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Item 9A. Controls and Procedures

2021-03-29 compared with 2020-03-27 · 1439 added, 1430 removed, 378 unchanged (88% of the section changed)

CONTROLS AND PROCEDURES

of Disclosure Controls and Procedures

An evaluation was

conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer

(“CEO”), its principal executive officer, and Chief Financial Officer (“CFO”), its principal financial

officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined

in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, 2019.

Based on that evaluation, the CEO and CFO concluded

our disclosure controls and procedures were effective as of December 31, 2019.

Evaluation of Disclosure

Controls and Procedures

An evaluation was conducted

under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”),

its principal executive officer, and Chief Financial Officer (“CFO”), its principal financial officer, of the effectiveness

of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e)

of the Exchange Act) as of December 31, 2020.

Based on that evaluation, the CEO and CFO concluded our disclosure controls and procedures

were effective as of December 31, 2020.

Management’s

Report on Internal Control over Financial Reporting

404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal controls over financial

reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our

internal controls over financial reporting.

is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal controls

over financial reporting refers to the process designed by, or under the supervision of our Chief Executive Officer and our Chief

Accounting Officer, and effected by our management and other personnel, to provide reasonable assurance regarding the reliability

of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

includes those policies and procedures that:

to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of

reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management

and directors;

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets

that could have a material effect on the financial statements.

of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes

in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

management relies upon the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission in designing a system intended to meet the needs of our Company and provide reasonable

assurance for its assessment.

Section 404 of the

Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal controls over financial reporting

and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal controls

over financial reporting.

Management is responsible

for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal controls over financial

reporting refers to the process designed by, or under the supervision of our Chief Executive Officer and our Chief Accounting Officer,

and effected by our management and other personnel, to provide reasonable assurance regarding the reliability of our financial

reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP, and includes those policies

and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and

fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with U.S.

GAAP, and that our receipts and expenditures are being made only

in accordance with the authorization of our management and directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent

limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

Our management relies

upon the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission in designing a system intended to meet the needs of our Company and provide reasonable assurance for

its assessment.

In connection with

7 unchanged sentences

public accounting firm in this annual report.

in Internal Control over Financial Reporting

Change in Internal Control over Financial Reporting

During 2020, we took

various steps to address deficiencies in our financial reporting system that existed as of December 31, 2018.

In particular, we

disposed of certain subsidiaries, including those previously acquired that had not adequately installed our inventory control and

management system, which substantially reduced the complexity of our operations.

In addition, we acquired new consolidation software,

which eliminated deficiencies in our quarterly closing and consolidating processes.

We also hired a new Chief Accounting Officer

familiar with the requirements of US GAAP and the Securities Laws and internal control systems to supplement our staff.

for the changes described above, there have been no changes in our internal control over financial reporting that occurred during

our fiscal quarter and year ended December 31, 2019 that have materially affected, or are reasonable likely to materially affect,

our internal control over financial reporting.

various steps to maintain the effectiveness of our financial reporting system, primarily the acquisition of additional software

to increase the utility of our financial reporting systems and additional steps taken to increase our cybersecurity defenses.

for these additions to our software, there have been no changes in our internal control over financial reporting that occurred

during our fiscal quarter and year ended December 31, 2020 that have materially affected, or are reasonable likely to materially

affect, our internal control over financial reporting.

OTHER INFORMATION.

Directors, Executive Officers, and Corporate Governance

information required by Paragraph (a), and Paragraphs (c) through (g) of Item 401 of Regulation S-K (except for

information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers)

and Item 405 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC

pursuant to Regulation 14A within 120 days after the close of our fiscal year.

following table presents the information required by Paragraph (b) of Item 401 of Regulation S-K.

directors and executive officers are:

Directors, Executive Officers, and Corporate

The information required

by Paragraph (a), and Paragraphs (c) through (g) of Item 401 of Regulation S-K (except for information required

by Paragraph (e) of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation

S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A

within 120 days after the close of our fiscal year.

The following table

presents the information required by Paragraph (b) of Item 401 of Regulation S-K.

Our directors and executive officers

Luciano (Lou) Melluzzo

3 unchanged sentences

Michael Brand

(Lou) Melluzzo has been our President and Chief Executive Officer since November 15, 2017.

He joined our company on September

11, 2017 as Chief Executive Officer.

Luciano (Lou) Melluzzo

has been our President and Chief Executive Officer since November 15, 2017.

He joined our company on September 11, 2017 as Chief

Executive Officer.

From November 2003 to September 2011, Mr.

Melluzzo was employed in various capacities by

EDAC Technologies Corporation (“EDAC”), a designer, manufacturer and distributor of precision aerospace components

and assemblies, precision spindles and complex fixturing, tooling and gauging with design and build capabilities, whose shares

were then listed on the Nasdaq Capital Market.

He served as EDAC’s Vice President and Chief Operating Officer from November

2005 until February 2010.

From September 2011 to November 2015, Mr.

Melluzzo was self-employed in the residential real estate

redevelopment industry.

From November 2015 to January 2017, he was general manager of Polar Corporation, a privately-held company

specializing in computer numeric controlled milling and turning of small hardware components for the aerospace industry.

Recca has been our Chief Financial Officer since October 1, 2016.

Recca has been engaged by us since September 2008

in a variety of positions related to our capital finance and acquisition programs.

Most recently he served as Chief of Corporate

Development& Capital Markets, a position in which he directed our acquisition program and coordinated with our lenders.

Recca received a Bachelor of Arts degree from the SUNY Stony Brook and an MBA from Columbia University.

Taglich has been Chairman of our Board of Directors since September 22, 2008.

He is Chairman and President of Taglich

Brothers, a New York City based securities firm which he co-founded in 1992 and which is focused on public and private

micro-cap companies.

Taglich is currently Chairman of the Board of Mare Island Dry Dock LLC, a company

engaged in ship repair services, and Vice Chairman of the Board of BioVentrix, Inc., a privately held medical device company

whose products are directed at heart failure.

He also serves as a Director of Bridgeline Digital Inc., a publicly traded

company, Icagen Inc., a reporting but not trading company engaged in early stage pharmaceutical research, Decision Point

Systems Inc., a private company engaged in field service automation, Dilon Technologies, a private medical device company and

Autonet Mobile Inc., a private company focused on connecting automobiles to the internet.

Taglich has been a director of our company since 2008.

He is a Managing Director of Taglich Brothers, which he co-founded

Prior to founding Taglich Brothers, Mr.

Melluzzo was employed in various capacities by EDAC Technologies Corporation

(“EDAC”), a designer, manufacturer and distributor of precision aerospace components and assemblies, precision spindles

and complex fixturing, tooling and gauging with design and build capabilities, whose shares were then listed on the Nasdaq Capital

He served as EDAC’s Vice President and Chief Operating Officer from November 2005 until February 2010.

From September

2011 to November 2015, Mr.

Melluzzo was self-employed in the residential real estate redevelopment industry.

From November 2015

to January 2017, he was general manager of Polar Corporation, a privately-held company specializing in computer numeric controlled

milling and turning of small hardware components for the aerospace industry.

has been our Chief Financial Officer since October 1, 2016.

Recca has been engaged by us since September 2008 in a variety

of positions related to our capital finance and acquisition programs.

Most recently he served as Chief of Corporate Development & Capital Markets, a position in which he directed our acquisition program and coordinated with our lenders.

received a Bachelor of Arts degree from the SUNY Stony Brook and an MBA from Columbia University.

has been Chairman of our Board of Directors since September 22, 2008.

He is Chairman and President of Taglich Brothers, a New

York City based securities firm which he co-founded in 1992 and which is focused on public and private micro-cap companies.

Taglich is currently Chairman of the Board of Mare Island Dry Dock LLC, a company engaged in ship repair services, and

Vice Chairman of the Board of BioVentrix, Inc., a privately held medical device company whose products are directed at heart failure.

He also serves as a Director of Bridgeline Digital Inc., a publicly traded company, Icagen Inc., a reporting but not trading

company engaged in early stage pharmaceutical research, Decision Point Systems Inc., a private company engaged in field service

automation, Dilon Technologies, a private medical device company and Autonet Mobile Inc., a private company focused on connecting

automobiles to the internet.

has been a director of our company since 2008.

He is a Managing Director of Taglich Brothers, which he co-founded in 1992.

to founding Taglich Brothers, Mr.

Taglich was a Vice President at Weatherly Securities.

Taglich has served

in various positions in the securities brokerage industry for the past 25 years.

Taglich serves on the board of privately

held BioVentrix, Inc., a medical device company whose products are directed at heart failure.

Taglich holds a Bachelor’s

degree from New York University.

Buonanno has been a director of our company since 2008.

He is the Founder and President of Buonanno Enterprises Consulting,

providing strategic management, supply chain/operations and recruitment services to aerospace and defense industry clients.

Buonanno has extensive experience in manufacturing, supply management and operations.

He was employed by Sikorsky Aircraft, Inc.,

a subsidiary of United Technologies Corporation, as Vice President, Supply Management and International Offset (from January 1997

to July 2006) and as Director, Systems Subcontracts (from November 1992 to January 1997).

From May 1987 to November 1992, he was

employed by General Electric Company serving as Operations Manager and Manager, Program Materials Management of GE’s Astro-Space

From June 1977 to May 1987, he was employed by RCA and affiliated companies.

Buonanno attended Lehigh University

College of Electrical Engineering and holds a B.S.

Taglich has served in various positions

in the securities brokerage industry for the past 25 years.

Taglich serves on the board of privately held BioVentrix, Inc.,

a medical device company whose products are directed at heart failure.

Taglich holds a Bachelor’s degree from New York

has been a director of our company since 2008.

He is the Founder and President of Buonanno Enterprises Consulting, providing strategic

management, supply chain/operations and recruitment services to aerospace and defense industry clients.

Buonanno has extensive

experience in manufacturing, supply management and operations.

He was employed by Sikorsky Aircraft, Inc., a subsidiary of United

Technologies Corporation, as Vice President, Supply Management and International Offset (from January 1997 to July 2006) and as

Director, Systems Subcontracts (from November 1992 to January 1997).

From May 1987 to November 1992, he was employed by General

Electric Company serving as Operations Manager and Manager, Program Materials Management of GE’s Astro-Space Division.

June 1977 to May 1987, he was employed by RCA and affiliated companies.

Buonanno attended Lehigh University College of Electrical

Engineering and holds a B.S.

in Business Administration from Rutgers University.

He completed the Program

for Management Development at Harvard Business School in 1996.

Rettaliata has been a director of our company since 2005.

He served as our Acting President and Chief Executive Officer

from March 2, 2017 to November 15, 2017, and served as our President and Chief Executive Officer from November 30, 2005 to December

He also served as the President of our wholly-owned subsidiary, AIM, from 1994 to 2008.

Prior to his involvement at

Rettaliata was employed by Grumman Aerospace Corporation for twenty-two years, where he attained the position of Senior

Procurement Officer.

He completed the Program for Management Development

at Harvard Business School in 1996.

has been a director of our company since 2005.

He served as our Acting President and Chief Executive Officer from March 2, 2017

to November 15, 2017, and served as our President and Chief Executive Officer from November 30, 2005 to December 31, 2014.

served as the President of our wholly-owned subsidiary, AIM, from 1994 to 2008.

Prior to his involvement at AIM, Mr.

was employed by Grumman Aerospace Corporation for twenty-two years, where he attained the position of Senior Procurement Officer.

Professionally, Mr.

Rettaliata has served as the Chairman of “ADDAPT”, an organization of regional

aerospace companies, as a member of the Board of Governors of the Aerospace Industries Association, and as a member of the Executive

Committee of the AIA Supplier Council.

Rettaliata has served as the Chairman of “ADDAPT”, an organization of regional aerospace companies,

as a member of the Board of Governors of the Aerospace Industries Association, and as a member of the Executive Committee of the

AIA Supplier Council.

He is a graduate of Niagara University where he received a B.A.

in History and Harvard

Business School where he completed the PMD Program.

Schroeder has been a director of our company since 2008.

He is Vice President - Investment Banking of Taglich Brothers

and specializes in advisory services and capital raising for small public and private companies.

Schroeder joined Taglich

Brothers in April 1993 as an Equity Analyst publishing sell-side research.

Prior to joining Taglich Brothers, he served in

various positions in the brokerage and public accounting industry.

Schroeder also serves as a director of the following

publicly traded companies:

DecisionPoint Systems, Inc., a private company engaged in field service automation, and

Intellinetics, Inc., a provider of cloud-based enterprise content management solutions and Akers Biosciences, Inc., a developer and manufacturer of rapid diagnostic screening and testing products.

in History and Harvard Business School where

he completed the PMD Program.

has been a director of our company since 2008.

He is Vice President - Investment Banking of Taglich Brothers and specializes

in advisory services and capital raising for small public and private companies.

Schroeder joined Taglich Brothers in April

1993 as an Equity Analyst publishing sell-side research.

Prior to joining Taglich Brothers, he served in various positions in the

brokerage and public accounting industry.

Schroeder also serves as a director of the following publicly traded companies:

DecisionPoint

Systems, Inc., a private company engaged in field service automation, and Intellinetics, Inc., a provider of cloud-based enterprise

content management solutions and Akers Biosciences, Inc., a developer and manufacturer of rapid diagnostic screening and testing

Schroeder received a B.S.

in accounting and economics from New York University.

He is a Chartered Financial Analyst and a member of the Association for

Investment Management and Research and a member of the New York Society of Security Analysts.

Brand has been a director of our company since 2012, and from March 2017 to November 2017 served as a consultant to our company

focused on day to day production issues, scheduling of the products to be manufactured and related operational issues such as

the maintenance of appropriate inventory levels.

He was the President of Goodrich Landing Gear, a unit of Goodrich Corporation,

from July 2005 to June 2012.

Prior to joining Goodrich for over 25 years he held senior management positions in the Aerospace

He began his career at General Electric Corporation and rose to senior management in its jet engine manufacturing operations.

Brand is a graduate of Clarkson University, with advanced degrees and certificates from Xavier University and the Wharton

degree in accounting and economics from New York University.

He is a Chartered Financial

Analyst and a member of the Association for Investment Management and Research and a member of the New York Society of Security

Michael Brand

has been a director of our company since 2012, and from March 2017 to November 2017 served as a consultant to our company focused

on day to day production issues, scheduling of the products to be manufactured and related operational issues such as the maintenance

of appropriate inventory levels.

He was the President of Goodrich Landing Gear, a unit of Goodrich Corporation, from July 2005

to June 2012.

Prior to joining Goodrich for over 25 years he held senior management positions in the Aerospace industry.

his career at General Electric Corporation and rose to senior management in its jet engine manufacturing operations.

is a graduate of Clarkson University, with advanced degrees and certificates from Xavier University and the Wharton School.

Michael Porcelain

has a director of our company since October 23, 2017.

Porcelain has served as President and Chief Operating Officer of Comtech Telecommunications

Corp., a publicly traded company and leading provider of advanced communication solutions for both commercial and government customers

worldwide, since 2019, and prior to that served as the Chief Financial Officer from 2006 through 2018, and from 2002 to March

2006, he served as Vice President of Finance and Internal Audit of Comtech.

From 1998 to 2002, Mr.

Porcelain was Director

of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company.

he spent five years in public accounting holding various positions, including Manager in the Transaction Advisory Services Group

of PricewaterhouseCoopers.

Since 1998, he has owned and operated The Independent Adviser Corporation, a privately held company

which holds the rights to use certain intellectual properties and trademarks (including various Internet websites) related to the

financial planning and advisory industry.

Porcelain is an Adjunct Professor at St.

John’s University located in New York

where he teaches graduate level accounting courses.

Porcelain has served as President and Chief Operating Officer of

Comtech Telecommunications Corp., a publicly traded company and leading provider of advanced communication solutions for

both commercial and government customers worldwide, since 2019, and prior to that served as the Chief Financial Officer from

2006 through 2018, and from 2002 to March 2006, he served as Vice President of Finance and Internal Audit of Comtech.

1998 to 2002, Mr.

Porcelain was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless

information solutions company.

Previously, he spent five years in public accounting holding various positions, including Manager

in the Transaction Advisory Services Group of PricewaterhouseCoopers.

In March 2021, Mr.

Porcelain was elected to the Board of

Directors of The Fund for Modern Court, an independent court reform organization that advocates for the improvements of the New

York State Court system to ensure a diverse, highly qualified, and independent judiciary.

Since 1998, he has owned and operated

The Independent Adviser Corporation, a privately held company which holds the rights to use certain intellectual properties and

trademarks (including various Internet websites) related to the financial planning and advisory industry.

Porcelain is an

Adjunct Professor at St.

John’s University located in New York where he teaches graduate level accounting courses.

Porcelain has a B.S.

in Business Economics from State University of

Oneonta, New York, a M.S.

in Business Economics from State University of Oneonta, New York, a M.S.

in Accounting and an M.B.A.

degree from Binghamton University.

Taglich and Robert F.

from Binghamton University.

and Robert F.

Taglich are brothers.

have adopted a written code of ethics that applies to our principal executive officers, senior financial officers and persons

performing similar functions.

Upon written request to our corporate secretary, we will provide you with a copy of our code of

ethics, without cost.

information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is hereby incorporated by reference from our definitive

proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

Executive Compensation

information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the

SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

information required by Item 403 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement

Code of Ethics

We have adopted a written

code of ethics that applies to our principal executive officers, senior financial officers and persons performing similar functions.

Upon written request to our corporate secretary, we will provide you with a copy of our code of ethics, without cost.

Corporate Governance

The information required

by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is hereby incorporated by reference from our definitive proxy statement

to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

Certain Relationships and Related Transactions and Director Independence

information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the

Executive Compensation

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

Security Ownership of Certain Beneficial Owners

and Management and Related Stockholder Matters

The information required

by Item 403 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the

SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

Certain Relationships and Related Transactions

and Director Independence

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

Principal Accountant Fees and Services

information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the

SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year.

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

following exhibits are included as part of this report.

The following exhibits

are included as part of this report.

References to “the Company”

in this Exhibit List mean Air

Industries Group, a Nevada Corporation.

Agreement and Plan of Merger dated July 29, 2013 between Air Industries Group, Inc.

and Air Industries Group (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed August 30, 2013).

Articles of Merger between Air Industries Group and Air Industries Group, Inc.

filed with the Secretary of State of Nevada on August 28, 2013 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed August 30, 2013).

Certificate of Merger between Air Industries Group and Air Industries Group, Inc.

filed with the Secretary of State of Nevada on August 29, 2013 (incorporated herein by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed August 30, 2013).

Articles of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 30, 2013).

Certificate of Designation authorizing the issuance of the Series A Preferred Stock (incorporated herein by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 1, 2016).

in this Exhibit List mean Air Industries Group,

a Nevada Corporation.

and Plan of Merger dated July 29, 2013 between Air Industries Group, Inc.

and Air Industries Group (incorporated herein by

reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed August 30, 2013).

of Merger between Air Industries Group and Air Industries Group, Inc.

filed with the Secretary of State of Nevada on August

28, 2013 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed August 30,

of Merger between Air Industries Group and Air Industries Group, Inc.

filed with the Secretary of State of Nevada on August

29, 2013 (incorporated herein by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed August 30,

of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report

on Form 8-K filed August 30, 2013).

of Amendment increasing number of authorized shares of preferred stock and Series A Preferred Stock (incorporated herein by

reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on

April 19, 2017).

Amendment to Certificate of Designation (incorporated herein by reference to the Company’s Registration Statement on Form S-1 (Amendment No.

2) filed on June 19, 2017 declared effective on July 6, 2017).

Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 31, 2015).

Certificate of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019)

Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act

Placement Agent Warrant issued to Craig-Hallum Capital Group LLC in connection with first closing of Series A Preferred Stock Offering (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 1, 2016).

Placement Agent Warrant issued to Taglich Brothers, Inc.

in connection with first closing of Series A Preferred Stock Offering (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 1, 2016).

Placement Agent Warrant issued to Craig-Hallum Capital Group LLC in connection with second closing of Series A Preferred Stock Offering (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on June 3, 2016).

Placement Agent Warrant issued to Taglich Brothers, Inc.

in connection with second closing of Series A Preferred Stock Offering (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on June 3, 2016).

Form of Warrant issued to purchasers of 12% Notes in connection with 12% Note Offering (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 22, 2016).

Placement Agent Warrant issued to Taglich Brothers, Inc.

in connection with 12% Note Offering (incorporated herein by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016).

Form of Warrant issued to purchasers of the 8% subordinated convertible notes (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 23, 2016).

Form of Placement Agent Warrant issued to Taglich Brothers, Inc.

in connection with the offering of 8% subordinated convertible notes (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on February 17, 2017).

Form of Warrant issued to purchasers of 8% subordinated convertible notes (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 17, 2017).

Warrant issued to RBI Private Investment III, LLC (incorporated herein by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2018).

Form of 6% Subordinated Convertible Note Due December 31, 2020 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 4, 2018).

Agreements Relating to Sterling Loan Facility

Loan and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 6, 2020)

Guaranty Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 6, 2020)

Pledge Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 6, 2020)

Agreements Relating to Acquisitions/Dispositions

Stock Purchase Agreement dated as of January 27, 2017, between Air Industries Group, AMK Welding, Inc., Air Industries Group Poland, LLC and Meyer Tool, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 30, 2017).

Stock Purchase Agreement dated March 21, 2018 with CPI Aerostructures, Inc.

("CPI SPA") (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 23, 2018).

Second Amendment dated as of December 20, 2018 to CPI SPA (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed April 1, 2019).

Agreements With Officers, Directors and Related Persons

7% Senior Secured Convertible Promissory Note due December 31, 2020 in the principal amount of $1,000,000 registered in the name of Michael Taglich (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 17, 2019).

7% Senior Secured Convertible Promissory Note due December 31, 2020 in the principal amount of $1,000,000 registered in the name of Robert Taglich (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on January 17, 2019).

7% Senior Secured Convertible Promissory Note due December 31, 2020 in the principal amount of $80,000 registered in the name of Taglich Brothers, Inc..(incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on January 17, 2019).

reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on April

and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report

on Form 10-K for the year ended December 31, 2014 filed on March 31, 2015).

of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s

Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019)

Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020).

Agreements Relating

to Sterling Loan Facility

and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit

10.1 to the Company’s Current Report on Form 8-K filed January 6, 2020)

Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the

Company’s Current Report on Form 8-K filed January 6, 2020)

Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the

Company’s Current Report on Form 8-K filed January 6, 2020)

First Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2020)

Agreements Relating

to Acquisitions/Dispositions

Purchase Agreement dated March 21, 2018 with CPI Aerostructures, Inc.

(“CPI SPA”) (incorporated herein by reference

to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 23, 2018).

Amendment dated as of December 20, 2018 to CPI SPA (incorporated by reference to Exhibit 10.26 to the Company’s Annual

Report on Form 10-K filed April 1, 2019).

Agreement and Release between the Company and CPI Aerostructures, Inc.

(incorporated herein by reference to Exhibit 10.1

to the Company’s Current Report on Form 8-K filed December 29, 2020).

Note dated May 6, 2020, between Sterling National Bank and Air Industries Machining Corp.

(incorporated herein by reference

to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2020).

Note dated May 6, 2020, between Sterling National Bank and Nassau Tool Works Inc.

(incorporated herein by reference to Exhibit

10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2020).

Note dated May 6, 2020, between Sterling National Bank and Sterling Engineering Corporation (incorporated herein by reference

to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2020).

Agreements Relating to Issuance of Securities

Placement Agency Agreement with Taglich Brothers, Inc.

dated September 28, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 4, 2018).

Subscription Agreement with RBI Private Investment III, LLC (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 4, 2018).

Form of Subscription Agreement for offering of Subordinated Notes due May 31, 2019 and shares of common stock, together with form of Subordinated Note (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 22, 2018).

Placement Agency Agreement for offering of Subordinated Notes due May 31, 2019 and shares of common stock (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 22, 2018)

Form of Subscription Agreement for July 2018 offering of sale of shares of common stock.(incorporated herein by reference to Exhibit 10.38 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2018 filed August 15, 2018).

Placement Agency Agreement with Taglich Brothers, Inc.

dated September 28, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 4, 2018).

Form of Subscription Agreement (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 4, 2018).

Placement Agency Agreement with Taglich Brothers, Inc.

dated May 17, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 22, 2018).

Form of Subordinated Note due May 31, 2019 (see Exhibit A to Exhibit 10.2).

(incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 22, 2018).

Form of Subscription Agreement for Subordinated Notes and shares of Common Stock (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 22, 2018).

At the Market Offering Agreement dated January 15, 2020 with Roth Capital Partners, LLC (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report of Form 8-K filed on January 15, 2020).

the Market Offering Agreement dated January 15, 2020 with Roth Capital Partners, LLC (incorporated herein by reference to

Exhibit 10.1 to the Company’s Current Report of Form 8-K filed on January 15, 2020).

Other Material Agreements

Purchase Agreement with the Purchasers dated January 15, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 17, 2019).

Agreement with the Purchasers dated January 15, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company’s

Current Report on Form 8-K filed on January 17, 2019).

Equity Incentive Plans

2013 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8 (Registration No.

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form

S-8 (Registration No.

333-191560) filed on October 4, 2013).

2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8 (Registration No.

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form

S-8 (Registration No.

333-206341) filed on August 13, 2015).

2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016).

2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company's Registration Statement on Form S-1 (Registration No.

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q

for the quarterly period ended September 30, 2016 filed on November 14, 2016).

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company’s Registration Statement on

Form S-1 (Registration No.

333-219490) filed July 26, 2017 and declared effective August 4, 2017).

of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company's Annual Report on Form 10-K/A (Amendment No.

of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K/A (Amendment

2) for the year ended December 31, 2017 filed on April 30, 2018.

Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 1, 2019.

(incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December

31, 2018 filed on April 1, 2019.

Consent of Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

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XBRL Taxonomy Extension Presentation Linkbase Document*

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report

to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf

by the undersigned, thereunto duly authorized.

March 29, 2021

INDUSTRIES GROUP

AIR INDUSTRIES GROUP

/s/ Luciano Melluzzo

Luciano Melluzzo

President and

Chief Executive Officer

executive officer)

Chief Financial

financial and accounting officer)

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant on March 27, 2020 in the capacities indicated.

President and Chief Executive Officer

(principal executive officer)

/s/ Michael E.

Chief Financial Officer

(principal financial and accounting officer)

Pursuant to the requirements

of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant

on March 29, 2021 in the capacities indicated.

/s/ Luciano Melluzzo

President and CEO

Luciano Melluzzo

executive officer)

Financial Officer

financial and accounting officer)

(principal executive officer)

/s/ Michael E.

Chief Financial Officer

(principal financial and accounting officer)

/s/ Michael N.

Chairman of the Board

/s/ Robert F.

/s/ Robert Schroeder

Robert Schroeder

/s/ Michael Brand

Michael Brand

/s/ Michael Porcelain

Michael Porcelain

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Stockholders of

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and Stockholders of

Air Industries Group

on the Financial Statements

We have audited the accompanying consolidated balance sheets of Air Industries Group and subsidiaries (the “Company”)

as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’

and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as

of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity

with accounting principles generally accepted in the United States of America.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related

consolidated statements of operations, changes in stockholders’

equity and cash flows for the years then ended, and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations

and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of

Basis for Opinion

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 are a public accounting firm registered with the

Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect

to the Company in accordance with the U.S.

federal securities law and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require

that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of

its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control

over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

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 audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities law and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required

to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that

respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in

the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable

basis for our opinion.

Our audits included performing procedures to

assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated

to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way

our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing

separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition –

Note 3 of the consolidated financial statements

Description of the Matter

The Company’s revenue is generated pursuant

to written contractual arrangements to design, develop, manufacture and/or modify complex products, and to provide related engineering

and other services according to the specifications of the customers.

The majority of the Company’s performance obligations

under these contractual agreements are satisfied at a point in time when the customer obtains control of the product, which is

generally upon acceptance by the customer and shipment of the goods.

For contracts with multiple performance obligations, the Company

allocates the contract’s transaction price to each performance obligation using its observable standalone selling price for

products and services.

Revenue Recognition –

Note 3 of the consolidated financial statements (continued)

Description of the Matter (continued)

Given the judgment necessary to make reasonably

dependable estimates of revenues associated with such contracts, auditing management’s evaluation of contracts with customers

required extensive audit effort due to analyzing the terms and conditions of the Company’s various customer contracts given

that such terms and conditions are nonstandard.

This included the identification and determination of the performance obligations

and the timing of revenue recognition.

How the Critical Audit Matter Was Addressed

Our audit procedures included obtaining an

understanding of the Company’s revenue recognition process, among others:

● We reviewed management’s assessment of the terms and conditions of contracts with customers

which included an analysis of the distinct performance obligations and a review of the conclusion as to whether revenue from such

performance obligations should be recognized over time or at a point in time.

● We reviewed management’s conclusions over completeness of the contract reviews and appropriateness

of the accounting conclusions.

● We selected a sample of contracts with customers and performed the following:

o Compared the transaction price to the consideration expected to be received based on current rights

and obligations under the contracts and any modification that were agreed upon with the customers.

o Tested the completeness and accuracy of the Company’s contract summary documentation, specifically

related to the identification and determination of distinct performance obligations and the timing of revenue recognition.

Inventories, net –

Refer to Note

3 of the consolidated financial statements

Description of the Matter

The Company records inventory at the lower

of cost of net realizable value.

The Company periodically evaluates the carrying value of inventory, which requires management

to make significant estimates and assumptions related to sales patterns and expected future demand in order to estimate the amount

necessary to adjust to net realizable value as a result of slow moving or obsolete inventory.

Changes in the assumptions could

have a significant impact on the valuation of inventory.

We identified the adjustment to net realizable

value of the inventory as a critical audit matter.

Auditing such estimates required a high degree of subjective auditor judgment

and an increased extent of effort when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed

Our audit procedures used to address the adjustment

to net realizable value of inventories included the follow:

● We tested the Company’s raw materials and hardware inventory

by evaluating the number of days transpiring from the date the inventory was originally received and/or from the last date of movement,

and reviewing the historical sales of the inventory.

● We selected a sample of finished goods and performed the following:

o We tested the finished goods inventory report for any finished

goods with no movement in the last two years.

o Reviewed the transaction history detail reports, which display all types of movement of that particular

o Evaluated the accuracy and completeness of the valuation reserve by selecting a sample of inventory

items and obtaining supporting documentation regarding current and historical sales patterns.

● We tested the accuracy of the Company’s material burden rate

calculations to determine proper application of manufacturing overhead costs applied to the cost of work in process and finished

We have served as the Company’s auditors since 2008.

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March 29, 2021

INDUSTRIES GROUP

Balance Sheets

AIR INDUSTRIES GROUP

Consolidated Balance Sheets

Current Assets

Cash and Cash Equivalents

Accounts Receivable, Net of Allowance for Doubtful Accounts of $859,000 and $524,000, respectively

Accounts Receivable, Net of Allowance for Doubtful Accounts of $964,000 and $859,000

Prepaid Expenses and Other Current Assets

4 unchanged sentences

Deferred Financing Costs, Net, Deposits and Other Assets

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS’

Current Liabilities

1 unchanged sentence

Notes Payable - Related Party - Current Portion

Accounts Payable and Accrued Expenses

Accounts Payable and Accrued Expenses (related parties of $400,000 and $210,000)

Operating Lease Liabilities - Current Portion

3 unchanged sentences

Income Taxes Payable

Deferred payroll tax liability - CARES Act - Current Portion

Total Current Liabilities

5 unchanged sentences

Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary - Net of Current Portion

Deferred Rent

Deferred payroll tax liability - CARES Act - Net of Current Portion

TOTAL LIABILITIES

Commitments and Contingencies

Stockholders' Equity

Preferred Stock, par value $.001 - Authorized 3,000,000 shares, 0 outstanding at December 31, 2019 and 2018

Stockholders’

Preferred Stock, par value $.001 - Authorized 3,000,000 shares, 0 shares outstanding, at both December 31, 2020 and December 31, 2019.

Common Stock - Par Value $.001 - Authorized 60,000,000 Shares, 31,906,971 and 29,478,338 Shares Issued and Outstanding as of December 31, 2020 and December 31, 2019, respectively

3 unchanged sentences

(67,257,000 )

TOTAL STOCKHOLDERS' EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

Notes to Consolidated Financial Statements

INDUSTRIES GROUP

Statements of Operations For the Years Ended December 31,

TOTAL STOCKHOLDERS’

TOTAL LIABILITIES AND STOCKHOLDERS’

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Operations

For the Years Ended December 31,

Cost of Sales

Operating Expenses

Impairment on abandonment of assets

Capitalized engineering costs write-off

Loss on abandonment of Leases

Income (Loss) from Operations

Interest and Financing Costs

Interest Expense - Related Parties

Other Income, Net

Loss before Provision for Income Taxes

Provision for Income Taxes

Loss from Continuing Operations, net of taxes

Loss from Discontinued Operations, net of taxes

Losses from discontinued operating activities

Loss on Sale of Subsidiary

Total Loss from Discontinued Operations, net of tax

$ (2,732,000 )

Forgiveness of notes payable - SBA Loan

Loss before (Benefit From) Provision for Income Taxes

Provision for (Benefit from) Income Taxes

Income (Loss) from Continuing Operations, net of tax

Loss from Discontinued Operations, net of tax

Net Income (Loss)

$ (2,732,000 )

Net Loss per share - basic

Continuing operations

Discontinued operations

Net Loss per share - diluted

Continuing operations

Discontinued operations

Income (Loss) per share from continuing Operations - Basic

Loss per share from Discontinued Operations - Basic

Income (Loss) per share from Continuing Operations - Diluted

Loss per share from Discontinued Operations - Diluted

Weighted Average Shares Outstanding - basic

Weighted Average Shares Outstanding - diluted

Notes to Consolidated Financial Statements

INDUSTRIES GROUP

Statements of Stockholders’

the Years Ended December 31, 2019 and 2018

Stockholders'

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Stockholders’

For the Years Ended December 31, 2020 and

Stockholders’

Balance, January 1, 2019

$ (64,523,000 )

Fair Value Allocation of Warrants

Issuance of Common Stock

Common stock issued for directors fees

Common Stock issued for legal fees

Common stock issued for convertible notes

Stock Compensation Expense

(10,992,000 )

Balance, December 31, 2018

$ (64,523,000 )

Common stock issued for legal fees

Issuance of Common Stock

8 unchanged sentences

$ (67,257,000 )

Notes to Consolidated Financial Statements

INDUSTRIES GROUP

Statements of Cash Flows For the Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Common Stock issued for directors fees

Costs related to issuance of stock

Issuance of Common Stock

Common Stock Issued for Convertible Notes

Stock Compensation Expense

Adjustments for other note conversions

Balance, December 31, 2020

$ (66,161,000 )

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Cash Flows For

the Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)

$ (2,732,000 )

Adjustments to reconcile net loss to net cash used in operating activities

Adjustments to reconcile net income (loss) to net cash used in operating activities

Depreciation of property and equipment

Stock based employee compensation expense

Stock based directors compensation expense

Legal expenses paid by issuance of stock

Non-cash employee compensation expense

Non-cash directors compensation

Non-cash legal expenses paid by issuance of stock

Non-cash other income recognized

Non-cash interest expense

Non-cash deferred payroll tax expense - CARES Act

Loss on abandonment of lease

Amortization of right-of-use assets

Amortization of deferred gain on sale of real estate

Amortization of Right-of-Use Asset

Deferred gain on sale of real estate

Loss on disposal of equipment

Loss on sale of equipment

Amortization of debt discount on convertible notes payable

Amortization of capitalized engineering costs

Bad debt expense

Loss on impairment of goodwill - discontinued operations

Amortization of deferred financing costs

Change in useful life of capitalized engineering costs

Gain on sales of subsidiaries

Loss on Assets Held for Sale

Forgiveness of notes payable - SBA loan

Changes in Assets and Liabilities

5 unchanged sentences

Increase (Decrease) in Operating Liabilities:

Accounts payable and accrued expense

Accounts payable and accrued expenses

Operating lease liabilities

Deferred rent

Deferred revenue

2 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Capitalized engineering costs

Purchase of property and equipment

Proceeds from sale of subsidiary

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

NET CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

2 unchanged sentences

(14,043,000 )

Proceeds from note payable - term loan - Sterling National Bank

Payments of note payable - term loans - PNC

Proceeds from note payable - term notes - Sterling National Bank

Payments of note payable - term notes - SNB

Payments of note payable - term notes - PNC

SBA Loan Proceeds - SNB

Proceeds from sale of future proceeds from disposition of subsidiary

Transaction costs from sale of future proceeds from disposition of subsidiary

Payment of finance lease obligations

Payments of finance lease obligations

Share issuance costs

Proceeds from note payable - related party

Payments of notes payable - related parties

Proceeds from notes payable - related party

Payments of notes payable - related party

Payments of notes payable - third party

Payments of loan payable - financed assets

Proceeds from notes payable - third parties

Deferred financing costs

1 unchanged sentence

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR

Notes to Consolidated Financial Statements

INDUSTRIES GROUP

Statements of Cash Flows For the Years Ended December 31, (Continued)

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Cash Flows For

the Years Ended December 31, (Continued)

Supplemental cash flow information

1 unchanged sentence

Cash paid during the period for income taxes

Supplemental schedule of non-cash investing and financing activities

Common Stock issued for notes payable - related party

Supplemental disclosure of non-cash transactions

Right of Use Asset additions under ASC 842

Operating Lease Liabilities under ASC 842

Write-off deferred rent under ASC 842

Acquisition of financed asset

Supplemental disclosure of non-cash investing and financing activities

Common Stock issued for notes payable - third parties

Common Stock issued in lieu of accrued interest

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDUSTRIES GROUP

TO CONSOLIDATED FINANCIAL STATEMENTS

FORMATION AND BASIS OF PRESENTATION

Industries Group is a Nevada corporation (“AIRI”).

As of and for the year ended December 31, 2019, the accompanying

consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries;

Air Industries Group is a Nevada corporation

(“AIRI”).

As of and for the year ended December 31, 2020 and 2019, the accompanying consolidated financial statements

presented are those of AIRI, and its wholly-owned subsidiaries;

Air Industries Machining Corp.

(“AIM”), Nassau Tool Works, Inc.

(“NTW”), Eur-Pac Corporation (“Eur-Pac”

or “EPC”),

Electronic Connection Corporation (“ECC”), Air Realty Group, LLC (“Air Realty”), and The Sterling

Engineering Corporation (“Sterling”), (together, the “Company”).

The results of EPC and ECC are included

in loss from discontinued operations, since operations ceased on March 31, 2019.

See Note 2 for details of discontinued operations.

of and for year ended December 31, 2018, the accompanying consolidated financial statements also include the Company’s former

subsidiaries all of which are included in loss from discontinued operations:

Welding Metallurgy, Inc.

(“WMI”) including

its wholly owned subsidiaries Miller Stuart, Inc.

(“Miller Stuart”), Woodbine Products, Inc.

(“Woodbine”

or “WPI”), Decimal Industries, Inc.

(“Decimal”) and Compac Development Corporation (“Compac”),

(collectively “WMI Group”).

(“AIM”), Nassau Tool

(“NTW”), and The Sterling Engineering Corporation (“Sterling”), (together, the “Company”).

The results of Eur-Pac Corporation (“EPC”) and Electronic Connection Corporation (“ECC”) are included in

loss from discontinued operations, since operations ceased on March 31, 2019.

See Note 2 for details of discontinued operations.

Going Concern - Alleviation of Substantial

The accompanying financial statements have

been prepared assuming that the Company will continue as a going concern.

The Company suffered net losses from continuing operations,

net of taxes of $2,598,000 and $8,551,000 for the years ended December 31, 2019 and 2018, respectively, and had negative cash flows

from operations (both continuing and discontinued combined) of $888,000 and $2,336,000 for the years ended December 31, 2019 and

2018, respectively.

The Company has been dependent on raising equity or other financing to fund ongoing operations.

These factors

raised substantial doubt about the Company’s ability to continue as a going concern.

In December 2019 the Company refinanced its

PNC Bank revolving debt and term loan with Sterling National Bank on better terms and the combination of the significantly lower

interest rates and extended amortization of the new credit facility is estimated to reduce the Company’s cash interest and

cash principal amortization significantly.

The Company’s revenues from sales and its gross profit from its continuing operations

increased in 2019 by $10,043,000 and $3,697,000, respectively, from the previous year.

The Company is projecting positive cash

flows from operations in 2020 and management believes the Company will be able to meet its obligations as they come due for the

year from the date of issuance of these financial statements.

Accordingly, the above factors have alleviated

substantial doubt about the entity’s ability to continue as a going concern.

of Welding Metallurgy Inc.

On December 20, 2018, the Company sold all

of the outstanding shares of WMI including its wholly owned subsidiaries Miller Stuart, Woodbine, Decimal and Compac to CPI Aerostructures,

Inc., pursuant to a Stock Purchase Agreement (SPA) for a purchase price of $9,000,000, reduced by a working capital adjustment

of ($1,093,000).

The sale required an escrow deposit of $2,000,000 to cover the working capital adjustment and our obligation to

indemnify CPI against damages arising out of the breach of our representations and warranties and obligations under the SPA.

amount of the final working capital adjustment has been contested by CPI and is currently the subject of litigation between the

Company and CPI (See Note 14-Contingencies).

Company completed its shut-down of EPC and ECC and closed related operations on March 31, 2019.

In connection with the shut-down,

the Company recognized a loss on abandoned assets of $386,000 during the fourth quarter of 2018, which is included in loss from

discontinued operations for the year ended December 31, 2018.

Additionally,

the Company determined that goodwill for ECC in the amount of $109,000 had been impaired and is included in the loss from discontinued

operations for the year ended December 31, 2018.

January 1, 2019, the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases , or ASC 842, which

requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet and

the disclosure of key information about certain leasing arrangements.

As permitted by ASC 842, the Company elected the adoption

date of January 1, 2019, which is the date of initial application.

As a result, the consolidated balance sheet prior to January

1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases , or ASC 840, which did not require the recognition

of operating lease liabilities on the balance sheet, and is not comparative.

Under ASC 842, all leases are required to be recorded

on the balance sheet and are classified as either operating leases or finance leases.

The lease classification affects the expense

recognition in the income statement.

Operating lease charges are recorded entirely in operating expenses.

Finance lease charges

are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is

recorded in interest expense.

The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent

with ASC 840.

As a result, there is no significant difference in the Company’s results of operations presented in the consolidated

statement of operations for each period presented.

Company adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019.

The adoption of ASC

842 had a substantial impact on the Company’s consolidated balance sheet.

The most significant impact was the recognition

of the operating lease right-of-use assets and the liability for operating leases.

The accounting of finance leases was substantially

Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating

leases under ASC 842, and the Company recorded an adjustment of $4,368,000 to operating lease right-of-use assets and the related

lease liability.

The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC

840, discounted using the Company’s incremental borrowing rate at the effective date of January 1, 2019, using the original

lease term as the term.

As permitted under ASC 842, the Company elected several practical expedients that permits it to not reassess

(1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized

costs continue to qualify as initial indirect costs.

The application of the practical expedients did not have a significant impact

on the measurement of the operating lease liability.

are classified as either finance leases or operating leases.

A lease is classified as a finance lease if any one of the following

criteria are met:

the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase

the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset

or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.

A lease is classified

as an operating lease if it does not meet any one of these criteria.

Substantially all the Company’s operating leases are

comprised of office space leases and substantially all its finance leases are comprised of office furniture and technology equipment.

all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized.

The right-of use asset represents

the right to use the leased asset for the lease term.

The lease liability represents the present value of the lease payments under

right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any

initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received.

All right-of-use

assets are reviewed for impairment.

The lease liability is initially measured at the present value of the lease payments, discounted

using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing

rate for the same term as the underlying lease.

For the Company’s real estate and other operating leases, the Company uses

its incremental borrowing rate.

For the Company’s finance leases, it uses the rate implicit in the lease or its incremental

borrowing rate if the implicit lease rate cannot be determined.

Lease payments included in the measurement of the lease liability

comprise the following:

the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably

certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease

will not be terminated early.

of the Company’s real estate leases contain variable lease payments, including payments based on an index or rate.

lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and separated

into lease and non-lease components based on the initial amount stated in the lease or standalone selling prices.

Lease components

are included in the measurement of the initial lease liability.

Additional payments based on the change in an index or rate, or

payments based on a change in the Company’s portion of the operating expenses, including real estate taxes and insurance,

are recorded as a period expense when incurred.

Lease modifications result in re-measurement of the lease liability.

expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and

is recognized on a straight-line basis over the lease term.

Included in lease expense are any variable lease payments incurred

in the period that were not included in the initial lease liability.

Lease expense for finance leases consists of the amortization

of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis.

The lease payments are allocated between a reduction of the lease liability and interest expense.

Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months

The effect of short-term leases on its right-of-use asset and lease liability was not material.

March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which removed the requirement for an entity

to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income,

any other affected financial statement line item, and any affected per share amount.

For lessors, the new leasing standard requires

leases to be classified as a sales-type, direct financing or operating lease.

These criteria focus on the transfer of control

of the underlying lease asset.

This standard and related updates were effective for fiscal years beginning after December 15,

2018, and interim periods within those fiscal years.

impact of the adoption of ASC 842 on the balance sheet at December 31, 2018 was:

Operating Lease Right-Of-Use-Asset

Operating Leases Liabilities - Current Portion

Total Current Liabilities

Operating Leases Liabilities - Net of Current Portion

Deferred Rent

$ (1,165,000 )

Total Liabilities

Total Liabilities and Stockholders' Equity

Weighted Average Remaining Lease Term - in years

Weighted Average discount rate - %

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.

Closing EPC and ECC

The Company completed its shut-down of EPC

and ECC and closed related operations on March 31, 2019.

The results of both EPC and ECC are included in loss from discontinued

Impact of Covid-19

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.

date, the Company has been deemed an essential business and has not curtailed its operations.

The measures adopted by various governments and agencies, as well

as the likelihood that many individuals and businesses will voluntarily shut down or self-quarantine, are expected to have serious

adverse impacts on domestic and foreign economies of uncertain severity and duration.

The effectiveness of economic stabilization

efforts which may be adopted by governments is uncertain.

The likely overall economic impact of the COVID-19 pandemic will be highly

negative to the general economy.

While the Company continues to operate in the normal course, they may be forced to close or reduce

operations for reasons such as the health of its employees or because of disruptions in the continued operation of its supply chain

and sources of supply.

At this time, the Company cannot forecast with any certainty whether and to what degree the disruptions

caused by the COVID-19 pandemic will increase, or the extent to which the disruption may materially impact its consolidated financial

position, consolidated results of operations, and consolidated cash flows in fiscal 2020.

has evaluated subsequent events through the date of this filing.

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, the Company has been deemed an essential business and has not curtailed its operations.

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.

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, the Company’s

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.

The Company, its employees, suppliers and

customers, and the global community continue to face challenges and the Company cannot predict how this dynamic situation will

evolve or the impact it will have.

Throughout 2020 many of the Company’s suppliers were forced to reduce staffing or temporarily

close their facilities due to COVID-19, which impacted the Company’s delivery schedules.

While this has largely been resolved

the Company 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 Company has implemented procedures

to promote employee safety including more frequent and enhanced cleaning and adjusted schedules and work flows to support physical

These actions have resulted in increased operating costs.

Suppliers are also experiencing liquidity pressures and disruptions

to their operations as a result of COVID-19.

Although operating conditions have substantially returned to pre-COVID-19 conditions,

an increase in COVID-19 infections or changes in governmental regulations may force the Company to close or reduce operations as

a result in future periods.

On March 27, 2020, the Coronavirus Aid, Relief

and Economic Security Act (“CARES Act”) was signed into law.

The CARES Act provides aid to small businesses through

programs administered by the Small Business Administration (“SBA”).

The CARES Act includes, among other things, provisions

relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical

corrections to tax depreciation methods for qualified improvement property.

The CARES Act also established a Paycheck Protection

Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related

In May 2020, AIM, NTW and Sterling (each

a “Borrower”) entered into government subsidized loans with Sterling National Bank (“SNB”) as the lender

in an aggregate principal amount of approximately $2.4 million (“SBA Loans”).

Each SBA Loan is evidenced by a promissory

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”).

The Borrowers applied to SNB for forgiveness and SNB approved and submitted the forgiveness applications

to the SBA which approved the forgiveness in accordance with the applicable provisions of the federal statute authorizing the Loan

The Company has elected to defer the deposit

and payment of employer’s portion of Social Security taxes pursuant to Section 2302 of the CARES Act.

These deferred amounts

must be repaid 50% on December 31, 2021 with the remaining 50% on December 31, 2022.

As of December 31, 2020, the Company has deferred

$627,000, which is classified as Deferred payroll tax liability –

CARES Act on the accompanying Consolidated Balance Sheet.

In addition, as a result of the passage of

the CARES Act, the Company received a tax refund of $1,416,000 from the filing of a net operating loss carryback claim.

The Company did not

qualify for any significant new benefits in the recently enacted the American Rescue Plan Act of 2021 (“Rescue Act”)

and does not expect to qualify for any significant new government benefits that might be enacted.

Based on its expectations that sales in

fiscal 2021 will be higher than the level achieved in fiscal 2020, confirmed orders, funds generated from operations, amounts received

under government subsidized loan programs and amounts available under its credit facility, the Company believes it will have sufficient

cash on hand to support its activities through April 1, 2022.

Subsequent Events

Management has evaluated subsequent events

through the date of this filing.

DISCONTINUED OPERATIONS

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EPC and ECC as of March 31, 2019.

Also, as discussed in Note 1, the Company sold WMI in December 2018.

As such, these subsidiaries

are reported as discontinued operations for the years ended December 31, 2019 and 2018.

As required, the Company has retrospectively

recast its consolidated statements of operations and balance sheets for all periods presented.

The Company has not segregated the

cash flows of these subsidiaries in the consolidated statements of cash flows.

Management was also required to make certain assumptions

and apply judgment to determine historical expenses related to the discontinued operations presented in prior periods.

otherwise, discussion in the Notes to Consolidated Financial Statements refers to the Company’s continuing operations only.

following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued

operations to the net loss from discontinued operations presented separately in the consolidated statement of operations:

As required, the Company has retrospectively recast its consolidated statements of operations

and balance sheets for all periods presented.

The Company has not segregated the cash flows of these subsidiaries in the consolidated

statements of cash flows.

Management was also required to make certain assumptions and apply judgment to determine historical expenses

related to the discontinued operations presented in prior periods.

Unless noted otherwise, discussion in the Notes to Consolidated

Financial Statements refers to the Company’s continuing operations only.

As discussed in Note 14 on December 23,

2020, the Company and CPI Aerostructures (“CPI”), the buyer of WMI Group, reached an agreement to settle the working

capital dispute without additional litigation.

The settlement provided that CPI and AIRI would instruct the escrow agent to release

the balance of $ 1,380,684 remaining in the escrow account to CPI.

The Company and CPI exchanged mutual releases customary in the

circumstances.

We originally placed a reserve of $1,770,000 against the $2,000,000 balance held in escrow, the remaining amount

of $230,000 was charged to discontinued operations as of and for the year ended December 31, 2020.

The following table presents a reconciliation

of the major financial lines constituting the results of operations for discontinued operations to the net loss from discontinued

operations presented separately in the consolidated statement of operations:

Cost of goods sold

1 unchanged sentence

Selling, general and administrative

Impairment of Goodwill

Impairment on abandonment of assets

Total operating expenses

Total operating loss

Interest expense

Other income (expense), net

Other expense

Loss from discontinued operations before income taxes

Provision for income taxes

Loss from discontinued operations, net of taxes

following table presents a reconciliation of WMI’s net cash flow from operating, investing and financing activities for

the periods indicated below:

Net cash used in operating activities - discontinued operations

Net cash used in investing activities - discontinued operations

Net cash provided by financing activities - discontinued operations

Depreciation and amortization

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activity

Company, through its AIM subsidiary, is primarily engaged in manufacturing aircraft structural parts and assemblies for prime

defense contractors in the aerospace industry in the United States.

NTW is a manufacturer of aerospace components, principally

landing gear for F-16 and F-18 fighter aircraft.

Sterling manufactures components and provides services for jet engines and ground-power

The Company’s customers consist mainly of publicly traded companies in the aerospace industry.

of Consolidation

accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries.

intercompany accounts and transactions have been eliminated in consolidation.

Prior to the closure of EPC and ECC, the results of operations were

included in continuing operations, once it was determined to close both subsidiaries, the results were reclassified to discontinued

operations (see “Note 2 –

Principal Business Activity

The Company, through its AIM subsidiary, is

primarily engaged in manufacturing aircraft structural parts and assemblies for prime defense contractors in the aerospace industry

in the United States.

NTW is a manufacturer of aerospace components, principally landing gear for F-16 and F-18 fighter aircraft.

Sterling manufactures components and provides services for jet engines and ground-power turbines.

The Company’s customers

consist mainly of publicly traded companies in the aerospace industry.

Principles of Consolidation

The accompanying consolidated financial statements

include accounts of the Company and its wholly-owned subsidiaries.

Significant intercompany accounts and transactions have been

eliminated in consolidation.

Discontinued Operations

Prior to the closure of EPC and ECC, the results

of operations were included in continuing operations, once it was determined to close both subsidiaries, the results were reclassified

to discontinued operations (see “Note 2 –

Discontinued Operations”).

Prior to its sale, WMI was classified as a discontinued

operation (see “Note 2 - Discontinued Operations”).

As required, the Company has retrospectively recast its consolidated

statements of operations and balance sheets for all periods presented to reflect these subsidiaries as discontinued operations.

The Company has not segregated the cash flows of these subsidiaries in the consolidated statements of cash flows.

Management was

also required to make certain assumptions and apply judgment to determine historical expenses related to the discontinued operations

presented in prior periods.

Unless noted otherwise, discussion in the Notes to Consolidated Financial Statements refers to the

Company’s continuing operations.

and Cash Equivalents

and cash equivalents include all highly liquid instruments with an original maturity of three months or less.

receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts.

provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering

age, collection history, and any other factors considered appropriate.

The Company writes off accounts receivable against the

allowance for doubtful accounts when a balance is determined to be uncollectible.

Cash and Cash Equivalents

Cash and cash equivalents include all highly

liquid instruments with an original maturity of three months or less.

Accounts Receivable

Accounts receivable are reported at their outstanding

unpaid principal balances net of allowances for uncollectible accounts.

The Company provides for allowances for uncollectible receivables

based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered

The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined

to be uncollectible.

Going Concern

3 unchanged sentences

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.

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.

We concluded that substantial doubt of going concern did not exist.

See Note 1 –

of COVID-19 for a further discussion.

Inventory Valuation

The Company values inventory at the lower

17 unchanged sentences

inventory to estimated net realizable value for excess quantities, slow-moving goods, and for other impairments of value.

Expenses and Other Current Assets

expenses and other current assets include purchase deposits, miscellaneous prepaid expenses and cash in escrow less a reserve.

The changes in the reserve are shown below.

Prepaid Expenses and Other Current Assets

On December 23, 2020, the Company and

CPI reached an agreement to settle the working capital dispute.

The settlement provided that the escrow agent would release the

balance of $ 1,380,684 remaining in the escrow account to CPI.

The Company and CPI exchanged mutual releases customary in the

circumstances.

Prepaid expenses and other current assets

include purchase deposits, miscellaneous prepaid expenses and cash in escrow less a reserve.

On December 31, 2020, the Company

settled its working capital dispute with CPI, see Note 14 - Contingencies.

As a result of this settlement, the Company released

the cash that was held in escrow and therefore removed the reserve.

The changes in the reserve are shown below and discussed in

Note 2 –

Discontinued Operations.

of Subsidiary

Valuation reserve deducted from Prepaid

Expenses and Other Current Assets:

Valuation reserve deducted from Prepaid Expenses and Other Current Assets:

Year ended December 31, 2020

$ (1,770,000 )

Year ended December 31, 2019

Engineering Costs

The Company has contractual agreements

with customers to produce parts, which the customers design.

Even though the Company has not designed and thus has no proprietary

ownership of the parts, the manufacturing of these parts requires pre-production engineering and programming of the Company’s

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 estimated length of the contract, or if shorter, three years.

As of December 31, 2018, the Company, changed

its policy to no longer capitalize pre-production engineering expenses and instead expenses those costs as incurred, and accordingly

wrote off all capitalized engineering costs as of December 31, 2018.

and Equipment

and equipment are carried at cost net of accumulated depreciation and amortization.

Repair and maintenance charges are expensed

Property, equipment, and improvements are depreciated using the straight-line method over the estimated useful lives

of the assets or the particular improvements.

Expenditures for repairs and improvements in excess of $10,000 that add to the productive

capacity or extend the useful life of an asset are capitalized.

Upon disposition, the cost and related accumulated depreciation

are removed from the accounts and any related gain or loss is reflected in earnings.

and Intangible Assets

intangible assets are amortized using the straight-line method over the period of expected benefit.

Long-lived assets and intangible assets

subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that

the related carrying amount may be impaired.

The Company records an impairment loss if the undiscounted future cash flows are found

to be less than the carrying amount of the asset.

If an impairment loss has occurred, a charge is recorded to reduce the carrying

amount of the asset to fair value.

For the year ended December 31, 2019 the Company recorded an impairment charge of $275,000 included

in continuing operations and for the year ended December 31, 2018 the Company recorded an impairment charge of $495,000 that was

included in discontinued operations.

Property and Equipment

Property and equipment are carried at cost

net of accumulated depreciation and amortization.

Repair and maintenance charges are expensed as incurred.

Property, equipment,

and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular

improvements.

Expenditures for repairs and improvements in excess of $10,000 that add to the productive capacity or extend the

useful life of an asset are capitalized.

Upon disposition, the cost and related accumulated depreciation are removed from the accounts

and any related gain or loss is reflected in earnings.

Long-Lived and Intangible Assets

Identifiable intangible assets are amortized

using the straight-line method over the period of expected benefit.

Long-lived assets and intangible assets subject

to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related

carrying amount may be impaired.

The Company records an impairment loss if the undiscounted future cash flows are found to be less

than the carrying amount of the asset.

If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of

the asset to fair value.

For the year ended December 31, 2019 the Company recorded an impairment charge of $275,000 included in

continuing operations.

See Note 10 –

Operating Lease Liabilities.

Deferred Financing Costs

4 unchanged sentences

from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related

The amortization of financing costs are included in interest and financing costs in the statement of operations.

connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock.

In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity.

In addition, the

equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which

in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as

a derivative liability instrument.

The Company accounts for derivative liability instruments under the provisions of FASB ASC

815, Derivatives and Hedging.

The amortization of financing costs is included in interest and financing costs in the statement of operations.

Derivative Liabilities

In connection with the issuances of equity

instruments or debt, the Company may issue options or warrants to purchase common stock.

In certain circumstances, these options

or warrants may be classified as liabilities, rather than as equity.

In addition, the equity instrument or debt may contain embedded

derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be

bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument.

The Company accounts

for derivative liability instruments under the provisions of FASB ASC 815, Derivatives and Hedging.

Revenue Recognition

The Company accounts for revenue recognition

in accordance with accounting guidance 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.

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.

was no cumulative financial statement effect of initially adopting and applying the new revenue standard in 2018 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 periods.

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.

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 deferred revenue 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.

The Company utilizes 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.

in accordance with accounting guidance codified as FASB ASC 606 “Revenue from Contracts with Customers”

606”), as amended regarding revenue from contracts with customers.

Under the 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.

Under 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

The 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.

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

The Company’s 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.

Payments received in advance from customers

are recorded as deferred revenue until earned, at which time revenue is recognized.

The Terms 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.

The Company utilizes a Returned Merchandise Authorization or RMA process for determining whether to accept returned products.

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.

2018, the Company recognized certain revenues under a bill and hold arrangement with two of its large customers.

For any requested

bill and hold arrangement, the Company made an evaluation as to whether the bill and hold arrangement qualified for revenue recognition.

The customer would initiate the request for the bill and hold arrangement.

The customer must have made its request in writing

in addition to their fixed commitment to purchase the item.

The risk of ownership has passed to the customer, payment terms were

not modified and payment would be made if the goods had shipped.

Company had approximately $0 and $89,000 of net sales that were billed but not shipped under such bill and hold arrangements as

of December 31, 2019 and 2018, respectively.

preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts

in the financial statements and accompanying notes.

The more significant management estimates are the allowance for doubtful accounts, useful

lives of property and equipment, provisions for inventory obsolescence, accrued expenses and whether to accrue for various contingencies.

Actual results could differ from those estimates.

Changes in facts and circumstances may result in revised estimates, which are

recorded in the period in which they become known.

and Concentration Risks

were three customers that represented 76.0% of total sales, and three customers that represented 72.7% of total sales for the

years ended December 31, 2019 and 2018, respectively.

Use of Estimates

In preparing the financial statements, management

is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

The more significant management estimates are the allowance for doubtful accounts, useful lives of property and equipment,

provisions for inventory obsolescence, accrued expenses and whether to accrue for various contingencies.

Actual results could differ

from those estimates.

Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which

they become known.

Credit and Concentration Risks

A large percentage of the Company’s

revenues are derived from a small number of customers for U.S.

Military Aviation.

There were three customers that represented

73.9% of total sales, and three customers that represented 76.0% of total sales for the years ended December 31, 2020 and 2019,

respectively.

This is set forth in the table below.

Percentage of Sales

were three customers that represented 67.8% of gross accounts receivable and two customers that represented 64.5% of gross

accounts receivable at December 31, 2019 and 2018, respectively.

This is set forth in the table below.

* Customer was less than 10% of sales at December 31, 2019.

** Customer was less than 10% of sales at December 31, 2020.

There were three customers that represented

80.3% of gross accounts receivable and 67.8% of gross accounts receivable at December 31, 2020 and 2019, respectively.

set forth in the table below.

Percentage of Receivables

was less than 10% of gross accounts receivable at December 31, 2018

the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit.

has not experienced any losses on these accounts.

Company has several key sole-source suppliers of various parts that are important for one or more of its products.

These suppliers

are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable to provide

parts for any reason, its business could be severely harmed.

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

which requires that the Company 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 to reverse.

provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial

and tax purposes using the liability method.

Such temporary differences result primarily from the differences in the carrying

value of assets and liabilities.

Future realization of deferred income tax assets requires sufficient taxable income within the

carryback, carryforward period available under tax law.

We evaluate, on a quarterly basis whether, based on all available evidence,

it is probable that the deferred income tax assets are realizable.

Valuation allowances are established when it is more likely

than not that the tax benefit of the deferred tax asset will not be realized.

The evaluation, as prescribed by ASC 740-10, “Income

Taxes,”

includes the consideration of all available evidence, both positive and negative, regarding historical operating

results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences,

estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies

which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740-10-05 (the “Subtopic”).

Subtopic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.

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 the de-recognition, classification,

interest and penalties, accounting in interim periods, disclosure and transition.

earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of

shares of common stock outstanding for the period.

Potentially dilutive shares, using the treasury stock method, are included

in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

following is a reconciliation of the denominators of basic and diluted earnings per share computations:

Cash and Cash equivalents

During the year, the Company had occasionally

maintained balances in its bank accounts that were in excess of the FDIC limit.

The Company has not experienced any losses on these

Major Suppliers

The Company has several key sole-source suppliers

of various parts that are important for one or more of its products.

These suppliers are its only source for such parts and, therefore,

in the event any of them were to go out of business or be unable to provide parts for any reason, its business could be severely

The Company accounts for income taxes in accordance

with accounting guidance now codified as FASB ASC 740, “Income Taxes,”

which requires that the Company 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 to reverse.

The provision for, or benefit from, income

taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability

Such temporary differences result primarily from the differences in the carrying value of assets and liabilities.

realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available

under tax law.

We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income

tax assets are realizable.

Valuation allowances are established when it is more likely than not that the tax benefit of the deferred

tax asset will not be realized.

The evaluation, as prescribed by ASC 740-10, “Income Taxes,”

includes the consideration

of all available evidence, both positive and negative, regarding historical operating results including recent years with reported

losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive

of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an

operating loss or tax credit carryforward from expiring unused.

The Company accounts 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 the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure

and transition.

Earnings (Loss) per share

Basic earnings (loss) per share (“EPS”)

is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock

outstanding for the period.

For purposes of calculating diluted earnings

per common share, the numerator includes net income plus interest on convertible notes payable assumed converted as of the first

day of the period.

The denominator includes both the weighted-average number of shares of common stock outstanding during the period

and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive.

Dilutive common stock

equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using

the if-converted method.

The following is the calculation of income

(loss) from continuing operations applicable to common stockholders utilized to calculate the EPS:

Income (loss) from continuing operations - Basic

$ (2,598,000 )

Convertible Note Interest for Potential Note Conversion

Convertible Note debt discount for Potential Note Conversion

Income (loss) from continuing operations used to calculate diluted earnings per share

$ (2,598,000 )

The following is a reconciliation of the denominators

of basic and diluted earnings per share computations:

Weighted average shares outstanding used to compute basic earnings per share

Effect of dilutive stock options and warrants

Effect of dilutive convertible notes payable

Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share

following securities have been excluded from the calculation as the exercise price was greater than the average market price of

the common shares:

The following securities have been excluded

from the calculation as the exercise price was greater than the average market price of the common shares:

Stock Options

following securities have been excluded from the calculation even though the exercise price was less than the average market price

of the common shares because the effect of including these potential shares was anti-dilutive due to the net loss incurred during

The following securities have been excluded

from the calculation even though the exercise price was less than the average market price of the common shares because the effect

of including these potential shares was anti-dilutive due to the net loss incurred during the years:

Stock Options

Convertible notes payable

Stock-Based Compensation

The Company accounts for stock-based compensation

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on the accompanying Consolidated Statement of Operations.

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

amount of $163,000 at December 31, 2019 and 2018 relates to the acquisition of NTW.

Company accounts 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.

Company performs impairment testing for goodwill annually, or more frequently when indicators of impairment exist.

above, the Company adopted ASU 2011-08 and performs a qualitative assessment in the fourth quarter of each year to determine whether

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

Company determined that there has been no impairment of goodwill at December 31, 2019.

2018 the company determined that goodwill for ECC in the amount of $109,000 had been impaired and is included in the loss from

discontinued operations.

out is included in operating expenses and amounted to $134,000 and $151,000 for the years ended December 31, 2019 and 2018, respectively.

April 5, 2012, the JOBS Act was signed into law.

The JOBS Act contains provisions that, among other things, reduce certain reporting

requirements for qualifying public companies.

An “emerging growth company,”

may, under Section 7(a)(2)(B) of the Securities

Act, delay adoption of new or revised accounting standards applicable to public companies until such standards would otherwise

apply to private companies.

An “emerging growth company”

is one with less than $1.0 billion in annual sales, that

has less than $700 million in market value of its shares of common stock held by non-affiliates and issues less than $1.0 billion

of non-convertible debt over a three-year period.

A company may take advantage of this extended transition period until the first

to occur of the date that it (i) is no longer an “emerging growth company”

or (ii) affirmatively and irrevocably opts

out of this extended transition period.

The Company had elected to take advantage of the benefits of this extended transition

period until December 31, 2018, the date that it was no longer an “emerging growth company”.

Issued Accounting Pronouncements

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 statements.

December 2019, the FASB issued ASU No.

Goodwill represents the excess of the acquisition

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

The goodwill amount of $163,000 at December 31,

2020 and 2019 relates to the acquisition of NTW.

The Company accounts for the impairment of

goodwill under the provisions of ASU 2011-08 (“ASU 2011-08”), “Intangibles Goodwill and Other (Topic 350):

Goodwill for Impairment.”

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

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.

The Company performs impairment testing for

goodwill annually, or more frequently when indicators of impairment exist.

As discussed above, the Company adopted ASU 2011-08

and performs a qualitative assessment in the fourth quarter of each year to determine whether it was more likely than not that

the fair value of a reporting unit is less than its carting amount.

The Company determined that there has been

no impairment of goodwill at December 31, 2020 and 2019.

Freight out is included in operating expenses

and amounted to $91,000 and $134,000 for the years ended December 31, 2020 and 2019, respectively.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No.

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 and equity.

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.

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 application.

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.

October 2018, the FASB issued ASU No.

2018-17, “Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance

for Variable Interest Entities”

(“ASU 2018-17”).

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 Company is currently assessing the

impact the adoption of ASU 2018- 17 will have on the Company’s consolidated financial statements.

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.

Reclassifications

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 application.

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 June 2016, the FASB issued

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 companies.

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.

Reclassifications

occurred to certain 2018 amounts to conform to the 2019 classification.

Reclassifications occurred to certain 2019 amounts to conform

to the 2020 classification.

These reclassifications had no impact on the statement of operations.

ACCOUNTS RECEIVABLE

components of accounts receivable at December 31, are detailed as follows:

The components of accounts receivable at December

31, are detailed as follows:

Accounts Receivable Gross

1 unchanged sentence

Accounts Receivable Net

allowance for doubtful accounts for the years ended December 31, 2019 and 2018 is as follows:

The allowance for doubtful accounts for the

years ended December 31, 2020 and 2019 is as follows:

Year ended December 31, 2020 Allowance for Doubtful Accounts

Year ended December 31, 2019 Allowance for Doubtful Accounts

components of inventory at December 31, consisted of the following:

The components of inventory at December 31,

consisted of the following:

Raw Materials

2 unchanged sentences

Total Inventory

Company periodically evaluates inventory and establishes reserves for obsolescence, excess quantities, slow-moving goods, and

for other impairment of value.

The Company periodically evaluates inventory and establishes reserves

for obsolescence, excess quantities, slow-moving goods, and for other impairment of value.

PROPERTY AND EQUIPMENT

components of property and equipment at December 31, consisted of the following:

The components of property and equipment at

December 31, consisted of the following:

Buildings and Improvements

11 unchanged sentences

Property and Equipment, net

Depreciation expense for the years ended December 31, 2019 and 2018

was approximately $3,002,000 and $2,692,000, respectively.

Assets held under finance lease obligations are depreciated over the

shorter of their related lease terms or their estimated productive lives.

Depreciation of assets under finance leases is included

in depreciation expense for 2019 and 2018.

Depreciation expense for the years ended December

31, 2020 and 2019 was approximately $2,570,000 and $3,002,000, respectively.

Assets held under finance lease obligations are depreciated

over the shorter of their related lease terms or their estimated productive lives.

Depreciation of assets under finance leases

is included in depreciation expense for 2020 and 2019.

Accumulated depreciation on these assets was approximately $28,000 and $289,000

1 unchanged sentence

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

components of accounts payable at December 31, are detailed as follows:

The components of accounts payable and accrued

expenses at December 31, are detailed as follows:

Accounts Payable

Accrued Expenses

Accrued Payroll

Accrued Interest - related parties

Accrued Interest - others

Accrued expenses - other

Accounts Payable and accrued expenses

SALE AND LEASEBACK TRANSACTION

October 24, 2006, the Company consummated a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property

located in Bay Shore, New York (the “Bay Shore Property”) for a purchase price of $6,200,000.

The Company realized

a gain on the sale of $1,051,000 of which $300,000 was recognized during the year ended December 31, 2006.

The remaining $751,000

is being recognized ratably over the remaining term of the twenty - year lease at approximately $38,000 per year.

included in Other Income in the accompanying Consolidated Statements of Operations.

The unrecognized portion of the gain in the

amount of $257,000 and $295,000 as of December 31, 2019 and 2018, respectively, is classified as Deferred Gain on Sale in the

accompanying Consolidated Balance Sheets.

with the closing of the sale of the Bay Shore Property, the Company entered into a 20-year triple- net lease (the “Lease”)

with the purchaser for the property.

Base annual rent is approximately $540,000 for the first five years, $560,000 for the sixth

year, and thereafter increases 3% per year.

The Lease grants the Company an option to renew the Lease for an additional period

of five years.

The Company has on deposit with the purchaser $89,000 as security for the performance of its obligations under

In addition, the Company has on deposit $150,000 with the landlord as security for the completion of certain repairs

and upgrades to the Bay Shore Property.

This amount is included in the caption Deferred Finance costs, Net, Deposit and Other

Assets in the accompanying Consolidated Balance Sheets.

Pursuant to the terms of the Lease, the Company is required to pay all

of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance.

The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions and grants

the purchaser customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold

the Company liable for any deficiency in future rent.

See Note 14 Commitments and Contingencies.

Company accounted for these transactions under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions”.

NOTES PAYABLE, RELATED PARTY NOTES PAYABLE AND FINANCE LEASE OBLIGATIONS

payable, related party notes payable and finance lease obligations consist of the following:

Revolving credit note payable to Sterling National Bank ("SNB")

Revolving credit note payable to PNC Bank N.A.

Term loans, SNB

Term loans, PNC

On October 24, 2006, the Company consummated

a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay

Shore Property”) for a purchase price of $6,200,000.

The Company realized a gain on the sale of $1,051,000 of which $300,000

was recognized during the year ended December 31, 2006.

The remaining $751,000 is being recognized ratably over the remaining term

of the twenty - year lease at approximately $38,000 per year.

The gain is included in Other Income in the accompanying Consolidated

Statements of Operations.

The unrecognized portion of the gain in the amount of $219,000 and $257,000 as of December 31, 2020 and

2019, respectively, is classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets.

Simultaneous with the closing of the sale of

the Bay Shore Property, the Company entered into a 20-year triple- net lease (the “Lease”) with the purchaser for the

Base annual rent is approximately $540,000 for the first five years, $560,000 for the sixth year, and thereafter increases

The Lease grants the Company an option to renew the Lease for an additional period of five years.

The Company has

on deposit with the purchaser of $89,000 as security for the performance of its obligations under the Lease.

In addition, at December

31, 2019, the Company had on deposit $150,000 with the landlord as security for the completion of certain repairs and upgrades

to the Bay Shore Property.

In 2020, the landlord utilized the amounts on deposit to install air conditioning throughout the manufacturing

At December 31, 2019, this amount was included in the caption Deferred Finance costs, Net, Deposit and Other Assets in

the accompanying Consolidated Balance Sheets.

Pursuant to the terms of the Lease, the Company is required to pay all of the costs

associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance.

The lease also

contains customary representations, warranties, obligations, conditions and indemnification provisions and grants the purchaser

customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold the Company liable

for any deficiency in future rent.

See Note 10 –

Operating Lease Liabilities.

The Company accounted for these transactions

under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions”.

NOTES PAYABLE, RELATED PARTY NOTES

PAYABLE AND FINANCE LEASE OBLIGATIONS

Notes payable, related party notes payable

and finance lease obligations consist of the following:

Revolving credit note payable to Sterling National Bank (“SNB”)

Term loan, SNB

Finance lease obligations

Loan Payable - financed asset

Loans Payable - financed assets

Related party notes payable, net of debt discount

Convertible notes payable-third parties, net of debt discount

Current portion of notes and capital obligations

Current portion of notes payable, related party notes payable and finance lease obligations

(16,475,000 )

1 unchanged sentence

Notes payable, related party notes payable and finance lease obligations, net of current portion

National Bank (“SNB”)

Sterling National Bank (“SNB”)

On December 31, 2019, the Company entered into

a new loan facility (“SNB Facility”) with Sterling National Bank, (“SNB”), and paid off our outstanding

a new loan facility (“SNB Facility”) with Sterling National Bank, (“SNB”) expiring on December 30, 2022.

The new loan 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 the Company’s outstanding

loan facility (“PNC Facility”) with PNC Bank N.A.

(“PNC”).

The new Loan Facility provides for a $16,000,000

revolving loan (“SNB revolving line of credit”) and a term loan (“SNB term loan”) with a balance of $3,800,000

at December 31, 2019.

The repayment terms of the SNB Term Loan provide 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 the scheduled maturity date.

The terms of the SNB Facility require that,

among other things, the Company 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, the Company is limited in the amount of Capital Expenditures

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

Substantially all of the Company’s

assets are pledged as collateral under the SNB Facility.

As of December 31, 2019 the future minimum

principal payments for the term loan are as follows:

For the year ending

December 31, 2020

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 the Company’s eligible

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

Each day, the Company’s cash collections are swept directly

by SNB to reduce the SNB revolving loan balance and the Company then borrows according to a borrowing base formula.

The Company’s

receivables are payable directly into a lockbox controlled by SNB (subject to the terms of the SNB Facility).

The initial repayment terms of 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.

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, the Company 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.

shall be made to SNB and applied to the outstanding principal balance of the term loan, on or prior to April 15 of the Fiscal Year

immediately following such Fiscal Year.

On November 6, 2020, the Company entered into

the First Amendment to Loan and Security Agreement (“First Amendment”).

The terms of the agreement increase the Term

Loan to $5,685,000.

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

Additionally, the date by which certain subordinated third-party notes need to be extended by was changed from September

30, 2020 to November 30, 2020.

The Company has paid an amendment fee of $20,000.

The Company may voluntarily prepay balances

under the SNB Facility.

Any prepayment of less than all of the outstanding principal of the SNB term loan is applied to the principal

of the SNB term loan.

The terms of the SNB Facility require that, among other things,

the Company 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, the Company is limited in the amount of Capital Expenditures it can make.

of December 31, 2020, the Company was in compliance with all loan covenants.

The SNB Facility also restricts the amount of dividends

the Company may pay to its stockholders.

Substantially all of the Company’s assets are pledged as collateral under the SNB

The aggregate payments for the term note at

December 31, 2020 are as follows:

the year ending

December 31, 2021

1 unchanged sentence

SNB Term Loans payable

Current portion

Long-term portion

Under the terms of the SNB Facility, both

the SNB revolving line of credit and the SNB term loan will bear an interest rate equal to 30-day LIBOR, plus 2.5% (with a floor

As of December 31, 2019, our debt to SNB

in the amount of $16,343,000 consisted of the SNB revolving line of credit note in the amount of $12,543,000 and the SNB term loan

debt issuance costs

Total SNB Term loan payable, net of debt issuance costs

Current portion of SNB term loan payable

Total long-term portion of SNB term loan payable

Under the terms of the SNB Facility, both the

SNB revolving line of credit and the SNB term loan bear an interest rate equal to 30-day LIBOR, plus 2.5% (with a floor of 3.5%).

As of December 31, 2020, the Company’s

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.

Interest expense for the year ending December 31, 2020 amounted to $586,000 for this

credit facility.

As of December 31, 2019, the Company’s debt to SNB in

the amount of $16,343,000 consisted of the SNB revolving line of credit note in the amount of $12,543,000 and the SNB term loan

in the amount of $3,800,000.

No interest expense was incurred on the SNB Facility during 2019.

PNC Bank N.A.

(“PNC”)

Under the PNC Facility, substantially all of

the Company’s assets were pledged as collateral.

The Company was required to maintain a lockbox account with PNC, into which

substantially all of its cash receipts were paid.

The PNC Facility provided for a $15,000,000 revolving line of credit (“PNC

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

The repayment terms of the PNC term loan provided

for monthly principal installments in the amount of $123,133, payable on the first business day of each month, with a final payment

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

The Company previously maintained a financing

facility with PNC.

Under such facility, substantially all of the Company’s assets were pledged as collateral.

The PNC Facility

provided for a $15,000,000 revolving line of credit (“PNC revolving line of credit”) and a term loan (“PNC term

loan”).

Interest expense related to the PNC Facility

amounted to approximately $1,860,000 for the year ended December 31, 2019.

On December 31, 2019, both the PNC revolving

line of credit and PNC term loan were paid in full and all assets that were previously pledged as collateral were released.

terms of the PNC Facility require, among other things, that the Company maintain a specified Fixed Charge Coverage Ratio

and maintain a minimum EBITDA (as defined in the Loan Facility) for specified periods.

In addition, it limited the amount of Capital

Expenditures the Company could make.

The Company was also limited in the amount of dividends it could pay.

The PNC Loan Facility was amended many times during its term, most

recently on January 2, 2019 (the “Seventeenth Amendment”) and February 8, 2019 (the “Eighteenth Amendment”).

Seventeenth Amendment extended the term of the PNC Loan Facility from December 31, 2018 to December 31, 2019.

Under the terms

of the Seventeenth Amendment, the revolving loan and the Term Loan bear interest at a rate equal to the sum of the Alternate Base

Rate (as defined in the Loan Agreement) plus four percent (4%).

In addition to the amounts available as revolving loans secured

by inventory and receivables pursuant to the formula set forth in the Loan Agreement, PNC agreed to permit the revolving advances

to exceed the formula amount by $1,000,000 as of December 31, 2018, provided that the Company reduced the “Out-of-Formula

by $25,000 per week commencing April 1, 2019, with the unpaid balance payable in full on December 31, 2019.

The indebtedness

under the revolving loan and the Term Loan are classified with the current portion of notes and finance lease obligations.

a condition to PNC’s agreement to extend the maturity of the obligations due under the Loan Agreement (the “Obligations”),

the Company was obligated to pay PNC an extension fee of (i) $250,000 on the earlier of (a) the date the Obligations were indefeasibly

paid in full or (b) June 30, 2019, (ii) $125,000 on the earlier of (a) the date the Obligations were indefeasibly paid in full

or (b) December 31, 2019, which amount was deemed earned in full if the Obligations have not been satisfied as of July 1, 2019,

(iii) $125,000 on the earlier of (a) the date the Obligations were indefeasibly paid in full or (b) December 31, 2019, which amount

was deemed earned in full if the Obligations had not been satisfied as of October 1, 2019 (iv) $500,000 on December 31, 2019,

which amount was deemed earned in full if the Obligations had not been satisfied as of December 31, 2019.

The Obligations were

fully satisfied on December 31, 2019 and the Company did not have to pay the final $500,000.

As a further condition to PNC’s

agreement to extend the maturity of the Obligations, Michael and Robert Taglich purchased $2,000,000 principal amount of our Senior

Subordinated Convertible Notes and arranged a financing giving purchasers a right to receive a pro rata portion of the AMK Revenue

Stream Payments resulting in gross proceeds of $800,000, including $275,000 from Michael and Robert Taglich.

Eighteenth Amendment required the Company to maintain a minimum EBITDA of not less than (i) $1,500,000 for the twelve-month period

ending December 31, 2018, (ii) $655,000 for the three-month period ending March 31, 2019, (iii) $1,860,000 for the six-month period

ending June 30, 2019 and (iv) $3,110,000 for the nine-month period ending September 30, 2019.

At December 31, 2018 we were in

compliance with the minimum EBIDA covenant.

of December 31, 2019, our debt to PNC was paid in full.

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.

expense related to these credit facilities amounted to approximately $1,860,000 and $1,775,000 for the years ended December 31,

2019 and 2018, respectively.

Lease Obligations –

Company is committed under several financing leases for manufacturing and computer equipment.

All leases have bargain purchase

options exercisable at the termination of each lease.

Financing lease obligations totaled $22,000 and $1,786,000 as of December

31, 2019 and 2018, respectively, with various interest rates ranging from approximately 4% to 9%.

aggregate future minimum lease payments on the finance lease obligations, including imputed interest, with remaining terms of

greater than one year are as follows:

For the year ending

Loans Payable –

Financed Assets

The Company financed the 2019 acquisition of

manufacturing equipment with a third-party loan.

The loan obligation totaled $0 and $385,000 as of December 31, 2020 and 2019,

respectively and bore interest at 3% per annum.

This loan was repaid in full in conjunction with the First Amendment to the SNB

The Company has also borrowed to purchase

a delivery vehicle in July 2020.

The loan obligation totaled $48,000 as of December 31, 2020.

The loan bears no interest and a

final payment is due and payable for all unpaid principal on July 20, 2026.

Annual maturities of this loan are as follows:

the year ending

December 31, 2021

1 unchanged sentence

December 31, 2023

Total future minimum lease payments

imputed interest

December 31, 2024

December 31, 2025

Loans Payable - financed assets

Current portion

Total Long Term Portion

Party Notes Payable

Brothers, Inc.

is a corporation co-founded by two directors of the Company, Michael and Robert Taglich.

In addition, a third director

of the Company is a vice president of Taglich Brothers, Inc.

Long-term portion

Related Party Notes Payable

Taglich Brothers, Inc.

is a corporation co-founded

by two directors of the Company, Michael and Robert Taglich.

In addition, a third director of the Company is a vice president of

Taglich Brothers, Inc.

has acted as placement

agent for various debt and equity financing transactions and has received cash and equity compensation for their services.

Michael and Robert Taglich have also invested as individuals in the Company a total of $ 12,440,000 through December 31, 2019 via

various debt and equity financings.

January 15, 2019, the Company issued its 7% senior subordinated convertible promissory notes due December 31, 2020, each in

the principal amount of $1,000,000 (together, the “7% Notes”), to Michael Taglich and Robert Taglich, each for a

purchase price of $1,000,000.

The 7% Notes bear interest at the rate of 7% per annum, are convertible into shares of the

Company’s common stock at a conversion price of $0.93 per share, subject to the anti-dilution adjustments set forth in

the 7% Notes, were subordinate to the Company’s indebtedness under its credit facility with PNC Bank, National

Association, and are now subordinate to the Company’s indebtedness under its credit facility with Sterling National

Bank and mature at December 31, 2020, or earlier upon an Event of Default.

connection with the 7% Notes, the Company paid Taglich Brothers, Inc.

a fee of $80,000 (4% of the purchase price of the 7% Notes),

paid in the form of a promissory note having terms substantially identical to the 7% Notes.

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

These notes bear interest at a rate

of 12% per annum.

In connection with these notes the Company issued 37,500 shares of stock to each of Michael and Robert Taglich.

The maturity date of these notes was June 30, 2020 but have been extended to December 31, 2020.

On October 21, 2019, the Company was advanced $1,000,000 from

Michael Taglich.

On January 15, 2019, the Company issued its

7% senior subordinated convertible promissory notes due December 31, 2020, each in the principal amount of $1,000,000 (together,

the “7% Notes”), to Michael Taglich and Robert Taglich, each for a purchase price of $1,000,000.

The 7% Notes bear

interest at the rate of 7% per annum, are convertible into shares of the Company’s common stock at a conversion price of

$0.93 per share, subject to the anti-dilution adjustments set forth in the 7% Notes and are subordinate to the Company’s

indebtedness under the SNB Facility.

In connection with the 7% Notes, the Company

paid Taglich Brothers, Inc.

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

having terms similar to the 7% Notes.

On June 26, 2019, the Company was advanced $250,000 from each

of Michael and Robert Taglich.

These notes bear interest at a rate of 12% per annum.

In connection with these notes, the Company

issued 37,500 shares of stock to each of Michael and Robert Taglich.

The maturity date of these notes, was June 30, 2020, but was

extended to July 1, 2023.

On October 21, 2019, the Company was advanced

$1,000,000 from Michael Taglich.

This advance was repaid on January 2, 2020.

The interest rate on this advance was 12% per annum.

November 23, 2016 through March 21, 2017, the Company received gross proceeds of $1,950,000 from Robert and Michael Taglich, from

the sale of an equal principal amount of its 8% Subordinated Convertible Notes (the “8% Notes”).

See “Private

Placements of 8% Subordinated Convertible Notes”

Placement of Subordinated Notes due May 31, 2019, together with Shares of Common Stock

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

for use as working capital.

The Company subsequently issued its Subordinated Notes originally due May 31, 2019 to Michael Taglich

and Robert Taglich, together with shares of common stock, in the financing described below, to evidence its obligation to repay

the foregoing advances.

May 2018, the Company issued $1,200,000 of Subordinated Notes due May 31, 2019 (the “2019 Notes”), together with a

total of 214,762 shares of common stock (the “Shares”), to Michael Taglich, Robert Taglich and another accredited

As part of the financing, the Company issued to Michael Taglich $1,000,000 principal amount of 2019 Notes and 178,571

shares of common stock for a purchase price of $1,000,000 and the Company issued to Robert Taglich $100,000 principal amount of

2019 Notes and 17,857 shares of common stock.

The Company issued and sold a 2019 Note in the principal amount of $100,000, plus

18,334 shares of common stock, to the other accredited investor for a purchase price of $100,000.

This additional note was paid

in full on January 2, 2020.

Seventy percent (70%) of the total purchase price for the 2019 Notes and Shares purchased by each

investor has been allocated to the 2019 Notes with the remaining thirty percent (30%) allocated to the Shares purchased with the

The number of Shares purchased by Michael Taglich and Robert Taglich was calculated based upon $1.68, the closing

price of the common stock on May 20, 2018, the trading day immediately preceding the date they purchased the 2019 Notes and shares

of common stock.

on the 2019 Notes is payable on the outstanding principal amount thereof at the rate of one percent (1%) per month, payable monthly

commencing June 30, 2018.

Upon the occurrence and continuation of a failure to pay accrued interest, interest shall accrue and

be payable on such amount at the rate of 1.25% per month;

provided that upon the occurrence and continuation of a failure to timely

pay the principal amount of the 2019 Note, interest shall accrue and be payable on such principal amount at the rate of 1.25%

per month and shall no longer be payable on interest accrued but unpaid.

The 2019 Notes are subordinate to the Company’s

obligations to SNB.

Brothers acted as placement agent for the offering and received a commission in the aggregate amount of 4% of the amount invested

which was paid in kind.

gross proceeds of $1,200,000 was completed in the following closings:

Gross Proceeds

Promissory Note

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

The costs have been recorded as a debt discount, and are being accreted over the revised term.

In connection with the

SNB Loan facility, Michael and Robert Taglich agreed to extend the maturity date of the 2019 Notes to December 31, 2020.

Placements of 8% Subordinated Convertible Notes and Amendments Thereto

November 23, 2016 through March 21, 2017, the Company received gross proceeds of $4,775,000, of which $1,950,000 were received

from Robert and Michael Taglich, from the sale of an equal principal amount of our 8% Subordinated Convertible Notes (the “8%

Notes”), together with warrants to purchase a total of 383,080 shares of our common stock, in private placement transactions

with accredited investors (the “8% Note Offerings”).

In connection with the offering of the 8% Notes, the Company

issued 8% Notes in the aggregate principal amount of $382,000 to Taglich Brothers, Inc., placement agent for the 8% Note Offerings,

in lieu of payment of cash compensation for sales commissions, together with warrants to purchase a total of 180,977 shares of

our common stock.

Payment of the principal and accrued interest on the 8% Notes are junior and subordinate in right of payment

to our indebtedness under the Loan Facility.

on the 2018 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing

February 28, 2017, in cash, or at our option, in additional 2018 Notes, provided that if accrued interest payable on $1,269,000

principal amount of the 2018 Notes issued in December 2016 is paid in additional 2018 Notes, interest for that quarterly interest

payment shall be calculated at the rate of 12% per annum.

Upon the occurrence and continuation of an event of default, interest

shall accrue at the rate of 12% per annum.

the year ended December 31 2018, we issued $297,000 principal amount of 8% Notes in lieu of cash payment of accrued interest.

As of September 30, 2018, we had outstanding $4,775,000 principal amount of 8% Notes, of which $2,575,000 principal amount was

due on November 30, 2018 and $2,200,000 principal amount was due on February 28, 2019.

September 2018, holders of a majority of the outstanding principal amount of the 8% Notes consented to an amendment to the terms

of the 8% Notes to extend the maturity date to December 31, 2020 and to provide that interest on the 8% Notes, as amended (the

“Amended Notes”), shall accrue and be paid on the due date of the Amended Notes or, if earlier, upon conversion of

the Amended Notes into shares of common stock.

At September 30, 2018, Michael Taglich, Robert

Taglich and Taglich Brothers (collectively, the “Taglich Parties”) owned $1,300,000, $650,000 and $382,000, respectively,

principal amount of 8% Notes, with accrued interest thereon from the date of issuance through September 30, 2018 of $203,613, $120,097

and $68,294, respectively.

In consideration for waiving all defaults in payment of principal and accrued interest on the 8% Notes

through the date of the amendment, the conversion price of the Amended Notes owned by the Taglich Parties and the other holders

of the Amended Notes has been reduced to $1.50 per share, subject to the anti-dilution adjustments set forth in the Amended Notes

and the 8% Notes, and the Company issued to the Taglich Parties and the other holders of the 8% Notes such number of shares of

common stock calculated based upon a value of $1.39 per share, the closing market price of common stock on the NYSE American on

September 28, 2018, the date immediately prior to the date the holders of a majority of the outstanding principal amount of the

8% Notes approved the amendment as is equal to the interest accrued on their 8% Notes from the date of issuance through September

As a result the Company issued to Michael Taglich, Robert Taglich and Taglich Brothers 146,484 shares, 86,401 shares

and 49,132 shares, respectively of common stock.

Based on the amended conversion price, if these notes were to be converted additional

shares of common stock would be issued of common stock, and therefore further reducing the Company’s earnings per share.

From and after September 30, 2018, interest on the unpaid principal amount of the Amended Notes shall accrue and be paid at the

rate of six (6%) percent per annum, if paid in cash, or at the rate of eight (8%) percent per annum if converted into common stock.

For soliciting noteholders in connection

with the adoption of the amendments, the Company agreed to pay Taglich Brothers $95,550, representing a fee equal to 2% of the

outstanding principal amount of Notes whose registered holders (other than Taglich Brothers) received shares of common stock in

lieu of cash payment of accrued interest on the 8% Notes as of September 30, 2018.

In December 2019, the third party holders

of $580,000 of notes with accrued interest thereon of $59,000 converted their notes into approximately 426,000 shares at a per

share price of $1.50.

Additionally in January 2020, the third party holders of an additional $705,000 of notes with accrued interest

thereon of $75,143 converted their notes into approximately 520,000 shares at a per share price of $1.50.

Related party advances and notes payable,

net of debt discounts to Michael and Robert Taglich, and their affiliated entities, totaled $6,862,000 and $4,835,000, as of December

On March 29, 2018 and April 4, 2018, Michael

Taglich and Robert Taglich advanced $1,000,000 and $100,000, respectively, to the Company for use as working capital.

subsequently issued its Subordinated Notes originally due May 31, 2019 to Michael Taglich and Robert Taglich, together with shares

of common stock, in the financing described below, to evidence its obligation to repay the foregoing advances.

In May 2018, the Company issued $1,200,000

of Subordinated Notes due May 31, 2019 (the “2019 Notes”), together with a total of 214,762 shares of common stock

to Michael Taglich, Robert Taglich and another accredited investor.

As part of the financing, the Company issued to Michael Taglich

$1,000,000 principal amount of 2019 Notes and 178,571 shares of common stock for a purchase price of $1,000,000 and to Robert Taglich

$100,000 principal amount of 2019 Notes and 17,857 shares of common stock.

The Company issued and sold a 2019 Note in the principal

amount of $100,000, plus 18,334 shares of common stock to the other accredited investor for a purchase price of $100,000.

additional note was paid in full on January 2, 2020.

Interest on the 2019 Notes is payable on the

outstanding principal amount thereof at the rate of one percent (1%) per month, payable monthly commencing June 30, 2018.

the occurrence and continuation of a failure to pay accrued interest, interest shall accrue and be payable on such amount at the

rate of 1.25% per month;

provided that upon the occurrence and continuation of a failure to timely pay the principal amount of

the 2019 Note, interest shall accrue and be payable on such principal amount at the rate of 1.25% per month and shall no longer

be payable on interest accrued but unpaid.

The 2019 Notes are subordinate to the Company’s obligations to SNB.

Taglich Brothers acted as placement agent for

the offering and received a commission in the aggregate amount of 4% of the amount invested which was paid in kind.

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.

The shares were valued 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.

In connection with the SNB Facility, Michael and Robert

Taglich agreed to extend the maturity date of the 2019 Notes to July 1, 2023.

Private Placements of 8% Subordinated Convertible

From November 23, 2016 through March 21, 2017,

the Company received gross proceeds of $4,775,000, of which $1,950,000 were received from Robert and Michael Taglich, from the

sale of an equal principal amount of its 8% Subordinated Convertible Notes (the “8% Notes”), together with warrants

to purchase a total of 383,080 shares of its common stock, in private placement transactions with accredited investors (the “8%

Note Offerings”).

In connection with the offering of the 8% Notes, the Company issued 8% Notes in the aggregate principal

amount of $382,000 to Taglich Brothers, Inc., placement agent for the 8% Note Offerings, in lieu of payment of cash compensation

for sales commissions, together with warrants to purchase a total of 180,977 shares of common stock.

Payment of the principal and

accrued interest on the 8% Notes are junior and subordinate in right of payment to our indebtedness under the SNB Facility.

Interest on the 8% Notes is payable on the

outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing February 28, 2017, in cash, or at the

Company’s option, in additional 8% Notes, provided that if accrued interest payable on $1,269,000 principal amount of the

8% Notes issued in December 2016 is paid in additional 8% Notes, interest for that quarterly interest payment shall be calculated

at the rate of 12% per annum.

Upon the occurrence and continuation of an event of default, interest shall accrue at the rate of

12% per annum.

Related party advances and notes payable, net

of debt discounts to Michael and Robert Taglich, and their affiliated entities, totaled $6,012,000 and $6,862,000, as of December

31, 2020 and 2019, respectively.

1 unchanged sentence

2020 and 2019, respectively.

Interest incurred on these related party notes amounted to approximately $446,000 and $526,000

for the years ended December 31, 2019 and 2018, respectively.

Amortization of debt discount incurred on these related party notes

amounted to approximately $375,000 and $456,000 for the year ended December 31, 2019 and 2018.

These costs are included in interest

and financing costs in the Consolidated Statement of Operations.

All related party notes are due on December 31, 2020.

are no principal payments due on these notes until such time.

Interest incurred on these related party notes amounted to approximately $526,000 and $446,000 for

the years ended December 31, 2020 and 2019, respectively Amortization of debt discount incurred on these related party notes amounted

to approximately $226,000 and $375,000 for the year ended December 31, 2020 and 2019 respectively.

The amortization of the debt

discount is included in interest and financing costs in the Consolidated Statement of Operations.

Per the terms of the SNB Facility, the maturity

date of all related party notes has been extended to July 1, 2023 and are subordinated to the SNB Facility.

There are no principal

payments due on these notes until such time.

On January 1, 2021, the related party subordinated

notes were amended to include all accrued interest through December 31, 2020 in the principal balance of the notes.

The Note Holders

and the principal balance of the notes as amended on January 1, 2021 are shown below:

Taglich, Chairman

Robert Taglich, Director

Taglich Brothers

Convertible Subordinated Notes

Subordinated notes

Convertible Notes Payable –

As discussed above in connection with the Private

Placement of Subordinated Notes due May 31, 2019, together with Shares of Common Stock, a $100,000 note issued to a third party

in May 2018 was repaid in January 2020.

In the years ended December 31, 2020 and

2019, the third party holders of $580,000 and $2,245,000 principal, respectively, with accrued interest thereon of $58,000 and

$344,000, respectively, converted their notes into approximately 426,000 and 1,831,000 shares, respectively, of common stock.

notes were converted at a per share price between $1.35 and $1.50.

8% Notes payable to third parties totaled $0

and $2,338,000, net of unamortized debt discount at December 31, 2020 and 2019, respectively.

Interest incurred on the 8% Notes

amounted to approximately $141,000 and $380,000 for the years ended December 31, 2020 and 2019, respectively, unamortized debt

discounts related to these notes amounted to $0 and $7,000 as of December 31, 2020 and 2019, respectively.

Amortization of debt

discount on the 8% Notes amounted to approximately $7,000 and $135,000 for the years ended December 31, 2020 and 2019, respectively.

These costs are included in interest and financing costs in the Consolidated Statement of Operations.

In May 2020, AIM, NTW and Sterling entered

into SBA Loans with SNB as the lender in an aggregate principal amount of $2,414,000, which was forgiven by the SBA in December

Each SBA Loan was evidenced by a Note.

Subject to the terms of the Note, the SBA Loans bore interest at a fixed rate

of one percent (1%) per annum, with the first six months of interest deferred, had an initial term of two years, and was 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”).

In December 2020, the Company was notified that the loans and all interest accrued

thereon had been forgiven.

The Company elected to treat the SBA Loans

as debt under FASB ASC 470.

As such, the Company derecognized the liability when the loans were forgiven and the Company was legally

released from the loans.

OPERATING LEASE LIABILITIES

Company leases substantially all of its office space, technology equipment and office equipment used to conduct its business.

The Company leases substantially all of its

office space, technology equipment and office equipment used to conduct its business.

The Company adopted ASC 842 effective January

For contracts entered into on or after the effective date, at the inception

of a contract it assesses whether the contract is, or contains, a lease.

For contracts entered into on or after the effective date, at the inception of a contract it assesses whether the contract

is, or contains, a lease.

The Company’s assessment is based on:

the contract involves the use of a distinct identified asset, (2) whether its obtains the right to substantially all the economic

benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset.

of a lease, the Company allocates the consideration in the contract to each lease component based on its relative stand-alone

price to determine the lease payments.

Leases entered into prior to January 1, 2019, are accounted for under ASC 840 and were

not reassessed.

aggregate undiscounted cash flows of operating lease payments, with remaining terms greater than one year are as follows:

For the twelve months ended

(1) whether the contract involves the use of a distinct identified

asset, (2) whether its obtains the right to substantially all the economic benefit from the use of the asset throughout the period,

and (3) whether it has the right to direct the use of the asset.

At inception of a lease, the Company allocates the consideration

in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

Leases entered

into prior to January 1, 2019, are accounted for under ASC 840 and were not reassessed.

The aggregate undiscounted cash flows of operating

lease payments, with remaining terms greater than one year are as follows:

For the year ended

December 31, 2021

6 unchanged sentences

current portion of operating lease liabilities

Total long term portion of operating lease liabilities

part of the effort to reduce costs, corporate executive offices were moved to an existing 5.4-acre corporate campus in Bay Shore,

The Company remains liable under the lease for the office in Hauppauge, New York which is now vacant.

This lease has

a term which ends January 2022.

The annual rent was approximately $113,000 for the lease year which began in January 2019 and

increases by approximately 3% per annum each year thereafter.

Accordingly, the Company recognized an impairment of $275,000 to

its Operating Lease Right-of-Use-Asset for the year ended December 31, 2019.

LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION OF SUBSIDIARY

connection with the sale of the Company’s wholly-owned subsidiary, AMK Welding, Inc.

(“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.

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 the Company (“Put Right”).

To the extent the

Purchasers exercise their Put Right, the remaining payments from Meyer will be retained by the Company.

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

the Company sold all of its rights to the Remaining Amount, as a result of its obligation to the Purchasers, the Company is required

to account for the Remaining Amount or portion thereof as income when earned.

The Company recorded the $800,000 in proceeds as

a liability on its consolidated balance sheet, net of transaction costs of $3,000.

Transaction costs will be amortized to interest

expense over the estimated life of the Purchase Agreement.

payments are remitted to the Purchasers, the balance of the recorded liability will be effectively repaid over the life of the

Purchase Agreement.

To determine the amortization of the recorded liability, the Company is required to estimate the total amount

of future payment to be received by the Purchasers.

The Company estimates that the entire Remaining Amount will be received, and

accordingly, the Remaining Amount less the $800,000 purchase price received (the “Discount”) will be amortized into

the liability balance and recorded as interest expense.

The Discount will be amortized through the earliest date that the Purchasers

can exercise their Put Right, using the straight line method (which is not materially different than the effective interest method)

over the estimated life of the Purchase Agreement with the Purchasers.

Periodically, the Company will assess the estimated payments

to be made to the Purchasers related to the Meyer Agreement, and to the extent the amount or timing of the payments is materially

different from their original estimates, the Company will prospectively adjust the amortization of the liability.

The amount or

timing of the payments from Meyer are not within the Company’s control.

Since the inception of the Purchase Agreement, the

Company estimates the effective annual interest rate over the life of the agreement to be approximately 18%.

liability is classified between the current and non-current portion of liability related to sale of future proceeds from disposition

of subsidiary based on the estimated recognition of the payments to be received by the purchasers in the next 12 months from the

financial statements reporting date.

the year ended December 31, 2019, the Company recognized $282,000 of non-cash income reflected in “other income, net”

on the consolidated statement of operations and recorded $85,000 of related non-cash interest expense related to the Purchase

table below shows the activity within the liability account for the year ended December 31, 2019:

Liabilities related to sale of future proceeds from

disposition of subsidiaries - beginning balance

Total long term portion of operating lease maturities

Weighted Average Remaining Lease Term - in years

Weighted Average discount rate - %

As part of the effort to reduce costs, corporate

executive offices were moved to an existing 5.4-acre corporate campus in Bay Shore, New York.

The Company remains liable under

the lease for the office in Hauppauge, New York which is now vacant.

This lease has a term which ends January 2022.

rent was approximately $113,000 for the lease year which began in January 2019 and increases by approximately 3% per annum each

year thereafter.

Accordingly, the Company recognized an impairment of $275,000 to its Operating Lease Right-of-Use-Asset for the

year ended December 31, 2019.

NTW’s warehouse lease was terminated

in May 2020 by its landlord under the terms of its lease agreement.

Additionally, the Company entered into a new lease agreement

for warehouse space in Bohemia, NY.

The new lease term commenced on April 1, 2020 and expires on May 31, 2025.

During the first

year of the lease, the monthly rent is $10,964 and increases 3% each year thereafter.

The final two months are equal installments

Rent expense for the years ended December 31,

2020 and 2019 was $1,173,000 and $1,193,000, respectively.

LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM

DISPOSITION OF SUBSIDIARY

In connection with the sale of the Company’s

wholly-owned subsidiary, AMK Welding, Inc.

(“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”).

As 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 the Company (“Put Right”).

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

from Meyer will be retained by the Company.

The Purchasers have agreed to pay Taglich

Brothers, Inc.

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 from Meyer.

Although the Company sold all of its rights

to the Remaining Amount, as a result of its obligation to the Purchasers, the Company is required to account for the Remaining

Amount or portion thereof as income when earned.

The Company recorded the $800,000 in proceeds as a liability on its consolidated

balance sheet, net of transaction costs of $3,000.

Transaction costs will be amortized to interest expense over the estimated life

of the Purchase Agreement.

As payments are remitted to the Purchasers,

the balance of the recorded liability will be effectively repaid over the life of the Purchase Agreement.

To determine the amortization

of the recorded liability, the Company is required to estimate the total amount of future payment to be received by the Purchasers.

The Company estimates that the entire Remaining Amount will be received, and accordingly, the Remaining Amount less the $800,000

purchase price received (the “Discount”) will be amortized into the liability balance and recorded as interest expense.

The Discount will be amortized through the earliest date that the Purchasers can exercise their Put Right, using the straight line

method (which is not materially different than the effective interest method) over the estimated life of the Purchase Agreement

with the Purchasers.

Periodically, the Company will assess the estimated payments to be made to the Purchasers related to the Meyer

Agreement, and to the extent the amount or timing of the payments is materially different from their original estimates, the Company

will prospectively adjust the amortization of the liability.

The amount or timing of the payments from Meyer are not within the

Company’s control.

Since the inception of the Purchase Agreement, the Company estimates the effective annual interest rate

over the life of the agreement to be approximately 18%.

The liability is classified between the current

and non-current portion of liability related to sale of future proceeds from disposition of subsidiary based on the estimated recognition

of the payments to be received by the purchasers in the next 12 months from the financial statements reporting date.

The table below shows the activity within the

liability account for the years ended December 31, 2020 and 2019:

Cash received from sale of future proceeds from disposition of subsidiary

Liabilities related to sale of future proceeds from disposition of subsidiary –

beginning balance

Non-Cash other income recognized

Non-Cash interest expense recognized

Liabilities related to sale of future proceeds from

disposition of subsidiary - ending balance

Liabilities related to sale of future proceeds from disposition of subsidiary –

ending balance

unamortized transaction costs

1 unchanged sentence

STOCKHOLDERS’

January 9, 2018 the Company issued and sold to 35 accredited investors an aggregate of 852,000 Shares and Warrants to purchase

an additional 255,600 shares of common stock, for gross proceeds of $1,065,000.

The purchase price for the Shares and Warrants

was $1.25 per Share.

The Company had previously sold a total of 725,390 Shares and Warrants to purchase an additional 224,400

shares of common stock for gross proceeds of $935,000 on November 29, 2017, December 5, 2017 and December 29, 2017 pursuant to

the Offering.

Warrants have an exercise price of $1.50 per share, subject to certain anti-dilution and other adjustments, including stock splits,

and in the event of certain fundamental transactions such as mergers and other business combinations, and may be exercised on

a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise.

The Warrants may

be exercised until November 30, 2022.

connection with the Offering completed from November 2017 through January 2018, Taglich Brothers, Inc., a related party, which

acted as placement agent for the sale of the Shares and Warrants, is entitled to a placement agent fee equal to $104,000 (8% of

the amounts invested), payable at the Company’s option, in cash or additional shares of common stock and warrants having

the same terms and conditions as the Shares and Warrants.

Michael Taglich and Robert Taglich, directors of the Company, are principals

of Taglich Brothers, Inc.

July 19, 2018, the Company issued and sold a total of 322,000 shares of 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 (6% of

the gross proceeds of the offering), payable at the Company’s option, in cash or shares of Common Stock on the terms sold

to the purchasers.

October 1, 2018, the Company 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 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.

The Company 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 pursuant to our S-3 filed on

October 10, 2019 as updated on January 15, 2020.

year ended December 31, 2019, the Company issued 50,000 shares of common stock in lieu of cash payment for various services provided

to the Company and 257,602 shares of common stock in payment of directors’

During the year ended December 31, 2018, the Company issued 123,456

shares of common stock in lieu of cash payments for various services provided to the Company and 253,071 shares of common stock

in payment of directors’

Common Stock –

Sale of Securities

In January 2020, the Company issued and

sold 419,597 shares of its common stock for gross proceeds of $984,000 pursuant to a Form S-3 filed on October 10, 2019 as updated

on January 15, 2020.

Costs of the sale amounted to $145,000.

During the year ended December 31, 2020,

the Company issued 1,830,631 shares of common stock to convert third party subordinated debt totaling $2,589,000 to equity.

During the year ended December 31, 2020,

the Company issued 178,405 shares of common stock in payment of directors’

fees totaling $211,000.

During the year ended December 31, 2019,

the Company issued 50,000 shares of common stock in lieu of cash payment for various services provided to the Company, 257,602

shares of common stock in payment of directors’

fees, 424,805 shares of common stock issued from the conversion of notes

payable, 180,000 shares issued in connection with the issuance of subordinated notes payable and 2,778 shares issued upon the exercise

of stock options.

During the first quarter of 2021, the Company

issued 41,960 shares of common stock in payment of directors’

fees totaling $52,000 and 51,224 shares of common stock upon

the exercise of stock options.

EMPLOYEE BENEFITS PLANS

Company employs both union and non-union employees and maintains several benefit plans.

Substantially

the entire workforce at AIM is subject to a union contract with the United Service Workers Union TUJAT Local 355, EIN 11-1772919

(the “Union”).

The Agreement was renewed as of December 31, 2018 and expires on December 31, 2021 and covers all of

AIM’s production personnel, of which there are approximately 104 people.

AIM is required to make a monthly contribution

to each of the Union’s United Welfare Fund and the United Services Worker’s Security Fund.

This is the only pension

benefit required by the Agreement and the Company is not obligated for any future defined benefit to retirees.

The Agreement contains

a “no-strike”

clause, whereby, during the term of the Agreement, the Union will not strike and AIM will not lockout

its employees.

Medical benefits for union employees are provided through a policy with Insperity, the costs of which are substantially

The Company employs both union and non-union

employees and maintains several benefit plans.

Substantially the entire workforce at AIM

is subject to a union contract with the United Service Workers Union TUJAT Local 355, EIN 11-1772919 (the “Union”).

The Agreement was renewed as of December 31, 2018 and expires on December 31, 2021 and covers all of AIM’s production personnel,

of which there are approximately 93 people.

AIM is required to make a monthly contribution to each of the Union’s United

Welfare Fund and the United Services Worker’s Security Fund.

This is the only pension benefit required by the Agreement and

the Company is not obligated for any future defined benefit to retirees.

The Agreement contains a “no-strike”

whereby, during the term of the Agreement, the Union will not strike and AIM will not lockout its employees.

Medical benefits for

union employees are provided through a policy with Insperity Services, Inc.

(“Insperity”), the costs of which are substantially

borne by the Company.

In addition, the Company is obligated to make contributions for union dues and a security fund (defined

contribution plan) for the benefit of each union employee.

Contributions to the security fund amounted to $137,000 and 172,000

for the years ended December 31, 2019 and 2018, respectively.

Company adopted ASU No.

2011-09, “Compensation - Retirement Benefits-Multiemployer Plans (Subtopic 715-80):

about an Employer’s Participation in a Multiemployer Plan”

In addition, the Company is obligated to make contributions for union dues and a security fund (defined contribution

plan) for the benefit of each union employee.

Contributions to the security fund amounted to $134,000 and $137,000 for the years

ended December 31, 2020 and 2019, respectively.

The Company adopted ASU No.

2011-09, “Compensation

- Retirement Benefits-Multiemployer Plans (Subtopic 715-80):

Disclosures about an Employer’s Participation in a Multiemployer

(“ASU 2011-09”).

ASU 2011-09 requires additional

disclosures about an employer’s participation in a multiemployer pension plan.

Previously, disclosures were limited primarily

to the historical contributions made to the plans.

ASU 2011-09 applies to nongovernmental entities that participate in multiemployer

The Union’s retirement plan is a defined contribution plan.

As such, the Company is not responsible for the obligations

of other companies in the Union’s retirement plan and no further disclosures are required.

of the Company’s employees were covered under a co-employment agreement with Trinet, a professional employer

organization (“PEO”) that provides out-sourced human resource services.

As of January 1, 2020 the Company

switched its PEO to Insperity Services, Inc., which now cover our employees in a similar agreement.

Company has two defined contribution plans under Section 401(k) of the Internal Revenue Code (the “Plans”).

to the Plans, qualified employees may contribute a percentage of their pre-tax eligible compensation to the Plan.

does not match any contributions that employees may make to the Plans.

ASU 2011-09 requires additional disclosures about an employer’s participation in

a multiemployer pension plan.

Previously, disclosures were limited primarily to the historical contributions made to the plans.

ASU 2011-09 applies to nongovernmental entities that participate in multiemployer plans.

The Union’s retirement plan is a

defined contribution plan.

As such, the Company is not responsible for the obligations of other companies in the Union’s

retirement plan and no further disclosures are required.

All of the Company’s employees are covered

under a co-employment agreement with Insperity, a professional employer organization (“PEO”) that provides out-sourced

human resource services.

The Company has a defined contribution plans

under Section 401(k) of the Internal Revenue Code (the “Plans”).

Pursuant to the Plans, qualified employees may contribute

a percentage of their pre-tax eligible compensation to the Plan.

The Company does not match any contributions that employees may

make to the Plans.

CONTINGENCIES

A number of actions have been commenced against the Company by vendors,

landlords and former landlords, including a third party claim as a result of an injury suffered on a portion of a leased property

not occupied by the Company.

As certain of these claims represent amounts included in accounts payable they are not specifically

discussed herein.

Fluid Seals, Inc., commenced an action on August 30, 2016, against Nassau Tool Works, Inc., in the Court of Common Pleas in Montgomery

County, Pennsylvania, NYS Supreme Court, County of Suffolk, seeking the recovery of $50,565.90 for goods sold and delivered.

Company chose not to respond to the action and default judgement has been rendered in the Court of Common Pleas in Montgomery

County, Pennsylvania.

Park Associates, LLC commenced an action on or about January 11, 2017 against Air Industries Group in the NYS Supreme Court, County

of Suffolk, seeking the recovery of approximately $31,000 for past rent arrears, and for an unidentified sum representing all

additional rent due under an alleged commercial lease through the end of its term, plus attorney’s fees.

This claim was

settled by the Company’s agreement to pay approximately $111,000 on August 16, 2019 and has been fully accrued for as of

December 31, 2019.

employee of our company commenced an action against, among others, Rechler Equity B-2, LLC and Air Industries Group, in the Supreme

Court State of New York, Suffolk County, seeking compensation in an undetermined amount for injuries suffered while leaving the

premises occupied by Welding Metallurgy, Inc.

Rechler Equity B-2, LLC, has served a Third Party Complaint in this action against

Air Industries Group, Inc.

and Welding Metallurgy, Inc.

The Company believes it is not liable to the employee and any amount it

might have to pay in excess of our deductible would be covered by insurance.

employee of our company commenced an action against, among others, Sterling Engineering and Air Industries Group, in Connecticut

Commission on Human Rights and Opportunities, seeking lost wages in an undetermined amount for the employee’s termination.

The action remains in the early pleading stage.

The Company believes it is not liable to the employee and any amount it might

have to pay would be covered by insurance.

Contract Pharmacal Corp.

commenced an action

on October 2, 2018, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with respect to

the property at 110 Plant Avenue, Hauppauge, New York.

In the action Contract Pharmacal seeks damages for an amount in excess of

$1,000,000 for our failure to make the entire premises available by the Sublease commencement date.

The Company disputes the validity

of the claims asserted by Contract Pharmacal and believes it has meritorious defenses to those claims and have recently submitted

a motion in opposition to its motion for summary judgement.

As of December 31, 2019, it is not possible to estimate if a loss will

be incurred, as such there has been no accrual.

On October 15, 2018, a complaint was filed

by a stockholder of our company in the United States District Court for the Eastern District of New York ( Michael Kishmoian

Air Industries et al Case No.

18cv5757) naming the Company and certain of its directors and a former director.

matter was settled on August 20, 2019 and the cost to the Company, inclusive of legal fees, was less than $100,000, and was paid

On December 20, 2018, pursuant to a Stock Purchase Agreement

dated as of March 21, 2018 (“SPA”), the Company completed the sale of all of the outstanding shares of its subsidiary,

Welding Metallurgy, Inc.

to CPI Aerostructures.

On March 19, 2019, in accordance with the procedures set forth in the SPA with

CPI Aerostructures, the Company received a notice from CPI claiming that the working capital deficit used to compute the purchase

price was understated.

The issue of the amount of the working capital deficit was submitted to BDO USA, LLP (“BDO”),

acting as an expert, and it issued a report dated September 3, 2019, where it determined that the amount of the working capital

deficit was approximately $4,145,870.

On September 9, 2019 the Company received a demand from CPI for payment of such amount.

Company advised CPI that the determination of BDO is void because, among other things, it believes BDO exceeded the scope of its

authority as set forth in the SPA.

On September 27, 2019, CPI filed a notice of motion in the Supreme Court of the State of New

York, County of New York, against the Company seeking, among other things, an order of specific performance requiring delivery

of the funds deposited in escrow, together with the balance of the working capital deficit which it claimed, and a judgment against

the Company in the amount of approximately $4,200,000 of which $2,000,000 would be satisfied by delivery of the funds in escrow.

On October 7, 2019, the Company agreed to the release of $619,316 of the funds held in escrow in respect of claims related to the

working capital deficit not related to the value of WMI’s inventory.

As of December 31, 2018, the Company has placed a reserve

against substantially all of the escrowed amount and cannot estimate the amount of loss.

For, among others, the reasons stated

above the Company intends to contest vigorously any claim CPI may make for payment based on the BDO Report.

Outside counsel for

the company has advised that at this stage in the proceedings, it cannot offer an opinion as to the probable outcome.

time to time we also may be engaged in various lawsuits and legal proceedings in the ordinary course of our business.

We are currently

not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would

have a material adverse effect on our business, financial condition or operating results.

We, however, have had claims brought

against us by a number of vendors due to our liquidity constraints.

There are no proceedings in which any of our directors,

officers or affiliates, or any registered or beneficial stockholder of our common stock, is an adverse party or has a material

A number of actions have been commenced against

the Company by vendors, landlords and former landlords, including a third party claim as a result of an injury suffered on a portion

of a leased property not occupied by the Company.

As certain of these claims represent amounts included in accounts payable they

are not specifically discussed herein.

Contract Pharmacal

commenced an action on October 2, 2018, relating to a Sublease entered into between the Company and Contract Pharmacal in

May 2018 with respect to the property that was formerly occupied by Welding Metallurgy, Inc., at 110 Plant Avenue, Hauppauge, New

In the action Contract Pharmacal seeks damages for an amount in excess of $1,000,000 for our failure to make the entire premises

available by the Sublease commencement date.

The Company disputes the validity of the claims asserted by Contract Pharmacal and

believes it has meritorious defenses to those claims.

The pace of litigation in the civil courts in New York has been slowed by

the impact of Covid-19.

The Court has ordered us and Contract Pharmacal to complete discovery, which is ongoing.

On December 20, 2018, the Company completed

the sale of all of the outstanding shares of its subsidiary, WMI, to CPI.

There ensued a dispute with CPI regarding

amounts it claimed were due based upon the value it ascribed to the inventory as of the closing date.

On December 23, 2020 the

Company and CPI reached an agreement to settle the working capital dispute.

Pursuant to the settlement, the escrow agent released

to CPI the balance of $ 1,380,684 remaining in the escrow account which had been established at the closing and the Company and

CPI exchanged mutual releases customary in the circumstances.

From time to time the Company may be engaged

in various lawsuits and legal proceedings in the ordinary course of business.

The Company is currently not aware of any legal proceedings

the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on

its business, financial condition or operating results.

There are no proceedings in which any of the Company’s directors,

officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material

interest adverse to our interest.

provision for (benefit from) income taxes as of December 31, is set forth below:

The provision for (benefit from) income taxes

as of December 31, is set forth below:

Federal tax refund

Prior Year overaccruals

Total Expense

$ (1,416,000 )

Total (Benefit from) Expense for Income Taxes

Deferred Tax Benefit

Valuation Allowance

Net Provision for Income Taxes

following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate as

of December 31,

Net (Benefit from) Provision for Income Taxes

$ (1,412,000 )

The following is a reconciliation of our income

tax rate computed using the federal statutory rate to our actual income tax rate as of December 31,

statutory income tax rate

Permanent differences, overaccruals and non-deductible items

Permanent difference, overaccruals, and non-deductible items

Rate change and provision to return true-up

1 unchanged sentence

Deferred tax valuation allowance

components of net deferred tax assets at December 31, 2019 and 2018 are set forth below:

Cares Act Refund

The components of net deferred tax assets at December 31, 2020 and

2019 are set forth below:

Deferred tax assets:

Net operating losses

Net operation loss

Allowance for doubtful accounts

Inventory –

IRC 263A adjustment

Inventory - IRC 263A adjustment

Stock based compensation - options and restricted stock

2 unchanged sentences

Amortization - NTW Transaction

Inventory reserves

Inventory reserve

Deferred gain on sale of real estate

2 unchanged sentences

Right of Use Asset

Total non-current deferred tax assets before valuation allowance

Total non-current deferred tax asset before valuation allowance

Valuation allowance

(10,663,000 )

(10,135,000 )

Total non-current deferred tax assets after valuation allowance

Total non-current deferred tax asset after valuation allowance

Deferred tax liabilities

2 unchanged sentences

Net deferred tax asset

During the years ended December 31, 2019 and December 31, 2018,

the Company recorded a valuation allowance equal to its net deferred tax assets.

The Company determined that due to a recent history

of net losses, that at this time, sufficient uncertainty exists regarding the future realization of these deferred tax assets through

future taxable income.

If, in the future, the Company believes that it is more likely than not that these deferred tax benefits

will be realized, the valuation allowances will be reduced or eliminated.

With a full valuation allowance, any change in the deferred

tax asset or liability is fully offset by a corresponding change in the valuation allowance.

At December 31, 2019 and 2018, the

Company provided a valuation allowance on its net deferred tax assets of $10,663,000 and $10,135,000, respectively.

During the years ended December 31, 2020

and 2019, the Company recorded a valuation allowance equal to its net deferred tax assets.

The Company determined that due to a

recent history of net losses, that at this time, sufficient uncertainty exists regarding the future realization of these deferred

tax assets through future taxable income.

If, in the future, the Company believes that it is more likely than not that these deferred

tax benefits will be realized, the valuation allowances will be reduced or eliminated.

With a full valuation allowance, any change

in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance.

At December 31, 2020

and 2019, the Company provided a valuation allowance on its net deferred tax assets of $9,394,000 and $10,663,000, respectively.

As of December 31, 2020, the Company had

a Federal net operating loss carry forward of approximately $33,139,000, expiring in years beginning 2036 and State net operating

loss carry forwards of approximately $9,600,000 (with effective rates from 5.5% to 10%), expiring in years through 2035.

December 31, 2019 and 2018, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations

were required.

The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve

The Company recognizes interest and penalties related to uncertain tax positions in interest expense.

As of December 31,

2019 and 2018, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

certain cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the

relevant tax authorities.

The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations.

The 2017 through 2019 tax years generally remain subject to examination by federal and state tax authorities.

a Federal net operating loss carry forward of approximately $27,576,000, of which $22,461,000 expire in years through 2037 and

$5,115,000 that do not expire.

State net operating loss carry forwards total approximately $9,458,000 (with effective rates from

5.5% to 10%), expiring in years through 2040.

At December 31, 2020 and 2019, the Company

had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

The Company does not expect

that its unrecognized tax benefits will materially increase within the next twelve months.

The Company recognizes interest and

penalties related to uncertain tax positions in interest expense.

As of December 31, 2020 and 2019, the Company has not recorded

any provisions for accrued interest and penalties related to uncertain tax positions.

In certain cases, the Company’s uncertain

tax positions are related to tax years that remain subject to examination by the relevant tax authorities.

The Company files federal

and state income tax returns in jurisdictions with varying statutes of limitations.

The 2017 through 2020 tax years generally remain

subject to examination by federal and state tax authorities.

As a result of the passage of the CARES Act,

the Company received $1,416,000 from the filing of a net operating loss carryback claim.

The Company is currently evaluating the

impact of other provisions of the CARES Act on its accounting for income taxes and does not believe it has a material impact at

STOCK OPTIONS AND WARRANTS

July 2017, the Board of Directors adopted the Company’s 2017 Equity Incentive Plan (“2017 Plan”) which authorized

the grant of rights with respect to up to 1,200,000 shares.

The 2017 Plan was approved by affirmative vote of the Company’s

stockholders on October 3, 2017.

the year ended December 31, 2018, the Company granted options to purchase 88,000 shares of common stock to certain of its employees

and directors.

The weighted average fair value of the granted options was estimated using the Black-Scholes option pricing model

with the following assumptions:

risk free interest rate of 2.69%;

expected volatility factor of 66%;

Stock-Based Compensation

Stock Options

In July 2017, the Board of Directors adopted

the Company’s 2017 Equity Incentive Plan (“2017 Plan”) which authorized the grant of rights with respect to up

to 1,200,000 shares.

The 2017 Plan was approved by affirmative vote of the Company’s stockholders on October 3, 2017.

During the year ended December 31, 2020,

the Company granted options to purchase 560,000 shares of common stock to certain of its employees and directors.

average fair value of the granted options was estimated using the Black-Scholes option pricing model with the following assumptions:

risk free interest rate of 0.22% to 1.61%;

expected volatility factors of 71.5% to 75.4%;

expected dividend yield of 0%;

and estimated option term of 5 years.

During the year ended December 31, 2019, the Company granted options

to purchase 613,000 shares of common stock to certain of its employees and directors.

The weighted average fair value of the granted

options was estimated using the Black-Scholes option pricing model with the following assumptions:

risk free interest rate of 1.87%

life of 2.5 to 4 years.

During the year ended December 31, 2019,

the Company granted options to purchase 613,000 shares of common stock to certain of its employees and directors.

average fair value of the granted options was estimated using the Black-Scholes option pricing model with the following assumptions:

risk free interest rate of 1.87% to 2.60%;

expected volatility factors of 65.8% to 72.4%;

expected dividend yield of 0%;

and estimated option term of 5 years.

Company recorded stock based compensation expense of $378,000 and $293,000 in its consolidated statement of operations

for the years ended December 31, 2019 and 2018, respectively, and such amounts were included as a component of general and administrative

fair values of stock options granted were estimated using the Black-Sholes option-pricing model with the following assumptions

for the years ended December 31:

life of 4.9 to 6.8 years.

The Company recorded stock based compensation expense

of $308,000 and $378,000 in its consolidated statement of operations for the years ended December 31, 2020 and 2019, respectively,

and such amounts were included as a component of general and administrative expense.

The fair values of stock options granted were

estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31:

Risk-free interest rates

0.22% - 1.61 %

1.87% - 2.60 %

Expected life (in years)

1 unchanged sentence

71.5% - 75.4 %

65.8% - 72.4 %

Dividend yield

Weighted-average grant date fair value per share

expected life is the number of years that the Company estimates, based upon history, that the options will be outstanding prior

to exercise or forfeiture.

Expected life is determined using the “simplified method”

permitted by Staff Accounting

In addition to the inputs referenced above regarding the option pricing model, the Company adjusts the stock-based

compensation expense for estimated forfeiture rates that are revised prospectively according to forfeiture experience.

volatility factor is based on the Company’s experience.

summary of the status of the Company’s stock options as of December 31, 2019 and 2018, and changes during the two years

then ended are presented below.

The expected life is the number of years that

the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture.

Expected life

is determined using the “simplified method”

permitted by Staff Accounting Bulletin No.

In addition to the inputs

referenced above regarding the option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture

rates that are revised prospectively according to forfeiture experience.

The stock volatility factor is based on the Company’s

A summary of the status of the Company’s

stock options as of December 31, 2020 and 2019, and changes during the two years then ended are presented below.

Balance, January 1, 2019

8 unchanged sentences

Exercisable at December 31, 2020

following table summarizes information about stock options at December 31, 2019:

Range of Exercise Prices

The following table summarizes information

about stock options at December 31, 2020:

Range of Exercise Price

Exercise Price

2 unchanged sentences

$0.00 - $15.00

of December 31, 2019, there was $28,000 of unrecognized compensation cost related to non-vested stock option awards, which is

to be recognized over the remaining weighted average vesting period of 1.7 years.

The aggregate intrinsic value at December 31, 2019 was based on

the Company’s closing stock price of $2.30 was approximately $1,300,000.

The aggregate intrinsic value was calculated based

on the positive difference between the closing market price of the Company’s Common Stock and the exercise price of the underlying

As of December 31, 2020, there was $80,000

of unrecognized compensation cost related to non-vested stock option awards, which is to be recognized over the remaining weighted

average vesting period of 0.7 years.

The aggregate intrinsic value at December 31,

2020 was based on the Company’s closing stock price of $1.23 was approximately $269,000.

The aggregate intrinsic value was

calculated based on the positive difference between the closing market price of the Company’s Common Stock and the exercise

price of the underlying options.

The total number of in-the-money options exercisable as of December 31, 2020 was 205,000.

The weighted average fair value of options granted during the years

ended December 31, 2019 and 2018 was $0.50 and $0.72 per share, respectively.

The total intrinsic value of options exercised during

The weighted average fair value of options

granted during the years ended December 31, 2020 and 2019 was $0.64 and $0.50 per share, respectively.

The total intrinsic value

of options exercised during both the years ended December 31, 2020 and 2019 was $0.

The total fair value of shares vested during

the years ended December 31, 2020 and 2019 was $237,000 and $1,210,000, respectively.

The total fair value of shares vested during the years

ended December 31, 2019 and 2018 was $1,210,000 and $224,718, respectively.

the year ended December 31, 2019 and 2018, the Company issued 0 and 535,600 warrants, respectively, in connection with convertible

notes payable and common stock issuances.

following tables summarize the Company’s outstanding warrants as of December 31, 2019 and changes during the two years then

During both the years ended December 31, 2020

and 2019, the Company did not issue warrants, in connection with convertible notes payable and common stock issuances.

The following tables summarize the Company’s

outstanding warrants as of December 31, 2020 and changes during the two years then ended:

Balance, January 1, 2019

6 unchanged sentences

Exercisable at December 31, 2020

fair values of warrants granted were estimated using the Black-Sholes option-pricing model with the following assumption for the

years ended December 31:

Risk-free interest rates

Expected life (in years)

Expected volatility

Dividend yield

Weighted-average grant date fair value per share

SEGMENT REPORTING

accordance with FASB ASC 280, “Segment Reporting”

(“ASC 280”), the Company discloses financial and descriptive

information about its reportable operating segments.

Operating segments are components of an enterprise about which separate financial

information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and

in assessing performance.

Company follows ASC 280, which establishes standards for reporting information about operating segments in annual and interim

financial statements, and requires that companies report financial and descriptive information about their reportable segments

based on a management approach.

ASC 280 also establishes standards for related disclosures about products and services, geographic

areas and major customers.

Company currently divides its operations into two operating segments:

Complex Machining which consists of AIM and NTW and Turbine

Engine Components which consists of Sterling.

Along with its operating subsidiaries, the Company reports the results of our corporate

division as an independent segment.

The accounting policies of each of the segments are the same

as those described in the Summary of Significant Accounting Policies.

Intersegment transfers are recorded at the transferors cost,

and there is no intercompany profit or loss on intersegment transfers.

We evaluate performance based on revenue, gross profit contribution

and assets employed.

information about the Company’s reporting segments for the years ended December 31, 2019 and 2018 are as follows:

In accordance with FASB ASC 280, “Segment

Reporting”

(“ASC 280”), the Company discloses financial and descriptive information about its reportable operating

Operating segments are components of an enterprise about which separate financial information is available and regularly

evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company follows ASC 280, which establishes

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

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

ASC 280 also establishes

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

The Company currently divides its operations

into two operating segments:

Complex Machining which consists of AIM and NTW and Turbine Engine Components which consists of Sterling.

Along with its operating subsidiaries, the Company reports the results of our corporate division as an independent segment.

The accounting policies of each of the segments

are the same as those described in Note 3 –

Summary of Significant Accounting Policies.

Intersegment transfers are recorded

at the transferors cost, and there is no intercompany profit or loss on intersegment transfers.

We evaluate performance based on

revenue, gross profit contribution and assets employed.

Financial information about the Company’s

reporting segments for the years ended December 31, 2020 and 2019 are as follows:

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)

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 9A. Controls and Procedures