Forward-Looking Statements

When used in this Form 10-K and in future filings by us with the Securities and Exchange Commission, the words or phrases "will likely result," "management expects" or "we expect," "will continue," "is anticipated," "estimated" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The risks are included in "Item 1A: Risk Factors" and "Item 7:
Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. We have no obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

You should read the financial information set forth below in conjunction with our financial statements and notes thereto.

Business Operations

We are engaged in the contract production of structural aircraft parts principally for the U.S. Air Force and other branches of the U.S. armed forces, either as a prime contractor or as a subcontractor for other defense prime contractors. Our strategy for growth has focused on government and military sales as a prime contractor and increasingly as a subcontractor for leading aerospace prime contractors.

Due to our success as a subcontractor to defense prime contractors and growth in the commercial sector, we are also pursuing opportunities to increase our commercial subcontracting business.

Among our major recent awards are:

· A long-term requirements contract of approximately $70 million from The Boeing Company for assemblies for 242 enhanced wings for the A-10 "Thunderbolt" attack jet. The initial orders under this contract were for $13.2 million.

· An initial order of $7.9 million as part of a $98 million agreement by a leading global aerospace and defense company to provide structural kits for an in-production aircraft. The 8-year agreement has the potential to generate up to $150 million in revenue over the life of the program.

· A long-term multi-million dollar contract from Spirit AeroSystems for major aerostructure assemblies for the Gulfstream G650 aircraft for which we will build fixed leading edge assemblies. We anticipate that this contract will generate significant revenue for us in the future. The initial order is valued at approximately $3.5 million. Deliveries of these assemblies will begin in 2009 and continue through 2014.

The lengths of our contracts vary but are typically between nine months and two years for U.S. government contracts (although our T-38 contract and our C-5 TOP contract are for periods of ten years and seven years, respectively), and up to ten years for commercial contracts. Except in cases where contract terms permit us to bill on a progress basis, we must incur upfront costs in producing assemblies and bill our customers upon delivery. Because of the upfront costs incurred, the timing of our billings and the nature of the percentage-of-completion method of accounting described below, there can be a significant disparity between the periods in which (a) costs are expended, (b) revenue and earnings are recorded and (c) cash is received.

Critical Accounting Policies

Revenue Recognition

We recognize revenue from our contracts over the contractual period under the percentage-of-completion (POC) method of accounting. Under the POC method of accounting, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at the completion of the contract. Recognized revenues that will not be billed under the terms of the contract until a later date are recorded as an asset captioned "Costs and estimated earnings in excess of billings on uncompleted contracts." Contracts where billings to date have exceeded recognized revenues are recorded as a liability captioned "Billings in excess of costs and estimated earnings on uncompleted contracts." Changes to the original estimates may be required during the life of the contract. Estimates are reviewed monthly and the effect of any change in the estimated gross margin percentage for a contract is reflected in cost of sales in the period the change becomes known. The use of the POC method of accounting involves considerable use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods. As a result, there can be a significant disparity between earnings (both for accounting and taxes) as reported and actual cash received by us during any reporting period. We continually evaluate all of the issues related to the assumptions, risks and uncertainties inherent with the application of the POC method of accounting; however, we cannot assure you that our estimates will be accurate. If our estimates are not accurate or a contract is terminated, we will be forced to adjust revenue in later periods. Furthermore, even if our estimates are accurate, we may have a shortfall in our cash flow and we may need to borrow money to pay taxes until the reported earnings materialize to actual cash receipts.

Stock-Based Compensation

We account for compensation expense associated with stock options in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment."

Results of Operations

Year Ended December 31, 2008 as Compared to the Year Ended December 31, 2007

Revenue. Revenue for the year ended December 31, 2008 was $35,588,831 compared to $27,985,476 for the same period last year, representing an increase of $7,603,355 or 27%. The increase in revenue is primarily the result of our efforts to increase our military and commercial subcontract business. We generate revenue primarily from government contracts for which we act as a prime contractor or as a subcontractor and, to a lesser extent, from commercial contracts. Revenue generated from prime government contracts for the year ended December 31, 2008 was $17,412,962 compared to $17,519,198 for the year ended December 31, 2007, a decrease of $106,236 or 0.6%. Revenue generated from government subcontracts for the year ended December 31, 2008 was $10,766,994 compared to $8,563,465 for the year ended December 31, 2007, an increase of $2,203,529 or 26%. Revenue generated from commercial contracts was $7,408,875 for the year ended December 31, 2008 compared to $1,902,813 for the year ended December 31, 2007, an increase of $5,506,062 or 289%.

During the year ended December 31, 2008, we received approximately $55.4 million of new contract awards, which included approximately $9.2 million of government prime contract awards, approximately $36.2 million of government subcontract awards and approximately $10.0 million of commercial subcontract awards, compared to $37.7 million of new contract awards in 2007, which included $22.7 million of government prime contract awards, $9.0 million of government subcontract awards and $6.0 million of commercial contract awards.

As of December 31, 2008, we had approximately $374 million in bids outstanding. We continue to make bids on contracts on a weekly basis.

As the above results show, the Company has had success in our efforts to increase our military and commercial subcontract business and as a result we expect to continue to focus our marketing efforts in this area for the foreseeable future.

Gross profit. Gross profit for the year ended December 31, 2008 was $8,523,588 compared to $7,389,391 for the year ended December 31, 2007, an increase of $1,134,197. As a percentage of revenue, gross profit for the year ended December 31, 2008 was 24.0% compared to 26.4% for the same period last year.

The decrease in gross margin percentage was anticipated by management and was due to the impact of starting of new long term contracts and our shift to more subcontracting business which is more price competitive. We expect that our gross margin percentage will stay in the range of 23%-25% for the foreseeable future.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2008 were $4,717,080 compared to $4,355,027 for the year ended December 31, 2007, an increase of $362,053, or 8.3%. This increase was primarily due to a $100,000 increase in non-cash fees for stock options issued as compensation to our board of directors, a result of the higher valuation, on the same number of options issued, based on the Black-Sholes option pricing model, a $78,000 increase in public fees, which included fees paid for investor relations, fees for printing our reports and SEC filings, transfer agent fees and other expenses associated with being a public company, a $50,000 increase in miscellaneous charges taken by our commercial customers because we are doing more subcontracting work and an $88,000 increase in accounting and legal fees, which includes increased fees for Sarbanes-Oxley compliance.

Interest Expense. Interest expense for the year ended December 31, 2008 was $31,847, compared to $22,441 for 2007, an increase of $9,406 or 41%. Interest expense is increased due to the company entering into a new term loan with Sovereign Bank in October 2008, for the purpose of funding tooling on new commercial contracts.

Income (Loss) from operations. We had income from operations for the year ended December 31, 2008 of $3,806,508 compared to $3,034,364 for the year ended December 31, 2007. The increase in income was a result of higher sales.

Year Ended December 31, 2007 as Compared to the Year Ended December 31, 2006

Revenue. Revenue for the year ended December 31, 2007 was $27,985,476 compared to $17,907,989 for the same period last year, representing an increase of $10,077,487 or 56%.

We generate revenue primarily from government contracts for which we act as a prime contractor or as a subcontractor and, to a lesser extent, from commercial contracts. Revenue generated from prime government contracts for the year ended December 31, 2007 was $17,519,198 compared to $14,938,524 for the year ended December 31, 2006, an increase of $2,580,674 or 17%. Revenue generated from government subcontracts for the year ended December 31, 2007 was $8,563,465 compared to $1,688,686 for the year ended December 31, 2006, an increase of $6,874,779 or 407%. The increase in government contract revenue is predominantly the result of our efforts to increase our subcontracting business, which accounted for 30% of our total revenue in 2007 compared to 18% in 2006. Revenue generated from commercial contracts was $1,902,813 for the year ended December 31, 2007 compared to $1,280,779 for the year ended December 31, 2006, an increase of $622,034 or 49%. This increase resulted from our efforts to increase our commercial subcontracting business due to our success as a subcontractor to defense prime contractors and growth in the commercial sector.

During the year ended December 31, 2007, we received approximately $37.7 million of new contract awards, which included approximately $22.7 million of government prime contract awards, approximately $9.0 million of government subcontract awards and approximately $6.0 million of commercial subcontract awards, compared to $30.0 million of new contract awards in 2006, which included $23.0 million of government prime contract awards, $7.0 million of government subcontract awards and no commercial contract awards. Included in the 2006 government prime contract award amount is a $5.0 million release on our C-5 TOP contract compared to a $1.5 million C-5 TOP release in 2007.

As of December 31, 2007, we had approximately $220 million in bids outstanding. We continue to make bids on contracts on a weekly basis.

Gross profit. Gross profit for the year ended December 31, 2007 was $7,389,391 compared to $1,643,638 for the year ended December 31, 2006, an increase of $5,745,753. As a percentage of revenue, gross profit for the year ended December 31, 2007 was 26.4% compared to 9.2% for the same period last year. The increased gross profit percentage was a result of several factors. As revenue has increased, our overhead application rate has improved, resulting in improved gross profit. Additionally, through a combination of on-site observation and additional consulting and engineering assistance that we have provided to our suppliers, we have worked at improving our suppliers' efficiency, on-time performance and quality, which, in turn, has helped to improve our profitability. Notwithstanding these improvements, the increase in gross profit percentage was lower than we expected because we incurred costs to reconfigure the physical layout of our facility to accommodate the increased activity that we anticipate from the new contracts that we have been awarded recently. While this initiative reduced net income, we expect that it will enhance our ability to increase net income in future years.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2007 were $4,355,027 compared to $3,551,974 for the year ended December 31, 2006, an increase of $803,053, or 22.6%. This increase was primarily due to:
· a $327,000 increase in consulting fees related to bids and proposals, predominantly the result of new bidding activity on subcontract work;

· a $72,000 increase in public company fees, which includes fees paid for investor relations, fees for printing our reports and SEC filings, transfer agent fees and other expenses associated with being a public company;

· a $415,000 increase in accrued bonus earned by three of our officers; and

· a $54,000 increase in expenses relating to relocating one of our employees.

This increase was offset by a decrease in salaries of $86,000, resulting from having one less Vice President on staff for the majority of 2007.

Interest Expense. Interest expense for the year ended December 31, 2007 was $22,441, compared to $20,326 for 2006, an increase of $2,115 or 10%. Interest expense is considered immaterial to our operations in both 2007 and 2006.

Income (Loss) from operations. We had income from operations for the year ended December 31, 2007 of $3,034,364 compared to a loss from operations of 1,908,336 for the year ended December 31, 2006. The income was a result of higher sales and higher gross margins described earlier.

Liquidity and Capital Resources

General. At December 31, 2008, we had working capital of $35,135,395 compared to $28,716,968 at December 31, 2007, an increase of $6,418,427, or 22%.

Cash Flow.A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments. Contracts that permit us to bill on a progress basis must be classified as "on time" for us to apply for progress payments. In February 2007, we agreed to pay $75,000 to have the late delivery orders on the C-5 TOP contract classified as "on time." Accordingly, beginning in February 2007, we have been able to apply for progress payments under this program. Costs for which we are not able to bill on a progress basis are components of "Costs and estimated earnings in excess of billings on uncompleted contracts" on our balance sheet and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

Because the POC method of accounting requires us to use estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods, there can be a significant disparity between earnings (both for accounting and tax purposes) as reported and actual cash that we receive during any reporting period. Accordingly, it is possible that we may have a shortfall in our cash flow and may need to borrow money until the reported earnings materialize into actual cash receipts.

At December 31, 2008, our cash balance of $424,082 compared to $338,391 at December 31, 2007. In addition, at December 31, 2008, accounts receivable of $2,975,012 and costs in excess of billings on uncompleted contracts were $37,865,016, which represents unbilled receivables of approximately $32,000,000, which we expect to converted into cash within the next operating cycle.

JP Morgan Chase Credit Facility.In September 2003, we entered into a three year, revolving credit facility with JP Morgan Chase Bank (the "Chase Facility"), secured by our assets. In August 2006, we borrowed $350,000 under the Chase Facility. The Chase Facility was amended and restated in October 2006, further amended in May 2007 and expired on June 30, 2007. All borrowings under this facility were repaid in May 2007.

Sovereign Bank Credit Facilities In August 2007, we entered into a new two-year, $2.5 million revolving credit facility with Sovereign Bank (the "Sovereign Revolving Facility"), secured by all of our assets. The Sovereign Revolving Facility specifies an interest rate equal to the lower of LIBOR plus 2% or Sovereign Bank's prime rate (3.3% as of December 31, 2008). The Sovereign Revolving Facility contains financial covenants related to interest coverage, net income and capital expenditures, as defined in the credit agreement. As of December 31, 2008, we were in compliance with all of the financial covenants contained in the credit agreement. As of December 31, 2008, we had borrowed $300,000 under the Sovereign Revolving Facility.

On October 22, 2008, we obtained a $3 million term loan from Sovereign Bank to be amortized over five years (the "Sovereign Term Facility"). Prior to entering into the term loan we had borrowed $2.5 million under the Sovereign Revolving Facility to fund the initial tooling costs related to the previously mentioned long-term contract with Spirit. We used the proceeds from the Sovereign Term Facility to repay the borrowings under the Sovereign Revolving Facility and to pay for additional tooling related to the Spirit contract. The Sovereign Term Facility bears interest at the lower of LIBOR plus 2.5% or Sovereign Bank's prime rate (3.3% as of December 31, 2008) and is secured by all of our assets.

Concurrent with entering into the Sovereign Term Facility, Sovereign Bank amended the terms of the Sovereign Revolving Facility extending the term until August 2010 and amending the covenants, as defined, commencing in the fourth quarter of 2009.

The terms and conditions of the Sovereign Revolving Facility are applicable to the Sovereign Term Facility.

Additionally, the Company and Sovereign Bank entered into a five year interest rate swap agreement, in the notional amount of $3 million. Under the interest rate swap, the Company pays an amount to Sovereign Bank representing interest on the notional amount at a rate of 5.8% and receives an amount from Sovereign representing interest on the notional amount at a rate equal to the one-month LIBOR plus 2.5%. The effect of this interest rate swap will be the Company paying a fixed interest rate of 5.8% over the term of the Sovereign Term Facility.

Contractual Obligations. The table below summarizes information about our contractual obligations as of December 31, 2008 and the effects these obligations are expected to have on our liquidity and cash flow in the future years.

                                    Payments Due By Period ($)
Contractual                     Less than
Obligations            Total      1 year   1-3 years  4-5 years  After 5 years
Debt                 $2,950,000  $600,000  $1,200,000 $1,150,000       -
Capital Lease
Obligations            71,873     20,668     38,093     13,112         -
Operating Leases     2,730,095   422,066    882,498    936,241      489,290
Employment Agreement
Compensation**       1,571,300   924,300    647,000       -            -
Interest Rate Swap
Agreement             128,056       -          -       128,056         -
Total Contractual
Cash Obligations     $7,451,324 $1,967,034 $2,767,591 $2,227,409   $489,290

**The employment agreements provide for bonus payments that are excluded from these amounts.

Inflation. Inflation historically has not had a material effect on our operations.