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FORMATION AND BASIS OF PRESENTATION

Organization

On August 30, 2013, Air Industries Group, Inc. (“Air Industries Delaware”) changed its state of incorporation from Delaware to Nevada as a result of a merger with and into its newly formed wholly-owned subsidiary, Air Industries Group, a Nevada corporation (“Air Industries Nevada” or “AIRI” ) and the surviving entity, pursuant to an Agreement and Plan of Merger. The reincorporation was approved by the stockholders of Air Industries Delaware at its 2013 Annual Meeting of Stockholders. Air Industries Nevada is deemed to be the successor.

The accompanying consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries; Air Industries Machining Corp. (“AIM”), Welding Metallurgy, Inc. (“WMI” or “Welding”), Miller Stuart, Inc. (“Miller Stuart”), Nassau Tool Works, Inc. (“NTW”), Woodbine Products, Inc. (“Woodbine” or “WPI”), Decimal Industries, Inc. (“Decimal”), Eur- Pac Corporation (“Eur - Pac” or “EPC”), Electronic Connection Corporation (“ECC”), AMK Welding, Inc. (“AMK”), Air Realty Group, LLC (“Air Realty”), the Sterling Engineering Corporation (“Sterling”) effective March 1, 2015, and Compac Development Corporation (“Compac”) effective September 1, 2015, (together, the Company ).

Going Concern

The Company suffered a net loss from operations of $10,789,000 and a net loss of $15,623,000 for the year ended December 31, 2016. The Company also had negative cash flows from operations for the year ended December 31, 2016. In addition, in 2015 the Company ceased paying dividends on its common stock and in 2016 it disposed of the real estate on which one of its operating subsidiaries is located through a sale leaseback transaction, and in January 2017 sold of one of its operating subsidiaries. During the year ended December 31, 2016 and subsequent thereto, the Company has had to sell its debt and equity securities to secure funds to operate its business. Since September 2016 the Company has been issuing additional shares of its Series A Convertible Preferred Stock in lieu of cash payment of accrued dividends on its outstanding shares of Series A Convertible Preferred Stock and since February 2017 it has issued additional convertible notes in lieu of cash payment of accrued interest on its outstanding convertible notes. Furthermore, as of December 31, 2016 the Company was not in compliance with its debt covenants under the Company’s loan facility with PNC Bank.

The continuation of the Company’s business is dependent upon future issuances of equity or other financing to fund ongoing operations. Management of the Company plans to obtain additional financing during the second quarter and the remainder of 2017 through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in dilution to the Company’s existing shareholders. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Subsequent Events

Management has evaluated subsequent events through the date of this filing.

Sale of AMK

On January 27, 2017, the Company sold all of the outstanding shares of AMK to Meyer Tool, Inc., pursuant to a Stock Purchase Agreement dated January 27, 2017 for a purchase price of $4,500,000, subject to a working capital adjustment, plus additional quarterly payments, not to exceed $ 1,500,000, equal to five percent (5%) of Net Revenues of AMK commencing April 1, 2017.

At December 31, 2016, AMK’s assets and liabilities have been reclassified as Assets Held for Sale and Liabilities Directly Associated with Assets Held for Sale, respectively. The carrying value of the assets, net of liabilities, held for sale was less than the contract sales price and accordingly no loss or impairment was recorded for the year ended December 31, 2016.

In connection with the sale of AMK to Meyer Tool, Inc., on January 27, 2017, the Company, together with its wholly-owned subsidiaries, entered into the Fourteenth Amendment to the Amended and Restated Revolving Credit, Term Loan And Security Agreement with PNC Bank, N. A. (the “PNC Loan Agreement”) which amends certain terms and conditions of the PNC Loan Agreement and releases AMK from its obligations under the PNC Loan Agreement.

The proceeds of the sale of AMK were applied as follows: $1,700,000 to the payment of the Term Loan (as defined in the PNC Loan Agreement), $1,800,000 to the payment of outstanding Revolving Advances (as defined in the PNC Loan Agreement), and $500,000 to the payment of existing accounts payable. The remaining $500,000 will be applied to outstanding accounts payable on a future date to be determined by PNC or used to reduce the amount of the Revolving Advance. The amendment also waives the noncompliance at September 30, 2016 with the Fixed Charge Coverage Ratio and the Minimum EBITDA covenants for the period then ended, and requires that the Company maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, tested quarterly on a consolidated rolling twelve (12) month basis; however, for the quarter ending June 30, 2017, which shall be tested based upon the prior six (6) months, the Fixed Charge Coverage Ratio shall not be less than 1.00 to 1.00 and for the quarter ending September 30, 2017, which shall be tested based upon the prior nine (9) months, the Fixed Charge Coverage Ratio shall not be less than 1.10 to 1.00. The amendment also reduces the amount to be paid weekly in repayment of excess advances in the amount of $5,294,071 under the revolving credit facility from $100,000 to $50,000 for each Monday during the months of January, February and March of 2017. Thereafter, the weekly payments will return to $100,000 until such excess advances have been repaid in full.

Related Party Transactions

On February 7, 2017, the Company entered into a Placement Agency Agreement with Taglich Brothers, Inc., as placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to offer on behalf of the Company, on a best efforts basis, up to $1,200,000 of the Company’s 8% Subordinated Convertible Notes due January 31, 2019 (the “2019 Notes”) to accredited investors, together with five-year warrants to purchase 7,692 shares of Common Stock for each $100,000 principal amount of 2019 Notes purchased (the “Warrants”), in a private placement exempt from the registration requirements of the Securities Act. The conversion price of the 2019 Notes, exercise price of the Warrants, as well as the number of shares issuable upon conversion of the 2019 Notes and the exercise of the Warrants, are subject to certain anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations. The Warrants may be exercised on a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise.

Under the terms of the Placement Agency Agreement, the Placement Agent is entitled to a placement agent fee equal to 8% of the gross proceeds of the offering, payable at the Company’s option, in cash or additional convertible notes having the same terms and conditions as the 2019 Notes, and five year warrants to purchase 10% of the number of shares of the Common Stock (the “Placement Agent Warrants”) issuable upon immediate conversion of the 2019 Notes sold in the offering. The Placement Agent Warrants are exercisable at a per share price equal to the closing price of the Common Stock as of the closing immediately prior to the issuance of each 2019 Note.

On February 7, 2017, the Company issued and sold to Robert Taglich a 2019 Note in the principal amount of $250,000, together with a Warrant to purchase 19,230 shares of Common Stock for a purchase price of $ 250,000. The 2019 Note issued to Robert Taglich has a conversion price of $3.71 per share, and the Warrant issued to Robert Taglich has an exercise price of $3.71 per share.

On March 8, 2017, the Company entered into a Placement Agency Agreement with Taglich Brothers, Inc., as placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to offer on behalf of the Company, on a best efforts basis, up to $1,250,000 of the 2019 Notes to accredited investors, together with Warrants to purchase 7,692 shares of Common Stock for each $100,000 principal amount of 2019 Notes purchased, in a private placement exempt from the registration requirements of the Securities Act.

Under the terms of the Placement Agency Agreement, the Placement Agent is entitled to a placement agent fee equal to 8% of the gross proceeds of the offering, payable at the Company’s option, in cash or additional convertible notes and warrants having the same terms and conditions as the 2019 Notes and Warrants, and five year warrants to purchase 10% of the number of shares of the Company’s Common Stock (the “Placement Agent Warrants”) issuable upon immediate conversion of the 2019 Notes. The Placement Agent Warrants are exercisable at a per share price equal to the closing price of the Common Stock as of the closing immediately prior to the issuance of each 2019 Note.

On March 8, 2017, the Company issued and sold to Robert Taglich a 2019 Note in the principal amount of $100,000, together with a Warrant to purchase 7,692 shares of Common Stock for a purchase price of $100,000. The 2019 Note issued to Robert Taglich has a conversion price of $3.30 per share, and the Warrant issued to Robert Taglich has an exercise price of $3.30 per share.

On March 17, 2017, Michael Taglich and Robert Taglich, principal stockholders of the Company, loaned the Company $500,000 on terms to be determined.

Sale of Unregistered Equity Securities

On February 7, 2017 and February 17, 2017, the Company issued an aggregate principal amount of $ 1,000,000 of its 2019 Notes, together with Warrants to purchase an aggregate of 76,929 shares of Common Stock for a total purchase price of $1,000,000 to 9 accredited investors, including Robert Taglich, a director and principal stockholder of the Company. Interest on the 2019 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing May 31, 2017, in cash, or if the Company is prohibited by applicable law or PNC Bank, National Association, its principal lender under the PNC Loan Agreement from paying interest in cash, or otherwise elects to do so, the Company may pay interest at the rate of twelve percent (12%) per annum in the form of additional notes having the same terms and conditions as the 2019 Notes. The outstanding principal amount plus accrued interest on the 2019 Notes is convertible at the option of the holder into shares of Common Stock at an initial conversion price of $3.25, subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the Common Stock and in the event of certain fundamental transactions such as mergers and other business combinations, except that the initial conversion price of the Notes issued to Robert Taglich is $3.71. The Warrants are exercisable on or prior to January 31, 2022. Taglich Brothers, Inc. acted as the placement agent.

On March 8, 2017, March 15, 2017 and March 21, 2017, the Company issued an aggregate principal amount of $1,200,000 of its 2019 Notes, together with Warrants to purchase an aggregate of 92,309 shares of Common Stock for a total purchase price of $1,200,000 to 23 accredited investors, including Robert Taglich, a director and principal stockholder of the Company.

Interest on the 2019 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing May 31, 2017, in cash, or if the Company is prohibited by applicable law or PNC Bank, National Association, its principal lender under the PNC Loan Agreement, from paying interest in cash, or otherwise elects to do so, the Company may pay interest at the rate of twelve percent (12%) per annum in the form of additional notes having the same terms and conditions as the 2019 Notes. The outstanding principal amount plus accrued interest on the 2019 Notes is convertible at the option of the holder into shares of Common Stock at an initial conversion price of $3.25, subject to certain anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations, except that the initial conversion price of the Notes issued to Robert Taglich is $3.30. The Warrants are exercisable on or prior to January 31, 2022. The Warrants issued to the purchasers of the 2019 Notes have an exercise price of $3.30 per share, subject to certain anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations, and may be exercised on a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise. The Warrants may be exercised until January 31, 2022. Taglich Brothers, Inc. acted as placement agent.

ACQUISITIONS

12 Months Ended

Dec. 31, 2016

ACQUISITIONS

The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non - controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include-amortization expense arising from acquired tangible and intangible assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of income.

Sterling

On March 1, 2015, the Company acquired all of the common stock of Sterling for $5.4 million in cash and 425,005 shares of its common stock. The common stock was valued at $9.89 per share, which was the closing share price on February 27, 2015. The cash consideration is subject to adjustment for working capital changes. The Company has also entered into employment and non-compete agreements for two and three year periods with two of the principals of Sterling. In connection with these agreements, the Company granted 52,000 shares of restricted common stock to these individuals, which was accounted for as additional purchase price. The Company financed the acquisition of Sterling with the proceeds from the issuance of Term Loan D (see Note 11).

At the time of acquisition, Sterling had capital lease obligations for equipment with a remaining balance of approximately $1.3 million. On April 21, 2015, the Company refinanced the $1.3 million capital lease obligations with the same financing company. This refinancing generated approximately $588,000 of cash for the Company. This capital lease obligation has been accounted for and summarized with the remainder of the Company's capital leases as disclosed in Note 11.

Sterling, founded in 1941, manufactures components for aircraft and ground turbine engines.

The acquisition of Sterling was accounted for under ASC 805. The provisional purchase price allocation is set forth below.

Fair value of tangible assets acquired	$	8,181,000
Goodwill		4,540,000
Cash acquired		588,000
Liabilities assumed		(3,169,000	)
Total	$	10,140,000

Compac

On September 1, 2015, the Company, through its wholly-owned subsidiary WMI, acquired certain assets, including production equipment, inventory and intangible assets, of Compac in an asset acquisition for $1.2 million in cash plus a working capital adjustment of $271,000.

Compac located in Bay Shore, New York specializes in the manufacture of RFI/EMI (Radio Frequency Interference Electro - Magnetic Interference) shielded enclosures for electronic components.

In connection with the asset purchase, the Company has assumed Compac’s lease for its Bay Shore facility which extends through April 30, 2018 and has annual rent of approximately $ 80,000, which is offset by rent received from the sub-tenant of approximately $20,000 per year.

The acquisition of Compac was accounted for under ASC 805. The provisional purchase price allocation is set forth below.

Fair value of tangible assets acquired	$	406,000
Intangible assets		600,000
Goodwill		560,000
Liabilities assumed		(95,000	)
Total	$	1,471,000

The below table sets forth selected financial information for the 2015 acquisitions, which are included in our reported results of operations, for the year ended December 31, 2015.

For the Year Ended December 31, 2015

	Sterling			Compac

Net Sales	$	6,894,000		$	467,000

Loss from operations	$	(1,196,000	)	$	(14,000	)

The below table sets forth selected proforma financial information as if Sterling were owned for the year ended December 31, 2015.

For the Year Ended December 31, 2015

Net Sales		$	82,281,000
Income from operations		$	773,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

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. Welding is a specialty welding and products provider whose significant customers include the world's largest aircraft manufacturers, subcontractors, and original equipment manufacturers. Miller Stuart is a manufacturer of aerospace components whose customers include major aircraft manufacturers and the US Military. Miller Stuart specializes in electromechanical systems, harness and cable assemblies, electronic equipment and printed circuit boards. Woodbine is a manufacturer of aerospace components whose customers include major aircraft component suppliers. Woodbine specializes in welded and brazed chassis structures housing electronics in aircraft. Eur-Pac specializes in military packaging and supplies. Eur-Pac s primary business is “kitting” of supplies for all branches of the United States Defense Department including ordnance parts, hose assemblies, hydraulic, mechanical and electrical assemblies. AMK is a provider of sophisticated welding and machining services for diversified aerospace and industrial customers. Sterling manufactures components for aircraft and ground turbine engines. Compac specializes in the manufacture of RFI/EMI (Radio Frequency Interference Electro-Magnetic Interference) shielded enclosures for electronic components. The Company’s customers consist mainly of publicly traded companies in the aerospace industry.

Principles of Consolidation

The accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management's estimate of uncollectible amounts considering age, collection history, and any other factors considered 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 market.

The Company generally purchases raw materials and supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts for orders have been received for finished goods. 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 reserves for obsolescence accordingly. The Company also reserves for excess quantities, slow-moving goods, and for other impairments of value.

Assets Held for Sale and Liabilities Directly Associated

Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell and included in current assets. Liabilities associated to business units held for sale are classified as a current liability.

Capitalized Engineering Costs

The Company has contractual agreements with customers to produce parts, which the customers design. Even though the Company has not designed and thus has no proprietary ownership of the parts, the manufacturing of these parts requires pre-production engineering and programming of the Company’s machines. The pre-production costs associated with a particular contract are capitalized and then amortized beginning with the first shipment of product pursuant to such contract. These costs are amortized on a straight-line basis over the estimated length of the contract, or if shorter, three years.

If the Company is reimbursed for all or a portion of the pre-production expenses associated with a particular contract, only the unreimbursed portion would be capitalized. The Company may also progress bill customers for certain engineering costs being incurred. Such billings are recorded as deferred revenues until the appropriate revenue recognition criteria have been met. The Terms and Conditions contained in customer purchase orders may provide for liquidated damages in the event that a stop-work order is issued prior to the final delivery of the product.

Property and Equipment

Property and equipment are carried at cost net of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements are depreciated using the straight- line method over the estimated useful lives of the assets or the particular improvements. Expenditures for repairs and improvements in excess of $1,000 that add to the productive capacity or extend the useful life of an asset are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings.

Long-Lived and Intangible Assets

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

Long-lived assets and intangible assets subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. The Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value. There has been no impairment as of December 31, 2016 and 2015.

Deferred Financing Costs

Costs incurred with obtaining and executing revolving debt arrangements are capitalized and amortized using the effective interest method over the term of the related debt. The amortization of such costs are included in interest and financing costs. Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying value of the associated debt.

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, Derivatives and Hedging.

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition.” The Company recognizes revenue when products are shipped and/or the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.

The Company recognizes certain revenues under a bill and hold arrangement with two of its large customers. For any requested bill and hold arrangement, the Company makes an evaluation as to whether the bill and hold arrangement qualifies for revenue recognition as follows:

The customer requests that the transaction be on a bill and hold basis. A customer must initiate the request for any bill and hold arrangement. Upon request for a bill and hold, the Company requires a signed letter from the customer upon which the customer specifically requests the bill and hold arrangement. Upon receipt of the letter, the Company begins its evaluation process to determine whether a bill and hold arrangement can be granted.

The customer has made fixed commitment to purchase in written documentation. All customers’ orders are through firm written purchase orders.

The goods are segregated from other inventory and are not available to fill any other customers’ orders. The Company’s goods are made to customers’ or their customer’s specifications and could not be sold to others.

The risk of ownership has passed to the customer. The product is complete and ready for shipment. The earnings process is complete. An internal evaluation is made as to whether the product is complete and ready for shipment. This involves a review of the purchase order and a completed inspection process by the Company’s quality control department.

The date is determined by which the Company expects payment and the Company has not modified its normal billing and credit terms for this buyer. Payment is expected as if the goods had been shipped.

The customer has the expected risk of loss in the event of a decline in the market value of goods. All goods are made to firm purchase orders with fixed prices. Any decline in value would not affect the pricing of the goods. The Company has not at any point, agreed to a price reduction on a bill and hold arrangement.

The Company had approximately $2,914,000 and $150,000 of net sales that were billed but not shipped under such bill and hold arrangements as of December 31, 2016 and 2015, respectively.

Payments received in advance from customers for products delivered 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

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The more significant management estimates are the allowance for doubtful accounts, useful lives of property and equipment, provisions for inventory obsolescence, accrued expenses and whether to accrue for various contingencies. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.

Credit and Concentration Risks

There were four customers that represented 56.4% of total sales, and four customers that represented 59.3% of total sales, of total sales for the years ended December 31, 2016 and 2015, respectively. This is set forth in the table below.

Customer		Percentage of Sales
		2016		2015

	1		19.1		20.5
	2		14.3		12.0
	3		12.3		15.4
	4		10.7		11.4

There was one customers that represented 19.9% of gross accounts receivable and four customers that represented 61.1% of gross accounts receivable at December 31, 2016 and 2015, respectively. This is set forth in the table below.

Customer		Percentage of Receivables
		2016		2015

	1		19.9		26.6
	2		*		10.4
	3		*		13.6
	4		*		10.5

* Customer was less than 10% of gross accounts receivable at December 31, 2016

During the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.

The Company has several key sole-source suppliers of various parts that are important for one or more of its products. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable to provide parts for any reason, its business could be severely harmed.

Income Taxes

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 method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740- 10 -05, “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC 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 ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Effective July 1, 2016, the Company adopted FASB Accounting Standards Update 2015 - 17, Balance Sheet Classification of Deferred Taxes. The ASU is part of the Board's simplification initiative aimed at reducing complexity in accounting standards. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. Importantly, the guidance does not change the existing requirement that only permits offsetting within a jurisdiction - that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. If an entity applies the guidance prospectively, the entity should disclose in the first interim and first annual period of change, the nature of and reason for the change in accounting principle and a statement that prior periods were not retrospectively adjusted. If an entity applies the guidance retrospectively, the entity should disclose in the first interim and first annual period of change the nature of and reason for the change in accounting principle and quantitative information about the effects of the accounting change on prior periods. The Company has applied this guidance prospectively and has not restated prior period balances.

Earnings per share

Basic earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

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

	December 31,		December 31,
	2016		2015

Weighted average shares outstanding used to compute basic earnings per share		7,579,419		7,478,223
Effect of dilutive stock options and warrants		-		-
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		7,579,419		7,478,223

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

	December 31,		December 31,
	2016		2015
Stock Options		633,000		234,000
Warrants		520,000		46,800
		1,153,000		280,800

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 :

	December 31,		December 31,
	2016		2015
Stock Options		3,000		330,000
Warrants		321,000		118,000
		324,000		448,000

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.

Goodwill

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amounts of $9,883,000 and $10,518,000 at December 31, 2016 and 2015, respectively, relates to the acquisitions of Welding $291,000, NTW $162,000, Woodbine $2,565,000, Eur-Pac $1,656,000, ECC $109,000, AMK $635,000, Sterling $4,540,000 and Compac $560,000. During 2016 AMK goodwill amount of $635,000 was reclassified to assets held for sale. Goodwill is not amortized, but is assessed and/or tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount.

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 an annual qualitative assessment in the fourth quarter each year to determine whether it was more likely than not that the fair value of each of Welding, including Woodbine, NTW, Eur-Pac, ECC, AMK, Sterling and Compac was less than its carrying amount.

The Company has determined that there has been no impairment of goodwill at December 31, 2016 and 2015.

Freight Out

Freight out is included in operating expenses and amounted to $180,000 and $197,000 for the years ended December 31, 2016 and 2015, respectively.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” the Company may, under Section 7(a)(2)(B) of the Securities Act, delay adoption of new or revised accounting standards applicable to public companies until such standards would otherwise apply to private companies. An emerging growth company is one with less than $1.0 billion in annual sales, has less than $700 million in market value of its shares of common stock held by non-affiliates and issues less than $1.0 billion of non-convertible debt over a three year period. The Company may take advantage of this extended transition period until the first to occur of the date that it (i) is no longer an “emerging growth company” or (ii) affirmatively and irrevocably opts out of this extended transition period. The Company has elected to take advantage of the benefits of this extended transition period. Until the date that it is no longer an “emerging growth company” or affirmatively and irrevocably opts out of the exemption provided by Securities Act Section 7(a)(2)(B), upon issuance of a new or revised accounting standard that applies to its consolidated financial statements and that has a different effective date for public and private companies, the Company will disclose the date on which adoption is required for non-emerging growth companies and the date on which the Company will adopt the recently issued accounting standard.

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10) (“ASU 2016-01”) . The main objective of ASU 2016-01 is enhancing the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this amendment to have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) . The main objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification and creating Topic 842, Leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of this amendment to have a significant impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment (“ASU 2016-09”) . ASU 2016-09 is part of the FASB Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of generally accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2016-09 will affect all entities that issue share-based payment awards to their employees. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the adoption of these amendments to have a significant impact on its consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10 Revenue from Contracts with Customers (Topic 606) (“ASU 2016-10”). The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2016-10 affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The effective date and transition requirements of ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. They are effective prospectively for reporting periods beginning after December 15, 2017 and early adoption is not permitted. The Company is currently assessing the impact of the adoption of these amendments on its consolidated financial statements.

In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow -Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Topic 606 is effective for nonpublic entities one year later. The Company is currently assessing the impact of the adoption of the amendments to Topic 606 and these amendments on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, including beneficial interests in securitization, which would impact the presentation of the deferred purchase price from sales of receivables. The standard is intended to reduce current diversity in practice. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of these amendments to have a significant impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which clarifies the presentation requirements of restricted cash within the statement of cash flows. The changes in restricted cash and restricted cash equivalents during the period should be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. When cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one-line item within the statement of financial position, an entity shall calculate a total cash amount in a narrative or tabular format that agrees to the amount shown on the statement of cash flows. Details on the nature and amounts of restricted cash should also be disclosed. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

In January 2017, the FASB issued ASU 2017-01 (“ASU 2017-01”), Business Combinations, which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The first part of the guidance provides a screen to determine when a set is not a business; the second part of the guidance provides a framework to evaluate whether both an input and a substantive process are present. The guidance will be effective after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for transactions that have not been reported in issued financial statements. The Company is currently assessing the impact of this update on the presentation of these financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, Step 2 of the goodwill impairment test, which requires determining the implied fair value of goodwill and comparing it with its carrying amount has been eliminated. Thus, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (i.e., what was previously referred to as Step 1). In addition, ASU No. 2017-04 requires entities having one or more reporting units with zero or negative carrying amounts to disclose (1) the identity of such reporting units, (2) the amount of goodwill allocated to each, and (3) in which reportable segment the reporting unit is included. ASU No. 2017-04 is effective as follows: (1) for a public business entity that is an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our 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

Certain account balances in 2015 have been reclassified to conform to the current year presentation.

ACCOUNTS RECEIVABLE

12 Months Ended

Dec. 31, 2016

ACCOUNTS RECEIVABLE

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

	2016			2015

Accounts Receivable Gross	$	8,806,000		$	14,647,000
Allowance for Doubtful Accounts		(756,000	)		(985,000	)
Accounts Receivable Net	$	8,050,000		$	13,662,000

The allowance for doubtful accounts for the years ended December 31, 2016 and 2015 is as follows:

	Balance at		Charged to
	Beginning of		Costs and		Deductions from		Balance at End
	Year		Expenses		Reserves		of Year
Year ended December 31, 2016
Allowance for Doubtful Accounts	$	985,000	$	274,000	$	503,000	$	756,000
Year ended December 31, 2015
Allowance for Doubtful Accounts	$	1,566,000	$	177,000	$	758,000	$	985,000

INVENTORY

12 Months Ended

Dec. 31, 2016

INVENTORY

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

	2016			2015

Raw Materials	$	7,031,000		$	9,188,000
Work In Progress		25,635,000			19,743,000
Finished Goods		11,751,000			11,838,000
Inventory Reserve		(4,566,000	)		(3,846,000	)
Total Inventory	$	39,851,000		$	36,923,000

The Company periodically evaluates inventory and establishes reserves for obsolescence, excess quantities, slow-moving goods, and for other impairment of value.

	Balance at
	Beginning of			Additions to			Deductions from		Balance at End
	Year			Reserve			Reserves		of Year
Year ended December 31, 2016
Reserve for Inventory	$	(3,846,000	)	$	(806,000	)	$	86,000	$	(4,566,000	)
Year ended December 31, 2015
Reserve for Inventory	$	(3,475,000	)	$	(785,000	)	$	414,000	$	(3,846,000	)

PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2016

PROPERTY AND EQUIPMENT

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

	2016			2015
Land	$	300,000		$	300,000
Buildings and Improvements		1,650,000			1,658,000		31.5 years
Machinery and Equipment		14,032,000			15,109,000		5 - 8 years
Capital Lease Machinery and Equipment		5,573,000			5,869,000		5 - 8 years
Tools and Instruments		7,520,000			6,993,000		1.5 - 7 years
Automotive Equipment		195,000			191,000		5 years
Furniture and Fixtures		438,000			425,000		5 - 8 years
Leasehold Improvements		966,000			910,000		Term of Lease
Computers and Software		519,000			482,000		4 - 6 years
Total Property and Equipment		31,193,000			31,937,000
Less: Accumulated Depreciation		(18,974,000	)		(16,638,000	)
Property and Equipment, net	$	12,219,000		$	15,299,000

Depreciation expense for the years ended December 31, 2016 and 2015 was approximately $3,347,000 and $3,090,000, respectively. Assets held under capitalized lease obligations are depreciated over the shorter of their related lease terms or their estimated productive lives. Depreciation of assets under capital leases is included in depreciation expense for 2016 and 2015. Accumulated depreciation on these assets was approximately $2,320,000 and $1,065,000 as of December 31, 2016 and 2015, respectively.

INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2016

Assets Held For Sale And Liabilites Direclty Associated

INTANGIBLE ASSETS

The components of the intangibles assets at December 31, consisted of the following:

	2016			2015
Customer Relationships	$	6,115,000		$	6,555,000		5 to 14 years
Trade Names		970,000			1,480,000		15-20 years
Technical Know-how		660,000			660,000		10 years
Non-Compete		150,000			150,000		5 years
Professional Certifications		15,000			15,000		. 25 to 2 years
Total Intangible Assets		7,910,000			8,860,000
Less: Accumulated Amortization		(6,156,000	)		(5,008,000	)
Intangible Assets, net	$	1,754,000		$	3,852,000

The expense for amortization of the intangibles for the years ended December 31, 2016 and 2015 was approximately $1,279,000 and $1,262,000, respectively.

As of December 31, 2016 the future amortization of intangibles are as follows:

For the year ending	Amount
December 31, 2017	$	689,000
December 31, 2018		219,000
December 30, 2019		219,000
December 31, 2020		219,000
December 31, 2021		130,000
Thereafter		278,000
Total	$	1,754,000

ASSETS HELD FOR SALE AND LIABILITES DIRECLTY ASSOCIATED

12 Months Ended

Dec. 31, 2016

ASSETS HELD FOR SALE AND LIABILITES DIRECLTY ASSOCIATED

As discussed in Note 1, on January 27, 2017, the Company sold all of the outstanding shares of AMK Welding, Inc. (“AMK”) to Meyer Tool, Inc., pursuant to a Stock Purchase Agreement dated January 27, 2017 (“the Stock Purchase Agreement”) for a purchase price of $4,500,000, subject to a working capital adjustment, plus additional quarterly payments, not to exceed $1,500,000, equal to five percent (5%) of Net Revenues of AMK commencing April 1, 2017. At December 31, 2016, the Company reclassified its assets held for sale and the liabilities directly associated to these assets. The components of these assets and liabilities are as follows:

Components of Assets Held for Sale and Liabilities Directly Associated

Assets Held for Sale
Cash	$	40,000
Accounts Receivable, net of allowance for doubtful accounts		722,000
Inventory, net of reserves		260,000
Prepaid and other assets		96,000
Property and equipment, net of accumulated depreciation		3,478,000
Intangible Assets, net of accumulated amortization		819,000
Goodwill		635,000

Assets Held for Sale	$	6,050,000

Accounts payable and accrued expenses		379,000
Capital lease obligations		1,680,000
Deferred revenues		96,000

Liabilities directly associated to Assets Held for Sale	$	2,155,000

Additionally, AMK’s operations are reported in the Company’s Turbine Engine Components segment. AMK makes up the following amounts of this segment for the year ended December 31, 2016:

Segment Data
Turbine Engine Components	AMK			Total
Net Sales	$	4,511,000		$	10,973,000
Gross Profit		169,000			(151,000	)
Pre Tax (Loss) Income		(1,595,000	)		(4,084,000	)
Assets		6,050,000			17,235,000

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

12 Months Ended

Dec. 31, 2016

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

	2016		2015

Accounts Payable	$	13,843,000	$	9,837,000
Accrued Expenses		2,317,000		2,160,000
Other Payables		-		49,000
	$	16,160,000	$	12,046,000

SALE AND LEASEBACK TRANSACTION

12 Months Ended

Dec. 31, 2016

SALE AND LEASEBACK TRANSACTION

On April 11, 2016, the Company executed a Sale - Leaseback Arrangement, whereby the Company sold the building and real property located in South Windsor, Connecticut (the “South Windsor Property”) for a purchase price of $1,700,000. The net proceeds from the sale of the property were applied to the amounts owed to PNC Bank.

Simultaneous with the closing of the sale of the South Windsor Property, the Company entered into a 15-year lease (the “Lease”) with the purchaser for the property. Base annual rent is approximately $155,000 for the first year and increases approximately 3% per year, each year thereafter. The Lease grants the Company an option to renew the Lease for an additional period of five years. 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 representations, warranties, obligations, conditions and indemnification provisions in favor of the purchaser and grants the purchaser 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.

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 $371,000 and $409,000 as of December 31, 2016 and 2015, 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 property. Base annual rent is approximately $540,000 for the first five years, $560,000 for the sixth year, and thereafter increases 3% per year. The Lease grants the Company an option to renew the Lease for an additional period of five years. The Company has on deposit with the purchaser $89,000 as security for the performance of its obligations under the Lease. In addition, the Company has on deposit $150,000 with the landlord as security for the completion of certain repairs and upgrades to the Bay Shore Property. This amount is included in the caption Deferred Finance costs, Net, Deposit and Other Assets in the accompanying Consolidated Balance Sheets. Pursuant to the terms of the Lease, the Company is required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance. The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions and grants the purchaser customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold the Company liable for any deficiency in future rent. See Note 13 Commitments and Contingencies.

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

On January 27, 2017, the Company entered into an agreement to sell the stock of AMK. Included in this agreement was the transfer of the capital lease obligation on the South Windsor Property transferred to the purchaser of AMK. At December 31, 2016, the Company reclassified the capital asset of $1,700,000 and lease obligation of $1,680,000 to Assets Held for Sale and Liabilities Held for Sale, respectively. See Note 1 for additional discussion regarding the sale of AMK.

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

12 Months Ended

Dec. 31, 2016

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consist of the following:

	December 31,			December 31,
	2016			2015

Revolving credit note payable to PNC Bank N. A. ("PNC")	$	24,393,000		$	29,604,000
Term loans, PNC		6,649,000			9,833,000
Capital lease obligations		4,215,000			5,025,000
Related party notes payable, net of debt discount		1,086,000			350,000
Note payable (private placement), net of debt discount		627,000			-
Subtotal		36,970,000			44,812,000
Less: Current portion of notes and capital obligations		(33,999,000	)		(40,895,000	)
Notes payable and capital lease obligations, net of current portion	$	2,971,000		$	3,917,000

PNC Bank N. A. (“PNC”)

The Company has a credit facility with PNC (the “Loan Facility”) secured by substantially all of its assets. The Loan Facility has been amended many times during its term. The Loan Facility was amended in June 2016 (the “Twelfth Amendment”) and September 2016 (the “Thirteenth Amendment”). In connection with the Twelfth Amendment, the Company paid PNC a fee of $100,000 and reimbursed it for the fees and expenses of its counsel. The Twelfth Amendment provides for a $33,000,000 revolving loan . In addition, in the Twelfth Amendment the four term loans (Term Loan A, Term Loan B, Term Loan C and Term Loan D) then outstanding were consolidated into a single term loan with the initial principal amount of $7,387,854. Further, in the Twelfth Amendment the Company acknowledged that there were then outstanding excess advances under the revolving loan in the amount of $12,500,000.

Under the terms of the Loan Facility, as amended, the revolving loan now bears interest at (a) the sum of the Alternate Base Rate plus one and three-quarters of one percent (1.75%) with respect to Domestic Rate Loans; and (b) the sum of the LIBOR Rate plus four and one-half of one percent (4.50%) with respect to LIBOR Rate Loans. The amount outstanding under the revolving loan, exclusive of the excess advance, was $ 24,393,000 and $ 29,604,000, as of December 31, 2016 and 2015, respectively.

The Loan Facility was further amended pursuant to the Thirteenth Amendment, to modify the advance rate with respect to our inventory to be the lesser of (i) 75% of the eligible inventory, an increase from 50%, and (ii) 90% of the liquidation value of the eligible inventory, an increase from 85%, subject to the inventory sublimit of $12,500,000 and such reserves as PNC may deem proper. In addition, in the Thirteenth Amendment the lender waived any default resulting from the Company’s obligation to comply with the minimum EBITDA covenant for the period ended June 30, 2016, consented to the issuance of the Company’s 12% Subordinated Convertible Notes and the amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of Preferred Stock and Series A Preferred Stock.

The repayment terms of Term Loan A had been amended in April 2014, when the Company borrowed $2,676,000, representing an additional $1,328,000 to partially fund the acquisition of Woodbine. Term Loan A, as amended in 2014, was to be repaid in monthly installments of $31,859 continuing until November 2016. On October 1, 2014, the Company borrowed $3,500,000 under Term Loan B for the acquisition of AMK. Term Loan B was to be repaid in sixty consecutive monthly principal installments of $58,333 continuing until November 2019.

Prior to the Twelfth Amendment, Term Loans A and B bore interest at (a) the sum of the Alternate Base Rate plus one and three quarters of one percent (1.75%) with respect to Domestic Rate Loans and (b) the sum of the LIBOR Rate plus three percent (3.00%) with respect to LIBOR Rate Loans.

On December 31, 2014, the Company borrowed $2,500,000 under Term Loan C to refinance the Seller Note and Mortgage of $2,500,000 issued as part of the acquisition of AMK. The maturity date of Term Loan C was the first business day of January 2021, and it was to be paid in seventy two consecutive monthly principal installments, which commenced on the first business day of February 2015, and continued on the first business day of each month thereafter. The first seventy-one of the installments were to be in the amount of $34,722 with a seventy second and final payment of any unpaid principal and interest on the first business day of January 2021. Term Loan C bore interest at (a) the sum of the Alternate Base Rate plus two percent (2.00%) with respect to Domestic Rate Loans and (b) the sum of the LIBOR Rate plus three and one-quarter percent (3.25%) with respect to LIBOR Rate Loans.

On March 9, 2015, the Company borrowed $3,500,000 under Term Loan D for the acquisition of Sterling. The repayment of Term Loan D consisted of twenty consecutive monthly principal installments, the first nineteen in the amount of $62,847 which commenced on the first business day of April 2015, and continued on the first business day of each month thereafter, with a twentieth and final payment of any unpaid balance of principal and interest on the last business day of November 2016. Term Loan D bore interest at (a) the sum of the Alternate Base Rate plus two and one quarter percent (2.25%) with respect to Domestic Rate Loans and (b) the sum of the LIBOR Rate plus three and one-half percent (3.50%) with respect to LIBOR Rate Loans.

The repayment terms of the Term Loan provided for in the Twelfth Amendment consist of sixty (60) consecutive monthly principal installments, the first fifty-nine (59) of which shall be in the amount of $123,133 commencing on the first business day of July, 2016, and continuing on the first business day of each month thereafter, with a sixtieth (60th) and final payment of any unpaid balance of principal and interest payable on the last business day of June, 2021. Under the terms of the Loan Facility, as amended, the revolving loan now bears interest at (a) the sum of the Alternate Base Rate plus one and three-quarters of one percent (1.75%) with respect to Domestic Rate Loans; and (b) the sum of the LIBOR Rate plus four and one-half of one percent (4.50%) with respect to LIBOR Rate Loan .

At the closing of the Twelfth Amendment the Company paid $1,500,000 to reduce the outstanding excess under the revolving loan from $12,500,000 to $11,000,000. It also agreed that the excess advances will be paid down by $100,000 each week commencing the second week after the closing of the Twelfth Amendment.

To the extent that the Company disposes of collateral used to secure the Loan Facility, other than inventory, the Company must promptly repay the draws on the credit facility in the amount equal to the net proceeds of such sale.

The terms of the Loan Facility require that among other things, the Company maintain a specified Fixed Charge Coverage Ratio and maintain a minimum EBITDA. In addition, the Company is limited in the amount of Capital Expenditures it can make. The Company is also limited to the amount of dividends it can pay its shareholders as defined in the Loan Facility. As of December 31, 2016 , the Company was not in compliance with the Fixed Charge Coverage Ratio covenant. The failure to maintain the requisite Fixed Charge Coverage Ratio constitutes a default under the Loan Facility and PNC at its option may give notice to the Company that all amounts under the Loan Facility are immediately due and payable consequently , all amounts due under the Term Loans are also classified as current. As of December 31, 2016, the Company was not in compliance with the minimum EBITDA requirement. The Company has requested a waiver from PNC for the failure to meet the minimum EBITDA covenant. Because the revolving loans contain a subjective acceleration clause which could permit PNC to require repayment prior to maturity, all of the loans outstanding with PNC are classified with the current portion of notes and capital lease obligations.

As of December 31, 2016, our debt to PNC in the amount of $31,042,000 consisted of the revolving credit note due to PNC in the amount of $24,393,000 and the term loans due to PNC in the amount of $ 6,649,000.

Each day, the Company’s cash collections are swept directly by the bank to reduce the revolving loans and the Company then borrows according to a borrowing base formula. The Company's receivables are payable directly into a lockbox controlled by PNC (subject to the terms of the Loan Facility). PNC may use some elements of subjective business judgment in determining whether a material adverse change has occurred in the Company's condition, results of operations, assets, business, properties or prospects allowing it to demand repayment of the Loan Facility.

As of December 31, 2016 the future minimum principal payments for the term loans are as follows:

For the year ending	Amount
December 31, 2017	$	1,478,000
December 31, 2018		1,478,000
December 31, 2019		1,478,000
December 31, 2020		1,478,000
December 31, 2021		737,000
Thereafter		-
PNC Term Loans payable		6,649,000
Less: Current portion		(6,649,000	)
Long-term portion	$	-

Interest expense related to these credit facilities amounted to approximately $1,908,000 and $1,414,000 for the years ended December 31, 2016 and 2015 , respectively.

Capital Leases Payable Equipment

The Company is committed under several capital leases for manufacturing and computer equipment. All leases have bargain purchase options exercisable at the termination of each lease. Capital lease obligations totaled $4,215,000 and $5,025,000 as of December 31, 2016 and 2015, respectively, with various interest rates ranging from approximately 4% to 14 %.

As of December 31, 2016, the aggregate future minimum lease payments, including imputed interest, with remaining terms of greater than one year are as follows:

For the year ending	Amount
December 31, 2017	$	1,442,000
December 31, 2018		1,407,000
December 31, 2019		1,230,000
December 31, 2020		509,000
December 31, 2021		19,000
Thereafter		1,000
Total future minimum lease payments		4,608,000
Less: imputed interest		(393,000	)
Less: current portion		(1,244,000	)
Total Long Term Portion	$	2,971,000

Related Party Notes Payable

On September 8, 2015, the Company issued a promissory note (the”Taglich Note A”) to Michael Taglich in the principal amount of $350,000. The Taglich Note A bore interest at the rate of 4% per annum. The Company's obligation under the Taglich Note A was subordinated to its indebtedness to PNC.

On April 8, 2016 , the Company issued a promissory note (“the Taglich Note B”) to Michael Taglich in the principal amount of $350,000. The Taglich Note B bore interest at the rate of 7% per annum. The Company’s obligation under the Taglich Note B was subordinated to its indebtedness to PNC.

On April 8, 2016, the Company issued a promissory note (“the Taglich Note C”) to Robert Taglich in the principal amount of $350,000. The Taglich Note C bore interest at the rate of 7% per annum. The Company’s obligation under the Taglich Note C was subordinated to its indebtedness to PNC .

On May 6, 2016, the Company issued a promissory note (“the Taglich Note D”) to Michael Taglich in the principal amount of $400,000. The Taglich Note D bore interest at the rate of 7% per annum. The Company’s obligation under the Taglich Note D was subordinated to its indebtedness to PNC .

On May 6, 2016, the Company issued a promissory note (“the Taglich Note E”) to Robert Taglich in the principal amount of $300,000. The Taglich Note E bore interest at the rate of 7% per annum. The Company’s obligation under the Taglich Note E was subordinated to its indebtedness to PNC.

On May 25, 2016, the Company issued 110,000 and 65,000 shares of Series A Preferred Stock to Michael Taglich and Robert Taglich, respectively upon surrender of Taglich Notes A E, in the aggregate principal of $1,100,000 and $650,000, respectively.

On August 1, 2016, the Company issued a promissory note (the “Taglich Note F”) to Michael Taglich, in the principal amount of $1,000,000. The Taglich Note F bore interest at the rate of 7% per annum. The Company's obligation under the Taglich Note F was subordinated to its indebtedness to PNC.

On August 4, 2016, the Company issued a promissory note (the “Taglich Note G”) to Michael Taglich, in the principal amount of $500,000. The Taglich Note G bore interest at the rate of 7% per annum. The Company’s obligation under the Taglich Note G was subordinated to its indebtedness to PNC.

On August 19, 2016, the Company issued to Michael Taglich its 12% Subordinated Convertible Notes due December 31, 2017 (the “12% Notes”) in the principal amount of $1,520,703, together with warrants to purchase 61,817 shares of common stock, upon surrender for cancellation of Taglich Notes F & G in the aggregate principal amount of $1,500,000, together with accrued interest thereon and on notes previously exchanged for Series A Preferred Stock of $20,703. In addition, the Company issued to Robert Taglich a 12% Note in the principal amount of $4,373, together with warrants to purchase 177 shares of common stock, in consideration of the forgiveness of interest of $4,373 accrued on notes previously exchanged for Series A Preferred Stock.

Also see below regarding related party purchases of the 12% and 8% subordinated convertible notes.

Interest expense related to the Taglich Notes was $264,000 for the year ended December 31, 2016.

12% Subordinated Convertible Notes

On August 19, 2016, the Company entered into a Placement Agency Agreement with Taglich Brothers, Inc., as placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to offer on behalf of the Company, on a best efforts basis, up to $4,250,000 of the Company’s 12% Subordinated Convertible Notes due December 31, 2017 (the “12% Notes”) to accredited investors (“the Offering”), together with five-year warrants to purchase 4,065 shares of common stock (the “Warrants”) for each $100,000 principal amount of 12% Notes purchased, in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act ) .

The 12% Notes were convertible, at the option of the holders, into shares of the Company’s common stock at an initial conversion price of $4.92 per share, subject to adjustment for certain events. The 12% Notes were automatically convertible into shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) at a price of $10.00 per share, the stated value of the Series A Preferred Stock, upon the filing of a certificate of amendment to the Company’s Articles of Incorporation increasing the number of shares of Series A Preferred Stock so that a sufficient number of shares are available for issuance upon conversion of the 12% Notes and for issuance in lieu of payment of cash dividends (the “Certificate of Amendment”) in accordance with the provisions of the certificate of designation authorizing the issuance of the Series A Preferred Stock. The amendment was subject to the approval of the Company’s stockholders.

Under the terms of the Placement Agency Agreement, the Placement Agent is entitled to a placement agent fee equal to 7% of the gross proceeds of the offering, five year warrants to purchase 8% of the number of shares of the Company’s common stock issuable upon conversion of the 12% Notes at an exercise price of $6.15 per share, equal to 125% of the initial conversion price per share of the 12% Notes, and reimbursement for its actual out-of-pocket expenses not to exceed in the aggregate $25,000.

In August 2016, the Company issued and sold a total of $2,720,000 principal amount of the 12% Notes, together with Warrants to purchase an aggregate of 110,556 shares of common stock, yielding net proceeds to the Company of approximately $2,320,000, pursuant to a Securities Purchase Agreements with accredited investors. The Company also issued to Michael Taglich a 12% Note in the principal amount of $1,520,703, together with Warrants to purchase 61,817 shares of common stock at an initial exercise price of $6.15, subject to anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations, upon surrender for cancellation of Taglich Notes F and G in the aggregate principal amount of $1,500,000, together with accrued interest thereon and on notes previously exchanged for Series A Preferred Stock of $20,703. In addition, the Company issued to Robert Taglich a 12% Note in the principal amount of $4,373, together with Warrants to purchase 177 shares of common stock, in consideration of the forgiveness of interest of $4,373 accrued on notes previously exchanged for Series A Preferred Stock.

The Warrants including those issued to the placement agent are classified within stockholders equity, pursuant to ASC 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging: Contracts in Own Equity. The 12% Notes contained a contingent put that results in early settlement of the 12% Notes upon the filing of a certificate of amendment to the Company’s Articles of Incorporation, increasing the number of shares of Series A Preferred Stock so that a sufficient number of shares are available for issuance upon conversion of the 12% Notes. The embedded put feature is required to be separately measured at fair value with changes in value recognized in the statement of operations, pursuant to ASC 815-15, Derivatives and Hedging: Embedded Derivatives, as the put feature is not clearly and closely related to the convertible promissory note.

The proceeds received upon issuing the 12% Notes and Warrants was allocated to each instrument on a relative fair value basis. The initial fair value of the Warrants was determined using the Black Scholes Merton valuation model with the following assumptions: expected term of 5 years; risk free interest rate of 1.2%; and volatility of 90%. The allocated value of the 12% Notes was further reduced for the initial fair value of the embedded put of approximately $755,000. The resulting discount to the 12% Notes, including the allocated transactions costs, is amortized to interest expense using the effective interest method over the term of the Notes.

As compensation for its services as placement agent for the offering of the 12% Notes, the Company paid Taglich Brothers, Inc. a fee of $295,400.

On November 30, 2016, the Company’s stockholders approved the amendment to the Company’s Articles of Incorporation, and consequently the Company issued a total of 438,770 shares of its Series A Preferred Stock to holders of its 12% Notes upon the automatic conversion of the principal amount of, and accrued interest on, the 12% Notes at the rate of $10.00 per share.

As of December 31, 2016, we had outstanding 1,202,548 shares of series A Preferred Stock, including 62,684 shares issued in lieu of payment of cash dividends on December 15, 2016. We issued an additional 46,010 shares of Series A Preferred Stock on March 15, 2017 in lieu of payment of cash dividends.

8 % Subordinated Convertible Notes

On November 23, 2016, the Company issued sold an aggregate principal amount of $1,400,000 of its 8% Subordinated Convertible Notes due November 30, 2018 (the “2018 Notes”), together with warrants to purchase an aggregate of 124,444 shares of Common Stock for a total purchase price of $1,400,000. The purchasers of the 2018 Notes and warrants included Michael Taglich and Robert Taglich, directors and stockholders of the Company.

Interest on the 2018 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing February 28, 2017, in cash, or at our option, in additional 2018 Notes. The outstanding principal amount plus accrued interest on the 2018 Notes is convertible at the option of the holder into shares of Common Stock at an initial conversion price of $2.25, subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the Common Stock and in the event of certain fundamental transactions such as mergers and other business combinations. The warrants issued to the purchasers of the 2018 Notes are exercisable on or prior to November 30, 2021.

For acting as placement agent of the 2018 Notes, we paid Taglich Brothers, Inc. $112,000 and issued to it five-year warrants to purchase 62,222 shares of Common Stock.

The warrants issued to the purchasers of the 2018 Notes and Taglich Brothers, Inc. have an exercise price of $3.00 per share, subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the Common Stock and in the event of certain fundamental transactions such as mergers and other business combinations, and may be exercised on a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise.

On December 22, 2016, the Company entered into a Placement Agency Agreement with Taglich Brothers, Inc., as placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to offer on behalf of the Company, on a best efforts basis, up to $1,300,000 of the 2018 Notes to accredited investors (the “Offering”), together with five-year warrants to purchase 20% of the number of shares of Common Stock issuable upon immediate conversion of the 2018 Notes purchased (the “Warrants”), in a private placement exempt from the registration requirements of the Securities Act.

Under the terms of the Placement Agency Agreement, the Placement Agent is entitled to a placement agent fee equal to 8% of the gross proceeds of the Offering and five year warrants to purchase 10% of the number of shares of the Company’s Common Stock (the “Placement Agent Warrant”) issuable upon immediate conversion of the 2018 Notes at an exercise price of $3.00 per share.

Subscription Agreements

On December 22, 2016, the Company entered into subscription agreements with ten accredited investors for the purchase of an aggregate of $ 1,175,000 principal amount of the 2018 Notes, together with Warrants to purchase a total of 89,359 shares of Common Stock, including 2018 Notes and Warrants to be issued to Michael Taglich and Robert Taglich, directors and principal stockholders of the Company and principals of Taglich Brothers, Inc., who purchased an aggregate of $500,000 principal amount of the 2018 Notes and Warrants to purchase a total of 38,024 shares of Common Stock in the offering.

On December 22, 2016, the Company issued sold an aggregate principal amount of $1,175,000 of its 2018 Notes, together with Warrants to purchase an aggregate of 89,359 shares of Common Stock for a total purchase price of $ 1,175,000 to ten accredited investors, including Michael Taglich and Robert Taglich, directors and stockholders of the Company.

Interest on the 2018 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing February 28, 2017, in cash, or if the Company is prohibited by applicable law or PNC Bank, National Association, its principal lender under the PNC Loan Agreement from paying interest in cash, or otherwise elects to do so, the Company may pay interest at the rate of twelve percent (12%) per annum in the form of additional notes having the same terms and conditions as the 2018 Notes. The outstanding principal amount plus accrued interest on the 2018 Notes is convertible at the option of the holder into shares of Common Stock at an initial conversion price of $2.63, subject to certain antidilution and other adjustments, including stock splits, distributions in respect of the Common Stock and in the event of certain fundamental transactions such as mergers and other business combinations. The Warrants are exercisable on or prior to November 30, 2021.

For acting as placement agent of the 2018 Notes, we paid Taglich Brothers, Inc. $94,000 and issued to it five-year warrants to purchase 44,677 shares of Common Stock.

The Warrants issued to the purchasers of the 2018 Notes and Taglich Brothers, Inc. have an exercise price of $3.00 per share, subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the Common Stock and in the event of certain fundamental transactions such as mergers and other business combinations, and may be exercised on a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise.

STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2016

STOCKHOLDERS' EQUITY

Preferred Stock Offering

On May 25, 2016, the Company, entered into a Placement Agency Agreement (the “Agreement”) with Craig-Hallum Capital Group LLC and Taglich Brothers, Inc., as placement agents (the “Placement Agents”), pursuant to which the Placement Agents agreed to offer on behalf of the Company, on a best efforts basis, up to $7,000,000 of the Company’s securities (the “Offering”), in a private placement exempt from the registration requirements of the Securities Act.

Pursuant to the Agreement on May 25, 2016, and June 1, 2016, the Company completed a private placement of 700,000 shares of its Series A Convertible Stock (the “Series A Preferred Stock”) from which it derived gross proceeds of $5,250,000, net of $1,750,000 of principal amount of the Company’s promissory notes exchanged by Michael Taglich and Robert Taglich for shares of Series A Preferred Stock. The shares of Series A Preferred Stock have a stated value of $10.00 per share (“Stated Value”) and are initially convertible into shares of Common Stock at a price of $4.92 per share (subject to adjustment upon the occurrence of certain events) . In connection with the placement the Company incurred approximately $606,000 of direct offering costs and $57,000 in legal expenses and granted to the Placement Agents warrants to purchase 8% of the number of shares of the Company’s common stock (113,822) issuable upon conversion of the Series A Preferred Stock sold in the offering (the “Placement Agent Warrants”) .

The Placement Agent Warrants are exercisable in whole or in part, at an initial exercise price per share of $6.15, and are exercisable for cash or on a cashless basis for a period commencing on November 26, 2016 and expiring on May 26, 2021. The exercise price and number of shares of common stock issuable upon the exercise of the Placement Agent Warrants are subject to adjustment for stock dividends, splits, combinations and similar events.

Dividends on the Series A Preferred Stock (the “Preferred Shares”) are payable on a cumulative basis at an annual rate for the first two years after the date the Preferred Shares were issued (the “Original Issue Date”) of 12% of the Stated Value per share and thereafter at the annual rate of 16% of the Stated Value per share. Dividends are payable on the fifteenth day of March, June, September and December of each year, commencing on September 15, 2016. The Company may pay dividends in cash or in additional Preferred Shares (“PIK Shares”). If during the first two years after the Original Issue Date the Company fails to pay in respect of any dividend period a dividend at an annual rate of at least 8% of the Stated Value per share in cash, in addition to paying a sufficient number of PIK Shares so that the sum of the cash dividends and PIK Shares paid equals 12% per annum the Company will issue PIK Shares in an amount equal to the product of the proportion of the cash dividend not paid times 3% per annum. Thereafter if the Company fails to pay in respect of any dividend period a dividend at an annual rate of at least 10% of the Stated Value per share in cash, in addition to paying a sufficient number of PIK Shares so that the sum of the cash dividends and PIK Shares paid equals 16% per annum, the Company will issue PIK Shares in an amount equal to the product of the proportion of the cash dividend not paid times 3% per annum. If the Company pays any portion of the dividends payable during any dividend period in PIK Shares, it will not be permitted to declare or pay any cash dividends on its common stock during that dividend period.

Accordingly, we computed earned but undeclared preferred dividends at the stated rate of 12.0% through September 15, 2016, when the form of the dividend was announced and declared by our Board of Directors. Since the Board of Directors declared dividends in the form of PIK Shares for the dividend payment period ended September 15, 2016, the earned dividend was increased to 15% (from the 12% cash rate), as per the terms of the Series A Preferred Stock. The Company recognized the PIK dividend at the estimated fair value of the shares issued.

The Company recorded the issuance of 60,380 PIK Shares during the year ended December 31, 2016 as a preferred dividend, with a fair value of $ 501,000. Accordingly, accumulated deficit and Additional Paid In Capital were increased by that amount during the year ended December 31, 2016. The fair value was determined using the closing market price of the Company's common stock of on the date of issuance of the PIK Shares, taking into consideration that the Series A Preferred Shares were convertible into the common stock. For earning per share purposes, for the year ended December 31, 2016, the fair value of the PIK Shares issued as a dividend was less than the amounts previously earned by $40,000. At December 31, 2016 and 2015, the amounts of cumulative perpetual dividends earned and not declared on the Series A Preferred Stock were $54,000 and $0, based on the stated cash dividend rate of 12%, or $0.05 and $0 per Series A Preferred share, respectively.

Under Nevada law and the terms of the Series A Preferred Stock, dividends are payable only when, as and if authorized and declared by the Company’s board of directors. After payment of all liabilities and outstanding debt obligations, holders of Series A Preferred Stock are entitled to receive $10.00 plus accrued and unpaid dividends prior to the payment of amounts available for distribution to holders of the Company’s common stock upon the liquidation and dissolution of the Company.

Holders of Series A Preferred Stock may elect at any time to convert their Preferred Shares into shares of common stock at the conversion rate of 2.0325 shares of common stock for each Preferred Share, equivalent to an initial conversion price of approximately $4.92 per share of common stock. The conversion rate and the corresponding conversion price will be subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the common stock and in the event of certain fundamental transactions such as mergers and other business combinations.

The Company may at its option, at any time and from time to time after the market price of a share of common stock is in excess of $9.84 for 30 consecutive trading days, cause all of the Preferred Shares to be converted into shares of common stock at the then-prevailing conversion rate, subject to the certain conditions set forth in the certificate of designations.

Commencing May 26, 2018, the Company may redeem all of the Preferred Shares for a redemption price of $10.00, plus accrued and unpaid dividends.

Holders of Preferred Shares will vote on an as-converted basis, together with holders of common stock, as a single class, on the election of directors and all other matters presented to stockholders, except for matters as to which under applicable law and the certificate of designation a class vote of the holders of the Series A Preferred Stock is required. The Company may not, without the affirmative vote of the record holders of a majority of the then outstanding shares of the Series A Preferred Stock voting together as a single class (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation authorizing the Series A Preferred Stock, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (c) increase the number of authorized shares of Series A Preferred Stock, unless such increase is necessary to pay PIK Dividends, (d) authorize a new series of preferred stock with dividend, liquidation or redemption rights senior or pari passu to the Series A Preferred Stock or (e) enter into any agreement with respect to any of the foregoing.

Common Stock Issuances

During the year ended December 31, 2015, the Company granted 52,000 shares of restricted common stock pursuant to an agreement in connection with the acquisition of Sterling. During the year ended December 31, 2016, 42,000 shares of that restricted stock has vested and is included in shares issued and outstanding. In addition, the Company issued an aggregate of 24,905 shares of common stock upon the exercise of options by certain of its directors .

Dividends

On January 15, 2015 the Company paid a dividend equal to $0.15 per common share or $1,066,000 to all shareholders of record as of January 2, 2015.

On April 24, 2015 the Company paid a dividend equal to $ 0.15 per common share or $1,134,000 to all shareholders of record as of April 13, 2015.

On August 12, 2015, the Company paid a dividend equal to $0.15 per common share or $1,134,000 to all shareholders of record as of August 3, 2015.

On December 1, 2015, the Company paid a dividend equal to $0.15 per common share or $ 1,133,000 to all shareholders of record as of November 23, 2015.

Warrants Issued To Taglich Brothers

As discussed above, the Company issued warrants to Taglich Brothers, Inc. Such warrants contain cashless exercise provisions. As a result, the value of the warrants has to be recognized as a liability. In addition, the Company would be required to revalue the derivative liability at the end of each reporting period with the change in value reported on the consolidated statement of operations. The Company did not account for the derivative liability in its consolidated financial statements as it was determined to not be material.

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section S99
-Paragraph 4
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Reference 2: http://www.xbrl.org/2003/role/presentationRef
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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+ Details

EMPLOYEE BENEFITS PLANS

12 Months Ended

Dec. 31, 2016

EMPLOYEE BENEFITS PLANS

The Company employs both union and non-union employees and maintains several benefit plans.

Union

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 contract expires on December 31, 2018.

Medical benefits for union employees are provided through a policy with ADP during 2016 and Insperity during 2015 , 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 $263,000 and $247,000 for the years ended December 31, 2016 and 2015, 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 Plan" (“ASU 2011-09”). ASU 2011-09 requires additional disclosures about an employer's participation in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans. ASU 2011-09 applies to nongovernmental entities that participate in multiemployer 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.

Others

All other Company employees, are covered under a co-employment agreement with ADP .

The Company has two 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.

COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

COMMITMENTS AND CONTINGENCIES

Real Estate Leases

The Company leases its facilities under various operating lease agreements, which contain renewal options and escalation provisions. Rent expense was $2,429,000 and $2,225,000 for the years ended December 31, 2016 and 2015, respectively. The Company is responsible for paying all operating costs under the terms of the leases. As of December 31, 2016, the aggregate future minimum lease payments are as follows:

							Motor		Porter		Clinton
	Plant Avenue		Fifth Avenue		Lamar Street		Parkway		Street		Avenue
For the year							Annual		Annual		Annual
ending	Annual Rent		Annual Rent		Annual Rent		Rent		Rent		Rent		Total Rents

December 31,
2017	$	543,000	$	746,000	$	360,000	$	106,000	$	115,000	$	77,000	$	1,947,000
December 31,
2018		559,000		769,000		300,000		110,000		115,000		20,000		1,873,000
December 31,
2019		576,000		792,000		-		113,000		48,000		-		1,529,000
December 31,
2020		593,000		817,000		-		116,000		-		-		1,526,000
December 31,
2021		611,000		842,000		-		103,000		-		-		1,556,000
Thereafter		2,661,000		4,367,000		-		-		-		-		7,028,000
Total Rents	$	5,543,000	$	8,333,000	$	660,000	$	548,000	$	278,000	$	97,000	$	15,459,000

The leases provide for scheduled increases in base rent. Rent expense is charged to operations using the straight- line method over the term of the lease which results in rent expense being charged to operations at inception of the lease in excess of required lease payments. This excess is shown as deferred rent in the accompanying consolidated balance sheets.

On April 11, 2016, the Company executed a Sale-Leaseback Arrangement, whereby the Company sold the building and real property located in South Windsor, Connecticut (the “Property”) for a purchase price of $1,700,000. The net proceeds from the sale of the property were applied to the amounts owed to PNC Bank .

Simultaneous with the closing of the sale of the Property, the Company entered into a 15- year lease (the “Lease”) with the purchaser for the property. Base annual rent was approximately $155,000 for the first year and increases approximately 3% per year each year thereafter. The Lease granted the Company an option to renew the Lease for an additional period of five years. Pursuant to the terms of the Lease, the Company was required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance. The Lease also contained representations, warranties, obligations, conditions and indemnification provisions in favor of the purchaser and grants the purchaser remedied 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.

On January 27, 2017, the Company entered into an agreement to sell the stock of AMK. Included in this agreement, the capital lease obligation for the building transferred to the purchaser of AMK. At December 31, 2016, the Company reclassified the capital asset and lease obligation to Assets Held for Sale and Liabilities Held for Sale, respectively. See Note 1 Subsequent Events for additional discussion regarding the sale of AMK. At December 31, 2016, the Company has excluded this lease commitment from the table above.

Loss Contingencies

During 2016, a number of actions were 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.

Westbury Park Associates, LLC commenced an action on or about January 11, 2017 against Air Industries Group in the NYS Supreme Court, County of Suffolk, seeking the recovery of approximately $31,000 for past rent arrears, and for an unidentified sum representing all additional rent due under a commercial lease through the end of its term, plus attorneys fees. The additional rent due through the end of the term is approximately $105,000. The litigation is in the discovery stage and the Company believes there is a meritorious defense to the claim or that the landlord can and will mitigate its future damages by finding a new tenant.

On January 18, 2017, REP B-2, LLC filed a petition for a warrant of eviction and a money judgment of approximately $56,000 against Air Industries Group arising from rent arrears on commercial space. On January 18, 2017, 360 Motor Parkway, LLC filed a petition for a warrant of eviction and a money judgment of approximately $12,000 against Air Industries Group arising from rent arrears on commercial space. Each proceeding has resulted in a stipulation of settlement providing monthly repayment schedules to bring those rent arrears current, the last of which are due on May 1, 2017, at which time the proceedings may be dismissed.

An employee of the Company commenced an action against, among others, Rechler Equity B-2, LLC and Air Industries Group, in the Supreme Court State of New York, Suffolk County, seeking compensation in an undetermined amount for injuries suffered while leaving the premises occupied by Welding Metallurgy, Inc. Rechler Equity B-2, LLC, has served a Third Party Complaint in this action against Air Industries Group, Inc. , and Welding Metallurgy, Inc. The action remains in the early pleading stage. The Company believes it is not liable to the employee and any amount it might have to pay would be covered by insurance.

INCOME TAXES

12 Months Ended

Dec. 31, 2016

INCOME TAXES

The provision for (benefit from) income taxes as of December 31, is set forth below:

	2016			2015
Current
Federal	$	-		$	-
State		49,000			53,000
Prior year overaccruals
Federal		-			(123,000	)
State		-			-
Total Expense (Benefit)		49,000			(70,000	)
Deferred Tax Benefit		(4,962,000	)		(216,000	)
Valuation Allowance		7,025,000			-
Net Provision for (Benefit from) Income Taxes	$	2,112,000		$	(286,000	)

The following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate as of December 31,

	2016			2015
U. S. statutory income tax rate		34.00	%		-34.00	%
State taxes		1.50	%		4.70	%
Permanent differences, overaccruals and non-deductible items		0.08	%		3.00	%
Rate change and provision to return true-up		0.85	%		-40.20	%
Expired stock options		-0.15	%		40.80	%
Deferred tax valuation allowance		-51.64	%		-
Total		-15.36	%		-25.70	%

The components of net deferred tax assets at December 31, 2016 and 2015 are set forth below:

	December 31,			December 31,
	2016			2015
Deferred tax assets
Current:
Net operating losses	$	4,754,000		$	462,000
Bad debts		413,000			336,000
Inventory - 263A adjustment		-			8,000
Accounts payable, accrued expenses and reserves		930,000			919,000
Total current deferred tax assets before valuation allowance		6,097,000			1,725,000
Valuation allowance		(6,097,000	)		-
Total current deferred tax assets after valuation allowance		-			1,725,000

Non-current:
Section 1231 loss carry forward		4,000			4,000
Stock based compensation - options and restricted stock		164,000			79,000
Capitalized engineering costs		431,000			432,000
Deferred rent		468,000			410,000
Amortization - NTW Transaction		1,324,000			789,000
Inventory reserves		1,157,000			680,000
Deferred gain on sale of real estate		121,000			126,000
Other		160,000			257,000
Total non-current deferred tax assets before valuation allowance		3,829,000			2,777,000
Valuation allowance		(928,000	)		(4,000	)
Total non-current deferred tax assets after valuation allowance		2,901,000			2,773,000

Deferred tax liabilities:
Property and equipment		(2,595,000	)		(2,091,000	)
Amortization - NTW Goodwill		(33,000	)		(13,000	)
Amortization - AMK Goodwill		-			(18,000	)
Amortization - Welding Transaction		(273,000	)		(313,000	)
Total non-current deferred tax liabilities		(2,901,000	)		(2,435,000	)

Net non current deferred tax asset	$	-		$	338,000

The Company had a capital loss carry forward from the sale of Sigma Metals, Inc., a former subsidiary of the Company, of $2,719,000 which expired in fiscal 2015.

During the year ended December 31, 2016, 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, 2016 and 2015, the Company provided a valuation allowance on its deferred tax assets of $7,025,000 and $4,000, respectively.

At December 31, 2016 and 2015, 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, 2016 and 2015, 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 2013 through 2016 tax years generally remain subject to examination by federal and state tax authorities.

STOCK OPTIONS AND WARRANTS

12 Months Ended

Dec. 31, 2016

STOCK OPTIONS AND WARRANTS

Stock-Based Compensation

Stock Options

On March 30, 2015, the Board of Directors adopted the Company’s 2015 Equity Incentive Plan (“2015 Plan”) which was approved by affirmative vote of the Company’s stockholders on June 25, 2015. The Plan authorized the grant of rights with respect to up to 350,000 shares.

In June 2016, the Board of Directors adopted the Company’s 2016 Equity Incentive Plan (“2016 Plan”) which authorized the grant of rights with respect to up to 350,000 shares. The 2016 Plan was approved by affirmative vote of the Company’s stockholders on November 30, 2016.

During the year ended December 31, 2016, the Company granted options to purchase 100,000 shares of common stock to certain of its employees. 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 0.73% to 2.04%; expected volatility factors of 31% to 59%; expected dividend yield of 0%; and estimated option term of 5 years.

During both of the years ended December 31, 2016 and 2015, the Board of Directors approved the issuance of 18,000 options, to non -employee members of the Company’s Board of Directors. These options vested quarterly as to 25% of the shares subject to the options, commencing June 2, 2016.

The Company recorded stock based compensation expense of $167,000 and $100,000 in its consolidated statement of operations for the years ended December 31, 2016 and 2015, respectively, and such amounts were included as a component of general and administrative expense.

The fair values of stock options granted were estimated using the Black-Sholes option- pricing model with the following assumptions for the years ended December 31:

	2016			2015
Risk-free interest rates		0.73% - 2.04 %			1.31% - 1.49 %
Expected life (in years)		5			5-6
Expected volatility		31%-59 %			25	%
Dividend yield		0.0	%		5.9	%

Weighted-average grant date fair value per share	$	1.88		$	1.10

The expected life is the number of years that the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture. Expected life is determined using the simplified method permitted by Staff Accounting Bulletin No. 107. 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 New York Stock Exchange ARCA Defense Index. The Company did not use the volatility rate for its common stock as the Company determined that its common stock is thinly traded.

A summary of the status of the Company's stock options as of December 31, 2016 and 2015, and changes during the two years then ended are presented below.

				Wtd. Avg.
	Options			Exercise Price
Balance, December 31, 2014		528,539			9.01
Granted during the period		99,000			10.20
Exercised during the period		(46,473	)		4.50
Terminated/Expired during the period		(16,724	)		84.78
Balance, December 31, 2015		564,342			7.35
Granted during the period		128,000			5.28
Exercised during the period		(24,905	)		2.95
Terminated/Expired during the period		(31,095	)		8.47
Balance, December 31, 2016		636,342		$	7.01

Exercisable at December 31, 2016		500,175		$	6.77

The following table summarizes information about stock options at December 31, 2016:

		Remaining
Range of Exercise		Number		Wtd. Avg.	Wtd. Avg.
Prices		Outstanding		Life	Exercise Price
	$0.00 - $5.00		202,694	1.81 years		$4.49
	$5.01 - $20.00		433,648	2.90 years		8.19
	$0.00 - $20.00		636,342	2.55 years		$7.01

As of December 31, 2016 , there was $243,833 of unrecognized compensation cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average vesting period of three years.

The aggregate intrinsic value at December 31, 2016 was based on the Company's closing stock price of $3.15 was $-0- . 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, 2016 was -0-.

The weighted average fair value of options granted during the years ended December 31, 2016 and 2015 was $1.88 and $1.10 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was $34,050 and $169,626, respectively. The total fair value of shares vested during the years ended December 31, 2016 and 2015 was $63,830 and $33,845, respectively.

Warrants

The following tables summarize the Company's outstanding warrants as of December 31, 2016 and changes during the two years then ended:

			Wtd. Avg.
	Warrants		Exercise Price
Balance, December 31, 2014		164,585		7.85
Granted during the period		-		-
Exercised during the period		-		-
Terminated/Expired during the period		-		-
Balance, December 31, 2015		164,585		7.85
Granted during the period		675,691		1.07
Exercised during the period		-		-
Terminated/Expired during the period		-		-
Balance, December 31, 2016		840,276	$	5.13

Exercisable at December 31, 2016		165,618	$	4.49

The fair values of warrants granted were estimated using the Black-Sholes option-pricing model with the following assumption for the years ended December 31:

	2016		2015
Risk-free interest rates		1.4%-2.04%		n/a
Expected life (in years)		5		n/a
Expected volatility		33%-59%		n/a
Dividend yield		0		n/a

Weighted-average grant date fair value per share		0.81-1.4		n/a

The following table summarizes information about warrants at December 31, 2016:

Range of Exercise Prices		Warrants		Wtd. Avg. Life	Wtd. Avg. Exercise Price
	$0-$3.00		320,703	4.90 years	$	3.00
	$3.01-$5.00		110,556	4.60 years	$	5.00
	$5.01 - $6.15		244,432	4.50 years	$	6.15
	$6.30 - $11.25		164,585	1.14 years	$	7.85
	$3.00-$11.25		840,276	4.01 years	$	5.13

RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2016

RELATED PARTY TRANSACTIONS

Taglich Brothers, Inc. is a corporation co-founded by two of the directors of the Company. In addition, a third director of the Company is a vice president of Taglich Brothers, Inc.

As discussed in Notes 11 and 12, 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. In addition , as discussed in Note 9, the principals of Taglich Brothers, Inc. have also invested in the Company through various debt and equity financings. Also see Note 1 under “Subsequent Events” for additional related party transactions subsequent to December 31, 2016.

SEGMENT REPORTING

12 Months Ended

Dec. 31, 2016

SEGMENT REPORTING

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 three operating segments: Complex Machining which consists of AIM and NTW; Aerostructures & Electronics which consists of WMI, WPI, MSI, Eur-Pac, ECC, and Compac beginning September 1, 2015 ; and Turbine Engine Components which consists of AMK and Sterling, beginning March 2015. Along with our operating subsidiaries, the Company reports the results of its corporate division as an independent segment.

The accounting policies of each of the segments are the same as those described in the Summary of Significant Accounting Policies. The Company evaluates performance based on revenue, gross profit contribution and assets employed. Corporate level operating costs are allocated to segments. These costs include corporate costs such as legal, audit, tax and other professional fees including those related to being a public company.

	Year Ended December 31,
	2016			2015
COMPLEX MACHINING
Net Sales	$	37,124,000		$	42,356,000
Gross Profit		4,382,000			10,412,000
Pre Tax Income (Loss)		(5,432,000	)		1,825,000
Assets		45,073,000			48,353,000

AEROSTRUCTURES & ELECTRONICS
Net Sales		18,818,000			27,134,000
Gross Profit		2,489,000			6,553,000
Pre Tax Income (Loss)		(3,985,000	)		386,000
Assets		19,843,000			20,229,000

TURBINE ENGINE COMPONENTS
Net Sales		10,973,000			10,952,000
Gross Profit		(151,000	)		316,000
Pre Tax Income (Loss)		(4,084,000	)		(3,329,000	)
Assets		17,235,000			19,076,000

CORPORATE
Net Sales		-			-
Gross Profit		-			-
Pre Tax Income (Loss)		(10,000	)		-
Assets		649,000			592,000

CONSOLIDATED
Net Sales		66,915,000			80,442,000
Gross Profit		6,720,000			17,281,000
Pre Tax Income (Loss)		(13,511,000	)		(1,118,000	)
Provision for (Benefit from ) Income Taxes		2,112,000			(286,000	)
Net (Loss) Income		(15,623,000	)		(832,000	)
Assets		82,800,000			88,250,000

Summary Of Significant Accounting Policies Policies

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9038-108599

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 4: http://www.xbrl.org/2003/role/presentationRef
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Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8380-108599

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-Topic 280
-SubTopic 10
-Section 50
-Paragraph 26
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8844-108599

Reference 8: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 280
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-Paragraph 35
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8984-108599

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9031-108599

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9054-108599

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8538-108599

Reference 12: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8924-108599

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
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-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8906-108599

+ Details

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

Principal Business Activity

Principles of Consolidation

Cash and Cash Equivalents

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

Accounts Receivable

Inventory Valuation

The Company values inventory at the lower of cost on a first - in -first-out basis or market.

Assets Held for Sale and Liabilities Directly Associated

Capitalized Engineering Costs

Property and Equipment

Long-Lived and Intangible Assets

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

Deferred Financing Costs

Derivative Liabilities

Revenue Recognition

The customer has made fixed commitment to purchase in written documentation. All customers’ orders are through firm written purchase orders.

The date is determined by which the Company expects payment and the Company has not modified its normal billing and credit terms for this buyer. Payment is expected as if the goods had been shipped.

The Company had approximately $2,914,000 and $150,000 of net sales that were billed but not shipped under such bill and hold arrangements as of December 31, 2016 and 2015, respectively.

Use of Estimates

Credit and Concentration Risks

Customer		Percentage of Sales
		2016		2015

	1		19.1		20.5
	2		14.3		12.0
	3		12.3		15.4
	4		10.7		11.4

Customer		Percentage of Receivables
		2016		2015

	1		19.9		26.6
	2		*		10.4
	3		*		13.6
	4		*		10.5

* Customer was less than 10% of gross accounts receivable at December 31, 2016

During the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.

Income Taxes

Earnings per share

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

	December 31,		December 31,
	2016		2015

Weighted average shares outstanding used to compute basic earnings per share		7,579,419		7,478,223
Effect of dilutive stock options and warrants		-		-
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		7,579,419		7,478,223

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

	December 31,		December 31,
	2016		2015
Stock Options		633,000		234,000
Warrants		520,000		46,800
		1,153,000		280,800

	December 31,		December 31,
	2016		2015
Stock Options		3,000		330,000
Warrants		321,000		118,000
		324,000		448,000

Stock-Based Compensation

Goodwill

The Company has determined that there has been no impairment of goodwill at December 31, 2016 and 2015.

Freight Out

Freight out is included in operating expenses and amounted to $180,000 and $197,000 for the years ended December 31, 2016 and 2015, respectively.

JOBS Act

Recently Issued Accounting Pronouncements

Reclassifications

Certain account balances in 2015 have been reclassified to conform to the current year presentation.

ACQUISITION (Tables)

12 Months Ended

Dec. 31, 2016

Selected financial information

	Sterling			Compac

Net Sales	$	6,894,000		$	467,000

Loss from operations	$	(1,196,000	)	$	(14,000	)

Selected proforma financial information

Net Sales		$	82,281,000
Income from operations		$	773,000

Sterling [Member]

Purchase price allocation

Fair value of tangible assets acquired	$	8,181,000
Goodwill		4,540,000
Cash acquired		588,000
Liabilities assumed		(3,169,000	)
Total	$	10,140,000

Compac [Member]

Purchase price allocation

Fair value of tangible assets acquired	$	406,000
Intangible assets		600,000
Goodwill		560,000
Liabilities assumed		(95,000	)
Total	$	1,471,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2016

Summary Of Significant Accounting Policies Tables

Credit and Concentration Risks

Customer		Percentage of Sales
		2016		2015

	1		19.1		20.5
	2		14.3		12.0
	3		12.3		15.4
	4		10.7		11.4

Customer		Percentage of Receivables
		2016		2015

	1		19.9		26.6
	2		*		10.4
	3		*		13.6
	4		*		10.5

* Customer was less than 10% of gross accounts receivable at December 31, 2016

Earnings per share

	December 31,		December 31,
	2016		2015

Weighted average shares outstanding used to compute basic earnings per share		7,579,419		7,478,223
Effect of dilutive stock options and warrants		-		-
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		7,579,419		7,478,223

Anti-dilutive Securities

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

	December 31,		December 31,
	2016		2015
Stock Options		633,000		234,000
Warrants		520,000		46,800
		1,153,000		280,800

	December 31,		December 31,
	2016		2015
Stock Options		3,000		330,000
Warrants		321,000		118,000
		324,000		448,000

ACCOUNTS RECEIVABLE (Tables)

12 Months Ended

Dec. 31, 2016

Components of accounts receivable

	2016			2015

Accounts Receivable Gross	$	8,806,000		$	14,647,000
Allowance for Doubtful Accounts		(756,000	)		(985,000	)
Accounts Receivable Net	$	8,050,000		$	13,662,000

Allowance for doubtful accounts

	Balance at		Charged to
	Beginning of		Costs and		Deductions from		Balance at End
	Year		Expenses		Reserves		of Year
Year ended December 31, 2016
Allowance for Doubtful Accounts	$	985,000	$	274,000	$	503,000	$	756,000
Year ended December 31, 2015
Allowance for Doubtful Accounts	$	1,566,000	$	177,000	$	758,000	$	985,000

INVENTORY (Tables)

12 Months Ended

Dec. 31, 2016

Inventory Tables

Components of inventory

	2016			2015

Raw Materials	$	7,031,000		$	9,188,000
Work In Progress		25,635,000			19,743,000
Finished Goods		11,751,000			11,838,000
Inventory Reserve		(4,566,000	)		(3,846,000	)
Total Inventory	$	39,851,000		$	36,923,000

Reserve for inventory

	Balance at
	Beginning of			Additions to			Deductions from		Balance at End
	Year			Reserve			Reserves		of Year
Year ended December 31, 2016
Reserve for Inventory	$	(3,846,000	)	$	(806,000	)	$	86,000	$	(4,566,000	)
Year ended December 31, 2015
Reserve for Inventory	$	(3,475,000	)	$	(785,000	)	$	414,000	$	(3,846,000	)

PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure 6.Property And Equipment Tables Abstract

Property and equipment

	2016			2015
Land	$	300,000		$	300,000
Buildings and Improvements		1,650,000			1,658,000		31.5 years
Machinery and Equipment		14,032,000			15,109,000		5 - 8 years
Capital Lease Machinery and Equipment		5,573,000			5,869,000		5 - 8 years
Tools and Instruments		7,520,000			6,993,000		1.5 - 7 years
Automotive Equipment		195,000			191,000		5 years
Furniture and Fixtures		438,000			425,000		5 - 8 years
Leasehold Improvements		966,000			910,000		Term of Lease
Computers and Software		519,000			482,000		4 - 6 years
Total Property and Equipment		31,193,000			31,937,000
Less: Accumulated Depreciation		(18,974,000	)		(16,638,000	)
Property and Equipment, net	$	12,219,000		$	15,299,000

INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2016

Components of accounts payable

Intangible assets

	2016			2015
Customer Relationships	$	6,115,000		$	6,555,000		5 to 14 years
Trade Names		970,000			1,480,000		15-20 years
Technical Know-how		660,000			660,000		10 years
Non-Compete		150,000			150,000		5 years
Professional Certifications		15,000			15,000		. 25 to 2 years
Total Intangible Assets		7,910,000			8,860,000
Less: Accumulated Amortization		(6,156,000	)		(5,008,000	)
Intangible Assets, net	$	1,754,000		$	3,852,000

Future amortization of intangibles

For the year ending	Amount
December 31, 2017	$	689,000
December 31, 2018		219,000
December 30, 2019		219,000
December 31, 2020		219,000
December 31, 2021		130,000
Thereafter		278,000
Total	$	1,754,000

ASSETS HELD FOR SALE AND LIABILITES DIRECLTY ASSOCIATED (Tables)

12 Months Ended

Dec. 31, 2016

Assets Held For Sale And Liabilites Direclty Associated Tables

Components of Assets Held for Sale and Liabilities Directly Associated

Components of Assets Held for Sale and Liabilities Directly Associated

Assets Held for Sale
Cash	$	40,000
Accounts Receivable, net of allowance for doubtful accounts		722,000
Inventory, net of reserves		260,000
Prepaid and other assets		96,000
Property and equipment, net of accumulated depreciation		3,478,000
Intangible Assets, net of accumulated amortization		819,000
Goodwill		635,000

Assets Held for Sale	$	6,050,000

Accounts payable and accrued expenses		379,000
Capital lease obligations		1,680,000
Deferred revenues		96,000

Liabilities directly associated to Assets Held for Sale	$	2,155,000

Company's Turbine Engine Components segment data

Segment Data
Turbine Engine Components	AMK			Total
Net Sales	$	4,511,000		$	10,973,000
Gross Profit		169,000			(151,000	)
Pre Tax (Loss) Income		(1,595,000	)		(4,084,000	)
Assets		6,050,000			17,235,000

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

12 Months Ended

Dec. 31, 2016

Payables and Accruals [Abstract]

Components of accounts payable

	2016		2015

Accounts Payable	$	13,843,000	$	9,837,000
Accrued Expenses		2,317,000		2,160,000
Other Payables		-		49,000
	$	16,160,000	$	12,046,000

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Tables)

12 Months Ended

Dec. 31, 2016

Federal Tax Rate

Notes payable and capital lease obligations

	December 31,			December 31,
	2016			2015

Revolving credit note payable to PNC Bank N. A. ("PNC")	$	24,393,000		$	29,604,000
Term loans, PNC		6,649,000			9,833,000
Capital lease obligations		4,215,000			5,025,000
Related party notes payable, net of debt discount		1,086,000			350,000
Note payable (private placement), net of debt discount		627,000			-
Subtotal		36,970,000			44,812,000
Less: Current portion of notes and capital obligations		(33,999,000	)		(40,895,000	)
Notes payable and capital lease obligations, net of current portion	$	2,971,000		$	3,917,000

Future minimum principal payments for term loan

For the year ending	Amount
December 31, 2017	$	1,478,000
December 31, 2018		1,478,000
December 31, 2019		1,478,000
December 31, 2020		1,478,000
December 31, 2021		737,000
Thereafter		-
PNC Term Loans payable		6,649,000
Less: Current portion		(6,649,000	)
Long-term portion	$	-

Future minimum lease payments, including imputed interest

For the year ending	Amount
December 31, 2017	$	1,442,000
December 31, 2018		1,407,000
December 31, 2019		1,230,000
December 31, 2020		509,000
December 31, 2021		19,000
Thereafter		1,000
Total future minimum lease payments		4,608,000
Less: imputed interest		(393,000	)
Less: current portion		(1,244,000	)
Total Long Term Portion	$	2,971,000

COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2016

Commitments And Contingencies Tables

Future minimum lease payments

							Motor		Porter		Clinton
	Plant Avenue		Fifth Avenue		Lamar Street		Parkway		Street		Avenue
For the year							Annual		Annual		Annual
ending	Annual Rent		Annual Rent		Annual Rent		Rent		Rent		Rent		Total Rents

December 31,
2017	$	543,000	$	746,000	$	360,000	$	106,000	$	115,000	$	77,000	$	1,947,000
December 31,
2018		559,000		769,000		300,000		110,000		115,000		20,000		1,873,000
December 31,
2019		576,000		792,000		-		113,000		48,000		-		1,529,000
December 31,
2020		593,000		817,000		-		116,000		-		-		1,526,000
December 31,
2021		611,000		842,000		-		103,000		-		-		1,556,000
Thereafter		2,661,000		4,367,000		-		-		-		-		7,028,000
Total Rents	$	5,543,000	$	8,333,000	$	660,000	$	548,000	$	278,000	$	97,000	$	15,459,000

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

Income Taxes Tables

Provision for (benefit from) income taxes

	2016			2015
Current
Federal	$	-		$	-
State		49,000			53,000
Prior year overaccruals
Federal		-			(123,000	)
State		-			-
Total Expense (Benefit)		49,000			(70,000	)
Deferred Tax Benefit		(4,962,000	)		(216,000	)
Valuation Allowance		7,025,000			-
Net Provision for (Benefit from) Income Taxes	$	2,112,000		$	(286,000	)

Reconciliation of our income tax rate

	2016			2015
U. S. statutory income tax rate		34.00	%		-34.00	%
State taxes		1.50	%		4.70	%
Permanent differences, overaccruals and non-deductible items		0.08	%		3.00	%
Rate change and provision to return true-up		0.85	%		-40.20	%
Expired stock options		-0.15	%		40.80	%
Deferred tax valuation allowance		-51.64	%		-
Total		-15.36	%		-25.70	%

Deferred tax assets

	December 31,			December 31,
	2016			2015
Deferred tax assets
Current:
Net operating losses	$	4,754,000		$	462,000
Bad debts		413,000			336,000
Inventory - 263A adjustment		-			8,000
Accounts payable, accrued expenses and reserves		930,000			919,000
Total current deferred tax assets before valuation allowance		6,097,000			1,725,000
Valuation allowance		(6,097,000	)		-
Total current deferred tax assets after valuation allowance		-			1,725,000

Non-current:
Section 1231 loss carry forward		4,000			4,000
Stock based compensation - options and restricted stock		164,000			79,000
Capitalized engineering costs		431,000			432,000
Deferred rent		468,000			410,000
Amortization - NTW Transaction		1,324,000			789,000
Inventory reserves		1,157,000			680,000
Deferred gain on sale of real estate		121,000			126,000
Other		160,000			257,000
Total non-current deferred tax assets before valuation allowance		3,829,000			2,777,000
Valuation allowance		(928,000	)		(4,000	)
Total non-current deferred tax assets after valuation allowance		2,901,000			2,773,000

Deferred tax liabilities:
Property and equipment		(2,595,000	)		(2,091,000	)
Amortization - NTW Goodwill		(33,000	)		(13,000	)
Amortization - AMK Goodwill		-			(18,000	)
Amortization - Welding Transaction		(273,000	)		(313,000	)
Total non-current deferred tax liabilities		(2,901,000	)		(2,435,000	)

Net non current deferred tax asset	$	-		$	338,000

STOCK OPTIONS AND WARRANTS (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Fair values of stock options granted

	2016			2015
Risk-free interest rates		0.73% - 2.04 %			1.31% - 1.49 %
Expected life (in years)		5			5-6
Expected volatility		31%-59 %			25	%
Dividend yield		0.0	%		5.9	%

Weighted-average grant date fair value per share	$	1.88		$	1.10

Company's stock options

				Wtd. Avg.
	Options			Exercise Price
Balance, December 31, 2014		528,539			9.01
Granted during the period		99,000			10.20
Exercised during the period		(46,473	)		4.50
Terminated/Expired during the period		(16,724	)		84.78
Balance, December 31, 2015		564,342			7.35
Granted during the period		128,000			5.28
Exercised during the period		(24,905	)		2.95
Terminated/Expired during the period		(31,095	)		8.47
Balance, December 31, 2016		636,342		$	7.01

Exercisable at December 31, 2016		500,175		$	6.77

Summary information about stock options

		Remaining
Range of Exercise		Number		Wtd. Avg.	Wtd. Avg.
Prices		Outstanding		Life	Exercise Price
	$0.00 - $5.00		202,694	1.81 years		$4.49
	$5.01 - $20.00		433,648	2.90 years		8.19
	$0.00 - $20.00		636,342	2.55 years		$7.01

Company's outstanding warrants

			Wtd. Avg.
	Warrants		Exercise Price
Balance, December 31, 2014		164,585		7.85
Granted during the period		-		-
Exercised during the period		-		-
Terminated/Expired during the period		-		-
Balance, December 31, 2015		164,585		7.85
Granted during the period		675,691		1.07
Exercised during the period		-		-
Terminated/Expired during the period		-		-
Balance, December 31, 2016		840,276	$	5.13

Exercisable at December 31, 2016		165,618	$	4.49

Fair values of warrants granted

	2016		2015
Risk-free interest rates		1.4%-2.04%		n/a
Expected life (in years)		5		n/a
Expected volatility		33%-59%		n/a
Dividend yield		0		n/a

Weighted-average grant date fair value per share		0.81-1.4		n/a

Warrants

Range of Exercise Prices		Warrants		Wtd. Avg. Life	Wtd. Avg. Exercise Price
	$0-$3.00		320,703	4.90 years	$	3.00
	$3.01-$5.00		110,556	4.60 years	$	5.00
	$5.01 - $6.15		244,432	4.50 years	$	6.15
	$6.30 - $11.25		164,585	1.14 years	$	7.85
	$3.00-$11.25		840,276	4.01 years	$	5.13

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

+ References + Details

Employee Benefits Plans Contributions to security fund

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References + Details

SEGMENT REPORTING (Tables)

12 Months Ended

Dec. 31, 2016

Segment Reporting Tables

Operating segments

	Year Ended December 31,
	2016			2015
COMPLEX MACHINING
Net Sales	$	37,124,000		$	42,356,000
Gross Profit		4,382,000			10,412,000
Pre Tax Income (Loss)		(5,432,000	)		1,825,000
Assets		45,073,000			48,353,000

AEROSTRUCTURES & ELECTRONICS
Net Sales		18,818,000			27,134,000
Gross Profit		2,489,000			6,553,000
Pre Tax Income (Loss)		(3,985,000	)		386,000
Assets		19,843,000			20,229,000

TURBINE ENGINE COMPONENTS
Net Sales		10,973,000			10,952,000
Gross Profit		(151,000	)		316,000
Pre Tax Income (Loss)		(4,084,000	)		(3,329,000	)
Assets		17,235,000			19,076,000

CORPORATE
Net Sales		-			-
Gross Profit		-			-
Pre Tax Income (Loss)		(10,000	)		-
Assets		649,000			592,000

CONSOLIDATED
Net Sales		66,915,000			80,442,000
Gross Profit		6,720,000			17,281,000
Pre Tax Income (Loss)		(13,511,000	)		(1,118,000	)
Provision for (Benefit from ) Income Taxes		2,112,000			(286,000	)
Net (Loss) Income		(15,623,000	)		(832,000	)
Assets		82,800,000			88,250,000

ACQUISITION (Details) - USD ($)	12 Months Ended
ACQUISITION (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Goodwill	$ 9,883,000	$ 10,518,000
Cash acquired	$ 0	605,000
Net Sales		82,281,000
Income (loss) from operations		773,000
Sterling [Member]
Fair Value of Tangible Assets acquired		8,181,000
Goodwill		4,540,000
Cash acquired		588,000
Liabilities assumed		(3,169,000)
Total		10,140,000
Net Sales		6,894,000
Income (loss) from operations		(1,196,000)
Compac [Member]
Fair Value of Tangible Assets acquired		406,000
Intangible assets		600,000
Goodwill		560,000
Liabilities assumed		(95,000)
Total		1,471,000
Net Sales		467,000
Income (loss) from operations		$ (14,000)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	12 Months Ended
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	Dec. 31, 2016	Dec. 31, 2015
Summary Of Significant Accounting Policies Details
Customer 1 percentage of sales	19.10%	20.50%
Customer 2 percentage of sales	14.30%	15.40%
Customer 3 percentage of sales	12.30%	12.00%
Customer 4 percentage of sales	10.70%	11.40%

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)

Dec. 31, 2016

Dec. 31, 2015

Customer 1 percentage of receivables

19.90%

26.60%

Customer 2 percentage of receivables

^[1]

10.40%

Customer 3 percentage of receivables

^[1]

13.60%

Customer 4 percentage of receivables

^[1]

10.50%

[1]	Customer was less than 10% of gross accounts receivable at December 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summary Of Significant Accounting Policies Details 2
Weighted average shares outstanding used to compute basic earnings per share	7,579,419	7,478,223
Effect of dilutive stock options and warrants	0	0
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share	7,579,419	7,478,223

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - shares	Dec. 31, 2016	Dec. 31, 2015
Stock Options	633,000	234,000
Warrants	520,000	46,800
Anti dilutive Securities	1,153,000	280,800
Anti Dilutive
Stock Options	3,000	330,000
Warrants	321,000	118,000
Anti dilutive Securities	324,000	448,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	12 Months Ended
	Dec. 31, 2016 USD ($) Customer	Dec. 31, 2015 USD ($) Customer
Summary Of Significant Accounting Policies Details Narrative
Customers represented percentage of total sales	56.40%	59.30%
Number of Customers represented percentage of total sales \| Customer	4	4
Customers represented percentage of gross accounts receivable	19.90%	61.10%
Number of Customers represented percentage of gross accounts receivable \| Customer	1	4
Impairment of goodwill \| $	$ 0	$ 0
Freight out \| $	$ 180,000	$ 197,000

ACCOUNTS RECEIVABLE (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Receivables [Abstract]
Accounts Receivable Gross	$ 8,806,000	$ 14,647,000
Allowance for Doubtful Accounts	(756,000)	(985,000)
Accounts Receivable Net	$ 8,050,000	$ 13,662,000

ACCOUNTS RECEIVABLE (Details 1) - USD ($)	12 Months Ended
ACCOUNTS RECEIVABLE (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Receivables [Abstract]
Allowance for Doubtful Accounts Beginning Balance	$ 985,000	$ 1,566,000
Allowance for Doubtful Accounts Charged to Costs and Expenses	274,000	177,000
Allowance for Doubtful Accounts Deductions From Reserves	503,000	758,000
Allowance for Doubtful Accounts Ending Balance	$ 756,000	$ 985,000

INVENTORY (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Inventory Details
Raw Materials	$ 7,031,000	$ 9,188,000
Work In Progress	25,635,000	19,743,000
Finished Goods	11,751,000	11,838,000
Inventory Reserve	(4,566,000)	(3,846,000)
Total Inventory	$ 39,851,000	$ 36,923,000

INVENTORY (Details 1) - USD ($)	12 Months Ended
INVENTORY (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Inventory Details 1
Reserve for Inventory, Beginning	$ (3,846,000)	$ (3,475,000)
Additions to Reserve	(806,000)	(785,000)
Deductions from Reserves	86,000	414,000
Reserve for Inventory, Ending	$ (4,566,000)	$ (3,846,000)

PROPERTY AND EQUIPMENT (Details) - USD ($)	12 Months Ended
PROPERTY AND EQUIPMENT (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Total Property and Equipment	$ 31,193,000	$ 31,937,000
Less: Accumulated Depreciation	(18,974,000)	(16,638,000)
Property and Equipment, net	12,219,000	15,299,000
Land [Member]
Total Property and Equipment	300,000	300,000
Buildings and Improvements [Member]
Total Property and Equipment	$ 1,650,000	1,658,000
Property Plant And Equipment Useful Life	31 years 6 months
Machinery and Equipment
Total Property and Equipment	$ 14,032,000	15,109,000
Machinery and Equipment \| Minimum
Property Plant And Equipment Useful Life	5 years
Machinery and Equipment \| Maximum
Property Plant And Equipment Useful Life	8 years
Capital Lease Machinery and Equipment
Total Property and Equipment	$ 5,573,000	5,869,000
Capital Lease Machinery and Equipment \| Minimum
Property Plant And Equipment Useful Life	5 years
Capital Lease Machinery and Equipment \| Maximum
Property Plant And Equipment Useful Life	8 years
Tools and Instruments
Total Property and Equipment	$ 7,520,000	6,993,000
Tools and Instruments \| Minimum
Property Plant And Equipment Useful Life	1 year 6 months
Tools and Instruments \| Maximum
Property Plant And Equipment Useful Life	7 years
Automotive Equipment
Total Property and Equipment	$ 195,000	191,000
Property Plant And Equipment Useful Life	5 years
Furniture and Fixtures
Total Property and Equipment	$ 438,000	425,000
Furniture and Fixtures \| Minimum
Property Plant And Equipment Useful Life	5 years
Furniture and Fixtures \| Maximum
Property Plant And Equipment Useful Life	8 years
Leasehold Improvements
Total Property and Equipment	$ 966,000	910,000
Computers and Software
Total Property and Equipment	$ 519,000	$ 482,000
Computers and Software \| Minimum
Property Plant And Equipment Useful Life	4 years
Computers and Software \| Maximum
Property Plant And Equipment Useful Life	6 years

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	12 Months Ended
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 3,347,000	$ 3,090,000

INTANGIBLE ASSETS (Details) - USD ($)	12 Months Ended
INTANGIBLE ASSETS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Customer Relationships	$ 6,115,000	$ 6,555,000
Trade Names	970,000	1,480,000
Technical Know-how	660,000	660,000
Non-Compete	150,000	150,000
Professional Certifications	15,000	15,000
Total Intangible Assets	7,910,000	8,860,000
Less: Accumulated Amortization	(6,156,000)	(5,008,000)
Intangible Assets, net	$ 1,754,000	$ 3,852,000
Customer Relationships [Member] \| Minimum
Intangible Assets Useful Life	5 years
Customer Relationships [Member] \| Maximum
Intangible Assets Useful Life	14 years
Trade Names [Member] \| Minimum
Intangible Assets Useful Life	15 years
Trade Names [Member] \| Maximum
Intangible Assets Useful Life	20 years
Technical Know How [Member]
Intangible Assets Useful Life	10 years
Non Compete [Member]
Intangible Assets Useful Life	5 years
Professional Certifications [Member] \| Minimum
Intangible Assets Useful Life	3 months
Professional Certifications [Member] \| Maximum
Intangible Assets Useful Life	2 years

INTANGIBLE ASSETS (Details 1)	Dec. 31, 2016 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
December 31, 2017	$ 689,000
December 31, 2018	219,000
December 31, 2019	219,000
December 31, 2020	219,000
December 31, 2021	130,000
Thereafter	278,000
Total	$ 1,754,000

INTANGIBLE ASSETS (Details Narrative) - USD ($)	12 Months Ended
INTANGIBLE ASSETS (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
Amortization of the intangibles	$ 1,279,000	$ 1,262,000

ASSETS HELD FOR SALE AND LIABILITES DIRECLTY ASSOCIATED (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Assets Held for Sale
Cash	$ 40,000
Accounts Receivable, net of allowance for doubtful accounts	722,000
Inventory, net of reserves	260,000
Prepaid and other assets	96,000
Property and equipment, net of accumulated depreciation	3,478,000
Intangible Assets, net of accumulated amortization	819,000
Goodwill	635,000
Assets Held for Sale	6,050,000	$ 1,700,000
Accounts payable and accrued expenses	379,000
Capital lease obligations	1,680,000
Deferred revenues	96,000
Liabilities directly associated to Assets Held for Sale	$ 2,155,000	$ 0

ASSETS HELD FOR SALE AND LIABILITES DIRECLTY ASSOCIATED (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Gross Profit	$ 6,720,000	$ 17,281,000
AMK
Net Sales	4,511,000
Gross Profit	169,000
Pre Tax (Loss) Income	(1,595,000)
Assets	6,050,000
TURBINE ENGINE COMPONENTS
Net Sales	10,973,000	10,952,000
Gross Profit	(151,000)	316,000
Pre Tax (Loss) Income	(4,084,000)	(3,329,000)
Assets	$ 17,235,000	$ 19,076,000

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Payables and Accruals [Abstract]
Accounts Payable	$ 13,843,000	$ 9,837,000
Accrued Expenses	2,317,000	2,160,000
Other payables	0	49,000
Accounts Payable and Accrued Expenses	$ 16,160,000	$ 12,046,000

SALE AND LEASEBACK TRANSACTION (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Sale And Leaseback Transaction Details Narrative
Unrecognized portion of the Sale and Leaseback gain	$ 371,000	$ 409,000

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
IncomeTaxRateReconciliation
Revolving credit note payable to PNC Bank N.A. ("PNC")	$ 24,393,000	$ 29,604,000
Term loan, PNC	6,649,000	9,833,000
Capital lease obligations	4,215,000	5,025,000
Related party notes payable, net of debt discount	1,086,000	350,000
Note payable (private placement), net of debt discount	627,000	0
Subtotal	36,970,000	44,812,000
Less: Current portion of notes and capital obligations	(33,999,000)	(40,895,000)
Notes payable and capital lease obligations, net of current portion	$ 2,971,000	$ 3,917,000

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

+ References + Details

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details 1)	Dec. 31, 2016 USD ($)
Disclosure 9.Notes Payable And Capital Lease Obligations Details 1Abstract
December 31, 2017	$ 1,478,000
December 31, 2018	1,478,000
December 31, 2019	1,478,000
December 31, 2020	1,478,000
December 31, 2021	737,000
Thereafter	0
PNC Term Loan payable	6,649,000
Less: current portion	(6,649,000)
Long-term portion	$ 0

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details 2)	Dec. 31, 2016 USD ($)
December 31, 2018	$ 1,947,000
December 31, 2019	1,873,000
December 31, 2020	1,529,000
December 31, 2021	1,526,000
Thereafter	7,028,000
Total future minimum lease payments	15,459,000
Capital Leases Payable - Equipment
December 31, 2017	1,442,000
December 31, 2018	1,407,000
December 31, 2019	1,230,000
December 31, 2020	509,000
December 31, 2021	19,000
Thereafter	1,000
Total future minimum lease payments	4,608,000
Less: imputed interest	(393,000)
Less: current portion	(1,244,000)
Total Long Term Portion	$ 2,971,000

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Disclosure 9.Notes Payable And Capital Lease Obligations Details 3Abstract
Balance due under revolving loan	$ 24,393,000	$ 29,604,000
Revolving loan interest rate	4.50%
Interest expense related to credit facilities	$ 1,908,000	1,414,000
Capital lease obligations	$ 4,215,000	$ 5,025,000
Interest rate minimum	4.00%
Interest rate maximum	14.00%

EMPLOYEE BENEFITS PLANS (Details Narrative) - USD ($)	12 Months Ended
EMPLOYEE BENEFITS PLANS (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]
Employee Benefits Plans Contributions to security fund	$ 263,000	$ 247,000

COMMITMENTS AND CONTINGENCIES (Details)	Dec. 31, 2016 USD ($)
December 31, 2017	$ 1,947,000
December 31, 2018	1,873,000
December 31, 2019	1,529,000
December 31, 2020	1,526,000
December 31, 2021	1,556,000
Thereafter	7,028,000
Total Rents	15,459,000
Plant Avenue Annual Rent [Member]
December 31, 2017	543,000
December 31, 2018	559,000
December 31, 2019	576,000
December 31, 2020	593,000
December 31, 2021	611,000
Thereafter	2,661,000
Total Rents	5,543,000
Fifth Avenue Annual Rent [Member]
December 31, 2017	746,000
December 31, 2018	769,000
December 31, 2019	792,000
December 31, 2020	817,000
December 31, 2021	842,000
Thereafter	4,367,000
Total Rents	8,333,000
Lamar Street Annual Rent [Member]
December 31, 2017	360,000
December 31, 2018	300,000
December 31, 2019	0
December 31, 2020	0
December 31, 2021	0
Thereafter	0
Total Rents	660,000
Motor Parkway Annual Rent [Member]
December 31, 2017	106,000
December 31, 2018	110,000
December 31, 2019	113,000
December 31, 2020	116,000
December 31, 2021	103,000
Thereafter	0
Total Rents	548,000
Porter Street Annual Rent [Member]
December 31, 2017	115,000
December 31, 2018	115,000
December 31, 2019	48,000
December 31, 2020	0
December 31, 2021	0
Thereafter	0
Total Rents	278,000
Clinton Avenue [Member]
December 31, 2017	77,000
December 31, 2018	20,000
December 31, 2019	0
December 31, 2020	0
December 31, 2021	0
Thereafter	0
Total Rents	$ 97,000

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Commitments And Contingencies Details Narrative
Rent expense	$ 2,429,000	$ 2,225,000

INCOME TAXES (Details) - USD ($)	12 Months Ended
INCOME TAXES (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current
Federal	$ 0	$ 0
State	49,000	53,000
Prior year overaccruals
Federal	0	(123,000)
State	0	0
Total Expense	49,000	(70,000)
Deferred Tax Benefit	(4,962,000)	(216,000)
Valuation Allowance	7,025,000	0
Net Benefit from Income Taxes	$ 2,112,000	$ (286,000)

INCOME TAXES (Details 1)	12 Months Ended
INCOME TAXES (Details 1)	Dec. 31, 2016	Dec. 31, 2015
Income Taxes Details 1
U. S. statutory income tax rate	(34.00%)	(34.00%)
State taxes	(15.00%)	4.70%
Permanent differences, overaccruals and non-deductible items	0.08%	3.00%
Rate change and provision to return true-up	0.85%	(40.20%)
Expired stock options	(0.15%)	40.80%
Deferred tax valuation allowance	(51.64%)	0.00%
Total	(15.36%)	(25.70%)

INCOME TAXES (Details 2) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current:
Net operating losses	$ 4,754,000	$ 462,000
Bad debts	413,000	336,000
Inventory - 263A adjustment	0	8,000
Account payable, accrued expenses and reserves	930,000	919,000
Total current deferred tax asset before valuation allowance	6,097,000	1,725,000
Valuation Allowance	(6,097,000)	0
Total current deferred tax asset after valuation allowance	0	1,725,000
Non- Current:
Section 1231 loss carry forward	4,000	4,000
Stock based compensation - options and restricted stock	164,000	79,000
Capitalized engineering costs	431,000	432,000
Deferred rent	468,000	410,000
Amortization - NTW Transaction	1,324,000	789,000
Inventory reserves	1,157,000	680,000
Deferred gain on sale of real estate	121,000	126,000
Other	160,000	257,000
Total non-current deferred tax asset before valuation allowance	3,829,000	2,777,000
Valuation allowance	(928,000)	(4,000)
Total non-current deferred tax asset after valuation allowance	2,901,000	2,773,000
Deferred tax liabilities:
Property and equipment	(2,595,000)	(2,091,000)
Amortization - NTW Goodwill	(33,000)	(13,000)
Amortization - AMK Goodwill	0	(18,000)
Amortization - Welding Transaction	(273,000)	(313,000)
Total non-current deferred tax liability	(2,901,000)	(2,435,000)
Net non-current deferred tax asset	$ 0	$ 338,000

INCOME TAXES (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Income Taxes Details Narrative
Valuation allowance	$ 7,025,000	$ 4,000

STOCK OPTIONS AND WARRANTS (Details) - $ / shares	12 Months Ended
STOCK OPTIONS AND WARRANTS (Details) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Expected life (in years)	5 years
Expected volatility		25.00%
Dividend yield	0.00%	5.90%
Weighted-average grant date fair value per share	$ 1.88	$ 1.10
Minimum
Risk-free interest rates	0.73%	1.31%
Expected life (in years)		5 years
Expected volatility	31.00%
Maximum
Risk-free interest rates	2.04%	1.49%
Expected life (in years)		6 years
Expected volatility	59.00%

STOCK OPTIONS AND WARRANTS (Details 1) - $ / shares	12 Months Ended
STOCK OPTIONS AND WARRANTS (Details 1) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Options
Granted	100,000
Exercisable at December 31, 2016	0
Stock option
Options
Begining Balance	564,342	528,539
Granted	128,000	99,000
Exercised	(24,905)	(46,473)
Terminated/Expired	(31,095)	(16,724)
Ending Balance	636,342	564,342
Exercisable at December 31, 2016	500,175
Wtd. Avg. Exercise Price
Begining Balance	$ 7.35	$ 9.01
Granted	5.28	10.20
Exercised	2.95	4.50
Terminated/Expired	8.47	84.78
Ending Balance	7.01	$ 7.35
Exercisable at December 31, 2016	$ 6.77

STOCK OPTIONS AND WARRANTS (Details 2) - Stock option - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Range of Exercise Prices, lower limit	$ 0.00
Range of Exercise Prices, upper limit	$ 20.00
Remaining Number Outstanding	636,342	564,342	528,539
Wtd. Avg. Life	2 years 6 months 18 days
Wtd. Avg. Exercise Price	$ 7.01	$ 7.35	$ 9.01
Range One
Range of Exercise Prices, lower limit	0.00
Range of Exercise Prices, upper limit	$ 5.00
Remaining Number Outstanding	202,694
Wtd. Avg. Life	1 year 9 months 22 days
Wtd. Avg. Exercise Price	$ 4.49
Range Two
Range of Exercise Prices, lower limit	5.01
Range of Exercise Prices, upper limit	$ 20.00
Remaining Number Outstanding	433,648
Wtd. Avg. Life	2 years 10 months 24 days
Wtd. Avg. Exercise Price	$ 8.19

STOCK OPTIONS AND WARRANTS (Details 3) - $ / shares	12 Months Ended
STOCK OPTIONS AND WARRANTS (Details 3) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Warrants
Granted	100,000
Exercisable at December 31, 2016	0
Warrant
Warrants
Begining Balance	164,585	164,585
Granted	675,691	0
Exercised	0	0
Terminated/Expired	0	0
Ending Balance	840,276	164,585
Exercisable at December 31, 2016	165,618
Wtd. Avg. Exercise Price
Begining Balance	$ 7.85	$ 7.85
Granted	1.07	0.00
Exercised	0.00	0.00
Terminated/Expired	0.00	0.00
Ending Balance	5.13	$ 7.85
Exercisable at December 31, 2016	$ 4.49

STOCK OPTIONS AND WARRANTS (Details 4) - $ / shares

12 Months Ended

Dec. 31, 2016

Dec. 31, 2015

5 years

25.00%

Dividend yield

0.00%

5.90%

$ 1.88

$ 1.10

Minimum

0.73%

1.31%

5 years

31.00%

Maximum

2.04%

1.49%

6 years

59.00%

Warrant

^[1]

5 years

0 years

^[1]

^[1]

Dividend yield

0.00%

^[1]

^[1]

Warrant | Minimum

1.40%

33.00%

$ .81

Warrant | Maximum

2.04%

59.00%