What changed in this filing

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Item 9A. Controls and Procedures

2022-03-25 compared with 2021-03-29 · 1067 added, 1368 removed, 449 unchanged (84% of the section changed)

3 unchanged sentences

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)

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, 2021.

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were effective as of December 31, 2021.

Management’s

Report on Internal Control over Financial Reporting

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’s Report

on Internal Control over Financial Reporting

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

2 unchanged sentences

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

their review of our internal controls over financial reporting for the fiscal year ended December 31, 2020, our Chief Executive

Officer and Chief Financial Officer have concluded that our internal controls over financial reporting were effective as of December

31, 2020 in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with U.

This annual report

does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

The rules of the Securities and Exchange Commission do not require an attestation of the Management’s report by our registered

public accounting firm in this annual report.

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

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 their review

of our internal controls over financial reporting for the fiscal year ended December 31, 2021, our Chief Executive Officer and Chief Financial

Officer have concluded that our internal controls over financial reporting were effective as of December 31, 2021 in providing reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

This annual report does not

include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

of the Securities and Exchange Commission do not require an attestation of the Management’s report by our registered public accounting

firm in this annual report.

Change in Internal Control over Financial Reporting

During 2020, we took

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.

During 2021, we took 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.

Except 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, 2021 that have materially affected, or are reasonable likely to materially affect, our internal control over financial

OTHER INFORMATION.

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

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT

Not Applicable

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

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 are:

Luciano (Lou) Melluzzo

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

He joined our company on September 11, 2017 as Chief

Executive Officer.

He joined our company on September 11, 2017 as Chief Executive

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

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.

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.

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.

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.

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.

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

in ship repair services, He also serves as a Director of two other public companies, Bridgeline Digital Inc.

and Decision Point Systems

Inc., as well as a number of private companies.

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.

Prior 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

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.

Taglich has served in various positions in the securities

brokerage industry for the past 25 years Mr.

Taglich holds a Bachelor’s degree from New York University.

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.

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.

in Business Administration from Rutgers University.

He completed the Program for Management Development

at Harvard Business School in 1996.

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.

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.

He also 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.

Rettaliata was employed by Grumman Aerospace

Corporation for twenty-two years, where he attained the position of the 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.

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.

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.

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.

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.

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.

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.

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

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 School.

Michael Porcelain has

been a director of our Company since October 23, 2017.

Since January 2022, he has severed as President and Chief Executive Officer

(“CEO”) and a member of the Board of Directors of Comtech Telecommunications Corp., (“Comtech”) a publicly

traded company and a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies.

He was first appointed President of Comtech in January 2020 and also served as Comtech Chief Operating Officer since October 2018.

to holding these positions, he served as Comtech’s Chief Financial Officer from 2006 through 2018, and from 2002 to March 2006,

he served as Comtech’s Vice President of Finance and Internal Audit.

From 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 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 has served as an Adjunct Professor at St.

John’s University located in New York where he taught graduate level accounting

Porcelain has a B.S.

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in Accounting and an M.B.A.

from Binghamton University.

and Robert F.

degree from Binghamton University.

Taglich and Robert

Taglich are brothers.

2 unchanged sentences

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.

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.

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.

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.

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

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.

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

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.

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

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

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

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

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

S-8 (Registration No.

(a) Consolidated Financial Statements of Air Industries Group for the Year ended December 31, 2021 and 2020.

(b) 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.

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 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).

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 (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).

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)

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)

Second 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 August 5, 2021)

Third Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 8, 2021)

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).

Settlement 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).

Promissory 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).

Promissory 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).

Promissory 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).

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).

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).

2013 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).

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

S-8 (Registration No.

2015 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).

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.

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.

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

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

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

(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.

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.

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

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Section 1350).

XBRL Taxonomy Extension Schema Document*

XBRL Taxonomy Extension Calculation Linkbase Document*

XBRL Taxonomy Extension Definition Linkbase Document*

XBRL Taxonomy Extension Label Linkbase Document*

XBRL Taxonomy Extension Presentation Linkbase Document*

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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.

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 25, 2022

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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.

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

25, 2022 in the capacities indicated.

/s/ Luciano Melluzzo

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/s/ Robert F.

/s/ Robert Schroeder

Robert Schroeder

/s/ Michael Brand

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Michael Porcelain

AIR INDUSTRIES GROUP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm (Rotenberg Meril Solomon Bertiger & Guttilla, P.C., Saddle Brook, NJ, PCAOB ID:

Consolidated Financial Statements:

Consolidated Balance Sheets – As of December 31, 2021 and 2020 F-4

Consolidated Statements of Income – For the Years Ended December 31, 2021 and 2020 F-5

Consolidated Statements of Stockholders’ Equity – For the Years Ended December 31, 2021 and 2020 F-6

Consolidated Statements of Cash Flows – For the Years Ended December 31, 2021 and 2020 F-7

Notes to Consolidated Financial Statements F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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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

balance sheets of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related

consolidated statements of income, 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, 2021 and 2020, 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.

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 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.

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

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) are 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 – Refer to 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)

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.

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.

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

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.

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

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.

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.

The Company records inventory at the lower of cost

or 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.

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

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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 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.

We tested the finished goods inventory report for any finished goods with no movement in the last two years.

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

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 goods.

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

/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

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Current Assets

Cash and Cash Equivalents

and Cash Equivalents

Accounts Receivable, Net of Allowance for Doubtful Accounts of $ 594,000 and $ 964,000

Prepaid Expenses and Other Current Assets

Prepaid Taxes

Total Current Assets

Property and Equipment, Net

Operating Lease Right-Of-Use-Asset

Deferred Financing Costs, Net, Deposits and Other Assets

LIABILITIES AND STOCKHOLDERS’

Current Liabilities

Notes Payable and Finance Lease Obligations - Current Portion

Notes Payable - Related Party - Current Portion

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

Operating Lease Liabilities - Current Portion

Deferred Gain on Sale - Current Portion

Deferred Revenue

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

Income Taxes Payable

Deferred payroll tax liability - CARES Act - Current Portion

Total Current Liabilities

Long Term Liabilities

Notes Payable and Finance Lease Obligations - Net of Current Portion

Notes Payable - Related Party - Net of Current Portion

Operating Lease Liabilities - Net of Current Portion

Deferred Gain on Sale - Net of Current Portion

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

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

TOTAL LIABILITIES

Commitments and Contingencies

Stockholders’

Expenses and Other Current Assets

Total Current

and Equipment, Net

Lease Right-Of-Use-Asset

Financing Costs, Net, Deposits and Other Assets

AND STOCKHOLDERS’ EQUITY

Notes Payable

and Finance Lease Obligations - Current Portion

Payable and Accrued Expenses

Lease Liabilities - Current Portion

Gain on Sale - Current Portion

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

payroll tax liability - CARES Act - Current Portion

Total Current

Notes Payable

and Finance Lease Obligations - Net of Current Portion

Notes Payable

- Related Party - Net of Current Portion

Lease Liabilities - Net of Current Portion

Gain on Sale - Net of Current Portion

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

payroll tax liability - CARES Act - Net of Current Portion

and Contingencies

Stockholders’

Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both December 31, 2021 and December 31, 2020.

Common Stock - Par Value $ .001 - Authorized 60,000,000 Shares, 32,128,006 and 31,906,971 Shares Issued and Outstanding as of December 31, 2021 and December 31, 2020, respectively

Additional Paid-In Capital

Accumulated Deficit

Paid-In Capital

( 64,534,000 )

( 66,161,000 )

TOTAL STOCKHOLDERS’

TOTAL LIABILITIES AND STOCKHOLDERS’

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Operations

Consolidated Statements of Income

For the Years Ended December 31,

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Operating Expenses

Loss on abandonment of Leases

Income (loss) from Operations

( 1,439,000 )

Interest and Financing Costs

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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)

Income (Loss) before Benefit From Income Taxes

Benefit from Income Taxes

( 1,412,000 )

Income (Loss) per share from continuing Operations - Basic

Income from Continuing Operations, net of tax

Loss from Discontinued Operations, net of tax

Income per share from Continuing operations - Basic

Loss per share from Discontinued Operations - Basic

Income (Loss) per share from Continuing Operations - Diluted

Income per share from Continuing operations - Diluted

Loss per share from Discontinued Operations - Diluted

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AIR INDUSTRIES GROUP

Consolidated Statements of Stockholders’

For the Years Ended December 31, 2021 and 2020

Stockholders’

Balance, January 1, 2020

$ ( 67,257,000 )

Common Stock issued for legal fees

Issuance of Common Stock

Issuance of Common Stock for Note Conversion

Common Stock issued for directors fees

Share Issuance Costs

Costs related to issuance of stock

Issuance of Common Stock

Common Stock Issued for Convertible Notes

Stock Compensation Expense

Other Adjustments - Shares Issued

Other Adjustments - FV Allocation

Other Adjustments - Rounding

Adjustments for other note conversion

Balance, December 31, 2020

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Common Stock issued for directors fees

Costs related to issuance of stock

Issuance of Common Stock

Common Stock Issued for Convertible Notes

Stock Options exercised

Stock Compensation Expense

Adjustments for other note conversions

Balance, December 31, 2021

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AIR INDUSTRIES GROUP

Consolidated Statements of Cash Flows For

the Years Ended December 31,

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 income (loss) to net cash used in operating activities

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

Depreciation of property and equipment

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Non-cash directors compensation

Non-cash legal expenses paid by issuance of stock

Non-cash other income recognized

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Non-cash deferred payroll tax expense - CARES Act

Loss on abandonment of lease

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

Bad debt expense

Bad debt (recovery) expense

Amortization of deferred financing costs

Forgiveness of notes payable - SBA loan

Changes in Assets and Liabilities

( 2,414,000 )

Changes in Operating Assets and Liabilities

(Increase) Decrease in Operating Assets:

Accounts receivable

( 1,589,000 )

( 1,045,000 )

( 3,474,000 )

Prepaid expenses and other current assets

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Accounts payable and accrued expenses

( 1,594,000 )

Operating lease liabilities

Deferred revenue

Income taxes payable

NET CASH USED IN OPERATING ACTIVITIES

Deferred revenue

Deferred payroll tax expense - CARES Act

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

( 1,525,000 )

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

( 1,364,000 )

( 3,797,000 )

NET CASH USED IN INVESTING ACTIVITIES

( 1,364,000 )

( 3,797,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

Note payable - revolver - net - Sterling National Bank

Note payable - revolver - net - PNC

Note payable - revolver - net - Webster Bank

( 3,193,000 )

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

Proceeds from note payable - term note - Webster Bank

Payments of note payable - term note - Webster Bank

( 1,371,000 )

SBA loan proceeds - Webster Bank

Payments of finance lease obligations

Proceeds from issuance of common stock

Share issuance costs

Proceeds from notes payable - related party

Deferred financing costs

Payments of notes payable - related party

( 1,000,000 )

Payments of notes payable - third party

Payments of loan payable - financed assets

Deferred financing costs

Proceeds from issuance of common stock

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Payments of loan payable - financed asset

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

( 4,578,000 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 1,878,000 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

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AIR INDUSTRIES GROUP

Consolidated Statements of Cash Flows For

the Years Ended December 31, (Continued)

Consolidated Statements of Cash Flows For the

Years Ended December 31, (Continued)

Supplemental cash flow information

Cash paid during the period for interest

Cash paid during the period for income taxes

Supplemental disclosure of non-cash transactions

Cash paid during the year for interest

Cash refunded during the year for income taxes, net of taxes paid

Cash paid during the year for taxes

Supplemental disclosure of non-cash investing and financing activities

Acquisition of financed lease asset

Capitalization of related party interest to principal

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

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FORMATION AND BASIS OF PRESENTATION

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 Group is a Nevada corporation (“AIRI”).

of and for the year ended December 31, 2021 and 2020, the accompanying condensed consolidated financial statements presented are those

of AIRI, and its wholly-owned subsidiaries;

Air Industries Machining Corp.

(“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.

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.

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.

(“AIM”), Nassau Tool Works, Inc.

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

At each reporting period, management evaluates

whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within

one year after the date that the financial statements are issued.

The Company is required to make certain additional disclosures if management

concludes that substantial doubt exists about the Company’s ability to continue as a going concern and such doubt is not alleviated

by the Company’s plans or when the Company’s plans alleviate substantial doubt about its ability to continue as a going concern.

The evaluation entails analyzing prospective operating budgets and forecasts for expectations regarding 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.

Although the global outbreak of COVID-19 negatively

impacted the Company’s revenues, earnings and operating cash flows in 2020, management believes the Company’s operations substantially

returned to normal in fiscal 2021.

With fiscal 2021 now completed and the Company continuing to see the benefits from its recent investments

in machinery and equipment, management believes the Company will continue to improve its liquidity.

During 2021, the Company generated

$ 4,064,000 of cash from operating activities.

As such, based on the Company generating $ 4,064,000 of cash from operating activities as

well as generating operating income of $ 2,487,000 for the year ended December 31, 2021, its current best estimates of fiscal 2022 sales,

confirmed and expected orders, the strength of existing backlog, overall market demand, expected timing of future cash receipts and expenditures

and the Company’s ability to access additional liquidity, if needed, the Company believes it will have adequate cash to support

operations through at least March 31, 2023.

Reclassifications

Reclassifications occurred to certain 2020 amounts

to conform to the 2021 classification.

These reclassifications had no impact on the Company’s financial position and net income.

Subsequent Events

Management has evaluated subsequent events

through the date of this filing.

Management has evaluated subsequent events through

the date of this filing.

DISCONTINUED OPERATIONS

As discussed in Note 1, the Company closed

EPC and ECC as of March 31, 2019.

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,

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

Operating expenses:

Selling, general and administrative

Total operating loss

Interest expense

Other expense

Loss from discontinued operations before income taxes

the Company and CPI Aerostructures (“CPI”), the buyer of our subsidiary Welding Metallurgy, Inc.

(“WMI”), 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 and classified as other expense for the year ended December 31, 2020.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

The Company is a Tier 1 or Tier 2 manufacturer of precision assemblies

and components for mission-critical aerospace and defense applications, and a prime contractor to the U.S.

Department of Defense.

Company’s AIM and NTW subsidiaries manufactures flight critical or flight safety aircraft components including landing gear, arresting

gear, flight controls, primarily for military aircraft, including the UH-60 Helicopter, the E2-D, and F-35, F-18 fighter aircraft, and

the Pratt & Whitney Geared Turbofan jet engine.

Sterling manufactures components used in jet engines of military and commercial aircraft

and ground power turbine engines.

The Company’s primary customers are large publicly traded companies including the four largest

suppliers to the US Department of Defense.

Principles of Consolidation

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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”).

Significant intercompany accounts and transactions have been eliminated

in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents include all highly

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

Cash and cash equivalents include all highly liquid

instruments with an original maturity of three months or less.

Accounts Receivable

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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

At each reporting period, the Company evaluates

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

year after the date that the financial statements are issued.

We are required to make certain additional disclosures if we conclude

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

our ability to continue as a going concern.

The evaluation entails analyzing prospective operating budgets and forecasts for expectations

of our cash needs and comparing those needs to the current cash and cash equivalent balance and expectations regarding cash to

be generated over the following year.

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

See Note 1 –

of COVID-19 for a further discussion.

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.

Inventory Valuation

The Company values inventory at the lower

of cost on a first-in-first-out basis or an estimated net realizable value.

The Company does not take physical inventories at interim

quarterly reporting periods, however, a full physical inventory is taken annually.

Adjustments to reconcile the annual physical

inventory to the Company’s books are treated as changes in accounting estimates and are recorded in the fourth quarter.

The Company values inventory at the lower of cost

on a first-in-first-out basis or an estimated net realizable value.

The Company generally purchases raw materials

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for orders have been received for finished goods.

It occasionally produces larger more complex products, such as landing gear,

in excess of purchase order quantities in anticipation of future purchase order demand.

Historically this excess has been used

in fulfilling future purchase orders.

The Company purchases supplies and materials useful in a variety of products as deemed necessary

even though orders have not been received.

The Company periodically evaluates inventory items that are not secured by purchase

orders and establishes write-downs to estimated net realizable value for obsolescence accordingly.

The Company also writes-down

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

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.

It occasionally produces larger more complex products, such as landing gear, in excess

of purchase order quantities in anticipation of future purchase order demand.

Historically this excess has been used in fulfilling future

purchase orders.

The Company purchases supplies and materials useful in a variety of products as deemed necessary even though orders have

not been received.

The Company periodically evaluates inventory items that are not secured by purchase orders and establishes write-downs

to estimated net realizable value for obsolescence accordingly.

The Company also writes-down inventory to estimated net realizable value

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

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

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 23, 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.

Balance at Beginning of Year

Charges to Loss on Sale of Subsidiary

Balance at end of year

Valuation reserve deducted from Prepaid Expenses and Other Current Assets:

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$ ( 1,770,000 )

Year ended December 31, 2019

Property and Equipment

Property and equipment are carried at cost

net of accumulated depreciation and amortization.

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.

Property, equipment, and improvements

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

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

Long-Lived and Intangible Assets

Identifiable intangible assets are amortized

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

Identifiable intangible assets are amortized using

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

Long-lived assets and intangible assets subject

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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.

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.

Deferred Financing Costs

Costs incurred with obtaining and executing

revolving debt arrangements are capitalized and recorded in current assets and amortized using the effective interest method over

the term of the related debt.

Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction

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 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.

Costs incurred with obtaining and executing revolving

debt arrangements are capitalized and recorded in current assets and amortized using the effective interest method over the term of the

related debt.

Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying

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

The amortization

of financing costs is included in interest and financing costs in the Consolidated Statements of Income.

Revenue Recognition

The Company accounts for revenue recognition

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.

The Company accounts for revenue recognition in

accordance with accounting guidance codified as FASB ASC 606 “Revenue from Contracts with Customers” (“ASC 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 occurred.

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 customers.

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.

Customer requests to return products

are reviewed by the contracts department and if the request is approved, a credit is issued upon receipt of the product.

Net sales represent

gross sales less returns and allowances.

Use of Estimates

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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.

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.

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 75.4 %

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.

of total sales, and three customers that represented 73.9 % of total sales for the years ended December 31, 2021 and 2020, respectively.

This is set forth in the table below.

Percentage of Sales

* 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 74.7 %

of gross accounts receivable and 80.3 % of gross accounts receivable at December 31, 2021 and 2020, respectively.

set forth in the table below.

This is set forth in

the table below.

Percentage of Receivables

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

The Company has not experienced any losses on these

The Company has not experienced any losses on these accounts.

Major Suppliers

2 unchanged sentences

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

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.

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

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 method.

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.

Future realization of

deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law.

on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable.

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.

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 )

Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and

Earnings per share

Basic earnings 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

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 from

continuing operations applicable to common stockholders utilized to calculate the numerator for EPS:

Income from continuing operations - Basic

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

Income from continuing operations used to calculate earnings per share

The following is a reconciliation of the denominators of basic and

diluted EPS computations for continuing operations:

Weighted average shares outstanding used to compute basic

earnings per share

Effect of dilutive stock options and warrants

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

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

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:

Per share amount - basic

Per share amount - diluted

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

Convertible notes payable

Stock-Based Compensation

The Company accounts for stock-based compensation

in accordance with FASB ASC 718, “Compensation –

Stock Compensation.”

Under the fair value recognition provision

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

The Company estimates

the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their

closing reported market value.

in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of

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

The Company estimates the

fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing

reported market value.

Stock compensation expense for employees amounted to $ 443,000 and $ 308,000 for the years ended December 31, 2021

and 2020, respectively.

Stock compensation expense for directors amounted to $211,000 and $244,000 for the years ended

December 31, 2020 and 2019, respectively.

Stock compensation expenses for employees and directors were included in operating expenses

on the accompanying Consolidated Statement of Operations.

Stock compensation expense for directors amounted to $ 210,000 and $ 211,000 for the years ended December 31, 2021

and 2020, respectively.

Stock compensation expenses for employees and directors were included in operating expenses in the accompanying

Consolidated Statements of Income.

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.

The goodwill amount of $ 163,000 at December 31, 2021 and

2020 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):

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.

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 carrying amount.

The Company determined that there has been no

impairment of goodwill at December 31, 2021 and 2020.

Freight out is included in operating expenses

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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.

Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s

Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified as a result of the complexity associated

with applying GAAP for certain financial instruments with characteristics of liabilities 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 (effective January 1, 2022 for the Company).

The Company does not expect that the adoption of this new accounting

guidance will have a material effect on its financial statements.

On January 21, 2021, the Company adopted ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify

various aspects related to accounting for income taxes.

1 unchanged sentence

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 adoption of ASU 2019-12 did not have a material

effect on its financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial

Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit

losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 replaces

the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss

on most financial assets and certain other instruments.

Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses,

rather than as a direct write-down of the amortized cost basis of a financial asset.

The impairment allowance is a valuation account deducted

from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset.

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.

Early adoption is permitted.

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

The Company does not believe that any other

recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying

consolidated financial statements.

Reclassifications

Reclassifications occurred to certain 2019 amounts to conform

to the 2020 classification.

These reclassifications had no impact on the statement of operations.

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.

ACCOUNTS RECEIVABLE

4 unchanged sentences

Accounts Receivable Net

The allowance for doubtful accounts for the

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

The allowance for doubtful accounts for the years

ended December 31, 2021 and 2020 is as follows:

Balance at Beginning of Year

Charged to Costs and Expenses

Deductions from Reserves

Balance at End of Year

Year ended December 31, 2021 Allowance for Doubtful Accounts

Year ended December 31, 2020 Allowance for Doubtful Accounts

The components of inventory at December 31,

consisted of the following:

The components of inventory at December 31, consisted

of the following:

Raw Materials

1 unchanged sentence

Finished Goods

( 3,154,000 )

( 2,595,000 )

Total Inventory

The Company periodically evaluates inventory and establishes reserves

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

PROPERTY AND EQUIPMENT

The 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

15 unchanged sentences

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

as of December 31, 2020 and 2019, respectively.

Depreciation of assets under finance leases is included

in depreciation expense for 2021 and 2020.

Accumulated depreciation on these assets was approximately $ 36,000 and $ 28,000 as of December

31, 2021 and 2020, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

8 unchanged sentences

SALE AND LEASEBACK TRANSACTION

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

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

The unrecognized portion of the gain in the amount of $ 181,000 and $ 219,000 as of December 31, 2021 and 2020, respectively,

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

The Company accounted for these transactions under

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

Simultaneous with the closing of the sale of the

Bay Shore Property, the Company entered into a 20-year triple- net lease (the “Lease”) expiring in September 2026 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 of $89,000 as security for the performance of its obligations under the Lease.

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

In addition, at December 31,

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 –

2021, the Company had on deposit $150,000 with the purchaser 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 facility.

At December 31, 2021, 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.

– 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

Notes payable, related party notes payable and

finance lease obligations consist of the following:

Revolving credit note payable to Webster Bank (F/K/A Sterling National Bank) (“Webster”)

Term loan, Webster

Finance lease obligations

Loans Payable - financed assets

Related party notes payable, net of debt discount

Convertible notes payable-third parties, net of debt discount

Related party notes payable

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

1 unchanged sentence

( 16,475,000 )

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

Sterling National Bank (“SNB”)

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

current portion

Webster Bank (F/K/A Sterling National Bank)

On December 31, 2019, the Company entered into

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 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.

a loan facility (“Webster Facility”) with Webster expiring on December 30, 2022.

The loan facility originally provided for

a $ 16,000,000 revolving loan (“Webster revolving line of credit”) and a term loan (“Webster term loan”).

In 2020, the Company entered into the First Amendment

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

The terms of the amendment increased 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 30, 2022.

Additionally, the date by

which certain subordinated third-party notes need to be extended was changed from September 30, 2020 to November 30, 2020.

paid an amendment fee of $20,000.

On June 14, 2021, the Company entered into the

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

The purpose of the Second Amendment was to clarify

the definition and calculation of Excess Cash Flow, and to confirm the extension of the due date for the payment of the Excess Cash Flow

For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal

year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow for such

fiscal year and (ii) the outstanding principal balance of the term loan.

Such payment shall be made to Webster and applied to the outstanding

principal balance of the term loan, on or prior to the close of the fiscal year immediately following such fiscal year.

The amount of

the Excess Cash Flow payment for the year ended December 31, 2020 was calculated to be $558,750.

Per the terms of the Second Amendment,

the Excess Cash Flow was payable in three instalments of $186,250 on each of June 15, 2021, June 30, 2021, and September 15, 2021.

of September 30, 2021, the Company paid this in full.

Additionally, the Company paid an amendment fee of $ 10,000 .

The amount of the Excess

Cash Flow for the year ended December 31, 2021 was calculated to be $ 787,000 .

This is scheduled to be paid on or about April 15, 2022

per the terms of the Webster Facility.

On December 7, 2021, the Company entered in the

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

The purpose of the amendment was to extend the maturity

date of both the Webster revolving line of credit and the Webster term loan by three years, from December 30, 2022 to December 30, 2025.

Additionally, the Webster revolving line of credit was increased to $20,000,000 from $16,000,000 and the inventory sublimit for the Webster

revolving line of credit was increased to $14,000,000 from $11,000,000.

Under the terms of the Third Amendment, the Company is now allowed,

subject to certain limitations, to begin amortizing a portion of its subordinated debt.

The Company paid an amendment fee of $75,000 pursuant

to this amendment which is included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying Consolidated Balance

Sheets and is amortized over the term of the loan.

The terms of the Webster 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

As of December 31, 2021, and 2020, the Company was in compliance with all loan covenants.

The Webster 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 Webster Facility.

The aggregate payments for the term note at December

31, 2021 are as follows:

For the year ending

December 31, 2022

December 31, 2023

SNB Term Loans payable

December 31, 2024

December 31, 2025

Webster Term Loan payable

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”)

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.

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.

Total Webster Term Loan payable, net of debt issuance costs

Current portion of Webster Term Loan payable

( 1,599,000 )

Total long-term portion of Webster Term Loan payable

Under the terms of the Webster Facility, both the Webster

revolving line of credit and the Webster term loan bear interest at a rate equal to the sum of a Base Rate plus an Applicable

The Base rate is the greater of (a) 3.5 % and (b) the rate per annum published from time to time in the “Money

Rates” table of the Wall Street Journal as the base or prime rate for corporate loans.

The Webster credit agreement provides

for several alternative rates if in the future the Wall Street Journal no longer publishes a base or prime rate.

The Applicable

Margin is minus 0.65 %.

In both 2021 and 2020 the average interest paid was 3.5 %.

As of December 31, 2021, the Company’s debt

to Webster in the amount of $ 16,648,000 consisted of the Webster revolving line of credit note in the amount of $ 12,456,000 and the Webster

term loan in the amount of $ 4,192,000 .

Interest expense for the year ending December 31, 2021 amounted to $ 704,000 for this credit facility.

As of December 31, 2020, the Company’s debt

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

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

Interest expense for the year ending December 31, 2020 amounted to $ 586,000 for the Webster facility.

Finance Lease Obligations

The Company entered into a Finance lease in December

of 2021 for the purchase of new manufacturing equipment.

The obligation for the Finance lease as of December 31, 2021 is $ 262,000 .

lease has an imputed interest rate of 4.2 % per annum and is payable monthly with the final payment due on December 17, 2026.

As of December 31, 2021, the aggregate future

minimum finance lease payments, including imputed interest are as follows:

For the year ending

December 31, 2022

December 31, 2023

December 31, 2024

December 31, 2025

December 31, 2026

Total future minimum finance lease payments

imputed interest

Current portion

Long-term portion

Loans Payable – Financed Assets

The Company financed the purchase a delivery vehicle

in July 2020.

The loan obligation totaled $ 39,000 and $ 48,000 as of December 31, 2021 and 2020, respectively.

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:

4 unchanged sentences

December 31, 2025

Loans Payable - financed assets

5 unchanged sentences

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.

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.

Placement of Subordinated Notes due May 31, 2019, together with Shares of Common Stock

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.

Unamortized debt discounts related to these notes amounted to $0 and $226,000 as of December 31,

2020 and 2019, respectively.

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.

From 2016 through 2020, the Company entered into

various subordinated notes payable and convertible subordinated notes payable with Michael and Robert Taglich.

These notes resulted in

proceeds to the Company totaling $6,550,000.

In connection with these notes, Michael and Robert were issued a total of 355,082 shares

of common stock and Taglich Brothers Inc.

was issued promissory notes totaling $554,000 for placement agency fees.

At December 31, 2020,

related party notes payable totaled $6,012,000 and accrued interest totaled $400,000.

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

notes due to Michael and Robert Taglich and Taglich Brothers, Inc., were amended to include all accrued interest through December 31,

2020 in the principal balance of the notes.

Per the terms of the Webster Facility, these notes remain subordinate to the Webster Facility

and are due on July 1, 2026.

Approximately $2,732,000 of the related party subordinated notes can be converted at the option of the holder

into Common Stock of the Company at $1.50 per share, while the remaining $2,080,000 of the related party subordinated notes can be converted

at the option of the holder into common stock of the Company at $0.93 per share.

There are no principal payments due on these notes.

the terms of the Third Amendment to the Webster Facility, the Company is now allowed, subject to certain limitations, to begin amortizing

a portion of this subordinated debt.

The note holders and the principal balance of the notes as amended on January 1, 2021 are shown below:

Michael Taglich,

Robert Taglich,

Taglich Brothers,

1 unchanged sentence

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

The interest rate on the Convertible Subordinated

Notes in the principal amount of $2,732,000 bear interest at a rate of 6%, and in the principal amount of $2,080,000 bear interest at

a rate of 7%.

The Subordinated Notes in the amount of $1,600,000 bear interest at the rate of 12% .

For the years ended December 31, 2021 and 2020,

no principal payments have been made on these notes and the principal balances remain unchanged from the table above.

Interest expense

for the years ended December 31, 2021 and 2020 on all related party notes payable was $ 460,000 and $ 781,000 , respectively.

In May 2020, AIM, NTW and Sterling entered into

SBA Loans with Webster as the lender in an aggregate principal amount of $2,414,000, which was forgiven by the SBA in December of 2020.

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.

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”).

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

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.

The Company’s assessment is based on:

(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 Company has operating and finance leases for

leased office and manufacturing facilities and equipment leases.

The Company leases certain machinery and equipment under finance leases

and leases its offices and manufacturing facilities under operating leases.

The leases have remaining lease terms of one to six years,

some of which include options to extend or terminate the leases.

Weighted Average Remaining Lease Term - in years

Weighted Average discount rate - %

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, 2022

7 unchanged sentences

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.

On April 29, 2021 the Company entered into an

agreement to surrender possession of the premises of the former corporate office, located in Hauppauge, NY.

The Company made a one-time

payment of 40 % of the remaining balance due to the landlord as of May 1, 2021, approximately $ 37,000 .

The Company had previously recognized

a lease 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

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 of $1,746.

Rent expense for the years ended December 31,

2021 and 2020 was $ 1,069,000 and $ 1,173,000 , respectively.

LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM

DISPOSITION OF SUBSIDIARY

In connection with the sale of the Company’s

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.

(“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”).

In order to increase liquidity, on January 15,

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.

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 its 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.

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

To the extent the Purchasers exercise their Put Right, the remaining payments from Meyer will be retained by the Company.

The Company recognized $ 326,000 and $ 402,000 of

non-cash income for the years ended December 31, 2021 and 2020, respectively, reflected in “other income, net” on the consolidated

statements of income and recorded $ 98,000 and $ 122,000 of related non-cash interest expense related to the Purchase Agreement for the

years ended December 31, 2021 and 2020, respectively.

The table below shows the activity within the

liability account for the years ended December 31, 2021 and 2020:

Cash received from sale of future proceeds from disposition of subsidiary

Liabilities related to sale of future proceeds from disposition of subsidiary –

beginning balance

December 31, 2021

December 31, 2020

Liabilities related to sale of future proceeds from disposition of subsidiaries - beginning

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

Liability related to sale of future proceeds from disposition of subsidiary, net

STOCKHOLDERS’

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.

Liability related to sale of future proceeds from disposition of subsidiary,

STOCKHOLDERS’ EQUITY

Common Stock – Issuance 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 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 director’s fees totaling $ 211,000 .

During the year ended December 31, 2021, the Company

issued 169,811 shares of common stock in payment of directors’ fees totaling $ 210,000 .

During the year ended December 31, 2021, the Company

issued 51,224 shares of common stock for the cashless exercise of stock options.

During the first quarter of 2022, 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.

issued 55,214 shares of common stock in payment of directors’ fees totaling $ 50,000 .

EMPLOYEE BENEFITS PLANS

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 $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.

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, 2021 and expires on December 31, 2024 and covers all of AIM’s production personnel, of which there are

approximately 131 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 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 $ 147,000 and $ 134,000 for the years ended December 31, 2021 and 2020, respectively.

The Company accounts for its Union retirement

plan under ASU No.

2011-09, “Compensation - Retirement Benefits-Multiemployer Plans (Subtopic 715-80):

Disclosures about an Employer’s

Participation in a Multiemployer Plan” (“ASU 2011-09”).

ASU 2011-09 requires additional disclosures about an employer’s

participation in a multiemployer pension plan.

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.

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 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.

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 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.

On October 2, 2018, Contract Pharmacal Corp.

Pharmacal”) commenced an action, 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 its subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York.

In the action Contract

Pharmacal sought damages for an amount in excess of $ 1,000,000 for the Company’s failure to make the entire premises available by

the Sublease commencement date.

On July 8, 2021, the Court denied Contract Phamacal’s motion for summary judgement.

In the Order,

the court granted Contract Pharmacal’s Motions to drop its claim for specific performance and to amend its Complaint to reduce its

claim for damages to $ 700,000 .

Contract Pharmacal filed a Motion to reargue which the Court denied on November 30, 2021.

2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which the Company will oppose.

Company disputes the validity of the claims asserted by Contract Pharmacal, continues to believe it has a meritorious defense to those

claims and intends to dispute the validity of the claim asserted by Contract Pharmacal.

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.

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.

The provision for (benefit from) income taxes

3 unchanged sentences

Total (Benefit from) Expense for Income Taxes

Deferred Tax Benefit

Valuation Allowance

( 1,412,000 )

Net (Benefit from) Provision for Income Taxes

3 unchanged sentences

statutory income tax rate

Permanent difference, overaccruals, and non-deductible items

Permanent difference, over accruals, and non-deductible items

Rate change and provision to return true-up

10 unchanged sentences

Capitalized engineering costs

Deferred rent

Amortization - NTW Transaction

7 unchanged sentences

( 9,628,000 )

( 9,394,000 )

Total non-current deferred tax asset after valuation allowance

1 unchanged sentence

Property and equipment

( 1,626,000 )

( 2,150,000 )

Total deferred tax liabilities

( 1,626,000 )

( 2,550,000 )

Net deferred tax asset

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 $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

During the years ended December 31, 2021 and 2020,

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, 2021 and 2020, the Company provided a valuation

allowance on its net deferred tax assets of $ 9,628,000 and $ 9,394,000 , respectively.

As of December 31, 2021, the Company had a Federal

net operating loss carry forward of approximately $ 29,100,000 , of which $ 22,800,000 expires in years through 2037 and $ 6,300,000 that do

At December 31, 2021 and 2020, 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, 2021, and 2020, 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

The Company files federal and

state income tax returns in jurisdictions with varying statutes of limitations.

The 2018 through 2021 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 in 2020.

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 this time.

STOCK OPTIONS AND WARRANTS

1 unchanged sentence

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%;

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

The 2017 Plan was approved by affirmative vote of the Company’s stockholders on October 3, 2017.

During the year ended December 31, 2021, the Company

granted options to purchase 847,500 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 0.35 % to 0.83 %;

expected volatility factors of 73.2 % to 75.2 %;

expected dividend yield of 0 %;

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%;

and expected life of 2.5 to 4 years.

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.

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 0.22 % to 1.61 %;

expected volatility factors of 71.5 % to 75.4 %;

expected dividend yield of 0 %;

life of 4.9 to 6.8 years.

and expected life of 2.5 to 4 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.

of $ 443,000 and $ 308,000 in its Consolidated Statements of Income for the years ended December 31, 2021 and 2020, respectively, and

such amounts were included as a component of general and administrative expense.

The fair values of stock options granted were

11 unchanged sentences

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

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 experience.

A summary of the status of the Company’s

stock options as of December 31, 2021 and 2020, and changes during the two years then ended are presented below.

Balance, January 1, 2020

Granted during the period

Exercised during the period

Terminated/Expired during the period

Granted during the year

Exercised during the year

Terminated/Expired during the year

Balance, December 31, 2020

Granted during the period

Exercised during the period

Terminated/Expired during the period

Granted during the year

Exercised during the year

Terminated/Expired during the year

Balance, December 31, 2021

Exercisable at December 31, 2021

The following table summarizes information

about stock options at December 31, 2020:

The following table summarizes information about

outstanding stock options at December 31, 2021:

Range of Exercise Price

1 unchanged sentence

$ 0.88 - $ 2.38

$5.01 - $15.00

The following table summarizes information about

exercisable stock options at December 31, 2021:

Range of Exercise Price

Exercise Price

$ 0.88 - $ 2.38

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.

As of December 31, 2021, there was $ 166,000 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, 2021

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, 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.

was based on the Company’s closing stock price of $ 0.91 was approximately $ 12,000 .

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 prices of the underlying

The weighted average fair value of options granted

during the years ended December 31, 2021 and 2020 was $ 0.60 and $ 0.64 per share, respectively.

The total intrinsic value of options exercised

during the years ended December 31, 2021 and 2020 was $ 100,000 and $ 0 , respectively.

The total fair value of shares vested during the

years ended December 31, 2021 and 2020 was $ 339,000 and $ 237,000 , respectively.

During both the years ended December 31, 2021

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

and 2020, the Company did not issue any warrants.

The following tables summarize the Company’s

outstanding warrants as of December 31, 2021 and changes during the two years then ended:

Balance, January 1, 2020

Granted during the period

Terminated/Expired during the period

Granted during the year

Terminated/Expired during the year

Balance, December 31, 2020

Granted during the period

Terminated/Expired during the period

Granted during the year

Terminated/Expired during the year

Balance, December 31, 2021

1 unchanged sentence

SEGMENT REPORTING

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.

In 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.

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.

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.

Historically the Company has operated its businesses

and reported its results as two separate segments with AIM and NTW comprising the Complex Machining segment (“CMS”) and SEC

as the Turbine & Engine Component segment (“TEC”).

Our CMS segment specializes in flight critical components including

flight controls and landing gear.

The TEC segment focuses on manufacturing components for jet engines.

Along with its operating subsidiaries,

the Company reports the results of our corporate division as an independent segment.

In recent years the Company integrated and consolidated

the business of AIM and NTW into one facility on Long Island and the operations of our CMS and TEC segments have become increasingly integrated.

The Company also made significant capital expenditures and all of our operations now share the same manufacturing facilities and use most,

if not all, of the same sales and marketing functions.

The Company made these changes to take advantage of the long-term growth opportunities

we see in the A&D market.

In early fiscal 2022, the Company further changed our management approach and will now make decisions about

resources to be allocated and assessing performance based on one integrated business rather than two reporting segments.

As such, effective

with the first quarter ending March 31, 2022, the Company will present its operations as one reportable operating 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

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, 2021 and 2020 are as follows:

1 unchanged sentence

COMPLEX MACHINING

Pre Tax Income from continuing operations

Income before benefit from income taxes

TURBINE ENGINE COMPONENTS

Pre Tax Loss from continuing operations

(Benefit from) provision for Income Taxes

Loss before benefit from income taxes

( 5,290,000 )

( 5,020,000 )

Income (Loss) before benefit from income taxes

Benefit from Income Taxes

( 1,412,000 )

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