U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[X]     Annual Report under Section 13 or 15(d) of the Securities
        Exchange Act of 1934

         For the fiscal year ended           December 31, 2001
                                   ---------------------------------------

[ ]     Transition Report under Section 13 or 15(d) of the Securities
        Exchange Act of 1934

         For the transition period from ______________ to _________________

                         Commission file number 1-11398
                                                --------

                            CPI AEROSTRUCTURES, INC.
                 ---------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

            New York                                            11-2520310
-------------------------------------                        -----------------
(State or Other Jurisdiction                                  (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

200A Executive Drive, Edgewood, New York                                11717
----------------------------------------                             -----------
(Address of Principal Executive Offices)                              (Zip Code)

                                 (631) 586-5200
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

    Title of Each Class                Name of Each Exchange on Which Registered
    -------------------                -----------------------------------------
          None                                      None

                Securities registered under Section 12(g) of the Act:


                     Common Stock, $.001 par value per share
              -----------------------------------------------------
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.

                                                Yes   X      No
                                                    ------      ---------

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

         The issuer's revenues for its most recent fiscal year were $15,024,027.

         The aggregate market value of the Common Stock held by non-affiliates
of the registrant on April 10, 2002 was approximately $3,789,154.

         As of April 15, 2002, the Issuer had 2,657,046 shares of Common Stock,
$.001 par value, outstanding.

         Transitional Small Business Disclosure Format: Yes         No      X
                                                           -----       -------


<Page>



                                             CPI AEROSTRUCTURES, INC.
                                          FORM 10-KSB ANNUAL REPORT-2001
                                                 TABLE OF CONTENTS

<Table>
<Caption>


PART I                                                                                               PAGE
<S>           <C>                                                                                     <C>

Item 1.      Description of Business...........................................................        3
Item 2.      Description of Property...........................................................        8
Item 3.      Legal Proceedings.................................................................        8
Item 4.      Submission of Matters to a Vote of Security Holders...............................        8

PART II

Item 5.      Market for Common Equity and Related Stockholder Matters..........................        8
Item 6.      Management's Discussion and Analysis..............................................       10
Item 7.      Financial Statements..............................................................       12
Item 8.      Changes in and Disagreements with Accountants on Accounting and
              FinancialDisclosure..............................................................       12

PART III

Item 9.      Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act.................................       13
Item 10.     Executive Compensation.............................................................       14
Item 11.     Security Ownership of Certain Beneficial Owners and Management.....................       18
Item 12.     Certain Relationships and Related Transactions.....................................       19
Item 13.     Exhibits, List and Reports on Form 8-K.............................................       19


</Table>
                                       2
<Page>






Item 1.  DESCRIPTION OF BUSINESS

Business Development

         The business of CPI Aerostructures, Inc. (the "Company") has
historically been conducted through two distinct corporations. The parent
company, CPI Aerostructures, Inc. ("CPI") is engaged in contract production of
structural aircraft parts and sub-assemblies for the commercial and military
sectors of the aircraft industry. In connection with its commercial assembly
operations, CPI provides engineering, technical and program management services
to its customers. CPI also owns all of the outstanding stock of Kolar, Inc.
("Kolar"), which prior to the termination of its operations in December 2001,
manufactured precision machine parts and sub-assemblies for the electronics
industry, including computer and microwave device manufacturers, as well as the
materials handling, aerospace and banking industries. Kolar has closed its
facility located in Ithaca, New York and liquidated most of its assets through
an auction. The proceeds of this liquidation are being used to reduce Kolar's
liabilities on certain bank debt in the amount of approximately $6.3 million
that is currently in default. The bank debt and Kolar's obligations to its
previous owner are guaranteed by the Company and are secured by liens on the
Company's assets and Kolar's remaining assets.

         As a result of the Company's decision to close the Kolar facilities and
liquidate its assets, Kolar's operations have been classified as "discontinued."
Accordingly, unless otherwise stated, the disclosure in this Form 10-KSB and the
financial statements included herein does not include the results of Kolar's
operations

         CPI was incorporated under the laws of the State of New York in January
1980 under the name Composite Products International, Inc. The Company changed
its name to Consortium of Precision Industries, Inc. in April 1989 and to CPI
Aerostructures, Inc. in July 1992. Kolar was incorporated under the laws of the
State of Delaware in July 1997 to acquire Kolar Machine, Inc., a precision
machining and assembly manufacturer located in Ithaca, New York. On October 9,
1997, Kolar purchased substantially all of the assets of Kolar Machine, Inc. and
the related real property for approximately $14.5 million.

Business of Issuer

         CPI is engaged in contract production of structural aircraft parts and
sub-assemblies for the commercial and military sectors of the aircraft industry.
The following table sets forth information relating to the approximate dollar
amounts and percentages of CPI's revenue from the commercial and military
sectors of the aircraft industry:
<Table>
<Caption>

                                                                       Years Ended
                                                   December 31,                             December 31,
                                                       2001                                     2000
                                                   -----------                              ------------
                                                              (Dollar amounts in thousands)
        <S>                                      <C>            <C>                      <C>              <C>

         Commercial                        $ 1,267               8.4%                  $  2,007             24.3%
         Military                           13,757              91.6                      6,254             75.7
                                            ------             -----                     ------            -----
           Total                          $ 15,024             100.0%                   $ 8,261            100.0%
                                           =======             =====                     ======            =====

</Table>

         Kolar manufactured precision parts and sub-assemblies for a variety of
different markets. Kolar accounted for approximately 36% (or $8,291,620) of the
Company's revenue in 2001 and 71% (or $20,360,000) of the Company's revenue in
2000, although Kolar's revenues are not included in the Company's total revenues
in the financial statements included herein since Kolar's results of operations
have been classified as discontinued.

                                       3
<page>
Products

         CPI

         CPI's products are sub-assemblies (a series of parts fitted together to
form a complex aerodynamic structure). These products are incorporated into jet
engine housings (nacelles) by CPI's customers or aircraft manufacturers to form
final aircraft assemblies. CPI's products are custom designed and developed to
fit precise certification standards imposed by CPI's customers and applicable
regulatory bodies. Due to the critical functions served by CPI's products,
sub-assemblies are often manufactured using durable, heat-resistant, and/or
light-weight metals, including titanium, inconel and various metal alloys
containing similar properties.

         CPI's principal commercial aircraft products include aprons and engine
mounts, which are structures used to attach jet engine housings to aircraft.
Apron assemblies are panels that function as the aerodynamic surface between
pylons (structures which attach nacelles to the wing or fuselage) and nacelles.
Aft fairing assemblies are the exterior portion of a pylon.

         CPI also assembles structural replacement parts for military aircraft,
including spoilers, flaps, ducts, skins and doors. Spoilers and flaps are
aerodynamic panels attached to the wings of an aircraft that enable an aircraft
to ascend and brake during takeoff and landing. Ducts are open panels to enable
free airflow within an aircraft. Skins are the outer layer of an aircraft. CPI
has the capabilities to produce additional aircraft products for both commercial
and military applications.

         Kolar

         Kolar's principal products included detail parts and major
sub-assemblies for high-speed machines that route printed circuit boards through
a series of operations while inserting and bonding components to the board. The
printed circuit boards were ultimately used in ATM machines, computers, and a
variety of other electronic devices.

         In the materials handling market, Kolar's customers produced high speed
equipment used for the weighing and measuring of cartons and containers.

Customers and Contracts

         CPI - Commercial

         Pursuant to long-term agreements with Rohr Industries, Inc. (owned by
B. F. Goodrich), a leading commercial aircraft supplier of nacelles, CPI
operates as a subcontractor under Rohr's production programs with The Boeing
Company. In June 1994, Rohr sold its corporate jet business to the Nordam
Corporation ("Nordam") and CPI's agreement with Rohr concerning the Hawker 1000
Executive Jet, an eight to ten seat aircraft, was transferred to Nordam. CPI
provides Nordam with engine mounts and all related sub-assemblies and
components, which are now used in connection with production of the Lear 60
Executive Jet. CPI's agreement with Nordam contains provisions that allow
termination of such contract at will, in whole or in part, at the convenience of
the customer and generally provides that the customer must reasonably compensate
CPI for work performed through the termination date. For the years ended
December 31, 2000 and 2001, sales derived from Nordam were approximately 24% and
8%, respectively.

         Generally, CPI's commercial agreements provide that the price for
products is subject to annual adjustment calculated in accordance with an
escalation formula (based on statistics published by the United States
Department of Labor), which account primarily for industry costs for labor and
materials. In addition, the agreements contain re-pricing provisions which
adjust the price under certain circumstances as a result of changes in the
scope, design, quantity or delivery schedule provisions.

                                       4
<page>

         CPI - Military

         CPI supplies structural aircraft parts and sub-assemblies to the
military under prime contracts with several branches of the United States
Government. For the years ended December 31, 2000 and 2001, 76% and 92%,
respectively, of CPI's revenues were derived from military contracts.

         As of December 31, 2000 and 2001, CPI had one-hundred thirteen and
one-hundred eighty-nine military contracts, respectively, in various stages of
completion. Additionally, the Company has added sixty-three new military
contracts since December 31, 2001. Contract terms are generally one to two
years. Product prices under these contracts are fixed. Each contract obligates
CPI to deliver a specific quantity of units according to specified delivery
schedules. Each contract contains re-pricing clauses, which adjust the fixed
price for each product delivered in the event that the government requests
design, quantity or schedule changes for products. CPI generally provides its
own tooling to produce products under military contracts. CPI typically recovers
all of its tooling costs under a contract following the delivery of the first
unit produced. For contracts with an aggregate dollar amount in excess of
$100,000, CPI is generally entitled to receive progress payments to cover
approximately 90% of CPI's total costs at the time of the request.

         Pursuant to military contracts, CPI provides a warranty which covers
defects in materials and workmanship for products delivered to the government.
The warranty provides for the replacement or repair of defective products. CPI
is not required under its contracts to carry liability insurance. Such contracts
incorporate by reference the Federal Acquisition Regulations (FAR) which provide
that the government generally acts as a self-insurer for loss of or damage to
property that occurs after acceptance of delivered products and results from
defects or deficiencies of the products.

Production and Assembly

         CPI's assembly operations consist primarily of incorporating component
aircraft parts supplied by third parties into complex sub-assemblies to satisfy
specific customer requirements and precision certification standards. CPI
subcontracts production of component parts in its assembly operations, which are
shaped, formed, welded and/or machined to specified configurations. This allows
CPI to avoid additional costs of extensive manufacturing and production
facilities, parts fabrication and expensive capital equipment. CPI's employees
process component parts to add drilling, routing, boring and other processes
prior to assembly. Components are placed, attached and incorporated into final
assemblies by CPI-trained personnel. CPI's operations are generally conducted on
a five-day basis with single shifts. CPI packages its products in accordance
with specifications for shipment to its customers. CPI's customers are generally
responsible for arranging product shipment by common carrier.

Marketing

         To date, substantially all of CPI's marketing activities have been
conducted by members of management. Such activities have consisted primarily of
personal contact with potential customers.

         CPI's sales cycle, which generally commences at the time a prospective
customer issues a request for proposal and ends upon execution of a contract
with the customer, typically ranges from six months to one year. A portion of
CPI's commercial marketing efforts involves responding to requests from
potential contractors. CPI obtains military contracts for its products and
services through the process of competitive bidding.

         In April 1999, the Company introduced its CPI website
(www.cpiaero.com). A prospective customer can learn about the Company and
contact management from such sites. Additionally, CPI has signed agreements with
a number of sales representatives to market the Company's products to a broader
base of customers.

Backlog

         CPI produces custom sub-assemblies pursuant to long-term contracts and
customer purchase orders. Backlog consists of aggregate contract values under
basic ordering agreements or for production orders, excluding the portion
previously included in operating revenues on the basis of percentage of
completion accounting, and including estimates of future contract price
escalation. All of CPI's backlog is subject to termination at will and
rescheduling, without significant penalty. As of December 31, 2001 and 2000,
CPI's backlog was approximately $21 million and $9.5 million, respectively .

                                       5
<page>
         Of CPI's backlog at December 31, 2001, approximately 5% and 95% is
attributable to commercial and military contracts, respectively. Approximately
$18.7 million (89%) of CPI's current backlog at December 31, 2001 is scheduled
for delivery during the year ending December 31, 2002.

Raw Materials, Suppliers and Manufacturers

         The Company makes extensive use of metals, including, titanium,
inconel, steel, aluminum and alloys as raw materials in the production of its
products. Rod, bar tubing and extrusions made of aluminum, steel and titanium
and other materials such as rubber and adhesives are also utilized. The
Company's decision to purchase certain raw materials is generally based on
required specifications of its customers. The Company purchases all of its
supply of metals and other raw materials pursuant to purchase orders from third
party distributors who purchase raw materials from original manufacturers
located throughout the United States. The Company is attempting to maintain
alternative sources of supply for the Company's raw materials and believes that
alternative sources are currently available for most of such materials.

         CPI subcontracts production of substantially all component parts
incorporated into its products to third party manufacturers under firm fixed
price orders. CPI's decision to purchase certain components is generally based
upon whether such components are available to meet required specifications and
at a cost and delivery consistent with customer requirements. CPI, from time to
time, is required to purchase custom made parts from sole suppliers and
manufacturers in order to meet specific customer requirements. To date, CPI has
not experienced material delays in connection with obtaining custom parts.

         The Company generally does not maintain supply agreements with its
suppliers or manufacturers and purchases raw materials and component parts
pursuant to purchase orders in the ordinary course of business. The Company
believes that the supplies of materials through the end of 2002 will be
adequate.

Competition

         The markets for CPI's products are highly competitive. CPI competes
with numerous well-established foreign and domestic subcontractors engaged in
the supply of aircraft parts and assemblies to the commercial sector of the
aircraft industry, including Northrop Grumman Corporation, Aeronca, Inc.,
Shin-Meiwa and other subcontractors throughout the world. CPI also faces
competition from foreign and domestic prime contractors, including Nordam, all
of whom possess greater resources than CPI, thereby permitting such companies to
implement extensive production programs in response to orders from aircraft
manufacturers. The market for large commercial jet aircraft is dominated by The
Boeing Company and Airbus Industries, which typically contract production of
assemblies to a limited number of large commercial contractors. Consequently,
CPI's ability to increase market penetration in the commercial sector may be
limited by the relatively limited number of prime contractors in this market.

         CPI competes on the basis of price, development and production
capabilities and service. To the extent possible, CPI seeks to limit its
operations to the assembly of complex sub-assemblies while subcontracting
production of component parts, which allows CPI to avoid the significant costs
associated with maintaining capital equipment.

         CPI also faces competition from numerous military subcontractors. CPI
competes for military contracts on the basis of price. CPI is able to obtain
military contracts that are "set-aside" for small businesses.

                                       6
<page>

Government Regulation

         The Company is subject to regulations administered by the United States
Environmental Protection Agency, the Occupational Safety and Health
Administration, various state agencies and county and local authorities acting
in cooperation with Federal and state authorities. Among other things, these
regulatory bodies impose restrictions to control air, soil and water pollution,
to protect against occupational exposure to chemicals, including health and
safety risks, and to require notification or reporting of the storage, use and
release of certain hazardous chemicals and substances. The extensive regulatory
framework imposes compliance burdens and risks on the Company. Governmental
authorities have the power to enforce compliance with these regulations and to
obtain injunctions or impose civil and criminal fines in the case of violations.

         The Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") imposes strict, joint and several liability on the
present and former owners and operators of facilities which release hazardous
substances into the environment. The Resource Conservation and Recovery Act of
1976 ("RCRA"), regulates the generation, transportation, treatment, storage and
disposal of hazardous waste. In New York, the handling, storage and disposal of
hazardous substances is governed by the Environmental Conservation Law, which
contains the New York counterparts of CERCLA and RCRA. In addition, the
Occupational Safety and Health Act, which requires employers to provide a place
of employment that is free from recognized and preventable hazards that are
likely to cause serious physical harm to employees, obligates employers to
provide notice to employees regarding the presence of hazardous chemicals and to
train employees in the use of such substances.

         CPI's operations require the use of a limited amount of chemicals and
other materials for painting and cleaning, including solvents and thinners, that
are classified under applicable laws as hazardous chemicals and substances. CPI
has obtained a permit from the Town of Islip, New York, Building Division in
order to maintain a paint booth containing flammable liquids.

         The Company believes that it is in substantial compliance with all
federal, state and local laws and regulations governing its operations and has
obtained all material licenses and permits required for the operations of its
business.

Warranty

         Pursuant to all of CPI's commercial contracts, CPI warrants that
products will strictly conform to all specifications provided by the customer
and will be free from defects in material and workmanship for a specified period
(ranging from one to four years). CPI's liability is limited to repair or
replacement of defective products. Notwithstanding such limitation, CPI agreed
to indemnify the customers for any costs, damages, expenses or other loss or
liability incurred or paid (including reasonable attorneys' fees) arising out of
asserted claims for property damage, personal injury or death, or any other
damages, including claims of consequential loss and breach of contract as a
result of, among other things, the performance of work, products or workmanship,
provided that such claims do not arise as a result of the sole fault of the
customers.

         Pursuant to military contracts, CPI provides a warranty, which covers
defects in materials and workmanship for products delivered to the government.
The warranty provides for the replacement or repair of defective products. CPI
is not required under its contracts to carry liability insurance. Such contracts
incorporate by reference the Federal Acquisition Regulations (FAR) which provide
that the government generally acts as a self-insurer for loss of or damage to
property that occurs after acceptance of delivered products and results from
defects or deficiencies of the products.

Insurance

         CPI maintains a $2 million general liability insurance policy, a $10
million products liability insurance policy, and a $5 million umbrella liability
insurance policy. The Company believes this coverage is adequate for the types
of products presently marketed.


                                       7
<page>

Proprietary Information

         None of CPI's current assembly processes or products are protected by
patents. CPI relies on proprietary know-how and confidential information and
employs various methods to protect the processes, concepts, ideas and
documentation associated with its products. However, such methods may not afford
complete protection and there can be no assurance that others will not
independently develop such processes, concepts, ideas and documentation. CPI has
registered the name CPI Aerostructures and its logo as trademarks.

Employees

         As of April 15, 2002, CPI employed 36 full-time employees including its
two executive officers.

         The Company also employs temporary personnel with specialized
disciplines on an as-needed basis. None of the Company's employees are members
of unions. The Company believes that its relations with its employees are good.

Item 2.  DESCRIPTION OF PROPERTY

         CPI Aerostructures' executive offices and production facilities are
situated in an approximate 25,000 square foot building located at 200A Executive
Drive, Edgewood, New York 11717. CPI Aerostructures occupies this facility under
a lease which commenced on December 1, 1995 and ended on March 31, 2001. We are
currently occupying this space pursuant to the lease on a month-to-month basis.
The current monthly base rent is $13,451, plus common area costs, over the term
of the lease. The Company believes that its facilities are adequate for its
current needs.

         On January 22, 2002, the Company announced that its wholly owned
subsidiary, Kolar, Inc., would close all its facilities located in Ithaca, New
York. Kolar is currently in the process of selling these properties through
private sales. Kolar is also in the process of terminating a lease for property
in Ithaca, New York.

Item 3.  LEGAL PROCEEDINGS

         Kolar is currently in the process of liquidating all of its assets
through an auction of its fixed assets and the private sale of its real estate.
The proceeds of this liquidation will be used to reduce Kolar's liabilities on
certain bank debt. The bank debt and Kolar's obligations to its previous owner
are secured by liens on the assets and real estate to be sold and are guaranteed
by the Company. Various creditors have made claims against Kolar. There can be
no assurance that satisfactory payment terms will be made with any of Kolar's
creditors or with the banks regarding the balance of portions of the debt, which
is currently due no later than June 30, 2002.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         None


                                     PART II

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

         The Company's Common Stock is listed on the American Stock Exchange
("Amex"), under the symbol CVU. The stock symbol changed from CPIA to CVU on
September 5, 2000, when CPI ceased trading on The Nasdaq SmallCap Market, Inc.
("NASDAQ") and began trading on the Amex.

         The following tables set forth for the last two fiscal years, the high
and low last sales prices of CPI's Common Stock for the periods indicated, as
reported by the Nasdaq (through September 4, 2000) and by the Amex (from
September 5, 2000 through December 31, 2001).

                                       8
<page>

<Table>
<Caption>

                    Period                                       High                       Low
                   <S>                                           <C>                       <C>

                    2000

                    Quarter Ended March 31, 2000                 $3.875                     $2.750

                    Quarter Ended June 30, 2000                  $3.266                     $2.125

                    Quarter Ended September 30, 2000             $3.750                     $2.031

                    Quarter Ended December 31, 2000              $3.875                     $2.625

                    2001

                    Quarter Ended March 31, 2001                 $3.880                     $1.860

                    Quarter Ended June 30, 2001                  $3.000                     $1.650

                    Quarter Ended September 30, 2001             $1.700                     $1.150

                    Quarter Ended December 31, 2001              $2.000                     $1.250

</Table>

         On April 10, 2002, the closing sale price for the Company's Common
Stock on the Amex was $1.61.

Holders

         On April 12, 2002, there were 133 holders of record of the Company's
Common Stock. The Company reasonably believes that there are in excess of 2,000
beneficial holders of its Common Stock.

Dividend Policy

         To date, the Company has not paid any dividends on its Common Stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash or other dividends in the
foreseeable future, but instead intends to retain earnings, if any, for use in
the Company's business operations.

         In addition, the Company's Credit Agreement with its several lenders
provides that the Company may not declare or pay any dividend on its Common
Stock so long as any amounts are owing to the several lenders. See "Item 6.
Management's Discussion and Analysis - Financing Arrangements."

Recent Sales of Unregistered Securities, Use of Proceeds from Registered
Securities

         None

                                       9
<page>

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing under Item 7 of this
Report.

         Certain statements discussed in this Report include forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. Including the
timely delivery and acceptance of the Company's products, the timing of
commercial and government funding approvals, and the other risks detailed from
time to time in the Company's SEC reports.

General

         Consistent with industry practice, CPI uses the percentage of
completion method of accounting for its business. Under this method, CPI
recognizes revenues as costs are incurred under its contracts, measured by the
percentage of actual costs incurred to date against estimated total costs. Under
CPI's commercial contracts, CPI does not receive cash payments until products
are shipped. Accordingly, revenues may be recognized by CPI even though
associated cash payments have not been received. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in contract performance may result in revisions to costs and
income, which are recognized in the period in which revisions are determined to
be required. CPI's recorded revenues may be written-off in later periods in the
event CPI's cost estimates prove to be inaccurate or a contract is terminated.

         As a result of the Company's decision to close the Kolar facilities and
liquidate its assets, Kolar's operations have been classified as discontinued,
and the following discussion does not take Kolar into effect unless otherwise
stated.

Results of Operations

  Year Ended December 31, 2001 as Compared to the Year Ended December 31, 2000

         The Company's revenue for the year ended December 31, 2001 ("2001") was
$15,024,027 compared to $8,261,351 for the year ended December 31, 2000
("2000"), representing an increase of $6,762,676, or 82%. This is a result of
the Company winning approximately 250 contracts totalling $19 million.

         Gross profit for 2001 was $4,068,763 compared to $2,585,122 for 2000,
representing an increase of $1,483,641. Gross profit as a percentage of revenue
for 2001 was 27%, compared to 31% for 2000. The reduction in gross profit
percentage is due primarily to a less profitable sales mix.

         Selling, general and administrative expenses for 2001 were $1,479,421
compared to $1,421,758 for 2000, representing an increase of $57,663. This
increase is primarily attributable to the increased level of sales. Selling,
general and administrative expenses as a percentage of revenue for 2001 and 2000
were 10% and 17%, respectively. Interest expense for 2001 was $155,825, compared
to $106,157 for 2000, representing an increase of $49,668.

         Net income before discontinued operations was $2,431,897 for 2001
compared to net income before discontinued operations of $949,779 for 2000,
representing an increase of $1,482,118.

         The net loss for 2001 was $11,638,119 compared to net income of
$1,929,206 for 2000, representing a decrease in net income of $13,567,325, which
was primarily due to the liquidation of Kolar. Basic loss per share was $4.39 on
2,653,538 average shares outstanding compared to net income of $0.73 on
2,648,509 average shares outstanding for fiscal 2000. Diluted earnings (loss)
per share in 2001 was the same as basic because the effect of options and
warrants is anti-dilutive. Diluted earnings per share was $0.70 in 2000 on
2,763,888 weighted average shares outstanding.

                                       10
<page>

Liquidity and Capital Resources

         General

         The Company historically uses a portion of its cash for costs incurred
on various commercial contracts that are in process. These costs are components
of "Costs and estimated earnings in excess of billings on uncompleted contracts"
and represents 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. CPI's continued requirement to incur significant
costs, in advance of receipt of associated cash for commercial contracts has
caused an increase in the gap between aggregate costs and earnings and the
related billings to date.

         Net cash provided by operating activities for 2001 was $1,090,777
compared to $586,111 for 2000. This increase in cash was primarily attributable
to net income before discontinued operations of $2,431,897, depreciation and
amortization of $35,653, warrants issued for consulting fees of $47,354,
deferred portion of provision for income taxes of $92,000 and an increase in
accounts payable and accrued expenses of $2,475,199. This was offset by an
increase in accounts receivable of $1,336,061, an increase in costs and
estimated earnings in excess of billings on uncompleted contracts of $2,563,606,
an increase in prepaid expenses and other current assets of $63,816 and a
decrease in income taxes payable of $33,000.

         Net cash used in investing activities was $17,507 in 2001, and $70,838
in 2000 resulting from the Company's upgrade in their computer system. Net cash
used in financing activities was $5,480 compared to net cash provided by
financing activities of $1,320,178 in 2000 which was the result of proceeds from
the Company's line of credit. The Company repaid long-term debt of $5,480 in
2001, as compared to $4,822 in 2000.

         Net cash by provided by continuing operations was $1,067,790 in 2001
compared to $1,835,451. In 2000, net cash used for discontinued operations was
$950,191 in 2001 compared to $1,960,118 in 2000.

         As a result of the foregoing, the Company's cash at December 31, 2001
increased by $117,599 from the prior year to $180,578. The Company believes it
will have sufficient cash flow for 2002 to satisfy its cash requirements, if the
Company is successful in restructuring its existing debt (see below).

         Financing Arrangements

         The Company has an agreement with JP Morgan Chase and GE Capital CFE,
Inc. (as assignee of Mellon Bank) providing a line of credit through June 30,
2002, which is used for working capital and other corporate purposes as needed.
Interest is at the bank's prime rate (4.75% at December 31, 2001) plus 3.5%. The
line of credit is secured by substantially all assets of the Company and Kolar.
As of March 31, 2002, there was an outstanding balance of $1,700,000 on this
line of credit.

         On October 9, 1997, the Company, as a co-borrower with Kolar and as
guarantor, incurred significant indebtedness to facilitate its acquisition of
the assets of Kolar Machine, Inc. (now known as Ralok, Inc.). At that time, the
Company and Kolar entered into a term loan agreement with JP Morgan Chase and
Mellon Bank in the amount of $9,400,000. As of March 31, 2002, the outstanding
balance on this loan was $1,189,717, with proceeds from the auction sale being
used to reduce the principal. The loan matures on June 30, 2002 and is
collateralized by all of the assets of the Company and Kolar. The Mellon Bank
portion of the loan has been assigned to GE Capital CFE, Inc.

         In 1997, Kolar entered into a mortgage loan agreement with JP Morgan
Chase in the original principal amount of $975,000. The principal amount has
been reduced by periodic payments and also by the application of the proceeds of
sale of certain of the properties subject to it and was approximately $285,000
as of March 31, 2002. This loan is payable in monthly installments of $9,487,
including interest at 8.3% per annum, and matures on October 31, 2007. The
Company is a guarantor of the mortgage debt. Amortization of the current
principal amount of the loan at its present monthly rate will retire it prior to
its scheduled maturity date.

                                       11
<page>

         Additionally, the Company and Kolar entered into a purchase money note
agreement with Ralok in the amount of $4,000,000. The note issued under this
agreement is also due on June 30, 2002 and is secured by a security interest on
all of the assets of the Company and Kolar that is subordinate to the security
interest of the bank lenders. The note is currently convertible, at Ralok's
option, into 333,334 shares of Common Stock of the Company. Pursuant to the
terms of the subordination agreement between the bank lenders and Ralok, Ralok
is presently prohibited from receiving current payments of interest on its note.

         The auction of Kolar's machinery and equipment and the sale of its real
estate were intended to provide funds to pay the debt owed to the bank lenders.
However, the proceeds of the sales were not sufficient to provide for payment in
full. The Company is not in compliance with certain of the financial covenants
in its agreements with the bank lenders and has also borrowed more under its
line of credit than is permitted by those agreements. The Company is presently
negotiating with the bank lenders and Ralok to restructure and extend the terms
of the indebtedness described above and to obtain waivers of its current
defaults. If satisfactory terms are not agreed upon, all of the indebtedness,
including the mortgage indebtedness, will be due on June 30, 2002. At present,
the Company does not have the resources available to repay such indebtedness in
full and would be required to find substitute sources. There can be no assurance
that arrangements will be made either to restructure the terms of the
indebtedness or to find replacement capital.


Inflation

         Inflation has historically not had a material effect on the Company's
operations.

Impact of Accounting Standards Adopted by the Company

         The impact of recently adopted accounting standards is discussed in
Note 1 of Notes to Financial Statements.

Item 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(a)           Financial Statements

         This information appears following Item 13 of this Report and is
incorporated herein by reference.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None

                                       12
<page>
                                    PART III

Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The directors and executive officers of the Company are as follows:

         Name                   Age         Position

Arthur August (2)               67          Chairman of the Board of Directors,
                                            Chief Executive Officer
                                            and Director

Edward J. Fred (1)              43          President,
                                            Chief Financial Officer,
                                            Secretary and Director

Walter Paulick (1)(2)           55          Director

Kenneth McSweeney (1)(2)        70          Director

Timothy Stone                   41          President of Kolar

 (1) Member of Compensation Committee.

(2) Member of Audit Committee.


         Arthur August, a founder of the Company, has been the Chairman of the
Board, Chief Executive Officer and a director since January 1980 and was our
President until December 31, 2001. From 1956 to 1979, Mr. August was employed by
Northrop Grumman Corporation ("Grumman"), an aerospace products manufacturer,
where he last held the position of Deputy Director. Mr. August holds a degree in
Aeronautical Engineering from the Academy of Aeronautics (1956), a B.S. degree
in Industrial Management from C. W. Post College (1963), a Masters degree in
Engineering from New York University (1965) and is a graduate of the Program for
Management Development at the Harvard Graduate School of Business (1977).

         Edward J. Fred has been Secretary and a director of the Company
effective December 31, 1998. Mr. Fred was appointed to the position of President
on January 1, 2002. He was Controller of the Company from February 1995 to April
1998, when he was appointed as Chief Financial Officer. He was Executive Vice
President from May 1, 2000 until December 31, 2001. For approximately ten years
prior to joining the Company, Mr. Fred served in various positions for the
international division of Grumman, where he last held the position of
Controller.

         Walter Paulick has been a director of the Company since April 1992. Mr.
Paulick is currently a self-employed financial consultant. From 1982 to November
1992, Mr. Paulick was a Vice President of Parr Development Company, Inc., a real
estate development company. From 1980 to 1982, Mr. Paulick was employed by Key
Bank, where he last held the position of Vice President. From 1971 to 1980, Mr.
Paulick was a Vice President of National Westminster U.S.A.

         Kenneth McSweeney has been a director of the Company since February
1998. He has provided various consulting services for the Company since January
1995. Mr. McSweeney is currently an independent consultant to various aerospace
corporations. From 1961 to 1995, Mr. McSweeney served in various management
positions for the Grumman Corporation, most recently as the Vice President of
their Aerostructures Division and a Director of Business Development for the
Mideast and gulf coast region. Mr. McSweeney has extensive experience in
aerostructures and logistics support products and is a licensed professional
engineer in New York State. He holds a Bachelor and Master of Science Degree in
Electrical Engineering from the Polytechnic Institute of Brooklyn and a Masters
in Business Management from CW Post College. He also completed the Executive
Development Program at the Cornell School of Business and Public Administration.

         Timothy Stone has been President of Kolar since July 2000 and as
operations manager from January 200 until July 2000. Mr. Stone has over eight
years experience in managing manufacturing facilities. From June 1999 through
December 1999, Mr. Stone was operations manager of Elmira Stamping, a stamping
machine company. From April 1994 until June 1999, he served as the operations
manager for a Division of Thomas & Betts, a screw/machine cable connector
company. His initial leadership skills were developed while serving in the
Marine Corp., and strengthened by his 4-year career in the National Football
League.

                                       13

<page>

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and ten percent stockholders are required by regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on the Company's copies of such forms received or written representations
from certain reporting persons that no Form 5's were required for those persons,
the Company believes that, during the fiscal year ended December 31, 2001, all
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with, except that Steven Bronson, a
stockholder who previously owned greater than ten percent of the Company's
outstanding Common Stock, filed one Form 4 late, which Form 4 reported five
transactions. Mr. Bronson currently owns less than five percent of the Company's
outstanding Common Stock.

Item 10. EXECUTIVE COMPENSATION

         The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company during the fiscal years ended
December 31, 2001, 2000 and 1999, by the Company's Chief Executive Officer and
the Company's other executive officers whose total compensation exceeded
$100,000.
<Table>

                           SUMMARY COMPENSATION TABLE
<Caption>

---------------------------- ---------- --------------- ----------------- -------------------------------------------
                                                                                  Long Term Compensation
Name/Position                Year            Salary             Bonus     Securities Underlying Options/SARs (#)
---------------------------- ---------- --------------- ----------------- -------------------------------------------
<S>                             <C>              <C>             <C>                     <C>

Arthur August,               2001           $303,180               -0-                100,000
Chief Executive              2000           $307,854           $82,000                200,000
Officer                      1999           $313,114           $36,000                115,000
Edward J. Fred,              2001           $139,256               -0-                100,000
President and                2000           $149,728           $59,000                125,000
Chief Financial Officer      1999           $102,595               -0-                 60,000

Timothy Stone                2001           $120,016               -0-                    -0-
President - Kolar            2000           $103,284               -0-                    -0-
</Table>



                                       14
<page>
<Table>
<Caption>
                        OPTION GRANTS IN LAST FISCAL YEAR
              ------------------ ------------------ ------------------ ----------------- ----------------------
                                     Number of         Percent of
                                    Securities       Options Granted
                                    Underlying       to Employees in
                                      Options        Fiscal Year(1)    Exercise Price         Expiration
                                     Granted(#)                            ($/SH)                Date
              ------------------ ------------------ ------------------ ----------------- ----------------------
                <S>                     <C>               <C>                   <C>             <C>

              Arthur August           100,000             44.4%             $1.20                08/11

              Edward J. Fred          100,000             44.4%             $1.20                08/11

              ------------------ ------------------ ------------------ ----------------- ----------------------
</Table>


(1)      The Company granted a total of 225,000 options to employees in the
         fiscal year ended December 31, 2001.
<Table>
<Caption>


               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                FYE OPTION VALUES
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>                      <C>            <C>                      <C>
                                                              Number of Unexercised       Value of Unexercised
                                                                Options at FYE(#)      In-The-Money Options at FYE
                          Shares Acquired       Value             Exercisable/               ($)Exercisable/
Name                      on Exercise (#)      Realized          Unexercisable                Unexercisable
--------------------------------------------------------------------------------------------------------------------
Arthur August                    -0-               -0-            496,585/1,750                   $38,000/0

Edward J. Fred                   -0-               -0-              305,002/0                     $38,000/0

Timothy Stone                    -0-               -0-              30,000/0                          -0-

Employment Agreements
</Table>

         During 2001, Arthur August was employed by the Company as Chairman of
the Board, President and Chief Executive Officer and Edward J. Fred was employed
by the Company as Executive Vice President, Chief Financial Officer and
Secretary, pursuant to employment agreements which provided Messrs. August and
Fred with annual base salaries of $300,000, and $150,000, respectively. Pursuant
to his employment agreement, Mr. August was entitled to receive an annual bonus
equal to 4% of the Company's net income each of the years he is employed by the
Company. Mr. Fred was entitled to a 2% annual bonus for each of the years he is
employed by the Company.

         On August 14, 2001, each of Messrs. August and Fred executed new
employment agreements. Pursuant to the new agreements, Mr. Fred became the
Company's President on January 1, 2002 in addition to the other titles he holds.
Currently, Mr. August serves as the Company's Chairman of the Board and Chief
Executive Officer, and Mr. Fred serves as the President, Chief Financial Officer
and Secretary of the Company. The terms of their employment agreements expire on
December 31, 2004. Mr. August's annual base salary is $300,000 until December
31, 2002 and $100,000 from January 1, 2003 until December 31, 2004. Mr. Fred's
annual base salary is currently $200,000 and will increase by 8% each January
1st during the contract term. In addition to the base salary, Mr. August will
receive a bonus equal to 4% of the Company's consolidated net income for the
year ending December 31, 2002; 3% for the year ending December 31, 2003; and 2%
for the year ending December 31, 2004. Mr. Fred will receive a bonus equal to 2%
of the Company's consolidated net income for the year ending December 31, 2002;
3% for the year ending December 31, 2003; and 4% for the year ending December
31, 2004.

         Mr. August agreed that during the term of employment with the Company,
and for a period of five-years thereafter, he will not compete with the Company.
As consideration for his agreement not to compete with the Company for an
extended period of time, the Company agreed to pay Mr. August, upon his
termination $300,000 in five equal annual installments of $60,000 each
commencing on the date of termination. Mr. Fred agreed to a one-year covenant
not to compete with the Company.

                                       15
<page>
         Each of the Messrs., August and Fred were granted ten-year options to
purchase 100,000 shares of Common Stock of the Company at $1.20 per share
pursuant to their new employment agreements.

         Timothy Stone was appointed President of Kolar on July 10, 2000.
Pursuant to an employment agreement, which expires on April 30, 2003, Mr. Stone
receives an annual salary of $126,000 and increases on May 1, 2002 to $132,300.
Mr. Stone is now overseeing the liquidation of Kolar's assets. Mr. Stone's
agreement provides that during the term of employment, and for a period of one
year thereafter, Mr. Stone will not compete with Kolar.

Compensation Arrangements for Directors

         Directors hold office for three years with elections held on a
staggered basis at each annual meeting of shareholders. Directors currently
receive no cash compensation for serving on the Board of Directors. Directors
are reimbursed for reasonable expenses incurred in attending meetings. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board, subject to the terms of their respective employment agreements.

Employee Benefit Plans

         On February 1, 1991, the Company adopted a Qualified Sick Pay Plan (the
"QSP Plan") which covers full-time executive officers and managers. The QSP Plan
provides covered employees with income during periods of disability due to
sickness or injury and is funded through the purchase of disability income
insurance policies.

         On September 11, 1996, the Company instituted a fully-qualified 401(k)
Employee Savings Plan. The plan is totally voluntary and employee contributions
to the plan commenced on October 1, 1996. The Company has the option to make
voluntary matching and profit sharing contributions to the account of its
employees.

Stock Options

         Performance Equity Plan 2000

         The Performance Equity Plan 2000 ("2000 Plan") authorizes the grant of
830,000 options, of which options to purchase an aggregate of 460,000 shares of
Common Stock have been granted, at exercise price ranging from $1.20 to $2.59
per share. As of April 15, 2002, options to purchase 370,000 additional shares
remain eligible for the grant of options.

         1998 Performance Equity Plan

         The 1998 Performance Equity Plan ("1998 Plan") authorizes the grant of
463,334 options, of which options to purchase an aggregate of 451,002 shares of
Common Stock have been granted, at exercise prices ranging from $2.53 to $6.90
per share, to certain employees and executive officers of the Company. As of
April 15, 2002, options to purchase 12,332 additional shares remain eligible for
the grant of options.

         1995 Stock Option Plan

         The 1995 Employee Stock Option Plan (the "1995 Plan"), authorizes the
grant of 200,000 options, of which options to purchase an aggregate of 120,502
shares of Common Stock have been granted, at exercise prices ranging from $2.53
to $8.46 per share, to certain employees, executive officers, and directors of
the Company. As of April 15, 2002, options to purchase 40,641 additional shares
remain eligible for the grant of options.

         1992 Employee Stock Option Plan

         The 1992 Employee Stock Option Plan (the "1992 Plan") authorized the
grant of 83,334 options, of which options to purchase 60,501 shares are
outstanding at exercise prices ranging from $2.59 to $6.27 per share to certain
employees, executive officers and directors of the Company. As of April 29,
2002, the 1992 Plan expires and no more shares remain eligible for the grant of
options.

                                       16

<page>

         Other Options

         In April 1998, the Company issued 33,334 warrants to Gaines Berland,
Inc. as compensation for acting as the Company's investment banker, pursuant to
a consulting agreement. These warrants entitle the investment banker to purchase
33,334 shares of Common Stock at an exercise price of $7.50 during the five-year
period commencing April 1, 1998.

         On each of December 31, 1999 and February 1, 2002, we granted to John
Aneralla five year non-plan options to purchase 5,000 shares of the Company's
common stock as compensation for consulting services provided to the Company.
Mr. Aneralla may exercise the options at $2.53 and $1.65, respectively.


         Equity Compensation Plan Information

         The following table sets forth certain information at December 31, 2001
with respect to our equity compensation plans that provide for the issuance of
options, warrants or rights to purchase our securities.

<Table>
<Caption>
--------------------------- ------------------------- ------------------------ -----------------------------
                                                                               Number of  Securities
                                                                               Remaining Available for
                            Number of Securities to   Weighted-Average         Future Issuance under Equity
                            be Issued upon Exercise   Exercise Price of        Compensation Plans (excluding
                            of Outstanding Options,   Outstanding   Options,   securities reflected in the
Plan Category               Warrants and Rights       Warrants and Rights      first column)
-------------               -------------------       -------------------      -----------------------------
<S>                             <C>                       <C>                    <C>

Equity Compensation
Plans Approved by
Security Holders                1,189,818             $3.28                                 422,973

Equity Compensation
Plans Not Approved by
Security Holders                   43,334(1)          $6.25                                       0

</Table>

(1)      In April 1998, the Company issued 33,334 warrants to Gaines Berland,
         Inc. as compensation for acting as the Company's investment banker,
         pursuant to a consulting agreement. These warrants entitle the
         investment banker to purchase 33,334 shares of Common Stock at an
         exercise price of $7.50 during the five-year period commencing April 1,
         1998.

         On each of December 31, 1999 and February 1, 2002, we granted to John
         Aneralla five year non-plan options to purchase 5,000 shares of the
         Company's common stock as compensation for consulting services provided
         to the Company. Mr. Aneralla may exercise the options at $2.53 and
         $1.65, respectively.


                                       17

<page>

Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of the date hereof, certain
information concerning those persons known to the Company, based on information
obtained from such persons, with respect to the beneficial ownership (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) the
Chief Executive Officer and the Company's other executive officers whose total
compensation exceeded $100,000, and (iv) all directors and executive officers as
a group:

Name and Address                     Shares                  Percent of
of Beneficial Owner          Beneficially Owned(1)         Common Stock(2)
-------------------          ----------------------        ---------------

Arthur August (3)                801,769   (4)                  25.4%

Edward J. Fred (3)               305,102   (5)                  10.3%

Walter Paulick (3)                15,001   (6)                   *

Kenneth McSweeney (3)             11,667   (7)                   *

Timothy Stone (3)                 30,000   (8)                   1.1%

Daniel Liguori (9)               333,334   (10)                 11.1%

All Directors and              1,163,539   (11)                 33.1%
Executive Officers
as a group (Five persons)

*           Less than 1% of the outstanding Common Stock of the Company.

(1)      Unless otherwise noted, the Company believes that all persons named in
         the table have sole voting and investment power with respect to all
         shares of Common Stock beneficially owned by them, subject to community
         property laws, where applicable. A person is deemed to be the
         beneficial owner of securities that can be acquired by such person
         within 60 days from the date hereof upon the exercise of warrants or
         options.

(2)      Based on 2,657,046 shares issued and outstanding. Each beneficial
         owner's percentage ownership is determined by assuming that options or
         warrants that are held by such person (but not those held by any other
         person) and which are exercisable within 60 days from the date hereof
         have been exercised.

(3)      The business address of such person is care of the Company, 200A
         Executive Drive, Edgewood, New York 11717.

(4)      Includes 498,335 shares of Common Stock, which Mr. August has the right
         to acquire upon exercise of options granted pursuant to the 1992 Plan,
         1995 Plan, 1998 Plan, and 2000 Plan. Excludes an aggregate of 43,333
         shares of Common Stock owned by Mr. August's children or held in trust
         for Mr. August's grandchildren, and 3,000 shares of Common Stock owned
         by Mr. August's wife, all of which shares Mr. August disclaims
         beneficial ownership. Also excludes 1,750 shares of Common Stock
         issuable upon the exercise of options which are not exercisable within
         the next 60 days.

(5)      Includes 305,002 shares of Common Stock which Mr. Fred has the right to
         acquire upon exercise of options granted pursuant to the 1995 Plan,
         1998 Plan, and 2000 Plan.

(6)      Represents 15,001 shares of Common Stock which Mr. Paulick has the
         right to acquire upon exercise of options granted pursuant to the
         Company's 1995 Plan, 1998 Plan, and 2000 Plan.

(7)      Represents 11,667 shares of Common Stock which Mr. McSweeney has the
         right to acquire upon exercise of options granted pursuant to the 1995
         Plan, 1998 Plan, and 2000 Plan.

                                       18

<page>

(8)      Represents 30,000 shares of Common Stock which Mr. Stone has the right
         to acquire upon exercise of options granted pursuant to the 1998 Plan.

(9)      Mr. Liguori's address is 1001 Bay Road, #210C, Vero Beach, Florida
         32963.

(10)     Represents 333,334 shares of Common Stock which Mr. Liguori has the
         right to acquire by converting the promissory note he received in
         connection with the Company's purchase of Kolar Machine, Inc.

(11)     Includes an aggregate of 860,005 shares of Common Stock which Messrs.
         August, Fred, Paulick, McSweeney and Stone have the right to acquire
         upon exercise of outstanding options and conversion rights. Excludes
         1,750 shares of Common Stock issuable upon exercise of options which
         are not exercisable by such persons within the next 60 days.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For information concerning employment agreements with, compensation of,
and stock options granted to the Company's executive officers and directors, see
"Item 10. Executive Compensation -- Employment Agreements; and Stock Options."

         In October 2000, we adopted the Greit Plan for the purpose of offering
senior management a deferred compensation death benefit plan that would provide
a tax-free benefit for senior management and which would be tax-neutral to the
Company. Pursuant to the plan, we made a non-interest bearing loan to Arthur
August in the amount of $150,000, which Mr. August used to purchase a Greit
Plan. This plan has since been terminated and the surrender value of the Greit
Plan has been returned to Mr. August. Mr. August has placed the proceeds from
the surrender value in an annuity in the Company's name, which will mature to
$150,000 in order to repay the loan made to him. Simultaneously, Mr. August
purchased an insurance policy, of which the Company will be the sole
beneficiary, in the amount of $150,000 and agreed to maintain it until the date
upon which the annuity matures. Accordingly, the loan to Mr. August will be
repaid upon the maturity date of the annuity or upon the death of Mr. August,
whichever occurs first.

Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a) Exhibits

3.1      Certificate of Incorporation of the Company, as amended.(1)

3.1(a)   Certificate of Amendment of Certificate of Incorporation filed on July
         14, 1998. (14)

3.2      Amended and Restated By-Laws of the Company. (1)

4.1      Form of Underwriter's Warrants issued to the Underwriter. (1)

4.2      Form of Registration Rights Agreement dated June 17, 1996. (9)

4.3      Form of Subscription Agreement. (9)

4.4      Form of Placement Agent Warrants dated June 17, 1996. (9)

4.5      Form of Consultant's Warrants dated April 3, 1996. (9)

4.6      Form of Redeemable Common Share Purchase Warrant dated June 17, 1996.
         (9)

                                       19

<page>
10.1     Employment Agreement between the Company and Arthur August dated
         September 15, 1995. (8)

10.2     Employment Agreement between the Company and Theodore J. Martines dated
         September 15, 1995. (8)

10.3     1992 Stock Option Plan. (1)

10.4     1995 Employee Stock Option Plan.(12)

10.5     Rohr Basic Purchase Agreement dated March 12, 1991 for Apron Assembly
         on McDonnell Douglas MD-90.(1)

10.6     Rohr Basic Purchase Agreement dated May 8, 1990 for Boeing 757 Lower
         Pan Assembly.(1)

10.7     Form of military contract. (1)

10.8     The Company's Sick Pay Plan. (1)

10.9     Basic Agreement for Sub-Assembly dated December 10, 1992 by and between
         the Company and Mitsui & Co. (U.S.A.), Inc. (2)

10.10    Lock-Up/Modification Agreement dated September 24, 1994 by and between
         the Company and Whale Securities Co., L.P. (6)

10.11    First Amendment to BPA MD-90-AP-91 between the Company and Rohr, Inc.
         for MD90 V2500 Apron Assembly. (6)

10.12    Lease dated November 15, 1995 by and between the Company and Heartland
         Rental Properties Partnership for the Company's facilities in Edgewood,
         New York. (8)

10.13    Solicitation Contract dated September 19, 1995 from the Department of
         the Air Force. (8)

10.14    Solicitation Contract dated September 22, 1995 from the Department of
         the Air Force. (8)

10.15    Placement Agent Agreement dated May 10, 1996 between the Company and
         the Placement Agent. (9)

10.16    Financial Consulting Agreement dated April 3, 1996 between the Company
         and the Placement Agent. (9)

10.17    Financial Consulting Agreement dated September 11, 1996 between the
         Company and Andreas Zigouras.(10)

10.18    Line of Credit Agreement dated September 15, 1996 between the Company
         and The Chase Manhattan Bank.(10)

10.19    Asset Purchase Agreement, dated September 9, 1997 by and among Kolar
         Machine, Inc., a New York corporation, Daniel Liguori, the Company and
         Kolar, Inc., a Delaware corporation and wholly-owned subsidiary of the
         Company. (11)

10.20    Consulting Agreement dated January 1, 1998 between Registrant and
         Stanley Wunderlich. (13)

10.21    Credit Agreement dated as of October 9, 1997 among CPI Aerostructures,
         Inc., Kolar, Inc., as Borrower, the Several Lenders from Time to Time
         Parties Hereto and The Chase Manhattan Bank, as Administrative Agent
         ("Credit Agreement"). (13)

10.22    Employment Agreement between Kolar, Inc. and Daniel Liguori dated
         October 9, 1997. (13)

                                       20

<page>

10.23    Purchase Agreement dated as of November 10, 1997 between Kolar and
         Universal Instruments Corporation. (13)

10.24    Amendment to the Credit Agreement dated February 12, 1999. (14)

10.25    Second Amendment to the Credit Agreement dated as of April 15, 1999.
         (14)

10.26    Employment Agreement between the Company and Arthur August dated
         December 16, 1998. (14)

10.27    Employment Agreement between the Company and Edward Fred dated December
         16, 1998. (14) 10.28 1998 Performance Equity Plan. (14)

10.29    Performance Equity Plan 2000. (16)

10.30    Third Amendment to the Credit Agreement dated April 25, 1999. (16)

10.31    Fourth Amendment to the Credit Agreement dated December 30, 1999. (16)

10.32    Fifth Amendment to the Credit Agreement dated June 12, 2000. (16)

10.33    Sixth Amendment to the Credit Agreement dated August 22, 2000. (16)

10.34    Waiver to the Credit Agreement dated November 9, 2000. (16)

10.35    Stock Option Agreement, dated August 14, 2002, between Edward J. Fred
         and the Company. (17)

10.36    Stock Option Agreement, dated August 14, 2002, between Arthur August
         and the Company. (18)

10.37    Employment Option Agreement, dated August 14, 2002, between Edward J.
         Fred and the Company. (19)

10.38    Employment Option Agreement, dated August 14, 2002, between Arthur
         August and the Company. (19)

10.39    Peaceful Possession Agreement, by and among Kolar, Inc., JP Morgan
         Chase Bank f/k/a/ the Chase Manhattan Bank and JP Morgan Leasing, Inc.,
         dated January 24, 2002 (without schedule). (20)

10.40    Auction Sale Agreement, among Daley-Hodkin Corporation, Kolar, Inc., JP
         Morgan Chase and JP Morgan Leasing, Inc., dated January 10, 2002. (20)

10.41    Ninth Amendment to Credit Agreement dated as of December 31, 2001. (20)

10.42    Supplement to Ninth Amendment to Credit Agreement dated January 4,
         2002. (20)

11.1     Statement regarding computation of per share earnings. (2)

16.1     Letter on change in certifying accountant. (7)



                                       21

<page>

*21.1    Subsidiaries of the Company.

*23.1    Consent of Goldstein Golub Kessler, LLP.

*99.1    Risk factors.


-----------------------

*Filed with this Annual Report on Form 10-KSB.

         (1)      Filed as an exhibit to the Company's Registration Statement on
                  Form S-1 (No. 33-49270) declared effective on September 16,
                  1992 and incorporated herein by reference.

         (2)      Filed as an exhibit to the Company's Annual Report on Form
                  10-K for December 31, 1992 and incorporated herein by
                  reference.

         (3)      Filed as an exhibit to Post-Effective Amendment No. 2 to the
                  Company's Registration Statement on Form S-1 (No. 33-49270)
                  declared effective on October 26, 1993 and incorporated herein
                  by reference.

         (4)      Filed as an exhibit to the Company's Annual Report on Form
                  10-K for December 31, 1993 and incorporated herein by
                  reference.

         (5)      Filed as an exhibit to the Company's Registration Statement on
                  Form SB-2 (No. 33-83150) declared effective October 7, 1994
                  and incorporated herein by reference.

         (6)      Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1994 and incorporated herein by
                  reference.

         (7)      Filed as an exhibit to the Company's Current Report on Form
                  8-K for April 29, 1994, as amended, and incorporated herein by
                  reference.

         (8)      Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1996, as amended, and incorporated
                  herein by reference.

         (9)      Filed as an exhibit to the Company's Current Report of Form
                  8-K for June 19, 1996 and incorporated herein by reference.

         (10)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1996 and incorporated herein
                  by reference.

         (11)     Filed as an exhibit to the Company's Current Report on Form
                  8-K for September 9, 1997 and incorporated herein by
                  reference.

         (12)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1995 and incorporated herein by
                  reference.

         (13)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1997 and incorporated herein by
                  reference.

         (14)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1998 and incorporated herein by
                  reference.

         (15)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 1999 and incorporated herein by
                  reference.

         (16)     Filed as an exhibit to the Company's Annual Report on Form
                  10-KSB for December 31, 2000 and incorporated herein by
                  reference.

                                       22

<page>

         (17)     Filed as an exhibit to Schedule 13D filed on behalf of Edward
                  J. Fred on October 19, 2001 and incorporated herein by
                  reference.

         (18)     Filed as an exhibit to Schedule 13D filed on behalf of Arthur
                  August on October 19, 2001 and incorporated herein by
                  reference.

         (19)     Filed as an exhibit to the Company's Quarterly Report on Form
                  10-QSB for September 30, 2001 and incorporated herein by
                  reference.

         (20)     Filed as an exhibit to the Company's Current Report on Form
                  8-K for January 22, 2002, as amended, and incorporated herein
                  by reference.

 (b)  Reports on Form 8-K

         None.


                                       23

<page>
                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


<Table>
<Caption>





<S>                                                                                                           <C>


Independent Auditor's Report                                                                                  F-1


Consolidated Financial Statements:

   Balance Sheet as of December 31, 2001                                                                      F-2

   Statement of Operations for the Years Ended December 31, 2001 and 2000                                     F-3

   Statement of Shareholders' Deficiency for the Years Ended
    December 31, 2001 and 2000                                                                                F-4

   Statement of Cash Flows for the Years Ended December 31, 2001 and 2000                                     F-5

   Notes to Consolidated Financial Statements                                                              F-6 - F-14


</Table>

                                       24
<Page>





INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
CPI Aerostructures, Inc.


We have audited the accompanying consolidated balance sheet of CPI
Aerostructures, Inc. and Subsidiary as of December 31, 2001 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for each of the two years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CPI Aerostructures,
Inc. and Subsidiary as of December 31, 2001, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.


/s/ GOLDSTEIN GOLUB KESSLER LLP

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

March 29, 2002, except for the
last paragraph of Note 5, as to
which the date is April 12, 2002


                                                                             F-1

<Page>


                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------
December 31, 2001
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>

ASSETS

Current Assets:
  Cash                                                                                                  $      180,578
  Accounts receivable                                                                                        2,168,369
  Costs and estimated earnings in excess of billings on uncompleted contracts                                6,967,385
  Deferred income taxes                                                                                        758,000
  Prepaid expenses and other current assets                                                                     84,895
  Assets held for sale - discontinued operations                                                             3,217,984
----------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                                  13,377,211

Property, Plant and Equipment, net                                                                             101,260

Deferred Income Taxes, net of valuation allowance of $2,074,000                                                172,000

Other Assets                                                                                                   180,226
----------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                                        $ 13,830,697
======================================================================================================================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current Liabilities:
  Accounts payable                                                                                        $  4,195,530
  Accrued expenses                                                                                             535,054
  Line of credit                                                                                             1,700,000
  Debt                                                                                                       9,607,284
  Deferred income taxes                                                                                        147,000
----------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                                             16,184,868
----------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Shareholders' Deficiency:
  Common stock - $.001 par value; authorized 50,000,000 shares,
   issued and outstanding 2,657,045 shares                                                                       2,657
  Additional paid-in capital                                                                                12,367,020
  Accumulated deficit                                                                                      (14,723,848)
----------------------------------------------------------------------------------------------------------------------
      Shareholders' deficiency                                                                              (2,354,171)
----------------------------------------------------------------------------------------------------------------------
      Total Liabilities and Shareholders' Deficiency                                                      $ 13,830,697
======================================================================================================================

</Table>

                                  See Notes to Consolidated Financial Statements

                                                                             F-2
<Page>

                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                                            CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                                      2001                 2000
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                   <C>
Revenue                                                                              $ 15,024,027           $8,261,351

Cost of sales                                                                          10,955,264            5,676,229
----------------------------------------------------------------------------------------------------------------------

Gross profit                                                                            4,068,763            2,585,122

Selling, general and administrative expenses                                            1,479,421            1,421,758

----------------------------------------------------------------------------------------------------------------------
Income from operations                                                                  2,589,342            1,163,364
----------------------------------------------------------------------------------------------------------------------

Other (income) expense:
  Interest income                                                                          (2,431)               -
  Interest expense                                                                        155,825              106,157
  Other (income) expense, net                                                               4,051              233,428

----------------------------------------------------------------------------------------------------------------------
Total other expenses, net                                                                 157,445              339,585
----------------------------------------------------------------------------------------------------------------------

Income from continuing operations before benefit for income taxes                       2,431,897              823,779

Benefit for income taxes                                                                    -                 (126,000)
----------------------------------------------------------------------------------------------------------------------

Income before operations of discontinued segment                                        2,431,897              949,779

Income (loss) from operations of discontinued segment                                  (3,647,200)             979,427

Loss on disposal of assets - discontinued segment                                     (10,422,816)               -

----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                    $(11,638,119)          $1,929,206
======================================================================================================================

Basic net income (loss) per common share:
  Income before discontinued operations                                     $                 .92       $          .36
  Income (loss) from operations of discontinued segment                                     (1.37)                 .37
  Loss on disposal of assets - discontinued segment                                         (3.94)               -

----------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - basic                                    $               (4.39)      $          .73
======================================================================================================================

Diluted net income per common share:
  Income before discontinued operations                                                     -           $          .34
  Income from operations of discontinued segment                                                                   .36

----------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - diluted                                                  -           $          .70
======================================================================================================================

Shares used in computing earnings per common share:
  Basic                                                                                 2,653,538            2,648,509
  Diluted                                                                                   -                2,763,888
======================================================================================================================

</Table>

                                  See Notes to Consolidated Financial Statements

                                                                             F-3
<Page>


                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                              CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2000 and 2001
----------------------------------------------------------------------------------------------------------------------
                                                                        Additional                           Total
                                             Common                       Paid-in        Accumulated     Shareholders'
                                             Shares        Amount         Capital          Deficit        Deficiency
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>          <C>             <C>             <C>

Balance at January 1, 2000                  2,648,509      $2,649       $12,206,024    $  (5,014,935)    $   7,193,738

Net income                                      -           -                 -            1,929,206         1,929,206

Amortization of fair value of
 warrants issued in conjunction
 with consulting agreement                      -           -               113,650            -               113,650

----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                2,648,509       2,649        12,319,674       (3,085,729)        9,236,594

Net loss                                        -           -                 -          (11,638,119)      (11,638,119)

Amortization of fair value of
 warrants issued in conjunction
 with consulting agreement                      8,537           8            47,346            -                47,354

----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                2,657,046      $2,657       $12,367,020     $(14,723,848)    $  (2,354,171)
======================================================================================================================

</Table>

                                  See Notes to Consolidated Financial Statements

                                                                             F-4
<Page>

                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                                            CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------

<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                                        2001               2000
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>

Cash flows from operating activities:
  Net income before operations of discontinued segment                                  $ 2,431,897       $    949,779
  Adjustments to reconcile net income before operations of discontinued
   segment to net cash provided by operating activities:
    Depreciation and amortization                                                            35,653             30,194
    Warrants issued for consulting fees                                                      47,354            113,650
    Loss on disposal of fixed assets                                                          6,157              -
    Deferred portion of provision (benefit) for income taxes                                 92,000           (879,000)
    Bad debts                                                                                 -                301,377
    Changes in operating assets and liabilities:
      Increase in accounts receivable                                                    (1,336,061)          (410,591)
      Decrease in income tax refund receivable                                                -                 29,597
      Increase in costs and estimated earnings in excess of billings
       on uncompleted contracts                                                          (2,563,606)          (465,250)
      (Increase) decrease in prepaid expenses and other current assets                      (63,816)           761,672
      Increase in other assets                                                               (1,000)           (70,259)
      Increase in accounts payable and accrued expenses                                   1,028,720            144,878
      Decrease in income taxes payable                                                      (33,000)           (13,383)
----------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) operating activities                               (355,702)           492,664
----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Purchase of property, plant and equipment                                                 (19,307)           (70,838)
  Proceeds from sale of fixed assets                                                          1,800              -
----------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                                              (17,507)           (70,838)
----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from line of credit                                                                -              1,325,000
  Net repayment of long-term debt                                                          (895,958)        (1,056,959)
----------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) financing activities                               (895,958)           268,041
----------------------------------------------------------------------------------------------------------------------

Net cash from continuing operations                                                      (1,269,167)           689,867

Net cash provided by (used in) discontinued operations                                    1,386,766           (814,534)
----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                             117,599           (124,667)

Cash at beginning of year                                                                    62,979            187,646

----------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                                    $    180,578      $      62,979
======================================================================================================================

</Table>

                                  See Notes to Consolidated Financial Statements

                                                                             F-5
<Page>


                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         The Company consists of CPI Aerostructures, Inc. ("CPI") and its wholly
         owned subsidiary, Kolar, Inc. ("Kolar"), collectively, the "Company."

         CPI's operations consist of the design and production of complex
         aerospace structural subassemblies under U.S. government and commercial
         contracts. The length of the Company's contracts varies but is
         typically between one and two years for U.S. government contracts and
         up to 10 years for commercial contracts.

         Kolar's principal business was the precision computer numerical control
         machining of metal products on a contract-order basis.

         CPI's revenue is recognized based on the percentage of completion
         method of accounting for long-term contracts measured by the percentage
         of total costs incurred to date to estimated total costs at completion
         for each contract. Contract costs include all direct material, labor
         costs, tooling and those indirect costs related to contract
         performance, such as indirect labor, supplies, tools, repairs and
         depreciation costs. Selling, general and administrative costs are
         charged to expense as incurred. Estimated losses on uncompleted
         contracts are recognized in the period in which such losses are
         determined. Changes in job performance may result in revisions to costs
         and income and are recognized in the period in which revisions are
         determined to be required. In accordance with industry practice, costs
         and estimated earnings in excess of billings on uncompleted contracts,
         included in the accompanying consolidated balance sheet, contain
         amounts relating to contracts and programs with long production cycles,
         a portion of which will not be realized within one year. CPI's recorded
         revenue may be adjusted in later periods in the event that CPI's cost
         estimates prove to be inaccurate or a contract is terminated.

         Kolar's revenue was recognized when goods were shipped to customers.

         The Company maintains cash in bank deposit accounts which, at times,
         may exceed federally insured limits. The Company has not experienced
         any losses in such accounts. The Company believes it is not exposed to
         any significant credit risk on cash.

         Depreciation and amortization of property, plant and equipment is
         provided for by the straight-line method over the estimated useful
         lives of the respective assets or the life of the lease, for leasehold
         improvements.

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         the use of estimates by management. Actual results could differ from
         these estimates.

         In accordance with the provisions of Statement of Financial Accounting
         Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
         the Company has elected to apply APB Opinion No. 25 and related
         interpretations in accounting for its stock options issued to employees
         and, accordingly, does not recognize additional compensation cost as
         required by SFAS No. 123. The Company, however, has provided the pro
         forma disclosures as if the Company had adopted the cost recognition
         requirements.

         Basic earnings per common share is computed using the weighted-average
         number of shares outstanding. Diluted earnings per common share 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 115,379
         were used in the calculation of diluted earnings per common share in
         2000. In 2001, diluted earnings per share is not presented as the
         result is antidilutive.

         In July 2001, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 141, "Business Combinations"
         (SFAS No.141) and Statement of Financial Accounting Standards No. 142,
         "Goodwill and Other Intangible Assets" (SFAS No. 142).

         SFAS No. 141 addresses financial accounting and reporting for business
         combinations. This statement requires the purchase method of accounting
         to be used for all business combinations, and prohibits the
         pooling-of-interests method of accounting. This statement is effective
         for all business combinations initiated after June 30, 2001 and
         supercedes APB Opinion ("APB") No. 16, "Business Combinations" as well
         as FASB Statement of Financial Accounting Standards No. 38, "Accounting
         for Preacquisition Contingencies of Purchased Enterprises".

                                                                             F-6
<page>

         SFAS No. 142 addresses how intangible assets that are acquired
         individually or with a group of other assets should be accounted for in
         financial statements upon their acquisition. This statement requires
         goodwill to be periodically reviewed for impairment rather than
         amortized, beginning on January 1, 2002. SFAS No. 142 supersedes APB
         Opinion No. 17, "Intangible Assets".

         The Company believes that SFAS No. 142 will not be applicable to their
         future financial statements because all goodwill has been entirely
         written down in conjunction with the sale of Kolar's assets (Note 5).

         In August 2001, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 144, "Accounting for
         the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). This
         Statement addresses financial accounting and reporting for the
         impairment or disposal of long-lived assets. This Statement supersedes
         SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
         for Long-Lived Assets to Be Disposed Of", and amends the accounting and
         reporting provisions of APB Opinion No. 30, "Reporting the Results of
         Operations Reporting the Effect of Disposal of a Segment of a Business,
         and Extraordinary, Unusual and Infrequently Occurring Events and
         Transactions", for the disposal of a segment of a business. The
         provisions of SFAS No. 144 will be effective for fiscal years beginning
         after December 15, 2001.

         Pursuant to the effective dates and transitions stated in SFAS No. 144,
         the Company is currently evaluating the implications of its adoption,
         and anticipates adopting the provisions for its fiscal year beginning
         January 1, 2002.

2. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:

         At December 31, 2001, costs and estimated earnings in excess of
         billings on uncompleted contracts consist of:
<Table>
<Caption>

                                                                 U.S.
                                                             Government       Commercial          Total
                   <S>                                         <C>           <C>               <C>
                   ----------------------------------------------------------------------------------------
                   Costs incurred on uncompleted
                    contracts                                 $7,359,234      $12,485,185       $19,844,419
                   Estimated earnings                          2,040,413        6,728,158         8,768,571
                   -----------------------------------------------------------------------------------------
                                                               9,399,647       19,213,343        28,612,990
                              Less billings to date            5,425,681       16,219,924        21,645,605
                   -----------------------------------------------------------------------------------------
                                 Costs and estimated earnings
                                  in excess of billings on
                                  uncompleted contracts       $3,973,966      $ 2,993,419      $  6,967,385
                   =========================================================================================
</Table>

         Unbilled costs and estimated earnings are billed in accordance with
         applicable contract terms. As of December 31, 2001, approximately
         $1,203,000 of the balances above are not expected to be collected
         within one year.

3. PROPERTY, PLANT AND EQUIPMENT:

         Property, plant and equipment, at cost, consists of the following:

                                                               Estimated
         December 31, 2001                                     Useful Life
         ---------------------------------------------------------------------

         Machinery and equipment              $304,306       5 to 10 years
         Computer equipment                    134,019             9 years
         Furniture and fixtures                 19,504             7 years
         Automobiles and trucks                 23,488             5 years
         Leasehold improvements                 71,591             3 years
         ---------------------------------------------------------------------
                                               552,908
         Less accumulated depreciation
          and amortization                     451,648
         ---------------------------------------------------------------------
                                              $101,260
         =====================================================================

         Depreciation and amortization expense for the years ended December 31,
         2001 and 2000 was $35,653 and $30,194, respectively.


                                                                             F-7
<page>

4.  RELATED PARTY TRANSACTIONS:

         In October 2000, the Company adopted a Greit Plan for the purpose of
         offering senior management a deferred compensation death benefit plan
         (the "Plan") that provides a tax-free benefit and which is tax-neutral
         to the Company. Pursuant to the plan, the Company made a non-interest
         bearing loan to an employee in the amount of $150,000, which was used
         to purchase the Plan. This plan has since been terminated and the
         surrender value has been returned to the employee who has placed the
         proceeds from the surrender value in an annuity, which will mature to
         $150,000. Simultaneously, the employee purchased an insurance policy,
         of which the Company will be the sole beneficiary, in the amount of
         $150,000 until the date upon which the annuity matures to $150,000, and
         is included in other assets at December 31, 2001. Accordingly, the loan
         to the employee will be repaid upon the maturity date of the annuity or
         upon the death of the employee, whichever occurs first.


5. DISCONTINUED OPERATIONS:

         On January 22, 2002, the Company announced a decision made by the Board
         of Directors as of December 31, 2001 to close the Kolar facilities
         located in Ithaca, New York, and liquidate its assets through a public
         auction of its machinery and equipment and the private sale of its real
         estate. On February 21, 2002, Kolar sold a substantial portion of its
         machinery and equipment at an auction conducted by Daley-Hodkin
         Corporation at Kolar's main facility in Ithaca, New York. In connection
         with the discontinuance of Kolar's operations, the Company incurred a
         one-time charge of $10,422,816 related to the write-off of Kolar's
         assets, net of expected proceeds, and an accrual for estimated losses
         during the phase-out period. Proceeds from actual and future sales of
         machinery, equipment and real property are estimated to be
         approximately $3,970,000. The disposition of Kolar's operations
         represents a disposal of a business segment under Accounting Principles
         Board ("APB") Opinion No. 30. Accordingly, results of the operation
         have been classified as discontinued, and prior periods have been
         restated. For business segment reporting purposes, Kolar's business
         results were previously classified as the "Machining" segment.

         Net sales and income (loss) from the discontinued operations are as
         follows:
<Table>
<Caption>
         Year ended December 31,                                           2001              2000
         ------------------------------------------------------------------------------------------------
          <S>                                                    <C>                <C>
         Net sales                                                $   8,291,690      $ 20,360,330
         ================================================================================================
         Pretax income (loss) from discontinued operations        $  (3,647,200)     $    729,427
         Pretax loss on disposal of business segment                (10,422,816)            -
         Income tax benefit                                               -               250,000
         ------------------------------------------------------------------------------------------------
         Net income (loss) from discontinued operations            $(14,070,016)     $    979,427
         ================================================================================================
</Table>



         Assets of the discontinued operations were as follows:

         Year ended December 31, 2001
         -----------------------------------------------------------------------
         Current assets                                         $     610,492
         Property, plant and equipment, net                         2,607,492
         -----------------------------------------------------------------------
         Total assets of discontinued operations                $   3,217,984
         -----------------------------------------------------------------------

         Proceeds from the auction sale were approximately $1,350,000 for the
         machinery and equipment owned by Kolar. These proceeds have been
         applied to the reduction of certain bank debt having a principal amount
         of $2,260,000 outstanding immediately prior to the auction. After
         giving effect to the applications of the proceeds to the bank debt, the
         remaining outstanding principal of the bank debt is $910,000.

                                                                             F-8
<page>

6. DEBT:

         Debt consists of the following:

         Note payable - bank (a)                    $ 2,438,500
         Note payable - bank (b)                        805,320
         Note payable - seller (c)                    4,691,202
         Capitalized lease obligations payable (d)    1,672,262
         -------------------------------------------------------
                                                    $ 9,607,284

         (a)      The note, as amended in December 2001, is payable to a
                  commercial bank in monthly installments from $50,000 to
                  $100,000 through May 30, 2002, and $2,088,500 at June 30,
                  2002, plus monthly interest at the bank's published prime rate
                  (4.75% at December 31, 2001) plus 3.5%. This note
                  collateralized by substantially all of the assets of the
                  Company. As discussed above, $1,350,000 of this loan was
                  repaid upon the sale of certain assets at auction. The note
                  requires the Company to maintain specified levels of working
                  capital and other financial ratios, as defined. At December
                  31, 2001 the Company was not in compliance with certain
                  covenants. Additionally, the Company was not in compliance
                  with certain covenants on March 31, 2002, the next compliance
                  measurement date. As a result, the note has been classified as
                  a current liability. The Company, the bank and the Seller are
                  in the process of amending the covenants and the payment terms
                  of the debt.

         (b)      The note is payable to a commercial bank in monthly
                  installments of $9,847, including interest at 8.3%. This note
                  is collateralized by Kolar's land and building. The Company
                  sold certain of the underlying land and building during 2002
                  at an aggregate selling price of approximately $555,000. The
                  Company estimates the sale of the remaining land and building
                  will yield proceeds sufficient to pay the note in full

         (c)      In 1997, the Company acquired substantially all of the assets
                  of Kolar Machine Inc. The acquisition was partially financed
                  through a $4,000,000 note payable to Mr. Daniel Ligouri, the
                  seller ("Seller") of Kolar Machine Inc. The note payable to
                  the Seller bears interest at 8% per annum. The Seller deferred
                  the Company's payment of interest on this note during 1999,
                  and the accrued interest through December 1999 will be payable
                  upon maturity of the Seller's note. Monthly interest payments
                  began again in January 2000. The note payable - Seller is
                  convertible into 333,334 shares of the Company's common stock
                  at any time prior to the maturity of the note. The note is
                  subordinated to the notes payable - bank.

         (d)      The Company leases equipment and automobiles under capital
                  leases which expire at various dates. The leases require
                  monthly payments of principal and interest, imputed at
                  interest rates ranging from 7.75% to 16.2%. Subsequent to
                  December 31, 2001, proceeds of approximately $750,000 were
                  received upon the sale of certain leased equipment, which
                  amount was remitted to the owners of the equipment.


7. LINE OF CREDIT:

         The Company has an aggregate $1,700,000 line of credit agreement,
         expiring June 30, 2002, with JP Morgan Chase and Mellon Bank for
         working capital and other corporate purposes as needed. Borrowings are
         subject to limits based on amounts of accounts receivable, as defined.
         Interest is at the banks' prime rate (4.75% at December 31, 2001) plus
         3.5%. The line of credit is collateralized by substantially all of the
         assets of the Company.

                                                                             F-9
<PAGE>


8. COMMITMENTS:

         The Company has employment agreements with four employees. The
         aggregate future commitment under these agreements is as follows:

         Year ending December 31,

                 2002                         $   765,200
                 2003                             495,100
                 2004                             468,280
         ---------------------------------------------------------
                                               $1,728,580
         =========================================================

         These agreements provide for additional bonus payments that are
         calculated as defined.

9. INCOME TAXES:

         The benefit for income taxes consists of the following:

         Year ended December 31, 2000
         ------------------------------------------------------------------

         Current:
           Federal                                      $     4,000
           State and local                                   10,000
         ------------------------------------------------------------------
                                                             14,000
         ------------------------------------------------------------------

         Deferred:
           Federal                                         (101,000)
           State and local                                  (39,000)
         ------------------------------------------------------------------

                                                           (140,000)
         ------------------------------------------------------------------

                                                          $(126,000)
         ==================================================================

         The difference between the income tax provision (benefit) computed at
         the federal statutory rate and the actual tax provision (benefit) is
         accounted for as follows:
<Table>
<Caption>

         December 31,                                                   2001                 2000
         -------------------------------------------------------------------------------------------------
        <S>                                                      <C>                    <C>

         Taxes (benefit) computed at the federal
          statutory rate                                         $(3,957,000)           $ 280,000
         State income taxes, including deferred, net
          of federal benefit                                           -                    7,000
         Other, including officers' life insurance and
          various permanent differences                                -                   59,000
         Utilization of net operating loss carryforward                -                 (472,000)
         Valuation allowance                                       3,957,000                -
         -------------------------------------------------------------------------------------------------
                                                             $       - 0 -              $(126,000)
         =================================================================================================
</Table>

         The components of deferred income tax assets and liability at December
         31, 2001 are as follows:

                                                Current       Noncurrent
         -----------------------------------------------------------------------

         Assets:
           Federal and state net operating
            loss carryforwards                  $ 758,000       $ 2,246,000
           Valuation allowance                      -            (2,074,000)
         -----------------------------------------------------------------------
                                                $ 758,000      $    172,000
         =======================================================================

         Liability - Long-term contracts        $ 147,000      $     - 0 -
         =======================================================================

         As of December 31, 2001, the Company had net operating loss
         carryforwards of approximately $8,035,000 and $5,672,000 for federal
         and state income tax purposes, respectively, expiring through 2021.

                                                                            F-10
<PAGE>
10. EMPLOYEE STOCK OPTION PLANS:

         In April 1992, the Company adopted the 1992 Stock Option Plan (the
         "1992 Plan"). The 1992 Plan, for which 83,334 common shares are
         reserved for issuance, provides for the issuance of either incentive
         stock options or nonqualified stock options to employees, consultants
         or others who provide services to the Company. The initial options
         granted to employees and directors with three or more years of service
         became exercisable as to one-third of the shares each year beginning on
         September 16, 1992. The initial options granted to those with less than
         three years of service became exercisable as to one-third of the shares
         each year beginning on September 16, 1993. The options may not be
         exercised more than five years from the date of issuance. In 1995, the
         option price for all outstanding employees' and director's stock
         options was lowered to $9.00.

         In 1995, the Company adopted the 1995 Stock Option Plan (the "1995
         Plan"), as amended, for which 200,000 common shares are reserved for
         issuance. The 1995 Plan provides for the issuance of either incentive
         stock options or nonqualified stock options to employees, consultants
         or others who provide services to the Company. The options' exercise
         price is equal to the closing price of the Company's shares on the day
         of issuance, except for incentive stock options granted to the
         Company's president, which are exercisable at 110% of the closing price
         of the Company's shares on the date of issuance.

         In 1998, the Company adopted the 1998 Stock Option Plan (the "1998
         Plan"). The 1998 Plan, as amended, reserved 463,334 common shares for
         issuance. The 1998 Plan provides for the issuance of either incentive
         stock options or nonqualified stock options to employees, consultants
         or others who provide services to the Company. The options' exercise
         price is equal to the closing price of the Company's shares on the day
         of issuance, except for incentive stock options granted to the
         Company's president, which are exercisable at 110% of the closing price
         of the Company's shares on the date of issuance.

         In 2000, the Company adopted the 2000 Stock Option Plan (the "2000
         Plan"). The 2000 Plan, as amended, reserved 830,000 common shares for
         issuance. The 2000 Plan provides for the issuance of either incentive
         stock options or nonqualified stock options to employees, consultants
         or others who provide services to the Company. The options' exercise
         price is equal to the closing price of the Company's shares on the day
         of issuance, except for incentive stock options granted to the
         Company's president, which are exercisable at 110% of the closing price
         of the Company's shares on the date of issuance.

         The Company has 6,779 options available for future grant under the 1992
         Plan, 40,640 options available for grant under the 1995 Plan, 12,332
         options available for grant under the 1998 Plan, and 250,000 options
         available for grant under the 2000 Plan.

                                                                            F-11
<PAGE>
         If the Company had elected to recognize compensation cost based on the
         fair value of the options granted at grant date as prescribed by SFAS
         No. 123, net income (loss) and earnings (loss) per share would have
         been adjusted to the pro forma amounts indicated in the table below:
<Table>
<Caption>

                                           As Reported                        Pro Forma
                                       2001            2000              2001           2000
         ------------------------------------------------------------------------------------------------
         <S>                          <C>            <C>             <C>              <C>

         Net income (loss)           $(11,638,119)    $1,929,206      $(11,937,395)    $1,832,000
         ================================================================================================

         Earnings (loss) per share:
           Basic                     $      (4.39)    $      .73      $      (4.50)    $      .69
           Diluted                   $      (4.39)    $      .70      $      (4.50)    $      .66
         ================================================================================================
</Table>

         A summary of the status of the Company's four stock option plans as of
         December 31, 2001 and 2000 and changes during those years is as
         follows:
<Table>
<Caption>

                                                    2001                         2000
         ------------------------------------------------------------------------------------------------

                                                           Weighted-                   Weighted-
                                                            average                     average
                                                           Exercise                    Exercise
         Fixed Options                      Options          Price         Options       Price
         ------------------------------------------------------------------------------------------------
         <S>                                 <C>            <C>             <C>           <C>

         Outstanding at beginning
          of year                             894,312        $3.54          515,313         $4.27
         Granted during year                  225,000         1.29          408,000          2.67
         Exercised                              -              -              -               -
         Forfeited                             20,640         4.95           29,001          4.11

         ------------------------------------------------------------------------------------------------
         Outstanding at end of year         1,098,672        $2.58          894,312         $3.54
         ================================================================================================
</Table>

         The following table summarizes information about stock options
         outstanding and exercisable at December 31, 2001:
<Table>
<Caption>

                                        Weighted                Weighted
                                         Number                  Average              Weighted-
                                       Outstanding              Remaining              average
            Range of                      and                  Contractual            Exercise
         Exercise Price                Exercisable                 Life                 Price
         ------------------------------------------------------------------------------------------------
         <S>                             <C>                    <C>                        <C>
         $1.20 - $8.46                   1,098,672              4.99 years                  $3.06
         ================================================================================================
</Table>

         The Company's assumptions used to calculate the fair values of options
         issued were (i) risk-free interest rate of 5.25%, (ii) expected life of
         five years, (iii) expected volatility of 174.71%, and (iv) expected
         dividends of zero.

                                                                            F-12
<PAGE>

11. WARRANTS AND OPTIONS:

         In February 1997, the Company issued options to purchase 3,334 shares
         of common stock to two directors at an exercise price of $6.18 per
         share of common stock. These options expire in 2002.

         In January 1998, the Company issued options to purchase 25,000 shares
         of common stock to a consultant, who was also a director, at an
         exercise price of $7.50 per share of common stock. In February 1998,
         the Company issued options to purchase 3,334 shares of common stock to
         two directors at an exercise price of $6.93 per share of common stock.
         These options expire in 2003.

         In March 1998, the Company issued 33,334 warrants to Gaines Berland,
         Inc. as compensation for acting as the Company's investment banker
         pursuant to a consulting agreement. These warrants entitle the
         investment banker to purchase 33,334 shares of common stock at an
         exercise price of $7.50 during the five-year period commencing April 1,
         1998. This agreement was terminated in 1999. In 1999, the Company
         recorded a charge to operations of $198,734 to write off the
         unamortized portion of warrants issued under this agreement.

         In May 1999, the Company issued 100,000 warrants to Catalyst Financial
         Corp. as partial compensation in the amount of $227,300 for acting as
         the Company's investment banker pursuant to a consulting agreement.
         These warrants entitle the investment banker to purchase 100,000 shares
         of common stock at an exercise price of $1.875 during the five-year
         period commencing May 4, 1999. In 2001, 8,537 of these warrants were
         exercised. In December 1999, the Company issued options to purchase
         15,000 shares of common stock to a consultant at the exercise price of
         $2.53 per share of common stock. Also in December 1999, the Company
         issued options to purchase 10,000 shares of common stock to two
         directors at an exercise price of $2.53 per share of common stock.


12.   EMPLOYEE BENEFIT PLANS:

         On September 11, 1996, CPI's board of directors instituted a defined
         contribution plan under Section 401(k) of the Internal Revenue Code
         (the "Code"). On October 1, 1998, the Company amended and standardized
         both the CPI and Kolar plans as required by the Code. Pursuant to the
         amended plan, qualified employees may contribute a percentage of their
         pretax eligible compensation to the Plan and the Company will match a
         percentage of each employee's contribution. Additionally, the Company
         has a profit-sharing plan covering all eligible employees.
         Contributions by the Company are at the discretion of management. The
         amount of contributions recorded by the Company in 2001 and 2000
         amounted to $88,412 and $184,373, respectively.


                                                                            F-13
<PAGE>

13. CONTINGENCIES:

         Kolar is currently in the process of liquidating all of its assets
         through an auction of its fixed assets and the private sale of its real
         estate. The proceeds of this liquidation will be used to reduce Kolar's
         liabilities on certain bank debt. The bank debt and Kolar's obligations
         to its previous owner are secured by liens on the assets and real
         estate to be sold and are guaranteed by the Company. Various creditors
         have made claims against Kolar. There can be no assurance that
         satisfactory payment terms will be made with any of Kolar's creditors
         or with the banks regarding the balance of portions of the debt, which
         is currently due no later than June 30, 2002.

         From time to time, the Company is subject to routine litigation
         incidental to its business. The Company believes that the settlement of
         any pending legal proceedings will not have a material adverse effect
         on the Company's financial condition.


14. MAJOR CUSTOMERS:

         Approximately 92% and 76% of the Company's consolidated net sales in
         2001 and 2000 were to the U.S. government.

         Sales to a significant commercial customer accounted for approximately
         24% of the Company's consolidated net sales for the year ended December
         31, 2000.

         At December 31, 2001, approximately 77% of accounts receivable was due
         from the U.S. government.

                                                                            F-14

<page>

                                                     SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


Dated:   April 16, 2002                   CPI AEROSTRUCTURES, INC.
                                          (Registrant)


                                          By: /s/ Arthur August
                                             --------------------------
                                             Arthur August,
                                             Chairman of the Board and
                                             Chief Executive Officer



         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
<Table>
<Caption>

 Signature                                      Title                                    Date
 ---------                                      -----                                    ----
<S>                                               <C>                                    <C>

/S/ Arthur August                              Chairman of the Board,                    April 16, 2002
-----------------------                        Chief Executive Officer (Principal
Arthur August                                  Executive Officer)
                                               and Director

/S/ Edward J. Fred                             President                                 April 15, 2002
------------------------                       Chief Financial Officer (Principal
Edward J. Fred                                 Accounting and Financial
                                               Officer), Secretary and Director


/S/ Walter Paulick                             Director                                  April 15, 2002
------------------------
Walter Paulick

/S/ Kenneth McSweeney                          Director                                  April 15, 2002
----------------------
Kenneth McSweeney



</Table>


                                       39