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What changed in CPI AEROSTRUCTURES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CPI AEROSTRUCTURES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+143 added−210 removedSource: 10-K (2023-12-31) vs 10-K (2022-12-31)

Top changes in CPI AEROSTRUCTURES INC's 2023 10-K

143 paragraphs added · 210 removed · 117 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

42 edited+7 added−29 removed88 unchanged
Biggest changeWe intend to increase customer engagements by deploying our business development personnel to solidify existing customer relationships which have been established by performance excellence, transparency and trust over many years and multiple programs. We also intend to add resources to our business development function to cultivate new relationships with new customers.
Biggest changeThe final element of CPI Aero’s business development strategy is to build upon the Company’s existing customer relationships and to develop relationships with new customers. We intend to increase customer engagements by deploying our business development personnel to solidify existing customer relationships which have been established by performance excellence, transparency and trust over many years and multiple programs.
Our Safety Committee is comprised of employees from various disciplines throughout the organization who meet on a regular basis to execute continuous improvement strategies, develop methods to increase ownership of safety throughout the organization, establish new safety initiatives, and assess safety performance. We monitor the effectiveness of our safety program by comparing recordable incidents and incident severity year over year.
Our Safety Committee is comprised of employees from various disciplines throughout the organization who meet on a regular basis to execute continuous improvement strategies, develop methods to increase ownership of safety throughout the organization, establish new safety initiatives, and assess safety performance. 11 We monitor the effectiveness of our safety program by comparing recordable incidents and incident severity year over year.
Government accepts delivery of our products and that results from any defects or deficiencies in our products unless the liability results from willful misconduct or lack of good faith on the part of our managerial personnel. Proprietary Information None of our current assembly processes or products is protected by patents.
Government accepts delivery of our products and that results from any defects or deficiencies in our products unless the liability results from willful misconduct or lack of good faith on the part of our managerial personnel. 10 Proprietary Information None of our current assembly processes or products is protected by patents.
Our OEM customers in the defense sector include leading prime defense contractors such as: ● Lockheed Martin Corporation - we provide products used in the production of Lockheed Martin Corporation’s (“Lockheed Martin”) F-35 Joint Strike Fighter and an international variant of the F-16 Falcon.
Our OEM customers in the defense sector include leading prime defense contractors such as: ● Lockheed Martin Corporation - we provide products used in the production of Lockheed Martin Corporation’s (“Lockheed Martin”) F-35 Joint Strike Fighter and an international variant of the F-16 Fighting Falcon.
We believe that we are in compliance with all federal, state, and local laws and regulations governing our operations and have obtained all material licenses and permits required for the operation of our business. 10 The U.S.
We believe that we are in compliance with all federal, state, and local laws and regulations governing our operations and have obtained all material licenses and permits required for the operation of our business. The U.S.
Competition We face competition in our role as both a prime contractor to the U.S. Government and as a Tier 1 or Tier 2 subcontractor to military and commercial aircraft manufacturers. Within respect to Aerostructures products, we often compete against much larger Tier 1 suppliers, such as Triumph Group, Spirit Aerosystems, Kaman Aerospace, GKN Aerospace, Ducommun, and LMI Aerospace.
Competition We face competition in our role as both a prime contractor to the U.S. Government and as a Tier 1 or Tier 2 subcontractor to military and commercial aircraft manufacturers. With respect to Aerostructures products, we often compete against much larger Tier 1 suppliers, such as Triumph Group, Spirit Aerosystems, Kaman Aerospace, GKN Aerospace, Ducommun, and LMI Aerospace.
We manufacture composite electronics racks as a Tier 2 supplier to Spirit AeroSystems, Inc., the manufacturer of the CH-53K cockpit and cabin. Through December 31, 2022, we had received orders valued at more than $2.7 million from Spirit AeroSystems, Inc. In addition, the Company also manufactures welded tubes for the CH-53K as a Tier 1 supplier to Sikorsky.
We manufacture composite electronics racks as a Tier 2 supplier to Spirit AeroSystems, Inc., the manufacturer of the CH-53K cockpit and cabin. Through December 31, 2023, we had received orders valued at more than $2.7 million from Spirit AeroSystems, Inc. 7 In addition, the Company also manufactures welded tubes for the CH-53K as a Tier 1 supplier to Sikorsky.
Commercial Aircraft – Subcontracts with Prime Contractors Embraer Phenom 300 : The Phenom 300 is a twin-engine, executive jet produced by Brazilian aircraft company Embraer that can carry between six and 10 passengers and a crew of two. We have been producing engine inlet assemblies for Embraer under a long-term agreement we entered into in 2012.
Commercial Aircraft – Subcontracts with Prime Contractors Embraer Phenom 300 : The Phenom 300 is a twin-engine, executive jet produced by Brazilian aircraft company Embraer that can carry between six and ten passengers and a crew of two. We have been producing engine inlet assemblies for Embraer under a long-term agreement we entered into in 2012.
Understanding our customers’ product performance needs and combining product GD&T layout and final tooling definitions and requirements helps us ensure product realization success. Overall, CPI Aero’s engineering team is dedicated to providing our customers an experience where our activities are an extension of their business and complement their engineering goals.
Understanding our customers’ product performance needs and combining product GD&T layout and final tooling definitions and requirements helps us maximize product realization success. Overall, CPI Aero’s engineering team is dedicated to providing our customers an experience where our activities are an extension of their business and complement their engineering goals.
In addition to our assembly operations, we provide manufacturing engineering, program management, supply chain management, kitting, and maintenance repair and overhaul (“MRO”) services. CPI Aero has over 40 years of experience as a contractor. Our team possesses extensive technical expertise and program management and integration capabilities.
In addition to our assembly operations, we provide manufacturing engineering, program management, supply chain management, kitting, and maintenance repair and overhaul (“MRO”) services. CPI Aero has over 43 years of experience as a contractor. Our team possesses extensive technical expertise, program and supply chain management, and integration capabilities.
CPI Aero is capable and has experience in designing all types of assembly type tools up to and including large floor mounted, articulated tooling at high levels of precision. We are also capable of designing various types of tooling that can be 3D printed for rapid response.
CPI Aero is capable and has experience in designing many types of assembly type tools up to and including large floor mounted, articulated tooling at high levels of precision. We are also capable of designing various types of tooling that can be 3D printed for rapid response.
Government. By the late 1980s, CPI was also providing structural components for civil aircraft in the commercial market. In the 1990s, CPI became a publicly traded company and changed its name to CPI Aerostructures, Inc. The company continued to grow, both in size and in its business. U.S.
Government. By the late 1980s, CPI was also providing structural components for civil aircraft in the commercial market. In the 1990s, CPI became a publicly traded company and changed its name to CPI Aerostructures, Inc. (“CPI Aero”). The Company continued to grow, both in size and in its business. U.S.
Products and Services We offer design, engineering, manufacture, build, maintenance, repair and overhaul (“MRO”) services, and supply chain and kitting services capabilities to the aerospace and defense industry as follows: ● Aerostructures: New Production and Repair/Overhaul of Fielded Wing Structures and other Control Surfaces, Rudder Island, Engine Inlets/Nacelles, Engine Exhaust Manifolds, Aircraft Doors and Windows, Aircraft Steps and Racks, and other Aircraft Secondary Structures ● Aerosystems: Airborne Pod Structures and Integration of Internal Systems, Radar Housing Structures, Panel Assemblies, Mechanical Door Locking Systems, and Canopy Lifting Systems ● Large Diameter Tube Bending: Complex Ducts and Tubes in Steel, Aluminum, Titanium, and Nickel Alloys ● Complex Specialty Welding: Fusion Welded Fluid Tanks and Resistance Welding (Spot and Seam) ● Electrical Cables, Harness, and Enclosures: Wire Harnesses, Power Control Systems, Fuel Management Systems, Power Distribution Systems, Fully Integrated Electrical Control Systems, and enclosures Engineering Services and Capabilities As a build-to-print structural component manufacturer, CPI Aero’s engineering focus is on executing customer contracts through product realization, and to support collaborative design development using design for manufacturing and assembly, geometric dimensioning & tolerancing (“GD&T”), and tooling concept support.
Products and Services We offer design, engineering, manufacture, build, MRO services, and supply chain and kitting services capabilities to the A&D industry as follows: ● Aerostructures: New Production and Repair/Overhaul of Fielded Wing Structures and other Control Surfaces, Rudder Island, Engine Inlets/Nacelles, Engine Exhaust Manifolds, Aircraft Doors and Windows, Aircraft Steps and Racks, and other Aircraft Secondary Structures ● Aerosystems: Airborne Pod Structures and Integration of Internal Systems, Radar Housing Structures, Panel Assemblies, Mechanical Door Locking Systems, and Canopy Lifting Systems ● Large Diameter Tube Bending: Complex Ducts and Tubes in Steel, Aluminum, Titanium, and Nickel Alloys ● Complex Specialty Welding: Fusion Welded Fluid Tanks and Resistance Welding (Spot and Seam) ● Electrical Cables, Harness, and Enclosures: Wire Harnesses, Power Control Systems, Fuel Management Systems, Power Distribution Systems, Fully Integrated Electrical Control Systems, and enclosures Engineering Services and Capabilities As a build-to-print structural component manufacturer, CPI Aero’s engineering focus is on executing customer contracts through product realization, and to support collaborative design development using design for manufacturing and assembly (“DFMA”), geometric dimensioning & tolerancing (“GD&T”), and tooling concept support.
The table below represents our result from the two most recent calendar years: Safety Metric 2022 2021 TRIR 2.6 2.0 DART 1.3 2.0 TRIR = total number of recordable cases x 200,000 / total hours worked DART = number of cases with days away from work x 200,000 / total hours worked by all employees Community Involvement Having a positive impact on the community around us is one of our most important values.
The table below represents our result from the two most recent calendar years: Safety Metric 2023 2022 TRIR 2.9 2.6 DART 1.0 1.3 TRIR = total number of recordable cases x 200,000 / total hours worked DART = number of cases with days away from work x 200,000 / total hours worked by all employees Community Involvement Having a positive impact on the community around us is one of our most important values.
Item 1. BUSINESS General CPI Aerostructures, Inc., including its wholly owned subsidiary Welding Metallurgy, Inc. (“WMI”) and Compac Development Corporation, a wholly owned subsidiary of WMI (collectively, “CPI Aero”, the “Company”, “us,” or “we”) is a manufacturer of structural assemblies, integrated systems, and kitted components for the domestic and international aerospace and defense (“A&D”) markets.
Item 1. BUSINESS General CPI Aerostructures, Inc., including its wholly owned subsidiary Welding Metallurgy, Inc. (“WMI”) and Compac Development Corporation, a wholly owned subsidiary of WMI (collectively, “CPI Aero”, the “Company”, “us”, or “we”) is a manufacturer of structural assemblies, integrated systems, and kitted components for the domestic and international aerospace and defense (“A&D”) markets.
CPI Aero also is a prime contractor to the DOD, primarily through contracts directly with the USAF and the Defense Logistics Agency (“DLA”), providing supply chain management, assembly & integration, and kitting services for the F-16 and T-38 programs. 10% and 7% of our revenue in 2022 and 2021, respectively, were generated by direct government sales.
CPI Aero also is a prime contractor to the DOD, primarily through contracts directly with the USAF and the Defense Logistics Agency (“DLA”), providing supply chain management, assembly & integration, and kitting services for the F-16 and T-38 programs. 14% and 10% of our revenue in 2023 and 2022, respectively, were generated by direct government sales.
As of December 31, 2022, we had 208 full-time employees as compared to 249 full-time employees as of December 31, 2021. On an as-needed basis, we employ temporary personnel with specialized disciplines to fill staffing gaps. We do not have any employees represented by a union, and we believe that our relations with our employees are good.
As of December 31, 2023, we had 203 full-time employees as compared to 208 full-time employees as of December 31, 2022. On an as-needed basis, we employ temporary personnel with specialized disciplines to fill staffing gaps. We do not have any employees represented by a union, and we believe that our relations with our employees are good.
Our Customers Approximately $6.1 million and $4.7 million of our revenue for the years ended December 31, 2022 and 2021, respectively, were from customers outside the U.S. All other revenue for the years ended December 31, 2022 and 2021 has been attributable to customers within the U.S. We have no assets outside the U.S.
Our Customers Approximately $6.0 million and $6.1 million of our revenue for the years ended December 31, 2023 and 2022, respectively, were from customers outside the U.S. All other revenue for the years ended December 31, 2023 and 2022 has been attributable to customers within the U.S. We have no assets outside the U.S.
Navy’s EA-6B Growler carrier-based electronic warfare aircraft. The U.S. Navy plans to install these pods on 139 EA-18G Growlers during the production phase. There are two pods per aircraft. There are also 11 EA-18Gs operated by the Royal Australian Air Force. Raytheon received a $1 billion sole source contract from the U.S.
Navy plans to install these pods on 139 EA-18G Growlers during the production phase. There are two pods per aircraft. There are also 11 EA-18Gs operated by the Royal Australian Air Force. Raytheon received a $1 billion sole source contract from the U.S.
We also provide structural assemblies to Sikorsky, a Lockheed Martin company (“Sikorsky”), for many of their military helicopter platforms including the UH-60 BLACK HAWK©, CH-53E and CH-53K, and a special purpose helicopter; 5 ● Raytheon Technologies Corporation - we provide products to three business divisions of Raytheon Technologies Corporation (“Raytheon”): Intelligence and Space (Next Generation Jammer – Mid-Band pod), Missiles & Defense (missile wing and Evolved Sea Sparrow missile launcher controller) and Collins Aerospace (intelligence, surveillance, and airborne reconnaissance pods); ● The Boeing Company - we provide critical wing structure for The Boeing Company’s (“Boeing”) A-10 re-wing program and welded structures for the CH-47 Chinook helicopter; and ● Northrop Grumman Corporation – we provide structural components and kits for the Northrop Grumman Corporation (“NGC”) E-2D Advanced Hawkeye, various integrated radar and laser pod structures, welded tubes, and welded fluid tanks for a classified program. 82% and 87% of our revenue in 2022 and 2021, respectively, was generated by subcontracts with defense prime contractors.
We also provide structural assemblies to Sikorsky, a Lockheed Martin company (“Sikorsky”), for many of their military helicopter platforms including the UH-60 BLACK HAWK©, CH-53E and CH-53K, and a special purpose helicopter; 5 ● RTX Corporation, formerly Raytheon Technologies – we provide products to two business divisions of RTX Corporation: Raytheon (Next Generation Jammer – Mid-Band pod, Advanced Tactical Pods, Intelligence, Surveillance and Airborne Reconnaissance Pods, Missile Wings and Components, and Radar Racks) and Collins Aerospace (RF Enclosures); ● The Boeing Company - we provide critical wing structure for The Boeing Company’s (“Boeing”) A-10 re-wing program and welded structures for the CH-47 Chinook helicopter; and ● Northrop Grumman Corporation – we provide structural components and kits for the Northrop Grumman Corporation (“NGC”) E-2D Advanced Hawkeye, various integrated radar and laser pod structures, welded tubes, and welded fluid tanks for a classified program. 81% and 82% of our revenue in 2023 and 2022, respectively, was generated by subcontracts with defense prime contractors.
U.S. allies are expected to purchase hundreds of additional F-35s, with eight nations participating as cost-sharing partners in the program with the United States, and six other nations allied with the U.S. purchasing the F-35 via foreign military sales agreements with the DOD. The Company has two significant contracts for products used on the F-35.
U.S. allies are expected to purchase hundreds of additional F-35s, with eight nations participating as cost-sharing partners in the program with the United States, and six other nations allied with the U.S. purchasing the F-35 via foreign military sales agreements with the DOD.
In 2015, CPI Aero was awarded Phase 2 of PC III and has received purchase orders valued at approximately $2 million from the USAF to provide structural modification kits for the PC III aircraft structural modification program. Through December 31, 2022, we have received approximately $23 million in orders on this program.
In 2015, CPI Aero was awarded Phase 2 of PC III and has received purchase orders valued at approximately $2.0 million from the USAF to provide structural modification kits for the PC III aircraft structural modification program.
Through December 31, 2020, the Company had received orders valued at approximately $15.3 million for the PC III, Phase 3 and TRIM programs, and in 2021, the Company announced it had received three separate orders for additional requirements valued at approximately $16.2 million.
Through December 31, 2020, the Company had received orders valued at approximately $15.3 million for the PC III, Phase 3 and TRIM programs, and in 2021, the Company announced it had received three separate orders for additional requirements valued at approximately $16.2 million. Through December 2023, CPI has received funded orders under this long term agreement totaling $48.3 million.
Our backlog attributable to government contracts at December 31, 2022 and 2021 was as follows: Backlog (Government) December 31, 2022 December 31, 2021 Funded $ 119,133,000 $ 132,499,000 Unfunded 384,652,000 358,133,000 Total $ 503,785,000 $ 490,632,000 Our backlog attributable to commercial contracts at December 31, 2022 and 2021 was as follows: Backlog (Commercial) December 31, 2022 December 31, 2021 Funded $ 3,015,000 $ 2,223,000 Unfunded 7,700,000 8,864,000 Total $ 10,715,000 $ 11,087,000 Material and Parts We subcontract production of substantially all parts incorporated into our products to third-party manufacturers under firm fixed price orders.
Our backlog attributable to government contracts at December 31, 2023 and 2022 was as follows: Backlog (Government) December 31, 2023 December 31, 2022 Funded $ 115,681,000 $ 119,133,000 Unfunded 383,574,000 384,652,000 Total $ 499,255,000 $ 503,785,000 Our backlog attributable to commercial contracts at December 31, 2023 and 2022 was as follows: Backlog (Commercial) December 31, 2023 December 31, 2022 Funded $ 2,537,000 $ 3,015,000 Unfunded 11,559,000 7,700,000 Total $ 14,096,000 $ 10,715,000 Material and Parts We subcontract production of substantially all parts incorporated into our products to third-party manufacturers under firm fixed price orders.
Another tenet of the CPI Aero business development strategy is portfolio reshaping of our existing business by identifying and closing long-term agreements or multi-year contracts, which provides an opportunity to firm-up supplier agreements and secure supplier capacity. 4 The final element of CPI Aero’s business development strategy is to build upon the Company’s existing customer relationships and to develop relationships with new customers.
Another tenet of the CPI Aero business development strategy is portfolio reshaping of our existing business by identifying and closing long-term agreements or multi-year contracts, which provides an opportunity to firm-up supplier agreements and secure supplier capacity.
The Company was awarded low rate production (“LRIP”) I and II orders valued at approximately $18.5 million. LRIP III, for which the Company was awarded an order of approximately $14.0 million in October 2022, is estimated to be a greater than $25 million program.
The Company was awarded low rate production (“LRIP”) I and II orders valued at approximately $18.5 million. LRIP III, for which the Company was awarded an order of approximately $14.0 million in October 2022, and later definitized at $32.5 million.
Since 2008, the cumulative orders we have received on this program through December 31, 2022 exceed $209 million.
Since 2008, the cumulative orders we have received on this program through December 31, 2023 exceed $209 million. We anticipate shipping against these orders into 2025.
Over the last two years, we have increased diversity on our board of directors by 16% and executive management team by 40%. Across our total employee population and based on employees who self-identify, as of December 31, 2022, approximately 20% of our workforce are female, 33% are multicultural and 5% are veterans.
Over the last year, we have increased diversity on our board of directors to 29% up from 17% in 2022. Our executive management team is comprised of 40% diverse employees. Across our total employee population and based on employees who self-identify, as of December 31, 2023, approximately 21% of our workforce are female, 34% are multicultural and 5% are veterans.
Our total backlog as of December 31, 2022 and 2021 was as follows: Backlog (Total) December 31, 2022 December 31, 2021 Funded $ 122,148,000 $ 134,722,000 Unfunded 392,352,000 366,997,000 Total $ 514,500,000 $ 501,719,000 Approximately 98% of the total amount of our backlog at both December 31, 2022 and 2021 was attributable to government contracts.
Our total backlog as of December 31, 2023 and 2022 was as follows: Backlog (Total) December 31, 2023 December 31, 2022 Funded $ 118,218,000 $ 122,148,000 Unfunded 395,133,000 392,352,000 Total $ 513,351,000 $ 514,500,000 Approximately 97% and 98% of the total amount of our backlog at December 31, 2023 and 2022 was attributable to government contracts.
T-38 Pacer Classic III, Phase 2: For more than 50 years, the NGC T-38 has been the principal supersonic jet trainer used by the USAF. The T-38C Pacer Classic III Fuselage Structural Modification Kit Integration program (“PC III”) and the Talon Repair Inspection and Maintenance (“TRIM”) program are expected to increase the structural service life of the T-38 beyond 2030.
The T-38C Pacer Classic III Fuselage Structural Modification Kit Integration program (“PC III”) and the Talon Repair Inspection and Maintenance (“TRIM”) program are expected to increase the structural service life of the T-38 beyond 2030.
The Market We have positioned the Company to take advantage of opportunities in the military aerospace market to a broad customer base, thereby reducing the impact of direct government contracting limitations.
The CPI Aero team will always work in a collaborative way to meet customers’ needs and solve their problems. The Market We have positioned the Company to take advantage of opportunities in the military aerospace market to a broad customer base, thereby reducing the impact of direct government contracting limitations.
The period of performance was through December 31, 2022 with strong potential for follow-on orders. ALQ-249 Next Generation Jammer – Mid-Band Pod (“NGJ-MB”): The Raytheon NGJ-MB pod is an external jamming pod that will disrupt and degrade enemy aircraft and ground radar and communication systems, and will replace the ALQ-99 system on the U.S.
ALQ-249 Next Generation Jammer – Mid-Band Pod (“NGJ-MB”): The Raytheon NGJ-MB pod is an external jamming pod that will disrupt and degrade enemy aircraft and ground radar and communication systems, and will replace the ALQ-99 system on the U.S. Navy’s EA-6B Growler carrier-based electronic warfare aircraft. The U.S.
In February 2020, the Company’s subsidiary WMI received approximately $4 million in purchase orders from NGC to produce numerous welded structures and tubes for the E-2D Advanced Hawkeye. Under the terms of the purchase orders, WMI manufactured more than 140 different items in support of the production of at least 25 E-2D aircraft.
CPI completed deliveries in support of this contract in 2023. In February 2020, the Company’s subsidiary WMI received approximately $4 million in purchase orders from NGC to produce numerous welded structures and tubes for the E-2D Advanced Hawkeye.
In addition to educational involvement, members of our leadership team participate on the boards of the local aviation college and trade associations that support and advance the interests of the local community.
This includes, hosting educational experiences and shop tours with high school and trade school classes. Members of our leadership team participate on the boards of the local aviation college and trade associations that support and advance the interests of the local community.
The total value of orders received as of December 31, 2022 is approximately $3.2 million. B-52 Radar Rack: In late 2021, the Company received an initial purchase order from Raytheon to manufacture radar rack structures for the B-52 Radar Modernization Program.
B-52 Radar Rack: In late 2021, the Company received an initial purchase order from Raytheon to manufacture radar rack structures for the B-52 Radar Modernization Program. The value of the order was approximately $4.0 million for manufacturing engineering services, development of assembly tooling, and the production of the initial units.
In October 2021, the Company announced that Raytheon awarded the Company an approximately $6 million contract modification that changes the scope of work the Company would perform and increases the quantity of pods to be produced. Undisclosed Vehicle: In 2018, the Company started production of a welded tank for NGC for an undisclosed application on an undisclosed platform.
In October 2021, the Company announced that Raytheon awarded the Company an approximately $6.1 million contract modification that changes the scope of work the Company would perform and increases the quantity of pods to be produced. The program value as of December 31, 2023 was $8.4 million.
We believe that the total value of the NGJ-MB program through production will be in excess of $210 million through 2030. A-10 Thunderbolt II “Warthog”: The Boeing A-10 Thunderbolt II, also known as the Warthog, is a twin-engine aircraft that provides close-air support of ground forces and employs a wide variety of conventional munitions including general-purpose bombs.
A-10 Thunderbolt II “Warthog”: The Boeing A-10 Thunderbolt II, also known as the Warthog, is a twin-engine aircraft that provides close-air support of ground forces and employs a wide variety of conventional munitions including general-purpose bombs. This simple, effective and survivable single-seat aircraft can be used against all ground targets, including tanks and other armored vehicles.
Although certain items are only available from limited sources of supply, we believe that the loss of any single supplier would not have a material adverse effect on our business. 9 COVID-19 Coronavirus Pandemic Impact on Our Business The outbreak of the COVID-19 coronavirus was declared a pandemic by the World Health Organization during our first quarter of 2020.
We obtain our raw materials from several commercial sources. Although certain items are only available from limited sources of supply, we believe that the loss of any single supplier would not have a material adverse effect on our business. 9 Government Regulation Environmental Regulation We are subject to regulations administered by the U.S. Environmental Protection Agency, the U.S.
As of December 31, 2022, the total value of orders received was $0.8 million. These tubes will also be required for the multi-year on this program. A component of this statement of work also includes CPI Aero intellectual property.
In August 2023, CPI received a Long-term Agreement with a ceiling price of $17.4 million and a funding limit of $7.3 million. These tubes will be required for the multi-year on this program. A component of this statement of work also includes CPI Aero intellectual property.
We will make sure each customer has the best possible buying experience, by ensuring we are a best value partner through the delivery of high quality products delivered on time. The CPI Aero team will always work in a collaborative way to meet customers’ needs and solve their problems.
We have also added additional resources to our business development function to cultivate new relationships with new customers. 4 We will make sure each customer has the best possible buying experience, by ensuring we are a best value partner through the delivery of high quality products delivered on time.
The total value of the RI/DCC program multi-year contract is approximately $25 million. 7 Given the strength of Lockheed Martin’s international sales forecast for the F-16, we believe a follow-on to the existing multi-year contract is possible. CH-53K King Stallion: The CH-53K is a heavy-lift helicopter being developed by Sikorsky for the U.S. Marine Corps.
On August 28, 2023 CPI announced the receipt of a 2nd Multiyear long-term agreement with not-to-exceed funding of $34.4M. The total value of the RI/DCC program, including both multi-year contracts is approximately $59.3 million. CH-53K King Stallion: The CH-53K is a heavy-lift helicopter being developed by Sikorsky for the U.S. Marine Corps.
Since October of 2020, we received purchase orders directly from Gulfstream for wing components for use on the G650, G650ER and/or G700 aircraft valued at approximately $4 million. The Company completed deliveries to Gulfstream in 2022. 8 Backlog We produce custom assemblies pursuant to long-term contracts and customer purchase orders.
In January 2024, we celebrated the delivery of the 800th Shipset of Inlets. In 2023, we received funded orders totaling $4.4 million. 8 Backlog We produce custom assemblies pursuant to long-term contracts and customer purchase orders.
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Our OEM customers in the civil aviation market include: ● Embraer S.A.
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Our OEM customers in the civil aviation market include: ● Embraer S.A. Executive Jets – we provide engine inlet assemblies for Embraer S.A.’s (“Embraer”) Phenom 300 business jet. 5% and 7% of our revenue in 2023 and 2022, respectively, was generated by commercial contract sales.
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Executive Jets – we provide engine inlet assemblies for Embraer S.A.’s (“Embraer”) Phenom 300 business jet; and ● Gulfstream Aircraft Company – until recently, we provided a critical structure used to produce the wing of Gulfstream Aircraft Company’s large cabin executive business jets, including the flagship G650ER, the G700, and the recently announced G800.
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Under the terms of the purchase orders, WMI manufactured more than 140 different items in support of the production of at least 25 E-2D aircraft. CPI received follow-on orders for additional quantities of welded products in 2023 and anticipates additional orders in 2024.
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This contract ended in 2022. 7% and 6% of our revenue in 2022 and 2021, respectively, was generated by commercial contract sales.
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In November 2023, RTX issued a Memorandum for Record for Lot4 with an anticipated Program Value of $32 million and an initial funding limit of $16 million. We believe that the total value of the NGJ-MB program through production will be in excess of $210 million through 2030.
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This simple, effective and survivable single-seat aircraft can be used against all ground targets, including tanks and other armored vehicles.
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Undisclosed Vehicle: In 2018, the Company started production of a welded tank for NGC for an undisclosed application on an undisclosed platform. The total value of orders received as of December 31, 2023 is $3.2 million.
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The value of the order was approximately $4.0 million for manufacturing engineering services, development of assembly tooling, and the production of the initial units. The Radar Rack structure is currently under development with initial delivery expected in 2023. We believe the potential total value of the program to be approximately $20.0 million. Military Aircraft – Prime Contracts with U.S.
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The non-recurring and tooling phase of the program was completed and the initial 11 racks will be delivered in 2024. Military Aircraft – Prime Contracts with U.S. Government T-38 Pacer Classic III, Phase 2: For more than 50 years, the NGC T-38 has been the principal supersonic jet trainer used by the USAF.
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Government F-16 “Fighting Falcon”: Since 2014, we have been a prime contractor to the DLA to provide structural wing components and logistical support for global F-16 aircraft MRO operations. Through December 31, 2022, we had received almost $15 million in orders on this program.
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Therefore, our funded backlog does not include the full value of our contracts. The total backlog at December 31, 2023 is $513,351,000.
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In addition, CPI Aero received orders valued at approximately $2.3 million in 2022, bringing total orders under this long term contract to approximately $34 million.
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We continue to pursue opportunities that enable us to build our talent pipeline, particularly for skilled labor, including running an apprentice training program several times over the course of the year and forging relationships with local high school and trade schools.
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We have received approximately $49 million in orders on this program through December 31, 2022. We estimate the potential value of the program to be in excess of $56 million. Gulfstream G650/G650ER/G700 : The Gulfstream G650 is a twin-engine business jet airplane produced by Gulfstream Aerospace that can be configured to carry from 11 to 18 passengers.
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Gulfstream began the G650 program in 2005 and revealed it to the public in 2008. The G650 is Gulfstream’s largest and fastest business jet. The G650ER is an extended range version of the aircraft. In 2020, Gulfstream announced the launch of a new derivative the G700.
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In March 2008, Spirit AeroSystems, Inc. awarded us a contract to provide fixed leading edges for the Gulfstream G650 business jet, and derivative models, a commercial program that Spirit was supporting. In December 2014, Spirit transferred its work-scope on this program to Triumph Group.
Removed
Due to the impact of the COVID-19 pandemic, in May 2020, Triumph Group cancelled nearly all open orders with the Company.
Removed
On May 27, 2020, Triumph Group announced it had reached an agreement in principle to sell the G650 wing program to Gulfstream Aerospace, and on June 12, 2020, we received a joint communication from Gulfstream Aerospace and Triumph Group that stated Gulfstream’s intention to continue to purchase G650 wing components from the Company.
Removed
Therefore, our funded backlog does not include the full value of our contracts. The total backlog at December 31, 2022 is primarily comprised of long-term programs with Raytheon (NGJ-MB; Advanced Tactical Pods, B-52 Radar Rack), USAF (T-38), Boeing (A-10), Sikorsky (UH-60 and CH-53K), NGC (E-2D), Lockheed Martin (F-16; F-35), Collins Aerospace (MS-110 and TacSAR pods) and Embraer (Phenom 300).
Removed
Funded backlog is primarily from purchase orders under long-term contracts with the USAF (T-38), Boeing (A-10), Sikorsky (UH-60), Raytheon (NGJ-MB, Advanced Tactical Pods, B-52 Radar Rack), Lockheed Martin (F-16; F-35), NGC (E-2D), Collins Aerospace (MS-110 and TacSAR pods) and Embraer (Phenom 300).
Removed
We obtain our raw materials from several commercial sources.
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During the latter part of that quarter and subsequent to that quarter end, the COVID-19 pandemic grew, causing non-essential businesses to shut down and many people to observe the shelter-in-place directive from our state government.
Removed
Our business and operations and the industries in which we operate have been impacted by public and private sector policies and initiatives in the U.S. to address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote work.
Removed
The COVID-19 pandemic has contributed to a general slowdown in the global economy, continued supply chain challenges and an adverse impacts to the businesses of certain of our customers and suppliers.
Removed
During 2020 in response to the COVID-19 impact on our business, we took actions to preserve capital and protect the long-term needs of our businesses, including negotiating progress payments with our customers and reducing discretionary spending.
Removed
During 2021 and 2022, we continued to follow and adapt measures implemented in 2020 in an attempt to reduce the adverse effects of COVID-19 on our business, workplace and workforce. For example, we have curtailed discretionary spending and business travel, and taken other steps to preserve cash.
Removed
We have also taken action to more closely manage the flow of materials to be more responsive to unanticipated changes in customer delivery schedules. Since May 2021, we have experienced a decrease in the impact of COVID-19.
Removed
However, we do continue to experience employees and business partners with new COVID-19 diagnoses on an intermittent basis and we take needed steps to mitigate these impacts on the Company’s operation as they occur.
Removed
For more information on the current and potential impact of the COVID-19 pandemic on our business, see Risk Factors included in Part I, Item 1A of this Annual Report on Form 10-K Government Regulation Environmental Regulation We are subject to regulations administered by the U.S. Environmental Protection Agency, the U.S.
Removed
In response to the COVID-19 pandemic, we began allowing employees to work from home and made changes to shift work to promote social distancing among our manufacturing personnel. We are implementing a continuing work from home program to provide our employees with flexibility and a competitive work benefit.
Removed
We are prepared to implement shift changes should an uptick in COVID-19 require such a response. 11 During the first quarter of 2022, the Company implemented a cost reduction initiative designed to improve operational efficiency and reduce costs during fiscal year 2022.
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Management has reallocated resources and reduced operating and general administrative expenses to more properly align the Company’s costs to revenue given the timing differences between the conclusion of certain mature programs and the commencement of new programs in 2022.
Removed
In connection with the cost reduction initiative, the Company executed a headcount reduction and furlough action in March 2022 and implemented cost controls and cuts during the balance of fiscal year 2022.
Removed
The Company recorded severance costs related to the headcount reduction in its first fiscal quarter of 2022 and the cost reductions of these actions positively impacted the financial results of the Company beginning in the second fiscal quarter of 2022.
Removed
This includes, hosting educational experiences and shop tours with high school and trade school classes, participating in career development fairs and other industry events, and offering internship and apprenticeship opportunities for students from local trade schools.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe occurrence of any future errors, misstatements, or failures in internal control may also cause us to fail to meet reporting obligations, negatively affect investor and customer confidence in our management and the accuracy of our financial statements and disclosures, result in events of default under our banking agreements, or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties or additional stockholder litigation, and have a material adverse impact on our business and financial condition. 18 We face litigation relating to the Revenue Recognition Error .
Biggest changeIf a future failure in internal control should occur, it may cause us to fail to meet SEC reporting obligations, negatively affect the accuracy of our financial statements and disclosures, investor and customer confidence, our ability to raise capital in the future and result in events of default under our banking agreement, any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties and additional stockholder litigation, and have a material adverse impact on our business and financial condition. 17 Risks Related to Global Events The ongoing war between Russia and Ukraine, and the retaliatory measures imposed by the U.S., United Kingdom, European Union and other countries and the responses of Russia to such measures have caused significant disruptions to domestic and foreign economies.
A significant increase in cost estimates on one or more programs could have a material adverse effect on our financial position or results of operations. 14 We use estimates when accounting for contracts. Changes in estimates may affect our profitability and our overall financial position. We primarily recognize revenue from our contracts over the contractual period pursuant to ASC 606.
A significant increase in cost estimates on one or more programs could have a material adverse effect on our financial position or results of operations. We use estimates when accounting for contracts. Changes in estimates may affect our profitability and our overall financial position. We primarily recognize revenue from our contracts over the contractual period pursuant to ASC 606.
Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely and can offset up to 80% of future taxable income. 16 Our ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their expiration.
Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely and can offset up to 80% of future taxable income. Our ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their expiration.
We can give no assurance that we would be awarded new U.S. Government contracts to offset the revenues lost as a result of the termination of any of our U.S. Government contracts. We have risks associated with competing in the bidding process for contracts. We obtain many of our contracts through a competitive bidding process.
We can give no assurance that we would be awarded new U.S. Government contracts to offset the revenues lost as a result of the termination of any of our U.S. Government contracts. 12 We have risks associated with competing in the bidding process for contracts. We obtain many of our contracts through a competitive bidding process.
We cannot ensure that additional financing would be available to us or be sufficient or available on satisfactory terms. Our capital requirements, liquidity and financial condition raise significant risks as to our ability to continue as a going concern .
We cannot ensure that additional financing would be available to us or be sufficient or available on satisfactory terms. 16 Our capital requirements, liquidity and financial condition raise significant risks as to our ability to continue as a going concern .
Cancellations of pending contracts or terminations or reductions of contracts in progress would have a material adverse effect on our business, prospects, financial condition, or results of operations. We may be unable to attract and retain personnel who are key to our operations.
Cancellations of pending contracts or terminations or reductions of contracts in progress could have a material adverse effect on our business, prospects, financial condition, or results of operations. We may be unable to attract and retain personnel who are key to our operations.
Increased scrutiny from investors, lenders, and other market participants regarding our environmental, social, and governance, or sustainability responsibilities could expose us to additional costs and adversely impact our liquidity, results of operations, reputation, employee retention, and stock price.
Increased scrutiny from investors, lenders, regulators and other market participants regarding our environmental, social, governance, sustainability or climate responsibilities could expose us to additional costs and adversely impact our liquidity, results of operations, reputation, employee retention, and stock price.
As a result of the risk factors set forth below, actual results did and could continue to differ materially from those projected in any forward-looking statements. 12 Risks Related to Our Business We depend on government contracts for a significant portion of our revenues. We are a supplier, either directly or as a subcontractor, to the U.S.
As a result of the risk factors set forth below, actual results did and could continue to differ materially from those projected in any forward-looking statements. Risks Related to Our Business We depend on government contracts for a significant portion of our revenues. We are a supplier, either directly or as a subcontractor, to the U.S. Government and its agencies.
See “Risks Related to Our Indebtedness and Liquidity” below. 15 We incur risks associated with new programs.
See “Risks Related to Our Indebtedness and Liquidity” below. We incur risks associated with new programs.
Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur because of any system or operational failure or disruption which would adversely affect our business, results of operations, and financial condition.
Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur because of any system or operational failure or disruption which could adversely affect our business, results of operations, and financial condition.
The Company has completed a Section 382 analysis for the year ended December 31, 2022, and believes that no ownership change occurred during the relevant lookback period that would limit our ability to use our NOLs. Product liability claims in excess of insurance could adversely affect our financial results and financial condition .
The Company completed a Section 382 analysis for the year ended December 31, 2022, and believes that no ownership change occurred during the relevant lookback period through December 31, 2023 that would limit our ability to use our NOLs. Product liability claims in excess of insurance could adversely affect our financial results and financial condition .
(“BankUnited”) for the quarter ended March 31, 2021, the year ended December 31, 2021, and the quarter ended March 31, 2022, and financial statement submission covenants for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021, the year ended December 31, 2021, and the quarters ended March 31, 2022 and June 30, 2022 and obtained amendments to and received waivers of and consents to the non-compliance, as described in more detail in Note 8 to our consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.
(“BankUnited”) for the quarter ended March 31, 2022, and financial statement submission covenants for the quarters ended March 31, 2022 and June 30, 2022 and obtained amendments to and received waivers of and consents to the non-compliance, as described in more detail in Note 8 to our consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.
Our revenues from these customers are diversified over several different aerospace and defense products, programs, and subsidiaries within these customers, however, any significant change in production rates by any of these customers would have a material effect on our results of operations and cash flows.
Our revenues from these customers are diversified over several different A&D products, programs, and subsidiaries within these customers, however, any significant change in production rates by any of these customers would have a material effect on our results of operations and cash flows.
Our pre-2018 NOLs totaled approximately $78.9 million; these NOLs will expire in varying amounts from 2034 through 2039, if not utilized, and can offset 100% of future taxable income for regular tax purposes.
Our pre-2018 NOLs totaled approximately $60.3 million; these NOLs will expire in varying amounts from 2034 through 2039, if not utilized, and can offset 100% of future taxable income for regular tax purposes.
Further consolidation in the aerospace industry could adversely affect our business and financial results. The aerospace and defense industry has experienced significant consolidation, including among our customers, competitors, and suppliers.
Further consolidation in the aerospace industry could adversely affect our business and financial results. The A&D industry has experienced significant consolidation, including among our customers, competitors, and suppliers.
Interest rates under our Credit Agreement are based on the Prime Rate, and as a result, we have exposure to interest rate risk. Certain central banks, such as the U.S. Federal Reserve, effected multiple interest rate increases in 2022 and have implemented and signaled that further rate increases are likely to be implemented in 2023.
Interest rates under our Credit Agreement are based on the Prime Rate, and as a result, we have exposure to interest rate risk. Certain central banks, such as the U.S. Federal Reserve, effected multiple interest rate increases in 2022 and 2023.
Our business may be affected by certain characteristics and trends of the commercial aerospace industry or general economic conditions that affect our customers, such as the current inflationary and high interest rate environment in the U.S. and the resultant impacts on the supply chain, the labor market and the general economy, as well as persistent or new impacts related to COVID-19 as referred to elsewhere in this Annual Report on Form 10-K, fluctuations in the aerospace industry’s business cycle, varying fuel and labor costs, intense price competition and regulatory scrutiny, certain trends, including a possible decrease in aviation activity and a decrease in outsourcing by aircraft manufacturers, or the failure of projected market growth to materialize or continue.
Our business may be affected by certain characteristics and trends of the commercial aerospace industry or general economic conditions that affect our customers, such as the current inflationary and high interest rate environment in the U.S. and the resultant impacts on the supply chain, the labor market and the general economy, as well as fluctuations in the aerospace industry’s business cycle, varying fuel and labor costs, intense price competition and regulatory scrutiny, certain trends, including a possible decrease in aviation activity and a decrease in outsourcing by aircraft manufacturers, or the failure of projected market growth to materialize or continue.
Consolidation among our customers may result in delays in the awarding of new contracts and losses of existing business. Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely affect our ability to compete successfully.
Consolidation among our customers may result in delays in the awarding of new contracts and losses of existing business. Consolidation among our competitors may result in larger competitors with greater resources and market share, which could adversely affect our ability to compete successfully. Consolidation among our suppliers may result in fewer sources of supply and increased costs to us.
The loss of small business status would adversely affect our eligibility for special small business programs and limit our ability to collaborate with other business entities which are seeking to team with small business entities as may be required under a specific contract. Cyber security attacks, internal system or service failures may adversely impact our business and operations.
The loss of small business status would adversely affect our eligibility for special small business programs and limit our ability to collaborate with other business entities which are seeking to team with small business entities as may be required under a specific contract.
Terrorist acts and acts of war may seriously harm our business, results of operations and financial condition. U.S. and global responses to actual or potential military conflicts such as Russia’s invasion of Ukraine, terrorism, perceived nuclear, biological, and chemical threats and other global political crises increase uncertainties with respect to the U.S. and other business and financial markets.
U.S. and global responses to actual or potential military conflicts such as Russia’s invasion of Ukraine, terrorism, perceived nuclear, biological, and chemical threats and other global political crises increase uncertainties with respect to the U.S. and other business and financial markets.
Government and its agencies. We depend on government contracts for a significant portion of our business. If we are suspended or barred from contracting with the U.S. Government, if our reputation or relationship with individual federal agencies were impaired, whether due to the recent restatements and errors in our financial statements or otherwise, or if the U.S.
We depend on government contracts for a significant portion of our business. If we are suspended or barred from contracting with the U.S. Government, if our reputation or relationship with individual federal agencies were impaired, or if the U.S.
This cost growth can occur if estimates to complete a contract increase due to technical challenges or if initial estimates used for calculating the contract price were incorrect. The cost estimation process requires significant judgment and expertise.
Operating margin is adversely affected when contract costs that cannot be billed to customers are incurred. This cost growth can occur if estimates to complete a contract increase due to technical challenges or if initial estimates used for calculating the contract price were incorrect. The cost estimation process requires significant judgment and expertise.
Notes 8 and 9 to our consolidated financial statements included in Part II - Item 8 of this Annual Report on Form 10-K includes a discussion regarding the BankUnited Facility and recent amendments thereto. 17 Our consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Notes 8 and 9 to our consolidated financial statements included in Part II - Item 8 of this Annual Report on Form 10-K includes a discussion regarding the BankUnited Facility and recent amendments thereto.
Risks Related to the Restatement of our Prior Period Consolidated Financial Statements and Material Weaknesses in our Internal Control We restated our consolidated financial statements for the nine months ended September 30, 2018 and the years ended December 31, 2018, 2019, and 2020.
We have reported material weaknesses in internal control over financial reporting and did not maintain effective disclosure controls and procedures for reporting periods from 2018 through September 2023. The material weaknesses led to our restatement of our consolidated financial statements for the nine months ended September 30, 2018 and the years ended December 31, 2018, 2019 and 2020.
Russia’s invasion of Ukraine and the economic disruption resulting from retaliatory measures may cause many of these companies to rethink these strategies and seek sources of supply within the U.S.
Russia’s invasion of Ukraine and the economic disruption resulting from retaliatory measures may cause many of these companies to rethink these strategies and seek sources of supply within the U.S. To the extent they do so, it could disrupt domestic markets for raw materials and supplies, and the market for the skilled laborers we need to manufacture our products.
A shift in defense budgets to product lines we do not produce could have a material adverse effect on our business, financial condition and results of operations. In reading the risk factors set forth below, in each case, consider the additional uncertainties caused by global events such as COVID-19 and the war in Ukraine and terrorist acts.
A shift in defense budgets to product lines we do not produce could have a material adverse effect on our business, financial condition and results of operations.
We are subject to the cyclical nature of the commercial aerospace industry, and any future downturn in the commercial aerospace industry or general economic conditions, including related to COVID-19 and inflation could adversely impact the demand for our products.
If the U.S. economy continues to undergo a period of inflation, our labor costs may increase which could have a material adverse effect on our business, financial condition, and results of operations. 14 We are subject to the cyclical nature of the commercial aerospace industry, and any future downturn in the commercial aerospace industry or general economic conditions, including inflation could adversely impact the demand for our products.
Moreover, expenditures incurred in implementing cyber security and other procedures and controls could adversely affect our results of operations and financial condition.
Moreover, expenditures incurred in implementing cyber security and other procedures and controls could adversely affect our results of operations and financial condition. 15 Our ability to utilize our tax benefits could be substantially limited if we fail to generate sufficient income or if we experience an “ownership change”.
These restatements have affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, and our reputation with our customers, have resulted and may continue to result in stockholder litigation and may reduce customer confidence in our ability to complete new contract opportunities.
The material weaknesses led to multiple restatements of our consolidated financial statements. The material weaknesses and restatements have resulted in our failure to meet SEC reporting obligations, affected and may continue to affect investor confidence, our stock price and our ability to raise capital in the future, and have resulted and may continue to result in stockholder litigation.
To the extent they do so, it could disrupt domestic markets for raw materials and supplies, and the market for the skilled laborers we need to manufacture our products. 19 We cannot forecast with any certainty whether the disruptions caused by the Russian invasion of Ukraine, restrictions imposed by various governments in response thereto and resulting changes in business practices, may materially impact our business and our consolidated financial position, results of operations, and cash flows.
We cannot forecast with any certainty whether the disruptions caused by the Russian invasion of Ukraine, restrictions imposed by various governments in response thereto and resulting changes in business practices, may materially impact our business and our consolidated financial position, results of operations, and cash flows. 18 The conflict between Israel and Hamas, rising tensions between China and Taiwan, the ongoing war between Russia and Ukraine, and terrorist acts and acts of war may seriously harm our business, results of operations and financial condition.
We currently generate a majority of our revenues by producing products for numerous programs under contracts with three prime defense contractors to the U.S. Government. These significant customers – Lockheed Martin, Raytheon and NGC – constituted approximately 35%, 17% and 12%, respectively of our 2022 revenue.
We depend upon a select base of large prime defense contractors for the majority of our revenue, which subjects us to unique risks which may adversely affect us. We currently generate a majority of our revenues by producing products for numerous programs under contracts with three prime defense contractors to the U.S. Government.
In addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have a material adverse effect upon our profitability. For example, the COVID-19 pandemic has impacted, and continues to impact, our supply chain, as described below.
In addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have a material adverse effect upon our profitability. 13 Due to fixed contract pricing, increasing contract costs exposes us to reduced profitability and the potential loss of future business.
The demand for these individuals may increase as other manufacturers seek to bring to the U.S. manufacturing processes currently outsourced overseas. If the U.S. economy continues to undergo a period of inflation, our labor costs may increase which could have a material adverse effect on our business, financial condition, and results of operations.
The demand for these individuals may increase as other manufacturers seek to bring to the U.S. manufacturing processes currently outsourced overseas.
Increases in interest rates increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness.
Increases in interest rates increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness. We have identified material weaknesses in our internal control over financial reporting over a number of years which adversely affected our ability to report our financial condition and results of operations in a timely and accurate manner.
Our ability to utilize our tax benefits could be substantially limited if we fail to generate sufficient income or if we experience an “ownership change.” As of December 31, 2022, we had approximately $88.3 million of gross net operating losses (“NOLs”) for federal tax purposes and approximately $25.0 million of post-apportionment NOLs for state tax purposes.
As of December 31, 2023, we had approximately $74.7 million of gross net operating losses (“NOLs”) for federal tax purposes and approximately $17.3 million of post-apportionment NOLs for state tax purposes.
We have identified material weaknesses in our internal control over financial reporting which did and could continue to adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. As described in Item 9A of this Annual Report on Form 10-K, we identified material weaknesses in our internal control over financial reporting.
As described in Item 9A of this Annual Report on Form 10-K, we identified a material weakness in our internal control over financial reporting of income taxes, which led to the restatement within Note 11 “Income Taxes” of the financial statements within this Annual Report on Form 10-K the Company’s December 31, 2022 deferred tax assets and deferred tax liabilities balances.
Government to enact relevant legislation, such as appropriations bills and continuing resolutions, and the threat or existence of a government shutdown. U.S. Government appropriations for our programs and for defense spending generally may be impacted or delayed by the COVID-19 pandemic as governmental priorities and finances change.
Government to enact relevant legislation, such as appropriations bills and continuing resolutions, the threat or existence of a government shutdown and potential downgrades of the United States’ credit rating, and risks relating to the upcoming U.S. presidential election.
Removed
Consolidation among our suppliers may result in fewer sources of supply and increased costs to us. 13 We depend upon a select base of large prime defense contractors for the majority of our revenue, which subjects us to unique risks which may adversely affect us.
Added
These significant customers – Lockheed Martin, Raytheon and NGC – constituted approximately 30%, 26% and 12%, respectively of our 2023 revenue.
Removed
Due to fixed contract pricing, increasing contract costs exposes us to reduced profitability and the potential loss of future business. Operating margin is adversely affected when contract costs that cannot be billed to customers are incurred.
Added
Cyber security attacks, internal system or service failures and technological changes, including the use of machine learning and generative artificial intelligence, may adversely impact our business and operations.
Removed
In February 2019, we filed an amended Quarterly Report on Form 10-Q/A for the nine months ended September 30, 2018, which included a restatement of our financial statements for the period then ended.
Added
Our consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Removed
The restatement of such financial statements corrected an overstatement of revenue in such period due to the miscoding of an invoice in the Company’s records (the “Coding Error”).
Added
Although these material weaknesses have been remediated as of December 31, 2023, these material weaknesses and restatements have affected investor confidence, our stock price, and resulted in the past in our failure to meet various SEC reporting requirements and stockholder litigation.
Removed
In August 2020, we filed an Annual Report on Form 10-K for the year ended December 31, 2019, which included a restatement of our financial statements for the year ended December 31, 2018 to correct certain errors relating to our recognition of revenue, which errors resulted from an incorrect application of U.S. GAAP (the “Revenue Recognition Error”).
Added
The Company is in the process of remediating this material weakness.
Removed
In November 2021, we filed a comprehensive Form 10-K/A (the “Comprehensive Form 10-K/A”) which included a restatement of our (i) consolidated balance sheet as of December 31, 2020 and December 31, 2019, and the related consolidated statements of operations, cash flows, and shareholders’ deficit for the years ended December 31, 2020 and December 31, 2019, and (ii) consolidated balance sheets and statements of shareholders’ deficit as of March 31, 2020, June 30, 2020, and September 30, 2020, the related consolidated statements of operations for the three months ended March 31, 2020, the three and six months ended June 30, 2020, and the three and nine months ended September 30, 2020, and the consolidated statements of cash flows for the three, six, and nine month periods ended March 31, 2020, June 30, 2020, and September 30, 2020, respectively, and related disclosures to correct errors in such financial statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing Errors”) and resulting deficiencies in reserves (the “Insufficient Reserves”).
Removed
The Inventory Costing Errors resulted from software processing and coding errors, inconsistent units of measure being used for quantities ordered and quantities received of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods received, and the Company not having a procedure to address over or under absorbed overhead costs at the end of accounting periods.
Removed
The Insufficient Reserves resulted from insufficient inventory reserves and provisions for loss contracts.
Removed
The existence of the Coding Error, Revenue Recognition Error, the Inventory Costing Errors, and the Insufficient Reserves, along with the related restatements, have had and may continue to have the effect of eroding investor confidence in the Company and our financial reporting and accounting practices and processes, have negatively impacted and may continue to negatively impact the trading price of our common stock, have resulted and may continue to result in stockholder litigation, may make it more difficult for us to raise capital on acceptable terms, if at all, and may negatively impact our reputation with our customers and cause customers to place new orders with other companies.
Removed
Our Company and certain of our current and former executive officers and directors are defendants in litigation arising out of the Revenue Recognition Error in and restatements of our financial statements for the year ended December 31, 2018, and quarters ended March 31, 2018, June 30, 2018, September 30, 2018, March 31, 2019, June 30, 2019, and September 30, 2019.
Removed
Please see Part I, Item 3, Legal Proceedings. These proceedings may result in significant expenses and the diversion of management attention from our business. We cannot ensure that additional litigation or other claims by shareholders will not be brought in the future arising out of the same subject matter.
Removed
We are currently ineligible to file a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital.
Removed
We did not file our Quarterly Reports for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021, our 2021 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 (the “2022 Q1 Form 10-Q”), and our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022 (the “2022 Q2 Form 10-Q”) within the timeframes required by the SEC.
Removed
We regained status as a current filer when we filed the 2022 Q2 Form 10-Q and have filed subsequent periodic reports on a timely basis.
Removed
However, we will not be considered a timely filer and will not be eligible to file a short-form registration statement on Form S-3 to register the offer and sale of our securities until September 29, 2023 (twelve full calendar months from the date we regain status as a current filer).
Removed
If we wish to register the offer and sale of our securities to the public prior to such time, we will be required to use the long-form registration statement, Form S-1, which may increase both our transaction costs and the amount of time required to complete the transaction.
Removed
This may adversely affect our ability to raise funds if we choose to do so. Risks Related to Global Events The impact of the coronavirus (COVID-19) pandemic on our operations, supply chain, and customers has impacted and could continue to have a material adverse effect on our business, financial position, results of operations and/or cash flows.
Removed
On March 11, 2020, the World Health Organization announced that COVID-19 infections had become a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease.
Removed
Federal, state, and local government responses to COVID-19 and our responses to the outbreak have all, at times, disrupted and will likely continue to disrupt our business, the business of our customers and our supply chain. Even as efforts to contain the pandemic have made progress and many restrictions have relaxed, new variants of the virus have arisen globally.
Removed
At times, variants of COVID-19 have caused a surge in COVID-19 cases.
Removed
The ultimate impact of new variants that have emerged or could emerge from time to time, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines, vaccination rates among the population, the effectiveness of COVID-19 vaccines, and the responses by governmental bodies to impose or reinstate restrictive measures from time to time.
Removed
Any detrimental impacts of COVID-19 could materially increase our costs, negatively impact our sales, or damage the Company’s financial condition, results of operations, cash flows and its liquidity position, possibly to a significant degree.
Removed
The duration of any such impacts cannot be predicted because of the sweeping, on-going and uncertain nature of the circumstances involving the COVID-19 pandemic and the differing effects and responses to the pandemic by various governmental entities in the regions and countries in which we operate.
Removed
The Russian invasion of Ukraine in 2022 and the retaliatory measures imposed by the U.S., United Kingdom, European Union and other countries and the responses of Russia to such measures have caused significant disruptions to domestic and foreign economies.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−0 removed2 unchanged
Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our shares of common stock are listed on the NYSE American exchange under the symbol “CVU”. On April 12, 2023, there were 593 holders of record of our shares of common stock.
Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our shares of common stock are listed on the NYSE American exchange under the symbol “CVU”. On March 28, 2024, there were 171 holders of record of our shares of common stock. We believe there are substantially more beneficial holders of our common stock.
Our board of directors does not intend to declare any cash or other dividends in the foreseeable future, but intends instead to retain earnings, if any, for use in our business operations. Recent Sales of Unregistered Securities There have been no sales of unregistered equity securities for the three months ended December 31, 2022.
Our board of directors does not intend to declare any cash or other dividends in the foreseeable future, but intends instead to retain earnings, if any, for use in our business operations. Recent Sales of Unregistered Securities There have been no sales of unregistered equity securities for the three months ended December 31, 2023.
Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth certain information at December 31, 2022 with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities: Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) Equity Compensation Plans Approved by Security Holders — $— 218,378 Equity Compensation Plans Not Approved by Security Holders — — — Total — $— 218,378 Long-term equity incentives are an important component of compensation and are designed to align the interests of our executive officers and directors who receive long-term equity awards with the Company’s long-term performance and to increase shareholder value.
Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth certain information at December 31, 2023 with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities: Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) Equity Compensation Plans Approved by Security Holders — $ — 621,419 Equity Compensation Plans Not Approved by Security Holders — — — Total — $ — 621,419 Long-term equity incentives are an important component of compensation and are designed to align the interests of our executive officers and directors who receive long-term equity awards with the Company’s long-term performance and to increase shareholder value.
The 2016 Long-Term Incentive Plan, as amended, authorizes the grant of 1,400,000 shares of our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the Company.
The 2016 Long-Term Incentive Plan, as amended, authorizes the grant of 2,200,000 shares of our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the Company.
There have been no repurchases of our outstanding common stock during the three months ended December 31, 2022.
There have been no repurchases of our outstanding common stock during the three months ended December 31, 2023.
As of December 31, 2022, we have granted 1,183,986 shares under this plan and 216,014 shares remained available for grant under this plan. Performance Equity Plan 2009 . The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards.
As of December 31, 2023, we have granted 1,580,945 shares under this plan and 619,055 shares remained available for grant under this plan. 20 Performance Equity Plan 2009 . The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards.
As of December 31, 2022, we have granted 497,636 shares under this plan and 2,364 shares remained available for grant.
As of December 31, 2023, we have granted 497,636 shares under this plan and 2,364 shares remained available for grant. Item 6. [RESERVED] Not applicable.
We believe there are substantially more beneficial holders of our common stock. 21 Dividend Policy To date, we have not paid any dividends on our common stock.
Dividend Policy To date, we have not paid any dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

30 edited+14 added−40 removed18 unchanged
Biggest changeUnder the Twelfth Amendment, the parties amended the Credit Agreement by : (i) extending the maturity date of the Company’s existing revolving line of credit and its existing term loan to November 30, 2024 (under the terms of the Credit Agreement, the outstanding principal balance of the term loan will be repaid by June 30, 2023); (ii) providing for reduction of the aggregate maximum principal amount of all revolving line of credit loans to $20,520,000 from October 1, 2023 through December 31, 2023, $19,800,000 from January 1, 2024 through March 31, 2024, $19,080,000 from April 1, 2024 through June 30, 2024, $18,360,000 from July 1, 2024 through September 30, 2024, and $17,640,000 from October 1, 2024 and thereafter, and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period; and (iii) payment of a $250,000 capitalized fee incurred in connection with the Eighth Amendment to the Credit Agreement in two installments, the first installment to be paid on June 1, 2023 in the amount of $116,667 and the second installment to be paid July 1, 2023 in the amount of $133,333, together with all unpaid interest accrued at the term loan interest rate on the capitalized fee through each such date.
Biggest changeUnder the Thirteenth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Company’s existing revolving line of credit to August 31, 2025; and (b) setting the aggregate maximum principal amount of all revolving line of credit loans to $19,800,000 from January 1, 2024 through March 31, 2024, $19,080,000 from April 1, 2024 through June 30, 2024, $18,360,000 from July 1, 2024 through September 30, 2024, $17,640,000 from October 1, 2024 through December 31, 2024, $16,920,000 from January 1, 2025 through March 31, 2025, $16,200,000 from April 1, 2025 through June 30, 2025 and $15,480,000 thereafter, and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period.
The majority of the Company’s long term contracts with its customers reflect fixed pricing and its long term contracts with its suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals. 28
The majority of the Company’s long term contracts with its customers reflect fixed pricing and its long term contracts with its suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals.
A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments.
Cash Flow . A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments.
Under the overtime revenue recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred and an estimate of costs to complete and resulting total estimated costs at completion.
Under the over time revenue recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred and an estimate of costs to complete and resulting total estimated costs at completion.
Critical Accounting Policies Revenue Recognition In accordance with ASC 606, the Company recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to be entitled to in exchange for the good or service.
Revenue Recognition In accordance with ASC 606, the Company recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to be entitled to in exchange for the good or service.
Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to November 30, 2024, (ii) obtained and regularly seeks additional progress payment and advance payment customer contract funding provisions, (iii) maintained procedures to reduce investments in inventory and contract assets, (iv) remained focused on its military customer base which has proven to be less susceptible to COVID-19 related impacts and (v) maintained its approximately $122 million backlog of funded orders, 98% of which are for military programs.
Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to August 31, 2025, (ii) obtained and regularly seeks additional progress payment and advance payment customer contract funding provisions, (iii) maintained procedures to minimize investments in inventory and contract assets, (iv) remained focused on its military customer base and (v) maintained its approximately $118.2 million backlog of funded orders, 98% of which are for military programs.
Revenue generated from prime government contracts for the year ended December 31, 2022 was $8,663,308 compared to $7,551,743 for the year ended December 31, 2021, an increase of $1,111,565, or 14.7%. This increase is primarily a result of increased revenue recognized on the T-38 Pacer Classic program.
Revenue generated from prime government contracts for the year ended December 31, 2023 was $11,842,145 compared to $8,663,308 for the year ended December 31, 2022, an increase of $3,178,837, or 36.7%. This increase is primarily a result of increased revenue recognized on the T-38 Pacer Classic program.
Provision (benefit) for income taxes The income tax (benefit) for the year ended December 31, 2022 was ($6,553,131), an effective tax (benefit) rate of (249.8%), as compared to the income tax provision of $14,609, an effective tax rate of 0.2%, for the year ended December 31, 2021.
Provision (benefit) for income taxes The income tax (benefit) for the year ended December 31, 2023 was ($13,349,414), which was an effective tax (benefit) rate of (346.6%), as compared to the income tax (benefit) of ($6,553,131) for the year ended December 31, 2022, which was an effective tax (benefit) rate of (249.8%).
The decrease is primarily the result of a lower level of cost decrease in 2022 related to changes in inventory levels and loss contract reserve reductions. 24 Gross profit Gross profit for the year ended December 31, 2022 was $16,304,262 compared to $15,005,092 for the year ended December 31, 2021, an increase of $1,299,170 or 8.7%.
The increase is primarily the result of a higher level of cost decrease in 2022 related to changes in inventory levels and loss contract reserve reductions. Gross profit Gross profit for the year ended December 31, 2023 was $17,065,628 compared to $16,304,262 for the year ended December 31, 2022, an increase of $761,366 or 4.7%.
Gross profit percentage (“gross margin”) for the year ended December 31, 2022 was 19.6% compared to 14.5% for year ended December 31, 2021. The increase was driven by year-over-year improvements in operating efficiencies and decreased factory overhead costs. Favorable/(Unfavorable) Adjustments to Gross Profit During the years ended December 31, 2022 and 2021, we made changes in estimates to various contracts.
Gross profit percentage (“gross margin”) for the year ended December 31, 2023 was 19.7% compared to 19.6% for year ended December 31, 2022. Favorable/(Unfavorable) Adjustments to Gross Profit During the years ended December 31, 2023 and 2022, we made changes in estimates to various contracts.
Such changes in estimates resulted in changes in total gross profit as follows: Years Ended December 31, 2022 December 31, 2021 Favorable adjustments $ 4,962,675 $ 4,066,857 (Unfavorable) adjustments (3,207,099 ) (4,277,930 ) Net adjustments $ 1,755,577 $ (211,073 ) Selling, general and administrative expenses Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2022 were $11,410,067 compared to $11,823,921 for the year ended December 31, 2021, a decrease of $413,854 or 3.5%.
Such changes in estimates resulted in changes in total gross profit as follows: Years Ended December 31, 2023 December 31, 2022 Favorable adjustments $ 2,601,615 $ 4,962,675 (Unfavorable) adjustments (4,052,117 ) (3,207,099 ) Net adjustments $ (1,450,502 ) $ 1,755,576 Selling, general and administrative expenses Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2023 were $10,758,624 compared to $11,410,067 for the year ended December 31, 2022, a decrease of $651,443 or 5.7%.
Contractual Obligations The table below summarizes information about our contractual obligations as of December 31, 2022 and the effects these obligations are expected to have on our liquidity and cash flow in the future years.
However, there can be no assurance that such plans will accomplish their intended goals. 24 Contractual Obligations The table below summarizes information about our contractual obligations as of December 31, 2023 and the effects these obligations are expected to have on our liquidity and cash flow in the future years.
Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Recent Developments On February 20, 2024, the Company entered into a Thirteenth Amendment to the Credit Agreement (the “Thirteenth Amendment”).
We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources. At December 31, 2022, our cash balance was $3,847,225 compared to $6,308,866 at December 31, 2021, a decrease of $2,461,641, or 39.0%.
We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources. At December 31, 2023, our cash balance was $5,094,794 compared to $3,847,225 at December 31, 2022, an increase of $1,247,569, or 32.4%.
Payments Due By Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years Line of credit $ 21,000,000 $ 1,200,000 $ 19,800,000 $ — $ — Debt 1,583,333 1,583,333 — — — Finance Leases 207,414 136,433 70,981 — — Operating Leases 6,895,046 1,814,588 4,870,881 202,332 7,245 Total Contractual Cash Obligations $ 29,685,793 $ 4,734,354 $ 24,741,862 $ 202,332 $ 7,245 Inflation Inflation historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its impact on interest rates, the supply chain, the labor market and general economic conditions, are factors that the Company actively monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company.
Payments Due By Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years Line of credit $ 20,040,000 $ 2,400,000 $ 17,640,000 $ — $ — Finance Leases 70,981 44,498 26,483 — — Operating Leases 5,482,708 2,228,784 3,244,696 9,228 — Insurance Financing Agreement 280,910 280,910 — — — Total Contractual Cash Obligations $ 25,874,599 $ 4,954,192 $ 20,911,179 $ 9,228 $ — Inflation Inflation historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its impact on interest rates, the supply chain, the labor market and general economic conditions, are factors that the Company actively monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company.
The components of cost of sales were as follows: Years ended December 31, 2022 December 31, 2021 Procurement $ 46,094,088 $ 64,628,025 Labor 6,829,405 7,843,520 Factory overhead 15,730,682 19,462,924 Other cost of sales (1,622,673 ) (3,570,017 ) Cost of sales $ 67,031,502 $ 88,364,452 Procurement for the year ended December 31, 2022 was $46,094,088 compared to $64,628,025 for the year ended December 31, 2021, a decrease of $18,533,937 or 28.7%.
The components of cost of sales were as follows: Years ended December 31, 2023 December 31, 2022 Procurement $ 46,020,628 $ 46,094,088 Labor 7,054,308 6,829,405 Factory overhead 16,028,140 15,730,682 Other cost of sales 297,617 (1,622,673 ) Cost of sales $ 69,400,693 $ 67,031,502 22 Procurement for the year ended December 31, 2023 was $46,020,628 compared to $46,094,088 for the year ended December 31, 2022, a decrease of $73,460 or 0.2%.
This decrease is primarily the result of a decrease in procurement for the NGC E-2D MYP II OWP program, the Northrop Grumman E2D WOWP program, the Bell AH-1Z program, the Gulfstream G650 program and the Raytheon - SDTA program.
This decrease is primarily the result of a decrease in procurement for the Lockheed Martin F-16 Rudder Island program, the Raytheon - SDTA program, the NGC E-2D MYP II OWP program and the NGC E2D WOWP program, the Bell AH-1Z program, the Gulfstream G650 program and the Raytheon B-52 Radar Rack program, partly offset by increases in the Sikorsky HIRRS program and the Raytheon Next Generation Jammer – Mid-Band pod program.
For the year ended December 31, 2022, there was a reduction of costs in the amount of $1,622,673 compared to a reduction of costs in the amount of $3,570,017 for the year ended December 31, 2021, a decrease of $1,947,344 or 54.5%.
For the year ended December 31, 2023, there were costs in the amount of $297,617 compared to a reduction of costs in the amount of $1,622,673 for the year ended December 31, 2022, an increase of $1,920,290 or 118.3%.
Revenue generated from commercial contracts for the year ended December 31, 2022 was $5,648,727 compared to $6,047,779 for the year ended December 31, 2021, a decrease of $399,052, or 6.6%. The decrease in revenue resulted from decreased revenue recognized on the Gulfstream G650 and HondaJet programs, largely offset by increases in the Embraer Phenom 300 program.
Revenue generated from commercial contracts for the year ended December 31, 2023 was $4,951,574 compared to $5,648,727 for the year ended December 31, 2022, a decrease of $697,153, or 12.3%. The decrease in revenue resulted from decreased revenue recognized on the Gulfstream G650 program, which concluded in 2022.
At December 31, 2022, we had working capital of $12,896,602 compared to working capital of $12,175,776 at December 31, 2021, an increase of $720,826, or 5.9%. This increase is primarily the result of a decrease in accounts payable and accrued expenses. Cash Flow .
At December 31, 2023, we had working capital of $15,402,381 compared to working capital of $12,896,602 at December 31, 2022, an increase of $2,505,779, or 19.4%. This increase is primarily the result of an increase in contract assets and cash, partially offset by an increase in accrued expenses and accounts payable and a decrease in current portion of long-term debt.
Labor costs for the year ended December 31, 2022 were $6,829,405 compared to $7,843,520 for the year ended December 31, 2021, a decrease of $1,014,115 or 12.9%. The decrease is primarily the result of lower labor cost incurred on the Raytheon – SDTA program.
Labor costs for the year ended December 31, 2023 were $7,054,308 compared to $6,829,405 for the year ended December 31, 2022, an increase of $224,903 or 3.3%. The increase is primarily the result of higher labor cost incurred on the Boeing A-10 Warthog program.
Revenue Revenue for the year ended December 31, 2022 was $83,335,764 compared to $103,369,544 for the year ended December 31, 2021, representing a decrease of $20,033,780 or 19.4%. The decrease was primarily related to decreases in the Raytheon - SDTA program, NGC E-2D MYP II and NGC E-2D WOWP programs, partly offset by increases in the Sikorsky HIRRS program .
Revenue Revenue for the year ended December 31, 2023 was $86,466,321 compared to $83,335,764 for the year ended December 31, 2022, representing an increase of $3,130,557, or 3.8%. The increase was primarily related to increases in the Raytheon - SDTA program and the T-38 Pacer Classic program, partly offset by decreases in the Sikorsky HIRRS program .
Earnings per share Earnings per share was $0.74 ($0.73 per unrestricted share and $0.01 per restricted share) for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding (“WASO”) (12,286,781 WASO unrestricted and 103,109 WASO restricted) as compared to $0.56 ($0.55 per unrestricted share and $0.01 per restricted share) for the year ended December 31, 2021 calculated utilizing 12,193,826 WASO (11,960,134 WASO unrestricted and 233,692 WASO restricted), an increase of $0.18 per share, or 32.1%.
Diluted earnings per share was $1.38 for the year ended December 31, 2023 calculated utilizing 12,471,961 weighted average shares outstanding as compared to $0.74 for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding, an increase of $0.64 per share, or 86.4%.
Factory overhead costs for the year ended December 31, 2022 were $15,730,682 compared to $19,462,924 for the year ended December 31, 2021, a decrease of $3,732,242 or 19.2%.
Factory overhead costs for the year ended December 31, 2023 were $16,028,140 compared to $15,730,682 for the year ended December 31, 2022, an increase of $297,458 or 1.9%.
Cost of sales Cost of sales for the year ended December 31, 2022 was $67,031,502 compared to $88,364,452 for the year ended December 31, 2021, a decrease of $21,332,950 or 24.1%.
Cost of sales Cost of sales for the year ended December 31, 2023 was $69,400,693 compared to $67,031,502 for the year ended December 31, 2022, an increase of $2,369,191 or 3.5%.
The Company performed its annual impairment assessment of goodwill as of December 31, 2022 and concluded that goodwill was not impaired. 23 Results of Operations The following discussion provides an analysis of our results of operations and should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
If the Company’s review indicates a reduction in usability below carrying value, it reduces its net inventory to its net realizable value. Results of Operations The following discussion provides an analysis of our results of operations and should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Income before provision for income taxes We had income before provision for income taxes for the year ended December 31, 2022 of $2,623,094 compared to $6,834,982 for the year ended December 31, 2021, a decrease of $4,211,888 or 61.6%.
Income before provision for income taxes Income before provision for income taxes for the year ended December 31, 2023 was $3,851,790 compared to $2,623,094 for the year ended December 31, 2022, an increase of $1,228,696 or 46.8%.
The other income in 2021 was due to the forgiveness of the PPP loan by the SBA on July 31, 2021. Interest expense Interest expense for the year ended December 31, 2022 was $2,271,101, compared to $1,141,189 for the year ended December 31, 2021, an increase of $1,129,912 or 99%.
The decrease was primarily due to decreased insurance expense and legal fees. Interest expense Interest expense for the year ended December 31, 2023 was $2,455,214, compared to $2,271,101 for the year ended December 31, 2022, an increase of $184,113 or 8.1%.
The income tax (benefit) in 2022 was primarily due to a $6,473,532 reduction in the valuation allowance recorded by the Company during the fourth quarter of 2022 on its deferred tax asset balance related to its net operating loss carryforwards (the “Fourth Quarter 2022 Valuation Allowance Decrease”).
The income tax (benefit) in 2023 and 2022 was primarily due to reductions of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023 and the fourth quarter of 2022 of $14,170,891 and $6,473,532, respectively. 23 Net income Net income for the year ended December 31, 2023 was $17,201,204 compared to $9,176,225 for the year ended December 31, 2022, an increase of $8,024,979 or 87.5%.
Revenue generated from government subcontracts for the year ended December 31, 2022 was $69,023,729 compared to $89,770,022 for the year ended December 31, 2021, a decrease of $20,746,293, or 23.1%. The decrease in revenue related to decreases in the NGC E-2D OWP and WOWP programs and the Raytheon - SDTA program, partly offset by increases in the Sikorsky HIRRS program.
The increase in revenue was primarily related to increases in the Raytheon - SDTA program and the Lockheed Martin F-16 Rudder Island program, partly offset by decreases in the Sikorsky HIRRS program and the NGC E-2D WOWP program.
Removed
Recent Developments On March 17, 2023, we received notice from NYSE American (the “Exchange”) that the Company is in compliance with all of the NYSE American LLC continued listing standards set forth in Part 10 of the NYSE American Company Guide (“Company Guide”), and that, specifically, the Company has resolved the continued listing deficiency with respect to Sections 1003(a)(i) and (ii) of the Company Guide referenced in the Exchange’s letter to the Company dated September 17, 2021, which was previously disclosed by the Company. 22 On March 23, 2023, the Company entered into a Twelfth Amendment to the Credit Agreement (the “Twelfth Amendment”).
Added
Critical Accounting Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include revenue recognition, the valuation of deferred income taxes, and the valuation of inventory.
Removed
See Part II, Item 8, Note 2 “Revenue Recognition” in the notes to the consolidated financial statements included in this Form 10-K for additional information regarding the Company’s revenue recognition policy. Inventory Inventory is stated at the lower of cost or estimated net realizable value. Cost is determined using the weighted average method.
Added
Actual results could differ from those estimates. We believe that the following discussion addresses our critical accounting policies which require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Removed
If the Company’s review indicates a reduction in usability below carrying value, it reduces its net inventory to a new cost basis. Leases The Company does not recognize right-of-use (“ROU”) assets or lease liabilities for existing short-term leases. In addition, the Company does not separate lease and non-lease components for certain classes of assets (office building).
Added
For more discussion of these and other significant accounting policies, refer to Part II, Item 8, Note 1 “ Principal Business Activity and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Removed
The Company’s ROU assets and lease liabilities at December 31, 2022 were approximately $6.5 million and $6.9 million, respectively, using an estimated incremental borrowing rate of 10.5%, as compared to ROU assets and lease liabilities as of December 31, 2021 of $7.8 million and $8.0 million, respectively.
Added
See Part II, Item 8, Note 1 “Principal Business Activity and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in this Form 10-K for additional information regarding the Company’s revenue recognition policy. 21 Deferred Income Taxes – Valuation Allowance On a quarterly basis, we assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized.
Removed
Goodwill In testing goodwill for impairment, the Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0,” to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value.
Added
Assessing the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized.
Removed
This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in the Company’s management, strategy and primary customer base.
Added
In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative evidence to overcome.
Removed
If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit.
Added
As of December 31, 2023, the Company achieved three years of consecutive book and taxable income, along with projections of profitability, for which management determined that there is sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will be realized.
Removed
If the carrying amount exceeds the fair value, goodwill will be written down to the fair value and recorded as impairment expense in the consolidated statements of operations. The Company performs its impairment testing annually and when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Added
As such, $14,170,891 of the valuation allowance was released during the fourth quarter of 2023, leaving a balance in the valuation allowance of $569,143 as of December 31, 2023. Inventory Inventory is stated at the lower of cost or estimated net realizable value. Cost is determined using the weighted average method.
Removed
The decrease is primarily the result of improved productivity on programs such as the Raytheon - SDTA program, the NGC welded tubes program, the NGC E-2D MYP II OWP program, the Sikorsky - Gunner Windows program and the Bell AH-1Z program, which led to higher labor absorption rates and lower overhead costs.
Added
Revenue generated from government subcontracts for the year ended December 31, 2023 was $69,672,602 compared to $69,023,729 for the year ended December 31, 2022, an increase of $648,873, or 0.9%.
Removed
This decrease was primarily due to decreased accounting and legal fees, partially offset by increases in insurance expense. Other income Other income for the year ended December 31, 2022 was nil, compared to $4,795,000 for the year ended December 31, 2021.
Added
The increase is primarily the result of higher overhead rates incurred on the Raytheon Next Generation Jammer – Mid-Band pod program, the Sikorsky – Gunner Windows program and the Lockheed Martin F-16 Rudder Island program.
Removed
Excluding the $4,795,000 PPP loan forgiveness by the SBA on July 31, 2021, our income before provision for income taxes for the year ended December 31, 2021 was $2,039,982. Excluding the PPP loan forgiveness, income before provision for income taxes for 2022 increased by $583,112, or 28.6%, over 2021.
Added
The increase in net income was driven by the aforementioned increase in gross profit, decrease in SG&A and the 2023 income tax (benefit), partially offset by the aforementioned increase in interest expense.
Removed
The income tax provision in 2021 is mostly the result of state franchise and minimum taxes. Net income Net income for the year ended December 31, 2022 was $9,176,225 compared to $6,820,373 for the year ended December 31, 2021, an increase of $2,355,852 or 32.4%.
Added
Earnings per share Basic earnings per share was $1.40 for the year ended December 31, 2023 calculating utilizing 12,311,219 weighted average shares outstanding as compared to $0.74 for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding, an increase of $0.66 per share, or 88.8%.
Removed
The increase in net income was driven by the aforementioned increase in gross profit, decrease in SG&A and the 2022 income tax (benefit), partially offset by the aforementioned increase in interest expense. 25 Excluding the $6,473,532 Fourth Quarter 2022 Valuation Allowance Decrease, a $771,834 first quarter 2022 severance charge and the 2021 $4,795,000 PPP loan forgiveness, our net income for the years ended December 31, 2022 and December 31, 2021 was $3,474,527 and $2,025,373, respectively, representing a year-over-year increase in 2022 net income of $1,449,154, or 71.5%.
Added
The increase was driven by $3,928,341 in cash provided by operations, partly offset by our pay down of outstanding debt during 2023 of $2,679,766. BankUnited Facility This information is set forth in Note 8 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report on Form 10-K which is hereby incorporated by reference.
Removed
Excluding the aforementioned Fourth Quarter 2022 Valuation Allowance Decrease, the aforementioned first quarter 2022 severance charge and the aforementioned 2021 PPP loan forgiveness, our earnings per share was $0.28 per share for the year ended December 31, 2022 as compared to $0.17 per share for the year ended December 31, 2021, an increase of $0.11 per share, or 64.7%.
Added
Leases This information is set forth in Note 10 to our Consolidated Financial Statements, appearing following Item 15 of this Annual Report on Form 10-K which is hereby incorporated by reference.
Removed
The decrease was driven by our pay down of outstanding debt during 2022 of $3,365,181, partly offset by $944,329 in cash provided by operations. BankUnited Facility On March 24, 2016, the Company entered into the Credit Agreement.
Removed
The BankUnited Facility originally provided for a revolving credit loan commitment of $30 million (the “Revolving Loan”) and a $10 million term loan (“Term Loan”). The Revolving Loan bears interest at a rate based upon a pricing grid, as defined in the Credit Agreement.
Removed
On May 11, 2021, the Company entered into a Waiver and Seventh Amendment (“Seventh Amendment”) to the Credit Agreement. Under the Seventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022, and (b) amending the leverage ratio covenant.
Removed
Additionally, under the Seventh Amendment, BankUnited waived late delivery of certain financial information. 26 On October 28, 2021, the Company entered into a Waiver and Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement.
Removed
Under the Eighth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31, 2022, (b) reducing the availability under the Revolving Loan from $24 million to $21 million while eliminating the requirement to maintain a minimum $3.0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing for the repayment of an additional $750,000 of the principal balance of the Term Loan in three installments of $250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 in addition to $200,000 regular monthly principal payments through December 31, 2022, (d) amending the minimum debt service coverage ratio covenant, and (e) amending the maximum leverage coverage ratio.
Removed
Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived temporarily, late delivery of certain financial information. In connection with the Eighth Amendment, a $250,000 amendment fee (the “Amendment Fee”) was earned by the lenders on December 31, 2021, which the Company elected to pay in kind and accrue and capitalize rather than pay in cash.
Removed
As of December 31, 2021, the Amendment Fee payable was posted by BankUnited to the Revolving Loan and on February 11, 2022, in agreement with the Company, the Amendment Fee was reclassified by BankUnited to the Term Loan. The Company has recorded this payable to its financial statements accordingly.
Removed
On April 12, 2022 the Company entered into a Consent, Waiver and Ninth Amendment (the “Ninth Amendment”) to the Credit Agreement.
Removed
Under the Ninth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to September 30, 2023, (b) providing for the repayment of an additional $750,000 of the principal balance of the Term Loan in three installments of $250,000 on September 30, 2022, December 31, 2022 and March 31, 2023 in addition to $200,000 regular monthly principal payments through December 31, 2022 and (c) increasing the interest on the Revolving Loan, Term Loan, and the Amendment Fee as follows: through June 30, 2022, Prime Rate (as defined in the Credit Agreement) plus 2.5%; from July 1, 2022 through August 31, 2022, Prime Rate plus 5%; from September 1, 2022 through October 31, 2022, Prime Rate plus 6%; from November 1, 2022 through December 31, 2022, Prime Rate plus 7%; and from January 1, 2023 through September 30, 2023, Prime Rate plus 8%.
Removed
Additionally, under the Ninth Amendment, the Credit Agreement financial covenants were amended. BankUnited also waived or consented to certain covenant non-compliance, waived temporarily or consented to, late delivery of certain financial information and waived permanently late delivery of certain pro-forma budget information.
Removed
On August 19, 2022, we entered into a Consent, Waiver and Tenth Amendment (the “Tenth Amendment”) to the Credit Agreement.
Removed
Under the Tenth Amendment, the parties amended the Credit Agreement by (a) increasing the maximum leverage ratio applicable for the fiscal quarter ending September 30, 2022 to 5.0 to 1.0, (b) waiving and/or consenting to the exclusion from the Company’s covenant compliance requirements for the fiscal quarters ended December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022 up to (i) $566,025 of losses incurred and reserves taken under the Borrower’s welded product contracts, and (ii) $367,045 of reserves taken with respect to the Borrower’s welded product inventory, and (c) waiving and/or consenting to the exclusion from the Company’s covenant compliance requirements for the fiscal quarters ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 up to $795,997 of accrued severance and COBRA costs and employer taxes incurred by the Company during the fiscal quarter ending March 31, 2022.
Removed
Additionally, under the Tenth Amendment, BankUnited waived or consented to late delivery of certain financial information required by the Credit Agreement. On November 10, 2022, the Company entered into an Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment”).
Removed
Under the Eleventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to November 30, 2023 or with respect to the Term Loan, if earlier, until the outstanding principal balance is paid in full (the “Term Loan Maturity Date”), (b) providing for regular monthly principal payments of $200,000 on the Term Loan from January 1, 2023 through the Term Loan Maturity Date (in addition to the Company’s existing obligation to make two principal payments on the term loan of $250,000 on each of December 31, 2022 and March 31, 2023) and (c) decreasing the interest rate on the Revolving Loan, the Term Loan and the Amendment Fee to the Prime Rate plus 3.5% effective as of November 1, 2022.
Removed
As described above, on March 23. 2023, the Company entered into the Twelfth Amendment, under which the parties amended the Credit Agreement by : (a) extending the maturity date of the Company’s existing revolving line of credit and its existing term loan to November 30, 2024 (under the terms of the Credit Agreement, the outstanding principal balance of the term loan will be repaid by June 30, 2023); (b) providing for reduction of the aggregate maximum principal amount of all revolving line of credit loans to $20,520,000 from October 1, 2023 through December 31, 2023, $19,800,000 from January 1, 2024 through March 31, 2024, $19,080,000 from April 1, 2024 through June 30, 2024, $18,360,000 from July 1, 2024 through September 30, 2024, and $17,640,000 from October 1, 2024 and thereafter, and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period; and (c) payment of a $250,000 capitalized fee incurred in connection with the Eighth Amendment in two installments, the first installment to be paid on June 1, 2023 in the amount of $116,667 and the second installment to be paid July 1, 2023 in the amount of $133,333, together with all unpaid interest accrued at the term loan interest rate on the capitalized fee through each such date.
Removed
The Credit Agreement, as amended, requires us to maintain the following financial covenants (subject to the exclusions provided for in the previous paragraph): (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four quarter period ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to 1.0 for the trailing four quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter; (b) maximum leverage ratio of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to 1.0 for the trailing four quarter period ended June 30, 2022, 5.0 to 1.0 for the trailing four quarter period ended September 30, 2022 and 4.0 to 1.0 for the trailing four quarter periods thereafter; (c) minimum net income after taxes as of the end of each fiscal quarter being no less than $1.00 commencing June 30, 2022; and (d) a minimum adjusted EBITDA at the end of each quarter of no less than $1.0 million (waived for the quarter ended March 31, 2022).
Removed
The additional principal payments, increase in interest and the Amendment Fee provided for in the Eight Amendment and Ninth Amendment are excluded for purposes of calculating compliance with each of the financial covenants. 27 PPP Loan On April 10, 2020, we entered into the PPP Loan, with BNB Bank (now part of Dime Community Bank (“Dime”)) as the lender, in an aggregate principal amount of $4,795,000, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).
Removed
On November 2, 2020, the Company applied to the lender for full forgiveness of the PPP Loan as calculated in accordance with the terms of the CARES Act, as modified by the Paycheck Protection Flexibility Act.
Removed
On July 13, 2021, the Company received notification through Dime that the PPP Loan and accrued interest thereon were fully forgiven by the Small Business Association and that the forgiveness payment date was July 1, 2021. The forgiveness of the PPP Loan was recognized during the Company’s third fiscal quarter ending September 30, 2021.
Removed
The PPP Loan was evidenced by a promissory note (the “Note”) and, subject to the terms of the Note, the PPP Loan had a fixed interest rate interest of one percent (1%) per annum, with the first six months of interest deferred and had an initial term of two years.
Removed
The SBA reserves the right to audit any PPP Loan, for eligibility and other criteria, regardless of size. These audits may occur after forgiveness has been granted.
Removed
In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP Loan was forgiven and to provide that documentation to the SBA upon request. All amounts are classified as current or long term in accordance with the Note terms.

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