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Item 4.02
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Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
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On February 12, 2020, the audit committee of the board of
directors (“Audit Committee”) of CPI Aerostructures, Inc. (the “Company”), determined, based on the recommendation
of management and in consultation with CohnReznick LLP (“CohnReznick”), the Company’s independent registered
public accounting firm, that the Company’s financial statements which were included in its annual report on Form 10-K for
the year ended December 31, 2018, quarterly reports on Forms 10-Q for the quarters ended March 31, 2018, June 30, 2018, and September
30, 2018 and quarterly reports on Forms 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019 should
no longer be relied upon due to an error in such financial statements relating to the Company’s recognition of revenue from
contracts with customers under ASC Topic 606. Similarly, CohnReznick’s reports on the effectiveness of internal control over
financial reporting for the year ended December 31, 2018, management’s reports on the effectiveness of internal control over
financial reporting, press releases, and investor communications describing the Company’s financial statements for such periods
should no longer be relied upon. The Company’s cash flows from operations for the affected periods are not expected to be
impacted.
The error was uncovered as part of the preparation of the
Company’s financial statements for the year ended December 31, 2019. After reconsideration of the terms of the Company’s
contracts with customers, Management’s preliminary conclusion is that certain revenues and net income were recognized prematurely
or inaccurately due to an incorrect application of generally accepted accounting principles. Therefore, previously reported revenue
and net income are believed to have been overstated. The error is also expected to have an impact on the Company’s balance
sheet for the affected periods. Specifically, retained earnings and contract assets are believed to be overstated.
The Company expects to amend its annual report on Form 10-K
for the year ended December 31, 2018 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018,
September 30, 2018, March 31, 2019, June 30, 2019, and September 30, 2019, and to restate the financial statements and other
disclosures contained therein as soon as reasonably practical.
At this time, the Company has not fully completed its review
and the expected financial impact of the error described above is preliminary and subject to change. The Company cannot predict
the aggregate amount of revenue and net income that will ultimately be restated or the final outcome or timing of the Company’s
filing of restated financial statements for the affected periods.
Management has considered the effect of the error on the
Company’s prior conclusions of the adequacy of its internal control over financial reporting and disclosure controls and
procedures as of the end of each of the applicable periods. As a result of the error, management has determined that a material
weakness existed in the Company’s internal control over financial reporting as of the end of each of the affected periods.
Accordingly, the Company’s Chief Executive Officer and Acting Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures were not effective at the reasonable assurance level as of the end of each of the effective
periods. The Company has reviewed its financial closing process and believes it has identified the corrective action to remediate
the cause of the error. The Company plans to include a discussion of the Company’s plan to remediate the material weakness
within in the Company’s annual report on Form 10-K for the year ended December 31, 2019.
The Company’s Audit Committee and members of the Company’s
management have discussed the matters disclosed in this Item 4.02 with CohnReznick.
On February 14, 2020, the Company issued a press release
announcing the foregoing, which is included as Exhibit 99.1 hereto.