CPI Aerostructures Inc: Form 10-Q for the period ended Sep 30, 2025

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, 2024 (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

CPI Aero is a prime contractor to the U.S. Department of Defense as well as a Tier 1 subcontractor to some of the largest aerospace and defense contractors in the world. CPI Aero provides engineering, program management, supply chain management, assembly operations and MRO services to this global network of customers. CPI Aero is recognized as a leader within the international aerospace market in such areas as aircraft structural assemblies, military advanced tactical pod structures, engine air inlets, and complex welded products. CPI Aero’s customer base enjoys a unique combination of large-company capabilities, matched with small-company value, responsiveness, and personal customer service.

Recent Developments

Credit Agreement Waiver

On November 13, 2025, CPI Aerostructures, Inc. entered into a Sixteenth Amendment to its Credit Agreement with BankUnited, N.A. and the lenders party thereto. The amendment extended the maturity of the revolving credit facility to November 30, 2026, adjusted borrowing limits for future periods, waived a failure to pay principal, and eliminated a prior contingent payment requirement. For additional information, see “Liquidity and Capital Resources — Bank Credit Facilities” below.

Appointment of Interim Chief Financial Officer

Effective July 22, 2025, Pamela Levesque, a Company director, was appointed to the positions of Interim Chief Financial Officer and Secretary. Ms. Levesque will also serve as Interim Chief Financial Officer and Secretary of each of the Company’s wholly owned subsidiaries, Welding Metallurgy, Inc. and Compac Development Corporation. Please refer to our Form 8-K filed on July 28, 2025 for additional information.

Backlog

We produce complex custom structural 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, 2025 and December 31, 2024 is shown below.

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Approximately 96% of the total amount of our backlog at September 30, 2025 was attributable to government and military contractor contracts. Our backlog attributable to government contracts at September 30, 2025 and December 31, 2024 was as follows:

Our backlog attributable to commercial contracts at September 30, 2025 and December 31, 2024 was as follows:

The total backlog at September 30, 2025 is primarily comprised of long-term programs with Raytheon (NGJ Mid-Band Pods and Advanced Tactical Pods), L3Harris (NGJ Low-Band Pods), Lockheed Martin (F-16 RI/DCC’s), Raytheon (B-52 Radar Racks), Sikorsky (MH-60 Seahawk Stabilator MRO).

The funded backlog at September 30, 2025 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) and Lockheed Martin (F-16 RI/DCC’s).

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 nine months ended September 30, 2025.

Results of Operations

Revenue

Total Revenue for the three months ended September 30, 2025 was $19,269,102 compared to $19,419,879 for the same period last year, a decrease of $150,777 or 0.8%, driven primarily by the termination of the Boeing A-10 Main Landing Gear Pods program offset by timing of material receipts to our NGJ Mid-Band Pods Programs.

Total Revenue for the nine months ended September 30, 2025 was $49,848,818 compared to $59,311,356 for the same period last year, a decrease of $9,462,538 or 16%, driven primarily by the unfavorable adjustment associated with the termination of the Boeing A-10 Main Landing Gear Pods program, timing of material receipts on our MS-110/TACSAR pod program and completion of the F-35 program, offset by higher production volume in our NGJ Mid-Band Pods and MH-60 Seahawk Stabilator MRO programs.

Revenue from military subcontracts was $15,522,738 for the three months ended September 30, 2025 compared to $16,986,106 for the three months ended September 30, 2024, a decrease of $1,463,368 or 8.6%, driven primarily associated with the termination of the Boeing A-10 Main Landing Gear Pods program and lower revenue on the Sikorsky CH-53K Welded Tubes program offset by timing of material receipts on our NGJ Mid-Band Pods Programs.

Revenue from military subcontracts was $39,115,821 for the nine months ended September 30, 2025 compared to $48,951,748 for the nine months ended September 30, 2024, a decrease of $9,835,927 or 20.1%, driven primarily by the unfavorable adjustment associated with the termination of the Boeing A-10 Main Landing Gear Pods program, timing of material receipts on our MS-110/TACSAR pod program and completion of the F-35 program, offset by higher production volume in our NGJ Mid-Band Pods and MH-60 Seahawk Stabilator MRO programs.

Revenue from government military contracts was $2,560,673 for the three months ended September 30, 2025 compared to $1,673,483 for the three months ended September 30, 2024, an increase of $887,190 or 53.0%, driven primarily by timing of material receipts in our USAF T-38 Pacer Classic Structural Modification Kits program.

Revenue from government military contracts was $6,689,643 for the nine months ended September 30, 2025 compared to $7,056,711 for the nine months ended September 30, 2024, a decrease of $367,068 or 5.2%, driven primarily by timing of material receipts in our USAF T-38 Pacer Classic Structural Modification Kits program.

Revenue from commercial subcontracts was $1,185,691 for the three months ended September 30, 2025 compared to $760,290 for the three months ended September 30, 2024, an increase of $425,401 or 56.0%, driven primarily by the commencement in our Embraer Phenom-100 Engine Inlet Assemblies programs.

Revenue from commercial subcontracts was $4,043,354 for the nine months ended September 30, 2025 compared to $3,302,897 for the nine months ended September 30, 2024, an increase of $740,457 or 22.4%, primarily driven by the commencement in our Embraer Phenom-100 Engine Inlet Assemblies and Collins Compac Enclosures programs.

Cost of Sales

Total Cost of Sales for the three months ended September 30, 2025 and 2024 was $14,962,788 and $15,200,210, respectively, a decrease of $237,422 or 1.6%.

Total Cost of Sales for the nine months ended September 30, 2025 and 2024 was $43,229,647 and $46,422,514, respectively, a decrease of $3,192,867 or 6.9%.

The components of the cost of sales were as follows:

Procurement for the three months ended September 30, 2025 was $9,605,276 compared to $9,219,097 for the three months ended September 30, 2024, an increase of $386,179 or 4.2%, driven primarily by increased material receipts for our NGJ Mid-band pod and USAF T-38 Pacer Classic Structural Modification Kits programs offset by the termination of the Boeing A-10 Main Landing Gear Pods program.

Procurement for the nine months ended September 30, 2025 was $26,760,166 compared to $28,702,158 for the nine months ended September 30, 2024, a decrease of $1,941,992 or 6.8%, driven primarily by the termination of the Boeing A-10 Main Landing Gear Pods program and lower material receipts on the Collins MS-110 program, offset by increased material receipts on our NGJ POD program.

Labor costs for the three months ended September 30, 2025 were $1,470,358 compared to $1,861,505 for the three months ended September 30, 2024, a decrease of $391,147 or 21.0% primarily driven by the termination of the Boeing A-10 Main Landing Gear Pods program.

Labor costs for the nine months ended September 30, 2025 were $4,617,419 compared to $5,460,235 for the nine months ended September 30, 2024, a decrease of $842,816 or 15.4% primarily driven by the termination of the Boeing A-10 Main Landing Gear Pods program and timing of work performed on the F-16 Rudder Island program.

Factory overhead for the three months ended September 30, 2025 was $4,101,453 compared to $4,021,411 for the three months ended September 30, 2024, an increase of $80,042 or 2.0%.

Factory overhead for the nine months ended September 30, 2025 was $12,172,384 compared to $12,058,902 for the nine months ended September 30, 2024, an increase of $113,482 or 0.9%.

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, 2025 was $(214,299) compared to a $98,197 for the three months ended September 30, 2024, a decrease of $312,496 or 318.2%. The decrease is primarily the benefits realized on programs nearing completion.

Other cost of sales for the nine months ended September 30, 2025 was $(320,322) compared to $201,219 for the nine months ended September 30, 2024, a decrease in cost of $521,541 or 259.2%. The decrease is primarily driven by benefits realized on programs nearing completion during the three months ended March 31, 2025 partially offset by changes in inventory loss reserve.

Gross Profit

Gross profit and gross profit percentage (“gross margin”) for the three months ended September 30, 2025 and September 30, 2024 was $4,306,314 and 22.3% compared to $4,219,669 and 21.7% respectively, an increase of $86,645 or 2.1%, and 60 basis points for the reasons noted above.

Gross margin for the nine months ended September 30, 2025 was $6,619,171 and 13.3%, respectively, compared to $12,888,842 and 21.7%, respectively, for the nine months ended September 30, 2024, a decrease of $6,269,671 or 48.6%, and 840 basis points for the reasons noted above.

Favorable/Unfavorable Adjustments to Gross Profit

During the three and nine months ended September 30, 2025 and 2024, circumstances required that we make changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as follows:

The net adjustment of $1.0 million for the three months ended September 30, 2025 is driven primarily by an unfavorable adjustment associated with the F-16 Rudder Island program, and increased labor and material costs on the NGJ Mid-Band Pod, and Embraer Phenom-300 Engine Inlets Assembly programs.

The net adjustment of $8.1 million for the nine months ended September 30, 2025 is driven primarily by an unfavorable adjustment associated with the termination of the Boeing A-10 program and increased labor and material costs on the NGJ Mid-Band Pod, T-38 Classic Structural Modification Kits and Embraer Phenom-300 Engine Inlets Assembly programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2025 were $2,551,355 compared to $2,742,036 for the three months ended September 30, 2024, a decrease of $190,681 or 7.0%. The decrease was primarily due to lower salary related costs.

Selling, general and administrative expenses for the nine months ended September 30, 2025 were $8,041,156 compared to $8,231,875 for the nine months ended September 30, 2024, a decrease of $190,719 or 2.3%. The decrease was primarily due to lower salary related costs.

Interest expense

Interest expense for the three months ended September 30, 2025 was $387,922, compared to $573,366 for the three months ended September 30, 2024, a decrease of $185,444 or 32.3%. The decrease was primarily 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, 2025 was $1,163,559, compared to $1,793,472 for the nine months ended September 30, 2024, a decrease of $629,913 or 35.1%. 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.

Income (loss) Before Provision for Income Taxes

Income before provision for income taxes for the three months ended September 30, 2025 was $1,367,037 compared to $904,267 for the three months ended September 30, 2024.

(Loss) income before provision for income taxes for the nine months ended September 30, 2025 was ($2,578,564) compared to $2,863,495 for the nine months ended September 30, 2024.

(Benefit)/Provision for Income Taxes

Provision for income taxes for the three months ended September 30, 2025 was $253,345 compared to provision for income taxes of $154,590 for the three months ended September 30, 2024, an increase of $98,755 or 63.9% is primarily related to the increase in net income.

The effective income tax rate for the three months ended September 30, 2025 and September 30, 2024 is 18.5% and 17.1%, respectively. The difference between the effective income tax rate for the three months ended September 30, 2025 and the statutory income tax rate of 21% is primarily due to the estimated R&D credit, state income taxes and permanent tax differences. The difference between the effective income tax rate for the three months ended September 30, 2024 and the statutory income tax rate of 21% is primarily due to estimated R&D credit, state income taxes and permanent tax differences.

(Benefit)/provision for income taxes for the nine months ended September 30, 2025 was $(1,043,373) compared to a provision for income taxes of $535,634 for the nine months ended September 30, 2024, a benefit increase of $1,579,007 or 294.8% is primarily the result of the change in net income for the period.

The effective income tax rate for the nine months ended September 30, 2025 and September 30, 2024 is 40.5% and 18.7%, respectively. The difference between the effective income tax rate for the nine months ended September 30, 2025 and the statutory income tax rate of 21% is primarily due to the estimated R&D credit, state income taxes and permanent tax differences. The difference between the effective income tax rate for the nine months ended September 30, 2024 and the statutory income tax rate of 21% is primarily due to estimated R&D credit, state income taxes and permanent tax differences.

Net Income/(Loss) and Earnings per Share

Net income for the three months ended September 30, 2025 was $1,113,692 or $0.09 per basic share using 12,763,486 weighted average basic shares outstanding, compared to net income of $749,677 or $0.06 per basic share using 12,647,023 weighted average basic shares outstanding, for the same period last year. Diluted income per share was $0.09 for the three months ended September 30, 2025 calculated utilizing 12,818,191 weighted average shares outstanding. Diluted income per share was $0.06 for the three months ended September 30, 2024 calculated utilizing 12,717,128 weighted average shares outstanding. The increase in net income was primarily driven by decreases in selling, general and administrative expenses and interest expense.

Net (loss) income for the nine months ended September 30, 2025 was $(1,535,191) or $(0.12) per basic share using 12,740,097 weighted average basic shares outstanding, compared to net income of $2,327,861 or $0.19 per basic share using 12,559,876 weighted average basic shares outstanding, for the same period last year. Diluted (loss) per share was $(0.12) for the nine months ended September 30, 2025 calculated utilizing 12,740,097 weighted average shares outstanding. Diluted income per share was $0.18 for the nine months ended September 30, 2024 calculated utilizing 12,650,340 weighted average shares outstanding. The decrease in net income was primarily driven by a decrease in gross profit offset by the benefit increase in income taxes.

Liquidity and Capital Resources

General

At September 30, 2025, we had working capital of $15,836,054 compared to $17,122,111 at December 31, 2024, a decrease of $1,286,057 or 7.5%. The decrease was driven primarily by a decrease in cash and accrued liabilities offset by increases in accounts payable, accounts receivable, contract assets and current portion of line of credit.

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 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, 2025, we had cash of $546,591 compared to $5,490,963 at December 31, 2024, a decrease of $4,944,372 or 90%. 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 the 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 BankUnited Facility originally provided for a revolving credit loan commitment of $30 million (the “Revolving Credit Loans”) and a $10 million term loan (“Term Loan”). The Term Loan has been repaid. The Revolving Loan bears interest at a rate based upon a pricing grid, 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 Revolving Credit Loans 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 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 “Additional Payment Obligation”).

As of March 31, 2025, the Company was not in compliance with the Credit Agreement’s minimum debt service coverage ratio, minimum fiscal quarter net income after taxes, and minimum quarterly adjusted EBITDA financial covenants and the Company obtained a written waiver from the Lenders waiving the specified covenant non-compliance for the fiscal quarter ended March 31, 2025.

As of June 30, 2025, the Company was not in compliance with all the Credit Agreement’s financial covenants. In addition, the Company did not satisfy the July 1, 2025 mandatory repayment requirement under the Credit Agreement (the “July 2025 Payment Obligation”). On August 14, 2025, the Company obtained a written waiver from the Lenders pursuant to which the Lenders (i) waived the financial covenant non-compliance for the fiscal quarter ended June 30, 2025 and (ii) temporarily waived non-compliance with the July 2025 Payment Obligation until September 30, 2025.

On August 19, 2025, the Company executed a Fifteenth Amendment to the Credit Agreement (the “Fifteenth Amendment”). The amendment revised certain financial covenants to reflect specified adjustments for the quarters ended March 31, 2025 and June 30, 2025. These covenant-based adjustments were designed to offset the effect of the termination of the Company’s Boeing A-10 Program on covenant compliance.

As of September 30, 2025, the Company was not in compliance with the aggregate principal amount of all Revolving Credit Loans and the Company obtained a Waiver and Sixteenth Amendment to the Credit Agreement (the “Sixteenth Amendment”). The Sixteenth Amendment reset the aggregate maximum principal amount of all Revolving Credit Loans to $15,890,000 from July 1, 2025 through March 31, 2026, $15,140,000 from April 1, 2026 through June 30, 2026, $14,390,000 from July 1, 2026 through September 30, 2026, and $13,640,000 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 waived the Company’s failure to make the July 2025 Payment Obligation on September 30, 2025. The Sixteenth Amendment also extended the maturity date of the Revolving Credit Loans to November 30, 2026, and waived the Additional Payment Obligation. A copy of the Waiver and Sixteenth Amendment to the Credit Agreement is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

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 (collectively, the “Financial Covenants”). In accordance with ASC 470, the Company has determined that it is reasonably possible it will meet its covenants within the next 12 months.

Although waivers and Credit Agreement amendments cured the events of defaults described above, the Company’s failure to comply with the financial covenants in future periods or make mandatory repayments could result in additional events of default, and unless further waivers or amendments are obtained, of which there is no assurance, future non-compliance could permit the Lenders to accelerate the Company’s outstanding obligations under the Credit Agreement and exercise other remedies available under the loan documents. The Company continues to monitor its financial performance and covenant compliance and may seek further waivers or amendments, if necessary.

The BankUnited Facility is secured by all the Company’s assets and the Revolving Credit Loans bore interest at the Prime Rate + 2.0%. The Prime Rate was 7.25% as of September 30, 2025 and as such, the Company’s interest rate on the Revolving Credit Loans was 9.5% as of September 30, 2025.

As of September 30, 2025 and December 31, 2024, the Company had $15,890,000 and $17,390,000 outstanding under the Revolving Credit Loans, respectively.

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

Liquidity

We believe that our existing resources as of September 30, 2025 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, supply chain, labor markets 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 and suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals.

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.

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, management evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2025. Based on that evaluation, management concluded that our disclosure controls and procedures were not effective as of that date due to the material weakness described below.

During the second quarter, a Material Weakness was identified concerning the application of ASC-470 – Debt, more specifically as it relates to 470-10-45-11, that if a company is in violation of a debt covenant and it is probable that the borrower will not be able to comply with the covenant at measurement dates within the next twelve months, this debt shall be classified as short term. Due to the financial impact of the Boeing A-10 program, the Company was not able to meet the financial covenants for the second quarter and therefore obtained a waiver to remediate the non-compliance. As this waiver did not cover the twelve months from the date of the Company’s financial statements the Company had a potential misclassification of short and long term debt.

On August 19, 2025, the Company executed the Fifteenth Amendment, which revised the definition of EBITDA for covenant-calculation purposes by permitting add-backs for the six months ended June 30, 2025 due to the Boeing A-10 program adjustments. The Fifteenth Amendment also has customary terms and conditions, including representations, reaffirmations of prior obligations, and related provisions.

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 material weakness pertaining to the application of ASC-470 – Debt which the Company implemented during the quarter ended September 30, 2025.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2025, the Company implemented a compliance checklist based on ASC 470-10 which provides guidance on the classification determination for obligations of callable debt for use by CPI’s finance management in reviewing the quarterly and annual covenant requirements.

“Part I Item 1A - Risk Factors” of our Comprehensive Form 10-K for the year ended December 31, 2024, 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 described in such report except as follows.