10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission File Number: 1-11398

CPI AEROSTRUCTURES, INC.

(Exact name of registrant as specified in its charter)

New York	11-2520310
(State or other jurisdiction	(IRS Employer Identification Number)
of incorporation or organization)

91 Heartland Blvd., Edgewood, NY	11717
(Address of principal executive offices)	(zip code)

(631) 586-5200

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer  x
Non-accelerated filer  o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 7, 2013 the number of shares of common stock, par value $.001 per share, outstanding was 8,391,954.

INDEX

Part I - Financial Information

Item 1 – Financial Statements
Condensed Balance Sheets as of March 31, 2013 (Unaudited) and	3
December 31, 2012
Condensed Statements of Income and Comprehensive Income for the Three Months ended March 31, 2013 (Unaudited) and 2012 (Unaudited)	4
Condensed Statement of Shareholders’ Equity for the Three Months	5
ended March 31, 2013 (Unaudited) and 2012 (Unaudited)
Condensed Statements of Cash Flows for the Three Months ended March 31, 2013	6
(Unaudited) and 2012 (Unaudited)
Notes to Condensed Financial Statements (Unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition	14
and Results of Operations
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	21
Item 4 – Controls and Procedures	21
Part II -  Other Information
Item 1 – Legal Proceedings	22
Item 1A – Risk Factors	22
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3 – Defaults Upon Senior Securities	22
Item 4 – Mine Safety Disclosures	22
Item 5 – Other Information	22
Item 6 – Exhibits	22
Signatures	22
Exhibits	22

  2

Part I - Financial Information

Item 1 – Financial Statements

CPI AEROSTRUCTURES, INC.

CONDENSED BALANCE SHEETS

March 31,	December 31,
2013	2012
(Unaudited)	(Note 1)

ASSETS
Current Assets:
Cash	$1,260,876		$2,709,803
Accounts receivable, net	10,908,527		6,774,346
Costs and estimated earnings in excess of billings on uncompleted
contracts	110,011,430		108,909,844
Deferred income taxes	526,000		534,000
Prepaid expenses and other current assets	605,767		426,063
Total current assets	123,312,600		119,354,056
Plant and equipment, net	3,038,601		2,907,476
Deferred income taxes	1,008,000		1,001,000
Other assets	108,080		1,620,984
Total Assets	$127,467,281		$124,883,516
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$8,426,740		$13,286,558
Accrued expenses	167,642		943,356
Billings in excess of costs and estimated earnings on uncompleted   contracts	310,027		656,853
Current portion of long-term debt	1,083,425		1,100,564
Line of credit	29,950,000		23,450,000
Income tax payable	301,530		106,000
Deferred income taxes	100,000		102,000
Total current liabilities	40,339,364		39,645,331
Long-term debt, net of current portion	2,945,238		3,209,873
Deferred income taxes	852,000		867,000
Other liabilities	574,455		567,113
Total Liabilities	44,711,057		44,289,317
Shareholders’ Equity:
Common stock - $.001 par value; authorized 50,000,000 shares,
issued 8,391,954 and 8,371,439 shares, respectively, and
outstanding 8,391,954 and 8,371,439 shares, respectively	8,392		8,371
Additional paid-in capital	50,267,690		49,780,673
Retained earnings	32,517,258	30,845,982
Accumulated other comprehensive loss	(37,116)	(40,827)
Total Shareholders’ Equity	82,756,224		80,594,199
Total Liabilities and Shareholders’ Equity	$127,467,281		$124,883,516

See Notes to Condensed Financial Statements.

3

CPI AEROSTRUCTURES, INC.

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended
March 31,
2013	2012
(Unaudited)

Revenue	$19,927,433	$19,721,095
Cost of sales	15,486,863	14,756,709
Gross profit	4,440,570	4,964,386
Selling, general and administrative expenses	1,877,922	2,104,881
Income from operations	2,562,648	2,859,505
Interest expense	141,372	149,185
Income before provision for
income taxes	2,421,276	2,710,320
Provision for income taxes	750,000	791,000
Net income	1,671,276	1,919,320
Other comprehensive income (loss),
net of tax -
Change in unrealized gain (loss)-
interest rate swap	3,711	(25,278)
Comprehensive income	$1,674,987	$1,894,042
Income per common share – basic	$0.20	$0.28
Income per common share – diluted	$0.20	$0.27

Shares used in computing income per common share:
Basic	8,377,654	6,952,910
Diluted	8,447,974	7,228,061

See Notes to Condensed Financial Statements.

                                                                                                                                                                          4

CPI AEROSTRUCTURES, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock  Shares	Amount	Additional  Paid-in  Capital	Retained  Earnings	Treasury  Stock	Accumulated  Other Comprehensive  Loss	Total  Shareholders’  Equity
Balance at January 1, 2012	7,079,638	$7,080	$35,346,273	$19,834,852	$(1,140,226)	$(21,772)	$54,026,207
Net Income	----	----	----	1,919,320	----	----	1,919,320
Change in unrealized loss from interest rate swap	----	----	----	----	----	(25,278)	(25,278)
Common stock issued upon exercise	46,078	46	240,969	----	----	----	241,015
of options
Common stock issued  as bonus	15,260	15	228,275	----	----	----	228,290
Stock compensation expense	----	----	382,657	----	----	----	382,657
Treasury stock retired	(133,257)	(133)	(1,140,093)	----	1,140,226	----	----
Balance at March 31, 2012	7,007,719	$7,008	$35,058,081	$21,754,172	$----	$(47,050)	$56,772,211
Balance at January 1, 2013	8,371,439	$8,371	$49,780,673	$30,845,982	$----	$(40,827)	$80,594,199
Net Income	----	----	----	1,671,276	----	----	1,671,276
Change in unrealized loss from interest rate swap	----	----	----	----	----	3,711	3,711
Common stock issued upon exercise of options	2,645	3	(3)	----	----	----	---
Tax benefit of stock option exercise	---	---	(26,000)	---	---	---	(26,000)
Common stock issued  as bonus	17,870	18	152,056	----	----	----	152,074
Stock compensation expense	----	----	360,964	----	----	----	360,964
Balance at March 31, 2013	8,391,954	$8,392	$50,267,690	$32,517,258	$----	$(37,116)	$82,756,224

See Notes to Condensed Financial Statements.

  5

CPI AEROSTRUCTURES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31,				2013		2012
Cash flows from operating activities:
Net income	$1,671,276				$1,919,320
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization	163,507				145,126
Deferred rent	13,655				22,680
Stock compensation	360,964				382,657
Deferred income taxes	(16,000)				(37,000)
Tax benefit from stock option plans	26,000				---
Changes in operating assets and liabilities:
Increase in accounts receivable	(2,621,277)				(3,923,618)
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts	(1,101,586)				(3,480,219)
(Increase) decrease in prepaid expenses and other assets	(179,704)				215,874
Decrease in accounts payable and accrued expenses	(5,486,060)				(831,412)
Decrease in billings in excess of costs and estimated earnings
on uncompleted contracts	(346,826)				(93,405)
Increase (decrease) in income taxes payable	169,530				(172,000)
Net cash used in operating activities	(7,346,521)				(5,851,997)
Cash used in investing activities - purchase of plant and equipment				(294,632)	(505,807)
Cash flows from financing activities:
Payments on long-term debt			(281,774)		(230,833)
Proceeds from long-term debt			---		4,500,000
Proceeds from line of credit		6,500,000			1,500,000
Proceeds from exercise of stock options		---			241,015
Tax benefit from stock option plans		(26,000)			---
Net cash provided by financing activities		6,192,226			6,010,182
Net increase (decrease) in cash		(1,448,927)			(347,622)
Cash at beginning of period		2,709,803			878,200
Cash at end of period		$1,260,876			$530,578
Supplemental disclosures of cash flow information:
Non cash investing and financing activities:
Equipment acquired under capital lease		$---			$---
Common stock issued for bonuses		$152,074			$228,290
Cash paid during the period for:
Interest		$238,443			$272,113
Income taxes		$500,000			$1,000,000

See Notes to Condensed Financial Statements.

  6

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.           INTERIM FINANCIAL STATEMENTS

The condensed financial statements of CPI Aerostructures, Inc. (the “Company”) as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The condensed balance sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by the SEC. Such adjustments are of a normal, recurring nature. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period.

On January 1, 2012, the Company adopted the provisions of Accounting Standards Codification 220, “Comprehensive Income.”  The new guidance requires the Company to present Comprehensive Income either on one continuous statement of Income and Comprehensive Income, or on a separate Statement of Comprehensive Income.  The new guidance does not change the computation of Net Income or Comprehensive Income.

The Company maintains its cash in two financial institutions.  The balances are insured by the Federal Deposit Insurance Corporation.  From time to time, the Company’s balances may exceed these limits.  As of March 31, 2013, the Company had approximately $2,341,000 of uninsured balances.  The Company limits its credit risk by selecting financial institutions considered to be highly credit worthy.

2. STOCK-BASED COMPENSATION

The Company accounts for compensation expense associated with stock options based on the fair value of the options on the date of grant.

The Company’s net income for the three months ended March 31, 2013 and 2012 includes approximately $361,000 and $383,000, respectively of noncash compensation expense related to the Company’s stock options.  The noncash compensation expense related to all of the Company’s stock-based compensation arrangements is recorded as a component of selling, general and administrative expenses.

The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model.  The following weighted-average assumptions were used for the options granted during the three months ended March 31, 2013 and 2012:

7 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

	2013	2012
Risk-free interest rate	0.72%	0.9%
Expected volatility	106%	102%
Dividend yield	0%	0%
Expected option term	5 years	5 years

A summary of the status of the Company’s stock option plans as of March 31, 2013 and changes during the three months ended March 31, 2013 is as follows:

		Weighted  average  Exercise  Price	Weighted  average  remaining  contractual  term (in years)	Aggregate  Intrinsic Value
	Options
Outstanding
at beginning of period	495,517	$9.33
Granted	44,217	10.62
Exercised	(20,000)	8.20
Forfeited	(35,000)	8.20
Outstanding and vested
at end of period	484,734	$9.58	2.99	$406,648

Options to acquire 44,217 shares of common stock were granted on January 1, 2013 to members of our board of directors as part of their normal compensation.

During the three months ended March 31, 2013, no stock options were exercised for cash.  During the same period 20,000 options were exercised, pursuant to provisions of the stock option plan, where the Company received no cash and 17,355 shares of its common stock in exchange for the 20,000 shares issued in the exercise.  The 17,355 shares that the Company received were valued at $164,000, the fair market value of the shares on the dates of exercise.

The intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was approximately $26,300 and $451,450, respectively.

3.           DERIVATIVE INSTRUMENTS AND FAIR VALUE

Our use of derivative instruments has been to hedge interest rates. These derivative contracts are entered into with a financial institution.  We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.

We record these derivative financial instruments on the condensed balance sheets at fair value.  For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

8

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately.  For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately.

In March 2012, the Company entered into interest rate swaps with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt.  The notional amount, maturity date, and currency of these contracts match those of the underlying debt.  The Company has designated these interest rate swap contracts as cash flow hedges.  The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item.  No material ineffectiveness was recognized in the quarter ended March 31, 2013.  As of March 31, 2013 and December 31, 2012, we had a net deferred loss associated with cash flow hedges of approximately $54,000 and $61,000, respectively, due to the interest rate swap which has been included in other liabilities.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations.  Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected.  To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.  To date, all counterparties have performed in accordance with their contractual obligations.

Fair Value

At March 31, 2013 and December 31, 2012, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

	March 31, 2013
	Carrying Amount	Fair Value
Short-term borrowings and long-term debt	$33,978,663	$33,978,663

	December 31, 2012
	Carrying Amount	Fair Value
Short-term borrowings and long-term debt	$27,760,437	$27,760,437

We estimated the fair value of debt using market quotes and calculations based on market rates.

9 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the fair values of those financial liabilities measured on a recurring basis as of March 31, 2013 and December 31, 2012:

		Fair Value Measurements March 31, 2013
Description	Total	Quoted Prices  in Active  Markets for  Identical assets (Level 1)	Significant  Other  Observable  Inputs (Level 2)	Significant  Unobservable  Inputs (Level 3)
Interest Rate Swap, net	$ 54,202	--	$ 54,202	--
Total	$ 54,202	--	$ 54,202	--
		Fair Value Measurements December 31, 2012
Description	Total	Quoted  Prices  in Active  Markets for  Identical assets (Level 1)	Significant  Other  Observable  Inputs (Level 2)	Significant  Unobservable  Inputs (Level 3)
Interest Rate Swap, net	$60,516	--	$60,516	--
Total	$60,516	--	$60,516	--

The fair value of the Company’s interest rate swaps was determined by comparing the fixed rate set at the inception of the transaction to the “replacement swap rate,” which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date.  The market value is then determined by calculating the present value of the interest differential between the contractual swap and the replacement swap.

As of March 31, 2013 and December 31, 2012, $54,202 and $60,516, respectively, was included in Other Liabilities related to the fair value of the Company’s interest rate swap and $37,116 and $40,827, respectively, net of tax of $17,086 and $19,689, respectively, was included in accumulated other comprehensive loss.

10

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts consist of:

	March 31, 2013
	U.S
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$246,341,518	$46,580,985	$292,922,503
Estimated earnings	65,879,081	25,421,477	91,300,558
Subtotal	312,220,599	72,002,462	384,223,061
Less billings to date	227,019,725	47,501,933	274,521,658
Costs and estimated earnings
in excess of billings on
uncompleted contracts	$85,200,874	$24,500,529	$109,701,403

	December 31, 2012
	U.S.
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$214,888,101	$42,636,753	$257,524,854
Estimated earnings	85,320,636	23,782,285	109,102,921
Subtotal	300,208,737	66,419,038	366,627,775
Less billings to date	215,743,090	42,631,694	258,374,784
Costs and estimated earnings in excess of billings on uncompleted contracts	$84,465,647	$23,787,344	$108,252,991

The above amounts are included in the accompanying balance sheets under the following captions at March 31, 2013 and December 31, 2012:

	March 31, 2013	December 31, 2012
Costs and estimated earnings in excess of billings on
uncompleted contracts	$ 110,011,430	$ 108,909,844
Billings in excess of costs and estimated earnings on
uncompleted contracts	(310,027)	(656,853)
Totals	$ 109,701,403	$ 108,252,991

U.S. Government Contracts includes contracts directly with the U.S. Government and Government subcontracts.

Revisions in the estimated gross profits on contracts and contract amounts are made in the period in which the circumstances requiring the revisions occur. During the three months ended March 31, 2013 and 2012, the effect of such revisions in total estimated contract profits resulted in a decrease to the total gross profit to be earned on the contracts of approximately $1,377,000 and $600,000, respectively, from that which would have been reported had the revised estimates been used as the basis of recognition of contract profits in prior years.

Although management believes it has established adequate procedures for estimating costs to complete on uncompleted open contracts, it is possible that additional significant costs could occur on contracts prior to completion.

11 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

5. INCOME PER COMMON SHARE

Basic income per common share is computed using the weighted average number of common shares outstanding.  Diluted income per common share for the three month periods ended March 31, 2013 and 2012 is computed using the weighted-average number of common shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock.  Incremental shares of 245,000 were used in the calculation of diluted income per common share for the three month period ended March 31, 2013. Incremental shares of 239,734 were not included in the diluted earnings per share calculations for the three month period ended March 31, 2013 as their exercise price was in excess of the Company’s average stock price for the respective period and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation, as they would be anti-dilutive.  Incremental shares of 625,517 were used in the calculation of diluted income per common share in the three months ended March 31, 2012. Incremental shares of 55,000 were not included in the diluted earnings per share calculations for the three month period ended March 31, 2012 as their exercise price was in excess of the Company’s average stock price for the respective period and, accordingly, these shares are not assumed to be exercise for the diluted earnings per share calculation, as they would be anti-dilutive.

6. LINE OF CREDIT

In August 2007, we entered into a revolving credit facility with Sovereign Bank (the “Sovereign Revolving Facility”), secured by all of our assets.

On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign Bank as the sole arranger, administrative agent and collateral agent and Valley National Bank.  The Restated Agreement provides for a revolving credit loan commitment of $35 million, which replaces the Sovereign Revolving Facility, and a term loan of $3.9 million.  The term of the Restated Agreement is through December 2016.  The Restated Agreement increases the availability under, and amends and restates the Credit Agreement, dated as of August 13, 2007, as subsequently amended, between the Company and Sovereign Bank (the “Prior Agreement”), which provided for a revolving credit loan commitment and two term loans.  One of the term loans under the Prior Agreement was refinanced as a revolving credit loan under the Restated Agreement.  The other term loan and the revolving credit loans under the Prior Agreement continued as a term loan and revolving credit loan under the Restated Agreement.

As of March 31, 2013, the Company was in compliance with all of the financial covenants, as amended, contained in the Credit Agreement and $29.95 million was outstanding under the Sovereign Revolving Facility.

12 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

7.           LONG-TERM DEBT

On October 22, 2008, the Company obtained a $3.0 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility”). This term loan was refinanced as part of the revolving credit loan under the Restated Agreement of December 5, 2012.

On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility 2”).  The Sovereign Term Facility 2 was be used by the Company to purchase tooling and equipment for new programs.  The Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank’s prime rate.

The terms and conditions of the Sovereign Revolving Facility are applicable to the Sovereign Term Facility 2.

Additionally, the Company and Sovereign Bank entered into a five-year interest rate swap agreement, in the notional amount of $4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a rate of 4.11% and receives an amount from Sovereign representing interest on the notional amount at a rate equal to the one-month LIBOR plus 3%.  The effect of this interest rate swap will be the Company paying a fixed interest rate of 4.11% over the term of the Sovereign Term Facility 2.

The maturities of long-term debt are as follows:

Twelve months ending March 31,
2014	1,083,425
2015	985,190
2016	956,853
2017	928,195
2018	75,000
	$4,028,663

In addition to the Sovereign Term Facility 2, included in long-term debt are capital leases and notes payable of $353,663, including a current portion of $183,425.

8.           MAJOR CUSTOMERS

During the three months ended March 31, 2013 and 2012, 1% and 10%, respectively, of revenue was directly from the U.S. Government. In addition, during the three months ended March 31, 2013, the Company’s three largest commercial customers accounted for 26%, 24% and 18% of revenue, respectively.  During the three months ended March 31, 2012, the Company’s three largest commercial customers accounted for 38%, 20% and 15% of revenue, respectively.

At March 31, 2013 and December 31, 2012, 2.5% and 3.2% of costs and estimated earnings in excess of billings on uncompleted contracts, respectively, were direct from the U.S. Government.

At March 31, 2013, 40%, 22%, 14% and 13% of costs and estimated earnings in excess of billings on uncompleted contracts were from four largest commercial customers.  At December 31, 2012, 39%, 22%, 14% and 13% of costs and estimated earnings in excess of billings on uncompleted contracts were from the Company’s four largest commercial customers.

At March 31, 2013, 32%, 32% and 22% of our accounts receivable were from our three largest commercial customers.  At December 31, 2012, 36%, 30% and 21% of accounts receivable were from our three largest commercial customers. 

13 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

The following discussion should be read in conjunction with the Company’s Condensed Financial Statements and notes thereto contained in this report.

Forward Looking Statements

When used in this Form 10-Q and in future filings by us with the Securities and Exchange Commission, the words or phrases “will likely result,” “management expects” or “we expect,” “will continue,” “is anticipated,” “estimated” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made.  Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.  The risks are included in Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2012 and Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.  We have no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

Business Operations

We are engaged in the contract production of structural aircraft parts principally for the U.S. Air Force and other branches of the U.S. armed forces, either as a prime contractor or as a subcontractor to other defense prime contractors.  We also act as a subcontractor to prime aircraft manufacturers in the production of commercial aircraft parts.

Marketing and New Business

From the beginning of the current fiscal year through March 31, 2013, we received approximately $11.5 million of new contract awards, which included approximately $4.5 million of government subcontract awards and approximately $7.0 million of commercial subcontract awards, compared to a total of $31.7 million of new contract awards, of all types, in the same period last year.

14 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

Backlog

We produce custom assemblies pursuant to long-term contracts and customer purchase orders.  Backlog consists of aggregate values under such contracts and purchase orders, excluding the portion previously included in operating revenues on the basis of percentage of completion accounting, and including estimates of future contract price escalation.  Substantially all of our backlog is subject to termination at will and rescheduling, without significant penalty.  Funds are often appropriated for  programs or contracts on a yearly or quarterly basis, even though the contract may call for performance that is expected to take a number of years.  Therefore, our funded backlog does not include the full value of our contracts.  Our total backlog as of March 31, 2013 and December 31, 2012 was as follows:

Backlog (Total)	March 31, 2013	December 31, 2012
Funded	$81,899,000	$52,318,000
Unfunded	338,414,000	339,563,000
Totals	$420,313,000	$391,881,000

Approximately 53%of the total amount of our backlog at March 31, 2013 was attributable to government contracts.  Our backlog attributable to government contracts at March 31, 2013 and December 31, 2012 was as follows:

Backlog (Government)	March 31, 2013	December 31, 2012
Funded	$41,171,000	$43,215,000
Unfunded	178,474,000	190,109,000
Totals	$219,645,000	$233,324,000

Our backlog attributable to commercial contracts at March 31, 2013 and December 31, 2012 was as follows:

Backlog (Commercial)	March 31, 2013	December 31, 2012
Funded	$40,728,000	$9,103,000
Unfunded	159,940,000	149,454,000
Totals	$200,668,000	$158,557,000

Our unfunded backlog is primarily comprised of the long-term contracts that we received from Boeing, Spirit and NGC during 2008, Honda and Bell during 2011 and Cessna, Sikorsky and Embraer during 2012.  These long-term contracts are expected to have yearly orders which will be funded in the future.

15 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

Critical Accounting Policies

Revenue Recognition

We recognize revenue from our contracts over the contractual period under the percentage-of-completion (“POC”) method of accounting.  Under the POC method of accounting, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at the completion of the contract.  Recognized revenues that will not be billed under the terms of the contract until a later date are recorded as an asset captioned “Costs and estimated earnings in excess of billings on uncompleted contracts.”  Contracts where billings to date have exceeded recognized revenues are recorded as a liability captioned “Billings in excess of costs and estimated earnings on uncompleted contracts.”  Changes to the original estimates may be required during the life of the contract.  Estimates are reviewed monthly and the effect of any change in the estimated gross margin percentage for a contract is reflected in cost of sales in the period the change becomes known.  The use of the POC method of accounting involves considerable use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods.  As a result, there can be a significant disparity between earnings (both for accounting and tax purposes) as reported and actual cash received by us during any reporting period.  We continually evaluate all of the issues related to the assumptions, risks and uncertainties inherent with the application of the POC method of accounting; however, we cannot assure you that our estimates will be accurate.  If our estimates are not accurate or a contract is terminated, we will be forced to adjust revenue in later periods. Furthermore, even if our estimates are accurate, we may have a shortfall in our cash flow and we may need to borrow money, or seek access to other forms of liquidity, to fund our work in process or to pay taxes until the reported earnings materialize as actual cash receipts.

16 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Item 2 – Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Results of Operations

Revenue

Revenue for the three months ended March 31, 2013 was $19,927,433 compared to $19,721,095 for the same period last year, representing an increase of $206,338, or 1%.

We generate revenue from government contracts for which we act as a prime contractor or as a subcontractor as well as from commercial contracts. Revenue generated from prime government contracts for the three months ended March 31, 2013 was $234,453 compared to $1,899,397 for the three months ended March 31, 2012, a decrease of $1,664,944, or 87.7%. This decrease was anticipated as we move away from focusing on government prime work.

Revenue generated from government subcontracts for the three months ended March 31, 2013 was $14,109,556 compared to $12,376,798 for the three months ended March 31, 2012, an increase of $1,732,758, or 14%.

Revenue generated from commercial contracts was $5,583,424 for the three months ended March 31, 2013 compared to $5,444,900 for the three months ended March 31, 2012, an increase of $138,524, or 2.5%.

Inflation historically has not had a material effect on our operations.

Gross Profit

Gross profit for the three months ended March 31, 2013 was $4,440,570 compared to $4,964,386 for the three months ended March 31, 2012, a decrease of $523,816. As a percentage of revenue, gross profit for the three months ended March 31, 2013 was 22.3% compared to 25.2% for the same period last year.

The gross margin percentage was below our anticipated percentage because of adjustments to our long term programs with Spirit and Boeing.  The adjustment for our Spirit program was the result of price reductions given as part of an agreement to increase the program value and to extend the life of the program until 2019.  The adjustment for our Boeing program was part of the negotiations for program changes described in the liquidity section.

We still expect our gross margin for the full year to fall within our expected range of 25%-27%.

17 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Item 2 – Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2013 were $1,877,922 compared to $2,104,881 for the three months ended March 31, 2012, a decrease of $226,959, or 10.8%. This decrease is the result of a $100,000 decrease in accrued officers’ bonus, as computed pursuant to the officers’ employment agreements and an approximate $100,000 decrease in accounting and legal fees.

Income Before Provision for Income Taxes

Income before provision for income taxes for the three months ended March 31, 2013 was $2,421,276 compared to $2,710,320 for the same period last year, a decrease of $289,044.  This decrease is the result of the lower gross margin percentage during 2013 as compared to 2012.

Provision for Income Taxes

Provision for income taxes was $750,000 for the three months ended March 31, 2013, or 31%, of pre-tax income, compared to $791,000, or 29%, of pre-tax income for the three months ended March 31, 2012.

18 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Item 2 – Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Net Income

Net income for the three months ended March 31, 2013 was $1,671,276, or $0.20 per basic share, compared to net income of $1,919,320, or $0.28 per basic share for the same period last year.  Diluted income per share for the three months ended March 31, 2013 was $0.20, calculated utilizing 8,447,974 average shares outstanding.  Diluted income per share for the three months ended March 31, 2012 was $0.27, calculated utilizing 7,228,061 average shares outstanding.

Liquidity and Capital Resources

General

At March 31, 2013, we had working capital of $82,973,236 compared to $79,708,725 at December 31, 2012, an increase of $3,264,511, or 4.1%.

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.  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 condensed balance sheets and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed.  These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

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

At March 31, 2013, we had a cash balance of $1,260,876 compared to $2,709,803 at December 31, 2012.

Our costs and estimated earnings in excess of billings increased by approximately $1.1 million during the three months ended March 31, 2013.  The Boeing A-10 contract accounted for approximately $1.6 million of this increase.  Although this contract does provide for milestone billings, the program has reached the end of the milestone billing phase and as such we are no longer able to invoice this program on a progress basis.  Additionally, Boeing has made engineering changes to parts under contract with us.  We have not yet completed pricing negotiations related to these changes.  We are contractually obligated to continue production on these parts, however, we are not able to invoice for the expected full value until price negotiations are completed.

Because of our high growth rate, in order to perform on new programs, such as the recently announced Goodrich and Embraer programs, we may be required to expend up-front costs that may have to be amortized over a portion of production units.  In the case of significant program delays and/or program cancellations, we could be required to bear impairment charges, which may be material, for costs that are not recoverable.  Such charges and the loss of up-front costs could have a material impact on our liquidity.

We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources.

19 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

Credit Facilities

Line of Credit

In August 2007, we entered into a revolving credit facility with Sovereign Bank (the “Sovereign Revolving Facility”), secured by all of our assets.

On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign Bank as the sole arranger, administrative agent and collateral agent and Valley National Bank.  The Restated Agreement provides for a revolving credit loan commitment of $35 million, which replaces the Sovereign Revolving Facility, and a term loan of $3.9 million.  The term of the Restated Agreement is through December 2016.  The Restated Agreement increases the availability under, and amends and restates the Credit Agreement, dated as of August 13, 2007, as subsequently amended, between the Company and Sovereign Bank (the “Prior Agreement”), which provided for a revolving credit loan commitment and two term loans.  One of the term loans under the Prior Agreement was refinanced as a revolving credit loan under the Restated Agreement.  The other term loan and the revolving credit loans under the Prior Agreement continued as a term loan and revolving credit loan under the Restated Agreement.

As of March 31, 2013, we were in compliance with all of the financial covenants contained in the Credit Agreement, as amended, and $29.95 million was outstanding under the Sovereign Revolving Facility.

Term Loan

On October 22, 2008, we obtained a $3.0 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility”).  This term loan was refinanced as part of the revolving credit loan under the Restated Agreement of December 5, 2012.

On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized over five years (the “Sovereign Term Facility 2”).  The Sovereign Term Facility 2 was be used by the Company to purchase tooling and equipment for new programs.  The Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank’s prime rate.

The terms and conditions of the Sovereign Revolving Facility are applicable to the Sovereign Term Facility 2.

Additionally, the Company and Sovereign Bank entered into a five-year interest rate swap agreement, in the notional amount of $4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a rate of 4.11% and receives an amount from Sovereign representing interest on the notional amount at a rate equal to the one-month LIBOR plus 3%.  The effect of this interest rate swap will be the Company paying a fixed interest rate of 4.11% over the term of the Sovereign Term Facility 2.

Contractual Obligations

For information concerning our contractual obligations, see “Contractual Obligations” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2012.

20 

CPI AEROSTRUCTURES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Item 3 – Quantitative and Qualitative Disclosure About Market Risk

Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management has established disclosure controls and procedures designed to ensure that information it is required to disclose in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms.  Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information the Company is required to disclose in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.

Based on an evaluation of the Company’s disclosure controls and procedures as of March 31, 2013 made by management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) were effective as of March 31, 2013.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended March 31, 2013 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

21 

Part II:  Other Information

Item 1 – Legal Proceedings

None.

Item 1A – Risk Factors

Material risks related to our business, financial condition and results of operations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 13, 2013.  There have been no material changes to such risk factors.  The risk factors disclosed in our Annual Report should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

There have been no sales of unregistered sales of our equity securities for the three months ended March 31, 2013.  The following table sets forth information for the three months ended March 31, 2013 with respect to repurchases of our outstanding common stock:

   Issuer Purchases of Equity Securities

Period	Total number  of shares  purchased (1)	Average  price paid  per share	Total number of shares  (or units) purchased as  part of publicly  announced plans or  programs	Maximum number (or  approximate dollar value) of  shares (or units) that may yet  be purchased under the plans  or programs
January 1, 2013 – January 31, 2013	7,787	$10.53	—	—
February 1, 2013 – February 29, 2013	—	—	—	—
March 1, 2013 – March 31, 2013	9,568	$8.57	—	—
Total	17,355	$9.45	—	—

(1)   Represents shares that were delivered to the Company pursuant to provisions of stock option agreements and the Performance Equity Plan 2009, which permit payment of the exercise price of options in shares of common stock delivered to the Company.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Discosures

Not applicable.

Item 5 – Other Information

None.

Item 6 – Exhibits

Exhibit 31.1	Section 302 Certification by Chief Executive Officer and President
Exhibit 31.2	Section 302 Certification by Chief Financial Officer (Principal Accounting Officer)
Exhibit 32	Section 906 Certification by Chief Executive Officer and Chief Financial Officer
Exhibit 101	The following financial information from CPI Aerostructures, Inc Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Income, (iii) the Condensed Statement  of Shareholders'  Equity, (iv) the Condensed Statements of Cash Flows, and (v) the Notes to the Condensed Financial Statements

22 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CPI AEROSTRUCTURES, INC.
Dated: May 10, 2013	By.	/s/ Edward J. Fred
		Edward J. Fred
		Chief Executive Officer and President
Dated: May 10, 2013	By.	/s/ Vincent Palazzolo
		Vincent Palazzolo
		Chief Financial Officer (Principal Accounting Officer)

EX-31.1

CPI AEROSTRUCTURES, INC.

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY

ACT OF 2002

I, Edward J. Fred, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CPI Aerostructures, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2013
By:	/S/ Edward J. Fred
	Name:Edward J. Fred
	Title: Chief Executive Officer and President

EX-31.2

CPI AEROSTRUCTURES, INC.

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY

ACT OF 2002

I, Vincent Palazzolo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CPI Aerostructures, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2013
By:	/S/ Vincent Palazzolo
	Name:Vincent Palazzolo
	Title: Chief Financial Officer







EX-32

CPI AEROSTRUCTURES, INC.

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CPI Aerostructures, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

            1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

           2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: May 10, 2013
By:	/S/ Edward J. Fred
	Name:Edward J. Fred
	Title: Chief Executive Officer and President
Date: May 10, 2013
By:	/S/ Vincent Palazzolo
	Name:Vincent Palazzolo

XML

LONG-TERM DEBT (Details) (USD $)		3 Months Ended	12 Months Ended			12 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2013 Interest Rate Swap [Member]	Dec. 31, 2012 Sovereign Term Facility 2 [Member]	Mar. 09, 2012 Sovereign Term Facility 2 [Member]	Mar. 31, 2013 Sovereign Term Facility 2 [Member] Interest Rate Swap [Member]	Dec. 31, 2008 Term loan [Member] Sovereign Term Facility [Member]	Oct. 22, 2008 Term loan [Member] Sovereign Term Facility [Member]	Dec. 31, 2012 Term loan [Member] Sovereign Term Facility 2 [Member]	Mar. 09, 2012 Term loan [Member] Sovereign Term Facility 2 [Member]
Debt Instrument [Line Items]
Principal amount of term loan							$ 3,000,000		$ 4,500,000
Period of amortization						5 years		5 years
Description of variable rate basis			Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank's prime rate.
Basis spread on variable rate (in hundredths)				3.00%
Period of derivative contract		5 years
Notional amount		4,500,000
Rate of interest on notional amount (in hundredths)		4.11%
Basis spread on variable rate (in hundredths)					3.00%
Effect of interest rate derivative (in hundredths)		4.11%
Maturities of long-term debt [Abstract]
2014	1,083,425
2015	985,190
2016	956,853
2017	928,195
2018	75,000
Long-term debt	4,028,663
Capital leases and notes payable	353,663
Current portion of capital leases and notes payable	$ 183,425

XML

DERIVATIVE INSTRUMENTS AND FAIR VALUE

3 Months Ended

Mar. 31, 2013

DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract]

DERIVATIVE INSTRUMENTS AND FAIR VALUE

3.           DERIVATIVE INSTRUMENTS AND FAIR VALUE

Our use of derivative instruments has been to hedge interest rates. These derivative contracts are entered into with a financial institution. We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.

We record these derivative financial instruments on the condensed balance sheets at fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately.

In March 2012, the Company entered into interest rate swaps with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt. The notional amount, maturity date, and currency of these contracts match those of the underlying debt. The Company has designated these interest rate swap contracts as cash flow hedges. The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item. No material ineffectiveness was recognized in the quarter ended March 31, 2013. As of March 31, 2013 and December 31, 2012, we had a net deferred loss associated with cash flow hedges of approximately $54,000 and $61,000, respectively, due to the interest rate swap which has been included in other liabilities.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected. To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. To date, all counterparties have performed in accordance with their contractual obligations.

Fair Value

At March 31, 2013 and December 31, 2012, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

	March 31, 2013
	Carrying Amount		Fair Value
Short-term borrowings and long-term debt	$	33,978,663	$	33,978,663

	December 31, 2012
	Carrying Amount		Fair Value
Short-term borrowings and long-term debt	$	27,760,437	$	27,760,437

We estimated the fair value of debt using market quotes and calculations based on market rates.

The following table presents the fair values of those financial liabilities measured on a recurring basis as of March 31, 2013 and December 31, 2012:

			Fair Value Measurements March 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$	54,202		--	$	54,202		--
Total	$	54,202		--	$	54,202		--

			Fair Value Measurements December 31, 2012
Description	Total		Quoted Prices in Active Markets for Identical assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$	60,516		--	$	60,516		--
Total	$	60,516		--	$	60,516		--

The fair value of the Company's interest rate swaps was determined by comparing the fixed rate set at the inception of the transaction to the "replacement swap rate," which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date. The market value is then determined by calculating the present value of the interest differential between the contractual swap and the replacement swap.

As of March 31, 2013 and December 31, 2012, $54,202 and $60,516, respectively, was included in Other Liabilities related to the fair value of the Company's interest rate swap and $37,116 and $40,827, respectively, net of tax of $17,086 and $19,689, respectively, was included in accumulated other comprehensive loss.

XML

STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

2. STOCK-BASED COMPENSATION

The Company accounts for compensation expense associated with stock options based on the fair value of the options on the date of grant.

The Company's net income for the three months ended March 31, 2013 and 2012 includes approximately $361,000 and $383,000, respectively of noncash compensation expense related to the Company's stock options. The noncash compensation expense related to all of the Company's stock-based compensation arrangements is recorded as a component of selling, general and administrative expenses.

The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model. The following weighted-average assumptions were used for the options granted during the three months ended March 31, 2013 and 2012:

	2013			2012
Risk-free interest rate		0.72	%		0.9	%
Expected volatility		106	%		102	%
Dividend yield		0	%		0	%
Expected option term	5 years			5 years

A summary of the status of the Company's stock option plans as of March 31, 2013 and changes during the three months ended March 31, 2013 is as follows:

		Weighted average Exercise Price	Weighted average remaining contractual term (in years)	Aggregate Intrinsic Value
	Options
Outstanding at beginning of period	495,517	$9.33
Granted	44,217	10.62
Exercised	(20,000)	8.20
Forfeited	(35,000)	8.20
Outstanding and vested at end of period	484,734	$9.58	2.99	$406,648

Options to acquire 44,217 shares of common stock were granted on January 1, 2013 to members of our board of directors as part of their normal compensation.

During the three months ended March 31, 2013, no stock options were exercised for cash. During the same period 20,000 options were exercised, pursuant to provisions of the stock option plan, where the Company received no cash and 17,355 shares of its common stock in exchange for the 20,000 shares issued in the exercise. The 17,355 shares that the Company received were valued at $164,000, the fair market value of the shares on the dates of exercise.

The intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was approximately $26,300 and $451,450, respectively.

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CONDENSED BALANCE SHEETS (Unaudited) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Current Assets:
Cash	$ 1,260,876	$ 2,709,803
Accounts receivable, net	10,908,527	6,774,346
Costs and estimated earnings in excess of billings on uncompleted contracts	110,011,430	108,909,844
Deferred income taxes	526,000	534,000
Prepaid expenses and other current assets	605,767	426,063
Total current assets	123,312,600	119,354,056
Property and equipment, net	3,038,601	2,907,476
Deferred income taxes	1,008,000	1,001,000
Other assets	108,080	1,620,984
Total Assets	127,467,281	124,883,516
Current Liabilities:
Accounts payable	8,426,740	13,286,558
Accrued expenses	167,642	943,356
Billings in excess of costs and estimated earnings on uncompleted contracts	310,027	656,853
Current portion of long-term debt	1,083,425	1,100,564
Line of credit	29,950,000	23,450,000
Income tax payable	301,530	106,000
Deferred income taxes	100,000	102,000
Total current liabilities	40,339,364	39,645,331
Long-term debt, net of current portion	2,945,238	3,209,873
Deferred income taxes	852,000	867,000
Other liabilities	574,455	567,113
Total Liabilities	44,711,057	44,289,317
Shareholders' Equity:
Common stock - $.001 par value; authorized 50,000,000 shares, issued 8,391,954 and 8,371,439 shares, respectively, and outstanding 8,391,954 and 8,371,439 shares, respectively	8,392	8,371
Additional paid-in capital	50,267,690	49,780,673
Retained earnings	32,517,258	30,845,982
Accumulated other comprehensive loss	(37,116)	(40,827)
Total Shareholders' Equity	82,756,224	80,594,199
Total Liabilities and Shareholders' Equity	$ 127,467,281	$ 124,883,516

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CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 1,671,276	$ 1,919,320
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	163,507	145,126
Deferred rent	13,655	22,680
Stock compensation	360,964	382,657
Deferred income taxes	(16,000)	(37,000)
Tax benefit from stock option plans	26,000	0
Changes in operating assets and liabilities:
Increase in accounts receivable	(2,621,277)	(3,923,618)
Increase in costs and estimated earnings in excess of billings on uncompleted contracts	(1,101,586)	(3,480,219)
(Increase) decrease in prepaid expenses and other assets	(179,704)	215,874
Increase (decrease) in accounts payable and accrued expenses	(5,486,060)	(831,412)
Costs in Excess of Billings on Uncompleted Contracts or Programs	(346,826)	(93,405)
Increase (decrease) in income taxes payable	169,530	(172,000)
Net cash used in operating activities	(7,346,521)	(5,851,997)
Cash used in investing activities - purchase of plant and equipment	(294,632)	(505,807)
Cash flows from financing activities:
Payment of long-term debt	(281,774)	(230,833)
Proceeds from long-term debt	0	4,500,000
Proceeds from line of credit	6,500,000	1,500,000
Proceeds from exercise of stock options	0	241,015
Tax benefit from stock options	(26,000)	0
Net cash provided by financing activities	6,192,226	6,010,182
Net increase (decrease) in cash	(1,448,927)	(347,622)
Cash at beginning of period	2,709,803	878,200
Cash at end of period	1,260,876	530,578
Non cash investing and financing activities:
Equipment acquired under capital lease	0	0
Common stock issued for bonuses	152,074	228,290
Cash paid during the period for:
Interest	238,443	272,113
Income taxes	$ 500,000	$ 1,000,000

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COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Costs and Estimated Earnings on Uncompleted Contracts [Line Items]
Costs incurred on uncompleted contracts	$ 292,922,503		$ 257,524,854
Estimated earnings	91,300,558		109,102,921
Sub-total	384,223,061		366,627,775
Less billings to date	274,521,658		258,374,784
Costs and estimated earnings in excess of billings on uncompleted contracts	109,701,403		108,252,991
Costs and estimated earnings in excess of billings on uncompleted contracts	110,011,430		108,909,844
Billings in excess of costs and estimated earnings on uncompleted contracts	(310,027)		(656,853)
Costs and estimated earnings in excess of billings on uncompleted contracts	109,701,403		108,252,991
Decrease in estimated gross profits on contracts due to revisions	1,377,000	600,000
U.S. Government [Member]
Costs and Estimated Earnings on Uncompleted Contracts [Line Items]
Costs incurred on uncompleted contracts	246,341,518		214,888,101
Estimated earnings	65,879,081		85,320,636
Sub-total	312,220,599		300,208,737
Less billings to date	227,019,725		215,743,090
Costs and estimated earnings in excess of billings on uncompleted contracts	85,200,874		84,465,647
Costs and estimated earnings in excess of billings on uncompleted contracts	85,200,874		84,465,647
Commercial [Member]
Costs and Estimated Earnings on Uncompleted Contracts [Line Items]
Costs incurred on uncompleted contracts	46,580,985		42,636,753
Estimated earnings	25,421,477		23,782,285
Sub-total	72,002,462		66,419,038
Less billings to date	47,501,933		42,631,694
Costs and estimated earnings in excess of billings on uncompleted contracts	24,500,529		23,787,344
Costs and estimated earnings in excess of billings on uncompleted contracts	$ 24,500,529		$ 23,787,344

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LINE OF CREDIT (Details) (USD $)				3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Sovereign Revolving Facility [Member]	Mar. 31, 2013 Sovereign Revolving Facility [Member] Term loan[Member] Loan
Line of Credit Facility [Line Items]
Revolving credit facility under credit agreement			$ 35,000,000
Term loan				3,900,000
Number of term loans under the credit agreement				2
Outstanding amount under line of credit facility	$ 29,950,000	$ 23,450,000	$ 29,950,000

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INTERIM FINANCIAL STATEMENTS

3 Months Ended

Mar. 31, 2013

INTERIM FINANCIAL STATEMENTS [Abstract]

INTERIM FINANCIAL STATEMENTS

1.           INTERIM FINANCIAL STATEMENTS

The condensed financial statements of CPI Aerostructures, Inc. (the "Company") as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The condensed balance sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by the SEC. Such adjustments are of a normal, recurring nature. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period.

On January 1, 2012, the Company adopted the provisions of Accounting Standards Codification 220, "Comprehensive Income." The new guidance requires the Company to present Comprehensive Income either on one continuous statement of Income and Comprehensive Income, or on a separate Statement of Comprehensive Income. The new guidance does not change the computation of Net Income or Comprehensive Income.

The Company maintains its cash in two financial institutions. The balances are insured by the Federal Deposit Insurance Corporation. From time to time, the Company's balances may exceed these limits. As of March 31, 2013, the Company had approximately $2,341,000 of uninsured balances. The Company limits its credit risk by selecting financial institutions considered to be highly credit worthy.

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CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Shareholders' Equity:
Common stock, par value (in dollars per value)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	8,391,954	8,371,439
Common stock, shares outstanding (in shares)	8,391,954	8,371,439

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COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Tables)

3 Months Ended

Mar. 31, 2013

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS [Abstract]

Costs and estimated earnings in excess of billings on uncompleted contracts

Costs and estimated earnings in excess of billings on uncompleted contracts consist of:

	March 31, 2013
	U.S
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$246,341,518	$46,580,985	$292,922,503
Estimated earnings	65,879,081	25,421,477	91,300,558
Subtotal	312,220,599	72,002,462	384,223,061
Less billings to date	227,019,725	47,501,933	274,521,658
Costs and estimated earnings
in excess of billings on
uncompleted contracts	$85,200,874	$24,500,529	$109,701,403

	December 31, 2012
	U.S.
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$214,888,101	$42,636,753	$257,524,854
Estimated earnings	85,320,636	23,782,285	109,102,921
Subtotal	300,208,737	66,419,038	366,627,775
Less billings to date	215,743,090	42,631,694	258,374,784
Costs and estimated earnings in excess of billings on uncompleted contracts	$84,465,647	$23,787,344	$108,252,991

Net unbilled and estimated earnings

The above amounts are included in the accompanying balance sheets under the following captions at March 31, 2013 and December 31, 2012:

	March 31, 2013	December 31, 2012
Costs and estimated earnings in excess of billings on
uncompleted contracts	$ 110,011,430	$ 108,909,844
Billings in excess of costs and estimated earnings on
uncompleted contracts	(310,027)	(656,853)
Totals	$ 109,701,403	$ 108,252,991

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 07, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	CPI AEROSTRUCTURES INC
Entity Central Index Key	0000889348
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		8,391,954
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013

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LONG-TERM DEBT (Tables)

3 Months Ended

Mar. 31, 2013

LONG-TERM DEBT [Abstract]

Maturities of long-term debt

The maturities of long-term debt are as follows:

Twelve months ending March 31,
2014		1,083,425
2015		985,190
2016		956,853
2017		928,195
2018		75,000
	$	4,028,663

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CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) [Abstract]
Revenue	$ 19,927,433	$ 19,721,095
Cost of sales	15,486,863	14,756,709
Gross profit	4,440,570	4,964,386
Selling, general and administrative expenses	1,877,922	2,104,881
Income from operations	2,562,648	2,859,505
Interest expense	141,372	149,185
Income before provision for income taxes	2,421,276	2,710,320
Provision for income taxes	750,000	791,000
Net income	1,671,276	1,919,320
Other comprehensive income (loss), net of tax - Change in unrealized gain (loss)-
interest rate swap	3,711	(25,278)
Comprehensive income	$ 1,674,987	$ 1,894,042
Income per common share - basic (in dollars per share)	$ 0.20	$ 0.28
Income per common share - diluted (in dollars per share)	$ 0.20	$ 0.27
Shares used in computing income per common share:
Basic (in shares)	8,377,654	6,952,910
Diluted (in shares)	8,447,974	7,228,061

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LINE OF CREDIT

3 Months Ended

Mar. 31, 2013

LINE OF CREDIT [Abstract]

LINE OF CREDIT

6. LINE OF CREDIT

In August 2007, we entered into a revolving credit facility with Sovereign Bank (the "Sovereign Revolving Facility"), secured by all of our assets.

On December 5, 2012, the Company entered into an Amended and Restated Credit Agreement with Sovereign Bank as the sole arranger, administrative agent and collateral agent and Valley National Bank. The Restated Agreement provides for a revolving credit loan commitment of $35 million, which replaces the Sovereign Revolving Facility, and a term loan of $3.9 million. The term of the Restated Agreement is through December 2016. The Restated Agreement increases the availability under, and amends and restates the Credit Agreement, dated as of August 13, 2007, as subsequently amended, between the Company and Sovereign Bank (the "Prior Agreement"), which provided for a revolving credit loan commitment and two term loans. One of the term loans under the Prior Agreement was refinanced as a revolving credit loan under the Restated Agreement. The other term loan and the revolving credit loans under the Prior Agreement continued as a term loan and revolving credit loan under the Restated Agreement.

As of March 31, 2013, the Company was in compliance with all of the financial covenants, as amended, contained in the Credit Agreement and $29.95 million was outstanding under the Sovereign Revolving Facility.

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INCOME PER COMMON SHARE

3 Months Ended

Mar. 31, 2013

INCOME PER COMMON SHARE [Abstract]

INCOME PER COMMON SHARE

5. INCOME PER COMMON SHARE

Basic income per common share is computed using the weighted average number of common shares outstanding. Diluted income per common share for the three month periods ended March 31, 2013 and 2012 is computed using the weighted-average number of common shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Incremental shares of 245,000 were used in the calculation of diluted income per common share for the three month period ended March 31, 2013. Incremental shares of 239,734 were not included in the diluted earnings per share calculations for the three month period ended March 31, 2013 as their exercise price was in excess of the Company's average stock price for the respective period and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation, as they would be anti-dilutive. Incremental shares of 625,517 were used in the calculation of diluted income per common share in the three months ended March 31, 2012. Incremental shares of 55,000 were not included in the diluted earnings per share calculations for the three month period ended March 31, 2012 as their exercise price was in excess of the Company's average stock price for the respective period and, accordingly, these shares are not assumed to be exercise for the diluted earnings per share calculation, as they would be anti-dilutive.

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INCOME PER COMMON SHARE (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INCOME PER COMMON SHARE [Abstract]
Incremental shares used in calculation of diluted income per share (in shares)	245,000	625,517
Incremental shares not included in calculation of diluted earnings per share (in shares)	239,734	55,000

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INTERIM FINANCIAL STATEMENTS (Details) (USD $)	Mar. 31, 2013
INTERIM FINANCIAL STATEMENTS [Abstract]
Uninsured balances	$ 2,341,000

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

Weighted-average assumptions used for options granted

The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model. The following weighted-average assumptions were used for the options granted during the three months ended March 31, 2013 and 2012:

	2013			2012
Risk-free interest rate		0.72	%		0.9	%
Expected volatility		106	%		102	%
Dividend yield		0	%		0	%
Expected option term	5 years			5 years

Stock option activity

A summary of the status of the Company's stock option plans as of March 31, 2013 and changes during the three months ended March 31, 2013 is as follows:

		Weighted average Exercise Price	Weighted average remaining contractual term (in years)	Aggregate Intrinsic Value
	Options
Outstanding at beginning of period	495,517	$9.33
Granted	44,217	10.62
Exercised	(20,000)	8.20
Forfeited	(35,000)	8.20
Outstanding and vested at end of period	484,734	$9.58	2.99	$406,648

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LONG-TERM DEBT

3 Months Ended

Mar. 31, 2013

LONG-TERM DEBT [Abstract]

LONG-TERM DEBT

7.           LONG-TERM DEBT

On October 22, 2008, the Company obtained a $3.0 million term loan from Sovereign Bank to be amortized over five years (the "Sovereign Term Facility"). This term loan was refinanced as part of the revolving credit loan under the Restated Agreement of December 5, 2012.

On March 9, 2012, the Company obtained a $4.5 million term loan from Sovereign Bank to be amortized over five years (the "Sovereign Term Facility 2"). The Sovereign Term Facility 2 was be used by the Company to purchase tooling and equipment for new programs. The Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank's prime rate.

The terms and conditions of the Sovereign Revolving Facility are applicable to the Sovereign Term Facility 2.

Additionally, the Company and Sovereign Bank entered into a five-year interest rate swap agreement, in the notional amount of $4.5 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a rate of 4.11% and receives an amount from Sovereign representing interest on the notional amount at a rate equal to the one-month LIBOR plus 3%. The effect of this interest rate swap will be the Company paying a fixed interest rate of 4.11% over the term of the Sovereign Term Facility 2.

The maturities of long-term debt are as follows:

Twelve months ending March 31,
2014		1,083,425
2015		985,190
2016		956,853
2017		928,195
2018		75,000
	$	4,028,663

In addition to the Sovereign Term Facility 2, included in long-term debt are capital leases and notes payable of $353,663, including a current portion of $183,425.

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MAJOR CUSTOMERS

3 Months Ended

Mar. 31, 2013

MAJOR CUSTOMERS [Abstract]

MAJOR CUSTOMERS

8.           MAJOR CUSTOMERS

During the three months ended March 31, 2013 and 2012, 1% and 10%, respectively, of revenue was directly from the U.S. Government. In addition, during the three months ended March 31, 2013, the Company's three largest commercial customers accounted for 26%, 24% and 18% of revenue, respectively. During the three months ended March 31, 2012, the Company's three largest commercial customers accounted for 38%, 20% and 15% of revenue, respectively.

At March 31, 2013 and December 31, 2012, 2.5% and 3.2% of costs and estimated earnings in excess of billings on uncompleted contracts, respectively, were direct from the U.S. Government.

At March 31, 2013, 40%, 22%, 14% and 13% of costs and estimated earnings in excess of billings on uncompleted contracts were from four largest commercial customers. At December 31, 2012, 39%, 22%, 14% and 13% of costs and estimated earnings in excess of billings on uncompleted contracts were from the Company's four largest commercial customers.

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DERIVATIVE INSTRUMENTS AND FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2013

DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract]

Fair values of cash, accounts receivable, accounts payable and accrued expenses

At March 31, 2013 and December 31, 2012, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

	March 31, 2013
	Carrying Amount		Fair Value
Short-term borrowings and long-term debt	$	33,978,663	$	33,978,663

	December 31, 2012
	Carrying Amount		Fair Value
Short-term borrowings and long-term debt	$	27,760,437	$	27,760,437

Fair value of financial liabilities measured on a recurring basis

The following table presents the fair values of those financial liabilities measured on a recurring basis as of March 31, 2013 and December 31, 2012:

			Fair Value Measurements March 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$	54,202		--	$	54,202		--
Total	$	54,202		--	$	54,202		--

			Fair Value Measurements December 31, 2012
Description	Total		Quoted Prices in Active Markets for Identical assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$	60,516		--	$	60,516		--
Total	$	60,516		--	$	60,516		--

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DERIVATIVE INSTRUMENTS AND FAIR VALUE (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Counterparty	Dec. 31, 2012
DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract]
Material ineffectiveness	$ 0
Net deferred loss on interest rate swap included in other liabilities	(54,000)	(61,000)
Number of counterparties failed to perform as expected, minimum	1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of interest rate swap included in accumulated other comprehensive loss	37,116	40,827
Interest rate swap included in accumulated other comprehensive loss, tax effect	17,086	19,689
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest Rate Swap, net	54,202	60,516
Total	54,202	60,516
Recurring [Member] | Quoted Prices in Active Markets for Identical assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest Rate Swap, net	0	0
Total	0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest Rate Swap, net	54,202	60,516
Total	54,202	60,516
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest Rate Swap, net	0	0
Total	0	0
Carrying Amount [Member]
Fair values and carrying values of short-term instruments [Abstract]
Short-term borrowings and long-term debt	33,978,663	27,760,437
Fair Value [Member]
Fair values and carrying values of short-term instruments [Abstract]
Short-term borrowings and long-term debt	$ 33,978,663	$ 27,760,437

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MAJOR CUSTOMERS (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2013 Customer	Mar. 31, 2012 Customer	Dec. 31, 2012 Customer
Revenue, Major Customer [Line Items]
Number of major commercial customers contributed to revenue	3	3
Number of large commercial customers accounted for major share in costs and estimated earnings in excess of billings on uncompleted contracts	4		4
Number of large customers included in accounts receivable of entity	3		3
U.S. Government [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue accounted by major customers (in hundredths)	1.00%	10.00%
Percentage of costs and estimated earnings in excess of billings on uncompleted contracts accounted by major customers (in hundredths)	2.50%		3.20%
Customer A [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue accounted by major customers (in hundredths)	26.00%	38.00%
Percentage of costs and estimated earnings in excess of billings on uncompleted contracts accounted by major customers (in hundredths)	40.00%		39.00%
Percentage of accounts receivable from major customers (in hundredths)	32.00%		36.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue accounted by major customers (in hundredths)	24.00%	20.00%
Percentage of costs and estimated earnings in excess of billings on uncompleted contracts accounted by major customers (in hundredths)	22.00%		22.00%
Percentage of accounts receivable from major customers (in hundredths)	32.00%		30.00%
Customer C [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue accounted by major customers (in hundredths)	18.00%	15.00%
Percentage of costs and estimated earnings in excess of billings on uncompleted contracts accounted by major customers (in hundredths)	14.00%		14.00%
Percentage of accounts receivable from major customers (in hundredths)	22.00%		21.00%
Customer D [Member]
Revenue, Major Customer [Line Items]
Percentage of costs and estimated earnings in excess of billings on uncompleted contracts accounted by major customers (in hundredths)	13.00%		13.00%

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CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at Dec. 31, 2011	$ 7,080	$ 35,346,273	$ 19,834,852	$ (1,140,226)	$ (21,772)	$ 54,026,207
Balance (in shares) at Dec. 31, 2011	7,079,638
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net Income	0	0	1,919,320	0	0	1,919,320
Change in unrealized loss from interest rate swap	0	0	0	0	(25,278)	(25,278)
Common stock issued upon exercise of options	46	240,969	0	0	0	241,015
Common stock issued upon exercise of options (in shares)	46,078
Tax benefit of stock option exercise						0
Common stock issued as bonus	15	228,275	0	0	0	228,290
Common stock issued as bonus (in shares)	15,260
Stock compensation expense	0	382,657	0	0	0	382,657
Treasury stock retired	(133)	(1,140,093)	0	1,140,226	0	0
Treasury stock retired (in shares)	(133,257)
Balance at Mar. 31, 2012	7,008	35,058,081	21,754,172	0	(47,050)	56,772,211
Balance (in shares) at Mar. 31, 2012	7,007,719
Balance at Dec. 31, 2012	8,371	49,780,673	30,845,982	0	(40,827)	80,594,199
Balance (in shares) at Dec. 31, 2012	8,371,439
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net Income	0	0	1,671,276	0	0	1,671,276
Change in unrealized loss from interest rate swap	0	0	0	0	3,711	3,711
Common stock issued upon exercise of options	3	(3)	0	0	0	0
Common stock issued upon exercise of options (in shares)	2,645					20,000
Tax benefit of stock option exercise	0	(26,000)	0	0	0	(26,000)
Common stock issued as bonus	18	152,056	0	0	0	152,074
Common stock issued as bonus (in shares)	17,870
Stock compensation expense	0	360,964	0	0	0	360,964
Balance at Mar. 31, 2013	$ 8,392	$ 50,267,690	$ 32,517,258	$ 0	$ (37,116)	$ 82,756,224
Balance (in shares) at Mar. 31, 2013	8,391,954

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COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

3 Months Ended

Mar. 31, 2013

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS [Abstract]

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts consist of:

	March 31, 2013
	U.S
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$246,341,518	$46,580,985	$292,922,503
Estimated earnings	65,879,081	25,421,477	91,300,558
Subtotal	312,220,599	72,002,462	384,223,061
Less billings to date	227,019,725	47,501,933	274,521,658
Costs and estimated earnings
in excess of billings on
uncompleted contracts	$85,200,874	$24,500,529	$109,701,403

	December 31, 2012
	U.S.
	Government	Commercial	Total
Costs incurred on uncompleted
contracts	$214,888,101	$42,636,753	$257,524,854
Estimated earnings	85,320,636	23,782,285	109,102,921
Subtotal	300,208,737	66,419,038	366,627,775
Less billings to date	215,743,090	42,631,694	258,374,784
Costs and estimated earnings in excess of billings on uncompleted contracts	$84,465,647	$23,787,344	$108,252,991

 

The above amounts are included in the accompanying balance sheets under the following captions at March 31, 2013 and December 31, 2012:

	March 31, 2013	December 31, 2012
Costs and estimated earnings in excess of billings on
uncompleted contracts	$ 110,011,430	$ 108,909,844
Billings in excess of costs and estimated earnings on
uncompleted contracts	(310,027)	(656,853)
Totals	$ 109,701,403	$ 108,252,991

U.S. Government Contracts includes contracts directly with the U.S. Government and Government subcontracts.

Revisions in the estimated gross profits on contracts and contract amounts are made in the period in which the circumstances requiring the revisions occur. During the three months ended March 31, 2013 and 2012, the effect of such revisions in total estimated contract profits resulted in a decrease to the total gross profit to be earned on the contracts of approximately $1,377,000 and $600,000, respectively, from that which would have been reported had the revised estimates been used as the basis of recognition of contract profits in prior years.

Although management believes it has established adequate procedures for estimating costs to complete on uncompleted open contracts, it is possible that additional significant costs could occur on contracts prior to completion.

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STOCK-BASED COMPENSATION (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
STOCK-BASED COMPENSATION [Abstract]
Noncash compensation expense	$ 361,000	$ 383,000
Weighted-average assumptions used for options granted [Abstract]
Risk-free interest rate (in hundredths)	0.72%	0.90%
Expected volatility (in hundredths)	106.00%	102.00%
Dividend yield (in hundredths)	0.00%	0.00%
Expected option term	5 years	5 years
Options [Abstract]
Outstanding at beginning of period (in shares)	495,517
Granted (in shares)	44,217
Exercised (in shares)	(20,000)
Forfeited (in shares)	(35,000)
Outstanding and vested at end of period (in shares)	484,734
Weighted average Exercise Price [Abstract]
Outstanding at beginning of period (in dollars per share)	$ 9.33
Granted (in dollars per share)	$ 10.62
Exercised (in dollars per share)	$ 8.20
Forfeited (in dollars per share)	$ 8.20
Outstanding and vested at end of period (in dollars per share)	$ 9.58
Weighted average remaining contractual term [Abstract]
Outstanding and vested at end of period	2 years 11 months 26 days
Aggregate Intrinsic Value [Abstract]
Outstanding and vested at end of period	406,648
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options issued (in shares)	20,000
Fair market value of common stock upon exercise of options		0
Intrinsic value of options exercised	26,300	451,450
Issue of Stock for Cash [Member]
Options [Abstract]
Exercised (in shares)	0
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options issued (in shares)	0
Issue of Stock for Noncash Consideration [Member]
Options [Abstract]
Exercised (in shares)	(20,000)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options issued (in shares)	20,000
Exchange of common stock upon exercise of stock options (in shares)	17,355
Issue of Stock for Cash and Noncash Consideration [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exchange of common stock upon exercise of stock options (in shares)	17,355
Fair market value of common stock upon exercise of options	$ 164,000