| RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS | 17. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL
STATEMENTS As previously
reported, on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors
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, 2020 and
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the
Securities and Exchange Commission (the “SEC”) should no longer be relied upon due to errors in such financial
statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing
Errors”) and that 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 management identified the Inventory Costing Errors during its inventory testing procedures for the
preparation of the Company’s financial statements for the quarterly period ended March 31, 2021. At the time of the June 2021
disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported
on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million. 2,010,084 The correction of the Inventory Costing Errors resulted in the
determination that certain contracts were in a loss position and certain inventory items required additional reserves. The Company
re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded
that increases to these reserves were required. The insufficient reserves resulting from such reserve increases are referred to
as “Additional Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient
Reserves.” It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves
was during the fourth quarter of 2019. On November 16, 2021, the Audit and Finance Committee determined,
based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial
statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating
to the recording and reporting of the Insufficient Reserves, that, similarly, 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 period should no longer be relied upon, and stated that the Company expected
to restate its Annual Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original
Forms 10-Q”) by filing a comprehensive Form 10-K/A. The
Company, upon conducting an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined
that net loss for the years ended December 31, 2020 and 2019 is $ 324,231 2,189,728 Considering
both the Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended
December 31, 2020 and 2019 is $ 2,334,315 $2,300,083 544,836 763,730 24,556 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.
The Inventory Costing Errors affected the income reported with respect to the Company’s product lines for which revenue
is recognized when a product ships to customers, which accounted for approximately 15 Management
has considered the effect of the Inventory Costing Errors and the Insufficient Reserves 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 Inventory Costing Errors and the Insufficient Reserves, management has determined
that a material weakness existed in the Company’s internal control over financial reporting as of the end of the quarterly
periods ended March 31, 2020, June 30, 2020, September 30, 2020 and for the years ended December 31, 2020 and 2019. See Part II
Item 9A – Controls and Procedures within this Comprehensive Form 10-K/A for a description of these matters. As
a result of the restatement included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting
herein net loss for the years ended December 31, 2020 and December 31, 2019 which is $ 2,334,315 2,300,083 544,836 763,730 24,556 2020 and
2019 Restatement The following
is a discussion of the restatement adjustments that were made to the Company’s previously issued December 31, 2020 and December
31, 2019 consolidated financial statements due to the Inventory Costing Errors, Loss Contract Reserve and Additional Inventory
Reserves. (a) Inventory
Costing Errors The Company determined that the Inventory
Costing Errors resulted in incorrectly reported inventory values and reported income for the annual periods ended December 31,
2020 and December 31, 2019, and the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. The Inventory
Costing Errors were comprised of the following: 1) Labor costs for work in process
were overstated in the detailed inventory records due to an automated reversing entry not processing correctly; 2) A customized IT program to
calculate weighted average cost was not tested thoroughly enough, which allowed errors in average cost calculations to occur in
certain situations; 3) Units of Measure were not
consistent between quantities ordered and quantities received for certain classes of purchased parts, which resulted in overstatements
of inventory values due to units of measure not being consistent with unit prices on purchase orders to suppliers; 4) The cost of goods received
which had not yet processed through the Company’s quality inspection process at the time of the period-end accounting closes
were not properly accrued to the period financial statements; 5) The Company did not have a
process to address over-absorbed or under-absorbed overhead costs at the end of each accounting period. (b) Loss Contract
Reserve After correcting its financial statements
for the Inventory Costing Errors, the Company determined that is was a party to some contracts to deliver product upon which the
Company would lose money, and thus the Company’s Loss Contract Reserve was increased accordingly for the year ended December
31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. (c) Additional
Inventory Reserves After correcting its financial statements
for the Inventory Costing Errors, the Company determined that its inventory required additional reserves to reflect current market
value and demand, and thus the Company’s Inventory Reserves were increased accordingly for the year ended December 31, 2020
and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. (d) Income taxes There were no material tax adjustments
to the Company’s Provision for/(benefit from) income taxes or Net deferred tax assets (liabilities) related to the impact
of the 2020 and 2019 Restatement. The following tables present the impact of the restatement on
the Company’s previously reported financial statements as of December 31, 2020; September 30, 2020; June 30, 2020 and March
31, 2020 and December 31, 2019: Impact
on Consolidated Balance Sheets The effect of
the Restatement described above on the accompanying consolidated balance sheets as of December 31, 2020; September 30, 2020; June
30, 2020; March 31, 2020 and December 31, 20019 are as follows
Consolidated Balance Sheet as at December 31, 2020
As Previously Inventory Loss Contract Additional Inventory As Restated
ASSETS
Current Assets:
Cash $ 6,033,537 $ — $ — $ — $ 6,033,537
Accounts receivable, net 4,962,906 4,962,906
Contract assets 19,729,638 19,729,638
Inventory 9,567,921 (1,875,950 ) (1,305,683 ) 6,386,288
Refundable income taxes 40,000 40,000
Prepaid expenses and other current assets 534,857 534,857
Total Current Assets $ 40,868,859 $ (1,875,950 ) $ — $ (1,305,683 ) $ 37,687,226
Operating lease right-of-use assets 4,075,048 4,075,048
Property and equipment, net 2,521,742 2,521,742
Intangibles, net 250,000 250,000
Goodwill 1,784,254 1,784,254
Other assets 191,179 191,179
Total Assets 49,691,082 $ (1,875,950 ) $ — $ (1,305,683 ) $ 46,509,449
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable $ 12,092,684 $ 12,092,684
Accrued expenses 5,693,518 244,403 5,937,921
Contract liabilities 1,650,549 1,650,549
Loss reserve 800,971 1,208,276 2,009,247
Current portion of long-term debt 6,501,666 6,501,666
Operating lease liabilities 1,819,237 1,819,237
Income taxes payable 862 86 948
Total Current Liabilities 28,559,487 244,489 1,208,276 — 30,012,252
Line of credit 20,738,685 20,738,685
Long-term operating lease liabilities 2,537,149 2,537,149
Long-term debt, net of current portion 6,205,095 6,205,095
Total Liabilities 58,040,416 244,489 1,208,276 — 59,493,181
Shareholders’ Deficit:
Common stock 11,951 11,951
Additional paid-in capital 72,005,841 72,005,841
Accumulated deficit (80,367,126 ) (2,120,439 ) $ (1,208,276 ) (1,305,683 ) (85,001,524 )
Total Shareholders’ Deficit (8,349,334 ) (2,120,439 ) (1,208,276 ) (1,305,683 ) (12,983,732 )
Total Liabilities and Shareholders’ Deficit $ 49,691,082 $ (1,875,950 ) — $ (1,305,683 ) $ 46,509,449
Consolidated Balance Sheet as at September 30, 2020
As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated
ASSETS
Current Assets:
Cash $ 3,589,095 $ — $ — $ — $ 3,589,095
Restricted cash 1,380,684 1,380,684
Accounts receivable, net 7,309,323 7,309,323
Contract assets 18,409,267 18,409,267
Inventory 8,742,093 (962,577 ) (1,226,852 ) 6,552,664
Refundable income taxes 35,459 35,459
Prepaid expenses and other current assets 600,889 600,889
Total Current Assets 40,066,810 (962,577 ) — (1,226,852 ) 37,877,381
Operating lease right-of-use assets 2,730,567 2,730,567
Property and equipment, net 2,618,887 2,618,887
Intangibles, net 281,250 281,250
Goodwill 1,784,254 1,784,254
Other assets 205,844 205,844
Total Assets 47,687,612 $ (962,577 ) $ — $ (1,226,852 ) $ 45,498,183
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable $ 13,009,645 $ 13,009,645
Accrued expenses 3,333,335 86,467 3,419,802
Contract liabilities 2,469,441 2,469,441
Loss reserve 1,569,447 1,308,197 2,877,644
Current portion of long-term debt 5,377,559 5,377,559
Operating lease liabilities 1,821,136 1,821,136
Income taxes payable 1,216 1,216
Total Current Liabilities 27,581,779 86,467 1,308,197 — 28,976,443
Line of credit 20,738,685 20,738,685
Long-term operating lease liabilities 1,212,573 1,212,573
Long-term debt, net of current portion 7,811,467 7,811,467
Total Liabilities 57,344,504 86,467 1,308,197 — 58,739,168
Shareholders’ Deficit:
Common stock 11,926 11,926
Additional paid-in capital 71,972,011 71,972,011
Accumulated deficit (81,640,829 ) (1,049,044 ) $ (1,308,197 ) (1,226,852 ) (85,224,922 )
Total Shareholders’ Deficit (9,656,892 ) (1,049,044 ) (1,308,197 ) (1,226,852 ) (13,240,985 )
Total Liabilities and Shareholders’ Deficit $ 47,687,612 $ (962,577 ) — $ (1,226,852 ) $ 45,498,183
Consolidated Balance Sheet as at June 30, 2020
As Previously Inventory Costing Loss Contract Additional Inventory As Restated
ASSETS
Current Assets:
Cash $ 6,749,201 $ — $ — $ — $ 6,749,201
Restricted cash 1,380,684 1,380,684
Accounts receivable, net 6,958,417 6,958,417
Contract assets 15,566,681 15,566,681
Inventory 7,658,508 (794,960 ) (1,157,695 ) 5,705,853
Refundable income taxes 36,973 36,973
Prepaid expenses and other current assets 864,781 864,781
Total Current Assets 39,215,245 (794,960 ) — (1,157,695 ) 37,262,590
Operating lease right-of-use assets 3,122,360 3,122,360
Property and equipment, net 2,840,872 2,840,872
Intangibles, net 312,500 312,500
Goodwill 1,784,254 1,784,254
Other assets 123,013 123,013
Total Assets $ 47,398,244 $ (794,960 ) $ — $ (1,157,695 ) $ 45,445,589
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable $ 9,078,736 $ 9,078,736
Accrued expenses 3,825,606 141,638 3,967,244
Contract liabilities 4,995,427 4,995,427
Loss reserve 2,101,123 1,514,356 3,615,479
Current portion of long-term debt 4,728,515 4,728,515
Operating lease liabilities 1,783,249 1,783,249
Income taxes payable 1,216 1,216
Total Current Liabilities 26,513,872 141,638 1,514,356 — 28,169,866
Line of credit 26,738,685 26,738,685
Long-term operating lease liabilities 1,680,897 1,680,897
Long-term debt, net of current portion 3,077,992 3,077,992
Total Liabilities 58,011,446 141,638 1,514,356 — 59,667,440
Shareholders’ Deficit:
Common stock 11,856 11,856
Additional paid-in capital 71,830,980 71,830,980
Accumulated deficit (82,456,038 ) (936,598 ) $ (1,514,356 ) (1,157,695 ) (86,064,687 )
Total Shareholders’ Deficit (10,613,202 ) (936,598 ) (1,514,356 ) (1,157,695 ) (14,221,851 )
Total Liabilities and Shareholders’ Deficit $ 47,398,244 $ (794,960 ) — $ (1,157,695 ) $ 45,445,589
Consolidated Balance Sheet as at March 31, 2020
As Previously Inventory Costing Loss Contract Additional Inventory As Restated
ASSETS
Current Assets:
Cash $ 1,998,697 $ — $ — $ — $ 1,998,697
Restricted cash 1,380,684 1,380,684
Accounts receivable, net 6,107,968 6,107,968
Contract assets 15,814,549 15,814,549
Inventory 6,940,139 (353,212 ) (1,094,244 ) 5,492,683
Refundable income taxes 473,398 473,398
Prepaid expenses and other current assets 688,006 688,006
Total Current Assets 33,403,441 (353,212 ) — (1,094,244 ) 31,955,985
Operating lease right-of-use assets 3,507,760 3,507,760
Property and equipment, net 3,061,106 3,061,106
Intangibles, net 343,750 343,750
Goodwill 1,784,254 1,784,254
Other assets 151,041 151,041
Total Assets 42,251,352 $ (353,212 ) $ — $ (1,094,244 ) $ 40,803,896
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable $ 8,255,635 $ 8,255,635
Accrued expenses 3,051,727 73,142 3,124,869
Contract liabilities 4,749,373 4,749,373
Loss reserve 2,145,556 1,324,321 3,469,877
Current portion of long-term debt 2,460,639 2,460,639
Operating lease liabilities 1,745,616 1,745,616
Income taxes payable 1,216 1,216
Total Current Liabilities 22,409,762 73,142 1,324,321 — 23,807,225
Line of credit 26,738,685 26,738,685
Long-term operating lease liabilities 2,142,574 2,142,574
Long-term debt, net of current portion 1,165,905 1,165,905
Total Liabilities 52,456,926 73,142 1,324,321 — 53,854,389
Shareholders’ Deficit:
Common stock 11,837 11,837
Additional paid-in capital 71,641,796 71,641,796
Accumulated deficit (81,859,207 ) (426,354 ) (1,324,321 ) (1,094,244 ) (84,704,126 )
Total Shareholders’ Deficit (10,205,574 ) (426,354 ) (1,324,321 ) (1,094,244 ) (13,050,493 )
Total Liabilities and Shareholders’ Deficit $ 42,251,352 $ (353,212 ) — $ (1,094,244 ) $ 40,803,896
Consolidated Balance Sheet as at December 31, 2019
As Previously Inventory Costing Loss Contract Additional Inventory As Restated
ASSETS
Current Assets:
Cash $ 4,052,109 $ — $ — $ — $ 4,052,109
Restricted cash 1,380,684 1,380,684
Accounts receivable, net 7,029,602 7,029,602
Contract assets 15,280,807 15,280,807
Inventory 5,891,386 (110,355 ) (874,778 ) 4,906,253
Refundable income taxes 474,904 474,904
Prepaid expenses and other current assets 721,964 721,964
Total Current Assets 34,831,456 (110,355 ) — (874,778 ) 33,846,323
Operating lease right-of-use assets 3,886,863 3,886,863
Property and equipment, net 3,282,939 3,282,939
Intangibles, net 375,000 375,000
Goodwill 1,784,254 1,784,254
Other assets 179,068 179,068
Total Assets $ 44,339,580 $ (110,355 ) $ — $ (874,778 ) $ 43,354,447
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable $ 8,199,557 $ 8,199,557
Accrued expenses 2,372,522 2,372,522
Contract liabilities 3,561,707 3,561,707
Loss reserve 2,650,963 1,314,950 3,965,913
Current portion of long-term debt 2,484,619 2,484,619
Operating lease liabilities 1,709,153 1,709,153
Income taxes payable 1,216 1,216
Total Current Liabilities 20,979,737 — 1,314,950 — 22,294,687
Line of credit 26,738,685 26,738,685
Long-term operating lease liabilities 2,596,784 2,596,784
Long-term debt, net of current portion 1,764,614 1,764,614
Total Liabilities 52,079,820 — 1,314,950 — 53,394,770
Shareholders’ Deficit:
Common stock 11,819 11,819
Additional paid-in capital 71,294,629 71,294,629
Accumulated deficit (79,046,688 ) (110,355 ) (1,314,950 ) (874,778 ) (81,346,771 )
Total Shareholders’ Deficit (7,740,240 ) (110,355 ) (1,314,950 ) (874,778 ) (10,040,323 )
Total Liabilities and Shareholders’ Deficit $ 44,339,580 $ (110,355 ) — $ (874,778 ) $ 43,354,447 Impact on Consolidated Statements
of Operations The effect of the Restatement described
above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2020 is as follows
Consolidated Statement of Operation For the twelve months ended December 31, 2020
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Revenue $ 87,584,690 $ — $ — $ — $ 87,584,690
Cost of sales 75,490,503 $ 2,009,998 (106,674 ) 430,905 77,824,732
Gross profit 12,094,187 (2,009,998 ) 106,674 (430,905 ) 9,759,958
Selling, general and administrative expenses 12,046,170 12,046,170
Profit (loss) from operations 48,017 (2,009,998 ) 106,674 (430,905 ) (2,286,212 )
Other expense:
Interest expense (1,421,955 ) (1,421,955 )
Loss before provision for income taxes (1,373,938 ) (2,009,998 ) 106,674 (430,905 ) (3,708,167 )
Benefit from income taxes (53,500 ) 86 — — (53,414 )
Net loss $ (1,320,438 ) $ (2,010,084 ) $ 106,674 $ (430,905 ) $ (3,654,753 )
Loss per common share - basic $ (0.11 ) $ (0.17 ) $ 0.01 $ (0.04 ) $ (0.31 )
Loss per common share - diluted $ (0.11 ) $ (0.17 ) $ 0.01 $ (0.04 ) (0.31 )
Basic 11,884,307 — — — 11,884,307
Diluted 11,884,307 — — — 11,884,307 The effect of the Restatement described
above on the accompanying consolidated statement of operations for the three and nine months ended September 30, 2020 is as follows
Consolidated Statement of Operation For the three months ended September 30, 2020 (Unaudited)
As Previously Inventory Costing Loss Contract Inventory Reserve As Restated
Revenue $ 25,576,718 $ — $ — $ — $ 25,576,718
Cost of sales 21,394,243 112,446 (206,159 ) 69,157 21,369,687
Gross profit 4,182,475 (112,446 ) 206,159 (69,157 ) 4,207,031
Selling, general and administrative expenses 3,050,644 3,050,644
Profit from
operations 1,131,831 (112,446 ) 206,159 (69,157 ) 1,156,387
Other expense:
Interest expense (309,008 ) (309,008 )
Income before
provision for income taxes 822,823 (112,446 ) 206,159 (69,157 ) 847,379
Provision for income
taxes 7,614 — — — 7,614
Net Income $ 815,209 $ (112,446 ) $ 206,159 $ (69,157 ) $ 839,765
Income per common share - basic $ 0.07 $ (0.01 ) $ 0.02 $ (0.01 ) $ 0.07
Income per common share - diluted $ 0.07 $ (0.01 ) $ 0.02 $ (0.01 ) $ 0.07
Basic 11,894,469 — — — 11,894,469
Diluted 11,894,469 — — — 11,917,149
Consolidated Statement of Operation For the nine months ended September 30, 2020 (Unaudited)
As Previously Reported Inventory Loss Contract Inventory Reserve As Restated
Revenue $ 62,175,872 $ — $ — $ — $ 62,175,872
Cost of sales 54,715,508 938,689 (6,753 ) 352,074 55,999,518
Gross profit 7,460,364 (938,689 ) 6,753 (352,074 ) 6,176,354
Selling, general and administrative expenses 8,958,986 8,958,986
Loss from operations (1,498,622 ) (938,689 ) 6,753 (352,074 ) (2,782,632 )
Other expense:
Interest expense (1,085,805 ) (1,085,805 )
Loss before provision for income taxes (2,584,427 ) (938,689 ) 6,753 (352,074 ) (3,868,437 )
Provision for income
taxes 9,714 — — — 9,714
Net loss $ (2,594,141 ) $ (938,689 ) $ 6,753 $ (352,074 ) $ (3,878,151 )
Loss per common share - basic $ (0.22 ) $ (0.08 ) $ 0.00 $ (0.03 ) $ (0.33 )
Loss per common share - diluted $ (0.22 ) $ (0.08 ) $ 0.00 $ (0.03 ) (0.33 )
Basic 11,862,506 — — — 11,862,506
Diluted 11,862,506 — — — 11,862,506 The effect of the Restatement described
above on the accompanying consolidated statement of operations for the three and six months ended June 30, 2020 is as follows
Consolidated Statement of Operation For the three months ended June 30, 2020 (Unaudited)
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Revenue $ 19,740,767 $ — $ — $ — $ 19,740,767
Cost of sales 17,160,698 $ 510,244 190,035 63,451 17,924,428
Gross profit 2,580,069 (510,244 ) (190,035 ) (63,451 ) 1,816,339
Selling, general and administrative expenses 2,815,252 2,815,252
Loss from operations (235,183 ) (510,244 ) (190,035 ) (63,451 ) (998,913 )
Other expense:
Interest expense (360,126 ) (360,126 )
Profit before provision for income
taxes (595,309 ) (510,244 ) (190,035 ) (63,451 ) (1,359,039 )
Provision for income taxes 1,522 — — — 1,522
Net profit $ (596,831 ) $ (510,244 ) $ (190,035 ) $ (63,451 ) $ (1,360,561 )
Loss per common share - basic $ (0.05 ) $ (0.04 ) $ (0.02 ) $ (0.00 ) $ (0.11 )
Loss per common share - diluted $ (0.05 ) $ (0.04 ) $ (0.02 ) $ (0.00 ) (0.11 )
Basic 11,855,404 — — — 11,855,404
Diluted 11,855,404 — — — 11,855,404
Consolidated Statement of Operation For the six months ended June 30, 2020 (Unaudited)
As Previously Inventory Costing Loss Contract Inventory Reserve As Restated
Revenue $ 36,599,154 $ — $ — $ — $ 36,599,154
Cost of sales 33,321,265 826,243 199,406 282,917 34,629,831
Gross profit 3,277,889 (826,243 ) (199,406 ) (282,917 ) 1,969,323
Selling, general and administrative expenses 5,908,342 5,908,342
Loss from operations (2,630,453 ) (826,243 ) (199,406 ) (282,917 ) (3,939,019 )
Other expense:
Interest expense (776,797 ) (776,797 )
Loss before provision for income taxes (3,407,250 ) (826,243 ) (199,406 ) (282,917 ) (4,715,816 )
Provision for income taxes 2,100 — — — 2,100
Net loss $ (3,409,350 ) $ (826,243 ) $ (199,406 ) $ (282,917 ) $ (4,717,916 )
Loss per common share - basic $ (0.29 ) $ (0.07 ) $ (0.02 ) $ (0.02 ) $ (0.40 )
Loss per common share - diluted $ (0.29 ) $ (0.07 ) $ (0.02 ) $ (0.02 ) (0.40 )
Basic 11,846,260 — — — 11,846,260
Diluted 11,846,260 — — — 11,846,260 The effect of the Restatement described
above on the accompanying consolidated statement of operations for the three months ended March 31, 2020 is as follows
Consolidated Statement of Operation For the three months ended March 31, 2020 (Unaudited)
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Revenue $ 16,858,386 $ — $ — $ — $ 16,858,386
Cost of sales 16,160,567 315,999 9,371 219,466 16,705,403
Gross profit 697,819 (315,999 ) (9,371 ) (219,466 ) 152,983
Selling, general and administrative expenses 3,093,090 3,093,090
Loss from operations (2,395,271 ) (315,999 ) (9,371 ) (219,466 ) (2,940,107 )
Other expense:
Interest expense (416,670 ) (416,670 )
Loss before provision for income taxes (2,811,941 ) (315,999 ) (9,371 ) (219,466 ) (3,356,777 )
Provision for income taxes 578 — — — 578
Net loss $ (2,812,519 ) $ (315,999 ) $ (9,371 ) $ (219,466 ) $ (3,357,355 )
Loss per common share - basic $ (0.24 ) $ (0.03 ) $ (0.00 ) $ (0.02 ) $ (0.29 )
Loss per common share - diluted $ (0.24 ) $ (0.03 ) $ (0.00 ) $ (0.02 ) (0.29 )
Basic 11,837,014 — — — 11,837,014
Diluted 11,837,014 — — — 11,837,014 The effect of the Restatement described
above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2019 is as follows
Consolidated Statement of Operation For the twelve months ended December 31, 2019
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Revenue $ 87,518,688 $ — $ — $ — $ 87,518,688
Cost of sales 78,386,997 110,355 1,314,950 874,778 80,687,080
Gross profit 9,131,691 (110,355 ) (1,314,950 ) (874,778 ) 6,831,608
Selling, general and administrative expenses 11,562,781 11,562,781
Loss from operations (2,431,090 ) (110,355 ) (1,314,950 ) (874,778 ) (4,731,173 )
Other income (expense):
Other income 89,666 89,666
Interest expense (2,104,851 ) (2,104,851 )
Loss before provision for income taxes (4,446,275 ) (110,355 ) (1,314,950 ) (874,778 ) (6,746,358 )
Provision for income taxes 3,877 — — — 3,877
Net loss $ (4,450,152 ) $ (110,355 ) $ (1,314,950 ) $ (874,778 ) $ (6,750,235 )
Loss per common share - basic $ (0.38 ) $ (0.01 ) $ (0.11 ) $ (0.07 ) $ (0.57 )
Loss per common share - diluted $ (0.38 ) $ (0.01 ) $ (0.11 ) $ (0.07 ) $ (0.57 )
Basic 11,808,052 — — — 11,808,052
Diluted 11,808,052 — — — 11,808,052 Cumulative Effect of Prior Period
Adjustments The following table presents
the impact of the Restatement on the Company’s shareholders’ deficit as of December 31, 2019 (as restated) and December
31, 2020 (as restated)
Common Stock Shares Common Stock Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Deficit
Balance,
December 31, 2019 (As previously reported) 11,818,830 $ 11,819 $ 71,294,629 $ (79,046,688 ) $ (7,740,240 )
Inventory Costing Errors — — — (110,355 ) (110,355 )
Loss Contract Reserve — — — (1,314,950 ) (1,314,950 )
Inventory Reserve — — — (874,778 ) (874,778 )
Cumulative restatement adjustments — — — (2,300,083 ) (2,300,083 )
Balance,
December 31, 2019 (As Restated) 11,818,830 $ 11,819 $ 71,294,629 $ (81,346,771 ) $ (10,040,323 )
Net Loss (as previously reported) $ (2,812,519 ) $ (2,812,519 )
Inventory Costing Errors — — — (315,999 ) (315,999 )
Loss Contract Reserve — — — (9,371 ) (9,371 )
Inventory Reserve — — — (219,466 ) (219,466 )
Cumulative restatement adjustments — — — (544,836 ) (544,836 )
Net Loss (as restated) (3,357,355 ) (3,357,355 )
Balance,
March 31, 2020 (As Restated) 11,837,218 $ 11,837 $ 71,641,796 $ (84,704,126 ) $ (13,050,493 )
Net Loss (as previously reported) $ (596,831 ) $ (596,831 )
Inventory Costing Errors — — — (510,244 ) (510,244 )
Loss Contract Reserve — — — (190,035 ) (190,035 )
Inventory Reserve — — — (63,451 ) (63,451 )
Cumulative restatement adjustments — — — (763,730 ) (763,730 )
Net Loss (as restated) (1,360,561 ) (1,360,561 )
Stock-based compensation 18,388 19 189,184 — 189,203
Balance,
June 30, 2020 (As Restated) 11,855,606 $ 11,856 $ 71,830,980 $ (86,064,687 ) $ (14,221,851 )
Net Income (as previously reported) $ 815,209 $ 815,209
Inventory Costing Errors — — — (112,446 ) (112,446 )
Loss Contract Reserve — — — 206,159 206,159
Inventory Reserve — — — (69,157 ) (69,157 )
Cumulative restatement adjustments — — — 24,556 24,556
Net Income (as restated) 839,765 839,765
Stock-based compensation 70,571 70 141,031 — 141,101
Balance,
September 30, 2020 (As Restated) 11,926,177 $ 11,926 $ 71,972,011 $ (85,224,922 ) $ (13,240,985 )
Net Income $ 1,273,703 $ 1,273,703
Inventory Costing Errors — — — (1,071,395 ) (1,071,395 )
Loss Contract Reserve — — — 99,921 99,921
Inventory Reserve — — — (78,831 ) (78,831 )
Cumulative restatement adjustments — — — (1,050,305 ) (1,050,305 )
Net income (as restated) 223,398 223,398
Stock-based compensation 25,094 25 33,830 — 33,855
Balance,
December 31, 2020 (As Restated) 11,951,271 $ 11,951 $ 72,005,841 $ (85,001,524 ) $ (12,983,732 ) Impact
on Consolidated Statement of Cash Flows The effect
of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December
31, 2020 is as follows
Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Cash flows from operating activities:
Net Loss $ (1,320,438 ) $ (2,010,084 ) $ 106,674 $ (430,905 ) $ (3,654,753 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,032,986 1,032,986
Amortization of debt issuance cost 95,429 95,429
Cash expended in excess of rent expense (137,737 ) (137,737 )
Stock-based compensation expense 711,344 711,344
Bad debt expense (23,395 ) (23,395 )
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,090,091 2,090,091
Increase in contract assets (4,448,831 ) (4,448,831 )
Increase in inventory (3,676,535 ) 1,765,595 430,905 (1,480,035 )
Decrease in prepaid expenses and other current assets 187,107 187,107
Decrease in refundable income taxes 434,904 434,904
Increase in accounts payable and accrued expenses 7,214,124 244,403 7,458,527
Decrease in contract liabilities (1,911,158 ) (1,911,158 )
Decrease in loss reserve (1,849,992 ) (106,674 ) (1,956,666 )
Decrease in income taxes payable (354 ) 86 (268 )
Net cash used in operating activities (1,602,455 ) — — — (1,602,455 )
Cash flows from investing activities:
Purchase of property and equipment (146,788 ) — — — (146,788 )
Net cash used in investing activities (146,788 ) — — — (146,788 )
Cash flows from financing activities:
Proceeds from PPP loan 4,795,000 4,795,000
Payments on long-term debt (2,337,473 ) (2,337,473 )
Debt issuance costs (107,540 ) (107,540 )
Net cash provided by financing activities 2,349,987 — — — 2,349,987
Net increase in cash and restricted cash 600,744 — — — 600,744
Cash and restricted cash at beginning of year 5,432,793 — — — 5,432,793
Cash and restricted cash at end of year $ 6,033,537 $ — $ — $ — $ 6,033,537
Supplemental
schedule of noncash investing activities:
Equipment acquired under capital lease $ 134,900 $ — $ — $ — $ 134,900
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 1,490,152 $ — $ — $ — $ 1,490,152
Cash (received) from income taxes $ (488,052 ) $ — $ — $ — $ (488,052 )
Impact on
Consolidated Statement of Cash Flows The effect
of the Restatement described above on the accompanying consolidated statement of cash flows for the nine months ended September
30, 2020 is as follows:
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (Unaudited)
As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated
Cash flows from operating activities:
Net Loss $ (2,594,141 ) $ (938,689 ) $ 6,753 $ (352,074 ) $ (3,878,151 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 769,690 769,690
Amortization of debt issuance cost 80,764 80,764
Cash expended in excess of rent expense (115,932 ) (115,932 )
Stock-based compensation expense 677,489 677,489
Bad debt expense (47,410 ) (47,410 )
Changes in operating assets and liabilities:
Increase in accounts receivable (232,310 ) (232,310 )
Increase in contract assets (3,128,460 ) (3,128,460 )
Increase in inventory (2,850,707 ) 852,222 352,074 (1,646,411 )
Decrease in prepaid expenses and other current assets 121,075 121,075
Decrease in refundable income taxes 439,445 439,445
Increase in accounts payable and accrued expenses 5,770,902 86,467 5,857,369
Decrease in contract liabilities (1,092,266 ) (1,092,266 )
Decrease in loss reserve (1,081,516 ) (6,753 ) (1,088,269 )
Net cash used in operating activities (3,283,377 ) — — — (3,283,377 )
Cash flows from investing activities:
Purchase of property and equipment (11,888 ) (11,888 )
Net cash used in investing activities (11,888 ) (11,888 )
Cash flows from financing activities:
Proceeds from PPP loan 4,795,000 4,795,000
Payments on long-term debt (1,855,209 ) (1,855,209 )
Debt issuance costs (107,540 ) (107,540 )
Net cash provided by financing activities 2,832,251 2,832,251
Net decrease in cash and restricted cash (463,014 ) (463,014 )
Cash and restricted cash at beginning of year 5,432,793 5,432,793
Cash and restricted cash at end of year $ 4,969,779 $ — $ — $ — $ 4,969,779
Supplemental schedule of cash flow information:
Cash paid during the year for inte |
