load of 270,000 pounds. Lockheed delivered the first C-5A in 1970. The C-5A Galaxy carries
fully equipped combat-ready military units to any point in the world on short notice and then provides field
support to sustain the fighting force. Our first C-5A contract was approximately $590,000 of structural spares
and was awarded in 1995. In 2004, the Air Force awarded us a seven-year tips other and panels (‘‘TOP’’)
contract to build an assortment of parts for the C-5A, including wing tips and panels. The ordering period for
the C-5 TOP contract ended in May of 2011. We delivered the last part on this program in February 2015.

F-16 ‘‘Fighting Falcon’’ In November 2014, The Defense Logistics Agency (DLA) awarded CPI a multi-year
contract to provide structural wing components and logistical support for global F-16 aircraft MRO operations.
We estimate the value of the contract, including options, to be approximately $53.5 million.

Sales and Marketing

We are recognized within the aerospace industry as a Tier 1 or Tier 2 supplier to major aircraft suppliers.
Additionally, we may bid for military contracts set aside specifically for small businesses.

We are awarded contracts for our products and services through the process of competitive bidding. This
process begins when we first learn, formally or otherwise, of a potential contract from a prospective customer
and concludes after all negotiations are completed upon award. When preparing our response to a prospective
customer for a potential contract, we evaluate the contract requirements and determine and outline the services
and products we can provide to fulfill the contract at a competitive price. Each contract also benefits from
various additional services that we offer, including program management, engineering, and global supply chain
program management, which streamlines the vendor management and procurement process and monitors the
progress, timing, and quality of component delivery.

Our average sales cycle, which generally commences at the time a prospective customer issues a request for
proposal and ends upon delivery of the final product to the customer, varies widely.

Because of the complexities inherent in the aerospace industry, the time from the initial request for proposal
to award ranges from as little as a few weeks to several years. Additionally, our contracts have ranged from
six months to as long as ten years. Also, repeat and follow-on jobs for current contracts frequently provide
additional opportunities with minimal start-up costs and rapid rates to production.

Our military customers have included Defense Supply Center Richmond, Wright-Patterson Air Force Base
(‘‘AFB’’), Warner Robins AFB, Tinker AFB, NAVICP, Hill AFB and the U.S. Army Redstone Arsenal. Our
commercial customers have included NGC, Lockheed, Spirit, Sikorsky, Bell, Boeing Military, Nordam, UTAS,
Embraer, Cessna and Honda.

The Market

Since our founding in 1980 until 2007, our company concentrated on manufacturing small assemblies and
structures to prime contractors for use by the U.S. Military. Government-based contracts are subject to the
national defense budget and procurement funding decisions which, accordingly, drives demand for our
business in that market. Government spending and budgeting for procurement, operations and maintenance are
affected not only by military action, but also the related fiscal consequences of these actions, as well as the
political electoral process.

Since 2008, we have widened the scope of our target markets, positioning our company to take advantage of
the opportunities a broader customer base provides while simultaneously reducing the impact of direct
government contracting limitations. Our success as a subcontractor to defense prime contractors has provided
us with opportunities to act as a subcontractor to prime contractors in the production of commercial aircraft
structures, which also reduced our exposure to government spending decisions.

Over time our Company has expanded both in size and capabilities, with exceptional growth in our
operational and global supply chain program management expertise. These expansions have allowed us the
ability to supply more complex aerostructure assemblies, and aerosystems and structures in support of our
government-based programs as well as pursue opportunities within the commercial and business jet markets.
Our capabilities have also allowed us to acquire MRO and kitting contracts.

3

Approximately $7.1 million and $2.0 million of our revenue for the years ended December 31, 2014 and
2013, respectively was from customers outside the U.S. All other revenue for each of the three years in the
period ended December 31, 2014 has been attributable to customers within the U.S. We have no assets outside
the U.S.

Backlog

We produce custom assemblies pursuant
to long-term contracts and customer purchase orders. Backlog
consists of aggregate values under such contracts and purchase orders, excluding the portion previously
included in operating revenues on the basis of percentage of completion accounting, and including estimates
of future contract price escalation. Substantially all of our 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. Our total backlog as
of December 31, 2014 and 2013 was as follows:

Backlog (Total)
Funded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded/unreleased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2014
$120,570,000
283,078,000
$403,648,000

December 31,
2013
$110,431,000
321,011,000
$431,442,000

Approximately 63% of the total amount of our backlog at December 31, 2014 was attributable to government
contracts. Our backlog attributable to government contracts at December 31, 2014 and 2013 was as follows:

Backlog (Government)
Funded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2014
$117,875,000
136,893,000
$254,768,000

December 31,
2013
$ 82,803,000
165,574,000
$248,377,000

Our backlog attributable to commercial contracts at December 31, 2014 and 2013 was as follows:

Backlog (Commercial)
Funded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded/unreleased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2014
$ 2,695,000
146,185,000
$148,880,000

December 31,
2013
$ 27,628,000
155,437,000
$183,065,000

Our unfunded backlog is primarily comprised of the long-term contracts that we received from Spirit and
NGC during 2008, Honda and Bell during 2011 and Cessna, Sikorsky and Embraer during 2012. These
long-term contracts are expected to have yearly orders which will be funded in the future.

Approximately 70% of the funded backlog at December 31, 2014 is expected to be recognized as revenue
during 2015.

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.

4

Competition

We face competition in our role as both a prime contractor to the U.S. Government and as a subcontractor to
military and commercial aircraft manufacturers. We compete with numerous larger, well-established prime
contractors engaged in the supply of aircraft parts and assemblies to the military, including NGC, Lockheed,
Boeing, Nordam and Triumph. All of these competitors possess significantly larger infrastructures, greater
resources and the capabilities to respond to much larger contracts. In certain instances, we also may act as a
subcontractor to some of these major prime contractors. We also compete against smaller contractors such as
AeroComponents, Aerospace Engineering and Support, GSE Dynamics, Honeycomb Company of America,
Alton Iron Works, B&B Devices and Precision Manufacturing Solutions.

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 the larger prime contractors compete for significant modification awards and
subcontract components to other suppliers, they generally do not compete for awards in smaller modifications,
spares and replacement parts, even for aircraft for which they are the original manufacturer. We believe we
compete effectively against the smaller competitors because smaller competitors generally do not have the
expertise we have in responding to requests for proposals for government contracts.

Government Regulation
Environmental Regulation

are

subject

to regulations

administered by the U.S. Environmental Protection Agency,

We
the
U.S. Occupational Safety and Health Administration, various state agencies and county and local authorities
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
the handling, storage and disposal of hazardous substances are governed by the Environmental
State,
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 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
U.S. Government. Many of the contract

to the procurement rules and regulations of the
terms are dictated by these rules and regulations. Specifically,

5

cost-based pricing is determined under the Federal Acquisition Regulations (‘‘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
inquiries and investigations because of our participation in government
subject
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.

to U.S. Government

Government Contract Compliance

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
to mitigate the termination risk through other means.
have such termination protection, we attempt
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 million general liability insurance policy, a $100 million products liability insurance policy,
and a $5 million umbrella liability insurance policy. Additionally, we maintain a $10 million director and
officers’ insurance policy. We believe this coverage is adequate 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 government that occurs after the 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 are protected by patents. We rely on proprietary
know-how and information and employ various methods to protect
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.

the processes, concepts,

CPI Aero(cid:5) is a registered trademark of the Company.

Employees

As of February 27, 2015, we had 281 full-time employees. We employ temporary personnel with specialized
disciplines on an as-needed basis. None of our employees are members of a union. We believe that our
relations with our employees are good.

6

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 could 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. Government
subcontracts accounted for 5% of our revenue in 2014, 66% of our revenue in 2013 and 63% of our revenue
in 2012. In addition, 2% percent of revenue for 2014, 2% of revenue for 2013 and 7% of revenue for 2012
was derived from prime government contract sales. 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 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, 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. 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, in whole 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.

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
technological difficulties or cost overruns;

their completion, which may result

in unforeseen

7

•

•

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.

We are subject to strict governmental regulations relating to the environment, which could result in fines
and remediation expense 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
to fines,
to be in compliance with any of these rules, regulations or permits, we may be subject
not
remediation expenses and the obligation to change our business practice, any of which could result
in
substantial costs that would adversely impact our business operations and financial condition.

We may be subject to fines and disqualification for non-compliance with Federal Aviation Administration
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.

including disputes

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,
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, or our hiring of personnel of a subcontractor. 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 impact our ability to perform our obligations as the prime contractor.
Subcontractor performance deficiencies could result in a customer eliminating our ability to progress bill or
terminating 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

8

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 of
materials, the effect of any delays in performance, availability and timing of funding from the customer,
natural disasters, 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 could affect our profitability and our
overall financial position.

We recognize revenue from our contracts over the contractual period under the percentage-of-completion
(‘‘POC’’) method of accounting. Under the POC method of accounting, sales 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 balance sheet as an asset captioned ‘‘Costs and estimated earnings in excess of
billings on uncompleted contracts.’’ Contracts where billings to date have exceeded recognized revenues are
recorded on our balance sheet as a liability captioned ‘‘Billings in excess of costs and estimated earnings on
uncompleted contracts.’’ Changes to the original estimates may be required during the life of the contract.
Estimates are reviewed monthly and the effect of any change in the estimated gross margin percentage for a
contract is reflected in the financial statements in the period the change becomes known. The use of the POC
method of accounting involves considerable use of 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 of the issues related to the assumptions, risks and uncertainties inherent with the
application of the POC method of accounting; 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 would be adversely
affected.

The maximum contract value specified under each contract that we enter into 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. As of December 31, 2014, our backlog was approximately $403 million, of
which 30% was funded and 70% was unfunded.

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 engineers. Competition for key personnel is intense. Our ability to attract and retain senior officers
and experienced,
including prevailing market
conditions and compensation packages offered by companies competing for the same talent. The inability to
hire and retain these persons may adversely affect our production operations and other aspects of our business.

top rate engineers is dependent on a number of factors,

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 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 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

9

the failure of projected market growth to materialize or continue. In the event that these characteristics and
trends adversely affect customers in the commercial aerospace industry, they may reduce the overall demand
for our products.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to
accurately report our financial results. As a result, current and potential shareholders could lose confidence
in our financial reporting, which would harm our business and the trading price of our common stock.

Our management determined that as of December 31, 2014, our internal control over financial reporting was
effective based on criteria created by the Committee of Sponsoring Organizations of
the Treadway
Commission (‘‘COSO’’) set forth in Internal Control — Integrated Framework (1992). However, if material
weaknesses are identified in our internal control over financial reporting in the future, our management will be
unable to report favorably as to the effectiveness of our internal control over financial reporting and/or our
disclosure controls and procedures, and we could be required to implement remedial measures. 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 financial
statements will not be prevented or detected on a timely basis. Such remedial measures could be expensive
and time consuming and could potentially cause investors to lose confidence in the accuracy and completeness
of our financial reports, which could have an adverse effect on our stock price and potentially subject us to
litigation.

We incur risk 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 costs and estimated earnings in excess of billings on uncompleted contracts if it were
deemed to be unrecoverable over the life of the program. In addition, beginning new work on existing
programs also carries risk associated with the transfer of technology, knowledge and tooling.

In order 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 bear impairment charges 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.

The loss of small business status may adversely affect our ability to compete for some government
contracts.

We may be classified as a small business under certain of the codes under the North American Industry
Classification Systems (‘‘NAICS’’) industry and product specific codes which are regulated in the U.S. by the
Small Business Administration. 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 which are set-aside for small
businesses, we are able to bid on small business set-aside contracts as well as contracts which are open to
non-small business entities. As the NAICS codes are periodically revised and for other reasons, it is possible
that we may lose our status as a small business. The loss of small business status would adversely impact our
eligibility for special small business programs and limit our ability to partner with other business entities
which are seeking to team with small business entities as may be required under a specific contract.

10

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

CPI Aerostructures’ executive offices and production facilities are situated in an approximately 171,000 square
foot building located at 91 Heartland Blvd., Edgewood, New York 11717. CPI Aerostructures occupies this
facility under a ten-year lease that commenced in June 2011. The current monthly base rent is $130,224,
including real estate taxes.

Item 3.

LEGAL PROCEEDINGS

None.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

11

PART II

Item 5.

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

Market Information

Our common shares are listed on the NYSE MKT under the symbol CVU. The following table sets forth for
2014 and 2013, the high and low sales prices of our common shares for the periods indicated, as reported by
the NYSE MKT.

Period
2013
Quarter Ended March 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014
Quarter Ended March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

$11.54
$10.87
$11.93
$15.15

$16.00
$13.97
$12.75
$12.65

$ 8.39
$ 8.26
$10.54
$10.69

$12.50
$12.00
$ 9.75
$ 9.12

On February 27, 2015, the closing sale price for our common shares on the NYSE MKT was $12.25. On
February 27, 2015, there were 225 holders of record of our common shares and, we believe, over 2,200
beneficial owners of our common shares.

Dividend Policy

To date, we have not paid any dividends on our common shares. Any payment of dividends in the future is
within the discretion of our board of directors 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, Use of Proceeds from Registered Securities

There have been no sales of unregistered sales of our equity securities for
the three months ended
December 31, 2014. The following table sets forth information for the three months ended December 31, 2014
with respect to repurchases of our outstanding common stock:

Issuer Purchases of Equity Securities

Period
October 1, 2014 − October 31, 2014 . . . . . .
November 1, 2014 − November 30, 2014 . . .
December 1, 2014 − December 31, 2014 . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Total number of
shares
purchased(1)

Average price
paid per share

—
—
12,306
12,306

—
—
11.89
11.89

Maximum
number
(or approximate
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs
—
—
—
—

Total number of
shares (or units)
purchased as
part of publicly
announced plans
or programs
—
—
—
—

(1) Represents shares that were delivered to the Company pursuant to provisions of a stock option agreement
and the Performance Equity Plan 2000, which permit payment of the exercise price of options in shares
of common stock delivered to the Company.

12

Equity Compensation Plan Information

The following table sets forth certain information at December 31, 2014 with respect
compensation plans that provide for the issuance of options, warrants or rights to purchase our securities.

to our equity

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)

Plan Category
Equity Compensation Plans Approved by Security

Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

349,982

$10.97

175,416

ITEM 6.

SELECTED FINANCIAL DATA

The following table sets forth our financial data as of the dates and for the periods indicated. The data has
been derived from our audited financial statements. The selected financial data should be read in conjunction
with our financial statements and MD&A. Our results of operations for 2014 were materially affected by the
change in estimate described in MD&A.

Statement of Operations Data:

2014

2013

Revenue . . . . . . . . . . . . . . . . . . . $ 39,687,010 $82,988,522
64,555,275
Cost of sales
. . . . . . . . . . . . . . . .
18,433,247
Gross profit (loss) . . . . . . . . . . . . .
Selling, general and administrative

69,411,709
(29,724,699)

Years Ended December 31,
2012
$89,272,582
65,039,969
24,232,613

2011
$74,135,669
55,325,729
18,809,940

2010
$43,990,784
37,877,960
6,112,824

expenses

. . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . .

7,308,220
(37,032,919)

6,704,524
11,728,723

7,322,630
16,909,983

7,931,586
10,878,354

5,415,292
697,532

Other income (expense):

Interest/other income . . . . . . . . .
Interest expense . . . . . . . . . . . . .
. .

Total other income (expense), net
Income (loss) before provision for

145,072
(794,428)
(649,356)

78,957
(653,786)
(574,829)

31,520
(416,373)
(384,853)

4,065
(343,491)
(339,426)

3,770
(158,406)
(154,636)

(benefit from) income taxes . . . . .

(37,682,275)

11,153,894

16,525,130

10,538,928

542,896

Provision for (benefit from) income

taxes . . . . . . . . . . . . . . . . . . . .

3,417,000
Net income (loss) . . . . . . . . . . . . . $(25,209,275) $ 7,736,894

(12,473,000)

Income (loss) per common

share − basic . . . . . . . . . . . . . . . $

(2.98) $

0.92

Income (loss) per common

share − diluted . . . . . . . . . . . . . . $

(2.98) $

0.91

Basic weighted average number of

5,514,000
$11,011,130

3,122,000
$ 7,416,928

$

$

1.43

1.40

$

$

1.08

1.04

13,000
529,896

0.08

0.08

$

$

$

common shares outstanding . . . . .

8,465,937

8,389,048

7,721,304

6,869,624

6,489,942

Diluted weighted average number of
common shares outstanding . . . . .

8,465,937

8,470,578

7,865,090

7,133,604

6,736,501

13

Balance Sheet Data:

2014

Cash . . . . . . . . . . . . . . . . . . . . . . $ 1,504,907 $
Costs and estimated earnings in

excess of billings on uncompleted
. . . . . . . . . . . . . . . . .
contracts
Total current assets . . . . . . . . . . . .
Total assets
Total current liabilities . . . . . . . . . .
. . . . . . . . . . . . . .
Working capital
Short-term debt
. . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . .
Total liabilities and shareholders’

79,054,139
97,700,457
. . . . . . . . . . . . . . . . . 104,154,723
36,835,815
60,864,642
26,121,713
1,289,843
64,813,156

2013
2,166,103 $

At December 31,
2012
2,709,803 $

2011
878,200

$

2010
823,376

112,597,136
120,181,761
124,272,594
31,741,678
88,440,083
22,370,349
2,198,187
88,951,519

108,909,844
119,354,056
124,883,516
39,645,331
79,708,725
24,550,564
3,209,873
80,594,199

79,126,828
85,209,924
89,056,573
33,023,488
52,186,436
16,987,380
889,239
54,026,207

47,165,166
54,747,455
56,457,187
10,370,285
44,377,170
1,485,008
1,190,097
44,670,443

equity . . . . . . . . . . . . . . . . . . . 104,154,723

124,272,594

124,883,516

89,056,573

56,457,187

Item 7.

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

Forward-Looking Statements

the words or phrases ‘‘will

When used in this Annual Report on Form 10-K and in future filings by us with the Securities and Exchange
likely result,’’ ‘‘management expects’’ or ‘‘we expect,’’ ‘‘will
Commission,
continue,’’ ‘‘is anticipated,’’ ‘‘estimated’’ or similar expressions are intended to identify ‘‘forward-looking
statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned
not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date
made. 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. The risks are included in
‘‘Item 1A: Risk Factors’’ and ‘‘Item 7: Management’s Discussion and Analysis of Financial Condition and
Results of Operations’’ included in this Annual Report on Form 10-K. We have no obligation to publicly
release the result of any revisions, which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of such statements.

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

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 aerospace markets. We have also recently expanded our presence in the
aerosystems segment of the aerospace 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. Department of Defense, primarily the U.S. Air Force. In conjunction with our assembly
operations, we provide engineering, program management, supply chain management and kitting, and MRO
services.

Critical Accounting Policies

Revenue Recognition

We recognize revenue from our contracts over the contractual period under the percentage-of-completion
(‘‘POC’’) method of accounting. Under the POC method of accounting, 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 as an asset captioned ‘‘Costs and estimated earnings in excess of
billings on uncompleted contracts.’’ Contracts where billings to date have exceeded recognized revenues are

14

recorded as a liability captioned ‘‘Billings in excess of costs and estimated earnings on uncompleted
contracts.’’ Changes to the original estimates may be required during the life of the contract. Estimates are
reviewed monthly and the effect of any change in the estimated gross margin percentage for a contract is
reflected in the financial statements in the period the change becomes known. The use of the POC method of
accounting involves considerable use of 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 of the issues related to the assumptions, risks and uncertainties inherent with the application of the
POC method of accounting; however, we cannot assure you 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.

Results of Operations
Year Ended December 31, 2014 as Compared to the Year Ended December 31, 2013

Revenue. Revenue for the year ended December 31, 2014 was $39,687,010 compared to $82,988,522 for the
same period last year, representing a decrease of $43,301,512 or 52.2%.

Overall, revenue generated from prime government contracts for the year ended December 31, 2014 was
$778,175 compared to $1,373,456 for the year ended December 31, 2013, a decrease of $595,281 or 43%.
This decrease is consistent with our shift from being primarily a prime contractor to the U.S. Government to a
subcontractor to large prime contractors.

Revenue generated from government subcontracts for the year ended December 31, 2014 was $2,059,029
compared to $54,837,383 for the year ended December 31, 2013, a decrease of $52,778,354 or 96%.
Approximately $50.3 million of this decrease was a result of the change in estimate on our Wing Replacement
Program for the U.S. Air Force’s A-10 Thunderbolt aircraft. During the period ended June 30, 2014, the
Company adjusted the estimated total revenue and recorded a loss on the A-10 contract. This change in
estimate predominately accounts for the large decrease in revenue from government subcontracts.

Revenue generated from commercial contracts was $36,849,806 for the year ended December 31, 2014
compared to $26,777,683 for the year ended December 31, 2013, an increase of $10,072,123 or 37.6%.
Approximately $5.1 million of this increase in revenue was a result in the ramp up in production on the
Embrear Phenom 300 program. Additionally, approximately $1.3 million of the increase was related to
production on the Cessna Citation program and $700,000 was related to the HondaJet program. All of these
programs were won in the 2011 − 2012 timeframe and achieved regular production during 2014.

During the year ended December 31, 2014, we received approximately $92.9 million of new contract awards,
which included $0.5 million of government prime contract awards, approximately $67.1 million of
government subcontract awards and approximately $25.3 million of commercial contract awards, compared to
$122.3 million of new contract awards in 2013, which included no government prime contract awards,
$96.0 million of government subcontract awards and $26.3 million of commercial contract awards.

Gross profit/loss. Gross profit/loss for the year ended December 31, 2014 was a loss of $29,724,699
compared to a profit of $18,433,247 for the year ended December 31, 2013, a decrease of $48,157,946. Gross
profit/loss percentage (‘‘gross margin’’) for the year ended December 31, 2014 was (74.9%) compared to
22.2% for the same period last year. The swing in gross margin from a profit to a loss is the result of the
change in estimate on the A-10 program described above.

Because of the extremely competitive market as we transition to more commercial work, the cost justification
audit related to the anticipated multiyear release on the E-2D program, as well as the normal lower margins
achieved during the early stages of long-term commercial programs, and the remaining effect of the A-10
program, we expect our gross margin percentage for 2015 to be in the range of 19% − 21%.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended
December 31, 2014 were $7,308,220 compared to $6,704,524 for the year ended December 31, 2013, an
increase of $603,696, or 9.0%. This increase was primarily due to an approximately $148,000 increase in
salaries, $100,000 of which is the result of the separation payment paid to our former CEO, a $140,000

15

increase in Board of Directors’ fees, the result of having one more board member in 2014 than in 2013, a
$110,000 increase in computer expenses, resulting from increased computer licensing costs associated with our
larger staff, an $86,000 increase in consulting fees, predominately the result of the consulting fees paid to our
former CEO after his employment ended, and an $80,000 increase in employee insurance and benefits, the
result of increases associated with insurance costs nationally.

Interest expense.
Interest expense for the year ended December 31, 2014 was $794,428, compared to
$653,786 for 2013, an increase of $140,642 or 21.5%. The increase in interest expense is the result of an
increase in the average amount of outstanding debt during 2014 as compared to 2013.

Income (loss) from operations. We had a loss from operations for the year ended December 31, 2014 of
the year ended December 31, 2013 resulting
$37,032,919 compared to income of $11,728,723 for
predominately from the A-10 change in estimate.

Income Taxes. Because of the change in estimate on the Company’s A-10 program, described above, the
Company incurred a net loss for the year ended December 31, 2014. This net loss, after adjustment for
carrying back tax losses to recover previously paid taxes, results in a net operating loss carryforward at
December 31, 2014 of approximately $7,600,000 which will expire in 2029.

Year Ended December 31, 2013 as Compared to the Year Ended December 31, 2012

Revenue. Revenue for the year ended December 31, 2013 was $82,988,522 compared to $89,272,582 for the
same period in 2012, representing a decrease of $6,284,060 or 7.0%.

Overall, revenue generated from prime government contracts for the year ended December 31, 2013 was
$1,373,456 compared to $6,239,286 for the year ended December 31, 2012, a decrease of $4,865,830 or 78%.
This decrease is consistent with our strategy, as we transition away from being a prime government contractor.

Revenue generated from government subcontracts for the year ended December 31, 2013 was $54,837,383
compared to $56,357,371 for the year ended December 31, 2012, a decrease of $1,519,988 or 2.7%.

Revenue generated from commercial contracts was $26,777,683 for the year ended December 31, 2013
compared to $26,675,925 for the year ended December 31, 2012, an increase of $101,758 or 0.4%.

During the year ended December 31, 2013, we received approximately $122.3 million of new contract awards,
which included no government prime contract awards, approximately $96.0 million of government subcontract
awards and approximately $26.3 million of commercial contract awards, compared to $81.6 million of new
contract awards in 2012, which included $.4 million of government prime contract awards, $74.7 million of
government subcontract awards and $6.5 million of commercial contract awards.

Gross profit. Gross profit for the year ended December 31, 2013 was $18,433,247 compared to $24,232,613
for the year ended December 31, 2012, a decrease of $5,799,366. Gross profit percentage (‘‘gross margin’’)
for the year ended December 31, 2013 was 22.2% compared to 27.1% for the same period last year.

The gross margin percentage is lower in 2013 than in 2012 because of adjustments to our long term programs
with Spirit (now Triumph) on the G650, NGC and Boeing as well as the C-5 TOP Program. The adjustment
for our G650 program was the result of price reductions given as part of an agreement to increase the
program value and to extend the life of the program until 2019. The adjustment for NGC was a result of price
reductions that were necessary upon the completion of a government pricing analysis. The adjustment for our
Boeing program was a result of the negotiations for program changes. The Boeing adjustment approximates a
200 basis point decrease in our gross margin percentage. The adjustment for the C-5 TOP Program was the
result of excess time and work required on C-5 wing tip panels

Additionally, the gross margin percentage was 80 basis points below our expected gross margin range of
23% − 24%, because of excess engineering time required on our Pod program with UTAS Aerospace.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended
December 31, 2013 were $6,704,524 compared to $7,322,630 for the year ended December 31, 2012, a
decrease of $618,106, or 8.4%. This decrease was primarily due to an approximately $500,000 decrease in

16

accrued officer’s bonus as computed pursuant to the officers’ employment agreements, a $266,000 decrease in
accounting and legal fees, and a $213,000 decrease in payroll taxes, offset by a $326,000 increase in salaries
as a result of increased headcount.

Interest expense.
Interest expense for the year ended December 31, 2013 was $653,786, compared to
$416,373 for 2012, an increase of $237,413 or 57%. The increase in interest expense is the result of an
increase in the average amount of outstanding debt during 2013 as compared to 2012.

Income from operations. We had income from operations for the year ended December 31, 2013 of
$11,728,723 compared to $16,909,983 for the year ended December 31, 2012. The decrease in income from
operations is a result of the lower revenue and lower gross margin, as described above.

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, 2014, we had working capital of $60,864,742 compared to $88,440,083 at
December 31, 2013, a decrease of $27,575,341, or 31%. This decrease was predominately the result of costs
and estimated earnings in excess of billings on uncompleted contracts (‘‘CEE’’) being approximately
$33.5 million lower at December 31, 2014 as compared to 2013, because of the change in estimate on the
A-10 program, previously discussed, offset by the increase in refundable income taxes.

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 CEE on our 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 the POC method of accounting 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 until
the reported earnings materialize into actual cash receipts.

In order to perform on new programs, such as the UTAS Aerospace and Embraer programs, we may be
required 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 be required to bear impairment
charges 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, 2014, our cash balance was $1,504,907 compared to $2,166,103 at December 31, 2013, a
decrease of $661,196. Our accounts receivable balance at December 31, 2014 increased to $6,466,814 from
$4,392,254 at December 31, 2013.

Bank Credit Facilities.

Until December 2012, the Company was party to a Credit Agreement, dated August 13, 2007, as amended,
between the Company and Sovereign Bank (the ‘‘Prior Agreement’’), which provided for a revolving credit
facility and two term loans. Immediately prior to entering into the Restated Agreement (identified below), a
revolving credit facility in the aggregate of $18.0 million was available to the Company under the Prior
Agreement.

On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign
Bank (‘‘Restated Agreement’’) as the sole arranger, administrative agent, collateral agent and lender and

17

Valley National Bank as lender. The Restated Agreement increased the revolving credit facility under the Prior
Agreement from $18 million to $35 million (the ‘‘Revolving Facility’’), refinanced one of the previous term
loans as a revolving credit loan, continued the other term loan and then-existing revolving credit loans, and
amended and restated the general terms of the Prior Agreement. The revolving credit loans under the Restated
Agreement mature on December 5, 2016. The Revolving Facility and term loan under the Restated Agreement
are secured by all of our assets.

On August 6, 2014, the Company entered into a First Amendment and Waiver to Amended and Restated
Credit Agreement (the ‘‘Amendment’’) with Santander Bank, N.A., formerly known as Sovereign Bank, N.A.,
to (i) amend certain terms of the Revolving Facility to provide that contract reimbursement payments that may
be received by the Company in connection with the Company’s A-10 program will be used to prepay
to the Revolving Facility and (ii) waive non-compliance by the
revolving credit
Company of the Restated Agreement covenant requiring Minimum Net Income (as defined in the Restated
Agreement) to be at least $1.00 as of the end of the fiscal quarter ended June 30, 2014.

loans made pursuant

As of December 31, 2014, the Company was in compliance with all covenants contained in the Restated
Agreement.

As of December 31, 2014 and 2013,
outstanding under the Revolving Facility.

the Company had $25.2 million and $21.4 million, respectively,

On October 22, 2008, the Company obtained a $3.0 million term loan from Sovereign Bank to be amortized
over five years (the ‘‘Sovereign Term Loan’’). This term loan was refinanced as part of the revolving credit
loan under the Restated Agreement of December 5, 2012.

On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized
over five years (the ‘‘Sovereign Term Loan 2’’). The Sovereign Term Loan 2 was used by the Company to
purchase tooling and equipment for new programs. The Sovereign Term Loan 2 was continued under the
Restated Agreement, and is payable in monthly installments of $75,000, with a final payment of the remaining
principal balance on March 9, 2017. The Sovereign Term Loan 2 bears interest at the lower of LIBOR plus
3% or Sovereign Bank’s prime rate. The Sovereign Term Loan 2 is subject to the amended and restated terms
and conditions of the Restated Agreement.

In connection with the Sovereign Term Loan 2, the Company and Sovereign Bank entered into a five-year
the
interest rate swap agreement,
Company pays an amount to Sovereign Bank representing interest on the notional amount at 4.11% and
receives an amount from Sovereign representing interest on the notional amount at a rate equal
to the
one-month LIBOR plus 3%. The effect of this interest rate swap will be the Company paying a fixed interest
rate of 4.11% over the term of the Sovereign Term Loan 2.

in the notional amount of $4.5 million. Under the interest rate swap,

We believe that our existing resources, together with the availability under our credit facility, will be sufficient
to meet our current working capital needs for at least the next 12 months.

Contractual Obligations. The table below summarizes information about our contractual obligations as of
December 31, 2014 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
Debt . . . . . . . . . . . . . . . . . . . . . .
Capital Lease Obligations
. . . . . . .
Operating Leases . . . . . . . . . . . . .
Employment Agreement

Compensation** . . . . . . . . . . . .
Interest Rate Swap Agreement
. . . .
Total Contractual Cash Obligations .

Total
$ 2,100,000
161,556
12,375,456

Less than
1 year
$ 900,000
71,713
1,562,684

1 − 3 years
$1,200,000
67,023
3,239,849

— $

4 − 5 years
$
$
22,819
3,400,216

After 5 years
—
—
$4,172,707

1,176,000
14,716
$15,827,728

588,000
—
$3,122,397

588,000
14,716
$5,109,588

—
—
$3,423,035

—
—
$4,172,707

** The employment agreements provide for bonus payments that are excluded from these amounts.

18

Inflation.

Inflation historically has not had a material effect on our operations.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Management does not believe that there is any material market risk exposure with respect to derivative or
other financial instruments that would require disclosure under this item.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This information appears following Item 15 of this Report and is incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Item 9.

None.

19

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e)). Based on that evaluation,
the Company’s
disclosure controls and procedures as of the end of the period covered by this report are effective in timely
providing them with material information relating to the Company required to be disclosed in the reports the
Company files or submits under the Exchange Act.

they have concluded that

There were no material changes in our internal control over financial reporting during the quarter ended
December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

The report called for by Item 308(a) of Regulation S-K is included herein as ‘‘Management’s Report on
Internal Control Over Financial Reporting.’’

The attestation report called for by Item 308(b) of Registration S-K is included herein as ‘‘Report of
Independent Registered Public Accounting Firm’’.

Management’s Report on Internal Control Over Financial Reporting

Our management
is responsible for establishing and maintaining adequate internal control over financial
reporting. With the participation of the Chief Executive Officer and Chief Financial Officer, our management
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control-Integrated Framework (1992), issued by the Committee
of Sponsoring Organizations of the Treadway Commission.

limitations,

Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, 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
policies or procedures may deteriorate.

The scope of management’s assessment of the effectiveness of internal control over financial reporting
includes all of our businesses. Based on the evaluation, our management has concluded that our internal
control over financial reporting was effective as of December 31, 2014.

Our independent registered public accounting firm, CohnReznick LLP, audited our internal control over
financial reporting as of December 31, 2014. CohnReznick LLP’s report dated March 6, 2015 expressed an
unqualified opinion on our internal control over financial reporting and is included in this Item 9A.

20

Report of Independent Registered Public Accounting Firm

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

We have audited CPI Aerostructures, Inc.’s (the ‘‘Company’’) internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.

limitations,

Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, 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.

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal Control — Intergrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the balance sheets of CPI Aerostructures, Inc. as of December 31, 2014 and 2013, and the
related statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2014, and our report dated March 6, 2015 expressed
an unqualified opinion of those financial statements.

/s/ CohnReznick LLP
Jericho, New York
March 6, 2015

21

Item 9B. OTHER INFORMATION

None.

22

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

See Item 14.

Item 11.

EXECUTIVE COMPENSATION

See Item 14.

Item 12.

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

See Item 14.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

See Item 14.

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Items 10, 11, 12, 13 and 14 will be contained in our definitive proxy statement
for our 2015 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not
later than 120 days after the end of our fiscal year covered by this report pursuant to Regulation 14A under
the Exchange Act, and incorporated herein by reference

23

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

1. The following financial statements are filed as a part of this report:

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2014 and 2013

Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31,
2014, 2013 and 2012

Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012

Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012

Notes to Financial Statements

2. The following financial statement schedule is filed as part of this report:

Schedule II — Valuation and Qualifying Accounts-Allowance for Doubtful Accounts

3. The following exhibits are filed as part of this report:

Exhibit
Number

3.1
3.1(a)

3.2
10.2
10.3
10.4

10.5
10.5.1

*10.7

10.9

10.9.1

*10.10

*10.11

*10.12

*10.13

10.14

10.15

Name of Exhibit

Certificate of Incorporation of the Company, as amended.(1)
Certificate of Amendment of Certificate of Incorporation filed on July 14,
1998.(3)
Amended and Restated By-Laws of the Company.(11)
1995 Employee Stock Option Plan.(2)
Form of military contract.(1)
1998 Performance Equity Plan.(3)
Performance Equity Plan 2000.(4)
Amendment to Performance Equity Plan 2000(9)
Stock Option Agreement between the Company and Edward J. Fred, dated
June 18, 2002.(6)
Registration Rights Agreement between the Company and Chemical
Investments dated February 26, 2002, as assigned to Crescendo Partners, II.(7)
Schedule of Omitted Document in the form of Exhibit 10.9, including material
detail in which such document differs from Exhibit 10.9.(7)
Stock Option agreement between Vincent Palazzolo and the Company, dated
as of May 17, 2004.(8)
Employment Agreement between Vincent Palazzolo and the Company, dated
as of December 16, 2009.(10)
Stock Option Agreement between the Company and Vincent Palazzolo, dated
December 1, 2006.(9)
Amended and Restated Employment Agreement between Edward J. Fred and
the Company, dated December 16, 2009.(10)
Credit Agreement between CPI Aerostructures, Inc., and Sovereign Bank,
dated as of August 13, 2007(12)
Commercial Security Agreement, dated August 13, 2007, between CPI
Aerostructures, Inc., Grantor, and Sovereign Bank, Lender(12)

No. in
Document

3.1
3.1(a)

3.2
10.4
10.7

10.28
10.29
10.6.1
10.56

10.27

10.27.1

10.22

10.2

10.24

10.1

10.23

10.24

24

Exhibit
Number

10.16

10.17

10.18

*10.19

10.20
10.21

10.22

10.23

10.24

*10.25

*10.26

*10.27

10.28

10.29

10.30

10.31

10.32

**10.33

**10.34

10.35

**12

14
**21

Name of Exhibit

First Amendment to Credit Agreement, dated as of October 22, 2008, by and
between CPI Aerostructures, Inc. and Sovereign Bank(15)
ISDA 2002 Master Agreement and Schedule, dated as of October 22, 2008,
between Sovereign Bank and CPI Aerostructures, Inc.(15)
Second Amendment to Credit Agreement, dated as of July 7, 2009, by and
between CPI Aerostructures, Inc. and Sovereign Bank(14)
Employment Agreement between Douglas McCrosson and the Company, dated
as of December 16, 2009.(10)
Performance Equity Plan 2009(16)
Third Amendment to Credit Agreement, dated as of May 26, 2010, by and
between CPI Aerostructures, Inc. and Sovereign Bank(17)
Fifth Amendment to Credit Agreement, dated as of May 11, 2011, by and
between CPI Aerostructures, Inc. and Sovereign Bank(18)
Agreement of Lease, dated June 30, 2011, between Heartland Boys II L.P. and
CPI Aerostructures Inc.(19)
Sixth Amendment to Credit Agreement, dated as of September 1, 2011, by
and between CPI Aerostructures, Inc. and Sovereign Bank(20)
Letter Amendment to Employment Agreement, dated November 4, 2011, from
the Company to Edward J. Fred(21)
Letter Amendment to Employment Agreement, dated November 4, 2011, from
the Company to Vincent Palazzolo(21)
Letter Amendment to Employment Agreement, dated November 4, 2011, from
the Company to Douglas McCrosson(21)
Seventh Amendment to Credit Agreement, dated as of November 29, 2011, by
and between CPI Aerostructures, Inc. and Sovereign Bank(22)
Eighth Amendment to Credit Agreement, dated as of March 9, 2012 by and
between CPI Aerostructures, Inc. and Sovereign Bank, N.A.(23)
Underwriting Agreement, dated June 8, 2012 between CPI Aerostructures,
Inc., Selling Stockholders and Roth Capital Partners, LLC, as
representative(24)
Amended and Restated Credit Agreement, dated as of December 5, 2012,
among CPI Aerostructures, Inc., the several lenders from time to time party
thereto, and Sovereign Bank, N.A.(25)
First Amendment to Waiver to Amended and Restated Credit Agreement,
dated as of August 6, 2014 by and between CPI Aerostructures, In. and
Santander Bank, N.A. and Valley National Bank(26)
From the Restricted Stock Unit between the Company and Non-Employee
Directors

Description of Non-Employee Director Compensation Plan
Form of Stock Option Agreement with Non-Employee Directors(27)
Statement re Computation of Ratios
Code of Business Conduct and Ethics(13)
Subsidiaries of the Registrant

No. in
Document

10.16

10.17

10.1

10.3

10.1

10.1

10.1

10.1

10.1

10.2

10.3

10.1

10.1

10.1

10.1

10.1

10.34

**23.1

Consent of CohnReznick LLP

25

Exhibit
Number

**31.1

**31.2

**32.1

Name of Exhibit

No. in
Document

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

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

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

***101.INS

XBRL Instance

***101.SCH XBRL Taxonomy Extension Schema

***101.CAL XBRL Taxonomy Extension Calculation

***101.DEF XBRL Taxonomy Extension Definition

***101.LAB XBRL Taxonomy Extension Labels

***101.PRE XBRL Taxonomy Extension Presentation

* Management compensation contract or arrangement.
** Filed herewith.
*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for
purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes
of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to
liability under these sections.

(1) Filed as an exhibit to the Company’s Registration Statement on Form S-1 (No. 33-49270) declared

effective on September 16, 1992 and incorporated herein by reference.

(2) Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for year ended December 31, 1995

and incorporated herein by reference.

(3) Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31,

1998 and incorporated herein by reference.

(4) Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31,

2000 and incorporated herein by reference.

(5) Filed as an exhibit

to Schedule 13D filed on behalf of Edward J. Fred on October 19, 2001 and

incorporated herein by reference.

(6) Filed as an exhibit to Schedule 13D filed on behalf of Edward J. Fred on July 12, 2002 and incorporated

herein by reference.

(7) Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 333-101902) declared

effective on February 12, 2003 and incorporated herein by reference.

(8) Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 24, 2004 and incorporated

herein by reference.
(9) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated December 1, 2006 and

incorporated herein by reference.

(10) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated December 21, 2009 and

incorporated herein by reference.

(11) Filed as an exhibit to the Company’s Current Report on Form 8-K dated November 13, 2007 and

incorporated herein by reference.

(12) Filed as an exhibit

to the Company’s Quarterly Report on Form 10-Q for

the quarter ended

September 30, 2007 and incorporated herein by reference.

(13) Filed as an exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31,

2003 and incorporated herein by reference.

(14) Filed as an exhibit to the Company’s Current Report on Form 8-K dated July 13, 2009 and incorporated

herein by reference.

26

(15) Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31,

2008 and incorporated herein by reference.

(16) Included as Appendix A to the Company’s Proxy Statement filed on April 30, 2009.
(17) Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 26, 2010 and incorporated

herein by reference

(18) Filed as an exhibit to the Company’s Current Report on Form 8-K dated May 11, 2011 and incorporated

herein by reference

(19) Filed as an exhibit to the Company’s Current Report on Form 10-Q for the quarter ended June 30, 2011

and incorporated herein by reference

(20) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated September 2, 2011 and

incorporated herein by reference

(21) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated November 7, 2011 and

incorporated herein by reference

(22) Filed as an exhibit to the Company’s Current Report on Form 8-K dated November 30, 2011 and

incorporated herein by reference

(23) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated March 12, 2012 and

incorporated herein by reference

(24) Filed as an exhibit to the Company’s Current Report on Form 8-K dated June 8, 2012 and incorporated

herein by reference

(25) Filed as an exhibit

to the Company’s Current Report on Form 8-K dated December 6, 2012 and

incorporated herein by reference

(26) Filed as an exhibit to the Company’s Current Report on Form 8-K dated August 7, 2014 and incorporated

herein by reference.

(27) Filed as an exhibit to the Company’s Current Report on Form 10-K for the year ended December 31,

2013 and incorporated herein by reference

27

CPI AEROSTRUCTURES, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . .

Financial Statements:

Balance Sheets as of December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Operations and Comprehensive Income (Loss) for the Years Ended

December 31, 2014, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013

and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 . . . . . .

F-1

F-2

F-3

F-4

F-5

Notes to Financial Statements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6 − F-18

28

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying balance sheets of CPI Aerostructures, Inc. as of December 31, 2014 and
2013, and the related statements of operations and comprehensive income (loss), shareholders’ equity and cash
flows for each of the three years in the period ended December 31, 2014. Our audits of the financial
statements included the financial statement schedule listed in the index appearing under Item 15. CPI
Aerostructures, Inc.’s management is responsible for these financial statements and the financial statement
schedule. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
includes
assurance about whether the financial statements are free of material misstatement. An audit
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of CPI Aerostructures, Inc. as of December 31, 2014 and 2013, and its results of operations and cash
flows for each of the three years in the period ended December 31, 2014, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), CPI Aerostructures, Inc.’s internal control over financial reporting as of December 31, 2014,
based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 6, 2015,
expressed an unqualified opinion on the effectiveness of CPI Aerostructures, Inc.’s internal control over
financial reporting.

/s/ CohnReznick LLP
Jericho, New York
March 6, 2015

F-1

CPI AEROSTRUCTURES, INC.

BALANCE SHEETS

December 31,
2014

December 31,
2013

ASSETS
Current Assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of billings on uncompleted

Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Total current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,504,907
6,466,814

$

2,166,103
4,392,254

79,054,139
1,708,000
8,138,322
828,275
97,700,457
2,755,186
3,591,000
108,080
$104,154,723

112,597,136
417,000
—
609,268
120,181,761
2,849,753
1,133,000
108,080
$124,272,594

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of costs and estimated earnings on uncompleted

contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
Contract loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,928,456
1,061,747

$

7,614,755
654,868

193,650
971,713
396,182
25,150,000
128,000
6,067
36,835,815
1,289,843
622,000
593,909
39,341,567

276,170
1,020,349
—
21,350,000
89,000
736,536
31,741,678
2,198,187
788,000
593,210
35,321,075

Commitments

Shareholders’ Equity:

Common stock − $.001 par value; authorized 50,000,000 shares,

8,500,555 and 8,410,493 shares, respectively, issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . .

8,501
51,440,770
13,373,601
(9,716)
64,813,156
$104,154,723

8,410
50,381,348
38,582,876
(21,115)
88,951,519
$124,272,594

See Notes to Financial Statements

F-2

CPI AEROSTRUCTURES, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Years ended December 31,
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss)
Selling, general and administrative expenses
. . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . .

2014
$ 39,687,010
69,411,709
(29,724,699)
7,308,220
(37,032,919)

2013
$82,988,522
64,555,275
18,433,247
6,704,524
11,728,723

2012
$89,272,582
65,039,969
24,232,613
7,322,630
16,909,983

Other income (expense):

Interest/other income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .

Total other expense, net
Income (loss) before provision for (benefit from) income

taxes

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
Other comprehensive income (loss), net of tax

Change in unrealized gain (loss) − interest rate swap . . .
Comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . .
Income (loss) per common share − basic . . . . . . . . . . . . .
Income (loss) per common share − diluted . . . . . . . . . . . .

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

145,072
(794,428)
(649,356)

78,957
(653,786)
(574,829)

31,520
(416,373)
(384,853)

(37,682,275)
(12,473,000)
(25,209,275)

11,153,894
3,417,000
7,736,894

16,525,130
5,514,000
11,011,130

11,399
$(25,197,876)
(2.98)
$
(2.98)
$

19,712
$ 7,756,606
0.92
$
0.91
$

(19,055)
$10,992,075
1.43
$
1.40
$

8,465,937
8,465,937

8,389,048
8,470,578

7,721,304
7,865,090

See Notes to Financial Statements

F-3

CPI AEROSTRUCTURES, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2014, 2013 and 2012

Common
Stock
Shares

Balance at January 1, 2012 . . 7,079,638
Net Income . . . . . . . . . . .
—
Change in unrealized loss

Additional
Paid-in
Capital

Common
Stock
Amount
$7,080 $35,346,273 $ 19,834,852 $(1,140,226)
—

— 11,011,130

Retained
Earnings

Treasury
Stock

—

from interest rate swap . . .
Common stock issued in share

—

—

—

offering . . . . . . . . . . . . 1,195,750

1,195

13,322,499

Common stock issued upon

exercise of options
Common stock issued as

. . . . .

210,143

210

1,290,305

employee compensation . . .

19,165

19

—

266,032

382,657

—

Stock based compensation

expense . . . . . . . . . . . .
Tax benefit from stock option
plans . . . . . . . . . . . . . .
Treasury stock retired . . . . .
Balance at December 31,

—
(133,257)

—
(133)

313,000
(1,140,093)

—
—
— 1,140,226

Accumulated
Other
Comprehensive
Loss
$(21,772)
—

Total
Shareholders’
Equity
$ 54,026,207
11,011,130

(19,055)

(19,055)

—

—

—

—

—
—

13,323,694

1,290,515

266,051

382,657

313,000
—

—

—

—

—

—

—

—

—

—

—

2012 . . . . . . . . . . . . . . 8,371,439
—

Net Income . . . . . . . . . . .
Change in unrealized loss

from interest rate swap . . .

—

Common stock issued upon

exercise of options
Common stock issued as

. . . . .

18,399

employee compensation . .

20,655

Stock based compensation

expense . . . . . . . . . . . .
Tax benefit from stock option
plans . . . . . . . . . . . . . .

—

—

Balance at December 31,

2013 . . . . . . . . . . . . . . 8,410,493
—

Net Loss . . . . . . . . . . . . .
Change in unrealized loss

from interest rate swap . . .

—

Common stock issued upon

exercise of options
Common stock issued as

. . . . .

85,312

employee compensation . . .

4,750

Stock based compensation

expense . . . . . . . . . . . .
Tax benefit from stock option
plans . . . . . . . . . . . . . .

Balance at December 31,

—

—

8,371
—

49,780,673

30,845,982
— 7,736,894

—

18

21

—

—

—

(18)

193,884

379,809

27,000

—

—

—

—

—

—
—

—

—

—

—

—

(40,827)
—

80,594,199
7,736,894

19,712

19,712

—

—

—

—

—

193,905

379,809

27,000

$8,410 $50,381,348 $ 38,582,876
— (25,209,275)

—

— $(21,115)
—
—

$ 88,951,519
(25,209,275)

—

86

5

—

—

—

447,665

57,992

467,765

86,000

—

—

—

—

—

—

—

—

—

—

11,399

11,399

—

—

—

—

447,751

57,997

467,765

86,000

2014 . . . . . . . . . . . . . . 8,500,555

$8,501 $51,440,770 $ 13,373,601 $

— $ (9,716)

$ 64,813,156

See Notes to Financial Statements

F-4

CPI AEROSTRUCTURES, INC.

STATEMENTS OF CASH FLOWS

Years ended December 31,
Cash flows from operating activities:

2014

2013

2012

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(25,209,275)

$ 7,736,894

$ 11,011,130

Adjustments to reconcile net income (loss) to net cash

provided by (used in) operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . .
Common stock issued as employee compensation . . . . .
Loss on disposal of fixed asset . . . . . . . . . . . . . . . . . .
Deferred portion of provision for income taxes . . . . . . .
Tax benefit for stock options
. . . . . . . . . . . . . . . . . . .
Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . .
(Increase) decrease in costs and estimated earnings in

excess of billings on uncompleted contracts
Decrease (increase) in prepaid expenses and other

. . . . . . .

current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in refundable income taxes . . . . . . .
Increase in accounts payable and accrued expenses . . . .
Increase in accrued losses on uncompleted contracts . . .
(Decrease) increase in income taxes payable . . . . . . . . .
Increase (decrease) in billings in excess of costs and

763,736
17,098
467,765
57,993
1,042
(3,790,000)
(86,000)
—

704,435
54,621
379,809
41,830
—
(107,000)
(27,000)
—

623,795
90,419
382,657
37,761
—
11,000
(313,000)
(50,000)

(2,074,560)
—

2,382,092
1,512,904

(3,951,680)
—

33,542,997

(3,612,292)

(29,783,016)

(219,007)
(8,138,322)
1,715,580
396,182
(730,469)

(183,205)
—
(5,817,028)
—
582,536

240,263
—
1,465,562
—
(2,383,000)

estimated earnings on uncompleted contracts . . . . . . .
Net cash provided by (used in) operating activities . . . .

(82,520)
(3,367,760)

(380,683)
3,267,913

540,387
(22,077,722)

Cash flows from investing activities:

Purchase of property and equipment

. . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . .

(602,924)
(602,924)

(637,370)
(637,370)

(825,110)
(825,110)

Cash flows from financing activities:

Proceeds from exercise of stock options . . . . . . . . . . . .
Proceeds from sale of common stock . . . . . . . . . . . . . .
Payment of line of credit . . . . . . . . . . . . . . . . . . . . . .
Proceeds from line of credit . . . . . . . . . . . . . . . . . . . .
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Proceeds from long-term debt
. . . . . . . . . . . . . . . . . . .
Tax benefit for stock options
Net cash provided by (used in) financing activities
. . . .
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year

447,751
—
(4,700,000)
8,500,000
(1,024,263)
—
86,000
3,309,488
(661,196)
2,166,103
$ 1,504,907

—
—
(13,100,000)
11,000,000
(1,101,243)
—
27,000
(3,174,243)
(543,700)
2,709,803
$ 2,166,103

1,290,515
13,323,694
(4,000,000)
11,350,000
(2,042,774)
4,500,000
313,000
24,734,435
1,831,603
878,200
$ 2,709,803

Supplemental schedule of noncash investing and

financing activities:

Equipment acquired under capital lease . . . . . . . . . . . . . .
Accrued expenses settled in exchange for common stock . .
Stock options proceeds paid with Company’s stock . . . . . .

Supplemental schedule of cash flow information:
Cash paid during the year for interest
. . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . .

$

$
$

67,283

$
— $
— $

9,342
152,076
303,064

$
$
$

76,592
228,290
355,655

915,695
855,000

$
985,189
$ 3,000,000

$
783,373
$ 7,886,409

See Notes to Financial Statements

F-5

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:

CPI Aerostructures, Inc. (‘‘CPI Aero(cid:5)’’ or the ‘‘Company’’) is a U.S. supplier of aircraft parts for fixed wing
aircraft and helicopters in both the commercial and defense markets. We manufacture complex aerostructure
assemblies, as well as aerosystems. Additionally, we supply parts for MRO and kitting contracts.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires the use of estimates by management. Actual results could differ from these
estimates.

Revenue Recognition

The Company’s revenue is recognized based on the percentage of completion method of accounting for its
contracts measured by the percentage of total costs incurred to date to estimated total costs at completion for
each contract. Contract costs include all direct material, labor costs, tooling and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Selling, general
and administrative costs are charged to expense as incurred. Estimated losses on uncompleted contracts are
recognized in the period in which such losses are determined. Changes in job performance may result in
revisions to costs and income and are recognized in the period in which revisions are determined to be
required. The percentage of completion method of accounting involves considerable use of estimates in
determining revenues, costs and profits and in assigning the amounts to accounting periods and, as a result,
there can be a significant disparity between earnings (both for accounting and taxes) as reported and actual
cash received by the Company during any reporting period. In accordance with industry practice, costs and
estimated earnings in excess of billings on uncompleted contracts, included in the accompanying balance
sheets, contain amounts relating to contracts and programs with long production cycles, a portion of which
will not be realized within one year. The Company’s recorded revenue may be adjusted in later periods in the
event that the Company’s cost estimates prove to be inaccurate or a contract is terminated.

When adjustments are required for the estimated total revenue on a contract, these changes are recognized
with an inception-to-date effect in the current period. Also, when estimates of total costs to be incurred exceed
estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded in the period
in which the loss is determined. During the year ended December 31, 2014, the Company adjusted the
estimated total revenue and recorded a loss on its Wing Replacement Program (‘‘WRP’’) for the U.S. Air
Force’s A-10 Thunderbolt aircraft (‘‘A-10’’).

The long term future of the A-10 has been uncertain since March 2014 when the U.S. Department of Defense
released its 2015 Budget Request that called for the retirement of the entire A-10 fleet. More recent events
have led the Company to conclude that our A-10 WRP will likely not continue to the full 242 aircraft as
anticipated at the start of the program. The 2015 Department of Defense Appropriations Act passed by the
United States House of Representatives on June 20, 2014 provides no funding for A-10 operations in
U.S. Government fiscal year 2015 that commenced October 1, 2014. Further, this bill rescinds funding from
the 2014 U.S. Department of Defense Budget that was to have been used for the procurement of additional
wings for the A-10. The Company has no information to support a different conclusion.

Because of the probable termination of the Company’s A-10 WRP, the Company has reduced its revenue
estimates with respect
to this program by approximately 41%. This change in estimate results in an
approximate cumulative $44.7 million decrease in revenue from the inception of the program in 2008 through
June 30, 2014, all of which was recorded in the quarter ended June 30, 2014. Also, the uncertainty of the
future of the A-10 aircraft has impacted the Company’s ability to achieve normal program cost reductions at
to revenue, we have recorded a
suppliers. Accordingly,
$2.6 million adjustment to cost of sales on the A-10 WRP.

in addition to the $44.7 million adjustment

F-6

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: − (continued)

Government Contracts

to the procurement

the
The Company’s government contracts are subject
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, the Company may be audited in respect of the direct and allocated
indirect costs attributable thereto. These audits may result in adjustments to the Company’s contract cost, and/
or revenue.

rules and regulations of

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

Cash

The Company maintains its cash in two financial institutions. The balances are insured by the Federal Deposit
Insurance Corporation. From time to time,
the Company’s balances may exceed these limits. As of
December 31, 2014 and 2013, the Company had approximately $1,110,000 and $2,112,000, respectively, of
uninsured balances. The Company limits its credit risk by selecting financial institutions considered to be
highly credit worthy.

Accounts Receivable

Accounts receivable are reported at their outstanding unpaid principal balances. The Company writes off
accounts when they are deemed to be uncollectible.

Property and Equipment

Depreciation and amortization of property and equipment is provided by the straight-line method over the
shorter of estimated useful lives of the respective assets or the life of the lease, for leasehold improvements.

Rent

We recognize rent expense on a straight-line basis over the expected lease term. Within the provisions of
certain leases there are escalations in payments over the lease term. The effects of the escalations have been
reflected in rent expense on a straight-line basis over the expected lease term.

Long-Lived Assets

The Company reviews its long-lived assets and certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its
review, the Company does not believe that any such change has occurred. If such changes in circumstance are
present, a loss is recognized to the extent the carrying value of the asset is in excess of the fair value of cash
flows expected to result from the use of the asset and amounts expected to be realized upon its eventual
disposition.

Short-Term Debt

The fair value of the Company’s short-term debt is estimated based on the current rates offered to the
Company for debt of similar terms and maturities. Using this method, the fair value of the Company’s
short-term debt was not significantly different than the stated value at December 31, 2014 and 2013.

F-7

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: − (continued)

Derivatives

Our use of derivative instruments has primarily been to hedge interest rates. These derivative contracts are
entered into with financial institutions. We do not use derivative instruments for trading purposes and we have
procedures in place to monitor and control their use.

We record these derivative financial instruments on the balance sheet at fair value. For derivative instruments
that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive loss and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings.

Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in
the results of operations immediately. For derivative instruments not designated as hedging instruments, the
gain or loss is recognized in the results of operations immediately. See below for a discussion of our use of
in derivative instruments and fair value
derivative instruments, management of credit
information.

risk inherent

In October 2008, the Company entered into an interest rate swap with the objective of reducing our exposure
to cash flow volatility arising from interest rate fluctuations associated with certain debt. The notional amount,
maturity date, and currency of these contracts match those of the underlying debt. The Company has
designated this interest rate swap contract as a cash flow hedge. The Company measures ineffectiveness by
comparing the cumulative change in the forward contact with the cumulative change in the hedged item. No
material ineffectiveness was recognized in 2014 and 2013. As of December 31, 2014 and 2013, we had a net
deferred loss associated with cash flow hedges of approximately $14,700 and $32,000, respectively, due to the
interest rate swap which has been included in Other Liabilities.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may
fail to meet their contractual obligations. Recent adverse developments in the global financial and credit
markets could negatively impact the creditworthiness of our counterparties and cause one or more of our
counterparties to fail to perform as expected. To mitigate the counterparty credit risk, we only enter into
contracts with carefully selected major financial institutions based upon their credit ratings and other factors,
and continually assess the creditworthiness of counterparties. To date, all counterparties have performed in
accordance with their contractual obligations.

Fair Value

At December 31, 2014 and 2013, the fair values of cash, accounts receivable, accounts payable and accrued
expenses approximated their carrying values because of the short-term nature of these instruments.

2014

2013

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Debt
Short-term borrowings and long-term debt

. . . .

$27,411,556

$27,411,556

$24,568,536

$24,568,536

We estimated the fair value of debt using market quotes and calculations based on market rates.

F-8

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: − (continued)

The following tables present the fair values of liabilities measured on a recurring basis as of December 31,
2014 and 2013:

Description
Interest Rate Swap . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total
$14,716
$14,716

Description
Interest Rate Swap . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total
$31,992
$31,992

Fair Value Measurements 2014

Quoted Prices
in Active
Markets for
Identical
assets
(Level 1)
—
—

Significant
Other
Observable
Inputs
(Level 2)
$14,716
$14,716

Significant
Unobservable
Inputs
(Level 3)
—
—

Fair Value Measurements 2013

Quoted Prices
in Active
Markets for
Identical
assets
(Level 1)
—
—

Significant
Other
Observable
Inputs
(Level 2)
$31,992
$31,992

Significant
Unobservable
Inputs
(Level 3)
—
—

The fair value of the Company’s interest rate swap was determined by comparing the fixed rate set at the
inception of the transaction to the ‘‘replacement swap rate,’’ which represents the market rate for an offsetting
interest rate swap with the same notional amounts and final maturity date. The market value is then
determined by calculating the present value interest differential between the contractual swap and the
replacement swap.

As of December 31, 2014 and 2013, $14,716 and $31,992, respectively, was included in Other Liabilities
related to the fair value of the Company’s interest rate swap, and $9,716 and $21,115, respectively, net of tax
of $5,000 and $10,877, respectively, was included in Accumulated Other Comprehensive Loss.

Earnings Per Share

Basic earnings per common share is computed using the weighted-average number of shares outstanding.
Diluted earnings per common share is computed using the weighted-average number of shares outstanding
adjusted for
the incremental shares attributed to outstanding options to purchase common stock. No
incremental shares were used in the calculation of diluted loss per common share in 2014, as the effect of
incremental shares would be anti-dilutive. Incremental shares of 381,919 were used in the calculation of
diluted earnings per common share in 2013. Incremental shares of 116,292 were not included in the diluted
earnings per share calculations at December 31, 2013, as their exercise price was in excess of the Company’s
quoted market price and, accordingly, these shares are not assumed to be exercised for the diluted earnings per
share calculation. Incremental shares of 415,517 were used in the calculation of diluted earnings per common
share in 2012. Incremental shares of 124,217 were not included in the diluted earnings per share calculations
at December 31, 2012, as their exercise price was in excess of the Company’s quoted market price and,
accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation.

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 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

F-9

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: − (continued)

deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the
in the opinion of
enactment date. Deferred tax assets are reduced by a valuation allowance when,
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has recorded a liability for unrecognized tax benefits resulting from tax positions taken, or
expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties
related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated
and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from
Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace
most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is
effective for annual and interim periods in fiscal years beginning after December 15, 2016. Early application is
not permitted. ASU 2014-09 is effective for our first quarter of fiscal year 2017 using either the retrospective
or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our
financial statements and related disclosures. We have not yet selected a transition method nor have we
determined the effect of the standard on our ongoing financial reporting.

2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS:

At December 31, 2014, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled)
consist of:

Costs incurred on uncompleted contracts . . .
Estimated earnings . . . . . . . . . . . . . . . . . .

Less billings to date . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of

U.S. Government
$299,871,583
56,708,610
356,580,193
313,441,471

Commercial
$ 90,272,545
39,773,983
130,046,528
94,324,761

Total
$390,144,128
96,482,593
486,626,721
407,766,232

billings on uncompleted contracts . . . . .

$ 43,138,722

$ 35,721,767

$ 78,860,489

At December 31, 2013, costs and estimated earnings in excess of billings on uncompleted contracts (unbilled)
consist of:

Costs incurred on uncompleted contracts . . .
Estimated earnings . . . . . . . . . . . . . . . . . .

Less billings to date . . . . . . . . . . . . . . . . .
Costs and estimated earnings in excess of

U.S. Government
$259,050,407
95,590,879
354,641,286
272,783,120

Commercial
$62,502,116
30,694,605
93,196,721
62,733,921

Total
$321,552,523
126,285,484
447,838,007
335,517,041

billings on uncompleted contracts . . . . .

$ 81,858,166

$30,462,800

$112,320,966

F-10

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS: − (continued)

The above amounts are included in the accompanying balance sheets under the following captions at
December 31, 2014 and 2013:

Costs and estimated earnings in excess of billings on uncompleted

contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$79,054,139

$112,597,136

Billings in excess of costs and estimated earnings on uncompleted

contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(193,650)
$78,860,489

(276,170)
$112,320,966

2014

2013

Unbilled costs and estimated earnings are billed in accordance with applicable contract
terms. As of
December 31, 2014, approximately $3 million of the balances above are not expected to be collected within
one year. There are no amounts billed under retainage provisions.

Revisions in the estimated gross profits on contracts and contract amounts are made in the period in which the
circumstances requiring the revisions occur. During the years ended December 31, 2014, 2013 and 2012, the
effect of such revisions in total estimated contract profits resulted in a decrease to the total gross profit to be
earned on the contracts of approximately $42,568,000, $3,700,000 and $1,300,000, respectively, from that
which would have been reported had the revised estimate been used as the basis of recognition of contract
profits in prior years.

Although management believes it has established adequate procedures for estimating costs to complete on
uncompleted open contracts, it is at least reasonably possible that additional significant costs could occur on
contracts prior to completion.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of trade receivables as follows:

December 31,
Billed receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful accounts

2014
$6,491,814
(25,000)
$6,466,814

2013
$4,417,254
(25,000)
$4,392,254

4. PROPERTY AND EQUIPMENT:

December 31,
Machinery and equipment
. . . . . . . . . . . . . . . . . .
Computer equipment . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . .
Automobiles and trucks . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . .

Less accumulated depreciation and amortization . . .

2014
$1,646,787
3,163,227
610,323
13,162
1,532,355
6,965,854
4,210,668
$2,755,186

2013
$1,263,962
2,901,373
600,185
13,162
1,518,779
6,297,461
3,447,708
$2,849,753

Estimated
Useful Life
(years)
5 to 10
5
7
5
10

F-11

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

4. PROPERTY AND EQUIPMENT: − (continued)

Depreciation and amortization expense for the years ended December 31, 2014, 2013 and 2012 was $763,736,
$704,435 and $623,795, respectively.

During the years ended December 31, 2014 and 2013,
respectively, of property and equipment under notes payable and capital leases.

the Company acquired $67,283 and $9,342,

5. LINE OF CREDIT:

Until December 2012, the Company was party to a Credit Agreement, dated August 13, 2007, as amended,
between the Company and Sovereign Bank (the ‘‘Prior Agreement’’), which provided for a revolving credit
facility and two term loans. Immediately prior to entering into the Restated Agreement (identified below), a
revolving credit facility in the aggregate of $18.0 million was available to the Company under the Prior
Agreement.

On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign
Bank as the sole arranger, administrative agent and collateral agent and Valley National Bank. The Restated
Agreement provides for a revolving credit loan commitment (the ‘‘Revolving Facility’’) of $35 million, which
replaces the Sovereign Revolving Facility, and a term loan of $3.9 million. The term of the Restated
Agreement is through December 2016. The Restated Agreement increases the availability under, and amends
and restates the Prior Agreement. One of the term loans under the Prior Agreement was refinanced as a
revolving credit loan under the Restated Agreement. The other term loan and the revolving credit loans under
the Prior Agreement continued as a term loan and revolving credit loan under the Restated Agreement.

As of December 31, 2014, the Company was in compliance with all covenants contained in the Restated
Agreement. As of December 31, 2014, the Company had $25.2 million outstanding under the Revolving
Facility bearing interest at 3.25%.

6. LONG-TERM DEBT:

On October 22, 2008, the Company obtained a $3 million term loan from Sovereign Bank to be amortized
over five years (the ‘‘Sovereign Term Facility’’). Prior to entering into the term loan the Company had
borrowed $2.5 million under the Sovereign Revolving Facility to fund the initial tooling costs related to a
long-term contract. The Company used the proceeds from the Sovereign Term Facility to repay the borrowings
under the Sovereign Revolving Facility and to pay for additional tooling related to a long-term contract. This
term loan was refinanced as part of the Revolving Facility under the Restated Agreement.

On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized
over five years (the ‘‘Sovereign Term Facility 2’’). Sovereign Term Facility 2 was used to purchase tooling
and equipment for new programs. Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or
Sovereign Bank’s prime rate.

Additionally, the Company and Sovereign Bank entered into a five-year interest rate swap agreement, in the
notional amount of $4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign
Bank representing interest on the notional amount at a fixed rate of 4.11% and receives an amount from
Sovereign Bank representing interest on the notional amount of a rate equal to the one-month LIBOR plus
3%. The effect of this interest rate swap will be the Company paying a fixed interest fixed rate of 4.11% over
the term of the Sovereign Term Facility 2.

F-12

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

6. LONG-TERM DEBT: − (continued)

The maturities of the long-term debt are as follows:

Year ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 971,713
951,927
315,097
16,350
6,469
$2,261,556

leases and notes payable of $161,555 and $218,536 at
Also included in long-term debt are capital
December 31, 2014 and 2013, respectively, including a current portion of $71,713 and $120,349, respectively.

The cost of assets under capital leases was approximately $1,118,720 and $1,061,000 at December 31, 2014
and 2013, respectively. Accumulated depreciation of assets under capital leases was approximately $765,000
and $570,000 at December 31, 2014 and 2013, respectively.

7. COMMITMENTS:

The Company has employment agreements with two employees. The aggregate future commitment under
these agreements is as follows:

Year ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 588,000
588,000
$1,176,000

These agreements provide for additional bonus payments that are calculated as defined in the respective
employment agreements.

The Company leases an office and warehouse facility under a non-cancelable operating lease which expires in
December 2022. The aggregate future commitment under this agreement is as follows:

Year ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$ 1,562,685
1,600,467
1,639,382
1,679,465
1,720,750
4,172,707
$12,375,456

Rent expense for the years ended December 31, 2014, 2013 and 2012 was $1,608,702, $1,636,171 and
$1,634,121, respectively.

F-13

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

8. INCOME TAXES:

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

Years ended December 31,
Current:

2014

2013

2012

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Prior year over accrual
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (8,646,000)
44,000
6,000

$3,524,000
—
—

$5,503,000
—
—

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3,877,000)
$(12,473,000)

(107,000)
$3,417,000

11,000
$5,514,000

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

December 31,
Taxes computed at the federal statutory rate . . . . . . .
State income tax, net
. . . . . . . . . . . . . . . . . . . . . .
Prior year true-up . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credit
. . . . . . . . . . .
Reduction in domestic production activity . . . . . . . .
AMT credit carryforward . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . .

2014
$(12,812,000)
4,000
44,000
(140,000)
893,000
(584,000)
122,000
$(12,473,000)

2013
$3,792,000
—
190,000
—
—
—
(565,000)
$3,417,000

2012
$5,701,000
—
47,000
—
—
—
(234,000)
$5,514,000

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

Deferred Tax Assets:
Revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset − current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Assets − non current . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred Tax Liabilities:
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Liabilities − current
. . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability − noncurrent . . . . . . . . . . . . . . . . . . . . . . . . .
Net Deferred Tax Assets (Liabilities) . . . . . . . . . . . . . . . . . . . . . . .

2014
$ 560,000
5,000
9,000
1,134,000
1,708,000
197,000
827,000
—
2,567,000
3,591,000

128,000
128,000
622,000
622,000
$4,549,000

2013
$ 408,000
—
9,000
—
417,000
191,000
931,000
11,000
—
1,133,000

89,000
89,000
788,000
788,000
$ 673,000

F-14

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

8. INCOME TAXES: − (continued)

The Company recognized, for income tax purposes, a tax benefit of $513,000, $266,000 and $528,000 for
the years ended December 31, 2014, 2013 and 2012, respectively, for compensation expense related to its
stock option plan for which no corresponding charge to operations has been recorded. Such amounts have
been added to additional paid-in capital in those years.

Because of the change in estimate on the Company’s A-10 program, described above, the Company incurred a
net loss for the year ended December 31, 2014. This net loss, after adjustment for carrying back tax losses to
recover previously paid taxes, results in a net operating loss carryforward at December 31, 2014 of
approximately $7,600,000 which will expire in 2029.

9. EMPLOYEE STOCK OPTION PLANS:

The Company accounts for compensation expense associated with Stock Options based on the fair value of
the options on the date of grant.

The Company used the modified transition method to establish the beginning balance of the additional paid-in
capital pool related to the tax effects of employee share-based compensation, which is available to absorb tax
deficiencies recognized subsequent to the adoption of the fair value method.

income (loss) for the years ended December 31, 2014, 2013 and 2012,

include
The Company’s net
approximately $468,000, $380,000 and $383,000 of stock based compensation expense, respectively. The
Company recorded reductions in income tax payable of approximately $513,000, $266,000 and $528,000 for
the years ended December 31, 2014, 2013 and 2012, respectively, as a result of the tax benefit upon exercise
of options. The compensation expense related to the Company’s stock-based compensation arrangements is
recorded as a component of selling, general and administrative expenses. Cash flows resulting from tax
deductions in excess of the cumulative compensation cost recognized from options exercised (excess tax
benefits) is classified as cash inflows from financing activities and cash inflows from operating activities.

In 2000, the Company adopted the Performance Equity Plan 2000 (the ‘‘2000 Plan’’). The 2000 Plan, as
amended, reserved 1,230,000 common shares for issuance. The 2000 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 options’ exercise price is equal to the closing price of the Company’s shares on the day
of issuance, except for incentive stock options granted to the Company’s president, which are exercisable at
110% of the closing price of the Company’s shares on the date of issuance.

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 options’ exercise price is equal to the closing price of the Company’s shares on the day of
issuance, except for incentive stock options granted to any person possessing more than 10% of the total
combined voting power of all classes of Company stock, which are exercisable at 110% of the closing price
of the Company’s shares on the date of issuance.

The Company has 175,416 options available for grant under the 2009 Plan.

F-15

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

9. EMPLOYEE STOCK OPTION PLANS: − (continued)

The estimated fair value of each option award granted was determined on the date of grant using the
Black-Scholes option valuation model. The following weighted average assumptions were used for option
grants during the years ended December 31, 2014, 2013 and 2012:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Expected option term-in years

2014
1.45%
102.0%
0%
5

2013
0.72%
106.0%
0%
5

2012
0.90%
101.8%
0%
5

The risk free interest rate for the years ended December 31, 2014, 2013 and 2012 is based on the 5 year
U.S. Treasury note rate on the day of grant. The expected volatility computation for the years ended
December 31, 2014, 2013 and 2012 is based on the average of the volatility over the most recent five year
period, which represents the Company’s estimate of expected volatility over the expected option term. The
Company has never paid a dividend, and is not expected to pay a dividend in the foreseeable future, therefore
the dividend yield is assumed to be zero. The Company assumes zero forfeitures of options as the historical
forfeiture rate is below 1%.

A summary of the status of the Company’s stock option plans is as follows:

Fixed Options
Outstanding at January 1, 2012 . . . . . . . . . . . . .
Granted during period . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . . . . . . .
Granted during period . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/Expired . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2013 . . . . . . . . . . .
Granted during period . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2014 . . . . . . . . . . .

Options
695,000
40,517
(240,000)
495,517
46,402
(45,000)
(35,000)
461,919
43,064
(155,000)
349,983

Vested at December 31, 2014 . . . . . . . . . . . . . .

349,983

Weighted
average
Exercise
Price
$ 8.33
11.87
6.85
$ 9.33
10.64
6.70
8.20
9.80
14.67
8.52
10.97

10.97

Weighted
average
remaining
contractual
term
(in years)
2.66

Aggregate
Intrinsic
Value

2.73

2.28

2.20

2.20

387,146

387,146

The weighted-average fair value of each option granted during the years ended December 31, 2014, 2013 and
2012, estimated as of the grant date using the Black-Scholes option valuation model was $10.86, $8.17 and
$8.91, respectively.

The Company’s stock options granted to non-employee directors vest immediately upon grant and have a
maximum contractual term of five years. Stock options granted to employees vest over three years and have a
maximum contractual term of ten years. The expected option term is calculated utilizing historical data of
option exercises.

During the year ended December 31, 2014, 50,000 stock options were exercised for cash, resulting in
proceeds to the Company of $447,751. During the same period, 105,000 options were exercised, pursuant to
provisions of the stock option plan, where the Company received no cash and 69,687 shares of its common

F-16

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

9. EMPLOYEE STOCK OPTION PLANS: − (continued)

stock in exchange for the 105,000 shares issued in the exercise. The 69,687 shares that the Company received
were valued at $873,390, the fair market value of the shares on the dates of exercise.

During the years ended December 31, 2014, 2013 and 2012,
$86,000, $27,000 and $313,000, respectively, from the exercise of stock options.

the Company recognized a tax benefit of

The intrinsic value of stock options exercised during the years ended December 31, 2014, 2013 and 2012 was
approximately $679,000, $266,000 and $1,337,000, respectively.

The fair value of all options vested during the years ended December 31, 2014, 2013 and 2012 was
approximately $387,000, $2,472,000 and $859,000, respectively.

10. 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
the discretion of management. The amount of
eligible employees. Contributions by the Company are at
contributions recorded by the Company in 2014, 2013 and 2012 amounted to $355,428, $326,416 and
$301,196, respectively.

11. MAJOR CUSTOMERS:

Two percent of revenue in 2014, 2% of revenue in 2013 and 7% of revenue in 2012 were directly to the
U.S. government. One percent of accounts receivable at December 31, 2014 and 2013 were from the
U.S. Government.

In addition, in 2014, 22%, 22%, 19% and 11% of our revenue were to our four largest commercial customers,
respectively. In 2013, 26%, 21%, 19% and 12% of our revenue were to our four largest commercial
customers, respectively. At December 31, 2014, 26%, 21% and 15% of accounts receivable were from our
three largest commercial customers. At December 31, 2013, 28%, 24% and 20% of accounts receivable were
from our three largest commercial customers.

At December 31, 2014 and 2013, less than one percent of Costs and Estimated Earnings in Excess of Billings
on Uncompleted Contracts were from the U.S. government.

At December 31, 2014, 27%, 25%, 13%, and 8% of Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts were from our four largest commercial customers. At December 31, 2013, 40%, 17%,
16% and 10% of Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts were from
our four largest commercial customers.

F-17

CPI AEROSTRUCTURES, INC.

NOTES TO FINANCIAL STATEMENTS

12. QUARTERLY FINANCIAL DATA (UNAUDITED):

The results of any single quarter are not necessarily indicative of the Company’s results for the full year.
Earnings per share data is computed independently for each of the periods presented. As a result, the sum of
the earnings per share amounts for the quarter may not equal the total for the year.

2014
Revenue . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Gross Profit (loss)
Net Income (loss)
. . . . . . . . . . . . . .
Earning per share (loss)

Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .

2013
Revenue . . . . . . . . . . . . . . . . . . . . .
Gross Profit
. . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . .
Earning per share

Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .

Quarter ended

March 31,
$21,883,517
4,491,132
1,728,869

June 30,
$(23,751,623)
(42,963,154)
(29,691,951)

September 30,
$21,487,677
4,471,304
1,036,548

December 31,
$20,067,439
4,276,019
1,717,259

0.21
0.20

(3.50)
(3.50)

0.20
0.20

0.20
0.20

$19,927,433
4,440,570
1,671,276

$21,110,452
4,236,247
1,784,274

$20,664,645
4,476,127
1,911,100

$21,285,992
5,280,303
2,370,244

0.20
0.20

0.21
0.21

0.23
0.23

0.28
0.28

F-18

CPI AEROSTRUCTURES, INC.

Schedule II — Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
(Deducted from Accounts Receivable)

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Deductions from)/charges to costs and expenses . . . . . . . . . . . . . . . . .
Deductions from reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31,

2014
$25,000
—
—
$25,000

2013
$25,000
—
—
$25,000

2012
$ 75,000
—
(50,000)
$ 25,000

F-19

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.

CPI AEROSTRUCTURES, INC.

Dated: March 6, 2015

CPI AEROSTRUCTURES, INC.
(Registrant)

By: /s/ Vincent Palazzolo
Vincent Palazzolo
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

/s/ Eric Rosenfeld
Eric Rosenfeld

/s/ Douglas McCrosson
Douglas McCrosson

/s/ Vincent Palazzolo
Vincent Palazzolo

/s/ Walter Paulick
Walter Paulick

/s/ Kenneth McSweeney
Kenneth McSweeney

/s/ Harvey Bazaar
Harvey Bazaar

/s/ Michael Faber
Michael Faber

/s/ Terry Stinson
Terry Stinson

Title

Date

Chairman of the Board of Directors

March 6, 2015

Chief Executive Officer and President

March 6, 2015

Chief Financial Officer and Secretary
(Principal financial and accounting officer)

Director

Director

Director

Director

Director

March 6, 2015

March 6, 2015

March 6, 2015

March 6, 2015

March 6, 2015

March 6, 2015

Pretax income . . . . . . . . . . . . . . . .

Fixed Charges:
Interest Expense . . . . . . . . . . . . . . .
Total earnings
. . . . . . . . . . . . . . . .
Ratio of earnings to fixed charges . . .

For the year ended December 31,

2014
(37,682,275)

2013
11,153,895

2012
16,525,130

2011
10,538,928

2010
542,896

Exhibit 12

984,428
(36,697,847)
(37.28)

1,043,786
12,197,681
11.69

783,373
17,308,503
22.09

343,491
10,882,419
31.68

158,406
701,302
4.43

SUBSIDIARIES OF RESGISTRANT

None.

Exhibit 21

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.1

333-11669,

333-42403,

to the incorporation by reference in the Registration Statements on Form S-8 (Registration
We consent
Numbers
(Registration
and
Number 333-181056), of our reports dated March 6, 2015, on our audits of the financial statements and
financial statement schedule of CPI Aerostructures, Inc. as of December 31, 2014 and 2013 and for the years
ended December 31, 2014, 2013 and 2012, and the effectiveness of internal control over financial reporting of
CPI Aerostructures, Inc. as of December 31, 2014 included in the 2014 Annual Report on Form 10-K of CPI
Aerostructures, Inc.

on Form S-3

333-164687)

333-130077

and

/s/ CohnReznick LLP
Jericho, New York
March 6, 2015

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002

I, Douglas McCrosson, certify that:

1.

I have reviewed this Annual Report on Form 10-K of CPI Aerostructures, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision,
to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and to the audit committee of
the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Dated: March 6, 2015

CPI AEROSTRUCTURES, INC.
(Registrant)

By: /s/ Douglas McCrosson
Douglas McCrosson
Chief Executive Officer, President and Director
(Principal executive officer)

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002

I, Vincent Palazzolo, certify that:

1.

I have reviewed this Annual Report on Form 10-K of CPI Aerostructures, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision,
to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and to the audit committee of
the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Dated: March 6, 2015

CPI AEROSTRUCTURES, INC.
(Registrant)

By: /s/ Vincent Palazzolo
Vincent Palazzolo
Chief Financial Officer and Secretary
(Principal financial and accounting officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CPI Aerostructures, Inc. (the ‘‘Company’’) on Form 10-K for the
year ended December 31, 2014 as filed with the Securities and Exchange Commission (the ‘‘Report’’), the
undersigned,
to 18 U.S.C.
in the capacities and on the date indicated below, hereby certifies pursuant
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

2.

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and

the information contained in the Report fairly presents,
condition and results of operation of the Company.

in all material respects,

the financial

Dated: March 6, 2015

CPI AEROSTRUCTURES, INC.
(Registrant)

By: /s/ Douglas McCrosson
Douglas McCrosson
Chief Executive Officer, President and Director
(Principal executive officer)

Dated: March 6, 2015

CPI AEROSTRUCTURES, INC.
(Registrant)

By: /s/ Vincent Palazzolo
Vincent Palazzolo
Chief Financial Officer and Secretary
(Principal financial and accounting officer)

C O R P O R A T E   I N F O R M A T I O N

Officers

Douglas McCrosson
President and  
Chief Executive Officer

Board of Directors

Vincent Palazzolo
Chief Financial Officer

Eric Rosenfeld
Chairman

Douglas McCrosson
President and  
Chief Executive Officer

Harvey Bazaar
Director

Michael Faber
Chief Executive Officer
Nextpoint Management Company

Kenneth McSweeney
Principal
K.F. McSweeney, Unlimited

Walter Paulick
President
W.R. Paulick and Associates, Inc.

Terry Stinson
Chief Executive Officer
Stinson Consulting, LLC

Corporate Headquarters
CPI Aero
91 Heartland Boulevard
Edgewood, NY 11717
Tel: (631) 586-5200
Fax: (631) 586-5814
www.cpiaero.com

Transfer Agent
Communications regarding 
change of address, transfer of 
stock ownership, or lost stock 
certificates should be directed to:

Continental Stock Transfer  
& Trust Company

17 Battery Place
New York, NY 10004
(800) 509-5586 / (212) 509-4000

Common Stock
CPI Aerostructures’ common 
stock trades on The NYSE MKT 
under the symbol CVU.

Counsel
Graubard Miller
405 Lexington Avenue
11th Floor
New York, NY 10174

Independent Auditors
CohnReznick LLP
100 Jericho Quadrangle
Jericho, NY 11753

Investor Relations
The Equity Group Inc.
800 Third Avenue — 36th Floor
New York, NY 10022
(212) 371-8660

Stockholder Contact  

and Form 10-K
Stockholders are encouraged to 
contact the Company with ques-
tions or requests for informa-
tion. A copy of the Company’s 
Annual Report on Form 10-K for 
the year ended December 31, 
2014, as filed with the Securities 
and Exchange Commission, will 
be sent to stockholders free of 
charge upon written request. 
Inquiries should be directed to:

Chief Financial Officer

CPI Aero
91 Heartland Boulevard
Edgewood, NY 11717
(631) 586-5200
or contact the Company at its 
website, 

www.cpiaero.com

91 Heartland Boulevard 
Edgewood, NY 11717

cpiaero.com