What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-29 compared with 2020-03-27 · 439 added, 551 removed, 60 unchanged (94% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

for Our Common Stock

common stock is listed on the NYSE American under the symbol “AIRI.”

March 20, 2020, there were 247 stockholders of record of our common stock.

The number of record holders does not include persons

who held our Common Stock in nominee or “street name”

MARKET FOR REGISTRANT’S

COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Our Common Stock

Our common stock is

listed on the NYSE American under the symbol “AIRI.”

On March 19, 2021,

there were 229 stockholders of record of our common stock.

The number of record holders does not include persons who held our Common

Stock in nominee or “street name”

accounts through brokers.

Authorized for Issuance Under Equity Compensation Plans

following table summarizes shares of our Common Stock to be issued upon exercise of options and warrants, the weighted-average

exercise price of outstanding options and warrants and options available for future issuance pursuant to our equity compensation

plans as of December 31, 2019:

Securities Authorized for Issuance Under Equity Compensation

The following table

summarizes shares of our Common Stock to be issued upon exercise of options and warrants, the weighted-average exercise price of

outstanding options and warrants and options available for future issuance pursuant to our equity compensation plans as of December

Plan Category

Exercise Price

Of Outstanding

Remaining Shares

Available for

Issuance Under

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

Sales of Unregistered Equity Securities

as previously reported in our periodic reports filed under the Exchange Act, we did not issue any unregistered equity securities

during the fiscal year ended December 31, 2019.

of Our Equity Securities

repurchases of our common stock were made during the fiscal year ended December 31, 2019.

Recent Sales of Unregistered Equity Securities

Except as previously

reported in our periodic reports filed under the Exchange Act, we did not issue any unregistered equity securities during the fiscal

year ended December 31, 2020.

Purchases of Our Equity Securities

No repurchases of our

common stock were made during the fiscal year ended December 31, 2020.

SELECTED FINANCIAL DATA

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated

financial statements for the years ended December 31, 2019 and 2018 and the notes to those statements included elsewhere in this

This discussion contains forward-looking statements that involve risks and uncertainties.

You should specifically consider

the various risk factors identified in this report that could cause actual results to differ materially from those anticipated

in these forward-looking statements.

financial statements contained in this Report as well as the discussion below principally reflect the status of our business and

the results of our operations as of December 31, 2019.

On March 11, 2020, the World Health Organization announced that infections

caused by the coronavirus COVID-19 had become pandemic, and on March 13, the U.S.

President announced a National Emergency relating

to the disease.

National, state and local authorities have adopted various regulations and orders, including mandates on the number

of people that may gather in one location and closing non-essential businesses.

To date, ours has been deemed an essential business

and we have not curtailed our operations.

we have continued to operate in the normal course, the likely overall economic impact of the Covid-19 pandemic will be highly

negative to the general economy.

We may be forced to close or reduce operations for reasons such as the health of our employees

or because of disruptions in the continued operation of our supply chain and sources of supply.

are an aerospace company operating primarily in the defense industry.

Our Complex Machining segment manufactures structural parts

and assemblies that focus on flight safety, including landing gear, arresting gear, engine mounts, flight controls, throttle quadrants,

and other components.

Our Turbine Engine Components segment makes components and provides services for jet engines and ground-power

Our products are currently deployed on a wide range of high-profile military and commercial aircraft including the Sikorsky

UH-60 Blackhawk, Lockheed Martin F-35 Joint Strike Fighter, Northrop Grumman E2D Hawkeye, the US Navy F-18 and USAF F-16 fighter

aircraft, Boeing 777 and Airbus 380 commercial airliners.

Our Turbine Engine segment makes components for jet engines that are

used on the USAF F-15 and F-16, the Airbus A-330 and A-380, and the Boeing 777, in addition to a number of ground-power turbine

Not required.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion

of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements

for the years ended December 31, 2020 and 2019 and the notes to those statements included elsewhere in this report.

This discussion

contains forward-looking statements that involve risks and uncertainties.

You should specifically consider the various risk factors

identified in this report that could cause actual results to differ materially from those anticipated in these forward-looking

Business Overview

AIM became a public

company in 2005 and we are an aerospace company operating primarily in the defense industry.

Our Complex Machining segment manufactures

structural parts and assemblies that focus on flight safety, including landing gear, arresting gear, engine mounts, flight controls,

throttle quadrants, and other components.

Our Turbine Engine Components segment makes components and provides services for jet

engines and ground-power turbines.

Our products are currently deployed on a wide range of high-profile military and commercial

aircraft including the Sikorsky UH-60 Blackhawk, Lockheed Martin F-35 Joint Strike Fighter, Northrop Grumman E2D Hawkeye, the US

Navy F-18 and USAF F-16 fighter aircraft, Boeing 777 commercial airliners.

Our Turbine Engine segment makes components for jet

engines that are used on the USAF F-15 and F-16, the Airbus A-330 and the Boeing 777, in addition to a number of ground-power turbine

applications.

Air Industries Machining, Corp.

(“AIM”) became a

public company in 2005.

In response to recent operating losses and their impact on our working capital, we have repositioned our

business through the sale and liquidation of certain businesses we acquired since becoming a public company.

We also consolidated

our headquarters and the operations of our subsidiaries, AIM and NTW, at our primary location in Bay Shore, New York, allowing

us to re-focus our operations on our core competencies.

In December 2018 we sold WMI Group, and in March 2019 we closed our subsidiaries

Eur-Pac (“EPC”) and Electronic Connection Corporation (“ECC”).

As a result of our restructuring, Complex

Machining and Turbine Engine Components constitute all of our operations.

addition to repositioning our business to obtain profitability and positive cash flow, we remain resolute on meeting customers’

needs and continue to align production schedules to meet the needs of customers.

We believe that an unyielding focus on our customers

will allow us to execute on our existing backlog in a timely fashion and take on additional commitments.

We are pleased with our

progress and the positive responses received from our customers.

aerospace market is highly competitive in both the defense and commercial sectors and we face intense competition in all areas

of our business.

Nearly all of our revenues are derived by producing products to customer specifications after being awarded a

contract through a competitive bidding process.

As the commercial aerospace and defense industries continue to consolidate and

major contractors seek to streamline supply chains by buying more complete sub-assemblies from fewer suppliers, we have sought

to remain competitive not only by providing cost-effective world class service but also by increasing our ability to produce more

complex and complete assemblies for our customers.

ability to operate profitably is determined by our ability to win new contracts and renewals of existing contracts, and then fulfill

these contracts on a timely basis at costs that enable us to generate a profit based upon the agreed upon contract price.

a contract generally requires that we submit a bid containing a fixed price for the product or products covered by the contract

for an agreed upon period of time.

Thus, when submitting bids, we are required to estimate our future costs of production and,

since we often rely upon subcontractors, the prices we can obtain from our subcontractors.

our revenues are largely determined by the number of contracts we are awarded, the volume of product delivered and price of product

under each contract, our costs are determined by a number of factors.

The principal factors impacting our costs are the cost of

materials and supplies, labor, financing and the efficiency at which we can produce our products.

The cost of materials used in

the aerospace industry is highly volatile.

In addition, the market for the skilled labor we require to operate our plants is highly

The profit margin of the various products we sell varies based upon a number of factors, including the complexity

of the product, the intensity of the competition for such product and, in some cases, the ability to deliver replacement parts

on short notice.

Thus, in assessing our performance from one period to another, a reader must understand that changes in profit

margin can be the result of shifts in the mix of products sold.

The aerospace market

is highly competitive in both the defense and commercial sectors and we face intense competition in all areas of our business.

Nearly all of our revenues are derived by producing products to customer specifications after being awarded a contract through

a competitive bidding process.

As the commercial aerospace and defense industries continue to consolidate and major contractors

seek to streamline supply chains by buying more complete sub-assemblies from fewer suppliers, we have sought to remain competitive

not only by providing cost-effective world class service but also by increasing our ability to produce more complex and complete

assemblies for our customers.

We are currently focused

on positioning our business to obtain profitability, achieve positive cash flow and we remain resolute on meeting customers’

We believe that an unyielding focus on our customers will allow us to execute on our existing backlog in a timely fashion.

In 2018 and 2019, we consolidated the operations of our Complex Machining segment in our main campus located in Bay Shore, New

In 2020, in order to take advantage of the long-term growth opportunities we see in our markets, we made significant capital

investments in new equipment.

Additionally, we expanded our operations and manufacturing cells located in our Connecticut facility

where our Turbine Engine segment is located.

We believe these investments will increase the volume and efficiency of production,

increase the size of product we can make and allow us to offer additional services to our customers.

We are pleased with the positive

responses received from our customers to date.

Our ability to operate

profitably is determined by our ability to win new contracts and renewals of existing contracts, and then fulfill these contracts

on a timely basis at costs that enable us to generate a profit based upon the agreed upon contract price.

Winning a contract generally

requires that we submit a bid containing a fixed price for the product or products covered by the contract for an agreed upon period

Thus, when submitting bids, we are required to estimate our future costs of production and, since we often rely upon subcontractors,

the prices we can obtain from our subcontractors.

While our revenues

are largely determined by the number of contracts we are awarded, the volume of product delivered and price of product under each

contract, our costs are determined by a number of factors.

The principal factors impacting our costs are the cost of materials

and supplies, labor, financing and the efficiency at which we can produce our products.

The cost of materials used in the aerospace

industry is highly volatile.

In addition, the market for the skilled labor we require to operate our plants is highly competitive.

The profit margin of the various products we sell varies based upon a number of factors, including the complexity of the product,

the intensity of the competition for such product and, in some cases, the ability to deliver replacement parts on short notice.

Thus, in assessing our performance from one period to another, a reader must understand that changes in profit margin can be the

result of shifts in the mix of products sold.

Our operations have a large percentage of fixed factory overhead.

As a result, our profit margins are also highly variable with sales volumes as under-absorption of factory overhead decreases

very large percentage of the products we produce are used on military as opposed to civilian aircraft.

These products can be replacements

for aircraft already in the fleet of the armed services or for the production of new aircraft.

Reductions to the Defense Department

budget and decreased usage of aircraft reduces the demand for both new production and replacement spares.

Recent increases in

Defense Department spending has increased orders for our products.

We are focusing greater efforts on the civilian aircraft market

though we still remain dependent upon the military for an overwhelming portion of our revenues.

follow Financial Accounting Standards Board (“FASB”) ASC 280, “Segment Reporting”

(“ASC 280”),

which establishes standards for reporting information about operating segments in annual and interim financial statements, ASC

280 requires that companies report financial and descriptive information about their reportable segments based on a management

ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers.

currently divide our operations into two operating segments:

As a result, our

profit margins are also highly variable with sales volumes as under-absorption of factory overhead decreases profits.

A very large percentage

of the products we produce are used on military as opposed to civilian aircraft.

These products can be replacements for aircraft

already in the fleet of the armed services or for the production of new aircraft.

Reductions to the Defense Department budget and

decreased usage of aircraft reduces the demand for both new production and replacement spares.

Recent increases in Defense Department

spending have increased orders for our products.

Reductions to the Defense Department budget or decreased usage of aircraft reduces

the demand for both new production and replacement spares and could adversely impact our business and our revenues.

We are focusing

greater efforts on the civilian aircraft market though we still remain dependent upon the military for an overwhelming portion

of our revenues.

On March 11, 2020,

the World Health Organization announced that infections caused by the coronavirus disease of 2019 (“COVID-19”) had

become pandemic, and on March 13, 2020, the U.S.

President announced a national emergency relating to the disease.

National, state

and local authorities have adopted various regulations and orders, including mandates on the number of people that may gather in

one location and closing non-essential businesses.

To date, we have been deemed an essential business and have not curtailed our

The measures adopted

by various governments and agencies, as well as the decision by many individuals and businesses to voluntarily shut down or self-quarantine,

had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration.

The effectiveness of economic stabilization efforts adopted by governments and their willingness to adopt further measures is uncertain.

The overall economic impact of the COVID-19 pandemic has been highly negative to the general economy and has been particularly

negative on the commercial travel industry and commercial aerospace industries.

In accordance with

the Department of Defense guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce,

our facilities have continued to operate in support of essential products and services required to meet national security commitments

Government and the U.S.

military, however, facility closures or work slowdowns or temporary stoppages could occur.

Although our facilities are open, during portions of 2020 we were unable to operate at full capacity or achieve high levels of

productivity due to the implementation of enhanced safety procedures, increased employee absenteeism and intermittent closings

of other businesses that supply goods or services to us.

We implemented procedures to promote employee safety including more frequent

and enhanced cleaning of our machines and adjusted schedules and work-flows to support physical distancing.

This resulted in increased

operating costs to our business.

As we enter into fiscal

2021, operating conditions have substantially returned to normal;

however, our Company, employees, suppliers and customers, and

our global community continue to face challenges and we cannot predict how this dynamic situation will evolve or the impact it

Throughout 2020, many of our suppliers were forced to reduce staffing or temporarily close their facilities due to

COVID-19, which impacted our delivery schedules.

We cannot predict what future impacts will occur, particularly if new variants

of Covid-19 result in a substantial increase in new cases and governments elect to reimpose strict safety measures.

The future impact

of COVID-19 on our business is difficult to predict as the course of the pandemic, the effectiveness of health measures, and the

impact and continuation of ongoing economic stabilization efforts are uncertain and government assistance payments may not provide

enough funding to support current spending levels.

We did not qualify for any significant new government benefits in the recently

enacted American Rescue Plan Act of 2021 and do not expect to qualify for any significant new government benefits that might be

We follow Financial

Accounting Standards Board (“FASB”) ASC 280, “Segment Reporting”

(“ASC 280”), which establishes

standards for reporting information about operating segments in annual and interim financial statements, ASC 280 requires that

companies report financial and descriptive information about their reportable segments based on a management approach.

also establishes standards for related disclosures about products and services, geographic areas and major customers.

We currently divide

our operations into two operating segments:

Complex Machining and Turbine Engine Components.

Along with our operating

subsidiaries, we report the results of our corporate office as an independent segment.

In March 2018, we

announced our intention to divest WMI and related operation which divestiture was completed in December 2018.

These operations

were part of our Aerostructures & Electronics operating segment.

Along with our operating subsidiaries,

we report the results of our corporate office as an independent segment.

The accounting policies

2 unchanged sentences

on revenue, gross profit contribution and assets employed.

OF OPERATIONS-CONTINUING OPERATIONS

ended December 31, 2019 and 2018:

In March 2018, we announced

our intent to divest WMI and related operations which divestiture was completed in December 2018.

Although WMI and the related

operations had been classified as a discontinued operation, we continued to operate these businesses until the sale closed on December

The operations of our subsidiaries EPC and ECC were effectively closed on March 31, 2019.

From January 2018 through the

closing date of the sale of WMI and the completion of the wind down of EPC, respectively, both operations generated a net loss.

For purposes of the following discussion of our selected financial information and operating results, we have presented our financial

information based on our continuing operations unless otherwise noted.

Financial Information:

RESULTS OF OPERATIONS-CONTINUING OPERATIONS

Years ended December 31, 2020 and 2019:

For purposes of the

following discussion of our selected financial information and operating results, we have presented our financial information based

on our continuing operations unless otherwise noted.

Selected Financial Information:

Cost of sales

Operating expenses and interest and financing costs

Impairment on abandonment of assets

Capitalized engineering costs write-off

Loss on abandonment of leases

Other income, net

Provision from income taxes

Loss from continuing operations, net of taxes

Forgiveness of notes payable - SBA Loan

Provision for (benefit from) income taxes

Income (Loss) from continuing operations

$ (2,598,000 )

Balance Sheet Data:

Cash and cash equivalents

Working capital

Total stockholder’s equity

following sets forth the results of operations for each of our segments individually and on a consolidated basis for the periods

Total stockholders’

The following sets forth the results

of operations for each of our segments individually and on a consolidated basis for the periods indicated:

Year Ended December 31,

COMPLEX MACHINING

Pre Tax Income (Loss)

Pre Tax Income from continuing operations

TURBINE ENGINE COMPONENTS

Gross Profit (Loss)

Provision for Income Taxes

Loss from Discontinued Operations

(10,992,000 )

Pre Tax Loss from continuing operations

(Benefit from) provision for Income Taxes

Loss from Discontinued Operations, net of taxes

Net Income (Loss)

Consolidated net sales

for the year ended December 31, 2019 were $54,573,000, an increase of $10,043,000, or 22.6%, compared with $44,530,000 for the

year ended December 31, 2018.

Net sales of our Complex Machining segment were $48,226,000, an increase of $8,481,000, or

21.3%, from $39,745,000 in the prior year.

Net sales in our Turbine Engine Components segment were $6,347,000, an increase of

$1,562,000 or 32.6%, compared with $4,785,000 for the year ended December 31, 2018.

This increase was primarily due to our emphasis

on operational efficiencies.

for the year ended December 31, 2020 were $50,097,000, a decrease of $4,476,000, or 8.2%, compared with $54,573,000 for the year

ended December 31, 2019.

Net sales of our Complex Machining segment were $44,659,000, a decrease of $3,567,000, or 7.4%, from

$48,226,000 in the prior year.

Net sales in our Turbine Engine Components segment were $5,438,000, a decrease of $909,000 or 14.3%,

compared with $6,347,000 for the year ended December 31, 2019.

These decreases were directly attributable to the negative business

impacts caused by COVID-19, which significantly reduced our ability to ship finished product to end-customers.

While we were able

to continue certain production processes in our own facility, our ability to have our product further processed by subcontractors

was severely impacted.

This resulted in an increase in partially finished product remaining in Work in Process.

This situation

caused our inventory to increase.

These supply chain interruptions abated somewhat later in the year, but remain a challenge.

As indicated in the

3 unchanged sentences

Sikorsky Aircraft

* Customer was less than 10% of sales in 2019

** Customer was less than 10% of sales in 2020

As indicated in the

table below, three customers represented 67.8% and two customers represented 64.5% of gross accounts receivable at December 31,

2019 and 2018, respectively.

table below, three customers represented 80.3% and 67.8% of gross accounts receivable at December 31, 2020 and 2019, respectively.

Percentage of Receivables

Goodrich Landing Gear Systems

United State Department of Defense

was less than 10% of receivables at December 31, 2018.

United States Department of Defense

Gross Profit:

Consolidated gross

profit from operations for the year ended December 31, 2019 was $9,142,000, an increase of $3,697,000, or 67.9%, as compared to

profit from operations for the year ended December 31, 2020 was $6,512,000, a decrease of $2,630,000, or 28.8%, as compared to

gross profit of $9,142,000 for the year ended December 31, 2019.

1 unchanged sentence

and 16.8% for the years ended December 31, 2020 and 2019, respectively.

The increase in gross profit was due primarily to the

implementation of cost reduction measures coupled with the consolidation of our operations on Long Island positively impacted

by the absorption of fixed charges over greater revenues.

and Financing Costs

These decreases were directly attributable to the reduction

in sales caused by the negative business impact of COVID-19 and increased costs associated with implementing procedures to promote

employee safety including more frequent and enhanced cleaning of our machines and adjusted schedules and work-flow to support

physical distancing.

The reduction in sales decreased the absorption of Manufacturing Overhead costs, reducing gross profit.

Interest and Financing Costs

Our interest and financing

costs decreased to $3,561,000 in 2019 from $3,916,000 in 2018.

costs for the year ended December 31, 2020 totaled $1,491,000 in 2020, a decrease of $ 2,070,000 or 58.1% from $3,561,000 in 2019,

as a result of the refinancing of our credit facility at the end of 2019, at a significantly lower interest rate.

Impairment Charges

In connection with the

consolidation of our corporate offices we incurred a lease impairment charge of $275,000 in 2019.

In connection with

the consolidation of operations into our Bayshore, New York facility, we incurred a lease impairment charge of $275,000 in 2019.

Operating Expense

Consolidated operating

expenses for the year ended December 31, 2019 totaled $8,539,000 and increased marginally by $224,000 or 2.7% compared to $8,315,000

for the year ended December 31, 2018.

Loss from Continuing Operations, Net of Taxes

Loss from continuing operations,

net of tax for the year ended December 31, 2019 was $2,598,000, an improvement of $5,953,000 compared to a loss from continuing

operations, net of tax of $8,551,000 for the year ended December 31, 2018.

The reduction in the loss from continuing operations

was due to an increase in sales volume in 2019 versus 2018 and corresponding increase in gross profits.

The loss from continuing

operations in 2018 was negatively impacted due to a change in our accounting for capitalized engineering costs, which resulted

in a write-off of $2,043,000.

Net loss for the year ended

December 31, 2019 was $2,732,000, an improvement of $8,260,000, compared to a net loss of $10,992,000 for the year ended December

31, 2018, for the reasons discussed above.

has not had a material effect on our results of operations.

AND CAPITAL RESOURCES

National Bank (“SNB”)

December 31, 2019 we entered into a new Loan Facility with Sterling National Bank, (“SNB”) and paid off our outstanding

Loan Facility with PNC.

We remain highly leveraged and rely upon our ability to continue to borrow under our Loan Facility with

SNB or to raise debt and equity from our principal stockholders and third parties to support operations.

Substantially all of

our assets are pledged as collateral under our Loan Facility.

If SNB were to cease providing revolving loans to us under the Loan

Facility, we would lack funds to continue our operations.

Over the past two years we have also relied upon our ability to borrow

money from certain stockholders and raise debt and equity capital to support our operations.

Should we continue to need to borrow

funds from our principal stockholders or raise debt or equity, there is no assurance that we will be able to do so or that the

terms on which we borrow funds or raise equity will be favorable to us or our existing stockholders.

The SNB Loan Facility provides

for a $16,000,000 revolving loan and a term loan (the “Term Loan”) of $3,800,000.

The Term Loan requires monthly principal

installments in the amount of $45,238, payable on the first business day of each month, beginning on February 1, 2020, with a final

payment of any unpaid balance of principal and interest payable on the scheduled maturity date.

terms of the Loan Facility require that, among other things, we maintain a specified Fixed Charge Coverage Ratio of 1.25 to 1.00

at the end of each Fiscal Quarter beginning with the Fiscal Quarter ending March 31, 2020.

In addition, we are limited in the

amount of Capital Expenditures we can make.

The Loan Facility also restricts dividends we may pay to our stockholders.

the terms of the Loan Facility, both the revolving credit line and the term loan will bear an interest rate equal to 30-day LIBOR,

plus 2.5% (with a floor of 3.5%).

use of LIBOR as a reference rate to determine interest rates is expected to phase out at the end of 2021.

We have not commenced

discussion with SNB as to how the rate of interest under our revolving and term loans will be determined if and when the LIBOR

is no longer published or used as a reference rate.

Prior to entering into

the new Loan Facility with SNB, our Loan Facility was with PNC Bank.

On December 31, 2019, we used a substantial portion of the

proceeds of the SNB Loan Facility to pay PNC $15,401,521 in connection with the termination of the credit facility, including $14,908,339

in full payment of amounts due under the revolving credit loan and $94,254 in full payment of tall amounts due under our term loan.

For information concerning our loan facility with PNC, see Note 9 to our 2019 consolidated financial statements.

of December 31, 2019, our debt to SNB in the amount of $16,343,000 consisted of the revolving credit loan in the amount of $12,543,000

and the term loan in the amount of $3,800,000.

The revolver balance included the Company’s negative general ledger balances

in its controlled disbursement cash accounts.

As of December 31, 2018, our debt to PNC in the amount of $15,615,000 consisted

of the revolving credit note due to PNC in the amount of $14,043,000 and the term loan due to PNC in the amount of $1,572,000.

As of December 31,

2019, we had capitalized lease obligations to third parties of $22,000 as compared to capitalized lease obligations to third parties

of $1,786,000 as of December 31, 2018.

Transactions Since January 1, 2018 Which Have Impacted Our Liquidity

On December 20, 2018, we

completed the sale of WMI Group to CPI for a purchase price of $9,000,000, net of a working capital adjustment of $(1,093,000),

pursuant to a Stock Purchase Agreement dated as of March 21, 2018.

Of the net purchase price for WMI, $2,000,000 is held in escrow

to secure any obligation we may have under the Purchase Agreement as a result of the working capital adjustment and as a result

of our breach of the representations and warranties we made in the Purchase Agreement.

The amount of the working capital deficit

has been contested by CPI.

See Note 14 to our 2019 consolidated financial statements.

Related Parties

Due to net losses

and negative cash flow in recent years, we have financed our operations in part through private placements of our debt and equity

Each of Michael and Robert Taglich, two of our directors, have invested substantial amounts in our company, including

the financings described below and in other financings discussed in Note 9 to our consolidated financial statements for the periods

ended December 31, 2019 and 2018.

Taglich Brothers, Inc.

(“Taglich Brothers”), a corporation founded by Michael and Robert Taglich, and in which a third director of our company

is a vice president of Investment Banking, has acted as a placement agent for our debt and equity financing transactions and has

received cash and equity compensation for its services.

For additional information, see Note 9 to our 2019 consolidated financial

March 29, 2018 and April 4, 2018 Michael Taglich and Robert Taglich, advanced $1,000,000 and $100,000, respectively, to our company

for use as working capital.

Our obligation to repay these advances is evidenced by our 2019 Notes, as defined below.

May 2018, we issued $1,200,000 principal amount of subordinated notes due May 31, 2019 (the “2019 Notes”), to evidence

the $1,000,000 due to Michael Taglich, $100,000 due to Robert Taglich and $100,000 due to a third investor.

January 15, 2019, we issued our 7% senior subordinated convertible promissory notes due December 31, 2020, each in the principal

amount of $1,000,000 (together, the “7% Notes”

and each a “7% Note”), to Michael Taglich and Robert Taglich,

each for a purchase price of $1,000,000.

Each 7% Note bears interest at the rate of 7% per annum, is convertible into shares of

our common stock at a conversion price of $0.93 per share, subject to the anti-dilution adjustments set forth in the 7% Notes,

is subordinated to our indebtedness under the Loan Facility, and matures at December 31, 2020, or earlier upon an Event of Default.

paid Taglich Brothers, Inc.

a fee of $80,000 (4% of the purchase price of the 7% Notes), in the form of a promissory note having

terms substantially identical to the 7% Notes, in connection with the purchase of the 7% Notes.

June 26, 2019, the Company was advanced $250,000 from each of Michael and Robert Taglich.

The terms of these notes are identical

to the terms of the 2019 Notes that were extended to June 30, 2020.

In connection with these notes the Company issued to 37,500

shares to each of Michael and Robert Taglich.

During the second quarter of 2019, the maturity date of the 2019 Notes was extended

to June 30, 2020.

The interest rate of the notes remains at 12% per annum.

In connection with the extension, 180,000 shares of

common stock were issued on a pro-rata basis to each of the note holders, including 150,000 shares to Michael Taglich and 15,000

shares to Robert Taglich at $1.01 per share or $182,000.

The costs have been recorded as a debt discount and are being accreted

over the revised term.

October 21, 2019, the Company was advanced $1,000,000 from Michael Taglich.

This was repaid in full on January 2, 2020.

In connection with

the consummation of the SNB Loan Facility, the due date of the 2019 Notes and Notes held by Michael and Robert Taglich was extended

to December 31, 2020.

party notes payable, net of debt discount to Michael and Robert Taglich, and their affiliated entities, totaled $6,862,000 and

$4,835,000, as of December 31, 2019 and December 31, 2018, respectively.

of Future Proceeds from Disposition of Subsidiary

connection with the sale of the Company’s wholly-owned subsidiary, AMK to Meyer Tool, Inc., (“Meyer”) in 2017,

Meyer was obligated to pay the Company within 30 days after the end of each calendar quarter, commencing April 1, 2017, an amount

equal to five (5%) percent of the net sales of AMK for that quarter until the aggregate payments made to the Company (the “Meyer

Agreement”) equals $1,500,000 (the “Maximum Amount”).

of December 31, 2018, the Company received an aggregate of $363,000 under the Meyer Agreement.

In order to increase liquidity,

on January 15, 2019, the Company entered into a “Purchase Agreement”

with 15 accredited investors (the “Purchasers”),

including Michael and Robert Taglich, pursuant to which the Company assigned to the Purchasers all of their rights, title and

interest to the remaining $1,137,000 of the $1,500,000 in payments due from Meyer for the sale of AMK (the “Remaining Amount”)

for an immediate payment of $800,000, including $100,000 from each of Michael and Robert Taglich, and $75,000 for the benefit

of the children of Michael Taglich.

The timing of the payments is based upon the net sales of AMK.

If the Purchasers have not

received the entire Remaining Amount by March 31, 2023, they have the right to demand payment of their pro rata portion of the

unpaid Remaining Amount from us (“Put Right”).

To the extent the Purchasers exercise their Put Right, the remaining

payments from Meyer will be retained by us.

Purchasers have agreed to pay Taglich Brothers a fee equal to 2% per annum of the purchase price paid by such Purchasers, payable

quarterly, to be deducted from the payments of the Remaining Amount, for acting as paying agent in connection with the payments

July 19, 2018, we issued and sold a total of 322,000 shares of our common stock for gross proceeds of $460,460, or a $1.43 per

share, to four accredited investors pursuant to subscription agreements.

acting as placement agent of the offering, Taglich Brothers, Inc.

is entitled to a placement agent fee equal to $27,627.60 (6%

of the gross proceeds of the offering), payable at our option, in cash or shares of Common Stock on the terms sold to the purchasers.

October 1, 2018, we sold 800,000 shares of common stock and warrants to purchase 280,000 additional shares of common stock for

gross proceeds of $1,000,000 to RBI Private Investment III, LLC, an accredited investor within the meaning of Rule 501(a) of Regulation

D under the Securities Act (“Regulation D”), in a private offering exempt from the registration requirements of the

Securities Act under Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act.

We agreed to pay Taglich Brothers $70,000

(7% of the gross proceeds of the offering) for acting as placement agent for the offering.

January 2020, we issued and sold 419,597 shares of our common stock for gross proceeds of $987,009, in a registered at the market

significant transaction s since January 1, 2018, described above have provided cash used to

maintain our operations.

We believe our cash flows from operating

activities, in addition to cash on hand and available capacity on the SNB Loan Facility will be sufficient to fund our operating

activities for the foreseeable future, and in any event for at least the next 12 months from the date of this filing.

no assurance can be given that this will be the case.

following table summarizes our net cash flow from operating, investing and financing activities for the periods indicated below

(in thousands):

(000’s)

Cash provided by (used in)

expenses were $7,951,000 and $8,539,000 for fiscal 2020 and 2019, respectively, representing a decrease of $588,000 or 6.9%.

a percentage of consolidated net sales, operating expenses were 15.8% and 15.6% for fiscal 2020 and 2019, respectively.

The reduction in operating

expenses in fiscal 2020 (in dollars) as compared to fiscal 2019 primarily reflects a concerted effort to reduce operating expenses

to offset the negative business impact of COVID-19.

Cost savings achieved included lower salaries and travel expenses (by curtailing

most business travel) that were partially offset by incurring significantly higher information technology costs to support various

activities including remote working arrangements.

Because we expect consolidated

net sales in fiscal 2021 to increase as compared to fiscal 2020, we are optimistic that we can reduce operating expenses, as a

percentage of consolidated net sales from current levels.

Income (Loss) from Continuing Operations, Net of Taxes

Income from continuing

operations, net of tax for the year ended December 31, 2020 was $1,326,000, an improvement of $3,924,000 compared to a loss from

continuing operations, net of tax of $2,598,000 for the year ended December 31, 2019.

This improvement is almost entirely attributable

to income resulting from the SBA Loan forgiveness in the amount of approximately $2.4 million and a tax refund afforded to the

Company under the CARES Act in the amount of approximately $1.4 million.

Net Income (Loss)

Net income for the

year ended December 31, 2020 was $1,096,000, an improvement of $3,828,000, compared to a net loss of $2,732,000 for the year ended

December 31, 2019, for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2020,

we took advantage of a number of U.S.

government programs to improve our liquidity to offset the negative impact to our business

from COVID-19.

These steps include:

Received Low Interest Loans from the SBA –

In May 2020, our three operating subsidiaries (each a “Borrower”)

entered into government subsidized loans with Sterling National Bank (“SNB”) in an aggregate principal amount of $2.4

million (“SBA Loans”).

Subject to the terms of the note evidencing each loan (the “Notes”), each SBA Loan

bears interest at a fixed rate of one percent (1%) per annum, with the first six months of interest deferred, has an initial term

of two years, and is unsecured and guaranteed by the SBA.

At least 60% of the proceeds of each Loan must be used for payroll and

payroll-related costs, in accordance with the applicable provisions of the Federal statute authorizing the loan program administered

by the SBA and the rules promulgated thereunder (the “Loan Program”).

Applied for and Received Forgiveness of

the SBA Loans –

In accordance with U.S.

government regulations we have applied to SNB for forgiveness of each Loan

in full and SNB has approved the applications and submitted them to the SBA.

In December 2020 we received final approval from

the SBA that our SBA Loans which approximated $2,414,000 plus accrued interest had been forgiven.

Deferred Certain Tax Payments –

In accordance with Section 2302 of the CARES Act, we elected to defer the deposit and payment of the employer’s portion

of Social Security taxes.

These deferred amounts must be repaid 50% on December 31, 2021 with the remaining 50% on December

As of December 31, 2020, we deferred $627,000, which is included in Deferred payroll tax liability –

Act on the accompanying Consolidated Balance Sheet.

Received a Net Operating Loss Refund

Pursuant to the CARES Act, we filed a net operating loss carryback claim for $1,416,000, which was received during

the second quarter of this year.

Also, the U.S.

of Defense has, to date, taken steps to increase the rate for certain progress payments from 80 percent to 90 percent for costs

incurred and worked performed on certain contracts.

In addition to taking

advantage of the aforementioned U.S.

government programs, we took additional significant steps to improve our liquidity, including:

Entered into a Lower Cost Financing Facility

On December 31, 2019, we entered into a new loan facility (“SNB Facility”) with Sterling National

Bank, (“SNB”) which expires on December 30, 2022.

The SNB Facility provides for a $16,000,000 revolving loan (“SNB

revolving line of credit”) and a term loan (“SNB term loan”).

Proceeds from the SNB Facility repaid our

outstanding PNC Facility with PNC Bank N.A.

(“PNC”).

The formula to determine the

amounts of revolving advances permitted to be borrowed under the SNB revolving line of credit is based on a percentage of eligible

receivables and inventory (as defined in the SNB Facility).

Prior to the increase in the

SNB term loan described below, the SNB term loan provided for monthly principal installments in the amount of $45,238, payable

on the first business day of each month, beginning on February 1, 2020, with a final payment of any unpaid balance of principal

and interest payable on December 30, 2022.

In addition, for so long as the SNB term loan remains outstanding, if Excess Cash Flow

(as defined) is a positive number for any fiscal year, beginning with the year ending December 31, 2020, we shall pay to SNB an

amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow for such Fiscal Year and (ii) the outstanding

principal balance of the term loan.

Such payment shall be made to SNB and applied to the outstanding principal balance of the term

loan, on or prior to the April 15 immediately following such Fiscal Year.

The terms of the SNB Facility

require that, among other things, we maintain a specified Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal

Quarter beginning with the Fiscal Quarter ending March 31, 2020.

In addition, we are limited in the amount of Capital Expenditures

In accordance with the SNB Facility by September 30, 2020, we were required to cause the holders of certain subordinated

convertible notes to either (i) extend the maturity date of such notes to a date more than six months after December 31, 2022,

or (ii) convert the notes into common stock of the Company.

As of December 31, 2020, we were in compliance with all loan covenants.

The SNB Facility also restricts the amount of dividends we may pay to our stockholders.

Substantially all of our assets are pledged

as collateral under the SNB Facility.

Increased Term Loan to modernize equipment

- On November 6, 2020, we entered into the First Amendment to Loan and Security Agreement, increasing the Term Loan to

This allowed us to finance the acquisition of the new equipment at what we believe to be a reasonable interest

The repayment terms of the term

loan were amended to provide monthly principal installments in the amount of $67,679 beginning on December 1, 2020, with a final

payment of any unpaid balance of principal and interest payable on December 30, 2022.

We have paid an amendment fee of $20,000.

As of December 31, 2020, our

debt to SNB in the amount of $21,207,000 consisted of the SNB revolving line of credit note in the amount of $15,649,000 and the

SNB term loan in the amount of $5,558,000.

Because we believe

our fiscal 2021 sales will be higher than the amount achieved in fiscal 2020, we believe our liquidity in 2021 will improve.

Nevertheless,

our liquidity may be adversely impacted by various risks and uncertainties, including, but not limited to future effects of the

COVID-19 pandemic and other risks detailed in Part1, Item 1A of this Annual Report.

Changes in our cash

flow during fiscal 2020 and 2019 are discussed further below.

The following table

summarizes our net cash flow from operating, investing and financing activities for the periods indicated (in thousands):

Cash (used in) provided by

Operating activities

1 unchanged sentence

Financing activities

Net (decrease) increase in cash and cash equivalents

The above cash flows includes

the cash flows from our continuing and discontinued operations.

Provided By (Used In) Operating Activities

used in operating activities primarily consists of our net loss adjusted for certain non-cash items and changes to working capital

For the year ended December

31, 2019, our net loss of $2,732,000 was offset by $5,217,000 of non-cash items, consisting primarily of employees and directors

stock based compensation of $622,000, amortization of right-of-use assets of $470,000, depreciation of property and equipment of

$3,002,000 and amortization of debt discount on convertible notes payable of $510,000.

Operating assets and liabilities used cash

in the net amount of $3,373,000, consisting primarily of the net increases in deposits and other assets, accounts receivable and

prepaid expenses and other current assets of $713,000, $1,647,000 and $33,000, and net decrease in operating lease liabilities

Net increase (decrease) in cash and cash equivalents

The above cash flows

include the cash flows from our continuing and discontinued operations.

Cash Used In Operating Activities

Cash used in operating

activities reflects our net income (loss) adjusted for certain non-cash items and changes to working capital items.

For the year ended

December 31, 2020, net income of $1,096,000 and $1,990,000 of non-cash items, consisting primarily of employees and directors stock

based compensation of $519,000, amortization of right-of-use assets of $482,000, depreciation of property and equipment of $2,570,000

and amortization of debt discount on convertible notes payable of $233,000, were partially offset by the forgiveness of notes payable

SBA Loan and non-cash other income recognized in the amounts of $2,414,000 and $402,000, respectively.

Operating assets

and liabilities used cash in the net amount of $4,611,000, consisting primarily of the net increases in accounts receivable and

inventory of $1,045,000 and $3,474,000, and net decreases in operating lease liabilities and deferred revenue in the amounts of

$673,000 and $94,000, which were partially offset primarily by increases in accounts payable and accrued expenses in the amounts

of $275,000 and by decreases in prepaid expenses and other current assets and deposits and other assets in the amounts of $274,000

and $168,000, respectively.

For the year ended

December 31, 2019, our net loss of $2,732,000 was offset by $5,217,000 of non-cash items, consisting primarily of employees and

directors stock based compensation of $622,000, amortization of right-of-use assets of $470,000, depreciation of property and equipment

of $3,002,000 and amortization of debt discount on convertible notes payable of $510,000.

Operating assets and liabilities used

cash in the net amount of $3,373,000, consisting primarily of the net increases in deposits and other assets, accounts receivable

and prepaid expenses and other current assets of $713,000, $1,647,000 and $33,000, and net decrease in operating lease liabilities

and accounts payable and accrued expenses in the amounts of $601,000 and $970,000, partially offset primarily by an increase in

deferred revenue and a decrease in inventory of $130,000 and $405,000.

For the year ended December 31, 2018, our net loss of $10,992,000

was offset by $8,385,000 of non-cash items, consisting primarily of goodwill impairment of $109,000, depreciation of property and

equipment of $2,877,000, amortization of debt discount on convertible notes payable of $941,000, amortization and change in useful

life of capitalized engineering costs of $2,043,000.

Operating assets and liabilities used cash in the net amount of $271,000,

consisting primarily of the net increases in deposits and other long term assets and accounts receivable amounts of $1,112,000

and $561,000, and a decrease in inventory and accounts payable and accrued expenses in the amounts of $1,395,000 and $1,569,000,

partially offset primarily by an increase in deferred revenue of $2,076,000.

Provided By (Used in) Investing Activities

Cash provided by (used

in) investing activities consists of the cash received from the businesses we sold, reduced by capital expenditures for property

and equipment and capitalized engineering costs.

Cash Used in Investing Activities

Cash used in investing

activities consists of cash used for capital expenditures for property and equipment.

For the year ended

December 31, 2020, cash used in investing activities was $3,797,000.

Primarily this was for the purchase of state of the art machinery

installed at our Bay Shore facility.

For the year ended

December 31, 2019, cash used in investing activities was $764,000.

This was for the purchase of property and equipment.

Cash Provided By Financing Activities

Cash provided by financing

activities consists of the borrowings and repayments under our credit facilities with our senior lender, increases in and repayments

of finance lease obligations and other notes payable, and the proceeds from the sale of our equity.

For the year ended

December 31, 2018, cash provided by investing activities was $3,685,000.

This was comprised of the net proceeds from the sale of

WMI of $5,472,000, offset by $523,000 for capitalized engineering costs and $1,264,000 for the purchase of property and equipment.

Cash Provided By (Used in) Financing Activities

Cash provided by (used

in) financing activities consists of the borrowings and repayments under our credit facilities with our senior lender, increases

in and repayments of finance lease obligations and other notes payable, and the proceeds from the sale of our equity.

For the year ended December

31, 2019, cash provided by financing activities was $934,000.

This was comprised primarily of net proceeds from the SNB refinancing

of $16,343,000 and proceeds of related party note issuances of $1,500,000 and proceeds from our sale of future proceeds from disposition

of a subsidiary of $800,000 offset by repayments of $1,572,000 on our PNC term loan, $14,043,000 on our PNC revolving loan, $1,764,000

on our financed lease obligations, $186,000 on our financed asset note payable, $28,000 on our related party notes payable, and

payment of financing and stock issuances costs of $116,000.

December 31, 2020, cash provided by financing activities was $6,533,000.

This was comprised primarily of net proceeds from SNB

of $5,443,000, SBA loan proceeds of $2,414,000 and proceeds from issuances of stock of $984,000, offset primarily by repayments

of $1,000,000 on our related party notes payable, $100,000 of our third party notes payable, $579,000 on our SNB term loan, $18,000

on our financed lease obligations and $385,000 on our financed asset note payable and payment of stock issuances costs of $145,000.

For the year ended

December 31, 2019, cash provided by financing activities was $934,000.

This was comprised of proceeds from notes issued to related

parties and third parties of $2,803,000 and $70,000 and proceeds from the issuance of common stock of $2,885,000 offset by repayments

of $1,899,000 on our term loan, $2,415,000 on our PNC revolving loan, $1,286,000 on our finance lease obligations and $125,000

on our deferred financing costs.

following table sets forth our future contractual obligations as of December 31, 2019:

Payment due by period (in thousands)

This was comprised primarily of net proceeds from the SNB

refinancing of $16,343,000 and proceeds of related party note issuances of $1,500,000 and proceeds from our sale of future proceeds

from disposition of a subsidiary of $800,000 offset by repayments of $1,572,000 on our PNC term loan, $14,043,000 on our PNC revolving

loan, $1,764,000 on our financed lease obligations, $186,000 on our financed asset note payable, $28,000 on our related party notes

payable, and payment of financing and stock issuances costs of $113,000.

CONTRACTUAL OBLIGATIONS

The following table sets forth our future contractual

obligations as of December 31, 2020 (in thousands):

Payment due by period

Debt and Finance Leases

Operating Leases

SHEET ARRANGEMENTS

did not have any off-balance sheet arrangements as of December 31, 2019.

Accounting Policies

have identified the policies below as critical to our business operations and the understanding of our financial results.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have any

off-balance sheet arrangements as of December 31, 2020.

Critical Accounting Policies and Estimates

A critical accounting

policy is one that is both important to the portrayal of a company’s financial condition and results of operations and requires

management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the

effect of matters that are inherently uncertain.

Our consolidated financial statements are presented in accordance

with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

All applicable U.S.

accounting standards effective as of December 31, 2020 have been taken into consideration in preparing the consolidated financial

The preparation of consolidated financial statements requires estimates and assumptions that affect the reported amounts

of assets, liabilities, revenues, expenses and related disclosures.

Some of those estimates are subjective and complex, and consequently,

actual results could differ from those estimates.

The following accounting policies and estimates have been highlighted as significant

because changes to certain judgements and assumptions inherent in these policies could affect our consolidated financial statements:

● Going Concern

At each reporting period, we evaluate

whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within

one year after the date our financial statements are issued.

We are required to make certain additional disclosures if

we conclude that substantial doubt exists and such concerns are not alleviated by our plans or when our plans alleviate

substantial doubt about our ability to continue as a going concern.

The evaluation entails analyzing prospective operating

budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent

balance and expectations regarding cash to be generated over the following year.

Because we are projecting positive

cash flows from operations in 2020 and believe that we will be able to meet our obligations as they come due over the

following year, the financial statements included in this Report have been prepared on a going concern basis.

The Company values inventory at the lower of cost on a first-in-first

out basis or estimated net realizable value.

The Company does not take physical inventories at interim quarterly reporting periods,

however a full physical inventory is taken annually.

Adjustments to reconcile the annual physical inventory to the Company’s

books are treated as changes in accounting estimates and are recorded in the fourth quarter.

generally purchase raw materials and supplies uniquely suited to the production of larger more complex parts, such as landing

gear, only when non-cancellable contracts for orders have been received for finished goods.

We occasionally produce larger more

complex products, such as landing gear, in excess of purchase order quantities in anticipation of future purchase order demand.

Historically this excess has been used in fulfilling future purchase orders.

We purchase supplies and materials useful in a variety

of products as deemed necessary even though orders have not been received.

The Company periodically evaluates inventory items

that are not secured by purchase orders and establishes reserves for obsolescence accordingly.

The Company also reserves for excess

quantities, slow-moving goods, and for other impairments of value.

present inventory net of progress billings in accordance with the specified contractual arrangements with the United States Government,

which results in the transfer of title of the related inventory from the Company to the United States Government, when such progress

payments are received.

Engineering Costs

have contractual agreements with customers to produce parts, which the customers design.

Though have not designed and thus have

no proprietary ownership of the parts we produce, the manufacturing of these parts requires pre-production engineering and programming

of our machines.

Prior to January 1, 2019, the pre-production costs associated with a particular contract were capitalized and

then amortized beginning with the first shipment of product pursuant to such contract.

These costs were amortized on a straight

line basis over the shorter of the estimated length of the contract, or three years.

we were reimbursed for all or a portion of the pre-production expenses associated with a particular contract, only the unreimbursed

portion would be capitalized.

We also may progress bill customers for certain engineering costs being incurred.

Such billings

are recorded as progress billings (a reduction of the associated inventory) until the appropriate revenue recognition criteria

have been met.

The Terms and Conditions contained in customer purchase orders may provide for liquidated damages in the event

that a stop-work order is issued prior to the final delivery of the product.

As of December 31, 2018

we changed our policy to no longer capitalize engineering costs and to wroteoff the capitalized engineering balance of $2,043,000

and was included in our results of operations for 2018.

Beginning in 2019, we now

expense engineering costs as incurred and such costs are recorded in cost of sales.

Company accounts for revenue recognition in accordance with the accounting guidance now codified as FASB ASC 606 “Revenue

from Contracts with Customers”, as amended regarding revenue from contracts with customers using the modified retrospective

approach, which was applied to all contracts with customers.

Under the new standard an entity is required to recognize revenue

to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the entity expects

to be entitled in exchange for those goods.

was no cumulative financial statement effect of initially applying the new revenue standard because an analysis of our contracts

supported the recognition of revenue consistent with our historical approach.

In accordance with the modified retrospective approach,

the comparative information has not been restated and continues to be reported under the accounting standards in effect for those

The Company does not expect the adoption of the new revenue standard to have a material impact on the Company’s

revenues or net income on an ongoing basis.

Company’s revenues are primarily derived from consideration paid by customers for tangible goods.

The Company analyzes its

different goods by segment to determine the appropriate basis for revenue recognition, as described below.

Revenue is not generated

from sources other than contracts with customers and revenue is recognized net of any taxes collected from customers, which are

subsequently remitted to governmental authorities.

There are no material upfront costs for operations that are incurred from contracts

with customers.

rights to payments for goods transferred to customers are conditional only on the passage of time and not on any other criteria.

Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 75 days.

received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.

and Conditions contained in our customer purchase orders often provide for liquidated damages in the event that a stop work order

is issued prior to the final delivery.

We utilize a Returned Merchandise Authorization or RMA process for determining whether

to accept returned products.

Customer requests to return products are reviewed by the contracts department and if the request

is approved, a credit is issued upon receipt of the product.

Net sales represent gross sales less returns and allowances.

out is included in operating expenses.

ASC 606, revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance

obligations).

In evaluating our contracts with our customers under ASC 606, we have determined that there is no future performance

obligation once delivery has occurred.

Accordingly, we have determined that there is no impact on the timing of recording sales

and operating profit.

recognize certain revenues under a bill and hold arrangement with two large customers.

For any requested bill and hold arrangement,

we make an evaluation as to whether the bill and hold arrangement qualifies for revenue recognition.

The customer must initiate

the request for the bill and hold arrangement.

The customer must have made this request in writing in addition to their fixed

commitment to purchase the item.

The risk of ownership has passed to the customer, payment terms are not modified and payment

will be made as if the goods had shipped.

account for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,”

requires that we recognize deferred tax liabilities and assets based on the differences between the financial statement carrying

amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected

Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities.

A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

We account for uncertainties

in income taxes under the provisions of FASB ASC 740-10-05, (the “Subtopic”).

The Subtopic clarifies the accounting

for uncertainty in income taxes recognized in an enterprise’s financial statements.

The Subtopic prescribes a recognition

threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected

to be taken in a tax return.

The Subtopic provides guidance on de-recognition, classification, interest and penalties, accounting

in interim periods, disclosure and transition.

We account for stock-based

compensation expense in accordance with FASB ASC 718, “Compensation –

Stock Compensation.”

Under the fair value

recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award.

We estimate the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock

grants at their closing reported market value.

represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired.

is not amortized, but is tested at least annually for impairment, or if circumstances change that will more likely than not reduce

the fair value of the reporting unit below its carrying amount.

account for the impairment of goodwill under the provisions of ASU 2011-08 (“ASU 2011-08”), “Intangibles Goodwill

and Other (Topic 350):

Testing Goodwill for Impairment.”

ASU 2011-08 updated the guidance on the periodic testing of goodwill

for impairment.

The updated guidance gives companies the option to perform a qualitative assessment to determine whether it is

more likely than not that the fair value of a reporting unit is less than its carrying amount.

perform impairment testing for goodwill annually, or more frequently when indicators of impairment exist, using a three-step approach.

Step “zero”

is a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting

unit is less than its carrying amount.

Step “one”

compares the fair value of the net assets of the relevant reporting

unit (calculated using a discounted cash flow method) to its carrying value.

Step “two”

is performed to compute the

amount of the impairment.

In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations,

and is compared to its carrying value.

The shortfall of the fair value below carrying value represents the amount of goodwill

Issued Accounting Pronouncements

In November 2019, the FASB

issued ASU No.

2019-08, “Compensation—Stock Compensation”

(Topic 718) and Revenue from Contracts with Customers

(Topic 606), which amended Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, and ASC 718, Compensation

Stock Compensation.

The amendments require entities to measure and classify in accordance with ASC 718 share-based payments

that are granted to a customer in a revenue arrangement and are not in exchange for a distinct good or service.

ASC 2019-08 is

effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual

reporting periods.

The Company is in the process of determining the impact the adoption will have on its consolidated financial

December 2019, the FASB issued ASU No.

● Inventory Valuation

● Revenue Recognition

● Income Taxes

● Stock-Based Compensation

Recently Issued Accounting Pronouncements

In August 2020, the

FASB issued ASU No.

2020-06, Debt –

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging

Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified

as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities

For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and

convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible

instruments and earnings-per-share guidance on the basis of feedback from financial statement users.

ASU 2020-06 is effective for

fiscal years, and interim periods in those fiscal years, beginning after December 15, 2021.

Early adoption is permitted, but no

earlier than fiscal years beginning after December 15, 2020, including interim periods with those fiscal years.

The Company is

evaluating the effect of adopting this new accounting guidance on its financial statements.

In December 2019, the

FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”

("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes

certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December

15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial

statements and related disclosures.

In October 2018, the

FASB issued ASU No.

2018-17, “Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance for Variable Interest

Entities”

(“ASU 2019-12”),

This ASU reduces the cost and complexity of financial reporting associated with consolidation

of variable interest entities (VIEs).

A VIE is an organization in which consolidation is not based on a majority of voting rights.

The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands

it to all qualifying common control arrangements.

The amendments in this ASU are effective for fiscal years beginning after December

15, 2019, and interim periods within those fiscal years.

The adoption of ASU 2018-17 had no material impact on the Company’s

consolidated financial statements as December 31, 2019 and 2018

Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would

have a material effect on the accompanying consolidated financial statements.

which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to

the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance

is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related

2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which

significantly changes how entities will account for credit losses for most financial assets and certain other instruments that

are not measured at fair value through net income.

ASU 2016-13 replaces the existing incurred loss model with an expected credit

loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments.

Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the

amortized cost basis of a financial asset.

The impairment allowance is a valuation account deducted from the amortized cost basis

of financial assets to present the net amount expected to be collected on the financial asset.

Once the new pronouncement is adopted

by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date.

The new guidance provides no threshold for recognition of impairment allowance.

Therefore, entities must also measure expected

credit losses on assets that have a low risk of loss.

For instance, trade receivables that are either current or not yet due may

not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company

will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13.

ASU 2016-13 is effective

for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting

Early adoption is permitted.

The Company is currently assessing the impact ASU 2016-13 will have on its consolidated

financial statements.

The Company does not

believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material

effect on the accompanying consolidated financial statements.

QUANTITATIVE AND

3 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

financial statements required by this item begin on page F-1 hereof.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Consolidated Financial Statements

The financial statements

required by this item begin on page F-1 hereof.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity