UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (IRS Employer Identification Number) | |
| of incorporation or organization) |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of each class | Trading symbol(s) | Name
of each exchange on which registered |
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 (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 11, 2025, the registrant had shares of common stock, $.001 par value, outstanding
Part I - Financial Information
Item 1 - Consolidated Financial
CONDENSED CONSOLIDATED BALANCE SHEETS
| June
30, 2025 (Unaudited) |
December
31, 2024 |
|||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract assets, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Deferred tax asset, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Loss reserve | ||||||||
| Current portion of line of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Operating lease liabilities, current | ||||||||
| Income taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Line of credit, net of current portion | ||||||||
| Long-term operating lease liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (see note 11) | ||||||||
| Shareholders’ Equity: | ||||||||
| Common stock - $ par value; authorized shares, and shares, respectively, issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
June 30, |
For
the Six Months Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| (Loss) income from operations | ( |
( |
||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( |
( |
( |
( |
||||||||||||
| (Loss) income before provision for income taxes | ( |
( |
||||||||||||||
| (Benefit) provision for income taxes | ( |
( |
||||||||||||||
| Net (Loss) income | $ | ( |
$ | $ | ( |
$ | ||||||||||
| Income per common share, basic | $ | ( |
$ | $ | ( |
$ | ||||||||||
| Income per common share, diluted | $ | ( |
$ | $ | ( |
$ | ||||||||||
| Shares used in computing income per common share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
2
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
| Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock upon settlement of restricted stock, net | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock upon settlement of restricted stock, net | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | — | |||||||||||||||||||
| Issuance of common stock upon settlement of restricted stock, net | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | — | |||||||||||||||||||
| Issuance of common stock upon settlement of restricted stock, net | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See Notes to Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For
the Six Months ended June 30, |
||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( |
$ | |||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance cost | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( |
|||||||
| Provision for credit losses | ( |
|||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | ( |
( |
) | |||||
| Decrease in contract assets | ||||||||
| (Increase) decrease in inventory | ( |
|||||||
| Decrease in prepaid expenses and other assets | ||||||||
| Increase (decrease) in accounts payable and accrued expenses | ( |
) | ||||||
| Decrease in contract liabilities | ( |
( |
) | |||||
| Increase (decrease) in operating lease liabilities | ( |
( |
) | |||||
| Increase (decrease) in loss reserve | ( |
) | ||||||
| (Decrease) increase in income taxes payable | ( |
|||||||
| Net cash used in operating activities | ( |
( |
) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( |
( |
) | |||||
| Net cash used in investing activities | ( |
( |
) | |||||
| Cash flows from financing activities: | ||||||||
| Principal payments on line of credit | ( |
( |
) | |||||
| Principal payments on long-term debt | ( |
( |
) | |||||
| Repayments of insurance financing obligation | ( |
( |
) | |||||
| Net cash used in financing activities | ( |
( |
) | |||||
| Net decrease in cash | ( |
( |
) | |||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Supplemental disclosure of Non Cash item: | ||||||||
| Increase to operating right-of-use asset and operating lease liability from lease amendment | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 1. | INTERIM FINANCIAL STATEMENTS |
Basis of Presentation
The Company consists of CPI Aerostructures, Inc. (“CPI Aero”), Welding Metallurgy, Inc. (“WMI”), a wholly owned subsidiary of CPI Aero, and Compac Development Corporation, a wholly owned subsidiary of WMI (collectively, the “Company”, “we”, “us”, or “our”).
The condensed consolidated interim financial statements of the Company as of June 30, 2025 and for the three and six months ended June 30, 2025 and 2024 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. The consolidated balance sheet at December 31, 2024 has been derived from audited consolidated financial statements, but does not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures are adequate to make the information presented not misleading.
All adjustments that, in the opinion of the management, are necessary for a fair presentation for the periods presented have been reflected. Such adjustments are of a normal, recurring nature. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”). The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period.
An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company has determined that it has a single operating and reportable segment.
The
Company maintains its cash in multiple financial institutions. The balances are insured by the Federal Deposit Insurance Corporation.
From time to time, the Company’s balances may exceed insurance limits. As of June 30, 2025, the Company had $
Recently Issued Accounting Standards – Adopted
In 2025, the Company adopted ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the effective tax rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024. An entity may apply the amendments in this ASU prospectively, but an election to treat this retrospectively is permitted. The Company has adopted this ASU, which is expected to impact the annual disclosure in its 10-K.
Recently Issued Accounting Standards – Not Adopted
In July 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to measure credit losses on accounts receivable and contract assets. The ASU is effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the timing of the adoption and the impact of this ASU on its consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. In January 2025, the FASB issued ASU 2025-01, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date,” which clarifies that all public business entities should initially adopt the disclosure requirements in the final annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The new guidance is effective for fiscal years beginning after December 15, 2026, which is our annual period beginning January 1, 2027, and interim reporting periods beginning after December 15, 2027, which will be our interim period beginning January 1, 2028. Early adoption of ASU 2024-03 is permitted. We are evaluating the impact of ASU 2025-01in conjunction with ASU 2024-03.
5
| 2. | REVENUE |
Disaggregation of Revenue
The following tables present the Company’s revenue disaggregated by contract type and revenue recognition method:
| Three
months ended June 30, |
Six
months ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Government subcontracts | $ | $ | $ | $ | ||||||||||||
| Prime government contracts | ||||||||||||||||
| Commercial contracts | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Three
months ended June 30, |
Six
months ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue recognized using over time revenue recognition model | $ | $ | $ | $ | ||||||||||||
| Revenue recognized using point in time revenue recognition model | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Favorable/(Unfavorable) Adjustments to Gross Profit
We review our Estimates at Completion (“EAC”) at least quarterly. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many inputs, and requires significant judgment by management on a contract-by-contract basis. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, and related variable consideration. Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials including any impact from changing costs or inflation, the length of time to complete the performance obligation, the availability and timing of funding from our customer, and overhead cost rates, among others.
Changes in estimates of net sales, cost of sales, and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based on a performance obligation’s percentage-of-completion in the current period. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. Our EAC adjustments also include the establishment of, and changes to, loss provisions for our contracts accounted for on a percentage-of-completion basis.
6
Net EAC adjustments had the following impact on our gross profit during the three and six months ended June 30, 2025 and 2024:
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net adjustments | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The net adjustment of $4.0 million for the three months ended June 30,2025 is driven primarily by an unfavorable adjustment of $2.3 million associated with the termination of our A-10 program. Additional net unfavorable adjustments of $1.7 million were driven primarily by the Next Generation Jammer Mid-Band Pod program (“NGJ Mid-Band Pod”) and the T-38 Classic Structural Modification Kits program were due to increased labor and material costs.
The net adjustment of $7.1 million for the six months ended June 30, 2025 is driven primarily by an unfavorable adjustment of $4.5 million associated with the termination of our A-10 program. Additional net unfavorable adjustments of $2.6 million were driven primarily by the NGJ Mid-Band Pod and the T-38 Classic Structural Modification Kits program were due to increased labor and material costs.
Transaction Price Allocated to Remaining Performance Obligations
As
of June 30, 2025, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately
$
| 3. | CONTRACT ASSETS AND LIABILITIES |
Contract assets represent revenue recognized on contracts in excess of amounts invoiced to the customers and the Company’s right to consideration is conditional on something other than the passage of time. Amounts may not exceed their net realizable value. Under the typical payment terms of our government as well as military contractor contracts, the customer retains a portion of the contract price until completion of the contract, as a measure of protection for the customer. Our government and military contract or contracts therefore typically result in revenue recognized in excess of billings, which we present as contract assets. Contract assets are classified as current assets. The Company’s contract liabilities represent customer payments received or due from the customer in excess of revenue recognized. Contract liabilities are classified as current liabilities.
June 30,
2025 |
December 31,
2024 |
December 31,
2023 |
||||||||||
| Contract assets | $ | $ | $ | |||||||||
| Contract liabilities | ||||||||||||
Revenue
recognized for the six months ended June 30, 2025 and 2024 that was included in the contract liabilities balance as of January 1,
2025 and 2024, was approximately $
| 4. | INVENTORY |
The components of inventory consisted of the following:
June 30,
2025 |
December 31,
2024 |
|||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Inventory | $ | $ | ||||||
7
| 5. | STOCK-BASED COMPENSATION |
In 2009, the Company adopted the Performance Equity Plan 2009 (the “2009 Plan”). The 2009 Plan reserved common shares for issuance. The 2009 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company. The Company has shares available for grant under the 2009 Plan as of June 30, 2025.
In 2016, the Company adopted the 2016 Long Term Incentive Plan (the “2016 Plan”). The 2016 Plan reserved common shares for issuance, provided that no more than common shares be granted as incentive stock options. Awards may be made or granted to employees, officers, directors and consultants in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Any shares of common stock granted in connection with awards other than stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one and one-half shares of common stock for every one share of common stock granted in connection with such award. Any shares of common stock granted in connection with stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one share for every one share of common stock issuable upon the exercise of such stock option or stock appreciation right awarded. In the fourth quarter of 2020, the Company added shares to the 2016 Plan, which increased the number of shares reserved for issuance under the 2016 Plan to shares. In the second quarter of 2023, the Company added an additional shares to the 2016 Plan, which increased the number of shares for reserved for issuance under the 2016 Plan to shares. The Company has shares available for grant under the 2016 Plan as of June 30, 2025.
On June 24, 2025, the shareholders of the Company approved the 2025 Long-Term Incentive Plan (the “2025 Plan”) at the Company’s 2025 annual meeting of shareholders. The 2025 Plan had previously been approved by the Company’s Board of Directors (the “Board”) on April 28, 2025, upon the recommendation of the Company’s Compensation and Human Resources Committee, subject to shareholder approval. The 2025 Plan is intended to advance the Company’s interests by providing equity-based incentives to attract, retain, and motivate employees, officers, directors, and consultants. The plan authorizes the issuance of up to shares of the Company’s common stock and allows for a variety of award types, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. The 2025 Plan is administered by the Company’s Compensation and Human Resources Committee, which has broad authority to determine the terms of individual awards, including eligibility, size, vesting conditions, performance criteria, and other terms. Awards may generally not be transferred and are subject to forfeiture under certain conditions.
| Three
months ended June 30, |
Six
months ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Cost of sales | $ | $ | $ | $ | ( |
|||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
The Company grants restricted stock units (“RSUs”) to its Board of Directors as partial compensation. These RSUs vest quarterly on a straight-line basis over a period and will fully vest on .
| RSUs | Weighted
Grant Date Fair Value of RSUs |
|||||||
| Non-vested – January 1, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited | $ | |||||||
| Non-vested – June 30, 2025 | $ | |||||||
8
The Company grants shares of common stock (“Restricted Stock Awards” or “RSAs”) to select employees. These shares have various vesting dates, ranging from vesting on the grant date to as late as from the date of grant. In the event that the employee’s employment is voluntarily terminated prior to certain vesting dates, portions of the shares may be forfeited. At June 30, 2025, the weighted average remaining amortization period was years.
Restricted
Stock Awards |
Weighted
Grant Date Fair Value of Restricted |
|||||||
| Non-vested – January 1, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( |
$ | ||||||
| Forfeited | $ | |||||||
| Non-vested – June 30, 2025 | $ | |||||||
The Company grants shares of common stock (“Performance Restricted Stock Awards” or “PRSAs”) to select officers as part of our long-term incentive program that will result in that number of PRSAs being paid out if the target performance metric is achieved. The award vesting is based on specific performance metrics related to accounts payable delinquency, debt, and net income during the performance period. The PRSAs vest at % or % and all three metrics must be met to vest at %. The PRSAs granted under this program will vest on the fourth anniversary of the grant date, subject to the aforementioned performance criteria. At June 30, 2025, there was no remaining amortization period.
The following table summarizes activity related to outstanding PRSAs for the six months ended June 30, 2025:
| PRSAs | Weighted
Fair Value of
PRSAs |
|||||||
| Non-vested – January 1, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | $ | |||||||
| Forfeited | ( |
$ | ||||||
| Non-vested – June 30, 2025 | $ | |||||||
The fair value of all RSUs, PRSAs and RSAs is based on the closing price of our common stock on the grant date. All RSUs, PRSAs, and Restricted Stock Awards vest and settle in common stock (on a one-for-one basis).
As of June 30, 2025, unamortized stock-based compensation costs related to restricted share arrangements was $.
| 6. | NET INCOME (LOSS) PER SHARE |
Basic loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per common share for the three and six months ended June 30, 2025 and 2024 is computed using the weighted-average number of common shares outstanding adjusted for the securities attributed to outstanding options to purchase common stock, as well as unvested RSUs. Securities that could potentially dilute basic earnings per share in the future, but that were excluded from the computation of diluted earnings per share because they were antidilutive for the three and six months ended June 30, 2025 include RSU and RSA. Incremental shares of and were used in the calculation of diluted income per common share for the three and six months ended June 30, 2024, respectively.
9
| 7. | LINE OF CREDIT AND LONG-TERM DEBT |
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 $
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
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
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”). As of March 31, 2025, the Company was not in compliance with the Financial Covenants described in items (a), (c) and (d) above 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 of the 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. The waiver is limited strictly to its terms and does not constitute a waiver or modification of any other provision of the Credit Agreement. Although the waivers cured the defaults for the second quarter, failure to comply with the financial covenants in future periods or make mandatory repayments could result in additional events of default 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.
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 A-10 Program on the Company’s compliance with its covenants. As a result of the Fifth Amendment, in accordance with ASC-470, the Company determined that it is reasonably possible it will meet its covenants within the next twelve months.
The
BankUnited Facility is secured by all of the Company’s assets and the Revolving Loan bore interest at the Prime Rate +
As
of June 30, 2025 and December 31, 2024, the Company had $
The
Company has cumulatively paid approximately $
Also
included in long-term debt are financing leases of $
10
| 8. | MAJOR CUSTOMERS AND VENDORS |
During
the six months ended June 30, 2025, our four largest customers accounted for
At
June 30, 2025,
At
June 30, 2025,
At
June 30, 2025
| 9. | LEASES |
The
Company leases manufacturing and office space under an agreement classified as an operating lease. The
company entered into an amendment to the lease agreement for its operating facility on April 15, 2025 that extends the term of
the lease until
The Company also leases office equipment in agreements classified as operating leases.
For
the six months ended June 30, 2025 and 2024, the Company’s operating lease expense was $
Future minimum lease payments under non-cancellable operating leases as of June 30, 2025 were as follows:
| For the Year Ending December 31, | |||||
| Remainder of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total undiscounted operating lease payments | |||||
| Less imputed interest | ( | ) | |||
| Present value of operating lease payments | $ | ||||
The following table sets forth the right-of-use assets and operating lease liabilities as of:
| June
30, 2025 |
December
31, 2024 |
|||||||
| Assets | ||||||||
| Right-of-use assets, net | $ | $ | ||||||
| Liabilities | ||||||||
| Current operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
The
Company’s weighted average remaining lease term for its operating leases is
11
| 10. | INCOME TAXES |
On July 4, 2025, H.R.1, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was enacted. OBBBA includes a broad range of tax reform provisions affecting businesses. The Company does not expect this legislation to have a significant impact on its financial statements.
The
(benefit)/provision for income tax for the six months ended June 30, 2025 and 2024 was $(
The
effective income tax rate for the six months ended June 30, 2025 is
The
effective income tax rate for the three months ended June 30, 2025 is
| 11. | COMMITMENTS AND CONTINGENCIES |
The Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business. The Company accrues a liability when it is both probable a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made.
The
Company reached a settlement with the SEC on June 20, 2024 related to the Company’s previously announced and filed restatements
of certain of its financial statements for fiscal periods between January 1, 2018 and December 31, 2022. Under the terms of this
settlement, if the Company fails to comply with various undertakings, a civil monetary penalty in the amount of $
| 12. | SEGMENT REPORTING |
We manage our business activities on a consolidated basis and operate as a single operating segment. We primarily derive our revenue in the United States by supplying aircraft parts, complex aerostructure assemblies, aerosystems, maintenance repair and overhaul (“MRO”) and kitting contracts for fixed wing aircraft and helicopters in both the commercial and defense markets. The accounting policies are the same as those described in Note 1 – Principal Business Activity and Summary of Significant Accounting Policies of the form 10-K.
Our CODM is our Chief Executive Officer, Dorith Hakim. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions including the allocation of resources and assessing financial performance.
As
the Company has only
12
| 13. | RISK AND UNCERTAINTIES |
New or increased economic and trade sanctions, including tariffs, may create economic and political uncertainties and could potentially impact the cost of our raw materials and subassemblies having an adverse effect on our business, operations and profitability. Although our supply chain predominantly consists of US based suppliers, and our material costs are established on issued purchase orders, future procurements may be impacted by economic and political uncertainties including tariffs, and may directly affect the Company’s profitability on previously negotiated Firm Fixed Price contracts.
| 14. | SUBSEQUENT EVENTS |
Credit Agreement Waiver; Fifteenth Amendment to Credit Agreement
On August 14, 2025, the Lenders issued the waiver described in Note 7, which waived the Company’s Financial Covenant non-compliance for the quarter ended June 30, 2025 and waived non-compliance with the July 2025 Payment Obligation until September 30, 2025. On August 19, 2025, the Company executed the Fifteenth Amendment described in Note 7. The amendment revised certain covenants to reflect specified adjustments for the quarter ended March 31, 2025 and June 30, 2025.
A-10 Program Contract Termination
On May 7, 2025, the Company submitted to The Boeing Company a Request for Equitable Pricing Adjustment on the A-10 program addressing higher manufacturing costs on its 2019 Firm Fixed Price contract. Subsequently, on July 14, 2025, the Company received a Termination Notice from The Boeing Company with respect to the A-10 program directing the Company to scrap and return materials and tooling to the Air Force prior to August 15, 2025 when funding would no longer be available.
In light of these events, and in conjunction with the Air Force’s decision to accelerate the retirement of the A-10 fleet, the Company has evaluated the situation and decided to recognize an adjustment to address the risk in the reported period. The Company will continue to evaluate the situation and will recognize further adjustments if required, in the period in which a reasonable estimate can be determined.
13
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
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 MRO.
Recent Developments
Credit Agreement Waiver
On August 14, 2025, the Company obtained a waiver from its lenders under its existing Credit Agreement with respect to financial covenant and payment noncompliance. On August 19, 2025, the Company entered the Fifteenth Amendment (defined below). The amendment revised certain covenants to reflect covenant-based adjustments related to the termination of the Company’s A-10 Program. For additional information, see “Liquidity and Capital Resources — Bank Credit Facilities” below.
Departure and Appointment of Directors or Certain Officers
Effective July 22, 2025, Pamela Levesque, was appointed by the board of directors of the Company 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. Philip Passarello, who resigned as Chief Financial Officer and Secretary of the Company and its subsidiaries on July 22, 2025, will assist in the transition of Chief Financial Officer responsibilities to Ms. Levesque as Vice President of Finance. Please refer to Form 8-K filed on July 28, 2025 for additional information.
Long-Term Incentive Plan
On June 24, 2025, the shareholders of the Company approved the 2025 Plan at the Company’s 2025 annual meeting of shareholders. The plan authorizes the issuance of up to 800,000 shares of the Company’s common stock and allows for a variety of award types. The Company registered these shares on a Form S-8 registration statement filed with the SEC on July 18, 2025.
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 June 30, 2025 and December 31, 2024 is shown below.
| Backlog (Total) |
June
30, 2025 |
December
31, 2024 |
||||||
| Funded | $ | 86,778,000 | $ | 85,039,000 | ||||
| Unfunded | 419,709,000 | 425,232,000 | ||||||
| Total | $ | 506,487,000 | $ | 510,271,000 | ||||
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Approximately 96% of the total amount of our backlog at June 30, 2025 was attributable to government and military contractor contracts. Our backlog attributable to government contracts at June 30, 2025 and December 31, 2024 was as follows:
| Backlog
(Government) |
June
30, 2025 |
December
31, 2024 |
||||||
| Funded | $ | 85,253,000 | $ | 82,262,000 | ||||
| Unfunded | 401,878,000 | 404,256,000 | ||||||
| Total | $ | 487,131,000 | $ | 486,518,000 | ||||
Our backlog attributable to commercial contracts at June 30, 2025 and December 31, 2024 was as follows:
| Backlog (Commercial) |
June
30, 2025 |
December
31, 2024 |
||||||
| Funded | $ | 1,525,000 | $ | 2,777,000 | ||||
| Unfunded | 17,831,000 | 20,976,000 | ||||||
| Total | $ | 19,356,000 | $ | 23,753,000 | ||||
The total backlog at June 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 June 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), Lockheed Martin (F-16 RI/DCC’s), 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 six month period ended June 30, 2025.
Results of Operations
Revenue
Total Revenue for the three months ended June 30, 2025 was $15,179,108 compared to $20,810,334 for the same period last year, a decrease of $5,631,226 or 27.1%, driven primarily by the unfavorable adjustment associated with the termination of our A-10 Main Landing Gear Pods program, timing of material receipts on our MS-110 and an unfavorable adjustment to our USAF T-38 Pacer Classic Structural Modification Kits program.
Total Revenue for the six months ended June 30, 2025 was $30,579,716 compared to $39,891,477 for the same period last year, a decrease of $9,311,761 or 23.3%, driven primarily by the unfavorable adjustment associated with the termination of our A-10 Main Landing Gear Pods program, timing of material receipts on our MS-110 program and completion of the F-35 program.
Revenue from military subcontracts was $12,266,475 for the three months ended June 30, 2025 compared to $16,963,874 for the three months ended June 30, 2024, a decrease of $4,697,399 or 27,7%, driven primarily by the unfavorable adjustment associated with the termination of our A-10 Main Landing Gear Pods program and timing of material receipts on our MS-110 program.
Revenue from military subcontracts was $23,593,083 for the six months ended June 30, 2025 compared to $31,965,642 for the six months ended June 30, 2024, a decrease of $8,372,559 or 26.2%, driven primarily by the unfavorable adjustment associated with the termination of our A-10 Main Landing Gear Pods program and timing of material receipts on our MS-110 program.
Revenue from government military contracts was $1,335,358 for the three months ended June 30, 2025 compared to $2,601,347 for the three months ended June 30, 2024, a decrease of $1,265,989 or 48.7%, driven primarily by unfavorable adjustments in our USAF T-38 Pacer Classic Structural Modification Kits program.
Revenue from government military contracts was $4,128,970 for the six months ended June 30, 2025 compared to $5,383,228 for the six months ended June 30, 2024, a decrease of $1,254,258 or 23.3%, driven primarily by unfavorable adjustments in our USAF T-38 Pacer Classic Structural Modification Kits program.
Revenue from commercial subcontracts was $1,577,275 for the three months ended June 30, 2025 compared to $1,245,113 for the three months ended June 30, 2024, an increase of $332,162 or 26.7%, driven primarily by an increase in our Embraer Phenom-300 and Phenom-100 Engine Inlet Assemblies programs.
Revenue from commercial subcontracts was $2,857,663 for the six months ended June 30, 2025 compared to $2,542,607 for the six months ended June 30, 2024, an increase of $315,056 or 12.4%, primarily driven by an increase in our Embraer Phenom-300 and Phenom-100 Engine Inlet Assemblies programs.
15
Cost of Sales
Total Cost of Sales for the three months ended June 30, 2025 and 2024 was $14,515,726 and $15,694,910, respectively, a decrease of $1,1749,184or 7.5%.
Total Cost of Sales for the six months ended June 30, 2025 and 2024 was $28,266,859 and $31,222,304, respectively, a decrease of $2,955,445 or 9.5%.
The components of the cost of sales were as follows:
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | |||||||||||||
| Procurement | $ | 8,860,302 | $ | 10,118,041 | $ | 17,154,890 | $ | 19,483,061 | ||||||||
| Labor | 1,504,475 | 1,800,940 | 3,147,061 | 3,598,730 | ||||||||||||
| Factory overhead | 3,952,350 | 3,770,396 | 8,070,931 | 8,037,491 | ||||||||||||
| Other cost of sales | 198,599 | 5,533 | (106,023 | ) | 103,022 | |||||||||||
| Cost of sales | $ | 14,515,726 | $ | 15,694,910 | $ | 28,266,859 | $ | 31,222,304 | ||||||||
Procurement for the three months ended June 30, 2025 was $8,860,302 compared to $10,118,041 for the three months ended June 30, 2024, a decrease of $1,256,739 or 12.4%, driven primarily by lower material receipts on our Collins MS-110 program, Embraer Phenom-300 Engine Inlet Assemblies and A-10 Main Landing Gear Pods program, partially offset by increased material receipts for our NGJ POD program.
Procurement for the six months ended June 30, 2025 was $17,154,890 compared to $19,483,061 for the six months ended June 30, 2024, a decrease of $2,328,171 or 11.9%, driven primarily by lower material receipts on our Collins MS-110 program, our A-10 Main Landing Gear Pods program, completion of our F-35 program, partially offset by increased material receipts on our NGJ POD program.
Labor costs for the three months ended June 30, 2025 were $1,504,475 compared to $1,800,940 for the three months ended June 30, 2024, a decrease of $296,465 or 16.5% primarily driven by the termination of our A-10 Main Landing Gear Pods program.
Labor costs for the six months ended June 30, 2025 were $3,147,061 compared to $3,598,730 for the six months ended June 30, 2024, a decrease of $451,669 or 12.6% primarily driven by the termination of our A-10 Main Landing Gear Pods program, and decreased work performed on our B-52 Radar Racks program and F-16 Rudder Island program.
Factory overhead for the three months ended June 30, 2025 was $3,952,350 compared to $3,770,396 for the three months ended June 30, 2024, an increase of $181,954 or 4.8%. Factory overhead for the six months ended June 30, 2025 was $8,070,931 compared to $8,037,491 for the six months ended June 30, 2024, an increase of $33,440 or 0.4%.
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 June 30, 2025 was $198,599 compared to a $5,533 for the three months ended June 30, 2024, an increase of $193,066 or 3,489.4%. The increase is primarily the result of increased inventory reserve requirements due to aged material.
Other cost of sales for the six months ended June 30, 2025 was $(106,023) compared to $103,022 for the six months ended June 30, 2024, a decrease in cost of $209,045 or 202.9%. 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 June 30, 2025 and June 30, 2024 was $663,382 and 4.4% compared to $5,115,424 and 24.6% respectively, a decrease of $4,452,042, or 87.0%, and 2,020 basis points for the reasons noted above.
Gross profit and gross profit percentage (“gross margin”) for the six months ended June 30, 2025 was $2,312,857 and 7.6%, respectively, compared to $8,669,173 and 21.7%, respectively, for the six months ended June 30, 2024, a decrease of $6,356,316 or 73.3%, and 1,410 basis points for the reasons noted above.
16
Favorable/Unfavorable Adjustments to Gross Profit
During the three and six months ended June 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:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Adjustment | $ | (3,966,358 | ) | $ | (185,317 | ) | $ | (7,095,588 | ) | $ | (1,358,178 | ) | ||||
The net adjustment of $4.0 million for the three months ended June 30,2025 is driven primarily by an unfavorable adjustment of $2.3 million associated with the termination of our A-10 program. Additional net unfavorable adjustments of $1.7 million were driven primarily by the NGJ Mid-Band Pod and the T-38 Classic Structural Modification Kits program were due to increased labor and material costs.
The net adjustment of $7.1 million for the six months ended June 30, 2025 is driven primarily by an unfavorable adjustment of $4.5 million associated with the termination of our A-10 program. Additional net unfavorable adjustments of $2.6 million were driven primarily by the NGJ Mid-Band Pod and the T-38 Classic Structural Modification Kits program were due to increased labor and material costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2025 were $2,654,024 compared to $2,775,935 for the three months ended June 30, 2024, a decrease of $121,911 or 4.4%. The decrease was primarily the result of lower professional fees and lower accrued compensation.
Selling, general and administrative expenses for the six months ended June 30, 2025 were $5,489,801 compared to $5,489,839 for the six months ended June 30, 2024, remained consistent.
Interest expense
Interest expense for the three months ended June 30, 2025 was $287,546, compared to $587,971for the three months ended June 30, 2024, a decrease of $300,425 or 51.1%. 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 six months ended June 30, 2025 was $775,637, compared to $1,220,106 for the six months ended June 30, 2024, a decrease of $444,469 or 36.4%. 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
(Loss) income before provision for income taxes for the three months ended June 30, 2025 was ($2,272,708) compared to $1,751,518 for the three months ended June 30, 2024.
(Loss) income before provision for income taxes for the six months ended June 30, 2025 was ($3,945,601) compared to $1,959,228 for the six months ended June 30, 2024.
(Benefit)/Provision for Income Taxes
(Benefit)/provision for income taxes for the three months ended June 30, 2025 was $(947,749) compared to provision for income taxes of $341,572 for the three months ended June 30, 2024, a benefit increase of $1,289,321 or 377.5% is primarily related to the decrease in income.
The effective income tax rate for the three months ended June 30, 2025 and June 30, 2024 is 44.7% and 19.5%, respectively. The difference between the effective income tax rate for the three months ended June 30, 2025, and the statutory income tax rate of 21% is primarily due to the change in income and the relative impact of the estimated R&D credit, state income taxes and permanent tax differences.
(Benefit)/provision for income taxes for the six months ended June 30, 2025 was $(1,296,718) compared to a provision for income taxes of $381,044 for the six months ended June 30, 2024, a benefit increase of $1,677,762 or 440.3% is primarily the result of the change in income for the period.
The effective income tax rate for the six months ended June 30, 2025 and June 30, 2024 is 34.2% and 19.4%, respectively. The difference between the effective income tax rate for the six months ended June 30, 2025 and the statutory income tax rate of 21% for the six months ended June 30, 2024 is primarily due to the change in income and the relative impact of the estimated R&D credit, state income taxes and permanent tax differences.
17
Net (Loss)/Income and Earnings per Share
Net (loss) income for the three months ended June 30, 2025 was $(1,324,959) or $(0.10) per basic share, compared to net income of $1,409,946 or $0.11 per basic share, for the same period last year. Diluted (loss) per share was $(0.10) for the three months ended June 30, 2025 calculated utilizing 12,748,869 weighted average shares outstanding. Diluted income per share was $0.11 for the three months ended June 30, 2024 calculated utilizing 12,554,153 weighted average shares outstanding. The decrease in net income was primarily driven by a decrease in gross profit.
Net (loss) income for the six months ended June 30, 2025 was $(2,648,883) or $(0.21) per basic share, compared to net income of $1,578,184 or $0.13 per basic share, for the same period last year. Diluted (loss) per share was $(0.21) for the six months ended June 30, 2025 calculated utilizing 12,728,209 weighted average shares outstanding. Diluted income per share was $0.12 for the six months ended June 30, 2024 calculated utilizing 12,656,753 weighted average shares outstanding. The decrease in net income was primarily driven by a decrease in gross profit.
Liquidity and Capital Resources
General
At June 30, 2025, we had working capital of $13,066,383 compared to $17,122,111 at December 31, 2024, a decrease of $4,055,728 or 23.7%. The decrease was driven primarily by a decrease in cash.
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 June 30, 2025, we had cash of $674,481 compared to $5,490,963 at December 31, 2024, a decrease of $4,816,482 or 87.7%. 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.
18
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”). As of March 31, 2025, the Company was not in compliance with the Financial Covenants described in items (a), (c) and (d) above 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 of the 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. The waiver is limited strictly to its terms and does not constitute a waiver or modification of any other provision of the Credit Agreement. A copy of the August 14, 2025 waiver letter is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q. Although the waivers cured the defaults for the first and second quarters, 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.
On August 19, 2025, the Company entered into a Fifteenth Amendment to the Credit Agreement (the “Fifteenth Amendment”). The amendment revised certain covenants to reflect specified adjustments for the quarter ended March 31, 2025 and for the quarter ended June 30, 2025. These covenant-based adjustments were designed to offset the effect of the termination of the A-10 Program on the Company’s compliance with its financial covenants. As a result of the Fifteenth Amendment, in accordance with ASC-470, the Company determined that it is reasonably possible it will meet its covenants within the next twelve months. A copy of the Fifteenth Amendment is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.
The BankUnited Facility is secured by all of the Company’s assets and both the Revolving Loan and Term Loan bear interest at the Prime Rate + 2.0% per the 14th Amendment effective on November 13, 2024. The Prime Rate was 7.50% as of June 30, 2025 and as such, the Company’s interest rate on the Revolving Loan and Term Loan was 9.50% as of June 30, 2025.
As of June 30, 2025 and December 31, 2024, the Company had $16,140,000 and $17,390,000 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 June 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.
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4 – Controls and Procedures
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 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 entered the Fifteenth Amendment which revised certain financial covenants to reflect specified adjustments for the quarter ended March 31, 2025 and for the quarter ended June 30, 2025. 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.
We are evaluating the material weakness and are developing a plan of remediation to strengthen the effectiveness of the design and operation of our internal control environment. The remediation plan will include enhancing our review procedures within our accounting department, implementing additional review procedures with respect to accumulation and evaluation of information that is known or knowable to the Company at the time, and applying that information to the applicable accounting guidance specifically as it relates to evaluating credit related covenants and the potential impact to the debt classification at period end in accordance with U.S. GAAP.
These matters have been reviewed with our audit committee.
Changes in Internal Control Over Financial Reporting
Except for the material weakness described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1 – Legal Proceedings
None.
Item 1A – Risk Factors
“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.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 – Defaults Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
Credit Agreement Waiver and Amendment
On August 14, 2025, the Lenders issued a waiver under the Credit Agreement that waived the Company’s Financial Covenant non-compliance for the fiscal quarter ended June 30, 2025 and temporarily waived the non-compliance with the July 2025 Payment Obligation until September 30, 2025. On August 19, 2025, the Company executed the Fifteenth Amendment, which reflects specified adjustments to the Credit Agreement for the quarter ended March 31, 2025 and for the quarter ended June 30, 2025. These covenant-based adjustments are intended to mitigate the impact of the termination of the Company’s A-10 Program on the Company’s compliance with its financial covenants. The Fifteenth Amendment also has customary terms and conditions, including representations, reaffirmations of prior obligations, and related provisions. The foregoing descriptions of the waiver and the Fifteenth Amendment are qualified in their entirety by reference to the text thereof, copies of which are filed as Exhibits 10.1 and 10.2, respectively to this Quarterly Report on Form 10-Q and incorporated herein by reference.
Item 6 – Exhibits
| Exhibit No. | Description |
| 10.1* | Waiver Letter dated August 14, 2025, to Amended and Restated Credit Agreement, dated as of March 24, 2016, as amended, by and among CPI Aerostructures, Inc., BankUnited, N.A., and Dime Community Bank. |
| 10.2* | Fifteenth Amendment to Amended and Restated Credit Agreement, dated as of August 19, 2025, by and among CPI Aerostructures, Inc., BankUnited, N.A., and Dime Community Bank. |
| 31.1* | Section 302 Certification by Chief Executive Officer and President |
| 31.2* | Section 302 Certification by Chief Financial Officer (Principal Accounting Officer) |
| 32.1** | Section 906 Certification by Chief Executive Officer and Chief Financial Officer |
| 101.INS** | Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104** | Cover Page Interactive Data File. The cover page XBRL tags are embedded within the Inline XBRL document. |
* Filed herewith
** Furnished herewith
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statement of Operations for the three months ended June 30, 2025 and 2024, (ii) Condensed Consolidated Balance Sheet as of June 30, 2025 and December 31, 2024, (iii) Condensed Consolidated Statement of Cash Flows for the three months ended June 30, 2025 and 2024, (iv) Condensed Consolidated Statement of Changes in Equity for the three months ended June 30, 2025 and 2024 and (v) Notes to Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements 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: August 19, 2025 | By. | /s/ Dorith Hakim |
| Dorith Hakim | ||
Chief Executive Officer and President
(Principal Executive Officer) | ||
| Dated: August 19, 2025 | By. | /s/ Pamela Levesque |
| Pamela Levesque | ||
Interim Chief Financial Officer
(Principal Financial and Accounting Officer) | ||
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