# CPI Aerostructures Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [CPI Aerostructures Inc](/companies/cvu.md) (CIK 889348)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 17:30 ET
- Period: 2024-09-30
- Accession: 0001999371-24-014654
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/889348/000199937124014654/cpi-10q_093024.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/889348/000199937124014654/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $19.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $59.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $15.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $46.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $4.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $12.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $2.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $8.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $1.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $4.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $573.4k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $1.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $154.6k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $535.6k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $749.7k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $2.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.18 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 12,717,128 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 12,650,340 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$837.1k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $330.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $1.7m | us-gaap:Cash |
| Current assets | at 2024-09-30 | $43.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $68.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $27.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $43.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $24.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,502 characters.

The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in this report.

### Forward Looking Statements

When used in this Form 10-Q and in future filings by us with the Securities and Exchange Commission (the “SEC”), the words or phrases “will likely result,” “management expects” or “we expect,” “will 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 Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “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.

### Business Operations

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

### Recent Developments

None.

### Backlog

We produce custom assemblies pursuant to long-term contracts and customer purchase orders. Funded backlog consists of aggregate funded values under such contracts and purchase orders, excluding the portion previously included in operating revenues pursuant to Accounting Standards Codification Topic 606 (“ASC 606”). Unfunded backlog is the estimated amount of future orders under the expected duration of the programs. 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 September 30, 2024 and December 31, 2023 is shown below.

| Backlog (Total) | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Funded | $91,502,000 | $118,218,000 |
| Unfunded | 414,519,000 | 395,133,000 |
| Total | $506,021,000 | $513,351,000 |

Approximately 96% of the total amount of our backlog at September 30, 2024 was attributable to government and military contractor contracts. Our backlog attributable to government contracts at September 30, 2024 and December 31, 2023 was as follows:

| Backlog (Government) | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Funded | $87,528,000 | $115,681,000 |
| Unfunded | 398,319,000 | 383,574,000 |
| Total | $485,847,000 | $499,255,000 |

12

Our backlog attributable to commercial contracts at September 30, 2024 and December 31, 2023 was as follows:

| Backlog (Commercial) | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Funded | $3,974,000 | $2,537,000 |
| Unfunded | 16,200,000 | 11,559,000 |
| Total | $20,174,000 | $14,096,000 |

The total backlog at September 30, 2024 is primarily comprised of long-term programs with Raytheon (Next Generation Jammer-Mid Band Pods and Advanced Tactical Pods), Lockheed Martin (F-16 RI/DCC’s), Raytheon (B-52 Radar Racks), USAF (T-38 Classic Structural Modification Kits), Sikorsky (UH-60 BLACKHAWK Gunner Windows and CH-53K Welded Tubes), Raytheon (Airborne Reconnaissance Pods), Embraer (Phenom 300 Engine Inlets), and L3Harris (Next Generation Jammer-Low Band Pods (“NGJ-LB”) .

The funded backlog at September 30, 2024 is primarily from purchase orders under long-term contracts with Raytheon (NGJ – Mid Band Pods and Advanced Tactical Pods), USAF (T-38 Classic Structural Modification Kits), Sikorsky (CH-53K Welded Tubes), Sikorsky (UH-60 BLACKHAWK Gunner Windows), Raytheon (Airborne Reconnaissance Pods), Boeing (A-10 Main Landing Gear Pods), Lockheed Martin (F-16 RI/DCC’s), Embraer (Phenom 300 Engine Inlets) and L3Harris (NGJ-Low Band Pods).

### Critical Accounting Estimates

We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See *Management’s Discussion and Analysis of Financial Condition and Results of Operations* in the Form 10-K, for a discussion of our critical accounting estimates. There have been no significant changes to the application of our critical accounting estimates during the quarter ended September 30, 2024.

### Results of Operations

### Revenue

Total Revenue for the three months ended September 30, 2024 was $19,419,879 compared to $20,399,369 for the same period last year, a decrease of $979,490 or 4.8%, driven primarily by decreases in our USAF T-38 Pacer Classic Structure Modification Kits program and Northrop Grumman E-2D Advanced Hawkeye Outer Wing Panels (“OWP”), partly offset by increases in our Raytheon NGJ – Mid Band Pods.

Total Revenue for the nine months ended September 30, 2024 was $59,311,356 compared to $62,963,592 for the same period last year, a decrease of $3,652,236 or 5.8%, driven primarily by decreases in our Sikorsky UH-60 BLACKHAWK Hover Infrared Suppression System (“HIRSS”) Module Assemblies program, Northrop Grumman E-2D Advanced Hawkeye OWP program and Lockheed Martin F-16 Rudder Island program, partly offset by increases in our Raytheon NGJ – Mid Band Pods program, and Collins MS-110 program.

Revenue from military subcontracts was $16,986,106 for the three months ended September 30, 2024 compared to $15,375,337 for the three months ended September 30, 2023, an increase of $1,610,769 or 10.5%, driven primarily by increases in our Raytheon NGJ – Mid Band Pods program partly offset by decreases in our Lockheed Martin F-16 Rudder Island program.

Revenue from military subcontracts was $48,951,748 for the nine months ended September 30, 2024 compared to $50,550,256 for the nine months ended September 30, 2023, a decrease of $1,598,508 or 3.2%, driven primarily by decreases in our Sikorsky UH-60 BLACKHAWK HIRSS Module Assemblies program partly offset by increases in our Raytheon NGJ – Mid Band Pods program.

Revenue from government military contracts was $1,673,483 for the three months ended September 30, 2024 compared to $3,943,723 for the three months ended September 30, 2023, a decrease of $2,270,240 or 57.6%, driven primarily by a decrease in our USAF T-38 Pacer Classic Structural Modification Kits program due to push out of customer inductions of aircraft.

Revenue from government military contracts was $7,056,711 for the nine months ended September 30, 2024 compared to $8,062,682 for the nine months ended September 30, 2023, a decrease of $1,005,971 or 12.5%, driven primarily by decreases in our USAF T-38 Pacer Classic Structural Modification Kits program and DLA F-16 Wing Skins program.

Revenue from commercial subcontracts was $760,290 for the three months ended September 30, 2024 compared to $1,080,309 for the three months ended September 30, 2023, a decrease of $320,019 or 29.6%, primarily on a decrease in our Embraer Phenom-300 Engine Inlet Assemblies program.

Revenue from commercial subcontracts was $3,302,897 for the nine months ended September 30, 2024 compared to $4,350,654 for the nine months ended September 30, 2023, a decrease of $1,047,757 or 24.1%, primarily on a decrease in our Embraer Phenom-300 Engine Inlet Assemblies program.

### Cost of Sales

Total Cost of Sales for the three months ended September 30, 2024 and 2023 was $15,200,210, and $16,693,279, respectively, a decrease of $1,493,069 or 9%.

Total Cost of Sales for the nine months ended September 30, 2024 and 2023 was $46,422,514 and $49,990,986, respectively, a decrease of $3,568,472 or 7%.

The components of the cost of sales were as follows:

|  | Three months ended September 30, 2024 | September 30, 2023 | Nine months ended September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Procurement | $9,219,097 | $10,815,261 | $28,702,158 | $31,774,115 |
| Labor | 1,861,505 | 1,580,290 | 5,460,235 | 5,302,436 |
| Factory overhead | 4,021,411 | 4,036,825 | 12,058,902 | 12,083,270 |
| Other cost of sales | 98,197 | 260,903 | 201,219 | 831,165 |
| **Cost of sales** | $15,200,210 | $16,693,279 | $46,422,514 | $49,990,986 |

Procurement for the three months ended September 30, 2024 was $9,219,097 compared to $10,815,261 for the three months ended September 30, 2023, a decrease of $1,596,164 or 14.8%, driven primarily by lower procurement for our USAF T-38 Pacer Classic Structural Modification Kits program due to push out of customer inductions of aircraft and Northrop Grumman E-2D Advanced Hawkeye OWP program.

Procurement for the nine months ended September 30, 2024 was $28,702,158 compared to $31,774,115 for the nine months ended September 30, 2023, a decrease of $3,071,957 or 9.7%, driven primarily by lower procurement in our Sikorsky UH-60 BLACKHAWK HIRSS Module Assemblies program and USAF T-38 Pacer Classic Structural Modification Kits program partially offset by higher procurement in our Raytheon NGJ – Mid Band Pods program.

Labor costs for the three months ended September 30, 2024 were $1,861,505 compared to $1,580,290 for the three months ended September 30, 2023, an increase of $281,215 or 17.8% primarily driven by increases in work performed in the Boeing A-10 program, Sikorsky “CH-53K” Tube Assembly, and the Raytheon NGJ – Mid Band Pods program.

Labor costs for the nine months ended September 30, 2024 were $5,460,235 compared to $5,302,436 for the nine months ended September 30, 2023, an increase of $157,799 or 3.0% primarily driven by an increase in work performed on the Lockheed Martin F-16 Rudder Island.

Factory overhead for the three months ended September 30, 2024 was $4,021,411 compared to $4,036,825 for the three months ended September 30, 2023, a decrease of $15,414 or 0.4%.

Factory overhead for the nine months ended September 30, 2024 was $12,058,902 compared to $12,083,270 for the nine months ended September 30, 2023, a decrease of $24,368 or 0.2%.

Other cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory reserves, changes in loss contract provisions, absorption variances and direct charges to cost of sales. Other cost of sales for the three months ended September 30, 2024 was $98,197 compared to a $260,903 for the three months ended September 30, 2023, a decrease of $162,706 or 62.4%. The decrease is primarily the result of lower loss reserve required during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Other cost of sales for the nine months ended September 30, 2024 was $201,219 compared to $831,165 for the nine months ended September 30, 2023, a decrease in cost of $629,946 or 75.8%. The decrease is primarily the result of a lower required loss reserve and lower level of direct charges to cost of sales during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

### Gross Profit

Gross profit and gross profit percentage (“gross margin”) for the three months ended September 30, 2024 was $4,219,669 and 21.7%, respectively, compared to $3,706,090 and 18.2%, respectively, for the three months ended September 30, 2023, an increase of $513,579, or 13.9%, and 350 basis points, respectively, for the reasons noted above and a favorable year-over-year mix.

Gross profit and gross profit percentage (“gross margin”) for the nine months ended September 30, 2024 was $12,888,842 and 21.7%, respectively, compared to $12,972,606 and 20.6%, respectively, for the nine months ended September 30, 2023, a decrease of $83,764, or 0.6%, and 110 basis points, respectively, for the reasons noted above.

### Favorable/Unfavorable Adjustments to Gross Profit

During the nine months ended September 30, 2024 and 2023, circumstances required that we make changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as follows:

|  | Nine months ended September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Favorable adjustments | $1,835,489 | $2,383,071 |
| Unfavorable adjustments | (4,059,160) | (3,396,171) |
| Net adjustments | $(2,223,671) | $(1,013,100) |

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2024 were $2,742,036 compared to $2,535,065 for the three months ended September 30, 2023, an increase of $206,971 or 8.2%. The increase was primarily the result of higher personnel related expenses.

Selling, general and administrative expenses for the nine months ended September 30, 2024 were $8,231,875 compared to $8,210,603 for the nine months ended September 30, 2023, an increase of $21,272 or 0.3%.

### Interest expense

Interest expense for the three months ended September 30, 2024 was $573,366, compared to $663,857 for the three months ended September 30, 2023, a decrease of $90,491 or 13.6%. The decrease was the result of lower year-over-year interest rates charged on our outstanding debt under the Credit Agreement, combined with a year-over-year decrease in the amount of our outstanding debt under the Credit Agreement.

Interest expense for the nine months ended September 30, 2024 was $1,793,472, compared to $1,816,408 for the nine months ended September 30, 2023, a decrease of $22,936 or 1.3%.

### Income Before Provision for Income Taxes

Income before provision for income taxes for the three months ended September 30, 2024 was $904,267 compared to $507,168 for the three months ended September 30, 2023, an increase of $397,099 or 78.3% for the reasons noted above.

Income before provision for income taxes for the nine months ended September 30, 2024 was $2,863,495 compared to $2,945,595 for the nine months ended September 30, 2023, a decrease of $82,100 or 2.8% for the reasons noted above.

### Provision for Income Taxes

Provision for income taxes for the three months ended September 30, 2024 was $154,590 compared to $205,804 for the three months ended September 30, 2023, a decrease of $51,214, or 24.9%. The decrease in the provision for income tax is primarily the result of the annualization of the September 30, 2023 tax rate.

The effective income tax rate for the three months ended September 30, 2024 is 17.1%. The difference between the effective income tax rate for the three months ended September 30, 2024 and the statutory income tax rate of 21% for the three months ended September 30, 2024 is primarily due to estimated R&D credit, state income taxes and permanent tax differences.

Provision for income taxes for the nine months ended September 30, 2024 was $535,634 compared to $503,850 for the nine months ended September 30, 2023, an increase of $31,784, or 6.3%. The increase in the provision for income tax is primarily the result of the reduced impact in the rate for the R&D benefit.

The effective income tax rate for the nine months ended September 30, 2024 is 18.7%. The difference between the effective income tax rate for the nine months ended September 30, 2024 and the statutory income tax rate of 21% for the nine months ended September 30, 2024 is primarily due to estimated R&D credit, state income taxes and permanent tax differences.

### Net Income and Earnings per Share

Net income for the three months ended September 30, 2024 was $749,677 compared to $301,364 for the three months ended September 30, 2023, an increase of $448,313 or 148.8%% for the reasons noted above.

Basic and diluted income per share for the three months ended September 30, 2024 of $0.06 compared to $0.02 for the three months ended September 30, 2023, an increase of $0.04, or 200%.

Basic and diluted income per share for the three months ended September 30, 2024 was calculated using 12,647,023 and 12,717,128 weighted average basic and diluted shares outstanding, respectively, as compared to 12,759,971 and 12,793,133 weighted average basic and diluted shares outstanding, respectively, for the three months ended September 30, 2023.

Net income for the nine months ended September 30, 2024 was $2,327,861 compared to $2,441,745 for the nine months ended September 30, 2023, a decrease of $113,884 or 4.7% for the reasons noted above.

Basic income per share for the nine months ended September 30, 2024 of $0.19 was consistent with $0.19 for the nine months ended September 30, 2023. Diluted income per share for the nine months ended September 30, 2024 of $0.18 compared to $0.19 for the nine months ended September 30, 2023, a decrease of $0.01, or 5.3%.

Basic and diluted income per share for the nine months ended September 30, 2024 was calculated using 12,559,876 and 12,650,340 weighted average basic and diluted shares outstanding, respectively, as compared to 12,613,899 and 12,647,061 weighted average basic and diluted shares outstanding, respectively, for the nine months ended September 30, 2023.

### Liquidity and Capital Resources

### General

At September 30, 2024, we had working capital of $16,312,228 compared to $15,402,381 at December 31, 2023, an increase of $909,847 or 5.9%. The increase was driven primarily by lower contract liabilities and higher accounts receivable, partly offset by lower cash and contract assets, lower inventory and lower prepaid expenses and other current assets.

### Cash Flow

A large portion of our cash flow 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 and related earnings for which we do not bill on a progress basis, and which, as a result, we bill upon shipment of products, are components of contract assets on our consolidated balance sheets and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

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

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

We continuously work to improve our payment terms from our customers, including accelerated progress payment arrangements, as well as exploring alternate funding sources.

At September 30, 2024, we had cash of $1,708,987 compared to $5,094,794 at December 31, 2023, a decrease of $3,385,807 or 66.5%. This decrease was primarily the result of cash flow used in operating activities and repayment of debt.

### Bank Credit Facilities

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

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

On November 13, 2024, the Company entered into a Fourteenth Amendment to the Credit Agreement (the “Fourteenth Amendment”). Under the Fourteenth Amendment, the parties amended the Credit Agreement by: (i) extending the maturity date of the Company’s existing revolving line of credit (the “Revolving Credit Loans”) to August 31, 2026; (ii) reducing the Base Rate Margin (as defined in the Credit Agreement) from 3.50% to 2.0%; (iii) resetting the aggregate maximum principal amount of all Revolving Credit Loans to $16,890,000 from January 1, 2025 through March 31, 2025, $16,140,000 from April 1, 2025 through June 30, 2025, $15,390,000 from July 1, 2025 through September 30, 2025, $14,640,000 from October 1, 2025 through December 31, 2025, $13,890,000 from January 1, 2026 through March 31, 2026, $13,140,000 from April 1, 2026 through June 30, 2026, and $12,390,000 from July 1, 2026 onward and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period; and (iv) requiring the Company, if it does not deliver to BankUnited, N.A. by December 31, 2025, a commitment letter with banks and terms and conditions reasonably acceptable to the Lenders for refinancing the obligations under the Credit Agreement, to make a payment by January 31, 2026, equal to 2% of the aggregate outstanding principal amount of the Revolving Credit Loans as of December 31, 2025, with 50% of such payment applied to reduce the aggregate outstanding principal and the remaining 50% retained by the Lenders as an amendment fee with respect to the Fourteenth Amendment.

The Credit Agreement, as amended, requires us to maintain the following financial covenants: (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for trailing four fiscal quarter periods; (b) maximum leverage ratio of no less than 4.0 to 1.0 for trailing four fiscal quarter periods; (c) minimum net income after taxes as of the end of each fiscal quarter being no less than $1.00; and (d) a minimum adjusted EBITDA at the end of each fiscal quarter of no less than $1.0 million. The additional principal payments, increase in interest and the Amendment Fee provided for in the Eighth Amendment (entered into on October 28, 2021) and Ninth Amendment to the Credit Agreement (entered into on April 12, 2022) are excluded for purposes of calculating compliance with each of the financial covenants.

The BankUnited Facility is secured by all of the Company’s assets. Prior to the Fourteenth Amendment the Revolving Loan bore interest at the Prime Rate + 3.50%. The Prime Rate was 8.0% as of September 30, 2024 and as such, the Company’s interest rate on the Revolving Loan was 11.5% as of September 30, 2024.

As of September 30, 2024 and December 31, 2023, the Company had $18,120,000 and $20,040,000 outstanding under the Revolving Loan, respectively.

There is currently no availability for borrowings under the Revolving Loan and the Company finances its operations from internally generated cash flow.

### Liquidity

We believe that our existing resources as of September 30, 2024 will be sufficient to meet our current working capital needs for at least the next 12 months from the date of issuance of our consolidated financial statements. However, our working capital requirements can vary significantly, depending in part on the timing of new program awards and the payment terms with our customers and suppliers. If our working capital needs exceed our cash flows from operations, we would look to our cash balances and availability for borrowings under our borrowing arrangement to satisfy those needs, as well as potential sources of additional capital, which may not be available on satisfactory terms and in adequate amounts, if at all.

### Contractual Obligations

For information concerning our contractual obligations, see *Contractual Obligations* under Item 7 of Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Form 10-K.

### Inflation

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

## Controls and procedures

As filed, 4,288 characters.

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

- pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of internal control over financial reporting for the twelve months ended December 31, 2023 based on criteria established in *Internal Control-Integrated Framework* (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In connection with this evaluation, management identified a deficiency that constituted a material weakness in our internal control over financial reporting as of December 31, 2023, pertaining to income tax accounting. For more information on this deficiency, see Item 9A. Controls and Procedures, included in our Annual Report on Form 10-K. Based on management’s evaluation of internal control over financial reporting for the twelve months ended December 31, 2023, and as of September 30, 2024, our disclosure controls and procedures were not effective as of September 30, 2024 due to the aforementioned material weakness pertaining to income tax accounting.

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

The Company has begun to develop new controls designed to remediate the aforementioned 2023 material weakness pertaining to income tax accounting, which the Company intends to implement during 2024.

### Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2024, we continued to implement the following changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting as follows: (a) we replaced the Company’s outside tax accounting and tax return preparer with a new firm (the “Tax Accounting Firm”); (b) we retained the Tax Accounting Firm (i) to prepare the Company’s income tax accounting and disclosures for the quarter ended September 30, 2024 and (ii) to review the income tax accounting and disclosures prepared by the predecessor firm for the quarter ended March 31, 2024 prior to the filing of the Form 10-Q for the quarter ended March 31, 2024; (c) we updated our financial risk assessment to reflect tax accounting as a high risk area, and (d) we adopted a tax accounting review checklist provided by our Sarbanes-Oxley consulting firm for use by CPI’s finance management in reviewing the quarterly and annual work of the Tax Accounting Firm, beginning with the tax accounting for the quarter ended June 30, 2024.

## Risk factors

As filed, 342 characters.

“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, includes a discussion of significant factors known to us that could materially adversely affect our business, financial condition, or results of operations. There have been no material changes from the risk factors disclosed in the Annual Report.

Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001999371-24-014654. Last ingested by Listed: Oct 24, 2026, 14:59 ET. No prices; not investment advice.