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RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2021

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

16.

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

As previously reported, on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors of CPI Aerostructures, Inc. (the “Company”), determined, based on the recommendation of management and in consultation with CohnReznick LLP (“CohnReznick”), then the Company’s independent registered public accounting firm, that the Company’s financial statements which were included in its Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the Securities and Exchange Commission (the “SEC”) should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing Errors”) and that management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such periods should no longer be relied upon. The Company’s management identified the Inventory Costing Errors during its inventory testing procedures for the preparation of the Company’s financial statements for the quarterly period ended March 31, 2021. At the time of the June 2021 disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million. The Company has now determined that the Inventory Costing Errors increased 2020 net loss by $2,010,084.

The correction of the Inventory Costing Errors resulted in the determination that certain contracts were in a loss position and certain inventory items required additional reserves. The Company re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded that increases to these reserves were required. The insufficient reserves resulting from such reserve increases are referred to as “Additional Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient Reserves.” It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves was during the fourth quarter of 2019.

On November 16, 2021, the Audit and Finance Committee determined, based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of the Insufficient Reserves, that, similarly, management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such period should no longer be relied upon, and stated that the Company expected to restate its Annual Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original Forms 10-Q”) by filing the Comprehensive Form 10-K/A.

The Company, upon conducting an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined that net loss for the years ended December 31, 2020 and 2019 is $324,231 and $2,189,728, respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Considering both the Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended December 31, 2020 and 2019 is $2,334,315 and $2,300,083, respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and net loss for the quarters ended March 31, 2020 and June 30, 2020 is $544,836 and $763,730, respectively, greater than the net loss reported in the respective Quarterly Reports on Form 10-Q for such periods and the net income for the quarter ended September 30, 2020 is $24,556 more than the net income reported in the Quarterly Report for such period.

The Inventory Costing Errors resulted from software processing and coding errors, inconsistent units of measure being used for quantities ordered and quantities received of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods received and the Company not having a procedure to address over or under absorbed overhead costs at the end of accounting periods. The Inventory Costing Errors affected the income reported with respect to the Company’s product lines for which revenue is recognized when a product ships to customers, which accounted for approximately 15% of total 2020 revenue (the “Non-POC Contracts”). The Inventory Costing Errors did not affect income reported with respect to the Company’s products for which revenue is recognized over time using percentage of completion accounting (the “POC Contracts”). The Loss Contract Reserve and the Additional Inventory Reserves also only affect the income reported with respect to the Company’s Non-POC Contracts, and do not affect the income reported with respect to the Company’s POC Contracts. The Inventory Costing Errors and the Insufficient Reserves did not affect either prior reported revenue or cash flow for fiscal 2020 and 2019.

Management has considered the effect of the Inventory Costing Errors and the Insufficient Reserves on the Company’s prior conclusions of the adequacy of its internal control over financial reporting and disclosure controls and procedures as of the end of each of the applicable periods. As a result of the Inventory Costing Errors and the Insufficient Reserves, management has determined that a material weakness existed in the Company’s internal control over financial reporting as of the end of the quarterly periods ended March 31, 2020, June 30, 2020, September 30, 2020 and for the years ended December 31, 2020 and 2019. See Part II Item 9A – Controls and Procedures within this Form 10-K for a description of these matters.

As a result of the restatement included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting herein net loss for the years ended December 31, 2020 and December 31, 2019 which is $2,334,315 and $2,300,083, respectively, greater than the net loss reported in the Original Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, net loss for the quarters ended March 31, 2020 and June 30, 2020 which is $544,836 and $763,730, respectively, greater than the net loss reported in the respective Original Forms 10-Q, and net income for the quarter ended September 30, 2020 which is $24,556 greater than the net income reported in the Original Form 10-Q. The Inventory Costing Errors and the Insufficient Reserves did not affect reported revenue or cash flows for the years ended December 31, 2020 or December 31, 2019, or for the quarters ended March 31, June 30 and September 30, 2020.

2020 and 2019 Restatement

The following is a discussion of the restatement adjustments that were made to the Company’s previously issued December 31, 2020 and December 31, 2019 consolidated financial statements due to the Inventory Costing Errors, Loss Contract Reserve and Additional Inventory Reserves.

(a) Inventory Costing Errors

The Company determined that the Inventory Costing Errors resulted in incorrectly reported inventory values and reported income for the annual periods ended December 31, 2020 and December 31, 2019, and the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. The Inventory Costing Errors were comprised of the following:

1) Labor costs for work in process were overstated in the detailed inventory records due to an automated reversing entry not processing correctly;

2) A customized IT program to calculate weighted average cost was not tested thoroughly enough, which allowed errors in average cost calculations to occur in certain situations;

3) Units of Measure were not consistent between quantities ordered and quantities received for certain classes of purchased parts, which resulted in overstatements of inventory values due to units of measure not being consistent with unit prices on purchase orders to suppliers;

4) The cost of goods received which had not yet processed through the Company’s quality inspection process at the time of the period-end accounting closes were not properly accrued to the period financial statements;

5) The Company did not have a process to address over-absorbed or under-absorbed overhead costs at the end of each accounting period.

(b) Loss Contract Reserve

After correcting its financial statements for the Inventory Costing Errors, the Company determined that is was a party to some contracts to deliver product upon which the Company would lose money, and thus the Company’s Loss Contract Reserve was increased accordingly for the year ended December 31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020.

After correcting its financial statements for the Inventory Costing Errors, the Company determined that its inventory required additional reserves to reflect current market value and demand, and thus the Company’s Inventory Reserves were increased accordingly for the year ended December 31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020.

(d) Income taxes

There were no material tax adjustments to the Company’s Provision for/(benefit from) income taxes or Net deferred tax assets (liabilities) related to the impact of the 2020 and 2019 Restatement.

The following tables present the impact of the restatement on the Company’s previously reported financial statements as of December 31, 2020; September 30, 2020; June 30, 2020 and March 31, 2020 and December 31, 2019:

Impact on Consolidated Balance Sheets

The effect of the Restatement described above on the accompanying consolidated balance sheets as of December 31, 2020; September 30, 2020; June 30, 2020; March 31, 2020 and December 31, 20019 are as follows:


	Consolidated Balance Sheet as at December 31, 2020
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Additional Inventory Reserve			As Restated
ASSETS
Current Assets:
Cash	$	6,033,537		$	—		$	—		$	—		$	6,033,537
Accounts receivable, net		4,962,906												4,962,906
Contract assets		19,729,638												19,729,638
Inventory		9,567,921			(1,875,950	)					(1,305,683	)		6,386,288
Refundable income taxes		40,000												40,000
Prepaid expenses and other current assets		534,857												534,857

Total Current Assets	$	40,868,859		$	(1,875,950	)	$	—		$	(1,305,683	)	$	37,687,226

Operating lease right-of-use assets		4,075,048												4,075,048
Property and equipment, net		2,521,742												2,521,742
Intangibles, net		250,000												250,000
Goodwill		1,784,254												1,784,254
Other assets		191,179												191,179

Total Assets		49,691,082		$	(1,875,950	)	$	—		$	(1,305,683	)	$	46,509,449

Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	12,092,684											$	12,092,684
Accrued expenses		5,693,518			244,403									5,937,921
Contract liabilities		1,650,549												1,650,549
Loss reserve		800,971						1,208,276						2,009,247
Current portion of long-term debt		6,501,666												6,501,666
Operating lease liabilities		1,819,237												1,819,237
Income taxes payable		862			86									948

Total Current Liabilities		28,559,487			244,489			1,208,276			—			30,012,252

Line of credit		20,738,685												20,738,685
Long-term operating lease liabilities		2,537,149												2,537,149
Long-term debt, net of current portion		6,205,095												6,205,095

Total Liabilities		58,040,416			244,489			1,208,276			—			59,493,181

Shareholders’ Deficit:
Common stock		11,951												11,951
Additional paid-in capital		72,005,841												72,005,841
Accumulated deficit		(80,367,126	)		(2,120,439	)	$	(1,208,276	)		(1,305,683	)		(85,001,524	)
Total Shareholders’ Deficit		(8,349,334	)		(2,120,439	)		(1,208,276	)		(1,305,683	)		(12,983,732	)
Total Liabilities and Shareholders’ Deficit	$	49,691,082		$	(1,875,950	)		—		$	(1,305,683	)	$	46,509,449


	Consolidated Balance Sheet as at September 30, 2020
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Additional Inventory Reserve			As Restated
ASSETS
Current Assets:
Cash	$	3,589,095		$	—		$	—		$	—		$	3,589,095
Restricted cash		1,380,684												1,380,684
Accounts receivable, net		7,309,323												7,309,323
Contract assets		18,409,267												18,409,267
Inventory		8,742,093			(962,577	)					(1,226,852	)		6,552,664
Refundable income taxes		35,459												35,459
Prepaid expenses and other current assets		600,889												600,889

Total Current Assets		40,066,810			(962,577	)		—			(1,226,852	)		37,877,381

Operating lease right-of-use assets		2,730,567												2,730,567
Property and equipment, net		2,618,887												2,618,887
Intangibles, net		281,250												281,250
Goodwill		1,784,254												1,784,254
Other assets		205,844												205,844

Total Assets		47,687,612		$	(962,577	)	$	—		$	(1,226,852	)	$	45,498,183

Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	13,009,645											$	13,009,645
Accrued expenses		3,333,335			86,467									3,419,802
Contract liabilities		2,469,441												2,469,441
Loss reserve		1,569,447						1,308,197						2,877,644
Current portion of long-term debt		5,377,559												5,377,559
Operating lease liabilities		1,821,136												1,821,136
Income taxes payable		1,216												1,216

Total Current Liabilities		27,581,779			86,467			1,308,197			—			28,976,443

Line of credit		20,738,685												20,738,685
Long-term operating lease liabilities		1,212,573												1,212,573
Long-term debt, net of current portion		7,811,467												7,811,467

Total Liabilities		57,344,504			86,467			1,308,197			—			58,739,168

Shareholders’ Deficit:
Common stock		11,926												11,926
Additional paid-in capital		71,972,011												71,972,011
Accumulated deficit		(81,640,829	)		(1,049,044	)	$	(1,308,197	)		(1,226,852	)		(85,224,922	)
Total Shareholders’ Deficit		(9,656,892	)		(1,049,044	)		(1,308,197	)		(1,226,852	)		(13,240,985	)
Total Liabilities and Shareholders’ Deficit	$	47,687,612		$	(962,577	)		—		$	(1,226,852	)	$	45,498,183


	Consolidated Balance Sheet as at June 30, 2020
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Additional Inventory Reserve			As Restated
ASSETS
Current Assets:
Cash	$	6,749,201		$	—		$	—		$	—		$	6,749,201
Restricted cash		1,380,684												1,380,684
Accounts receivable, net		6,958,417												6,958,417
Contract assets		15,566,681												15,566,681
Inventory		7,658,508			(794,960	)					(1,157,695	)		5,705,853
Refundable income taxes		36,973												36,973
Prepaid expenses and other current assets		864,781												864,781

Total Current Assets		39,215,245			(794,960	)		—			(1,157,695	)		37,262,590

Operating lease right-of-use assets		3,122,360												3,122,360
Property and equipment, net		2,840,872												2,840,872
Intangibles, net		312,500												312,500
Goodwill		1,784,254												1,784,254
Other assets		123,013												123,013

Total Assets	$	47,398,244		$	(794,960	)	$	—		$	(1,157,695	)	$	45,445,589

Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	9,078,736											$	9,078,736
Accrued expenses		3,825,606			141,638									3,967,244
Contract liabilities		4,995,427												4,995,427
Loss reserve		2,101,123						1,514,356						3,615,479
Current portion of long-term debt		4,728,515												4,728,515
Operating lease liabilities		1,783,249												1,783,249
Income taxes payable		1,216												1,216

Total Current Liabilities		26,513,872			141,638			1,514,356			—			28,169,866

Line of credit		26,738,685												26,738,685
Long-term operating lease liabilities		1,680,897												1,680,897
Long-term debt, net of current portion		3,077,992												3,077,992

Total Liabilities		58,011,446			141,638			1,514,356			—			59,667,440

Shareholders’ Deficit:
Common stock		11,856												11,856
Additional paid-in capital		71,830,980												71,830,980
Accumulated deficit		(82,456,038	)		(936,598	)	$	(1,514,356	)		(1,157,695	)		(86,064,687	)
Total Shareholders’ Deficit		(10,613,202	)		(936,598	)		(1,514,356	)		(1,157,695	)		(14,221,851	)
Total Liabilities and Shareholders’ Deficit	$	47,398,244		$	(794,960	)		—		$	(1,157,695	)	$	45,445,589


	Consolidated Balance Sheet as at March 31, 2020
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Additional Inventory Reserve			As Restated
ASSETS
Current Assets:
Cash	$	1,998,697		$	—		$	—		$	—		$	1,998,697
Restricted cash		1,380,684												1,380,684
Accounts receivable, net		6,107,968												6,107,968
Contract assets		15,814,549												15,814,549
Inventory		6,940,139			(353,212	)					(1,094,244	)		5,492,683
Refundable income taxes		473,398												473,398
Prepaid expenses and other current assets		688,006												688,006

Total Current Assets		33,403,441			(353,212	)		—			(1,094,244	)		31,955,985

Operating lease right-of-use assets		3,507,760												3,507,760
Property and equipment, net		3,061,106												3,061,106
Intangibles, net		343,750												343,750
Goodwill		1,784,254												1,784,254
Other assets		151,041												151,041

Total Assets		42,251,352		$	(353,212	)	$	—		$	(1,094,244	)	$	40,803,896

Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	8,255,635											$	8,255,635
Accrued expenses		3,051,727			73,142									3,124,869
Contract liabilities		4,749,373												4,749,373
Loss reserve		2,145,556						1,324,321						3,469,877
Current portion of long-term debt		2,460,639												2,460,639
Operating lease liabilities		1,745,616												1,745,616
Income taxes payable		1,216												1,216

Total Current Liabilities		22,409,762			73,142			1,324,321			—			23,807,225

Line of credit		26,738,685												26,738,685
Long-term operating lease liabilities		2,142,574												2,142,574
Long-term debt, net of current portion		1,165,905												1,165,905

Total Liabilities		52,456,926			73,142			1,324,321			—			53,854,389

Shareholders’ Deficit:
Common stock		11,837												11,837
Additional paid-in capital		71,641,796												71,641,796
Accumulated deficit		(81,859,207	)		(426,354	)		(1,324,321	)		(1,094,244	)		(84,704,126	)
Total Shareholders’ Deficit		(10,205,574	)		(426,354	)		(1,324,321	)		(1,094,244	)		(13,050,493	)
Total Liabilities and Shareholders’ Deficit	$	42,251,352		$	(353,212	)		—		$	(1,094,244	)	$	40,803,896


	Consolidated Balance Sheet as at December 31, 2019
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Additional Inventory Reserve			As Restated
ASSETS
Current Assets:
Cash	$	4,052,109		$	—		$	—		$	—		$	4,052,109
Restricted cash		1,380,684												1,380,684
Accounts receivable, net		7,029,602												7,029,602
Contract assets		15,280,807												15,280,807
Inventory		5,891,386			(110,355	)					(874,778	)		4,906,253
Refundable income taxes		474,904												474,904
Prepaid expenses and other current assets		721,964												721,964

Total Current Assets		34,831,456			(110,355	)		—			(874,778	)		33,846,323

Operating lease right-of-use assets		3,886,863												3,886,863
Property and equipment, net		3,282,939												3,282,939
Intangibles, net		375,000												375,000
Goodwill		1,784,254												1,784,254
Other assets		179,068												179,068

Total Assets	$	44,339,580		$	(110,355	)	$	—		$	(874,778	)	$	43,354,447

Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	8,199,557											$	8,199,557
Accrued expenses		2,372,522												2,372,522
Contract liabilities		3,561,707												3,561,707
Loss reserve		2,650,963						1,314,950						3,965,913
Current portion of long-term debt		2,484,619												2,484,619
Operating lease liabilities		1,709,153												1,709,153
Income taxes payable		1,216												1,216

Total Current Liabilities		20,979,737			—			1,314,950			—			22,294,687

Line of credit		26,738,685												26,738,685
Long-term operating lease liabilities		2,596,784												2,596,784
Long-term debt, net of current portion		1,764,614												1,764,614

Total Liabilities		52,079,820			—			1,314,950			—			53,394,770

Shareholders’ Deficit:
Common stock		11,819												11,819
Additional paid-in capital		71,294,629												71,294,629
Accumulated deficit		(79,046,688	)		(110,355	)		(1,314,950	)		(874,778	)		(81,346,771	)
Total Shareholders’ Deficit		(7,740,240	)		(110,355	)		(1,314,950	)		(874,778	)		(10,040,323	)
Total Liabilities and Shareholders’ Deficit	$	44,339,580		$	(110,355	)		—		$	(874,778	)	$	43,354,447

Impact on Consolidated Statements of Operations

The effect of the Restatement described above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2020 is as follows:


	Consolidated Statement of Operation For the twelve months ended December 31, 2020

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	87,584,690		$	—		$	—		$	—		$	87,584,690
Cost of sales		75,490,503		$	2,009,998			(106,674	)		430,905			77,824,732
Gross profit		12,094,187			(2,009,998	)		106,674			(430,905	)		9,759,958
Selling, general and administrative expenses		12,046,170												12,046,170
Income (loss) from operations		48,017			(2,009,998	)		106,674			(430,905	)		(2,286,212	)

Other expense:
Interest expense		(1,421,955	)											(1,421,955	)
Loss before provision for income taxes		(1,373,938	)		(2,009,998	)		106,674			(430,905	)		(3,708,167	)

Benefit from income taxes		(53,500	)		86			—			—			(53,414	)
Net loss	$	(1,320,438	)	$	(2,010,084	)	$	106,674		$	(430,905	)	$	(3,654,753	)
Loss per common share - basic	$	(0.11	)	$	(0.17	)	$	0.01		$	(0.04	)	$	(0.31	)
Loss per common share - diluted	$	(0.11	)	$	(0.17	)	$	0.01		$	(0.04	)		(0.31	)
Basic		11,884,307			—			—			—			11,884,307
Diluted		11,884,307			—			—			—			11,884,307

The effect of the Restatement described above on the accompanying consolidated statement of operations for the three and nine months ended September 30, 2020 is as follows:


	Consolidated Statement of Operation For the three months ended September 30, 2020 (Unaudited)

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	25,576,718		$	—		$	—		$	—		$	25,576,718
Cost of sales		21,394,243			112,446			(206,159	)		69,157			21,369,687
Gross profit		4,182,475			(112,446	)		206,159			(69,157	)		4,207,031
Selling, general and administrative expenses		3,050,644												3,050,644
Income from operations		1,131,831			(112,446	)		206,159			(69,157	)		1,156,387

Other expense:
Interest expense		(309,008	)											(309,008	)
Income before provision for income taxes		822,823			(112,446	)		206,159			(69,157	)		847,379

Provision for income taxes		7,614			—			—			—			7,614
Net Income	$	815,209		$	(112,446	)	$	206,159		$	(69,157	)	$	839,765
Income per common share - basic	$	0.07		$	(0.01	)	$	0.02		$	(0.01	)	$	0.07
Income per common share - diluted	$	0.07		$	(0.01	)	$	0.02		$	(0.01	)	$	0.07
Basic		11,894,469			—			—			—			11,894,469
Diluted		11,894,469			—			—			—			11,917,149


	Consolidated Statement of Operation For the nine months ended September 30, 2020 (Unaudited)
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	62,175,872		$	—		$	—		$	—		$	62,175,872
Cost of sales		54,715,508			938,689			(6,753	)		352,074			55,999,518
Gross profit		7,460,364			(938,689	)		6,753			(352,074	)		6,176,354
Selling, general and administrative expenses		8,958,986												8,958,986
Loss from operations		(1,498,622	)		(938,689	)		6,753			(352,074	)		(2,782,632	)

Other expense:
Interest expense		(1,085,805	)											(1,085,805	)
Loss before provision for income taxes		(2,584,427	)		(938,689	)		6,753			(352,074	)		(3,868,437	)

Provision for income taxes		9,714			—			—			—			9,714
Net loss	$	(2,594,141	)	$	(938,689	)	$	6,753		$	(352,074	)	$	(3,878,151	)
Loss per common share - basic	$	(0.22	)	$	(0.08	)	$	0.00		$	(0.03	)	$	(0.33	)
Loss per common share - diluted	$	(0.22	)	$	(0.08	)	$	0.00		$	(0.03	)		(0.33	)
Basic		11,862,506			—			—			—			11,862,506
Diluted		11,862,506			—			—			—			11,862,506

The effect of the Restatement described above on the accompanying consolidated statement of operations for the three and six months ended June 30, 2020 is as follows:


	Consolidated Statement of Operation For the three months ended June 30, 2020 (Unaudited)

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	19,740,767		$	—		$	—		$	—		$	19,740,767
Cost of sales		17,160,698		$	510,244			190,035			63,451			17,924,428
Gross profit		2,580,069			(510,244	)		(190,035	)		(63,451	)		1,816,339
Selling, general and administrative expenses		2,815,252												2,815,252
Loss from operations		(235,183	)		(510,244	)		(190,035	)		(63,451	)		(998,913	)

Other expense:
Interest expense		(360,126	)											(360,126	)
Profit before provision for income taxes		(595,309	)		(510,244	)		(190,035	)		(63,451	)		(1,359,039	)

Provision for income taxes		1,522			—			—			—			1,522
Net profit	$	(596,831	)	$	(510,244	)	$	(190,035	)	$	(63,451	)	$	(1,360,561	)
Loss per common share - basic	$	(0.05	)	$	(0.04	)	$	(0.02	)	$	(0.00	)	$	(0.11	)
Loss per common share - diluted	$	(0.05	)	$	(0.04	)	$	(0.02	)	$	(0.00	)		(0.11	)
Basic		11,855,404			—			—			—			11,855,404
Diluted		11,855,404			—			—			—			11,855,404


	Consolidated Statement of Operation For the six months ended June 30, 2020 (Unaudited)

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	36,599,154		$	—		$	—		$	—		$	36,599,154
Cost of sales		33,321,265			826,243			199,406			282,917			34,629,831
Gross profit		3,277,889			(826,243	)		(199,406	)		(282,917	)		1,969,323
Selling, general and administrative expenses		5,908,342												5,908,342
Loss from operations		(2,630,453	)		(826,243	)		(199,406	)		(282,917	)		(3,939,019	)

Other expense:
Interest expense		(776,797	)											(776,797	)
Loss before provision for income taxes		(3,407,250	)		(826,243	)		(199,406	)		(282,917	)		(4,715,816	)

Provision for income taxes		2,100			—			—			—			2,100
Net loss	$	(3,409,350	)	$	(826,243	)	$	(199,406	)	$	(282,917	)	$	(4,717,916	)
Loss per common share - basic	$	(0.29	)	$	(0.07	)	$	(0.02	)	$	(0.02	)	$	(0.40	)
Loss per common share - diluted	$	(0.29	)	$	(0.07	)	$	(0.02	)	$	(0.02	)		(0.40	)
Basic		11,846,260			—			—			—			11,846,260
Diluted		11,846,260			—			—			—			11,846,260

The effect of the Restatement described above on the accompanying consolidated statement of operations for the three months ended March 31, 2020 is as follows:


	Consolidated Statement of Operation For the three months ended March 31, 2020 (Unaudited)

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	16,858,386		$	—		$	—		$	—		$	16,858,386
Cost of sales		16,160,567			315,999			9,371			219,466			16,705,403
Gross profit		697,819			(315,999	)		(9,371	)		(219,466	)		152,983
Selling, general and administrative expenses		3,093,090												3,093,090
Loss from operations		(2,395,271	)		(315,999	)		(9,371	)		(219,466	)		(2,940,107	)

Other expense:
Interest expense		(416,670	)											(416,670	)
Loss before provision for income taxes		(2,811,941	)		(315,999	)		(9,371	)		(219,466	)		(3,356,777	)

Provision for income taxes		578			—			—			—			578
Net loss	$	(2,812,519	)	$	(315,999	)	$	(9,371	)	$	(219,466	)	$	(3,357,355	)
Loss per common share - basic	$	(0.24	)	$	(0.03	)	$	(0.00	)	$	(0.02	)	$	(0.29	)
Loss per common share - diluted	$	(0.24	)	$	(0.03	)	$	(0.00	)	$	(0.02	)		(0.29	)
Basic		11,837,014			—			—			—			11,837,014
Diluted		11,837,014			—			—			—			11,837,014

The effect of the Restatement described above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2019 is as follows:


	Consolidated Statement of Operation For the twelve months ended December 31, 2019

	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Revenue	$	87,518,688		$	—		$	—		$	—		$	87,518,688
Cost of sales		78,386,997			110,355			1,314,950			874,778			80,687,080
Gross profit		9,131,691			(110,355	)		(1,314,950	)		(874,778	)		6,831,608
Selling, general and administrative expenses		11,562,781												11,562,781
Loss from operations		(2,431,090	)		(110,355	)		(1,314,950	)		(874,778	)		(4,731,173	)

Other income (expense):
Other income		89,666												89,666
Interest expense		(2,104,851	)											(2,104,851	)
Loss before provision for income taxes		(4,446,275	)		(110,355	)		(1,314,950	)		(874,778	)		(6,746,358	)

Provision for income taxes		3,877			—			—			—			3,877
Net loss	$	(4,450,152	)	$	(110,355	)	$	(1,314,950	)	$	(874,778	)	$	(6,750,235	)
Loss per common share - basic	$	(0.38	)	$	(0.01	)	$	(0.11	)	$	(0.07	)	$	(0.57	)
Loss per common share - diluted	$	(0.38	)	$	(0.01	)	$	(0.11	)	$	(0.07	)	$	(0.57	)
Basic		11,808,052			—			—			—			11,808,052
Diluted		11,808,052			—			—			—			11,808,052

Cumulative Effect of Prior Period Adjustments

The following table presents the impact of the Restatement on the Company’s shareholders’ deficit as of December 31, 2019 (as restated) and December 31, 2020 (as restated):

	Common Stock Shares		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Total Shareholders’ Deficit
Balance, December 31, 2019 (As previously reported)		11,818,830	$	11,819	$	71,294,629	$	(79,046,688	)	$	(7,740,240	)
Inventory Costing Errors		—		—		—		(110,355	)		(110,355	)
Loss Contract Reserve		—		—		—		(1,314,950	)		(1,314,950	)
Inventory Reserve		—		—		—		(874,778	)		(874,778	)
Cumulative restatement adjustments		—		—		—		(2,300,083	)		(2,300,083	)
Balance, December 31, 2019 (As Restated)		11,818,830	$	11,819	$	71,294,629	$	(81,346,771	)	$	(10,040,323	)

Net Loss (as previously reported)							$	(2,812,519	)	$	(2,812,519	)
Inventory Costing Errors		—		—		—		(315,999	)		(315,999	)
Loss Contract Reserve		—		—		—		(9,371	)		(9,371	)
Inventory Reserve		—		—		—		(219,466	)		(219,466	)
Cumulative restatement adjustments		—		—		—		(544,836	)		(544,836	)
Net Loss (as restated)								(3,357,355	)		(3,357,355	)
Balance, March 31, 2020 (As Restated)		11,837,218	$	11,837	$	71,641,796	$	(84,704,126	)	$	(13,050,493	)
Net Loss (as previously reported)							$	(596,831	)	$	(596,831	)
Inventory Costing Errors		—		—		—		(510,244	)		(510,244	)
Loss Contract Reserve		—		—		—		(190,035	)		(190,035	)
Inventory Reserve		—		—		—		(63,451	)		(63,451	)
Cumulative restatement adjustments		—		—		—		(763,730	)		(763,730	)
Net Loss (as restated)								(1,360,561	)		(1,360,561	)
Stock-based compensation		18,388		19		189,184		—			189,203
Balance, June 30, 2020 (As Restated)		11,855,606	$	11,856	$	71,830,980	$	(86,064,687	)	$	(14,221,851	)

Net Income (as previously reported)							$	815,209		$	815,209
Inventory Costing Errors		—		—		—		(112,446	)		(112,446	)
Loss Contract Reserve		—		—		—		206,159			206,159
Inventory Reserve		—		—		—		(69,157	)		(69,157	)
Cumulative restatement adjustments		—		—		—		24,556			24,556
Net Income (as restated)								839,765			839,765
Stock-based compensation		70,571		70		141,031		—			141,101
Balance, September 30, 2020 (As Restated)		11,926,177	$	11,926	$	71,972,011	$	(85,224,922	)	$	(13,240,985	)

Net Income							$	1,273,703		$	1,273,703
Inventory Costing Errors		—		—		—		(1,071,395	)		(1,071,395	)
Loss Contract Reserve		—		—		—		99,921			99,921
Inventory Reserve		—		—		—		(78,831	)		(78,831	)
Cumulative restatement adjustments		—		—		—		(1,050,305	)		(1,050,305	)
Net income (as restated)								223,398			223,398
Stock-based compensation		25,094		25		33,830		—			33,855
Balance, December 31, 2020 (As Restated)		11,951,271	$	11,951	$	72,005,841	$	(85,001,524	)	$	(12,983,732	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December 31, 2020 is as follows:


	Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Cash flows from operating activities:
Net Loss	$	(1,320,438	)	$	(2,010,084	)	$	106,674		$	(430,905	)	$	(3,654,753	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,032,986												1,032,986
Amortization of debt issuance cost		95,429												95,429
Cash expended in excess of rent expense		(137,737	)											(137,737	)
Stock-based compensation expense		711,344												711,344
Bad debt expense		(23,395	)											(23,395	)
Changes in operating assets and liabilities:
Decrease in accounts receivable		2,090,091												2,090,091
Increase in contract assets		(4,448,831	)											(4,448,831	)
Increase in inventory		(3,676,535	)		1,765,595						430,905			(1,480,035	)
Decrease in prepaid expenses and other current assets		187,107												187,107
Decrease in refundable income taxes		434,904												434,904
Increase in accounts payable and accrued expenses		7,214,124			244,403									7,458,527
Decrease in contract liabilities		(1,911,158	)											(1,911,158	)
Decrease in loss reserve		(1,849,992	)					(106,674	)					(1,956,666	)
Decrease in income taxes payable		(354	)		86									(268	)
Net cash used in operating activities		(1,602,455	)		—			—			—			(1,602,455	)
Cash flows from investing activities:
Purchase of property and equipment		(146,788	)		—			—			—			(146,788	)
Net cash used in investing activities		(146,788	)		—			—			—			(146,788	)
Cash flows from financing activities:
Proceeds from PPP loan		4,795,000												4,795,000
Payments on long-term debt		(2,337,473	)											(2,337,473	)
Debt issuance costs		(107,540	)											(107,540	)
Net cash provided by financing activities		2,349,987			—			—			—			2,349,987
Net increase in cash and restricted cash		600,744			—			—			—			600,744
Cash and restricted cash at beginning of year		5,432,793			—			—			—			5,432,793
Cash and restricted cash at end of year	$	6,033,537		$	—		$	—		$	—		$	6,033,537
Supplemental schedule of noncash investing activities:
Equipment acquired under capital lease	$	134,900		$	—		$	—		$	—		$	134,900
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	1,490,152		$	—		$	—		$	—		$	1,490,152
Cash (received) from income taxes	$	(488,052	)	$	—		$	—		$	—		$	(488,052	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the nine months ended September 30, 2020 is as follows:


	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (Unaudited)
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Cash flows from operating activities:
Net Loss	$	(2,594,141	)	$	(938,689	)	$	6,753		$	(352,074	)	$	(3,878,151	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		769,690												769,690
Amortization of debt issuance cost		80,764												80,764
Cash expended in excess of rent expense		(115,932	)											(115,932	)
Stock-based compensation expense		677,489												677,489
Bad debt expense		(47,410	)											(47,410	)
Changes in operating assets and liabilities:
Increase in accounts receivable		(232,310	)											(232,310	)
Increase in contract assets		(3,128,460	)											(3,128,460	)
Increase in inventory		(2,850,707	)		852,222						352,074			(1,646,411	)
Decrease in prepaid expenses and other current assets		121,075												121,075
Decrease in refundable income taxes		439,445												439,445
Increase in accounts payable and accrued expenses		5,770,902			86,467									5,857,369
Decrease in contract liabilities		(1,092,266	)											(1,092,266	)
Decrease in loss reserve		(1,081,516	)					(6,753	)					(1,088,269	)
Net cash used in operating activities		(3,283,377	)		—			—			—			(3,283,377	)
Cash flows from investing activities:
Purchase of property and equipment		(11,888	)											(11,888	)
Net cash used in investing activities		(11,888	)											(11,888	)
Cash flows from financing activities:
Proceeds from PPP loan		4,795,000												4,795,000
Payments on long-term debt		(1,855,209	)											(1,855,209	)
Debt issuance costs		(107,540	)											(107,540	)
Net cash provided by financing activities		2,832,251												2,832,251
Net decrease in cash and restricted cash		(463,014	)											(463,014	)
Cash and restricted cash at beginning of year		5,432,793			—			—			—			5,432,793
Cash and restricted cash at end of year	$	4,969,779		$	—		$	—		$	—		$	4,969,779
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	1,156,126		$	—		$	—		$	—		$	1,156,126
Cash (received) from income taxes	$	(449,749	)	$	—		$	—		$	—		$	(449,749	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the six months ended June 30, 2020 is as follows:


	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (Unaudited)
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Cash flows from operating activities:
Net Loss	$	(3,409,350	)	$	(826,243	)	$	(199,406	)	$	(282,917	)	$	(4,717,916	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		512,567												512,567
Amortization of debt issuance cost		56,055												56,055
Cash expended in excess of rent expense		(77,288	)											(77,288	)
Stock-based compensation expense		536,388												536,388
Bad debt expense		(73,352	)											(73,352	)
Changes in operating assets and liabilities:
Decrease in accounts receivable		144,537												144,537
Increase in contract assets		(285,875	)											(285,875	)
Increase in inventory		(1,767,122	)		684,605						282,917			(799,600	)
Increase in prepaid expenses and other current assets		(142,816	)											(142,816	)
Decrease in refundable income taxes		437,931												437,931
Increase in accounts payable and accrued expenses		2,332,263			141,638									2,473,901
Decrease in contract liabilities		1,433,720												1,433,720
Decrease in loss reserve		(549,840	)					199,406						(350,434	)
Net cash used in operating activities		(852,182	)		—			—			—			(852,182	)
Cash flows from investing activities:
Purchase of property and equipment		(8,000	)											(8,000	)
Net cash used in investing activities		(8,000	)											(8,000	)
Cash flows from financing activities:
Proceeds from PPP loan		4,795,000												4,795,000
Payments on long-term debt		(1,237,726	)											(1,237,726	)
Net cash provided by financing activities		3,557,274												3,557,274
Net increase in cash and restricted cash		2,697,092												2,697,092
Cash and restricted cash at beginning of year		5,432,793			—			—			—			5,432,793
Cash and restricted cash at end of year	$	8,129,885		$	—		$	—		$	—		$	8,129,885
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	845,962		$	—		$	—		$	—		$	845,962
Cash (received) from income taxes	$	(449,749	)	$	—		$	—		$	—		$	(449,749	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the three months ended March 31, 2020 is as follows:


	Consolidated Statements of Cash Flows for the three months ended March 31, 2020 (Unaudited)
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Cash flows from operating activities:
Net Loss	$	(2,812,519	)	$	(315,999	)	$	(9,371	)	$	(219,466	)	$	(3,357,355	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		256,284												256,284
Amortization of debt issuance cost		35,437												35,437
Amortization of right of use asset		(38,644	)											(38,644	)
Stock-based compensation expense		347,185												347,185
Bad debt expense		(51,369	)											(51,369	)
Changes in operating assets and liabilities:
Decrease in accounts receivable		973,002												973,002
Increase in contract assets		(533,743	)											(533,743	)
Increase in inventory		(1,048,752	)		242,857						219,466			(586,429	)
Decrease in prepaid expenses and other current assets		26,549												26,549
Decrease in refundable income taxes		1,506												1,506
Increase in accounts payable and accrued expenses		735,282			73,142									808,424
Increase in contract liabilities		1,187,667												1,187,667
Decrease in loss reserve		(505,407	)					9,371						(496,036	)
Net cash used in operating activities		(1,427,522	)		—			—			—			(1,427,522	)
Cash flows from investing activities:
Purchase of property and equipment		(3,200	)											(3,200	)
Net cash used in investing activities		(3,200	)											(3,200	)
Cash flows from financing activities:
Payments on long-term debt		(622,690	)											(622,690	)
Debt issuance costs		—												—
Net cash used in financing activities		(622,690	)											(622,690	)
Net decrease in cash and restricted cash		(2,053,412	)											(2,053,412	)
Cash and restricted cash at beginning of year		5,432,793			—			—			—			5,432,793
Cash and restricted cash at end of period	$	3,379,381		$	—		$	—		$	—		$	3,379,381
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	450,191		$	—		$	—		$	—		$	450,191
Cash (received) from income taxes	$	(928	)	$	—		$	—		$	—		$	(928	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December 31, 2019 is as follows:


	Consolidated Statements of Cash Flows for the twelve months ended December 31, 2019
	As Previously Reported			Inventory Costing Errors			Loss Contract Reserve			Inventory Reserve			As Restated
Cash flows from operating activities:
Net Loss	$	(4,450,152	)	$	(110,355	)	$	(1,314,950	)	$	(874,778	)	$	(6,750,235	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,124,063												1,124,063
Amortization of debt issuance cost		95,507												95,507
Cash expended in excess of rent expense		(112,048	)											(112,048	)
Stock-based compensation expense		730,564												730,564
Common Stock Issued as Employee Compensation		32,324												32,324
Bad debt expense		34,098												34,098
Changes in operating assets and liabilities:
Decrease in accounts receivable		1,807,802												1,807,802
Decrease in contract assets		2,308,059												2,308,059
Decrease in inventory		227,336			110,355						874,778			1,212,469
Decrease in prepaid expenses and other current assets		1,202,189												1,202,189
Decrease in refundable income taxes		394,902												394,902
Decrease in accounts payable and accrued expenses		(678,380	)											(678,380	)
Decrease in contract liabilities		(1,968,872	)											(1,968,872	)
Decrease in loss reserve		(1,012,597	)					1,314,950						302,353
Decrease in income taxes payable		(112,777	)											(112,777	)
Net cash used in operating activities		(377,982	)		—			—			—			(377,982	)
Cash flows from investing activities:
Purchase of property and equipment		(436,010	)											(436,010	)
Net cash used in investing activities		(436,010	)		—			—			—			(436,010	)
Cash flows from financing activities:
Proceeds from Line of Credit		4,000,000												4,000,000
Payments of Line of Credit		(1,300,000	)											(1,300,000	)
Payments on long-term debt		(2,436,786	)											(2,436,786	)
Debt issuance costs		(25,000	)											(25,000	)
Stock offering costs paid		(119,571	)											(119,571	)
Net cash provided by financing activities		118,643			—			—			—			118,643
Net decrease in cash and restricted cash		(695,349	)		—			—			—			(695,349	)

Cash and restricted cash at beginning of year		6,128,142			—			—			—			6,128,142
Cash and restricted cash at end of year	$	5,432,793		$	—		$	—		$	—		$	5,432,793
Supplemental schedule of noncash investing activities:
Equipment acquired under capital lease	$	399,800		$	—		$	—		$	—		$	399,800
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	2,066,174		$	—		$	—		$	—		$	2,066,174
Cash (received) from income taxes	$	(378,652	)	$	—		$	—		$	—		$	(378,652	)