CPI AEROSTRUCTURES, INC.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

work. During the threesix months ended March 31,June 30, 2007, we received approximately $8.6 million of new contract awards including approximately $7.7 million of $1,417,000subcontract work, compared to $6,900,000$7.9 million of new contract awards in the same period last year. Included in last years’ award amount is a $5.0 million release on our C-5 TOP contract. Given the large amount of contract awards we receivedRevenue increased in the second halffirst six months of 2006 this decrease was not totally unexpected. 2007 as we have been performing on these contracts.

As of March 31,June 30, 2007, we had over $300approximately $285 million in bids outstanding. We continue to make bids on contracts on a weekly basis.

Although we are not actively pursuing commercial contract work, our one commercial contract accounted for revenue of approximately $176,000 for the three months ended March 31, 2007 compared to approximately $619,000 for the three months ended March 31, 2006.

Gross Profit

Gross profit for the three months ended March 31,June 30, 2007 was $1,358,681$2,188,620 compared to $965,191a gross loss of $904,490 for the three months ended March 31,June 30, 2006, an increase of $393,490.$3,093,110. As a percentage of revenue, gross profit for the three months ended March 31,June 30, 2007 was 25%29% compared to gross profitloss of 19%37% for the same period last year. The increase inFor the six months ended June 30, 2007, gross profit percentage was due to better control over suppliers and an improved factory overhead application rate.$3,547,301, or 27% of revenue, compared with $60,702, or 1% of revenue for the first six months of last year.

During the threesix months ended March 31,June 30, 2006, we incurred overtime and rework costs to correct poor supplier workmanship and delays in deliveries by some of our suppliers. In addition, we had maintained our factory overhead and labor cost structure in anticipation of releases on contracts that we havehad already been awarded, including the C-5 TOP contract, as well as additionalnew awards on some of our major outstanding bids. In mid-2006,At the end of the second quarter of 2006, when these awards did not materialize, we reduced our labor force by approximately 11%12% and took other cost saving measures in an attempt to increase gross profit. The increasedincrease in gross profit percentage infor the threesix months ended March 31,June 30, 2007 is a result of these cost saving measures.was due to better control over suppliers and an improved factory overhead application rate.

We anticipate that our overhead costs for the remainder of the year will remain consistent with those incurred in the quartersix months ended March 31,June 30, 2007. Therefore, if the level of shop activity remains similar to our present level, our overhead rates and gross margin should remain similar to our current rates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31,June 30, 2007 were $923,492$1,262,172 compared to $848,297$1,133,844 for the three months ended March 31,June 30, 2006, an increase of $75,195,$128,328, or 9%11%. For the six months ended June 30, 2007, selling, general and administrative expenses were $2,185,664 compared to $1,982,142 for the same period last year, an increase of $203,522, or 10%. This increase was primarily due to a $47,000to:

	•	a $182,000 increase in consulting fees related to bids and proposals;

	•	a $73,000 increase in public company fees, which includes fees paid for investor relations, fees for printing our reports and SEC filings, transfer agent fees and other expenses associated with being a public company;

	•	a $54,000 increase in stock compensation expense; and

	•	a $49,000 increase in travel expenses related to trips for vendor management and subcontracting sales.

This increase in travel expenses related to trips for vendor management and subcontracting sales. Additionally, we had a $17,000 increase in stock compensation expense and increased consulting fees of approximately $100,000 related to bids and proposals,was offset by decreasesa decrease in salaries of $50,000$82,000 and public companya decrease in accounting and legal fees of $70,000. Public company fees include fees paid for investor relations, fees for printing of our annual reports and SEC filings, transfer agent fees and other expenses associated with being a public company.$84,000.

Income (Loss) Before Provision for (Benefit from) Income Taxes

Income before provision fromfor income taxes for the three months ended March 31,June 30, 2007 was $435,189$926,448 compared to $116,894loss before benefit from income taxes of $2,038,334 for the same period last year, This increase was primarily due to the increase in gross profit described above.

Provision for Income Taxes

Provision for income taxes was $167,000 for the three months ended March 31, 2007, or 38% of pre-tax income. This compares to a provision for income taxes of $48,000, or 41% of pre-tax income, for the three months ended March 31, 2006.an

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CPI AEROSTRUCTURES, INC.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

increase of $2,964,782. For the six months ended June 30, 2007, income before provision for income taxes was $1,361,637 compared to a loss before benefit from income taxes of $1,921,440 for the same period last year, an increase of $3,283,077. This increase was primarily due to the increase in gross profit described above.

Provision for (Benefit from) Income Taxes

Provision for income taxes was $518,000 for the six months ended June 30, 2007, or 38% of pre-tax income. For the three months ended June 30, 2007, the provision for income taxes was $351,000, or 38% of pre-tax income. There was a benefit from income taxes for the three months ended June 30, 2006 of $705,000, which was the result of a recovery of taxes expensed in the first quarter of 2006, as well as federal taxes paid in 2005 which are refundable through the filing of a carryback claim. There was a benefit from income taxes of $657,000 for the six months ended June 30, 2006, which was the result of the refundable 2005 taxes paid.

Net Income

As a result, basic net income for the three months ended March 31,June 30, 2007 was $268,189,$575,448, or $0.05$0.10 per basic and diluted share, compared to a net loss of $1,333,334, or $0.24 per basic share, for the same period last year. For the six months ended June 30, 2007, basic net income of $68,894,was $843,637, or $0.01$0.15 per basic and dilutedshare, compared with a net loss of $1,264,440, or $0.23 per basic share, for the same period last year. Diluted earningsincome per share for the three months ended March 31,June 30, 2007 was $0.10, calculated utilizing 5,919,262 diluted6,026,829 average shares outstanding. Diluted income per share for the threesix months ended March 31, 2006June 30, 2007 was $0.14, calculated utilizing 6,126,967 diluted5,908,891 average shares outstanding. At March 31, 2007Diluted loss per share for the three and six months ended June 30, 2006 is the same as basic loss per share because the effect of 865,277 incremental shares of 383,750 and 235,000, respectively, were not included in the diluted earnings per share calculation because their exercise price exceeded the fair market value of our common stock during the period, and accordingly theirtaken into account as such effect would be anti-dilutive.

Liquidity and Capital Resources

General

At March 31,June 30, 2007, we had working capital of $25,745,148$27,512,904 compared to $25,122,504 at December 31, 2006, an increase of $622,644,$2,390,400, or 2%9.5%.

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. Contracts that permit us to bill on a progress basis must be classified as ‘‘on time’’ for us to apply for progress payments. In February 2007, we agreed to pay $75,000 to have the late delivery orders on the C-5 TOP contract classified as ‘‘on time.’’ Accordingly, beginning in February 2007, we were able to apply for progress payments under this program. Costs for which we are not able to bill on a progress basis are components of ‘‘Costs and estimated earnings in excess of billings on uncompleted contracts’’ on our balance sheet and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

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

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

At March 31,June 30, 2007, we had a cash balance of $46,747$1,041,745 compared to $38,564 at December 31, 2006. In addition to the nominal increase in cash during the threesix months ended March 31,June 30, 2007, our accounts receivable increased by approximately $1,557,000,$334,000, while our liabilities only increaseddecreased by approximately $268,000.$70,000. The increase in accounts receivable was primarily due to an increase in amounts due for subcontract work, which we were collecting on 60 day terms, compared to standard 30 day terms that we have with the government. In April 2007, we entered into an agreement with one of our major subcontract customers to receive electronic payments on our accounts receivable, which we expect will reduce the payment timing to less than 30 days. In April 2007, we received approximately $1,192,000 from this customer for payment of accounts receivable.work.

During the years ended December 31, 2006 2005 and 2004,2005, we used cash of $1,015,151 $676,767 and $560,768,$676,767, respectively, to fund our operations. Because of our historical use of cash, and the expiration of a long term line of credit, beginning in June 2006, we began to reduce expenses and implement a plan to improve cash flow. As described earlier, the reduction of expenses has resulted in improved gross margin and profitability.

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Item 2 — Management’s Discussionprofitability, and Analysis of Financial Condition and Results of Operations

At March 31,as a result, for the six month period ended June 30, 2007 we had costs in excess of billings on uncompleted contracts of $28,180,320, which represents unbilled receivables of which we expect approximately 90% to be converted intoour operations yielded a positive cash within the next year. This amount represents $25,362,000 of funded delivery orders, or funded backlog, to be shipped and collected by March 31, 2008. In addition, we will be filing a tax refundflow of approximately $628,000 for the carryback of our net tax loss recorded during the year ended December 31, 2006.$390,000.

Based on the positive results in the threesix months ended March 31,June 30, 2007, our projected cash expenses and the above described sources of cash, we expect to have positive cash flow during the twelve month period ending March 31,June 30, 2008.

JP Morgan Chase Credit Facility

JP MorganChase

In September 2003, we entered into a three year, revolving credit facility with JP Morgan Chase Bank (the ‘‘Chase Facility’’), secured by our assets.

In October 2006, the Chase Facility was amended and restated. The facility specifies an interest rate equal to the greater of (a) the prime rate and (b) the federal funds rate, plus 0.5%. The Chase Facility expired on December 31, 2006 and was extended until April 30, 2007.

In May 2007, the Chase Facility was further amended to provide for a $200,000 revolving credit facility and extended until June 30, 2007. Amounts borrowed under this agreement must be repaid at the expiration of the agreement.

In August 2006, we borrowed $350,000 under the Chase Facility. As of March 31,The Chase Facility was amended and restated in October 2006, further amended in May 2007 $200,000 remained outstanding and as ofit expired on June 30, 2007. All borrowings under this facility were repaid in May 11,2007.

Sovereign Bank

In August 2007, $100,000 remained outstanding.

Although we are currently negotiating to secure a long term credit agreement with JP Morgan Chase Bank, or with another financial institution, there is no assurance thatentered into a new linetwo-year, $2.5 million revolving credit facility with Sovereign Bank (the ‘‘Sovereign Facility’’), secured by our assets. The Sovereign Facility specifies an interest rate equal to the lower of LIBOR plus 2% or Sovereign Bank’s prime rate. The Sovereign Facility contains financial covenants related to interest coverage, net income and capital expenditures, as defined in the agreement.

We believe that our existing resources, together with the availability under our credit canfacility, will be secured on terms acceptablesufficient to us.meet our current working capital needs for at least the next 12 months.

Contractual Obligations

The table below summarizes information about our contractual obligations as of March 31,June 30, 2007 and the effects these obligations are expected to have on our liquidity and cash flow in the future years.

Contractual Obligations			Payments Due By Period ($)																														Payments Due By Period ($)
			Total						Less than 1 year						1-3 years						4-5 years						After 5 years						Total						Less than 1 year						1-3 years						4-5 years						After 5 years
Short-Term Debt					230,560						230,560						-0-						-0-						-0-						14,215						14,215						-0-						-0-						-0-
Operating Leases					3,438,245						400,821						838,077						889,116						1,310,231						3,338,786						403,805						844,316						895,735						1,194,930
Employment Agreement Compensation *					1,294,163						666,863						627,300						-0-						-0-
Employment Agreement Compensation*																																			1,560,875						670,575						770,300						120,000						-0-
Total Contractual Cash Obligations					4,962,968						1,298,244						1,465,377						889,116						1,310,231						4,913,876						1,088,595						1,614,616						1,015,735						1,194,930

*	The employment agreements provide for bonus payments that are excluded from these amounts.

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Item 3.3 — Quantitative and Qualitative Disclosure About Market Risk

None

Item 4 — Controls and Procedures

An evaluation of the effectiveness of our disclosure controls and procedures was made as of March 31,June 30, 2007 under the supervision and with the participation of our management, including our

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CPI AEROSTRUCTURES, INC

chief executive officer and chief financial officer. During the first quarter of 2007, we implemented a plan to remediate the material weaknesses identified by our independent registered public accounting firm and discussed in detail in our Annual Report on Form 10-K for the year ended December 31, 2006. These material weaknesses related to our failure to properly recognize revenue, cost incurred and billings to the customer on certain contracts in that:

	•	the sales and cost estimates used to recognize revenue on a significant contract did not reflect the most current available information. As a result, the 2006 margin with respect to this contract was overstated; and

	•	gross margin was overstated on certain contracts because we recognized revenue on change orders where the customer approval had not been obtained.

These two errors resulted in an overstatement of net income in our statement of operations for the year ended December 31, 2006, which errors were corrected prior to filing of our Annual Report on Form 10-K.

Our internal control over reviewing and recording revenue recognition did not detect these matters and therefore was not effective at preventing or detecting material misstatement of the financial statements. Although we have begun remediation of these deficiencies, we have not had sufficient time to test whether these actions will be effective.

To remediate these material weaknesses, during the first quarter ended March 31,of 2007, our senior management implemented a new procedure requiring our chief financial officer and vice president of operations to review sales and cost estimates used to recognize revenue subsequent to the preparation of the financial statements to insure that such estimates used the most current available information. In addition, a procedure was designed to insure that all change orders have customer approval before being reflected in our contract estimates.

In addition, during the second quarter of 2007 we began to take the following corrective actions:

	•	We began the interview process to addadded resources to our accounting department to manage the estimating process necessary to properly and timely report our revenue. Subsequent to March 31, 2007 we hired a new accounting supervisor for our accounting department.

	•	We started planning a regular education program for additional members of our accounting department to diversify the task of financial reporting management and allow a higher level of review.

Because we have not completed our remediation plan, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2007 to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

During the most recently completed fiscal quarter, except as described above, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

.

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Part II:    Other Information

Item 1A:1A — Risk Factors

There are no material changes from the risk factors set forth in Item 1A, ‘‘Risk Factors,’’ of our Annual Report on Form 10-K for the year ended December 31, 2006. Please refer to that section for disclosures regarding the risks and uncertainties to our business.

Item 4 — Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Shareholders on June 12, 2007. At the meeting, the director nominated for election, Edward J. Fred, was reelected for a three-year term expiring in 2010, with 5,194,460 shares voted in favor of his election and 59,105 shares for which authority was withheld. The terms of office of Kenneth McSweeney and Harvey J. Bazaar will expire at the Annual Meeting of Shareholders to be held in 2008. The terms of office of Walter Paulick and Eric Rosenfeld will expire at the Annual Meeting of Shareholders to be held in 2009.

Item 6 — Exhibits

Exhibit 10.2310.27			Third Amendment to Amended and Restated Revolving Credit Agreement between the CompanyCPI Aerostructures, Inc., and JPMorgan ChaseSovereign Bank, N.A.dated as of August 13, 2007
Exhibit 10.28			Commercial Security Agreement, dated August 13, 2007, between CPI Aerostructures, Inc., Grantor, and Sovereign Bank, Lender
Exhibit 31.1			Section 302 Certification by Chief Executive Officer
Exhibit 31.2			Section 302 Certification by Chief Financial Officer
Exhibit 32			Section 906 Certification by Chief Executive Officer and Chief Financial Officer

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			CPI AEROSTRUCTURES, INC.
Dated: MayAugust 14, 2007			By:			/S/ Edward J. Fred
						Edward J. Fred Chief Executive Officer, President, and Secretary
Dated: MayAugust 14, 2007			By:			/S/ Vincent Palazzolo
						Vincent Palazzolo Chief Financial Officer