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 (Fee required)

For the fiscal year ended           December 31, 1998            
                          ---------------------------------------

[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
     Act of 1934 (No fee required)

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)

                                 (516) 586-5200
                -------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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

                                                 Name of Each Exchange on Which
  Title of Each Class                              Each Class is 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.  |X|

     The issuer's revenues for its most recent fiscal year were $19,810,471.

     The aggregate market value of the 6,761,342 shares of voting stock held by
non-affiliates computed by reference to the closing price at which the stock was
sold on April 1, 1999, was $4,435,441.

     As of April 1, 1999, the Issuer had 7,945,342 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-1998
                                TABLE OF CONTENTS

PART I                                                                   PAGE

Item 1.  Description of Business ...................................      3
Item 2.  Description of Property ...................................     10
Item 3.  Legal Proceedings .........................................     10
Item 4.  Submission of Matters to a Vote of Security Holders........     10

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters...     11
Item 6.  Management's Discussion and Analysis.......................     12
Item 7.  Financial Statements.......................................     14
Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure...................................     14

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act.......   15
Item 10. Executive Compensation.......................................   16
Item 11. Security Ownership of Certain Beneficial Owners and Management  20
Item 12. Certain Relationships and Related Transactions................  21
Item 13. Exhibits, List and Reports on Form 8-K........................  22


                                     PAGE 2
<PAGE>


Item 1.  DESCRIPTION OF BUSINESS

         (a)      Business Development

         CPI Aerostructures, Inc. (the "Company") is comprised of two distinct
corporations: CPI Aerostructures, Inc. ("CPI") and Kolar, Inc. ("Kolar;"
together with CPI, the "Company"). 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. Kolar manufactures 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.

         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. In September 1992, the Company completed its
initial public offering with the Company receiving net proceeds of approximately
$4,600,000.

         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. The deal was accomplished using cash
and debt financing which was provided by the Chase Manhattan Bank and a
"seller's note."

         Certain statements discussed in this Report include forward-looking
statements that involve risks and uncertainties, 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.

         (b)      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 revenues from the commercial and military
sectors of the aircraft industry:


                                   Years Ended
                     December 31,                        December 31,
                        1997                                  1998
                     ------------                        ------------
                             (Dollar amounts in thousands)

Commercial      $4,171             42.5%          $5,102               60.1%
Military         5,654             57.5            3,391               39.9
                ------            -----           ------              -----
  Total         $9,825            100.0%          $8,493              100.0%
                ======            =====           ======              =====


         Kolar manufactures precision parts and sub-assemblies for a variety of
different markets. Kolar accounted for approximately $11,300,000 of revenue
(57%) in 1998 and $3,190,000 (25%) in 1997, respectively, of the Company's total
revenue for such year.



                                     PAGE 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 include 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
eventual printed circuit boards are used in ATM machines, computers, and a
variety of other electronic devices.

         In the materials handling market, Kolar's customer produces 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 pylons, engine mounts and all related sub-assemblies and
components for use in connection with production of the Hawker 1000 Executive
Jet. For the years ended December 31, 1997 and 1998, sales of CPI's products to
Rohr accounted for approximately 30% and 53%, respectively, of CPI's revenues.
For the years ended December 31, 1997 and 1998, sales derived from Nordam were
approximately 11% and 7%, respectively. The original agreement obligated CPI
to deliver a total of 300 pylons to Nordam at a fixed aggregate base price (in
1988 unescalated dollars) of $10,300,000.


                                     PAGE 4
<PAGE>

         CPI's commercial agreements generally 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 repricing provisions which adjust
the price under certain circumstances as a result of changes in the scope,
design, quantity or delivery schedule provisions.

         CPI's agreements with Rohr and Nordam contain provisions that allow
termination of such contracts at will, in whole or in part, at the convenience
of the customer and generally provide that the customer must reasonably
compensate CPI for work performed through the termination date which has
happened and may occur again.

         As of December 31, 1996, CPI provided Rohr with spars for use in 
connection with the Boeing 757 aricraft for an aggregate purchase price of
$2,263,000. No revenues were recorded for this program in 1997 and in December
of that year CPI recognized a termination of its agreement with Rohr for such
products, recording a non-cash charge to cost of sales of approximately
$605,000.

         In March 1991, CPI entered into an agreement with Rohr, pursuant to
which CPI agreed to provide Rohr with apron assemblies and related components in
connection with production of the McDonnell Douglas MD-90 jet aircraft. CPI
delivered 76 and 60 production units during 1997 and 1998, respectively. As of
December 31, 1998, CPI had delivered an aggregate of two engineering prototypes,
three development units, six flight testing units and 238 production units.
During the years ended December 31, 1997 and 1998, approximately 37% and 53%,
respectively, of CPI's revenues were derived from this program. In December
1998, based on information received from Rohr, CPI recognized a termination of
this contract. This termination resulted in the Company writing off
approximately $11,850,000 of previously recorded revenue. The effect of this
termination is included in cost of sales in 1998.

         In May 1992, CPI commenced production of aft fairing assemblies for
Shin-Meiwa Industry Co., Ltd. ("Shin-Meiwa"), a Japanese aerospace firm. On
December 10, 1992, CPI executed an agreement with Mitsui & Co. (U.S.A.), Inc.,
as agent for Shin-Meiwa to produce aft fairing assemblies in connection with the
production program for the McDonnell Douglas MD-11. CPI's current arrangement
with Shin-Meiwa provides for CPI to assemble products using tooling and
component parts provided by Shin-Meiwa. The contract provides for the delivery
of 251 pieces for an aggregate of approximately $1,590,000. As of December 31,
1997 and 1998, CPI had delivered 167 and 178 fairing assemblies, respectively,
pursuant to purchase orders. In November 1998, Shin-Meiwa informed the Company
that it would not require any further deliveries of aft fairing assemblies under
this agreement.

         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, 1997 and 1998, 58% and 40%,
respectively, of CPI's revenues were derived from military contracts. The
increased level of revenues from the military sector resulted primarily from the
following two contracts:

         On September 19, 1995, CPI was awarded a contract by the United States
Air Force for the A-10 Aircraft program. CPI will produce leading edge panels
for such aircraft. The total award amount is approximately $3,354,000, of which
$2,955,000 has been recognized as of December 31, 1998 with all deliveries
expected to be completed by the end of the third quarter of 1999.

         On September 22, 1995, CPI was awarded a contract by the United States
Air Force for the C-5 Aircraft program. CPI is producing structural supports,
plates and brackets, mount assemblies, air deflectors, mounting blocks, hinge
brackets, plate assemblies, fairings, landing gear door assemblies and panel
assemblies for such aircraft. As of March 15, 1999, the total contract value was
$4,878,000 of which $3,657,000 has been recognized as of December 31, 1998 with
additional orders anticipated, although no assurances can be given as to any
additional orders.


                                     PAGE 5
<PAGE>

         As of December 31, 1997 and 1998, CPI had thirteen and thirty-nine
military contracts, respectively, in various stages of completion. Additionally,
the Company has added twenty-eight new military contracts since December 31,
1998. 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
repricing 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.

         Kolar

         Kolar operates almost exclusively on a purchase order basis with its
current customers. The one exception is the Purchase Agreement described below
entered into between Universal Instrument Corporation ("Universal") and Kolar in
November 1997. Kolar has long-standing relationships with its two major
customers, including Universal, which together comprise over 83% of Kolar's
revenues.

         Universal has been Kolar's customer for approximately twelve years, and
accounted for more than 69% and 60% of Kolar's revenues in 1998 and 1997,
respectively, as Kolar's largest customer. Kolar manufactures detail parts and a
major sub-assembly for Universal's high speed machines that route printed
circuit boards through a series of operations while inserting and bonding
components to the board. Kolar also produces numerous other detail parts for
various applications in Universal machinery. In November 1997, Universal entered
into a Purchase Agreement with Kolar setting forth the terms and conditions
under which Universal is purchasing products from Kolar. The agreement is for
four years, unless earlier terminated, however, it does not provide for any
fixed quantities of sales and is subject to Kolar's receipt of purchase orders
thereunder.

         Hi Speed Checkweigher ("Hi Speed") is Kolar's second largest customer
and has been a customer of Kolar for approximately 40 years. Hi Speed accounted
for approximately 17% and 12% of Kolar's revenues in 1998 and 1997,
respectively. Hi Speed produces high speed equipment used for the weighing and
measuring of cartons and containers.

Production and Assembly

         CPI

         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.


                                     PAGE 6

<PAGE>

         Kolar

         Kolar's production operations consist primarily of machining raw
materials such as aluminum and steel into component parts to satisfy specific
customer requirements and precision standards. In the assembly operations, Kolar
incorporates machined parts, which it manufactures, with components purchased
from subcontractors, to produce assemblies used in high speed, automated
equipment. Kolar packages its products in accordance with specifications for
shipment to its customers. Kolar is generally responsible for arranging product
shipment, usually using its own vehicles.

Marketing

         To date, substantially all of CPI's and Kolar'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.

         Additionally, both CPI and Kolar have 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, 1998 and 1997,
CPI's backlog was approximately $4 million and $26 million, respectively. This
decrease is primarily attributable to the termination of the MD-90 program.

         Of CPI's backlog at December 31, 1998, approximately 4% and 96% is
attributable to commercial and military contracts, respectively. Approximately
$3 million (75%) of CPI's current backlog at December 31, 1998 is scheduled for
delivery during the year ending December 31, 1999.

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. While the Company attempts 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.



                                     PAGE 7

<PAGE>

         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 1999 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.

         While the markets for Kolar's products are also highly competitive, its
track record of superior performance with its mature customer base has given
Kolar a slight advantage over new entrants into the precision machining
business, and specifically in the Upstate New York area.

         Kolar's two most significant competitors are DFF Corporation of
Massachusetts and Arlington Machine of New York State. DFF Corporation has a
large facility and assembly capability. Arlington Machine has excellent
machining capabilities. Both competitors have a price structure similar to
Kolar.

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



                                     PAGE 8


<PAGE>

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.

         Kolar generally warrants its products to be free from defects in
materials, workmanship and manufacturing processes for a specified period,
ranging from one to four years from the date of shipment.

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. Kolar maintains a $1 million general and products liability
insurance policy, and a $10 million umbrella liability insurance policy. The
Company believes this coverage is adequate for the types of products presently
marketed.

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.


                                     PAGE 9
<PAGE>



Employees

         As of April 1, 1999, CPI employed 23 full-time employees including its
two executive officers. As of April 1, 1999, Kolar employed 93 full-time
employees including one executive officer, and one part-time employee.

         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 with an unaffiliated landlord, which commenced on December 1, 1995 and
ends on March 31, 2000. The current monthly base rental 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.

         Kolar's executive offices and production facilities are situated in
approximately 46,000 square feet in a total of four buildings that the Company
owns. The buildings are located in Ithaca, New York at 407 Cliff Street, 618
West Buffalo Street, 604 Elmira Road and 612 Elmira Road.

Item 3.  LEGAL PROCEEDINGS

         On or about November 22, 1995, CPI commenced an action in the Supreme
Court of the State of New York, County of Nassau, against VTX Electronics Corp.
alleging breach of a contract signed between the parties on August 24, 1995. The
Company seeks damages in the amount of $400,000. Defendant VTX answered and
counterclaimed for $150,000. The matter was in the discovery phase before VTX
filed for bankruptcy protection in January, 1997 under Chapter 11 of the
Bankruptcy Code. On or about December 1, 1997, the Company agreed to settle any
and all claims against VTX and VTX agreed to settle any and all claims and
counterclaims against the Company. The parties filed a Stipulation of Dismissal
with prejudice in the matter in March 1998.

         In July, 1996 Rickel & Associates, Inc. ("Rickel"), former consultants
to the Company, commenced an action in the Supreme Court of the State of New
York, County of New York against the Company. Rickel alleged breach of a
Consulting Agreement dated January 26, 1995 pursuant to which Rickel alleged it
is owed $70,000 and is entitled to 120,000 stock options which the Company has
canceled. The Company denied the allegations, claiming that Rickel did not
perform as required under the Consulting Agreement, and that Rickel fraudulently
induced the Company to enter into the Consulting Agreement.


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

         None


                                                       PART II


                                    PAGE 10
<PAGE>

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

         The Company's securities are traded in the over-the-counter market and
listed on the National Association of Securities Dealers Automated Quotation
SmallCap Market ("Nasdaq").

         The following tables set forth for the last two fiscal years, the range
of high and low last sales prices of CPI's Common Stock for the periods
indicated, as reported by Nasdaq. Nasdaq prices represent inter-dealer
quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.

 Period                                       High                    Low
 ------                                       ----                    ----
 1997
 ----
 Quarter Ended March 31, 1997                 $2 3/4                  $2 3/8

 Quarter Ended June 30, 1997                  $2 13/16                $1 3/8

 Quarter Ended September 30, 1997             $3                      $1 5/16

 Quarter Ended December 31, 1997              $6                      $2 13/16

 1998
 ----
 Quarter Ended March 31, 1998                 $2 5/8                  $2 3/8

 Quarter Ended June 30, 1998                  $3 1/8                  $2 1/16

 Quarter Ended  September 30, 1998            $2 3/16                 $ 13/16

 Quarter Ended  December 31, 1998             $2                      $ 13/16

         On April 1, 1999, the closing sale price for the Company's Common
Stock on the Nasdaq was $0.656.

Holders

         On April 1, 1999, there were 171 holders of record of the Company's
Common Stock. The Company reasonably believes that there are in excess of 2,500
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


       
                             PAGE 11

<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.

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.
For Kolar, revenue is recognized when goods are shipped to customers.

Results of Operations

Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997

         The Company's revenue for the year ended December 31, 1998 ("1998") was
$19,810,000 compared to $13,015,000 for the year ended December 31, 1997
("1997"), representing an increase of $6,795,000, or 52%. This increase reflects
an increase in sales by Kolar. Sales by CPI decreased by approximately
$1,333,000 from 1997 to 1998 due to a temporary slowdown in military contract
awards during the year, and the completion and termination of various commercial
programs.

         Gross loss for 1998 was $4,953,000 compared to gross profit of
$3,807,000 for 1997, representing a decrease of $8,760,000. Gross profit as a
percentage of revenues for 1998 was negative, compared to 29% for 1997. This
decrease in gross profit percentage was attributable to the termination of the
MD-90 program in 1998 resulting in a write-off of approximately $11,850,000.

         Selling, general and administrative expenses for 1998 were $4,423,000
compared to $2,016,000 for 1997, representing an increase of $2,407,000, or
119%. This increase is primarily attributable to a full year of charges related
to the acquisition of Kolar, such as amortization of goodwill and loan
commitment fees. Selling, general and administrative expenses as a percentage of
revenue for 1998 and 1997 were 22% and 15%, respectively. Interest expense for
1998 was $1,264,000, compared to $306,000 for 1997, representing an increase of
$958,000 or 313%. The increase is attributable to a full year of interest
payments, related to the substantial increase of debt during 1997, primarily
from the Company's purchase of Kolar, Inc.

         The net loss for 1998 was $6,796,000 compared to net income of $949,000
for 1997, representing a decrease of $7,745,000. Basic loss per share was $0.86
on 7,941,773 average shares outstanding, compared to basic earnings per share of
$0.14 on 6,582,479 average shares outstanding for fiscal 1997, and diluted
earnings per share of $0.12 in 1997 on 7,645,603 weighted average shares
outstanding.

Liquidity and Capital Resources

General

         The Company has financed its working capital requirements during the
past two years through proceeds received from the exercise of warrants and from
operations. A large portion of the Company's cash has been used 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.

                                    PAGE 12
<PAGE>


         Net cash provided by operating activities for 1998 was $8,000, as
compared to net cash used in operating activities of $1,386,000 for 1997. This
increase in cash was primarily attributable to depreciation and amortization of
$1,395,000, an increase in non-cash consulting fees of $35,000, a decrease in
accounts receivable of $131,000, and a decrease in costs and estimated earnings
in excess of billings of $9,818,000, offset by net loss of $6,796,000, a
decrease in deferred income taxes of $1,454,000, an increase in tax refund
receivable of $516,000, an increase in inventory of $121,000, an increase in
other assets of $30,000, a decrease in accounts payable and accrued expenses of
$200,000, and a decrease in income taxes payable of $543,000.

         Net cash used in financing activities was $1,377,000 in 1998, as
compared to net cash provided by financing activities of $12,772,000 in 1997.
The Company repaid long term debt of $1,798,000 in 1998, as compared to $10,000
in 1997. The Company received $45,000 from the exercise of stock options and
warrants in 1998, as compared to the receipt of $2,414,000 in 1997. Net cash
used in investing activities of $79,000 for 1998 and $10,254,000 for 1997
resulted from the Company's purchase of property and equipment in 1998, and the
purchase of Kolar in 1997.

         As a result of the  foregoing,  the  Company's  cash at  December  
31, 1998 decreased by $1,448,000 from the prior year to $584,000. The Company
believes it will have sufficient cash flow for 1999 to satisfy its cash
requirements.


Financing Arrangements

         The Company has an agreement with The Chase Manhattan Bank and Mellon
Bank providing a line of credit through June 30, 1999, which will be used for
working capital and other corporate purposes as needed. The Company has
available up to $1,000,000 under the line of credit, subject to limits based on
amounts of accounts receivable and inventory, as defined. Interest is at the
bank's prime rate plus 1%. The line of credit is secured by substantially all
assets of the Company. As of December 31, 1998, there was an outstanding balance
of $375,000 on this line of credit.

         On October 9, 1997, the Company incurred significant indebtedness in
connection with the acquisition of Kolar Machine, Inc. The Company entered into
a term loan agreement with The Chase Manhattan Bank and Mellon Bank in the
amount of $9,400,000. This loan was payable in quarterly installments of
$587,000, plus monthly interest at the Bank's published prime rate plus 1.5%,
maturing December 31, 2001. This loan is collateralized by all of the assets of
the Company and its subsidiary. The Company also entered into a mortgage loan
agreement with The Chase Manhattan Bank in the amount of $975,000. This loan is
payable in monthly installments of $9,487, including interest at 8.3%, maturing
October 31, 2007. This loan is collateralized by Kolar's land and building.
Additionally, the Company entered into a subordinated note agreement with the
seller of Kolar in the amount of $4,000,000. Interest only is payable monthly at
8%, maturing December 31, 2001. This note is currently convertible into
1,000,000 shares of CPI common stock.

         In December 1998 the Company re-structured its term loan agreement with
the Chase and Mellon banks. Under the new arrangement, the principal payment due
in December 1998 was deferred and will be amortized evenly through December 31,
2001. Loan payments are now payable monthly, at the rate of $120,000 per month
through December 31, 1999. Commencing January 2000, the amortization will
increase to $200,000 per month, and will increase to $317,000 per month
commencing January 2001. Additionally, the seller of Kolar has deferred the
Company's payment of interest to him for thirteen months, beginning with the
December 1998 payment. This deferred interest will accrue and become payable
upon maturity of the seller's note. Interest payments will begin again in
January 2000.


                                    PAGE 13
<PAGE>

Year 2000 Problem

         The Company has been evaluating the potential impact of the situation
commonly referred to as the "Year 2000" ("Y2K") issue. The Y2K issue results
from the problem with older computer software programs that only recognize the
last two digits of the year in any date (e.g., "98"for "1998"). These programs
were designed and developed without considering the impact of the upcoming
change in the century. If the software is not reprogrammed or replaced, many
computer appliations could fail or create erroneous results at the Year 2000.
Since much of the Company's internal information technology has been fairly
recently developed, the Company does not anticipate it will face significant
issues of non-compliance.

         Potential impacts of Y2K non-compliance to the Company may arise from
software, computer hardware, and other equipment outside the Company's ownership
yet with which the Company interfaces either electronically or operationally.
The Company has contacted its major suppliers and customers to determine the
state of their assessment and remediation of any Y2K issues they face. The
Company has been advised by substantially all of such third parties that they
believe they are Y2K compliant. Notwithstanding the foregoing, approximately 50%
of the Company's revenues are derived from contracts with agencies or
instrumentalities of the United States government ("Government Agencies"). The
Company has not been able to determine whether these Government Agencies are Y2K
compliant. If these Government Agencies do not become Y2K compliant, the
financial condition and operation of the Company would be materially and
adversely impacted. The Company has not yet developed a contingency plan in the
event of such non-compliance.

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

         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


                                    PAGE 14
         
<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                 64             Chairman of the Board of Directors,
                                              President, Chief Executive
                                              Officer and Director

Edward J. Fred (1)(2)(3)      40             Vice President,
                                              Chief  Financial Officer,
                                              Secretary and Director

Walter Paulick (1)(2)         52             Director

Kenneth McSweeney (1)(2)      67             Director


(1) Member of Compensation Committee.

(2) Member of Audit Committee.

(3) Named as Director in December 1998 to replace Theodore J. Martines, who
retired on December 31, 1998.

         Arthur August, a founder of the Company, has been the Chairman of the
Board, President, Chief Executive Officer and a director since January 1980.
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 was appointed to be Secretary and a director of the
Company effective December 31, 1998. Mr. Fred was appointed to the position of
Vice President on December 15, 1998. He was Controller of the Company from
February 1995 to April 1998, when he was appointed as Chief Financial Officer.
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


                                    PAGE 15


<PAGE>

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.

         All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. 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.

Compliance with 16(a) of the Exchange Act

         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, 1998, all
filing requirements applicable to its Officers, Directors and greater than ten
percent beneficial owners were complied with.

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, 1998, 1997 and 1996, by the Company's Chief Executive Officer and
the Company's other executive officers whose total compensation exceeded
$100,000.


<TABLE>
<CAPTION>
                                                  SUMMARY COMPENSATION TABLE
                                                  --------------------------
                                           Annual Compensation           Long Term Compensation
                                           -------------------           ----------------------
                                                                               Securities
Name and                                                                       Underlying
Principal Position             Year       Salary($)         Bonus($)          Options (#)
---------------------         -------     ----------        --------          ------------
<S>                             <C>         <C>             <C>                <C>    
Arthur August,                  1998        $321,102              -0-           100,000
Chief Executive                 1997        $294,730          $22,500           200,000
Officer and President           1996        $271,148          $12,611               -0-

Theodore J. Martines,           1998        $185,807              -0-            75,000
Executive Vice                  1997        $172,145          $ 9,000           115,000
President and Director          1996        $164,211          $ 5,044               -0-

Daniel Ligouri                  1998        $160,470              -0-               -0-
President - Kolar               1997     (1) $31,375              -0-               -0-
                                1996             -0-              -0-               -0-
</TABLE>


                                    PAGE 16

<PAGE>

(1)      Compensation is for the period subsequent to the October 9, 1997
         closing of the Company's acquisition Kolar, Machine, Inc. pursuant to
         his employment contract. See Executive compensation - Employment
         Agreements.

                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

                          Number of           Percent of
                          Securities          Options   
                          Underlying          Granted to           Exercise
                          Options             Employees in         Price                  Expiration
                          Granted(#)(1)       Fiscal Year(2)       ($/SH)                 Date   
                          -------------       ---------------    --------------           ----------
<S>                         <C>                  <C>                   <C>                  <C>  
Arthur August               100,000              28.2%                 $2.30                6/05/03

Theodore J. Martines         75,000              21.1%                 $2.09                6/05/08
</TABLE>


(1)  Stock options granted under the Company's 1992 Employee Stock Option Plan
     (the "1992 Plan"), 1995 Employee Stock Option Plan (the "1995 Plan") and
     the 1998 Performance Equity Plan (the "1998 Plan") are intended to
     qualify as incentive stock options ("ISO's") under Section 422 of the
     Internal Revenue Code of 1986, as amended. Under the terms of the 1992
     Plan, the 1995 Plan and the 1998 Plan, ISO's may be granted to officers and
     other key employees of the Company for a maximum term of 10 years. The
     price per share of an ISO may not be less than the fair market value of the
     Company's shares on the date the ISO is granted. However, ISO's granted to
     persons owning more than 10% of the Company's Common Stock may not have a
     term in excess of five years and may not have an option price of less than
     110% of the fair market value per share of the Company's shares on the date
     the ISO is granted. The maximum number of ISO's is limited to such number
     so that the aggregate fair market value, determined as of the date the
     ISO's are granted, of the shares of Common Stock with respect to which
     ISO's are exercisable for the first time during any calendar year shall not
     exceed $100,000. Any options granted in excess of the $100,000 limitation
     would not qualify as ISO's under the Internal Revenue Code.

(2)       The Company granted a total of 355,000 options to employees in the 
          fiscal year ended December 31, 1998.

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                FYE OPTION VALUES
<TABLE>
<CAPTION>

                                                              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 (1)             Unexercisable
----------------          ---------------      --------         -----------------             -------------
<S>                               <C>               <C>          <C>                                <C>
Arthur August                    -0-               -0-           250,000/100,000                     -0-

Theodore J. Martines             -0-               -0-           163,500/66,500                      -0-
</TABLE>

On December 31, 1998, the last reported sales price of the Company's Common
Stock on the Nasdaq SmallCap Market was $1.188.

          The Company has no long-term incentive plan awards.


                                    PAGE 17
<PAGE>

Directors' Compensation

Currently, Directors are not compensated for serving on the Board of Directors
although they are reimbursed reasonable expenses they incur in attending
meetings. The Company's two non-officer directors have each received stock
options from the Company. Mr. Paulick received options to purchase 5,000 shares
of Common Stock in each of 1996, 1997 and 1998. Mr. McSweeney received options
to purchase 5,000 shares of Common Stock in 1998. See "Stock Options" below.

Employment Agreements

Messrs. August and Fred are employed by the Company as Chairman of the Board,
President and Chief Executive Officer, and Vice President, Chief Financial
Officer and Secretary, respectively, pursuant to employment agreements which
expire on December 31, 2001. The employment agreements provide Messrs. August
and Fred with annual base salaries of $300,000, and $100,000, respectively,
during the term of their contracts. Pursuant to his employment agreement, Mr.
August is entitled to receive an annual bonus equal to 4% of the Company's net
income for the years ending December 31, 1999, 2000 and 2001. 

The agreements with Messrs. August and Fred provide that during the term of
employment with the Company, and for a period of one-year thereafter, the
employees will not compete with the Company or engage in any activities that
would interfere with the performance of their duties as employees of the
Company. The agreements provide that the Company will maintain hospital and
health insurance benefits for the employee following retirement.

The Company employed Mr. Theodore Martines as its Executive Vice president from
December 1984 through his retirement in December 1998. Pursuant to his agreement
with the Company, Mr. Martines received an annual base salary of $185,807 and
$172,145 in 1998 and 1997, respectively.

Daniel Liguori is employed as President of Kolar pursuant to an employment
agreement which expires on October 9, 2000 unless extended, at Mr. Ligouri's
election, for an additional three years. The employment agreement provides Mr.
Liguori with an annual base salary of $168,000 and provides that during the term
of employment with Kolar, and for a period of five years thereafter, Mr. Liguori
will not compete with Kolar.

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) Employees
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

1998 Performance Equity Plan

The 1998 Performance Equity Plan ("1998 Plan") authorizes the grant of
1,000,000 options, of which options to purchase an aggregate of 180,000 shares
of Common Stock have been granted, at exercise prices ranging from $2.09 to
$2.30 per share, to certain employees and executive officers of the Company.
These include five year options to purchase 100,000 shares of Common Stock
granted to Arthur August, Chairman of the Board of Directors, Chief Executive
Officer and President at an exercise price of $2.30 per share; ten-year options
to purchase 40,000 shares of Common Stock to Edward J. Fred, Vice President,
Chief Financial Officer, and Secretary at an exercise price of



                                    PAGE 18
<PAGE>
$2.09 per share, and ten-year options to one non-executive officer to purchase
40,000 shares of Common Stock. As of April 1, 1999, options to purchase 820,000
additional shares remain eligible for the grant of options.


1995 Employee Stock Option Plan

The 1995 Employee Stock Option Plan (the "1995 Option Plan"), authorizes the
grant of 600,000 options, of which options to purchase 493,400 shares of Common
Stock have been granted at exercise prices ranging from $1.06 to $3.00 per
share, to certain employees, executive officers, and directors of the Company
including: five-year options to purchase an aggregate of 250,000 shares of
Common Stock granted to Arthur August, Chairman of the Board of Directors, Chief
Executive Officer and President at exercise prices ranging from $1.44 to $2.27
per share; five year options to purchase 10,000 shares of Common Stock to Edward
J. Fred, Chief Financial Officer; five-year options to purchase an aggregate of
159,000 shares of Common Stock to Stanley Wunderlich, a former Director; five
year options to purchase 15,000 shares of Common Stock to Walter Paulick, a
Director, five year options to purchase 5,000 shares of Common Stock to Kenneth
McSweeney, a Director, and five-year options to fourteen non-executive officer
employees to purchase an aggregate of 153,400 shares of Common Stock. As of
April 1, 1999, options to purchase 40,000 additional shares remain eligible for
the grant of options.

1992 Employee Stock Option Plan

The 1992 Employee Stock Option Plan (the "1992 Plan") authorizes the grant of
250,000 options, of which options to purchase 79,000 shares have been granted at
exercise prices ranging from $1.31 to $3.00 per share to certain employees,
executive officers and directors ofo ther Company including: 10,000 shares held
by Walter Paulick, a director, exercisable at $1.00 per share, and 5,000 shares
exercisable at $2.00 per share.; 10,000 shares held by Edward Fred, Chief
Financial Officer and director, exercisable at $1.31 per share. As of April 1,
1999, options to purchase 122,836 shares remain eligible for the grant of
options.

Other Options

In October 1994, the Company granted an option to purchase 10,000 shares at
$3.00 per share (as amended) to a consultant. On January 26, 1995, the Company
granted an option to purchase 120,000 shares of Common Stock at $3.00 per share
to Rickel and Associates, in consideration of business consulting services to be
performed for the Company. This option was canceled in April 1996, because of
Rickel & Associates' non-performance and is the subject of a lawsuit. See "Item
3. Legal Proceedings." An option to purchase 20,000 shares of Common Stock was
issued to the Company's former counsel in April 1995 exercisable at $2.00 per 
share.

In April 1998, the Company issued 100,000 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
100,000 shares of common stock at an exercise price of $2.50 during the
five-year period commencing April 1, 1998.


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

                                    PAGE 19


<PAGE>

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)          1,170,000   (5)                     14.3%

Edward J. Fred(3)             70,000   (6)                       *

Walter Paulick(3)             30,000   (7)                       *

Kenneth McSweeney(3)           5,000   (8)                       *

Daniel Liguori (4)         1,000,000   (9)                      11.2%

All Directors and          2,275,000   (10)                     24.4%
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 7,945,342 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)      The business address of such person is care of Kolar, Inc., 407 Cliff 
         Street, Ithaca, New York 14850.

(5)      Includes 250,000 shares of Common Stock which Mr. August has the right
         to acquire upon exercise of options granted pursuant to
         the 1995 Plan and 1998 Plan. Excludes an aggregate of 120,000 shares
         of Common Stock owned by Mr. August's children or held in trust for
         Mr. August's grandchildren, and 9,000 shares of Common Stock owned by
         Mr. August's wife, all of which shares Mr. August disclaims beneficial
         ownership, and 100,000 shares of Common Stock underlying options not
         currently exercisable.

(6)      Represents 70,000 shares of Common Stock which Mr. Fred has the right 
         to acquire upon exercise of options granted pursuant to the 1995 and 
         1998 Plan.

(7)      Represents 30,000 shares of Common Stock which Mr. Paulick has the
         right to acquire within 60 days upon exercise of options granted
         pursuant to the Company's 1992 Employee Stock Option Plan and 1995
         Employee Stock Option Plan.


                                    PAGE 20
<PAGE>

(8)      Includes  5,000 shares of Common Stock which Mr.  McSweeney has the 
         right to acquire upon exercise of stock options granted pursuant to 
         the 1995 Plan.

(9)      Includes  1,000,000  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.

(10)     Includes an aggregate of 1,355,000 shares of Common Stock which Messrs.
         August, Fred, Paulick, McSweeney  and  Liguori  have  the  right  to  
         acquire upon exercise of outstanding options and conversion rights.


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."

On January 1, 1996, the Company entered into a consulting agreement with Stanley
Wunderlich. Mr. Wunderlich was a director of the Company from November 1995
until February 1, 1998, when he resigned from the Board of Directors. The
agreement terminated by its own terms on December 31, 1997. The Company and Mr.
Wunderlich entered into a new consulting agreement on January 1, 1998. This
agreement terminates on December 31, 1999, unless sooner terminated on sixty
days notice of either party. Pursuant to the agreement, Mr. Wunderlich provides
the Company with financial advisory consulting services including, but not
limited to, assisting with financial public relations, arranging meetings with
securities analysts and money managers, rendering advice with regard to changes
in the capitalization or corporate structure of the Company, and advising the
Company in connection with potential mergers or acquisitions. In consideration
for these services, Mr. Wunderlich is compensated at the rate of $1,000 per
month, including reasonable expenses. In addition, in January 1998, as further
compensation for these consulting services, Mr. Wunderlich was granted 75,000
non-qualified stock options exercisable at a price of $2.50 per share for a
period of five years.

                                    PAGE 21


<PAGE>


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

(a) Exhibits

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

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

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

10.1  Employment Agreement between Registrant and Arthur August dated September
      15, 1995. (8)

10.2  Employment Agreement between Registrant 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  Registrant's Sick Pay Plan.(1)

10.9  Basic Agreement for Sub-Assembly dated December 10, 1992 by and between 
      the Registrant 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-the Company by and between the Company
      and Rohr, Inc. for MD90 V2500 Apron Assembly. (6)


                                    PAGE 22


<PAGE>

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, Registrant and
      Kolar, Inc., a Delaware corporation and wholly-owned subsidiary of
      Registrant. (11)

10.20 Consulting Agreement dated January 1, 1998 between the Company and Stanley
      Wunderlich.

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").

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

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

*10.24 First Amendment to the Credit Agreement dated February 12, 1999.

*10.25 Second Amendment to the Credit Agreement dated as of December 31, 1998.

*10.26 Employment Agreement between the Company and Arthur August dated December
      16, 1998.

*10.27 Employment Agreement between the Company and Edward Fred dated December
      16, 1998.

*10.28 1998 Performance Equity Plan.

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

16.1  Letter on change in certifying accountant. (7)

21.1  Subsidiaries of the Registrant.

*23.1 Consent of Goldstein Golub Kessler & Company, LLP

*27.1 Financial Data Schedule

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



                                    PAGE 23

<PAGE>

(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 CPI'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.

(b)  Reports on Form 8-K

     None.

<PAGE>
                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY

                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



Independent Auditor's Report                                          F-1


Consolidated Financial Statements:

   Balance Sheet as of December 31, 1998                              F-2

   Statement of  Operations for the Years Ended December 31, 1998 
    and 1997                                                          F-3

   Statement of Shareholders' Equity for the Years Ended 
    December 31, 1998 and 1997                                        F-4

   Statement of Cash Flows for the Years Ended December 31, 1998 
    and 1997                                                          F-5

   Notes to Consolidated Financial Statements                       F-6 - F-17






<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, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.


/s/ Goldstein Golub Kessler LLP
---------------------------------
GOLDSTEIN GOLUB KESSLER LLP
New York, New York

February 5, 1999

                                                                             F-1

<PAGE>





                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY

                                                      CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
December 31, 1998

ASSETS (Notes 7 and 10)

<TABLE>
<S>                                                                                                      <C>
Current Assets:
  Cash and cash equivalents                                                                                $   584,296
  Accounts receivable                                                                                        1,689,207
  Income tax receivable                                                                                        516,000
  Costs and estimated earnings in excess of billings on uncompleted contracts                                3,105,924
  Inventory                                                                                                  2,438,415
  Deferred income taxes, net of valuation allowance of $2,304,000                                              919,000
  Prepaid expenses and other current assets                                                                    102,001
----------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                                   9,354,843

Property, Plant and Equipment, net                                                                           5,064,840

Goodwill                                                                                                     7,098,917

Other Assets                                                                                                   417,286

----------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                                         $21,935,886
======================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                                                        $  2,272,149
  Deferred income taxes                                                                                        260,000
  Accrued expenses                                                                                             351,104
  Line of credit                                                                                               375,000
  Current portion of long-term debt                                                                          1,475,075
----------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                                              4,733,328

Long-term Debt                                                                                              11,092,239
----------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                                                     15,825,567
----------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Shareholders' Equity:
  Common stock - $.001 par value; authorized 50,000,000 shares,
   issued and outstanding 7,945,342 shares                                                                       7,945
  Additional paid-in capital                                                                                11,926,226
  Accumulated deficit                                                                                       (5,823,852)
----------------------------------------------------------------------------------------------------------------------
      Shareholders' equity                                                                                   6,110,319
----------------------------------------------------------------------------------------------------------------------
      Total Liabilities and Shareholders' Equity                                                           $21,935,886
======================================================================================================================
</TABLE>

                                  See Notes to Consolidated Financial Statements
                                                                             F-2
<PAGE>
                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENT OF  OPERATIONS
--------------------------------------------------------------------------------
<TABLE>

Year ended December 31,                                                                      1998                 1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>        
Revenue                                                                              $ 19,810,471          $13,015,393

Cost of sales                                                                          24,763,293            9,208,745
----------------------------------------------------------------------------------------------------------------------

Gross profit (loss)                                                                    (4,952,822)           3,806,648

Selling, general and administrative expenses                                            4,422,786            2,016,490

----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                                          (9,375,608)           1,790,158
----------------------------------------------------------------------------------------------------------------------
Other (income) expense:
  Interest income                                                                         (11,344)             (42,090)
  Interest expense                                                                      1,263,868              306,446
  Other expense (income), net                                                            (122,207)              15,075

----------------------------------------------------------------------------------------------------------------------
Total other expenses, net                                                               1,130,317              279,431
----------------------------------------------------------------------------------------------------------------------

Income (loss) before provision (benefit) for income taxes                             (10,505,925)           1,510,727

Provision (benefit) for income taxes                                                   (1,940,000)             562,000

----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                   $  (8,565,925)       $     948,727
======================================================================================================================

Earnings (loss) per common share - basic                                        $           (1.08)       $         .14
======================================================================================================================

Earnings per common share - diluted                                                           -          $         .12
======================================================================================================================

Shares used in computing earnings per common share:
  Basic                                                                                7,941,773             6,582,479
  Diluted                                                                              -                     7,645,603
======================================================================================================================
</TABLE>
                                  See Notes to Consolidated Financial Statements
                                                                             F-3

<PAGE>
                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY

                                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Years ended December 31, 1997 and 1998
----------------------------------------------------------------------------------------------------------------------
                                                                                          Retained
                                                                         Additional       Earnings           Total    
                                          Common                           Paid-in      (Accumulated     Shareholders'
                                          Shares            Amount         Capital        Deficit)           Equity   
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>         <C>             <C>                <C>        
Balance at January 1, 1997                5,876,710         $5,877      $  9,146,628    $ 1,793,346        $10,945,851

Net income                                -                  -             -                948,727            948,727

Shares issued upon exercise
 of stock options                            69,100             69           120,647      -                    120,716

Shares issued  in conjunction
  with acquisition                          100,000            100           287,400      -                    287,500

Shares issued upon exercise of
 stock warrants                           1,856,845          1,857         2,291,290      -                  2,293,147
----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997              7,902,655          7,903        11,845,965      2,742,073         14,595,941

Net loss                                  -                  -             -             (8,565,925)        (8,565,925)

Warrants issued in conjunction
 with consulting agreement                -                  -                35,066      -                     35,066

Shares issued upon exercise
 of stock warrants                           42,687             42            45,195      -                     45,237
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998              7,945,342         $7,945       $11,926,226    $(5,823,852)      $  6,110,319
======================================================================================================================
</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,                                                                        1998               1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>              <C>
Cash flows from operating activities:
  Net income (loss)                                                                     $(8,565,925)    $      948,727
  Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
    Depreciation and amortization                                                         1,394,923            400,602
    Noncash consulting fees                                                                  35,066          -
    Deferred income taxes                                                                (1,454,000)            19,000
    Loss on sale of fixed assets                                                          -                     38,473
    Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                                            131,071           (295,944)
      Increase in tax refund receivable                                                    (516,000)         -
      (Increase) decrease in costs and estimated earnings in excess of billings
       on uncompleted contracts                                                           9,817,845         (1,217,508)
      Increase in inventory                                                                (121,284)          (261,662)
      Decrease in prepaid expenses and other current assets                               -                     11,715
      (Increase) decrease in other assets                                                    29,752            (75,183)
      Decrease in accounts payable and accrued expenses                                    (200,105)        (1,497,393)
      Increase (decrease) in income taxes payable                                          (543,000)           543,000
----------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) operating activities                                  8,343         (1,386,173)
----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Purchase of property, plant and equipment                                                 (78,892)           (89,878)
  Proceeds from sale of fixed assets                                                      -                      6,295
  Cash paid for acquisition, net of cash acquired                                         -                (10,170,064)
----------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                                              (78,892)       (10,253,647)
----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from line of credit                                                              375,000          -
  Proceeds from issuance of notes payable                                                                   10,375,000
  Repayment of long-term debt                                                            (1,797,575)           (10,111)
  Principal payments under capital lease obligations                                                            (6,547)
  Proceeds from exercise of stock warrants                                                   45,237          2,293,147
  Proceeds from exercise of stock options                                                 -                    120,716
----------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) financing activities                             (1,377,338)        12,772,205
----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                          (1,447,887)         1,132,385

Cash and cash equivalents at beginning of year                                            2,032,183            899,798
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                               $    584,296      $   2,032,183
======================================================================================================================
Supplemental disclosures of cash flow information: 
  Cash paid during the year for:
    Interest                                                                            $ 1,237,201     $      306,000
======================================================================================================================
    Income taxes                                                                       $    560,819    $        40,000
======================================================================================================================

Supplemental schedule of noncash investing and financing activities:
  Stock issued in connection with acquisition                                             -             $      287,500
======================================================================================================================
  Notes payable issued in connection with acquisition                                     -              $   4,000,000
======================================================================================================================
</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 Kolar, Inc.
     ("Kolar"), a wholly owned subsidiary formed in October 1997 (see Note 3),
     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 is the precision computer numerical control
     machining of metal products on a contract-order basis. The Company operates
     in and distributes from New York State.

     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 is recognized when goods are shipped to customers.

     Inventory is stated at the lower of cost (first-in, first-out method) or
     market.

     In December 1998, based on information received from Rohr Industries, Inc.
     ("Rohr"), CPI recognized a termination of its contract to produce apron
     assemblies for the MD-90, and recorded a noncash charge to cost of sales
     amounting to approximately $11,850,000.

     In December 1997, based on information received from Rohr, CPI recognized a
     termination of its agreement to produce pan assemblies and spars for the
     Boeing 757, and recorded a noncash charge to cost of sales amounting to
     approximately $605,000.

     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.

     The Company considers all highly liquid investments with an original
     maturity of three months or less to be cash equivalents.

                                                                             F-6
<PAGE>

     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 Company has incurred approximately $549,000 of costs of obtaining debt,
     and has deferred such costs. These costs will be amortized over the life of
     the debt. The unamortized portion of these deferred financing costs,
     approximately $388,000 at December 31, 1998, are included in other assets.

     The preparation of financial statements in conformity with generally
     accepted accounting principles 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.

     In 1997, the Company adopted SFAS No. 128, Earnings per Share. 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 1,063,124 were used in the calculation of
     diluted earnings per common share in 1997. In 1998, diluted earnings per
     share is not presented as the result is antidilutive.

     In June 1997, the Financial Accounting Standards Board (the "FASB") issued
     SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
     about Segments of an Enterprise and Related Information. In February 1998,
     the FASB issued SFAS No. 132, Employer's Disclosures about Pensions and
     Other Postretirement Benefits. The Company adopted these statements in
     1998. SFAS No. 130 establishes new standards for reporting and displaying
     comprehensive income and its components. SFAS No. 131 requires disclosure
     of certain information regarding operating segments, products and services,
     geographic areas of operation and major customers. SFAS No. 132 revises
     employer's disclosures about pensions and other postretirement benefit
     plans. Adoption of these statements has had no impact on the Company's
     consolidated financial position, results of operations or cash flows.


2.  PRIVATE PLACEMENT:

     On June 27, 1997, the Company announced it had increased the number of
     shares issuable upon exercise of the Company's Class B common stock
     purchase warrants issued in the Company's 1996 private placement (the "1996
     Private Placement") from 1 to 1.33336 common shares effective as of June
     27, 1997 through August 4, 1997. Seventy-nine of the eighty-two warrant
     holders exercised their warrants. The three warrant holders who did not
     exercise their warrants had the warrants redeemed for $.05 per warrant. The
     majority of the proceeds from these warrant exercises was used by the
     Company to help facilitate the acquisition of substantially all of the
     assets of Kolar Machine, Inc. ("KMI").


                                                                             F-7
<PAGE>

3.   ACQUISITION:           

     On October 9, 1997, the Company acquired substantially all of the assets
     and assumed substantially all of the liabilities of KMI, a privately owned
     precision machine and assembly manufacturer which services the electronics
     industry, including computer and microwave device manufacturers, as well as
     the materials handling, aerospace and banking industries for approximately
     $10,000,000 cash and a $4,000,000 note payable. Additionally, the Company
     incurred approximately $465,000 of costs in connection with this
     acquisition, which includes the land and buildings described in the next
     paragraph.

     Additionally, the Company acquired land and buildings owned by the sole
     shareholder (the "Seller") of KMI.

     This acquisition has been accounted for as a purchase. The fair values of
     assets acquired and liabilities assumed amounted to approximately
     $9,636,000 and $2,916,000, respectively, which resulted in an excess of
     cost over the fair value of the net assets acquired (goodwill), of
     approximately $7,745,000 which is being amortized over 15 years. The
     acquisition was financed through a $10,375,000 term loan payable jointly to
     The Chase Manhattan Bank and Mellon Bank, and a $4,000,000 note payable
     issued to the Seller. The operations of KMI are included in the
     consolidated financial statements from October 9, 1997, the date of
     acquisition. All intercompany accounts have been eliminated in
     consolidation.

     The Seller's note is convertible into 1,000,000 shares of the Company's
     common stock at the option of the Seller. The note may be converted at any
     time prior to the maturity date of the note. The conversion of this note
     has not been included in computing diluted earnings per share in 1997 as
     such conversion would be antidilutive.

     Additionally, the Company entered into a three-year employment agreement
     with the Seller to become the president of Kolar.

                                                                             F-8


<PAGE>

                                         CPI AEROSTRUCTURES, INC. AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     The following pro forma information assumes that this acquisition occurred
     on January 1, 1997:

     Pro forma information (unaudited):

     Year ended December 31, 1997
-------------------------------------------------------------------------------

     Net sales                                                      $25,303,451
===============================================================================

     Net income                                                    $  1,688,376
===============================================================================

     Earnings per common share - basic                             $        .25
===============================================================================
     Earnings per common share - diluted                           $        .22
===============================================================================
     Shares used in computing earnings per common share:
      Basic                                                           6,657,479
===============================================================================
      Diluted                                                         7,720,603
===============================================================================


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

     At December 31, 1998, costs and estimated earnings in excess of billings on
     uncompleted contracts consist of: 

                                      U.S.
                                   Government      Commercial         Total
-------------------------------------------------------------------------------
Costs incurred on uncompleted
 contracts                        $6,887,016      $20,566,914       $27,453,930
Estimated earnings                 1,578,270        4,954,810         6,533,080
-------------------------------------------------------------------------------
                                   8,465,286       25,521,724        33,987,010
Less billings to date              6,703,398       24,177,688        30,881,086
-------------------------------------------------------------------------------
Costs and estimated earnings
 in excess of billings on
 uncompleted contracts            $1,761,888      $ 1,344,036       $ 3,105,924
===============================================================================


     Unbilled costs and estimated earnings are billed in accordance with
     applicable contract terms. As of December 31, 1998, approximately $433,000
     of the balances above are not expected to be collected within one year.


   5.  INVENTORY:     Inventory consists of the following:

Raw materials                                                       $   716,977
Work-in-progress                                                        525,459
Finished goods                                                        1,195,979
-------------------------------------------------------------------------------
                                                                     $2,438,415
===============================================================================


                                                                             F-9
<PAGE>

  6.  PROPERTY, PLANT AND EQUIPMENT, plant and equipment, at cost, consists of
      the following: 
                                                                    Estimated 
December 31, 1998                                                   Useful Life
-------------------------------------------------------------------------------
Land                                             $   412,200
Machinery and equipment                            4,807,275      5 to 10 years
Building                                             887,800           39 years
Furniture and fixtures                                41,686            7 years
Automobiles and trucks                                93,015            5 years
Leasehold improvements                                66,791            3 years
-------------------------------------------------------------------------------
                                                   6,308,767
Less accumulated depreciation and amortization     1,243,927
-------------------------------------------------------------------------------
                                                  $5,064,840
===============================================================================

7.  LONG-TERM DEBT: Long-term debt consists of the following: 

Note payable - bank (a)                                            $  7,637,500
Note payable - bank (b)                                                 929,814
Note payable - seller (c)                                             4,000,000
-------------------------------------------------------------------------------
                                                                     12,567,314
Less current maturities                                               1,475,075
-------------------------------------------------------------------------------
                                                                    $11,092,239
===============================================================================


(a)  The note, as amended in December 1998, is payable to a commercial bank in
     monthly installments of $120,000 through December 31, 1999, $200,000 from
     January 2000 through December 2000, and $317,000 from January 2001 through
     December 2001, plus monthly interest at the bank's published prime rate
     (7.75% at December 31, 1998) plus 1.5%. This note is collateralized by all
     of the assets of the Company. The amended note provides that if certain
     conditions are not met by March 31, 1999, the Company will be subject to an
     additional $300,000 fee on this note.

(b)  The note is payable to a commercial bank in monthly installments of $9,487,
     including interest at 8.3%, maturing October 31, 2007. This note is
     collateralized by Kolar's land and building.

(c)  Note payable to the Seller bears interest at 8% per annum. The Seller has
     deferred the Company's payment of interest on this note until January 2000.
     The accrued interest through December 1999 will be payable upon maturity of
     the seller's note. Monthly interest payments will begin again in January
     2000. This note matures December 31, 2001.


                                                                            F-10
<PAGE>


     Maturities of long-term debt are as follows:

     Year ending December 31,

         1999                                                   $  1,475,075
         2000                                                      2,441,385
         2001                                                      7,842,455
         2002                                                         48,031
         2003                                                         52,011
      Thereafter                                                     708,357
----------------------------------------------------------------------------
                                                                 $12,567,314
============================================================================

     At December 31, 1998, the carrying value of the Company's long-term debt
     approximated its estimated fair value based upon current borrowing rates
     for similar issues.


   8. COMMITMENTS:

     The Company leases office and warehouse facilities under a noncancelable
     operating lease expiring in March 2000.

     The aggregate future minimum rental commitment under this lease is as
     follows:

     Year ending December 31,

        1999                                                        $161,412
        2000                                                          40,353
----------------------------------------------------------------------------
                                                                    $201,765
============================================================================

     Total rental expense for the years ended December 31, 1998 and 1997
     amounted to $164,578 and $157,280, respectively.

     The Company is required to pay additional expenses, as defined.

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

     Year ending December 31,

        1999                                                     $   568,000
        2000                                                         526,000
        2001                                                         400,000
----------------------------------------------------------------------------
                                                                  $1,494,000
============================================================================

     These agreements include additional amounts based on bonuses that are
     calculated, as defined.


                                                                            F-11
<PAGE>


     The provision (benefit) for income taxes consists of the following:

     Year ended December 31,                      1998                   1997
    ---------------------------------------------------------------------------
     Current:
      Federal                                 $   (497,000)            $501,000
      State and local                               11,000               42,000
-------------------------------------------------------------------------------
                                                  (486,000)             543,000
-------------------------------------------------------------------------------
     Deferred:
      Federal                                   (1,309,000)              17,000
      State and local                             (145,000)               2,000
-------------------------------------------------------------------------------
                                                (1,454,000)              19,000
-------------------------------------------------------------------------------
                                               $(1,940,000)            $562,000
===============================================================================

     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:

                                                        1998             1997
-------------------------------------------------------------------------------
    Taxes (benefit) computed at the federal
     statutory rate                                 $(3,572,000)       $514,000
    State income taxes (benefit), including
     deferred, net of federal benefit                  (686,000)         30,000
    Other, including officers' life insurance and
     various permanent differences                       14,000          18,000
    Nonutilization of net operating loss
     carryforward                                     2,304,000           -
-------------------------------------------------------------------------------
                                                    $(1,940,000)       $562,000
===============================================================================

     The components of deferred income tax assets (liabilities) are as follows:

                                                    Current         Noncurrent
-------------------------------------------------------------------------------
    Long-term contracts                          $    47,000             -
    Property, plant and equipment                      -             $(260,000)
    Inventory                                        113,000             -
    Net operating loss carryforwards               3,063,000             -
    Valuation allowance                           (2,304,000)            -
-------------------------------------------------------------------------------
                                                 $   919,000         $(260,000)
===============================================================================

                                                                            F-12
<PAGE>

     As of December 31, 1998, the Company had net operating loss carryforwards
     of approximately $7,715,000 for federal income tax purposes expiring in
     2013.


10.  LINE OF CREDIT: 

     The Company has a $1,000,000 line of credit agreement, expiring June 30,
     1999, with The Chase Manhattan Bank and Mellon Bank for working capital and
     other corporate purposes as needed. Borrowings are subject to limits based
     on amounts of accounts receivable and inventory, as defined. Interest is at
     the banks' prime rate (7.75% at December 31, 1998) plus 1%. The line of
     credit is collateralized by substantially all assets of the Company.


11.  EMPLOYEE STOCK OPTION PLANS

     In April 1992, the Company adopted the 1992 Stock Option Plan (the "1992
     Plan"). The 1992 Plan, for which 250,000 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 $3.00.

     In 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan"),
     as amended, for which 600,000 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"),
     for which 1,000,000 common shares are reserved 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.

     The Company has 7,836 options available for future grant under the 1992
     Plan, no options available for grant under the 1995 Plan, and 745,000
     options available for grant under the 1998 Plan.


                                                                            F-13
<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 and earnings per share would have been adjusted to the pro forma
     amounts indicated in the table below:

                                       As Reported              Pro Forma
                                   1998           1997      1998          1997
------------------------------------------------------------------------------

    Net income (loss)            $(8,565,925)   $948,727  $(8,733,702) $803,019
===============================================================================

   Earnings (loss) per share:
    Basic                        $     (1.08)   $    .14  $     (1.10) $    .12
    Diluted                            -             .12        -           .10
===============================================================================

     A summary of the status of the Company's three stock option plans as of
     December 31, 1998 and 1997 and changes during those years are as follows:

                                              1998                    1997
-------------------------------------------------------------------------------
                                             Weighted-                Weighted-
                                              Average                  Average
                                             Exercise                 Exercise
    Fixed Options                 Options     Price       Options       Price
-------------------------------------------------------------------------------
    Outstanding at beginning
     of year                      627,400     $1.84       333,835       $2.07
    Granted during year           355,000      2.24       487,500        1.97
    Exercised                       -           -         (69,100)       1.75
    Forfeited                       -           -        (124,835)       3.00
-------------------------------------------------------------------------------
    Outstanding at end of year    982,400     $1.99       627,400       $1.84
===============================================================================

     The following table summarizes information about stock options outstanding
     and exercisable at December 31, 1998:

                                                   Weighted-
                                   Number           Average
                                Outstanding        Remaining
      Range of                      and            Contractual         Exercise
    Exercise Price              Exercisable           Life               Price
------------------------------------------------------------------------------
    $1.00 - $3.00                 982,400          3.85 years            $1.99
==============================================================================

     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-14


<PAGE>

12.   WARRANTS AND OPTIONS: 

     The Company sold 100,000 warrants to the Company's Underwriter
     ("Underwriter's Warrants") in September 1992 for an aggregate of $100. The
     Underwriter's Warrants, as adjusted, entitle the Underwriter, or its
     assignees, to purchase up to 566,038 shares of common stock at an exercise
     price of $1.06 and an aggregate of 100,000 warrants exercisable at $2.50.
     All of the Underwriter's Warrants expire on September 24, 1999. In 1997,
     206,141 of the Underwriter's Warrants were exercised.

     In February 1995, the Company issued stock options to a consultant to
     purchase 120,000 common shares at $3.00 per share, which options and
     accompanying consulting agreement were terminated by the Company and are
     the subject of a lawsuit. In April 1995, the Company also granted options
     to purchase 20,000 shares at $2.00 per share to its counsel. All of these
     options are outside the employee stock option plans and expire in April
     2000. In January 1996, the Company issued stock options to purchase 18,500
     shares at $1.06 per share to a director.

     In March 1996, the Company issued 300,000 warrants to Barber and Bronson,
     Inc. as partial compensation for acting as the Company's Placement Agent
     for its private placement of equity. These warrants entitle the Placement
     Agent to purchase 300,000 shares of common stock at an exercise price of $1
     during the five-year period commencing June 19, 1996. In 1997, 30,000 of
     these warrants were exercised.

     The Company's Placement Agent also received a warrant ("Placement Agent's
     Warrant") in June 1996. The Placement Agent's Warrant entitles the
     Placement Agent to purchase up to 8.2 units, each consisting of 25,000
     shares of common stock and warrants to purchase 12,500 common shares, at an
     exercise price of $1.00 during the five-year period commencing June 19,
     1996. The Placement Agent, pursuant to a consulting agreement, provided
     financial consulting services for two years, starting March 5, 1996 at a
     rate of $3,000 per month. In August 1997, the Placement Agent exercised all
     of its Placement Agent's Warrants to help facilitate the acquisition
     described in Note 3.

     In September 1996, the Company issued options to purchase 10,000 shares of
     common stock to two directors at an exercise price of $2.00 per share of
     common stock. These options expire in 2001.

     In February 1997, the Company issued options to purchase 10,000 shares of
     common stock to two directors at an exercise price of $2.06 per share of
     common stock. These options expire in 2002.

     In January 1998, the Company issued options to purchase 75,000 shares of
     common stock to a consultant, who was also a director, at an exercise price
     of $2.50 per share of common stock. In February 1998, the Company issued
     options to purchase 10,000 shares of common stock to two directors at an
     exercise price of $2.31 per share of common stock. These options expire in
     2003.

                                                                            F-15
<PAGE>

     In March 1998, the Company issued 100,000 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 100,000 shares of common stock at an exercise price of $2.50
     during the five-year period commencing April 1, 1998.


13.  MD-90 CONTRACT:

     In March 1991, CPI entered into an agreement with Rohr, pursuant to which
     the Company agreed to provide Rohr with apron assemblies and related
     components in connection with production of the then proposed McDonnell
     Douglas MD-90 jet aircraft. During the year ended December 31, 1998,
     approximately 23% of the Company's revenue was derived from this program,
     as compared with 24% in 1997.

     In 1997, the Boeing Company acquired the McDonnell Douglas Corporation.
     Boeing announced that it planned to terminate the MD-90 program unless it
     received sufficient additional orders for such aircraft.

     In December 1998, based on information received from Rohr, the Company
     recognized a termination of this contract. This termination resulted in the
     Company writing off approximately $11,850,000 of previously recorded
     revenue. The effect of this write-off is included in cost of sales in 1998.


14.  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 pre-tax 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 1998 and 1997 amounted to $116,355 and $49,252, respectively.


15.  CONTINGENCIES: 

     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.


16.  SEGMENT INFORMATION:

     The Company's operations are classified into two business segments:
     production of complex aerospace structural subassemblies ("Aerospace") and
     computer numerical control machining of metal products ("Machining").

                                                                            F-16


<PAGE>


     Summarized financial information by business segment for 1998 and 1997 are
     as follows:

     December 31,                                 1998                  1997
-------------------------------------------------------------------------------
     Net sales:
      Aerospace                               $  8,492,753         $  9,825,309
      Machining                                 11,317,718            3,190,084
-------------------------------------------------------------------------------
                                              $ 19,810,471          $13,015,393
===============================================================================

    Operating income (loss):
     Aerospace                                $(10,174,230)        $  1,453,103
     Machining                                     798,622              337,055
-------------------------------------------------------------------------------
                                              $ (9,375,608)        $  1,790,158
===============================================================================

    Total assets:
     Aerospace                                $  5,897,982             -
     Machining                                  16,037,904             -
-------------------------------------------------------------------------------
                                              $ 21,935,886             -
===============================================================================

   December 31,                                   1998                 1997
-------------------------------------------------------------------------------

   Depreciation and amortization:
    Aerospace                                     $664,879            $  69,069
    Machining                                       83,746              331,533
-------------------------------------------------------------------------------
                                                  $748,625             $400,602
===============================================================================

   Capital expenditures:
    Aerospace                                    $  42,512            $  77,537
    Machining                                       36,380               12,341
-------------------------------------------------------------------------------
                                                 $  78,892            $  89,878
===============================================================================


17.  MAJOR CUSTOMERS: 

     Approximately 23% of the Company's sales in 1998 and 1997 were to Rohr.
     Approximately 17% and 43% of the Company's sales in 1998 and 1997,
     respectively, were to the U.S. Government. Approximately 40% and 19% of the
     Company's sales in 1998 and 1997, respectively, were to Universal
     Instruments Inc. ("Universal").

     At December 31, 1998, approximately 21% and 49% of accounts receivable were
     due from Universal and Rohr, respectively.


                                                                           F-17


<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


Dated:  April 15, 1999           CPI AEROSTRUCTURES, INC.


                                 By: /s/ Arthur August        
                                    ------------------------
                                     Arthur August,
                                     President

         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:

      Signature                 Title                            Date

/S/ Arthur August           Chairman of the Board,             April 15, 1999
------------------          President (Principal
Arthur August               Executive Officer)
                            and Director

/S/ Edward J. Fred          Vice  President                    April 15, 1999
------------------          (Principal
Edward J.Fred               Accounting and Financial
                            Officer) and Director

/S/ Walter Paulick          Director                           April 15, 1999
------------------
Walter Paulick

/S/ Kenneth McSweeney       Director                           April 15, 1999
----------------------
Kenneth McSweeney


                                    PAGE 24

<PAGE>