10-Q

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2007			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 of incorporation or organization)			(IRS Employer Identification Number)
60 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           No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer’’ and ‘‘large accelerated filer’’ in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer                Accelerated filer                Non-accelerated filer    

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

As of August 10, 2007, the number of shares of common stock, par value $.001 per share, outstanding was 5,750,273.

INDEX

Part I:    Financial Information:
			Item 1 – Condensed Financial Statements:
			Condensed Balance Sheets as of June 30, 2007 (Unaudited) and December 31, 2006					3
			Condensed Statements of Operations for the Three Months and Six Months ended June 30, 2007 (Unaudited) and 2006 (Unaudited)					4
			Condensed Statements of Cash Flows for the Six Months ended June 30, 2007 (Unaudited) and 2006 (Unaudited)					5
			Notes to Condensed Financial Statements (Unaudited)					6
			Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations					9
			Item 3 – Quantitative and Qualitative Disclosures About Market Risk					14
			Item 4 – Controls and Procedures					14
Part II: Other Information
			Item 1A – Risk Factors					15
			Item 4 – Submission of Matters to a Vote of Security Holders					15
			Item 6 – Exhibits					15
			Signatures and Certifications					16

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Part I:    Financial Information:

Item 1 — Financial Statements:

      CPI AEROSTRUCTURES, INC.

CONDENSED BALANCE SHEETS

			June 30, 2007						December 31, 2006
			(Unaudited)						(Note 1)
ASSETS
Current Assets:
Cash				$	1,041,745					$	38,564
Accounts receivable, net					1,756,599						1,422,135
Costs and estimated earnings in excess of billings on uncompleted contracts					29,326,300						28,783,708
Prepaid expenses and other current assets					403,882						133,618
Refundable income taxes					528,470						628,470
Total current assets					33,056,996						31,006,495
Plant and equipment, net					781,492						855,736
Other assets					229,319						297,956
Total Assets				$	34,067,807					$	32,160,187
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable				$	4,919,126					$	4,758,763
Accrued expenses					102,751						225,040
Current portion of long-term debt					14,215						42,188
Line of credit					—						350,000
Deferred income taxes					508,000						508,000
Total current liabilities					5,544,092						5,883,991
Other liabilities					114,570						98,541
Total Liabilities					5,658,662						5,982,532
Shareholders’ Equity:
Common stock – $.001 par value; authorized 50,000,000 shares, issued 5,793,807 and 5,478,807 shares, respectively, and outstanding 5,730,273 and 5,447,792 shares, respectively					5,794						5,479
Additional paid-in capital					24,656,208						23,048,520
Retained earnings					4,288,149						3,444,512
Treasury stock, 63,534 and 32,980 shares (at cost), respectively					(541,006	)					(320,856	)
Total Shareholders’ Equity					28,409,145						26,177,655
Total Liabilities and Shareholders’ Equity				$	34,067,807					$	32,160,187

See Notes to Condensed Financial Statements

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      CPI AEROSTRUCTURES, INC.

CONDENSED STATEMENTS OF OPERATIONS

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2007						2006						2007						2006
			(Unaudited)												(Unaudited)
Revenue				$	7,490,669					$	2,457,016					$	12,962,637					$	7,487,210
Cost of sales					5,302,049						3,361,506						9,415,336						7,426,508
Gross profit (loss)					2,188,620						(904,490	)					3,547,301						60,702
Selling, general and administrative expenses					1,262,172						1,133,844						2,185,664						1,982,142
Income (loss) before provision for (benefit from) income taxes					926,448						(2,038,334	)					1,361,637						(1,921,440	)
Provision for (benefit from) income taxes					351,000						(705,000	)					518,000						(657,000	)
Net income (loss)				$	575,448					$	(1,333,334	)				$	843,637					$	(1,264,440	)
Income (loss) per common share – basic				$	0.10					$	(0.24	)				$	0.15					$	(0.23	)
Income (loss) per common share – diluted				$	0.10					$	(0.24	)				$	0.14					$	(0.23	)
Shares used in computing income (loss) per common share:
Basic					5,691,811						5,447,042						5,596,963						5,446,263
Diluted					6,026,829						5,447,042						5,908,891						5,446,263

See Notes to Condensed Financial Statements

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      CPI AEROSTRUCTURES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

			For the Six Months Ended June 30,
			2007						2006
			(Unaudited)
Cash flows from operating activities:
Net income (loss)				$	843,637					$	(1,264,440	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization					110,506						103,249
Other liabilities					16,029						21,825
Stock compensation expense					360,252						252,425
Tax benefit from stock option exercise					(538,000	)					(4,600	)
Deferred portion of provision for income taxes					57,000						(48,000	)
Changes in operating assets and liabilities:
Increase in accounts receivable					(334,464	)					(368,616	)
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts					(542,592	)					3,171,318
Decrease in prepaid expenses and other assets					279,374						195,663
(Increase) decrease in refundable income taxes					100,000						(890,281	)
Increase (decrease) in accounts payable and accrued expenses					38,074						(1,415,273	)
Decrease in income taxes payable					—						(133,110	)
Net cash provided by (used in) operating activities					389,816						(379,840	)
Cash used in investing activities – purchase of plant and equipment					(36,262	)					(51,093	)
Cash flows from financing activities:
Payment of long-term debt					(27,973	)					(47,749	)
Repayment of line of credit					(350,000	)					—
Proceeds from exercise of stock options					489,600						19,050
Tax benefit from stock option exercise					538,000						4,600
Net cash provided by (used in) financing activities					649,627						(24,099	)
Net increase (decrease) in cash					1,003,181						(455,032	)
Cash at beginning of period					38,564						877,182
Cash at end of period				$	1,041,745					$	422,150
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest				$	18,284					$	6,117
Income taxes				$	100,000					$	403,093

See Notes to Condensed Financial Statements

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CPI Aerostructures, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. Interim Financial Statements:

The financial statements of CPI Aerostructures, Inc. (the ‘‘Company’’) as of June 30, 2007 and for the three and six months ended June 30, 2007 and 2006 are unaudited, however, in the opinion of the management of the Company, these financial statements reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows. The results of operations for such interim periods are not necessarily indicative of the results to be obtained for a full year.

The balance sheet at December 31, 2006 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. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

2. stock-based compensation:

The Company accounts for compensation expense associated with stock options in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 123R, ‘‘Share-Based Payment.’’

The Company’s net income for the three and six months ended June 30, 2007 includes approximately $251,000 and $360,000, respectively, of non-cash compensation expense related to the Company’s stock options. The Company’s net loss for the three and six months ended June 30, 2006 includes approximately $154,000 and $252,000, respectively, of non-cash compensation expense related to the Company’s stock options. The non-cash 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 option grants during the six month period ended June 30, 2007:

Risk-free interest rate			4.50% - 5.25%
Expected volatility			61% - 73%
Dividend yield			0%
Expected option term-in years			5

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CPI Aerostructures, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

A summary of the status of the Company’s stock option plans as of June 30, 2007 and changes during the period is as follows:

Fixed Options			Options						Weighted average Exercise Price						Weighted average remaining contractual term (in years)						Aggregate Intrinsic Value
Outstanding at beginning of period					1,240,418					$	5.17
Granted during period					80,000						7.01
Exercised					(315,000	)					2.25
Outstanding at end of period					1,005,418					$	6.24						4.46					$	2,530,326
Vested at end of period					980,418					$	6.23						4.33					$	2,491,576

As of June 30, 2007, there was $76,105 of unrecognized compensation cost related to non-vested stock option awards which will be amortized through December 2008.

During the six months ended June 30, 2007, 230,000 stock options were exercised for cash resulting in proceeds to the Company of $489,600. In addition, 85,000 stock options were exercised on a cashless basis, pursuant to provisions of the stock option plans. The Company received 30,554 shares of its common stock in exchange for the 85,000 shares issued in the exercise. The 30,554 shares that the Company received were valued at $220,150, the fair market value of the shares on the date of exercise, and were added to treasury stock.

During the six months ended June 30, 2007, the company earned a tax benefit of approximately $538,000 resulting from the exercise of stock options. The amount has been credited to paid in capital and applied to the current tax liability with the balance of $277,000 reflected in prepaid expenses and other current assets.

3. costs and estimated earnings in excess of billings on uncompleted contracts:

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

			June 30, 2007
			U.S. Government						Commercial						Total
Costs incurred on uncompleted contracts				$	51,105,784					$	15,622,461					$	66,728,245
Estimated earnings					31,880,494						6,853,813						38,734,307
Sub-total					82,986,278						22,476,274						105,462,552
Less billings to date					55,388,261						20,747,991						76,136,252
Costs and estimated earnings in excess of billings on uncompleted contracts				$	27,598,017					$	1,728,283					$	29,326,300

			December 31, 2006
			U.S. Government						Commercial						Total
Costs incurred on uncompleted contracts				$	45,799,483					$	15,312,176					$	61,111,659
Estimated earnings					27,022,765						6,666,257						33,689,022
Sub-total					72,822,248						21,978,433						94,800,681
Less billings to date					45,978,150						20,038,823						66,016,973
Costs and estimated earnings in excess of billings on uncompleted contracts				$	26,844,098					$	1,939,610					$	28,783,708

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CPI Aerostructures, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

4. income PER COMMON SHARE:

Basic income per common share is computed using the weighted average number of shares outstanding. Diluted income per common share for the three and six month periods ended June 30, 2007 is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to outstanding options and warrants to purchase common stock. Incremental shares of 335,018 and 311,928 were used in the calculation of diluted income per common share in the three month and six month periods ended June 30, 2007, respectively. Incremental shares of 295,000 and 333,750 were not included in the diluted earnings per share calculations for the three month and six month periods ended June 30, 2007, respectively, as their exercise price was in excess of the Company’s average stock price for the period and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation, as they w ould be anti-dilutive. Incremental shares of 865,277 were not included in the diluted earnings per share calculation at June 30, 2006 because of the reported net loss, and accordingly their effect would be anti-dilutive.

5. CREDIT FACILITY:

In September 2003, the Company entered into a three year, revolving credit facility with JP Morgan Chase Bank (the ‘‘Chase Facility’’), secured by our assets. In August 2006, the Company borrowed $350,000 under the Chase Facility. The Chase Facility was amended and restated in October 2006, further amended in May 2007 and it expired on June 30, 2007. All borrowings under this facility were repaid in May 2007.

6. recent accounting pronouncements:

In June 2006, the FASB issued FASB Interpretation 48, ‘‘Accounting for Uncertainty in Income Taxes (as amended) — an interpretation of Statement of Accounting Standards 109’’ (‘‘FIN 48’’). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, ‘‘Accounting for Income Taxes,’’ and prescribes a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. During the six months ended June 30, 2007, the Company adopted FIN 48 and the impact of adoption was not material to its financial position and results of operations.

We may, from time to time, be assessed interest and/or penalties by major taxing jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the statement of operations as other general and administrative expenses.

7. Subsequent event:

In August 2007, the Company entered into a new two-year, $2.5 million revolving credit facility with Sovereign Bank (the ‘‘Sovereign Facility’’), secured by the Company’s assets. The Sovereign Facility specifies an interest rate equal to the lower of LIBOR plus 2% or Sovereign Bank’s prime rate. The Sovereign Facility contains financial covenants related to interest coverage, net income and capital expenditures, as defined in the agreement.

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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 footnotes thereto contained in this report.

Forward Looking Statements

When used in this Form 10-Q and in future filings by us with the 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’’ included in our Annual Report on Form 10-K for the year ended December 31, 2006 and ‘‘Item 7: 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 United States Air Force and other branches of the U.S. armed forces and, to a lesser extent, for prime military aircraft contractors. We also provide aircraft parts to the commercial sector of the aircraft industry. Our strategy for growth has focused on government and military sales as a prime contractor and as a subcontractor for other defense prime contractors. Due to growth in the commercial sector, we are also pursuing opportunities to increase our commercial contract business as a subcontractor.

Notwithstanding defense budget increases and the Department of Defense’s (‘‘DoD’’) commitment to maintaining support for aging aircraft during the two-year period through August 2006, there was a significant slowdown in government contract awards as well as releases under previously awarded contracts. Faced with the uncertainties of appropriations and timing of contract awards and releases under previously awarded contracts, which we believe have been driven by the uncertainties of war and market and economic trends, we have expanded our activities to include operating as a subcontractor to leading aerospace prime contractors. While the slowdown in government contract awards also has affected these prime contractors, because they are able to bid on and receive contract awards for different programs than we are, we believe that pursuing such opportunities will enable us to access programs that we would not otherwise be able to a ccess given our smaller size and resources. By increasing our customer base, we have positioned our company to take advantage of additional market opportunities and reduce the impact of the slowdown in government contract awards and releases. These subcontracting opportunities have begun to materialize, and we were awarded approximately $7.0 million of subcontracts during 2006 compared to $2.2 million in 2005. In addition, through July 31, 2007, we were awarded approximately $10.9 million of subcontracts. We currently have proposals submitted to multiple prime contractors, and while we cannot predict the timing of awards, some of our outstanding proposals are so significant in size that any single award could increase our revenue and net income substantially.

The length of the contract varies but is typically between six months and two years for U.S. government contracts (although our T-38 contract and our C-5 TOP contract are for periods of 10 years and 7 years, respectively), and up to 10 years for commercial contracts. Our one commercial contract has an indefinite life. Except in cases where contract terms permit us to bill on a progress basis, we must incur upfront costs in producing assemblies and bill our customers upon delivery. Because of the upfront costs incurred, the timing of our billings and the nature of the percentage-of-completion method of accounting described below, there can be a significant disparity between the periods in which (a) costs are expended, (b) revenue and earnings are recorded and (c) cash is received.

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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 taxes) 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 to fund our work in process or to pay taxes until the reported earnings materialize to actual cash receipts.

Stock Based Compensation

Effective January 1, 2006, we adopted SFAS No. 123R, ‘‘Share-Based Payment’’ for employee options, using the modified prospective transition method. SFAS 123R revised SFAS 123 to eliminate the option to use the intrinsic value method and required the Company to expense the fair value of all employee stock-based compensation over the vesting period. Under the modified prospective transition method, we recognized compensation cost for the year ended December 31, 2006, which includes (1) period compensation cost related to share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (2) compensation cost related to share-based payments granted within the period, which vested fully upon grant.

Results of Operations

Revenue

Revenue for the three months ended June 30, 2007 was $7,490,669 compared to $2,457,016 for the same period last year, representing an increase of $5,033,653 or 205%. For the six months ended June 30, 2007, revenue increased $5,475,427 or 73% to $12,962,637, compared to $7,487,210 for the six months ended June 30, 2006.

We generate revenue primarily from government contracts and, to a lesser extent, from one commercial contract. Revenue from government contracts (including subcontract work for government aircraft) for the six months ended June 30, 2007 was $12,464,796 compared to $6,688,492 for the six months ended June 30, 2006, an increase of $5,776,304 or 86%. Our one commercial contract accounted for revenue of approximately $497,841 for the six months ended June 30, 2007 compared to approximately $798,718 for the six months ended June 30, 2006.

In the second half of 2006, we received approximately $22.0 million of new government contract awards. Included in 2006 contract awards were approximately $7.0 million of awards for subcontract

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

work. During the six months ended June 30, 2007, we received approximately $8.6 million of new contract awards including approximately $7.7 million of subcontract work, compared to $7.9 million of new contract awards in the same period last year. Included in last years’ award amount is a $5.0 million release on our C-5 TOP contract. Revenue increased in the first six months of 2007 as we have been performing on these contracts.

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

Gross Profit

Gross profit for the three months ended June 30, 2007 was $2,188,620 compared to a gross loss of $904,490 for the three months ended June 30, 2006, an increase of $3,093,110. As a percentage of revenue, gross profit for the three months ended June 30, 2007 was 29% compared to gross loss of 37% for the same period last year. For the six months ended June 30, 2007, gross profit was $3,547,301, or 27% of revenue, compared with $60,702, or 1% of revenue for the first six months of last year.

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

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

Selling, General and Administrative Expenses

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

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

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

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

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

This increase was offset by a decrease in salaries of $82,000 and a decrease in accounting and legal fees of $84,000.

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

Income before provision for income taxes for the three months ended June 30, 2007 was $926,448 compared to loss before benefit from income taxes of $2,038,334 for the same period last year, an

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

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

Provision for (Benefit from) Income Taxes

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

Net Income

As a result, basic net income for the three months ended June 30, 2007 was $575,448, or $0.10 per basic share, compared to a net loss of $1,333,334, or $0.24 per basic share, for the same period last year. For the six months ended June 30, 2007, basic net income was $843,637, or $0.15 per basic share, compared with a net loss of $1,264,440, or $0.23 per basic share, for the same period last year. Diluted income per share for the three months ended June 30, 2007 was $0.10, calculated utilizing 6,026,829 average shares outstanding. Diluted income per share for the six months ended June 30, 2007 was $0.14, calculated utilizing 5,908,891 average shares outstanding. Diluted loss per share for the three and six months ended June 30, 2006 is the same as basic loss per share because the effect of 865,277 incremental shares were not taken into account as such effect would be anti-dilutive.

Liquidity and Capital Resources

General

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

Cash Flow

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

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

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

At June 30, 2007, we had a cash balance of $1,041,745 compared to $38,564 at December 31, 2006. In addition to the increase in cash during the six months ended June 30, 2007, our accounts receivable increased by approximately $334,000, while our liabilities decreased by approximately $70,000. The increase in accounts receivable was primarily due to an increase in amounts due for subcontract work.

During the years ended December 31, 2006 and 2005, we used cash of $1,015,151 and $676,767, respectively, to fund our operations. Because of our historical use of cash, and the expiration of a long term line of credit, beginning in June 2006, we began to reduce expenses and implement a plan to improve cash flow. As described earlier, the reduction of expenses has resulted in improved gross margin and profitability, and as a result, for the six month period ended June 30, 2007 our operations yielded a positive cash flow of approximately $390,000.

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

Credit Facility

JP MorganChase

In September 2003, we entered into a three year, revolving credit facility with JP Morgan Chase Bank (the ‘‘Chase Facility’’), secured by our assets. In August 2006, we borrowed $350,000 under the Chase Facility. The Chase Facility was amended and restated in October 2006, further amended in May 2007 and it expired on June 30, 2007. All borrowings under this facility were repaid in May 2007.

Sovereign Bank

In August 2007, we entered into a new two-year, $2.5 million revolving credit facility with Sovereign Bank (the ‘‘Sovereign Facility’’), secured by our assets. The Sovereign Facility specifies an interest rate equal to the lower of LIBOR plus 2% or Sovereign Bank’s prime rate. The Sovereign Facility contains financial covenants related to interest coverage, net income and capital expenditures, as defined in the agreement.

We believe that our existing resources, together with the availability under our credit facility, will be sufficient to meet our current working capital needs for at least the next 12 months.

Contractual Obligations

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

Contractual Obligations			Payments Due By Period ($)
			Total						Less than 1 year						1-3 years						4-5 years						After 5 years
Short-Term Debt					14,215						14,215						-0-						-0-						-0-
Operating Leases					3,338,786						403,805						844,316						895,735						1,194,930
Employment Agreement Compensation*					1,560,875						670,575						770,300						120,000						-0-
Total Contractual Cash Obligations					4,913,876						1,088,595						1,614,616						1,015,735						1,194,930

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

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Item 3 — Quantitative and Qualitative Disclosure About Market Risk

None

Item 4 — Controls and Procedures

An evaluation of the effectiveness of our disclosure controls and procedures was made as of June 30, 2007 under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. During the first quarter of 2007, we implemented a plan to remediate the material weaknesses identified by our independent registered public accounting firm and discussed in detail in our Annual Report on Form 10-K for the year ended December 31, 2006. These material weaknesses related to our failure to properly recognize revenue, cost incurred and billings to the customer on certain contracts in that:

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

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

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

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

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

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

	•	We added resources to our accounting department to manage the estimating process necessary to properly and timely report our revenue.

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

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

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

.

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Part II:    Other Information

Item 1A — Risk Factors

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

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

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

Item 6 — Exhibits

Exhibit 10.27			Credit Agreement between CPI Aerostructures, Inc., and Sovereign Bank, dated as of August 13, 2007
Exhibit 10.28			Commercial Security Agreement, dated August 13, 2007, between CPI Aerostructures, Inc., Grantor, and Sovereign Bank, Lender
Exhibit 31.1			Section 302 Certification by Chief Executive Officer
Exhibit 31.2			Section 302 Certification by Chief Financial Officer
Exhibit 32			Section 906 Certification by Chief Executive Officer and Chief Financial Officer

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SIGNATURES

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

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

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EX-10.27

CREDIT AGREEMENT

BETWEEN

CPI AEROSTRUCTURES, INC.
(the “Borrower”)

AND

SOVEREIGN BANK

(the “Bank”)

DATED AS OF AUGUST 13, 2007

CREDIT AGREEMENT dated as of August 13, 2007, between CPI AEROSTRUCTURES, INC., a New York corporation, with an office at 60 Heartland Boulevard, Edgewood, New York 11717 (the “Borrower”), and SOVEREIGN BANK, a New York bank, with an office at 3 Huntington Quadrangle, Melville, New York 11747 (the “Bank”).

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms. As used herein the following terms shall have the following meanings:

“Affiliate” as applied to any Person, means any other Person directly or indirectly through one or more intermediaries controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.

“Agreement” shall mean this Credit Agreement, as the same from time to time may be amended, supplemented or modified.

“Business Day” or “Banking Day” shall mean, with respect to Libor Rate Loans, a London Banking Day and, with respect to Prime Rate Loans and in all other cases, any day other than a day on which commercial banks in New York are required or permitted by law to close.

“Capital Expenditures” shall mean, for any period, the aggregate amount of all payments made by any Person directly or indirectly for the purpose of acquiring, constructing or maintaining fixed assets, real property or equipment, which, in accordance with GAAP, would be added as a debit to the fixed asset account of such Person, including, without limitation, all amounts paid or payable with respect to capitalized lease obligations and interest which are required to be capitalized in accordance with GAAP.

“Commitment” shall mean the obligation of the Bank to make Revolving Credit Loans to the Borrower during the Commitment Period pursuant to the terms hereof as such Commitment is described in Section 2.1 hereof and is subject to reduction in accordance with the terms hereof.

“Commitment Period” shall mean the period from and including the date hereof to and including the Termination Date or such earlier date as the Commitment shall terminate as provided herein.

“Cleanup Laws” shall mean any Federal, state or local statute or regulation relating to hazardous or toxic wastes or substances or the removal thereof.

“Contractual Obligations” shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise majority voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Default” shall mean any of the events specified in Section 8 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Dollars” or “$” shall mean dollars in lawful currency of the United States of America.

“Environmental Laws” shall mean any Federal, state or local statute or regulation relating to hazardous or toxic wastes or substances or the removal thereof.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Event of Default” shall mean any of the events specified in Section 8 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“GAAP” shall mean generally accepted accounting principles in the United States applied in a manner consistent with that employed in the preparation of the financial statements described in Section 3.1.

“Governmental Authority” shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing.

“Guaranty” or “Guaranties” shall mean the guaranty or guaranties executed by the Guarantors on the Bank’s standard form.

“Guarantors” shall mean any Person or Persons who guarantee the payment and performance of the Borrower’s indebtedness and obligations (including the Obligations) hereunder, including (without limitation) all Persons required to guarantee pursuant to Section 5.9 hereof.

“Indebtedness” shall mean, with respect to any Person, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person for the deferred purchase price of property or services, except current accounts payable

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arising in the ordinary course of business and not overdue beyond such period as is commercially reasonable for such Person’s business, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (e) all payment obligations of such Person with respect to interest rate or currency protection agreements, (f) all obligations of such Person as an account party under any letter of credit or in respect of bankers acceptances, (g) all obligations of any third party secured by property or assets of such Person (regardless of whether or not such Person is liable for repayment of such obligations), (h) all guarantees of such Person and (i) the redemption price of all redeemable preferred stock of such Person, but only to the extent that such stock is redeemable at the option of the holder or requires sinking fund or similar payments at any time prior to the Termination Date.

“Intellectual Property” shall mean the collective reference to all rights, provisions and privileges relating to intellectual property, whether arising under United States, multinational, or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Interest Expense” shall mean, with respect to the Borrower and its Subsidiaries for the applicable period of determination thereof, the interest expense of the Borrower and its Subsidiaries during such period determined on a consolidated basis in accordance with GAAP, and shall in any event include without limitation, (i) the amortization of debt discounts, (ii) the amortization of all fees payable in connection with the incurrence of Indebtedness to the extent included in interest expense, and (iii) the portion of any capitalized lease obligation allocable to interest expense.

“Interest Period” shall mean any period during which a Revolving Credit Loan bears interest at a Libor Rate as elected by the Borrower in accordance with the terms of this Agreement.

(a) If any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day.

(b) No Interest Period shall extend beyond the Termination Date.

“Libor Rate Loan” shall mean Revolving Credit Loans hereunder (or any portion of the outstanding principal balance thereof) that bear interest for the Interest Period applicable thereto at a rate of interest based upon the Libor Rate plus the applicable margin.

“Libor Rate” shall mean as applicable to any Libor Rate Loan and Interest Period applicable thereto, (i) a rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent) equal to the composite London Interbank Offered Rate which appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) London Banking Days preceding the first day of such Interest Period (or if not reported thereon, then as determined by the Bank from another recognized source or interbank quotation). In the event that the Board of Governors of the

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Federal Reserve System shall impose a Reserve Percentage with respect to Libor deposits of the Bank, then for any period during which such Reserve Percentage shall apply, Libor shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. “Reserve Percentage” shall mean the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed on member banks of the Federal Reserve System against “Euro-currency Liabilities” as defined in Regulation D.

“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction).

“Loan Documents” shall mean, collectively, this Agreement, the Revolving Credit Note, the Security Agreement, the Additional Documents (as defined in Section 10.14 hereof), the Replacement Documents (as defined in Section 10.15 hereof) and each document, agreement and instrument executed in connection herewith or pursuant hereto together with each document, agreement and instrument made by the Borrower or any Guarantor with or in favor of or owing to the Bank.

“London Banking Day” shall mean, with respect to Libor Rate Loans, any day on which commercial banks are open for international business (including dealing in U.S. Dollar ($) deposits) in London, England and New York.

“Obligations” shall have the meaning set forth in Section 9.1.

“Person” shall mean any individual, corporation, partnership, joint venture, trust, unincorporated organization or any juridical entity, or a government or state or any agency or political subdivision thereof.

“Plan” shall mean any plan described in Section 4021(a) of ERISA in respect of which the Borrower is an “employer” as defined in Section 3(5) of ERISA.

“Post Default Rate” shall mean at any time a rate of interest equal to four (4%) percent per annum in excess of the rate that would then be applicable to the Revolving Credit Loans.

“Prime Rate” shall mean the rate per annum from time to time established by the Bank as the Prime Rate and made available by the Bank at its main office or, in the discretion of the Bank, the base, reference or other rate then designated by the Bank for general commercial loan reference purposes, it being understood that such rate is a reference rate, not necessarily the lowest, established from time to time, which serves as the basis upon which effective interest rates are calculated for loans making reference thereto (the “Index”). The Index is not necessarily the lowest rate charged by the Bank on its loans and is set by the Bank in its sole discretion. If the Index becomes unavailable during the term of this Agreement, the Bank may designate a substitute index after notifying the Borrower. The Bank will tell the Borrower the current Index rate upon the

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Borrower’s request. The interest rate change will not occur more often than each time as and when the Index changes.

“Prime Rate Loan” shall mean Revolving Credit Loans hereunder (or any portion of the outstanding principal balance thereof) which bear interest based upon the Prime Rate.

“Real Property” shall mean any real property owned or leased by any Specified Person.

“Reportable Event” shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder.

“Requirements of Law” shall mean, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Revolving Credit Loan” shall mean a loan made pursuant to Section 2.1 hereof.

“Revolving Credit Note” shall mean the note referred to in Section 2.2 hereof.

“Security Agreement” shall mean the security agreement referred to in Section 4.1(b) hereof.

“Specified Person” shall mean the Borrower, any Guarantor, any Subsidiaries of the Borrower or any Guarantor, or the Subsidiaries of any of their Subsidiaries.

“Subordination Agreement” shall mean the Subordination Agreement by the Borrower and the Bank in favor of the United States of America of even date herewith.

“Subsidiary” or “Subsidiaries” shall mean, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the partnership interests are, as of such date, owned, controlled or held, directly or indirectly, by the parent.

“Termination Date” shall mean August 13, 2009 or, if such date is not a Business Day, the Business Day next succeeding such date.

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1.2 Accounting Terms. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not specifically defined herein shall have the respective meanings given to them under GAAP.

SECTION 2.

AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENT

2.1 Revolving Credit Commitment. Subject to the terms and conditions hereof, the Bank agrees to make revolving credit loans to the Borrower (collectively, the “Revolving Credit Loans”) from time to time during the Commitment Period in the aggregate principal amount at any one time outstanding of up to (but not exceeding) $2,500,000.00, as such maximum available amount may be hereafter reduced as provided in this Agreement (the “Commitment”). During the Commitment Period, the Borrower may use the Commitment for obtaining Revolving Credit Loans by borrowing, paying, prepaying in whole or in part and reborrowing on a revolving basis, all in accordance with the terms and conditions hereof provided that no more than three (3) types of Libor Rate Loans may be outstanding at any time.

2.2 Revolving Credit Note. The Revolving Credit Loans made by the Bank to the Borrower pursuant to Section 2.1 hereof shall be evidenced by a promissory note of the Borrower substantially in the form of Exhibit A hereto with appropriate insertions (the “Revolving Credit Note”), payable to the order of the Bank and representing the obligation of the Borrower to pay the lesser of (a) the amount of the Commitment, or (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower, with interest thereon as hereinafter prescribed. The Revolving Credit Note shall (i) be dated the date hereof, (ii) be stated to mature on the Termination Date and (iii) bear interest with respect to the unpaid principal balance thereof from time to time outstanding at a rate per annum to be elected by the Borrower in accordance with the notice provisions set forth in Section 2.3 hereof, and, in the case of Libor Rate Loans, for the Interest Period therein specified, equal to (y) 2.0% in excess of the Libor Rate, or (z) the Prime Rate. All computations of interest under this Agreement shall be made on the basis of a three hundred sixty (360) day year and the actual number of days elapsed. In all cases, interest shall be payable as provided in Section 2.9(a) hereof, subject to Section 10.13 hereof. After any stated or accelerated maturity, the Revolving Credit Note shall bear interest at the rate set forth in Section 2.9(c) hereof, subject to Section 10.13 hereof.

2.3 Procedure for Borrowing. The Borrower may borrow under the Commitment during the Commitment Period on any Business Day by giving the Bank irrevocable written notice of a request for a Revolving Credit Loan hereunder (a) in the case of Libor Rate Loans, three (3) Business Days before a proposed borrowing or continuation or conversion and (b) in the case of all other Revolving Credit Loans, not less than one (1) nor more than five (5) Business Days before a proposed borrowing or continuation or conversion, setting forth (i) the amount of the loan request, which shall not be less than $100,000.00, (ii) the requested borrowing date or Interest Period commencement date, as the case may be, (iii) whether the borrowing or Interest Period is to be for a Libor Rate Loan or a Prime Rate Loan or a combination thereof, and (iv) if entirely or partially a Libor Rate Loan, the length of the Interest Period therefor, which shall be one (1), two (2), three (3), four (4), five (5) or six (6) months. As used in this Section 2.3, “conversion” shall mean the conversion from one interest rate to another interest rate as more fully described in Section 2.7

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hereof. Such notice shall be written (including, without limitation, via facsimile transmission) and shall be sufficient if received by 1:00 p.m. on the date on which such notice is to be given. If any such request is sent by facsimile it shall be confirmed in writing sent by the Borrower to the Bank within two (2) Business Days thereafter. Unless notification is otherwise furnished by the Borrower to the Bank (in a manner consistent with the requirements of this Section 2.3), Revolving Credit Loans will be made by credits to the Borrower’s demand deposit account maintained with the Bank. If the Borrower furnishes such notice but no election is made as to the type of loan or the Interest Period to be applicable thereto, the Revolving Credit Loan will automatically then be made as a Prime Rate Loan until such required information is furnished pursuant to the terms hereof.

2.4 Commitment Fee. As additional compensation for the Commitment on the revolving basis provided for herein, the Borrower agrees to pay the Bank a commitment fee for the Commitment Period at the rate of .25% per annum on the average daily unused portion of the Commitment hereunder. Such commitment fee shall be payable quarterly, on the last day of each March, June, September and December during the Commitment Period, commencing September 30, 2007, and on the Termination Date. If the Borrower so fails to pay any such amount to the Bank the obligations to make such payment shall bear interest from such date not paid when due at the Post Default Rate. The obligation to so pay interest shall not be construed so as to waive the requirement to pay the commitment fees as hereinabove set forth.

2.5 Regulatory Changes in Capital Requirements. If, after the date hereof, the Bank reasonably determines that (i) the adoption of a change in law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by the Bank or its parent bank holding company with any guideline, request, or directive of any such entity regarding capital adequacy (whether or not having the force of law), the effect of reducing the return on the Bank’s or such holding company’s capital as a consequence of the Bank’s Commitment hereunder to a level below that which the Bank or such holding company could have achieved but for such adoption, change or compliance (taking into consideration the Bank’s or such holding company’s then existing policies with respect to capital adequacy and assuming the full utilization of such entity’s capital) by any amount deemed by the Bank to be material, then the Bank may notify the Borrower thereof. Following receipt of such notice, the Borrower agrees to pay the Bank on demand the amount of such reduction of return on capital as and when such reduction is determined, payable within ninety (90) days after presentation by the Bank of a statement in the amount and setting forth in reasonable detail the Bank’s calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, the Bank may use any reasonable averaging and attribution methods.

2.6 Termination or Reduction of Commitment. The Borrower shall have the right, upon not less than three (3) Business Days’ irrevocable written notice, to terminate the Commitment or, from time to time, to reduce the amount of the Commitment, provided that (a) any such reduction (i) shall be in the minimum amount of $100,000.00 or a multiple thereof, (ii) shall reduce permanently the amount of the Commitment then in effect, and (iii) shall be accompanied by prepayment of the Revolving Credit Loans outstanding to the extent, if any, that the aggregate of the Revolving Credit Loans then outstanding exceed the amount of the Commitment as then reduced, together with

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accrued interest on the amount so prepaid to and including the dates of each such prepayment and any amounts payable pursuant to Section 2.12 in connection therewith and the payment of any unpaid commitment fee then accrued hereunder; and (b) any such termination of the Commitment shall be accompanied by prepayment in full of the Revolving Credit Loans outstanding (together with accrued interest thereon to and including the date of prepayment) the payment of any amounts payable pursuant to Section 2.12 in connection therewith and the payment of any unpaid commitment fee then accrued hereunder.

2.7 Continuation and Conversion of Loans. The Borrower shall have the right at any time on prior irrevocable written or facsimile notice to the Bank as specified in Section 2.3: (i) to continue any Revolving Credit Loan into a subsequent Interest Period, (ii) to convert any Loan into another type of Loan (specifying, in the case of a Libor Rate Loan, the Interest Period to be applicable thereto), and (iii) to convert any Prime Rate Loan into a Libor Rate Loan (specifying the Interest Period to be applicable thereto), subject to the following:

(a) in the case of a conversion of less than all of the outstanding Revolving Credit Loans, the aggregate principal amount of Revolving Credit Loans converted shall not be less than $100,000.00 and shall be an integral multiple thereof;

(b) no Revolving Credit Loan (other than a Prime Rate Loan) shall be converted at any time other than at the end of an Interest Period applicable thereto;

(c) any portion of a Revolving Credit Loan maturing or required to be prepaid in less than one month may not be converted into or continued as a Libor Rate Loan; and

(d) no more than three (3) types of Libor Rate Loans may be outstanding at any one time.

In the event that the Borrower shall not give notice to continue any Libor Rate Loan into a subsequent Interest Period or convert any such Revolving Credit Loan, into a Revolving Credit Loan of another type, on the last day of the Interest Period thereof, such Revolving Credit Loan (unless prepaid) shall automatically be converted into a Prime Rate Loan. The Interest Period applicable to any Libor Rate Loan resulting from a conversion or continuation shall be specified by the Borrower in the irrevocable notice delivered by the Borrower pursuant to this Section and Section 2.3; provided, however, that, if such notice does not specify either the type of loan or the Interest Period to be applicable thereto, the Revolving Credit Loan shall automatically be converted into, or continued as, as the case may be, a Prime Rate Loan until such required information is furnished pursuant to the terms hereof. Notwithstanding anything to the contrary contained above, if an Event of Default shall have occurred and is continuing, no Libor Rate Loan may be continued into a subsequent Interest Period and no Prime Rate Loan may be converted into a Libor Rate Loan.

2.8 Prepayment.

(a) Voluntary. The Borrower may prepay any Prime Rate Loan in whole or in part without premium or penalty; provided, however, that each partial prepayment on account of any Prime Rate Loan shall be in an amount not less than $50,000.00. Except as provided in Section

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2.8(b) or in connection with a termination or reduction of the Commitment pursuant to Section 2.6, the Borrower may not prepay any Libor Rate Loan prior to the last day of the Interest Period therefor. Any amount prepaid on account of a Revolving Credit Loan may be reborrowed in accordance with the provisions of Section 2.1 hereof.

(b) Mandatory. If, at any time, the aggregate outstanding principal balance of Revolving Credit Loans exceeds the Commitment, within three (3) days of the first day there exists such excess the Borrower shall make payment to the Bank in an amount equal to such excess together with any amounts payable pursuant to Section 2.12 in connection therewith. Such payment shall be applied to reduce the aggregate unpaid principal balance of Revolving Credit Loans then outstanding in the Bank’s reasonable discretion. Each prepayment shall be made together with payment of accrued interest on the amount prepaid to and including the date of prepayment.

2.9 Payments.

(a) Interest accrued on each Revolving Credit Loan shall be payable, without duplication, on:

(i) the Termination Date;

(ii) with respect to any portion of any Revolving Credit Loan repaid or prepaid pursuant to this Agreement, the date of such repayment or prepayment, as the case may be;

(iii) with respect to that portion of the outstanding principal amount of all Revolving Credit Loans maintained as Prime Rate Loans, the first day of each month and commencing with the first such date following the date of the making of such Revolving Credit Loans;

(iv) with respect to that portion of the outstanding principal amount maintained as Libor Rate Loans, the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the last day of each three-month period occurring during such Interest Period); and

(v) with respect to that portion of the outstanding principal amount converted into Prime Rate Loans or Libor Rate Loans on a day when interest would not otherwise have been payable pursuant to Sections 2.9(a)(iii) or 2.9(a)(iv), the date of such conversion.

(b) All payments (including prepayments) to be made by the Borrower on account of principal or interest with respect to any Revolving Credit Loan or on account of fees or any other obligations of the Borrower to the Bank hereunder shall be made to the Bank at the office of the Bank set forth in Section 10.1 hereof or at such other place as the Bank may from time to time designate in writing in lawful money of the United States of America in immediately available funds. The Borrower hereby authorizes the Bank to deduct from any general deposit account of the Borrower the amount of any loan payment including all payments of interest, principal and other sums due (“Automatic Payment”), from time to time, under this Agreement and/or the Revolving Credit Note; the Bank will thereafter promptly notify the Borrower of the amount so charged. If the

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funds in the account are insufficient to cover any payment due, the Bank shall not be obligated to advance funds to cover the payment. The failure of the Bank so to charge any account or to give any such notice shall not affect the obligation of the Borrower to pay interest, principal or other sums as provided herein or in the Revolving Credit Note, at any time and for any reason the Borrower or the Bank may voluntarily terminate the Automatic Payment. Termination by the Borrower of the Automatic Payment must be made by written notice to the Bank. Subject to the provisions of subparagraph (a) in the definition of Interest Period set forth in Section 1.1 hereof, if any payment to be so made hereunder, or under the Revolving Credit Note, becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, to the extent permitted by applicable law, interest thereon shall be payable at the then applicable rate during such extension.

(c) If all or a portion of the principal or interest of any Revolving Credit Loan shall not be paid when due (whether at the stated or any accelerated maturity of such Revolving Credit Loan) or if any fee or other amount due hereunder shall not be paid when due, or upon the occurrence of an Event of Default, the Borrower’s right to select pricing options shall cease and all Revolving Credit Loans, and such interest, fee or amount due hereunder, to the extent permitted by applicable law, shall bear interest (payable on demand) (i) in all cases other than Libor Rate Loans at the Post Default Rate until paid and (ii) in the case of Libor Rate Loans at the Post Default Rate until the expiration of the Interest Period applicable to such Revolving Credit Loan, at which time the Revolving Credit Loan will automatically be converted into a Prime Rate Loan and until paid shall bear interest at the Post Default Rate. In no event, however, shall interest payable hereunder be in excess of the maximum rate of interest permitted under applicable law. The obligation to so pay interest upon any reimbursement obligation of the Borrower to the Bank shall not be construed so as to waive the requirement for reimbursement on the same date that payment is made by the Bank as set forth in this Agreement. If a regularly scheduled payment is fifteen (15) days or more late, the Borrower will be charged five (5.0%) percent of the unpaid portion of the regularly scheduled payment, or $10.00, whichever is greater.

(d) All payments received will be applied first to interest, then to fees, and then to principal.

(e) The Borrower hereby expressly authorizes the Bank to record on the schedule attached to the Revolving Credit Note the amount and date of each Revolving Credit Loan, the rate of interest thereon, the date and amount of each payment of principal and the unpaid principal balance; provided, however, that the failure of the Bank to make any such notation shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loan in accordance with the terms hereof. All such notations shall be presumed to be correct.

2.10 Use of Proceeds. The proceeds of Revolving Credit Loans hereunder shall be used to finance working capital requirements of the Borrower and for general corporate purposes. No part of the proceeds of any Revolving Credit Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Federal Reserve Board Regulations including Regulations T, U and X

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2.11 Increased Costs. If the Bank determines that the effect of any applicable law or government regulation, guideline or order or the interpretation thereof by any Governmental Authority charged with the administration thereof (such as, for example, a change in official reserve requirements which the Bank is required to maintain in respect of loans or deposits or other funds procured for funding such loans) is to increase the cost to the Bank of making or continuing Libor Rate Loans hereunder or to reduce the amount of any payment of principal or interest receivable by the Bank thereon, then the Borrower will pay to the Bank on demand such additional amounts as the Bank may reasonably determine to be required to compensate the Bank for such additional costs or reduction. Any additional payment under this section will be computed from the effective date at which such additional costs have to be borne by the Bank. A certificate as to any additional amounts payable pursuant to this Section 2.11 setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within ten (10) days of receipt of any such certificate. For purposes of this Section 2.11 all references to the “Bank” shall be deemed to include any participant in the Commitment and/or Revolving Credit Loans.

2.12 Indemnities. The Borrower hereby indemnifies the Bank against any and all loss and reasonable expenses which the Bank may sustain or incur as a consequence of any of the following:

(a) default in payment of the principal amount of any Libor Rate Loan or any part thereof or interest accrued thereon, or any other amount due in connection with the Loan Documents;

(b) the occurrence of any other Default under this Agreement; or

(c) the failure of the Borrower to borrow a Libor Rate Loan after sending notice of the amount and requested interest rate with respect to the making of any such Revolving Credit Loan;

(d) the receipt or recovery by the Bank of all or any part of a Libor Rate Loan prior to the last day of the Interest Period thereof (whether by prepayment, acceleration or otherwise); or

(e) the conversion, prior to the last day of an applicable Interest Period, of one type of Libor Rate Loan into another type of Libor Rate Loan or into a Prime Rate Loan.

Without limiting the effect of the foregoing, the amount to be paid by the Borrower to the Bank in order to so indemnify the Bank for any loss occasioned by any of the events described in the proceeding paragraph, and as liquidated damages therefor, shall be equal to the excess, discounted to its present value as of the date paid to the Bank, of (i) the amount of interest which otherwise would have accrued on the principal amount so received, recovered, converted or not borrowed during the period (the “Indemnity Period”) commencing with the date of such receipt, recovery, conversion, or failure to borrow to the last day of the applicable Interest Period for such Libor Rate Loan at the rate of interest applicable to such Revolving Credit Loan (or rate of interest agreed to in the case of a failure to borrow), provided for herein (prior to a Default) over (ii) the amount of interest which

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would be earned by the Bank during the Indemnity Period if it invested the principal amount so received, recovered, converted or not borrowed at the rate per annum determined by the Bank as the rate it would bid in the London interbank market for a deposit of eurodollars in an amount approximately equal to such principal amount for a period of time comparable to the Indemnity Period.

A certificate as to any additional amounts payable pursuant to this Section 2.12 setting forth the basis and method of determining such amounts shall be presumed correct, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within ten (10) days of receipt of any such certificate. For purposes of this Section 2.12, all references to the “Bank” shall be deemed to include any participant in the Commitment and/or Revolving Credit Loans.

2.13 Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Revolving Credit Loan, the Bank shall have reasonably determined (i) that dollar deposits in the amount of the requested principal amount of such Loan are not generally available in the London Interbank Market, (ii) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Bank of making or maintaining such Loan during such Interest Period, or (iii) that reasonable means do not exist for ascertaining the Libor Rate, the Bank shall, as soon as practicable thereafter, give written or facsimile notice of such determination to the Borrower. In the event of any such determination, until the circumstances giving rise to such notice no longer exist, no Libor Rate Loans will be made hereunder. Each determination by the Bank hereunder shall be conclusive absent manifest error. For purposes of this Section 2.13, all references to the “Bank” shall be deemed to include any participant in the Commitment and/or the Revolving Credit Loans.

2.14 Change in Legality.

(a) Notwithstanding anything to the contrary herein contained, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for the Bank to make or maintain any Libor Rate Loan, then, by written notice to the Borrower, the Bank may:

(i) declare that Libor Rate Loans will not thereafter be made by the Bank hereunder, whereupon the Borrower shall be prohibited from requesting Libor Rate Loans from the Bank hereunder unless such declaration is subsequently withdrawn; and

(ii) require that all outstanding Libor Rate Loans made by it be converted to Prime Rate Loans, in which event (x) all such Libor Rate Loans shall be automatically converted to Prime Rate Loans as of the effective date of such notice as provided in paragraph (b) below and (y) all payments and prepayments of principal which would otherwise have been applied to repay the converted Libor Rate Loans shall instead be applied to repay the Prime Rate Loans resulting from the conversion of such Libor Rate Loans.

(b) For purposes of this Section 2.14, (i) a notice to the Borrower by the Bank pursuant to paragraph (a) above shall be effective, if lawful, on the last day of the then current

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Interest Period; in all other cases, such notice shall be effective on the day of receipt by the Borrower and (ii) for purposes of this Section 2.14, all references to the “Bank” shall be deemed to include any participant in the Commitment and/or the Revolving Credit Loans.

SECTION 3. REPRESENTATIONS AND WARRANTIES

In order to induce the Bank to enter into this Agreement and to make the financial accommodations herein provided for, the Borrower hereby covenants, represents and warrants to the Bank that:

3.1 Financial Condition. The balance sheet of the Borrower as at December 31, 2006, and the related statements of income, retained earnings and cash flows for the fiscal year ended on such date, audited by J.H. Cohn LLP, CPAs and the unaudited balance sheet of the Borrower as at March 31, 2007 and the related statements of income, retained earnings and cash flows for the fiscal quarter ended on such date, copies of which statements have heretofore been furnished to the Bank, are complete and correct and present fairly the financial condition of the Borrower as at such dates, and the results of its operations and changes in financial position for the fiscal periods then ended. Such financial statements, including schedules and notes thereto, have been prepared in accordance with GAAP. The Borrower does not have any material contingent obligations, contingent liabilities or liabilities for taxes, long-term leases or unusual forward or long-term commitments, which are not reflected in the foregoing statements or in the notes thereto. Since the date of the aforementioned financial statements, there has been no material adverse change in the business, operations, assets or financial or other condition of the Borrower.

3.2 Corporate Existence; Compliance with the Law. The Borrower and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the corporate power and authority and the legal right to own and operate its property, and to conduct the business in which it is currently engaged; (c) is duly qualified as a corporation and is in good standing under the laws of each jurisdiction where its ownership or operation of property or the conduct of its business require such qualification; and (d) is in compliance with all Requirements of Law.

3.3 Corporate Power; Authorization; Enforceable Obligations. The Borrower has the corporate power, authority and legal right to make, execute, deliver and perform its obligations under this Agreement and the Loan Documents to which it is a party and to borrow hereunder; and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and such Loan Documents and to authorize the execution, delivery and performance of this Agreement and such Loan Documents. No consent or authorization of, filing with, or other act by or in respect of any other Person (including shareholders and creditors of the Borrower) or any Governmental Authority, other than the filing of UCC-1 Financing Statements with the applicable office in connection with the Security Agreement, is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or such Loan Documents. This Agreement and such Loan Documents will be duly executed and delivered on behalf of the Borrower, and this Agreement and such Loan Documents, when executed and delivered, will each constitute a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability

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may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally.

3.4 No Legal Bar. The execution, delivery and performance of the Loan Documents and the borrowings hereunder and the use of the proceeds thereof by the Borrower and the execution, delivery and performance of the Loan Documents to which it is a party by any Specified Person, will not violate any Requirement of Law or any Contractual Obligation of any Specified Person, and will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation except those in favor of the Bank provided herein.

3.5 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending by or against any Specified Person or against any of their properties or revenues (a) with respect to the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which if adversely determined, would have a material adverse effect on the business, operations, property or financial or other condition of any Specified Person.

3.6 No Default. No Specified Person is in default under or with respect to any Contractual Obligation in any respect which could be materially adverse to the business, operations, property or financial or other condition of such Specified Person, or which could materially and adversely affect the ability of any Specified Person to perform its respective obligations under the Loan Documents to which it is a party. No Default or Event of Default has occurred and is continuing.

3.7 No Burdensome Restrictions. No Contractual Obligation of any Specified Person and no Requirement of Law materially adversely affects, or insofar as the Borrower may reasonably foresee may so affect, the business, operations, property or financial or other condition of any such Specified Person.

3.8 Taxes. Each Specified Person has filed or caused to be filed all tax returns which to the knowledge of the Borrower are required to be filed or has received extensions that are validly in effect, and have paid all taxes shown to be due and payable on said returns or on any assessments made against them or any of their property.

3.9 Federal Regulations. The Borrower is not engaged nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of any Revolving Credit Loans hereunder will be used for “purchasing” or “carrying” “margin stock” as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board of Governors.

3.10 Environmental Matters.

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(a) None of the Real Property contains, or to the best knowledge of the Borrower has previously contained, any hazardous or toxic waste or substances or underground storage tanks.

(b) The Real Property is in material compliance with all applicable Federal, state and local environmental standards and requirements affecting such Real Property, and there are no environmental conditions which could materially interfere with the continued use of the Real Property.

(c) No Specified Person has received any notices of violations or advisory action by regulatory agencies regarding environmental control matters or permit compliance.

(d) To the knowledge of the Borrower, hazardous waste has not been transferred from any of the Real Property to any other location which is not in compliance with all applicable environmental laws, regulations or permit requirements.

(e) With respect to the Real Property, there are no proceedings, governmental administrative actions or judicial proceedings pending or, to the best knowledge of the Borrower, contemplated under any Federal, state or local law regulating the discharge of hazardous or toxic materials or substances into the environment, to which the Borrower or any of its Subsidiaries is named as a party.

3.11 Ownership of Property; Liens. Each Specified Person has title in fee simple to, or a valid leasehold interest in, all Real Property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 7.4 hereof.

3.12 Intellectual Property. Each Specified Person owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. To the knowledge of the Borrower, the use of Intellectual Property by any Specified Person does not infringe on the rights of any Person in any material respect.

3.13 Labor Matters. There are no strikes or other labor disputes against any Specified Person pending, or, to the knowledge of the Borrower, threatened that (individually or in the aggregate) could reasonable be expected to have a material adverse effect upon the Borrower’s business, operations or property. Hours worked by any payment to employees of each Specified Person have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a material adverse effect upon the Borrower’s business, operations or property. All payments due from any Specified Person on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a material adverse effect upon the Borrower’s business, operations or property if not paid have been paid or accrued as a liability on the books of each Specified Person.

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3.14 Borrower Subsidiaries. The Borrower has no Subsidiaries as of the date hereof.

SECTION 4. CONDITIONS PRECEDENT.

4.1 Conditions of Initial Extensions of Credit. The obligation of the Bank to make the initial extension of credit to the Borrower hereunder is subject to the satisfaction of the following conditions precedent:

(a) Revolving Credit Note. The Bank shall have received the Revolving Credit Note conforming to the requirements hereof substantially in the form of Exhibit A hereto with appropriate insertions and duly executed by the Borrower.

(b) Security Agreement. The Bank shall have received the Security Agreement duly executed by the Borrower together with security agreement questionnaire in the form provided by the Bank, UCC searches and insurance certificates and paid receipts naming the Bank as loss payee, evidencing personal property coverage (for inventory and equipment) on ACORD Form 27 and general liability coverage on ACORD Form 25.

(c) Assignment Statements. The Bank shall have received UCC-3 Assignment Statements and other evidence of assignment of the prior JPMorgan Chase Bank lien upon the Borrower’s property, which lien shall be superior to that held by Citibank, N.A.

(d) Legal Opinion. The Bank shall have received a favorable opinion of counsel to the Borrower. Such opinion shall cover such matters incident to the transactions contemplated by this Agreement as the Bank shall reasonably require.

(e) Certified Copies and Other Documents. The Bank shall have received such certificates and other documents relating to the Borrower with respect to the matters herein contemplated as the Bank may request, including but not limited to:

(i) certificates of good standing from the Secretary of State of New York if incorporated or formed under the laws of the State of New York or doing business in New York and, if incorporated or formed in a jurisdiction other than New York, from the Secretary of State or applicable Governmental Authority of such jurisdiction of incorporation and from the Secretary of State or applicable Governmental Authority of each jurisdiction in which an office is maintained; and

(ii) certificates of an officer of the Borrower dated on or about the date of this Agreement certifying as to (w) true and current copies of the Borrower’s certificate of incorporation and all amendments thereto, (x) true and correct copies of the bylaws of the Borrower and all amendments thereto, (y) true and correct copies of resolutions adopted by the board of directors of the Borrower authorizing (1) the execution, delivery and performance by the Borrower of each of the Loan Documents to which it is a party and the performance by the Borrower of its obligations under each of the Loan Documents to which it is a party, (2) approving forms in substantially execution form of each of the Loan Documents to which it is a party, and (3) authorizing officers of the Borrower to execute and deliver each of the Loan Documents to which it

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is a party, and (z) the incumbency and specimen signatures of the duly authorized officers of the Borrower executing the Loan Documents and any other documents delivered to the Bank by the Borrower in connection herewith.

(f) Searches, Etc. The Bank shall have received and reviewed satisfactory lien, judgment and tax lien searches against the Borrower.

(g) Fees. The Bank shall have received evidence of the payment of (1) the Bank’s commitment fee in the amount of $5,000.00, and (2) the fees and disbursements of the Bank’s counsel.

(h) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Bank and its counsel.

4.2 Conditions to All Loans. The obligation of the Bank to make any Revolving Credit Loan (including the initial Revolving Credit Loan) to be made by it hereunder is subject to the satisfaction of the following conditions precedent:

(a) Representations and Warranties. The representations and warranties made by the Borrower herein or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith, shall be correct on and as of the borrowing date for such extension of credit as if made on and as of such date.

(b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on the date an extension of credit is to be made or after giving effect to the extension of credit to be made on such date.

SECTION 5. AFFIRMATIVE COVENANTS.

The Borrower hereby agrees that, so long as the Commitment remains in effect, the Revolving Credit Note remains outstanding and unpaid, or any amount is owing to the Bank hereunder, the Borrower will and will cause each Specified Person, as applicable, to:

5.1 Existence, Qualification and Conduct of Business. Take the necessary steps to preserve its corporate existence and its right to conduct business in all states in which the nature of its business requires qualification to do business, and continue to engage in business of the same general type as now conducted by it, and maintain all rights, privileges, licenses and franchises necessary or desirable in the ordinary course of its business.

5.2 Financial Information and Compliance Certificates.

(a) Keep its books of record and account in accordance with GAAP and furnish to the Bank:

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(i) within (y) ninety (90) days after the last day of each of its fiscal years, the consolidated balance sheets of the Borrower and consolidated statements of income, retained earnings and cash flows prepared in accordance with GAAP consistently applied and audited by J.H. Cohn LLP, CPAs or another firm of independent certified public accountants selected by the Borrower and reasonably satisfactory to the Bank; and (z) within sixty (60) days after the close of each of the first, second and third quarters of each fiscal year, a consolidated balance sheet of the Borrower and consolidated statements of income, retained earnings and cash flows as of the last day of and for such quarter and for the period of the fiscal year ended as of the close of the particular quarter, all such quarterly statements to be in reasonable detail, and certified by the chief financial or chief executive officer of the Borrower as having been prepared in accordance with GAAP (subject to year-end adjustments).

(ii) within twenty (20) days after the end of each month, a schedule of projects in which the Borrower is then involved (each a “Work-in-Progress Schedule”), in form and substance satisfactory to the Bank and including, without limitation: (y) an identification of each project by name, and (z) the contract price for each such project (including any change orders), the costs incurred to date, gross profit to date, contract billings to date, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings, and costs to complete. The Work-in-Progress Schedule will include contract revenues earned and contract costs for the period reported. Each such Work-in-Progress Schedule shall be certified by the chief financial or chief executive officer of the Borrower as being true, correct and complete to the best of such officer’s knowledge.

(iii) with each corresponding Work-in-Progress Schedule as specified in subsection (ii) above, an accounts receivable aging schedule in form and detail reasonably acceptable to the Bank.

The Borrower will also, with reasonable promptness, furnish such other data as may be reasonably requested by the Bank and will at all times and from time to time permit the Bank by or through any of its officers, agents, employees, attorneys or accountants to inspect and make extracts from the Borrower’s books and records.

(b) At the same time as it delivers the financial statements called for by Section 5.2(a)(i), deliver a certificate of the chief financial or chief executive officer of the Borrower evidencing a computation of compliance with the provisions of Section 6 (inclusive) hereof and stating that in each case, except as disclosed in such certificate, the person making such certificate has no knowledge of any Default or Event of Default.

(c) Within ten (10) days of any executive officer of the Borrower obtaining knowledge of any Default, if such Default is then continuing, the Borrower shall furnish to the Bank a certificate of the chief financial officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

5.3 Insurance. Maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged

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in similar businesses and owning similar properties in the same general areas in which the Borrower operates.

5.4 Preservation of Properties; Compliance with Law. Maintain and preserve all of its properties which are used or which are useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted and comply with all Requirements of Law.

5.5 Taxes. Duly pay and discharge all taxes or other claims which might become a lien upon any of its property except to the extent that any thereof are being in good faith appropriately contested with adequate reserves provided therefor.

5.6 Maintain Relationship. Maintain its primary commercial banking relationship with the Bank and its primary operating accounts with the Bank.

5.7 Notice of Litigation. Promptly notify the Bank in writing of any litigation, legal proceeding or dispute, other than disputes in the ordinary course of business or, whether or not in the ordinary course of business, involving amounts in excess of $250,000.00, affecting the Borrower or any other Specified Person whether or not fully covered by insurance, and regardless of the subject matter thereof (excluding, however, any actions relating to workers’ compensation claims or negligence claims relating to use of motor vehicles, if fully covered by insurance, subject to deductibles).

5.8 Indemnity (Environmental Matters). Indemnify the Bank against any liability, loss, cost, damage, or expense (including, without limitation, reasonable attorneys’ fees) arising from (i) the imposition or recording of a lien by any local, state, or Federal government or governmental agency or authority pursuant to any Cleanup Laws; (ii) claims of any private parties regarding violations of Cleanup Laws; and (iii) costs and expenses (including, without limitation, reasonable attorneys’ fees and fees incidental to the securing of repayment of such costs and expenses) incurred by any Specified Person or the Bank in connection with compliance by any person or the Bank with any statute, regulation or order issued pursuant to any Cleanup Laws by any local, state or Federal government or governmental agency or authority.

5.9 New Subsidiaries. Cause any Subsidiary formed after the date this Agreement to become a Guarantor of the Obligations and to execute and deliver promptly to the Bank: (i) a Guaranty, and (ii) certificates and charter documents for such Subsidiary, similar to those requested from the Borrower in Section 4.1(e) hereof authorizing the Guarantor’s entry into and performance of its the Guaranty, including (without limitation) the unanimous written consent of its shareholders.

5.10 Landlord Waiver and Consent. Within thirty (30) days after written request, the Bank shall have received a Landlord Waiver and Consent from the landlord with respect to the premises at 60 Heartland Boulevard, Edgewood, New York reasonably satisfactory in form and substance to the Bank and its counsel.

SECTION 6. FINANCIAL COVENANTS

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The Borrower hereby agrees that, so long as the Commitment remains in effect, the Revolving Credit Note remains outstanding and unpaid, or any amount is owing to the Bank hereunder, the Borrower will:

6.1 Interest Coverage Ratio. Maintain as of the end of each fiscal quarter, a minimum Interest Coverage Ratio (as defined below) of at least 2.0 to 1.0. For purposes hereof, “Interest Coverage Ratio” means the ratio of (y) EBIT (as hereinafter defined) to (z) Interest Expense for such fiscal period. For purposes hereof, “EBIT” means the total of, for each period, (i) the net earnings of the Borrower plus (ii) all amounts deducted in computing such net income in respect of (a) Interest Expense on Indebtedness and (b) taxes based upon or measured by income as determined in accordance with GAAP.

6.2 Net Profit. Maintain as of the end of each fiscal quarter, a net profit after taxes of at least $1.00.

SECTION 7. NEGATIVE COVENANTS.

The Borrower hereby agrees that, so long as the Commitment remains in effect, the Revolving Credit Note remains outstanding and unpaid, or any amount is owing to the Bank hereunder it will not, nor will it permit any of its Subsidiaries or any Specified Person to:

7.1 Indebtedness for Borrowed Money. Incur, or permit to exist, any Indebtedness for borrowed money except (i) Indebtedness incurred pursuant to borrowings hereunder and under any other loans made by the Bank in its discretion to the Borrower, (ii) Indebtedness existing on the date hereof and reflected in the financial statements referred to in Section 3.1 hereof and (iii) purchase money Indebtedness incurred in the acquisition of fixed assets permitted under Section 7.4(iv) hereof not in excess of $250,000.00 in the aggregate for the term of the Commitment.

7.2 Mergers, Acquisitions and Sales of Assets. Enter into any merger or consolidation or liquidate, windup or dissolve itself or sell, transfer or lease or otherwise dispose of all or any substantial part of its assets (other than sales of inventory and obsolescent equipment in the ordinary course of business) or acquire by purchase or otherwise the business or assets of, or stock of, another business entity; except that any Subsidiary may merge into or consolidate with any other Subsidiary which is wholly-owned by the Borrower and any Subsidiary which is wholly-owned by the Borrower may merge with or consolidate into the Borrower provided that the Borrower is the surviving corporation.

7.3 Loans; Investments. Lend or advance money, credit or property to or invest in (by capital contribution, loan, purchase or otherwise) any firm, corporation, or other Person except investments in: (i) United States Government obligations, certificates of deposit of any banking institution with combined capital and surplus of at least $200,000,000.00; (ii) accounts receivable arising out of sales of inventory in the ordinary course of business; and (iii) loans to and investments in Subsidiaries.

7.4 Liens. Create, assume or permit to exist, any Lien on any of its property or assets now owned or hereafter acquired except (i) Liens in favor of the Bank; (ii) other Liens incidental to

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the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not materially impair the use thereof in the operation of its business; (iii) Liens for taxes or other governmental charges which are not delinquent or which are being contested in good faith and for which a reserve shall have been established in accordance with GAAP; (iv) purchase money Liens granted to secure the unpaid purchase price of any fixed assets purchased within the limitations of Section 7.8 hereof, provided that (w) such Liens shall be created substantially simultaneously with the acquisition of such fixed assets, (x) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (y) the amount of Indebtedness secured thereby is not increased and (z) the principal amount of such Indebtedness shall not exceed 100% of the purchase price of such assets; (v) Liens set forth in the financial statements referred to in Section 3.1 hereof; (vi) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than thirty (30) days or which are being contested in good faith by appropriate proceedings; (vii) pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation; (viii) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (ix) any interest or title of a lessor under any lease entered into by the Borrower or any of its Subsidiaries in the ordinary course of its business and covering only the assets to be leased; and (x) Liens in favor of the United States of America described in the Subordination Agreement.

7.5 Contingent Liabilities. Assume, endorse, be or become liable for or guarantee the obligations of any Person excluding, however, the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

7.6 Limitation on Dividends. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of capital stock of the Borrower or any Subsidiary or any warrants or options to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (collectively, “Restricted Payments), except that any Subsidiary may make Restricted Payments to the Borrower.

7.7 Sales of Receivables; Sale - Leasebacks. Sell, discount or otherwise dispose of notes, accounts receivable or other obligations owing to the Borrower, with or without recourse, except for the purpose of collection in the ordinary course of business; or sell any asset pursuant to an arrangement to thereafter lease such asset from the purchaser thereof.

7.8 Capital Expenditures; Capitalized Leases. Expend in the aggregate for the Borrower and all Subsidiaries in excess of $750,000.00 in any fiscal year for Capital Expenditures. For purposes of the foregoing, Capital Expenditures shall include payments made on account of any deferred purchase price or on account of any indebtedness incurred to finance any such purchase price.

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7.9 Nature of Business. Enter into any business, either directly or indirectly through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or which are reasonably related thereto.

7.10 Stock of Subsidiaries. Sell or otherwise dispose of any Subsidiary (except in connection with a merger or consolidation of such Subsidiary into the Borrower or another Subsidiary) or permit a Subsidiary to issue any additional shares of its capital stock except pro rata to its stockholders.

7.11 ERISA. (i) Terminate any Plan so as to result in any material liability to the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (the “PBGC”), (ii) engage in or permit any person to engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended) involving any Plan which would subject the Borrower to any material tax, penalty or other liability, (iii) incur or suffer to exist any material “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (iv) allow or suffer to exist any event or condition, which presents a material risk of incurring a material liability to the PBGC by reason of termination of any Plan.

7.12 Accounting Changes. Make, or permit any Subsidiary to make any change in its accounting treatment or financial reporting practices except as required or permitted by GAAP in effect from time to time.

7.13 Transactions with Affiliates. Except as otherwise specifically set forth in this Agreement, directly or indirectly purchase, acquire or lease any property from, or sell, transfer or lease any property to, or enter into any other transaction, with any Affiliate except in the ordinary course of business and at prices and on terms not less favorable to it than those which would have been obtained in an arm’s-length transaction with a non-affiliated third party.

7.14 Change of Control. Without the prior written consent of the Bank, suffer or permit a Change of Control Transaction, as hereinafter defined. Change of Control Transaction means the occurrence after the date hereof of any of the following: (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Borrower, by contract or otherwise) of in excess of 49.99% of the voting securities of the Borrower, or (ii) the Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with the Borrower and, after giving effect to such transaction, the stockholders of the Borrower immediately prior to such transaction own less than a majority of the aggregate voting power of the Borrower or the successor entity of such transaction, or (iii) the Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of the Borrower immediately prior to such transaction own less than a majority of the aggregate voting power of the acquiring entity immediately after the transaction, or (iv) a replacement at one time or within a two year period of more than one-half of the members of the Borrower’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the

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members of the board of directors who are members on the date hereof), or (v) the execution by the Borrower of an agreement to which the Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (i) through (iv) above.

SECTION 8. EVENTS OF DEFAULT.

Upon the occurrence and during the continuance of any of the following events (each an “Event of Default”):

(a) The Borrower shall fail to pay any interest on or principal of the Revolving Credit Note when due or shall fail to pay any other amount payable hereunder; or the Borrower or any Guarantor shall default beyond any applicable notice or cure period, if any) under any other Loan Document; or

(b) Any representation or warranty made or deemed made by the Borrower or a Guarantor herein or which is contained in any Loan Document, certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been false in any material respect on or as of the date made or deemed made; or

(c) The Borrower shall default in the observance or performance of any covenant or provision contained in Sections 5.1, 6 (inclusive) or 7 (inclusive) hereof; or

(d) The Borrower shall default in the observance or performance of any other provision contained in this Agreement and such default shall continue unremedied for a period of twenty (20) days after written notice thereof is given to the Borrower by the Bank, unless such provision cannot be reasonably cured within such period provided that Borrower commence such cure promptly after discovery and diligently prosecute same thereafter; or

(e) Any Specified Person shall (i) default in any payment of any indebtedness for borrowed money in excess of $100,000.00, individually or in the aggregate, (other than the Revolving Credit Note) beyond the period of grace, if any, provided in the instrument or agreement under which such indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, in each case the effect of which default or other event or condition is to cause or permit the holder or holders of such indebtedness (or a trustee or agent on behalf of such holder or holders) to cause such indebtedness to become due prior to its stated maturity; or

(f) (i) Any Specified Person shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or any Specified Person shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Specified Person any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any

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Specified Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall have not been vacated, discharged, or stayed or bonded pending appeal within 20 days from the entry thereof; or (iv) any Specified Person shall take any action in furtherance of, or indicate its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) of this Section 8(f); or (v) any Specified Person shall admit in writing its inability to, pay its debts as they become due; or

(g) (i) any Specified Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or institution of proceedings is, in the reasonable opinion of the Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, the continuance of such Reportable Event unremedied for 10 days after notice of such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or the continuance of such proceedings for 10 days after commencement thereof, as the case may be, (iv) any Plan shall terminate for purposes of Title IV of ERISA, and in each case in clauses (i) through (iv) above, such event or condition could subject the Borrower to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations or property of the Borrower; or

(h) the rendition by any court of a final judgment in excess of $100,000.00 against any Specified Person which shall not be satisfactorily stayed, discharged, vacated or set aside within thirty (30) days of the making thereof; or the attachment of (or enforcement proceeding with respect to) any property of any Specified Person which has not been released or provided for to the reasonable satisfaction of the Bank within thirty (30) days after the making therefor; or

(i) any Loan Document shall cease to be in full force and effect, a default (after the expiration of any applicable grace period, if any, or the giving of notice, if required, or both) shall occur thereunder, any lien created thereby shall fail to be valid, perfected, or maintain its proper lien priority in accordance herewith, or any party thereto shall assert that it has no further obligation thereunder; or

(j) the Bank shall have determined in its commercially reasonable discretion that one or more conditions exist or events have occurred which have resulted in a material adverse change in the business, properties or financial condition of the Borrower;

then, in any such event, any or all of the following actions may be taken: (i) the Bank may, at its option, declare the Commitment to be terminated forthwith, whereupon the Commitment and all obligations to the Bank to make Revolving Credit Loans shall immediately terminate; and (ii) the Bank may, at its option, declare the Revolving Credit Loans hereunder (with accrued interest

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thereon) and all other amounts owing under this Agreement and the Revolving Credit Note to be due and payable and the same, and all interest accrued thereon, shall forthwith become due and payable without presentment, demand, protest or notice of any kind (other than any notice specified herein), all of which are hereby waived, anything contained herein or in any instrument evidencing the Revolving Credit Loans to the contrary notwithstanding.

SECTION 9. COLLATERAL SECURITY

9.1 General Loan and Collateral Agreement. The Borrower hereby grants to the Bank a lien, security interest and a right of setoff as security for the payment of any and all sums owing under the Loan Documents and all other obligations, direct or contingent, joint, several or independent, of the Borrower now or hereafter existing due or to become due to, or held or to be held by the Bank, whether created directly or acquired by assignment or otherwise including, without limitation, any arising under this Agreement (all of such obligations being hereinafter collectively called the “Obligations”), upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Bank or any entity under the control of the Bank, or in transit to any of them. At any time, after the occurrence and continuance of an Event of Default, without demand or notice, the Bank may set off the same or any part thereof and apply the same to any liability or obligation of the Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Revolving Credit Loans. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE REVOLVING CREDIT LOANS PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLE WAIVED. The Bank shall not be required to marshal any present or future security for, or guarantees of, the obligations or to resort to any such security or guarantee in any particular order and the Borrower waives, to the fullest extent that it lawfully can, (a) any right they might have to require to the Bank to pursue any particular remedy before proceeding against them and (b) any right to the benefit of, or to direct the application of the proceeds of any collateral until the obligations are paid in full.

9.2 Additional Collateral Security. In addition to the collateral described in Section 9.1 hereof, payment of the Obligations is also secured by, interalia, (a) a first priority security interest in all personal property of the Borrower, whether now owned or hereafter acquired, to the extent provided in the Security Agreement executed and delivered by the Borrower to the Bank, and (b) all right, title and interest of the Borrower in and to its cash and marketable securities accounts with the Bank, together with all property contained therein and all proceeds of the foregoing in whatever form received, in each case whether now owned or hereafter acquired.

SECTION 10. MISCELLANEOUS.

10.1 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing unless otherwise expressly provided herein and shall be deemed to have been duly given or made when delivered by hand, or telecopy, or when deposited in the mail addressed as follows, or to such address as may be hereafter notified in writing by the respective parties hereto and any future holders of the Revolving Credit Note:

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The Borrower:	CPI Aerostructures, Inc.
	60 Heartland Boulevard
	Edgewood, New York 11717
	Attn: Mr. Vincent Palazzolo
	Chief Financial Officer
with a copy to:	Graubard Miller
	405 Lexington Avenue, 19th Floor
	New York, New York 10174
	Attn: Marci Frankenthaler, Esq.
The Bank:	Sovereign Bank
	3 Huntington Quadrangle
	Suite 101 North and 103 South
	Melville, New York 11747
	Attn: Ms. Christine Gerula
	Senior Vice President

10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right.

10.3 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Revolving Credit Note.

10.4 Payment of Expenses; Examination. The Borrower agrees to pay or reimburse the Bank for all its costs and expenses incurred in connection with (a) the preparation of the Loan Documents and the closing of the transactions described by the Loan Documents, (b) the enforcement or preservation of any rights under this Agreement or the Loan Documents or any other instrument or agreement entered into in connection herewith or therewith including, without limitation, the reasonable fees and disbursements of attorneys for the Bank (which may include, without limitation, the allocable cost of the Bank’s internal legal counsel), and (c) any claim or action threatened, made or brought against the Bank arising out of or relating to any extent to this Agreement, or any Loan Documents or any instrument or agreement entered into in connection with the transactions contemplated hereby or thereby if the Bank prevails in any such action or proceeding or the Borrower makes payment to the Bank on account of any sums demanded by it prior to the disposition of any such action or proceeding or in settlement thereof.

10.5 WAIVER OF JURY TRIAL; SET-OFF AND COUNTERCLAIM. THE BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF

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DEALING, STATEMENTS (WHETHER VERBAL OR IN WRITING) OR ACTIONS OF ANY PARTY. THE BORROWER WAIVES THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF ANY KIND OR DESCRIPTION IN ANY SUCH LITIGATION. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND MAKE THE REVOLVING CREDIT LOANS.

10.6 WAIVER OF AUTOMATIC STAY. THE BORROWER AGREES THAT, IN THE EVENT THAT THE BORROWER, ANY GUARANTOR OR ANY OF THE PERSONS OR PARTIES CONSTITUTING THE BORROWER OR A GUARANTOR SHALL (i) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER TITLE 11 OF THE U.S. CODE, AS AMENDED (“BANKRUPTCY CODE”), (ii) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE BANKRUPTCY CODE, (iii) FILE OR BE THE SUBJECT OF ANY PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS, (iv) HAVE SOUGHT OR CONSENT TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR, OR (v) BE THE SUBJECT OF ANY ORDER, JUDGMENT, OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A PETITION FILED AGAINST SUCH PARTY FOR ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR RELIEF TO DEBTORS, THE BANK SHALL THEREUPON BE ENTITLED AND THE BORROWER IRREVOCABLY CONSENTS TO IMMEDIATE AND UNCONDITIONAL RELIEF FROM ANY AUTOMATIC STAY IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO THE BANK AS PROVIDED FOR HEREIN, IN THE REVOLVING CREDIT NOTE, OTHER LOAN DOCUMENTS DELIVERED IN CONNECTION HEREWITH AND AS OTHERWISE PROVIDED BY LAW, AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO OBJECT TO SUCH RELIEF AND WILL NOT CONTEST ANY MOTION BY THE BANK SEEKING RELIEF FROM THE AUTOMATIC STAY AND THE BORROWER WILL COOPERATE WITH THE BANK, IN ANY MANNER REQUESTED BY THE BANK, IN ITS EFFORTS TO OBTAIN RELIEF FROM ANY SUCH STAY OR OTHER PROHIBITION.

10.7 Modification and Waiver. No modification or waiver of, or with respect to any provision of this Agreement or any document or instrument delivered in connection therewith shall be effective unless and until it shall be in writing and signed by the Bank, and then such modification or waiver shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances.

10.8 USA Patriot Act. The Bank is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) and hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record

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information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Bank to identify the Borrower in accordance with the Act.

10.9 Federal Reserve Bank. The Bank may at any time pledge, endorse, assign, or transfer all or any portion of its rights under the Loan Documents including any portion of the Revolving Credit Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act. 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release the Bank from its obligations under any of the Loan Documents.

10.10 Successor and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Bank, all future holders of the Revolving Credit Note and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of the Bank. The term “Bank” as used herein shall be deemed to include the Bank and its successors, endorsees and assigns.

10.11 Governing Law; Consent to Jurisdiction. This Agreement, the Loan Documents and any documents and instruments delivered in connection herewith and therewith and the rights and duties of the parties hereunder and thereunder shall be governed by, and construed and interpreted in accordance with, the law of the State of New York and the Borrower consents to the jurisdiction of the courts of the State of New York in any action brought to enforce any rights of the Bank under this Agreement and any document or instrument related hereto.

10.12 Entire Agreement. This Agreement and any other agreements, documents and instruments executed and delivered pursuant to or in connection with the Obligations contain the entire agreement between the parties relating to the subject matter hereof and thereof. The Borrower expressly acknowledges that the Bank has not made and the Borrower is not relying on any oral representations, agreements or commitments of the Bank or any officer, employee, agent or representative thereof.

10.13 Interest Adjustment. Notwithstanding anything to the contrary contained in this Agreement or the Revolving Credit Note, the rate of interest payable on the Revolving Credit Note shall never exceed the maximum rate of interest permitted under applicable law. If at any time the rate of interest otherwise prescribed herein shall exceed such maximum rate, and such prescribed rate is thereafter below such maximum rate, the prescribed rate shall be increased to the maximum rate for such period of time as is required so that the total amount of interest received by the Bank is that which would have been received by the Bank except for the operation of the first sentence of this Section 10.13.

10.14 Errors and Omissions. The Borrower hereby consents and agrees that in the event any of the documents evidencing and/or securing the Revolving Credit Loans misstate or inaccurately reflect the true and correct terms and provisions of the Revolving Credit Loans and said misstatement or inaccuracy is due to the unilateral mistake on the part of the Bank, mutual mistake on the part of the Bank and the Borrower or clerical error, then in such event the Borrower shall, upon request of the Bank and in order to correct such misstatement or inaccuracy, execute such new documents as the Bank may deem necessary to remedy said inaccuracy or mistake, provided

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however, such obligation on behalf of the Borrower shall not extend to the execution of any new or redrafted document which materially and adversely adds to or changes the obligations of the Borrower beyond those set forth in or contemplated by the terms hereof. The Borrower agrees to execute all such other and further documents as may or shall be reasonably necessary, as determined solely by the Bank, in order to give effect to the documents executed (whether in connection with the Revolving Credit Loans or any future loan) and so as to confirm the transaction (“Additional Documents”). The Borrower agrees to comply with the reasonable requirements of the Bank within ten (10) days after written notice. Upon the Borrower failing or refusing to comply with the terms and provisions of this Section, such failure shall constitute a default by the Borrower under this Agreement and thereupon, the Bank shall have all of the rights and remedies against the Borrower as otherwise specified in this Agreement and other documents by reason of a default.

10.15 Replacement Documents. Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Revolving Credit Note, any Loan Document or any other security document(s) which is not of public record and, in the case of any such destruction or mutilation, upon surrender and cancellation of the Revolving Credit Note, any Loan Document or other document(s) (collectively, the “Replacement Documents”), the Borrower will issue, in lieu thereof, a replacement note or other document(s) in the same principal amount thereof and otherwise of like tenor.

10.16 Participations. The Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Borrower (or any Guarantor), to grant to one or more institutions or other persons (each a “Participant”) participation interests in the Bank’s obligations to lend hereunder and/or any or all of the loans held by the Bank hereunder. In the event of any such grant by the Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Bank shall remain responsible for the performance of its obligations hereunder and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank’s rights and obligations hereunder. The Bank may furnish any information concerning the Borrower in its possession from time to time to any prospective assignees and Participants, provided that the Bank shall require any such prospective assignee or Participant to maintain the confidentiality of such information.

10.17 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed and delivered in Melville, New York by their proper and duly authorized officer as of the day and year first above written.

CPI AEROSTRUCTURES, INC.
By:	/s/ Vincent Palazzolo
	Vincent Palazzolo Chief Financial Officer

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SOVEREIGN BANK
By:	/s/ Christine Gerula
	Christine Gerula Senior Vice President

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EXHIBIT A

FORM OF REVOLVING CREDIT NOTE

REVOLVING CREDIT NOTE

$2,500,000.00 Melville, New York August 13, 2007

CPI AEROSTRUCTURES, INC., a New York corporation (the “Borrower”), for value received, hereby promises to pay to the order of SOVEREIGN BANK (the “Bank”) on the Termination Date (as such term is defined in the Agreement), at the office of the Bank specified in Section 10.1 of the Credit Agreement dated as of August 13, 2007, between the Borrower and the Bank, as amended from time to time (as so amended, the “Agreement”; terms defined in the Agreement shall have their defined meanings when used in this Note), in lawful money of the United States of America and in immediately available funds the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 ($2,500,000.00) DOLLARS or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to Section 2.1 of the Agreement. The Borrower further promises to pay interest at said office in like money on the unpaid principal balance of this Note from time to time outstanding at an annual rate as selected by the Borrower pursuant to the terms of Section 2 (inclusive) of the Agreement. Interest shall be computed on the basis of a 360-day year for actual days elapsed and shall be payable as provided in the Agreement. All Loans made by the Bank pursuant to subsection 2.1 of the Agreement and payments of the principal thereon may be endorsed by the holder of this Note on the schedule annexed hereto, to which the holder may add additional pages. The aggregate net unpaid amount of Revolving Credit Loans set forth in such schedule shall be presumed to be the principal balance hereof. After the stated or any accelerated maturity hereof, this Note shall bear interest at a rate as set forth in the Agreement, payable on demand, but in no event in excess of the maximum rate of interest permitted under applicable law.

This Note is the Revolving Credit Note referred to in the Agreement, and is entitled to the benefits thereof and may be prepaid, and is required to be prepaid, in whole or in part (subject to the indemnity provided in the Agreement) as provided therein.

Upon the occurrence of any one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note may be declared to be immediately due and payable as provided in the Agreement.

This Note shall be construed in accordance with and governed by the laws of the State of New York.

CPI AEROSTRUCTURES, INC.

Exhibit A

SCHEDULE OF LOANS AND PAYMENT OF PRINCIPAL

TO REVOLVING CREDIT NOTE DATED AS OF AUGUST 13, 2007

BY

CPI AEROSTRUCTURES, INC.

TO

SOVEREIGN BANK

Date Amount
of Loan Interest
Rate Last Day
of Interest Period Balance Principal Paid Remaining
Unpaid Notation
Made By

Exhibit A

EX-10.28

COMMERCIAL SECURITY AGREEMENT

Grantor: CPI Aerostructures, Inc.
60 Heartland Boulevard
Edgewood, New York 11717 Lender: Sovereign Bank
Commercial Lending
3 Huntington Quadrangle
Suite 101 North and 103 South
Melville, New York 11747

THIS COMMERCIAL SECURITY AGREEMENT dated August 13, 2007 is made and executed between CPI Aerostructures, Inc. (“Grantor”); and Sovereign Bank (“Lender”).

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of and other obligations under the Note and this Agreement:

All Inventory, Chattel Paper, Accounts, Equipment and General Intangibles and other Personal Property

In addition, the word “Collateral” also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

(B) All products and produce of any of the property described in this Collateral section.

(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.

(D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party’s insurer, whether due to judgment, settlement or other process.

(E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or

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electronic media, together with all of Grantor’s right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

CROSS-COLLATERALlZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.

FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.

GRANTOR’S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (A) Grantor agrees that Lender need not tell Grantor about any action or inaction Lender takes in connection with this Agreement; (B) Grantor assumes the responsibility for being and keeping informed about the Collateral; and (C) Grantor waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Grantor agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement.

GRANTOR’S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (A) this Agreement is executed at Grantor’s request and not at the request of Lender; (B) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (C) Grantor has established adequate means of obtaining from Grantor on a continuing basis information about Grantor’s financial condition; and (D) Lender has made no representation to Grantor about Grantor or Grantor’s creditworthiness.

GRANTOR’S ADDITIONAL WAIVERS. Grantor waives all requirements of presentment, protest, demand, and notice of dishonor or non-payment to Grantor or any other party to the Indebtedness or the Collateral. Lender may do any of the following with respect to any obligation of Grantor without first obtaining the consent of Grantor: (A) grant any extension of time for any payment, (B) grant any renewal, (C) permit any modification of payment terms or other terms, or (D) exchange or release any Collateral or other security. No such act or failure to act shall affect Lender’s rights against Grantor or the Collateral.

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RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor’s accounts with Lender (whether checking, savings, or some other account and whether evidenced by a certificate of deposit). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

Perfection of Security Interest. Grantor agrees to take whatever actions are reasonably requested by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender’s interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender.

Notices to Lender. Grantor will promptly notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s assumed business name(s); (3) change in the management of any Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s principal office address; (6) change in Grantor’s state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name or state of organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously

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performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender’s prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor’s address shown above or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor’s business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender’s prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of New York, without Lender’s prior written consent, which consent shall not be unreasonably withheld. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor’s business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

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Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, reasonable attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly in all material respects with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue

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erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the Collateral, in Lender’s opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor’s due diligence in investigation the Collateral for Hazard Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses “single interest insurance,” which will cover only Lender’s interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof

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of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Granter. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Grantor hereby appoints Lender as its attorney-in-fact with full power and authority to endorse in Grantor’s name any check or draft representing the proceeds of any insurance on the Collateral and to settle or compromise in Grantor’s name any claims with respect to such insurance.

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Granter for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender’s security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor’s name or address, or the name or address of any person granting a security

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interest under this Agreement changes, Grantor will promptly notify the Lender of such change.

GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender’s security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes, with the exception of insurance premiums paid by Lender with respect to motor vehicles, but including the payment of attorneys’ fees and expenses, will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated. as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

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DEFAULT. The occurrence and continuance of an Event of Default under (and as defined in) that certain Credit Agreement between Grantor and Lender of even date herewith (as same may be amended from time to time) shall constitute an Event of Default hereunder.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the New York Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person’s right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral (including legal fees and costs), shall become a part of the Indebtedness secured by this Agreement and payable from the proceeds of the disposition of the Collateral, and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral proceeding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the

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receivership, against the Indebtedness. Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. The right to a receiver shall be given to Lender regardless of the solvency of Grantor without any requirement to give prior notice to Grantor.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’s discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

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Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of New York without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of New York.

Joint and Several Liability. If there is more than one party executing as Grantor below, then all obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and every Grantor. This means that each Grantor signing below is responsible for all obligations in this Agreement. Where any one or more of the parties is a corporation, partnership, limited liability company or similar entity, it is not necessary for Lender to inquire into the powers of any of the officers, directors, partners, members, or other agents acting or purporting to act on the entity’s behalf, and any obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Agreement.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of

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Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney. Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral. Grantor authorizes Lender to file a financing statement covering the Collateral.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any person or circumstance, that finding shall not make the offending provision illegal invalid, or unenforceable as to any other person or circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance

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or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor’s Indebtedness shall be paid in full.

Subordination. Notwithstanding any provision herein to the contrary, the security interest and lien upon the Collateral created hereby is subject and subordinate to the rights of the United States of America (“Government”) pursuant to that Subordination Agreement by Grantor and Lender in favor of the Government of even date herewith.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFlNITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

Agreement. The word “Agreement” means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Collateral. The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described In the Collateral Description section of this Agreement.

Credit Agreement. The words “Credit Agreement” mean that certain credit agreement dated on or about the date hereof between the Grantor and the Lender, as same may be hereafter amended, restated, increased or otherwise modified in writing from time to time.

Default. The word “Default” means the Default set forth in this Agreement in the section titled “Default”.

COMMERCIAL SECURITY AGREEMENT
(continued) Page - 14

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendment and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules or regulations adopted pursuant thereto.

Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

Grantor. The word “Grantor” means CPI Aerostructures, Inc. and includes all co-signers and co-makers signing the Note and, all their successors and assigns.

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party, if any, of any or all of the Indebtedness.

Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include, without limitation, any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision, together with interest thereon and all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.

Lender. The word “Lender” means Sovereign Bank, it successors and assigns.

COMMERCIAL SECURITY AGREEMENT
(continued) Page - 15

Note. The word “Note” means each note executed by the Grantor pursuant to the Credit Agreement together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or Credit Agreement.

Property. The word “Property” means all of Grantor’s right, title and interest in and to all the Property as described in the “Collateral Description” section of this Agreement.

Related Documents. The words “Related Documents” mean, collectively, the Credit Agreement, each Note, this Agreement and all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements, and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 13, 2007.

GRANTOR:
CPI AEROSTRUCTURES, INC.
By:	/s/ Vincent Palazzolo
	Vincent Palazzolo Chief Financial Officer

LENDER:
SOVEREIGN BANK
By:	/s/ Christine Gerula
	Christine Gerula Senior Vice President

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED

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 issuer as of, and for, the periods presented in this report;

4.	The issuer’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)) for the issuer 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 issuer, 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)	[intentionally omitted];

	(c)	Evaluated the effectiveness of the issuer’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 issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.	The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and to the audit committee of the issuer’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 issuer’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 issuer’s internal control over financial reporting.

Date: August 14, 2007

	By:	/S/ Edward J. Fred                     Name: Edward J. Fred Title:   Chief Executive Officer,             President and Secretary

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED

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 issuer as of, and for, the periods presented in this report;

4.	The issuer’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)) for the issuer 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 issuer, 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)	[intentionally omitted];

	(c)	Evaluated the effectiveness of the issuer’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 issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.	The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and to the audit committee of the issuer’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 issuer’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 issuer’s internal control over financial reporting.

Date: August 14, 2007

By:   /S/   Vincent Palazzolo                
        Name:   Vincent Palazzolo
        Title:    Chief Financial Officer

EX-32

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 June 30, 2007 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.

Dated: August 14, 2007						/S/   Edward J. Fred
						Edward J. Fred Chief Executive Officer, President and Secretary
Dated: August 14, 2007						/S/   Vincent Palazzolo
						Vincent Palazzolo Chief Financial Officer