EDAC Technologies Corporation

Annual Report

2010

To Our Shareholders:

In 2010, we continued our efforts to expand EDAC’s range of products, diversify our customer base and improve our processes. Sales reached $73.1 million in 2010, an increase of $18.4 million or 34% from 2009, of which $8.5 million was derived from organic growth. Our results benefitted from a full year of sales of the AERO and SNI acquisitions, which were completed during 2009, and our Apex Machine Tool and EDAC Machinery product lines delivered strong top-line growth. Operating profit increased $0.7 million to $1.8 million, or 63% over 2009. These increases reflect the strengthening of our markets and our ability to penetrate them.

Our January 1, 2010, we organized our aerospace operations into a single product line, EDAC AERO, combining Precision Components, including its repair unit, and AERO, which has resulted in a better ability to market and to serve our Aerospace customers.

While we made solid progress in 2010, we encountered operational challenges that had to be addressed as the year progressed. The first challenge was difficulties in the initial production runs of certain newly developed parts on a large aerospace order. These difficulties resulted in losses on the project in the third and fourth quarters. We developed an improvement plan for the process and also are seeing a ramp-up in production volume, and we believe these factors will result in profitable production runs of these parts in the near future.

The second challenge was the start up of the SNI operation in a difficult economy. After moving the operation to a new facility in Auburn, Massachusetts in the second quarter and setting up for production, SNI’s customers, still unsure of the economy, were reluctant to place orders for capital equipment. Orders for SNI grinders began to come late in the third quarter and we were able to produce some of those orders in the fourth quarter.

We continued to invest in developmental parts for United Technologies Corporation’s jet engine for the Joint Strike Fighter and also for other new engine programs including the LEAP-X and Geared Turbofan (GTF) in 2010. While these investments resulted in the need to absorb additional costs during the year, they have expanded our capabilities and provided a solid platform for future profitable growth. Our backlog in the EDAC AERO product line continued to increase, growing from $118.8 million to $129.6 million at year-end.

I am very optimistic about 2011 and our long-term future. We began the new year with total backlog of $138.3 million compared with $125.9 million at the start of 2010. Markets that we serve have recently improved over 2010 and recent announcements in the jet engine market are very encouraging. Additionally, we recently received a letter of intent from a major European jet engine manufacturer to proceed with the tooling needed to support a multi-year agreement to supply eight engine parts for a

commercial airliner program. This agreement is valued at approximately $36 million over a 5-year term. We also have achieved a strong increase in our shipment volume of products including stator assemblies and expect increased volume in more than a dozen new parts that we introduced last year, provided that we perform against schedule. Among these new parts are cases for the Gen X and GE-38 engines, stators for Pratt & Whitney’s TF 33 engine, and Geared Turbo fan structural assemblies for the Mitsubishi regional jet and Boeing aircraft.

During 2010, we replaced our ERP management information systems across the Company to standardize our system and to improve our management tools. In 2011, we will be making new investments in machinery and equipment targeted at $3.4 million, to position ourselves to further capitalize on emerging programs. We evaluated many acquisition opportunities in 2010, but none met our very selective criteria. We will only pursue opportunities that we believe will strategically complement our businesses and increase value to our shareholders.

As recently as five years ago, EDAC was producing aerospace parts for a single client and a single engine used in power generation. Today, we have a wider range of major customers and we are producing parts for over ten major engine programs. To position EDAC to serve these growing markets, we have made investments that sometimes required us to forego short-term profits in the interest of growing our longer-term opportunities. We believe that, in the long run, this strategy will serve EDAC well.

We are determined to build on our strengths to achieve long-term profitable growth for your Company. Our employees, management and directors are committed to operational excellence, extraordinary customer service and the highest ethical standards. We will continue to invest in our people and in state-of-the-art machinery and equipment. We are prepared and positioned to seize opportunities. We believe that the future of your Company is very bright.

EDAC Technologies: Organization and Mission

EDAC Technologies Corporation (“EDAC” or “the Company”), founded in 1946, is a diversified public corporation that designs, manufactures and services precision components for aerospace and industrial applications. EDAC operates as one company offering three major product lines: EDAC AERO, Apex Machine Tool and EDAC Machinery.

The Company’s manufacturing services to the aerospace sector, represented by its EDAC AERO product line, include the design, manufacture and servicing of components for commercial and military aircraft, in such areas as jet engine parts, special tooling, equipment, gauges and components used in the manufacture, assembly and inspection of jet engines and other aircraft systems.

EDAC expanded its products and services to the aerospace sector with the acquisition on May 27, 2009, of certain assets of MTU Aero Engines North America Inc.’s manufacturing Business Unit (“AERO”). AERO primarily manufactures rotating components, such as disks, rings and shafts, for the aerospace industry. Consistent with the Company’s long-term strategic plans of achieving growth through both organically and through targeted acquisitions, the AERO transaction added complementary product lines, expanded EDAC’s customer base, and contributed to the diversification of its core aerospace business into adjacent markets.

Effective January 1, 2010, all of the Company’s aerospace operations were combined into a single product line to better serve customers, align resources and simplify market positioning. The combined product line, renamed EDAC AERO, includes the Company’s Precision Aerospace, AERO and Aero Engine Component Repair product lines.

EDAC AERO produces low pressure turbine cases, hubs, rings, disks and other complex, close tolerance components for all major aircraft engine and ground turbine manufacturers. This product line specializes in turnings and 4 and 5 axis milling of difficult-to-machine alloys such as waspalloy, hastalloy, inconnel, titanium, high nickel alloys, aluminum and stainless steels. Its products also include rotating components, such as disks, rings and shafts. Precision assembly services include assembly of jet engine sync rings, aircraft welding and riveting, post-assembly machining and sutton barrel finishing. EDAC AERO also includes the business of Aero Engine Component Repair, acquired in December 2007, which is engaged in precision machining for the maintenance and repair of selected components in the aircraft engine industry. Geographic markets include the U.S., Canada, Mexico, Europe and Asia, although most of this product line’s sales come from the United States.

The Company serves industrial customers through its Apex Machine Tool and EDAC Machinery product lines.

Apex Machine Tool designs and manufactures highly sophisticated fixtures, precision gauges, close tolerance plastic injection molds and precision component molds for composite parts and specialized machinery. A unique combination of highly skilled toolmakers and machinists and leading edge technology has enabled Apex to provide exacting quality to customers who require tolerances to +/- .0001 inches. Geographic markets include the U.S., Canada and Europe, although almost all sales come from the United States.

EDAC Machinery designs, manufactures and repairs all types of precision rolling element bearing spindles including hydrostatic and other precision rotary devices. Custom spindles are completely assembled in a Class 10,000 Clean Room and are built to suit any manufacturing application up to 100 horsepower and speeds in excess of 100,000 revolutions per minute. EDAC Machinery repair service can recondition all brands of precision rolling element spindles, domestic or foreign. On August 10, 2009, the Company acquired substantially all of the assets of Service Network Inc. (SNI), adding the manufacture and service of precision grinders to its Machinery product line. On May 14, 2010, the Company acquired certain assets of Accura Technics, LLC (“Accura”) expanding the Company’s range of precision grinding applications. The spindle product line serves a variety of customers: machine tool manufacturers, special machine tool builders and integrators, industrial end-users, and powertrain machinery manufacturers and end-users. Geographic markets include the U.S., Canada, Mexico, Europe and Asia, although sales come primarily from the United States.

EDAC is AS9100:2004 and ISO 14001:2004 Certified. EDAC Machinery is AS9100:2008 Certified.

Mission

The mission of EDAC is to be the company of choice for customers, shareholders, employees and the community at large. We believe that this can be achieved by being flexible and responsive, providing customers with benchmark

quality, service and value, providing shareholders superior return on their investment, developing a world class working environment for employee health, safety, security and career growth, and acting as a good corporate citizen through support of the local community and charities.

EDAC’s long-term strategy to enhance shareholder value is based on pursuing profitable growth both organically and through selected acquisitions. This strategy is intended to expand the Company’s range of products and services, increase its business with existing customers, and add new customer relationships.

MARKETING AND COMPETITION

EDAC designs, manufactures and services tooling, fixtures, molds, jet engine components and machine spindles, satisfying the highest precision requirements of some of the most exacting customers in the world. This high skill level has been developed through more than 50 years of involvement with the aerospace industry. In the aerospace market, EDAC has been actively pursuing qualification as a supplier of products to the military. Beyond aerospace, EDAC continues to expand its manufacturing services to a broad base of industrial customers.

Most of the competition for design, manufacturing and service in precision machining and machine tools comes from independent firms, many of which are smaller than EDAC. This point of difference often gives us an advantage in that we can bring a broader spectrum of support to customers who are constantly looking for ways to consolidate their vendor base. We also compete against the in-house manufacturing and service capabilities of larger customers. We believe that the trend of these large manufacturers is to outsource activities beyond their core competencies, which presents us with opportunities.

The market for our products and precision machining capabilities continues to change with the development of more sophisticated use of business-to-business tools on the internet. We are actively involved in securing new business leads through the web and have participated in internet auctions and research for quoting opportunities. Moreover, the sales and marketing team at EDAC has developed an updated website (www.edactechnologies.com) with interactive tools to make it easier for customers to do business with us.

EDAC’s competitive advantage is enhanced not only by the extra level of expertise gained through our experience in the aerospace industry, but also by our ability to provide customers with high quality, high precision, and quick turnaround support, from design to delivery. We believe that this comprehensive end-to-end service capability sets us apart. It is also indicative of our commitment to seek continuous improvement and utilization of the latest technology. Such commitment, we believe, will boost our productivity and make us ready to respond effectively to the increasing price pressure in a very competitive marketplace. To maintain and strengthen its competitive position, EDAC will continue to invest in improvements to its capacity to provide advanced in-house design and engineering capabilities, and facilities equipped with the latest enabling machine tools and manufacturing technologies.

MARKET INFORMATION

The Company’s Common Stock trades on The Nasdaq Capital Market under the symbol: “EDAC”.

High and low sales prices per share during each fiscal quarter of the past two fiscal years were as follows:

		2010								2009
		High				Low				High				Low
First Quarter		$	3.74			$	2.71			$	1.97			$	1.20
Second Quarter			6.80				3.48				4.32				1.76
Third Quarter			5.49				3.19				5.00				3.18
Fourth Quarter			4.52				2.96				4.75				3.03

The information provided above reflects inter-dealer prices, without retail mark-ups, markdowns or commissions and may not represent actual transactions.

The approximate number of shareholders of record plus beneficial shareholders of the Company’s Common Stock at March 8, 2011 was 1,447.

The Company has never paid cash dividends. The Company must obtain approval from its primary lender prior to paying any cash dividends (See Note D to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report).

Shareholder Return Performance Graph

The following performance graph compares the five year cumulative total shareholder return from investing $100 on December 31, 2005 in the Company’s Common Stock to (i) the Total Return Index for The Nasdaq Stock Market (U.S. Companies) (the “Nasdaq (US) Index”) and (ii) the Total Return Index for Nasdaq Trucking and Transportation Stocks (the “Nasdaq Transportation Index”).

Comparison of Five-Year Cumulative Total Return of EDAC Common Stock, Nasdaq (US)
Index and Nasdaq Transportation Index

						Nasdaq
		Nasdaq (US)				Transportation				EDAC Technologies
Fiscal Year Ended		Index				Index				Corporation
December 31, 2005		$	100			$	100			$	100
December 30, 2006			110				116				82
December 29, 2007			120				126				288
January 3, 2009			57				80				48
January 2, 2010			83				94				84
January 1, 2011			98				129				91

SELECTED FINANCIAL INFORMATION

The following selected financial information for each of the two most recent fiscal years has been derived from the Company’s audited financial statements. The following data is qualified by reference to and should be read in conjunction with the Company’s audited financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company operates on a fiscal year basis. The Company’s fiscal year is a 52 or 53-week period ending on the Saturday closest to December 31. The 2011 fiscal year was a 52-week year.

SELECTED STATEMENT OF INCOME DATA

(In thousands, except per share data)		2010				2009
Sales		$	73,058			$	54,643
Net income		$	845			$	7,626
Earnings per common share:
Basic		$	0.17			$	1.58
Diluted		$	0.17			$	1.54

SELECTED BALANCE SHEET DATA

(In thousands)		2010				2009
Current assets		$	38,026			$	33,468
Total assets			61,404				56,127
Current liabilities			20,704				14,284
Working capital			17,322				19,184
Long-term liabilities			15,857				18,077
Shareholders’ equity			24,843				23,766

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and related notes thereto.

Sales to the Company’s principal markets are as follows:

		2010				2009
Aerospace customers		$	56,592			$	41,979
Other			16,466				12,664
Total		$	73,058			$	54,643

Sales by product line are as follows:

		2010				2009
EDAC Aero		$	50,161			$	36,697
Apex Machine Tool			17,009				15,280
EDAC Machinery			5,888				2,666
Total		$	73,058			$	54,643

2010 vs. 2009

Acquisition of AERO

On May 27, 2009, the Company acquired certain assets of MTU Aero Engines North America Inc.’s Manufacturing Business Unit (AERO). The acquisition was accounted for under the purchase method of accounting with the assets acquired recorded at their fair values at the date of acquisition. The results of operations of the acquired business have been included in the Consolidated Statement of Operations beginning as of the effective date of acquisition. The acquisition further diversifies our core Aerospace business to adjacent markets and is consistent with our long term growth plan.

Sales

The Company’s sales increased $18,415 or 33.7%, from $54,643 in 2009 to $73,058 in 2010. Sales to aerospace customers increased $14,613, or 34.8% from 2009 to 2010, primarily due to the inclusion of the sales of the Company’s AERO acquisition commencing on May 27, 2009. Sales to non-aerospace customers increased $3,802 or 30.0% from 2009 to 2010, due to increased sales in all product lines. As of January 1, 2011, sales backlog was approximately $138,300, compared to approximately $125,900 at January 2, 2010. The sales backlog increase is primarily due to the increased orders in the EDAC Aero product line. The Company presently expects to complete approximately $64,000 of the January 1, 2011 backlog during the 2011 fiscal year.

Sales for the EDAC Aero product line increased $13,464, or 36.7%, from $36,697 in 2009 to $50,161 in 2010. The increase was due primarily to the Company’s May 27, 2009 acquisition of AERO. Additionally, shipments of certain jet engine parts to our major aerospace customers increased over 2009. The Company’s sales backlog for EDAC Aero increased from $118,800 at January 2, 2010 to $128,617 at January 1, 2011.

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(in thousands)

Sales for the Apex Machine Tool product line increased $1,729, or 11.3%, from $15,280 in 2009 to $17,009 in 2010. Sales backlog for the Apex Machine Tool product line increased from $5,119 at January 2, 2010 to $7,124 at January 1, 2011.

Sales for the EDAC Machinery product line, increased $3,222, or 120.8% from $2,666 in 2009 to $5,888 in 2010. The Company believes, based on indications from its customers, that demand for spindles and SNI grinders will improve slightly for 2011.

Cost of Sales

Cost of sales as a percentage of sales decreased in 2010 to 89.1% from 89.2% in 2009. This decrease was primarily due to the sales levels increasing in all product lines more significantly than manufacturing costs due to the fixed element or semi-variable element of certain manufacturing costs. The decrease was mostly offset by development costs on an emerging program that resulted in a gross loss on that program in the third and fourth quarters. The Company has implemented methods to improve and refine certain production processes for these parts. The decrease in cost of sales was further offset due to a gross loss of $218 for the third quarter for the resources allocated to the SNI product line. This was due to the lack of orders in the third quarter, reflected by SNI sales decreasing in the third quarter and to costs associated with integrating Accura into SNI. SNI’s sales subsequently increased substantially in the fourth quarter.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $6,222 in 2010, representing an increase of $1,372, or 28.3%, from the 2008 level of $4,850. The increase was primarily due to the inclusion of selling, general and administrative expenses of the Company’s AERO acquisition commencing on May 27, 2009. Additionally, there were increases in salary, bonus, pension and investor relations expenses.

Interest Expense

Interest expense for 2010 increased $141, or 17%, to $970 from $829 in 2009. This was due to increased borrowing levels associated with the acquisition of AERO and increased borrowing levels associated with increases in accounts receivable and inventories. See Note D to the Consolidated Financial Statements.

Other Income

The Company recognized an additional gain in 2010 in the amount of $350 from the recognition of a deposit on an equipment purchase made by AERO prior to its acquisition by the Company. The Company was not originally aware of the deposit as of the acquisition date. For 2009, due to bargain purchase accounting rules, the Company recognized a gain on the acquisition of AERO in the amount of $12,161. The gain has been offset by acquisition related expenses in the amount of $257, resulting in a net gain of $11,904. See Note A to the Consolidated Financial Statements.

Provision for Income Taxes

The effective income tax provision rate for 2010 was 27.3%, compared to 37.4% in 2009. The decrease in pre-tax income in 2010 compared with 2009 resulted in a reduction in the effective tax rate as the tax benefit of Connecticut business tax credits and the Section 199 Qualified Productions Activities deduction was a larger percentage of 2010 pretax income.

For additional discussion of income taxes, see “Critical Accounting Policies and Estimates — Income Taxes” and Note G to the Consolidated Financial Statements.

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)

LIQUIDITY AND CAPITAL RESOURCES

The Company has met its working capital needs through funds generated from operating and financing activities. The Company assesses its liquidity in terms of its ability to generate cash to fund its operating and investing activities. A decrease in product demand would impact the availability of funds. Of particular importance to the Company’s liquidity are cash flows generated from operating activities, capital expenditure levels and borrowings on the revolving credit facility.

Long-term Debt and Revolving Line of Credit

Long-term debt and lines of credit consist of the following:

		Jan 1, 2011				Jan 2, 2010
Lines of credit		$	4,793			$	1,591
Term notes			8,967				8,420
Mortgage loans			5,261				5,475
Capital lease obligations			—				92
			19,021				15,578
Less — equipment line of credit			743				1,391
Less — revolving line of credit			4,050				200
Less — current portion of long-term debt			4,370				1,833
		$	9,858			$	12,154

Cash Flow

The following is selected cash flow data from the Consolidated Statements of Cash Flows:

		2010				2009
Net cash (used in) provided by operating activities		$	(409	)		$	3,556
Net cash used in investing activities			(3,233	)			(10,289	)
Net cash provided by financing activities			3,517				6,522

2010

The use of cash in operating activities in 2010 of $409 as compared to cash generated from operations in 2009 in the amount of $3,556 is primarily due to an increase in accounts receivable in the amount of $4,164 in 2010. The increased sales to large aerospace customers, who have extended their payment terms has increased our receivables and our revolving line of credit. The increase in accounts receivable was partially offset by an increase in accounts payable in the amount of $501.

Cash used in investing activities primarily reflects expenditures for machinery and equipment to increase machining capacity and to purchase certain assets from Accura. Capital expenditures for 2011 are targeted at $3,400.

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(in thousands)

Cash flows provided by financing activities primarily reflect $2,243 of new debt to finance the Company’s machinery purchases. Cash was used in financing activities for scheduled payments of term debt in the amount of $2,003. Amounts advanced on the equipment line of credit will convert to a term note on July 31, 2011, unless converted earlier at the option of the Company.

As of January 1, 2011, the Company had $4,050 outstanding on its revolving line of credit and $743 outstanding on its equipment line of credit and had $3,950 and $3,957, respectively, available for additional borrowings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant accounting policies are set forth below.

Revenue Recognition — Sales are recorded when all criteria for revenue recognition have been satisfied, which is generally when goods are shipped to the Company’s customers. The Company defers revenue recognition on certain product shipments until customer acceptance, including inspection and installation requirements, as defined, are achieved.

Accounts receivable — The Company evaluates its allowance for doubtful accounts by considering the age of each invoice, the financial strength of the customer, the customer’s past payment record and subsequent payments.

Inventories — Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company has specifically identified certain inventory as obsolete or slow-moving and provided a full reserve for these parts. The assumption is that these parts will not be sold. The assumptions and the resulting reserve have been reasonably accurate in the past, and are not likely to change materially in the future.

Income Taxes — The Company will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not. In making this determination, the Company has considered both available positive and negative evidence including, but not limited to, cumulative losses in recent years, future taxable income and prudent and feasible tax planning strategies. At present, the Company has concluded that it is more likely than not that the Company will realize all of its deferred tax assets. Valuation allowances related to deferred tax assets can also be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, it would record a valuation allowance through a charge to income in the period in which that determination is made.

The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10 address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has no significant uncertain tax positions.

Long-Lived Assets — Property, plant and equipment are carried at cost less accumulated depreciation. The appropriateness and the recoverability of the carrying value of such assets are periodically reviewed taking into consideration current and expected business conditions.

Share-based compensation — Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(in thousands)

believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted during the fiscal years ended January 1, 2011 and January 2, 2010. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Pension — The Company maintains a noncontributory defined benefit pension plan covering substantially all employees meeting certain minimum age and service requirements. The benefits are generally based on years of service and compensation during the last five years of employment. The Company’s policy is to contribute annually the amount necessary to satisfy the requirements of the Employee Retirement Income Security Act of 1974. In March 1993, the Board of Directors approved a curtailment to the plan which resulted in the freezing of all future benefits under the plan as of April 1, 1993.

Net periodic benefit cost for the plan was $151 and $211 for the fiscal years ended January 1, 2011 and January 2, 2010, respectively, and is calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on our plan assets of 7% for each year. In developing our expected long-term rate of return assumption, we evaluated input from our actuaries and our investment managers. We anticipate that our investment managers will continue to generate long-term returns of at least 7%. We regularly review our asset allocation and periodically rebalance our investments when considered appropriate. For the year ended January 1, 2011, we realized a return of greater than 7%, however, we continue to believe that 7% is a reasonable long-term rate of return on our plan assets.

The discount rate that we utilize for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest ratings given by a recognized rating agency. The discount rate determined on this basis has been reduced to 5.25% at January 1, 2011 from 5.75% at January 2, 2010. Based on an expected rate of return on our plan assets of 7.0%, a discount rate of 5.25% and various other assumptions, we estimate that our pension expense for the plan will be approximately $137 in 2011. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in our plan. We will continue to evaluate our actuarial assumptions, including our discount rate and expected rate of return, at least annually, and will adjust as necessary.

The value of our plan assets has increased from $4,255 on at January 2, 2010 to $4,530 at January 1, 2011. For the year ended January 1, 2011, the investment performance returns were greater that 7% and the discount rate was reduced to 5.25% resulting in an actuarial loss of $287. The funded status of our plan decreased from $1,488 unfunded at January 2, 2010, to $1,806 unfunded at January 1, 2011. We believe that, based on our actuarial assumptions, we will be required to continue to make cash contributions to our plan.

During fiscal 2010, the Company contributed $30 to the plan, which met the minimum required for the plan year beginning October 1, 2009. In the absence of significant changes, it is estimated that there will be a $280 minimum required contribution for the plan year beginning October 1, 2010. See Note F to the Consolidated Financial Statements for further discussion.

The Company recognizes the overfunded or underfunded status of its defined benefit pension plan. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized are recognized in Accumulated Other Comprehensive Loss, net of tax effects, until they are amortized as a component of net periodic benefit cost.

The Company’s significant accounting policies are more fully described in Note A to the Company’s Consolidated Financial Statements.

ACCOUNTING STANDARDS NOT YET ADOPTED

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (see Note A in the Notes to the Financial Statements). The Company is currently evaluating this new ASU. No other accounting standards not yet adopted are expected to have a material impact on the Company.

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(in thousands)

Certain factors that may affect future results of operations

All statements other than historical statements contained in this annual report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Without limitation, these forward looking statements include statements regarding the Company’s business strategy and plans, statements about the adequacy of the Company’s working capital and other financial resources, statements about the Company’s bank agreements, statements about the Company’s backlog, statements about the Company’s action to improve operating performance, and other statements herein that are not of a historical nature. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company’s control, that could cause actual results to differ materially from such statements. These include, but are not limited to, factors which could affect demand for the Company’s products and services such as general economic conditions and economic conditions in the aerospace industry and the other industries in which the Company competes; competition from the Company’s competitors; the Company’s ability to effectively use business-to-business tools on the Internet to improve operating results; the adequacy of the Company’s revolving credit facility and other sources of capital; and other factors discussed in the Company’s annual report on Form 10-K for the year ended January 1, 2011. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
   EDAC Technologies Corporation

We have audited the accompanying consolidated balance sheets of EDAC Technologies Corporation and subsidiaries (the “Company”) as of January 1, 2011 and January 2, 2010, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income (loss), and cash flows for the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EDAC Technologies Corporation and subsidiaries as of January 1, 2011 and January 2, 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ CCR LLP

Glastonbury, Connecticut
March 11, 2011

EDAC Technologies Corporation
CONSOLIDATED BALANCE SHEETS

As of January 1, 2011 and January 2, 2010
(in thousands)

		January 1,				January 2,
		2011				2010
ASSETS
CURRENT ASSETS:
Cash		$	975			$	1,100
Accounts receivable (net of allowance for for doubtful accounts of $121 as of January 1, 2011 and $249 as of January 2, 2010)			14,955				10,862
Inventories, net			20,219				19,990
Prepaid expenses and other current assets			184				306
Refundable income taxes			80				112
Deferred income taxes			1,613				1,098
Total current assets			38,026				33,468
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land			1,546				1,546
Buildings and improvements			10,278				10,166
Machinery and equipment			39,994				36,719
			51,818				48,431
Less: accumulated depreciation			28,595				25,974
			23,223				22,457
OTHER ASSETS			155				202
TOTAL ASSETS		$	61,404			$	56,127

See notes to consolidated financial statements.

EDAC Technologies Corporation
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of January 1, 2011 and January 2, 2010
(in thousands except share amounts)

		January 1,				January 2,
		2011				2010
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Lines of credit		$	4,793			$	1,591
Current portion of long-term debt			4,370				1,833
Trade accounts payable			7,336				6,828
Employee compensation and amounts withheld			1,212				1,185
Accrued expenses			2,136				1,819
Customer advances			857				1,028
Total current liabilities			20,704				14,284
LONG-TERM DEBT, less current portion			9,858				12,154
PENSION LIABILITIES			1,526				1,448
DEFERRED INCOME TAXES			4,473				4,475
COMMITMENTS AND CONTINGENCIES (NOTE H)			—				—
SHAREHOLDERS’ EQUITY:
Common stock, par value $.0025 per share; 20,000,000 shares authorized; issued and outstanding— 4,869,469 on January 1, 2011 and 4,840,803 on January 2, 2010			12				12
Additional paid-in capital			11,690				11,225
Retained earnings			15,630				14,785
			27,332				26,022
Less: accumulated other comprehensive loss			2,489				2,256
Total shareholders’ equity			24,843				23,766
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	61,404			$	56,127

See notes to consolidated financial statements.

EDAC Technologies Corporation
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended January 1, 2011
   and January 2, 2010
(in thousands except per share amounts)

		FISCAL YEAR
		2010				2009
Sales		$	73,058			$	54,643
Cost of Sales			65,080				48,716
Gross Profit			7,978				5,927
Selling, General and Administrative Expenses			6,222				4,850
Income from Operations			1,756				1,076
Non-Operating Income (Expense):
Interest Expense			(970	)			(829	)
Other			377				11,941
Income before Provision For Income Taxes			1,163				12,188
Provision for Income Taxes			318				4,562
Net Income		$	845			$	7,626
Basic Income Per Common Share:		$	0.17			$	1.58
Diluted Income Per Common Share:		$	0.17			$	1.54

See notes to consolidated financial statements.

EDAC Technologies Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 1, 2011
   and January 2, 2010
(in thousands)

		FISCAL YEAR
		2010				2009
Operating Activities:
Net income		$	845			$	7,626
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			2,693				2,137
Deferred income taxes			(517	)			4,338
Gain on acquisition of business			(350	)			(12,161	)
Gain on sale of property, plant and equipment			(10	)			(33	)
Compensation expense pursuant to stock options			446				260
Excess tax benefit from share-based compensation			(41	)			(10	)
Provision for inventories reserve			36				17
Provision for doubtful accounts receivable			71				128
Changes in operating assets and liabilities:
Accounts receivable			(4,164	)			1,431
Refundable income taxes			32				575
Inventories			(126	)			(2,785	)
Prepaid expenses and other assets			166				(21	)
Trade accounts payable			501				737
Other current liabilities			9				1,320
Net cash (used in) provided by operating activities			(409	)			3,556
Investing Activities:
Additions to property, plant and equipment			(2,943	)			(1,029	)
Equipment deposits			—				981
Cash paid for businesses acquired			(300	)			(10,275	)
Proceeds from sales of property, plant and equipment			10				34
Net cash used in investing activities			(3,233	)			(10,289	)
Financing Activities:
Increase (decrease) in lines of credit			3,202				(84	)
Borrowings on long-term debt			2,243				9,500
Repayments of long-term debt			(2,003	)			(2,717	)
Deferred financing fees			—				(208	)
Proceeds from exercise of common stock options			34				21
Excess tax benefit from share-based compensation			41				10
Net cash provided by financing activities			3,517				6,522
Decrease in cash			(125	)			(211	)
Cash at beginning of year			1,100				1,311
Cash at end of year		$	975			$	1,100
Supplemental Disclosure of Cash Flow Information:
Interest paid		$	972			$	825
Income taxes paid (refunded)			670				(351	)

See notes to consolidated financial statements.

EDAC Technologies Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
   AND COMPREHENSIVE INCOME (LOSS)
For the Fiscal Years Ended January 1, 2011 and January 2, 2010
(in thousands)

						Additional								Accumulated Other
		Common				Paid-in				Retained				Comprehensive
		Stock				Capital				Earnings				Loss				Total
Balances at January 3, 2009		$	12			$	10,935			$	7,159			$	(2,439	)		$	15,666
Comprehensive income:
Net income			—				—				7,626				—				7,626
Minimum pension liability, net of income taxes of $168			—				—				—				253				253
Unrealized loss on cash flow hedges net of income tax benefit of $40			—				—				—				(70	)			(70	)
Total comprehensive income																			7,809
Exercise of stock options			—				31				—				—				31
Stock option compensation expense			—				260				—				—				260
Balances at January 2, 2010			12				11,225				14,785				(2,256	)			23,766
Comprehensive income:
Net income			—				—				845				—				845
Minimum pension liability, net of income taxes of $72			—				—				—				(126	)			(126	)
Unrealized loss on cash flow hedges net of income tax benefit of $61			—				—				—				(107	)			(107	)
Total comprehensive income																			612
Exercise of stock options			—				19				—				—				19
Stock option compensation expense			—				446				—				—				446
Balances at January 1, 2011		$	12			$	11,690			$	15,630			$	(2,489	)		$	24,843

See notes to consolidated financial statements.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

NOTE A — ORGANIZATION AND BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

The accompanying consolidated financial statements include EDAC Technologies Corporation (the “Company”) and its wholly-owned subsidiaries, Gros-Ite Industries, Inc. and Apex Machine Tool Company, Inc. The Company provides complete design, manufacture and service meeting the precision requirements of customers for jet engine components, tooling, fixtures, molds and machine spindles.

ACQUISITIONS

On May 27, 2009, the Company acquired substantially all of the assets and certain liabilities of MTU Aero Engines North America, Inc.’s Manufacturing Business Unit (“AENA”). This business is hereinafter referred to as “AERO”. The acquisition was accounted for under the purchase method of accounting with the assets and liabilities acquired recorded at their fair values at the date of acquisition. The results of operations of the acquired business have been included in the Company’s operating results beginning as of the effective date of the acquisition.

The $9,500 purchase price of AERO has been allocated entirely to the working capital acquired. In accordance with ASC 805.30, “Business Combinations”, the acquisition was determined to be a “bargain purchase”. The excess value consisting entirely of fixed assets was determined based on independent appraisals and resulted in a net gain of $11,904, after acquisition related expenses of $257. Fair values at the date of acquisition were estimated as follows (in thousands):

Accounts receivable		$	4,274
Inventories			8,980
Prepaid expenses			169
Property, plant and equipment			11,893
Accounts payable and accrued expenses			(3,655	)
		$	21,661

The Company believes that it has correctly identified all of the assets acquired and liabilities assumed. The following procedures were used to measure the amounts recognized at the acquisition date for the assets acquired and liabilities assumed in the acquisition transaction.

	•		Accounts receivable were reviewed and valued based on accounts deemed collectible.
	•		A physical inventory was taken. Raw material was valued at replacement cost. Work-in-process and finished goods were valued at selling price less cost to complete, selling costs and reasonable manufacturer’s profit.
	•		Property, plant and equipment were appraised.
	•		Accounts payable and accrued expenses were valued at current value based on amounts expected to be paid to settle the obligation.

The Company realized a gain on the acquisition since the seller was willing to sell at less than the fair value of the net assets sold in consideration for the continued employment of the workforce. The seller had incurred significant losses in this operation in prior years and reported that “the sale comes as a result of a review and realignment of our entire production structure.” The seller was also opening a new facility in Poland.

The unaudited pro forma consolidated financial information for the fiscal year ended January 2, 2010 as though the acquisition had been completed at the beginning of the period is as follows. The pro forma information excludes the gain on the acquisition.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

		January 2, 2010
Sales		$	64,512
Net income			325
Basic income per share		$	0.07
Diluted income per share		$	0.07

The Company recognized an additional gain in 2010 in the amount of approximately $350 from the recognition of a deposit on an equipment purchase made by AERO prior to its acquisition by the Company. The Company was not originally aware of the deposit as of the acquisition date.

On August 10, 2009, the Company acquired substantially all of the assets of Service Network Incorporated. This business is hereinafter referred to as “SNI”. The $775 purchase price of SNI has been allocated as follows: accounts receivable $215, inventory $279, prepaid expenses $9 and machinery and equipment $272. The acquisition was funded through the Company’s normal working capital and line of credit with TD Bank NA.

On May 14, 2010, the Company acquired certain assets of Accura Technics, LLC (“Accura”). The $300 purchase price of Accura has been allocated as follows: accounts receivable $19, inventories $118 and machinery and equipment $163. The acquisition was funded through the Company’s normal working capital and line of credit with TD Bank NA.

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.

Fiscal Year: The Company’s fiscal year is a 52 or 53-week period ending on the Saturday closest to December 31. Fiscal years 2010 and 2009 were 52-week years that ended on January 1, 2011 and January 2, 2010, respectively.

Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain of the amounts and disclosures reflected in the consolidated financial statements. Actual results could differ from those estimates.

Cash and Cash Equivalents: For the purpose of the statement of cash flows, the Company defines cash equivalents as highly liquid instruments with an original maturity of three months or less. The Company had no cash equivalents at January 1, 2011 and January 2, 2010.

Revenue Recognition: Sales are recorded when all criteria for revenue recognition have been satisfied, which is generally when goods are shipped to the Company’s customers. The Company defers revenue recognition on certain product shipments until customer acceptance, including inspection and installation requirements, as defined, are achieved.

Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Provisions for slow moving and obsolete inventory are provided based on historical experience and product demand. As of January 1, 2011 and January 2, 2010, inventories consist of the following:

		January 1, 2011				January 2, 2010
Raw materials		$	2,624			$	2,325
Work-in-progress			16,163				15,890
Finished goods			1,468				1,775
			20,255				19,990
Less: reserve for excess and obsolete			(36	)			—
Inventories, net		$	20,219			$	19,990

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Long-Lived Assets: Property, plant and equipment are stated at cost. Provisions for depreciation and amortization for financial reporting purposes are computed using the straight-line method over 3 to 12 years for machinery and equipment and 25 years for buildings. Depreciation expense was $2,644 and $2,091 for 2010 and 2009, respectively.

The Company reviews its investments in long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes impairment when the carrying amount of the asset exceeds its estimated fair value.

Income Taxes: Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the deferred tax assets and liabilities from period-to-period.

The Company will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not. In making this determination, the Company has considered both available positive and negative evidence including, but not limited to, cumulative losses in recent years, future taxable income and prudent and feasible tax planning strategies. At present, the Company has concluded that it is more likely than not that the Company will realize all of its deferred tax assets. Valuation allowances related to deferred tax assets can also be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, it would record a valuation allowance through a charge to income in the period in which that determination is made.

The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10 address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has no uncertain tax positions.

Earnings Per Share: Basic earnings per common share is based on the average number of common shares outstanding during the year. Diluted earnings per common share assumes, in addition to the above, a dilutive effect of common share equivalents during the year. Common share equivalents represent dilutive stock options using the treasury method, which results in the inclusion of common shares in an amount less than the options exercised. The number of shares used in the earnings per common share computation for fiscal 2010 and 2009 are as follows:

		2010				2009
Basic:
Weighted average common shares outstanding			4,859				4,833
Diluted:
Dilutive effect of stock options			154				112
Weighted average shares diluted			5,013				4,945
Options excluded since anti–dilutive			239				577

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Comprehensive Income (Loss): Comprehensive income (loss), which is reported on the accompanying consolidated statement of changes in shareholders’ equity and comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under accounting principles generally accepted in the United States of America, are excluded from net income (loss). For the Company, comprehensive income (loss) consists of gains and losses related to the Company’s defined benefit pension plan and unrealized losses on established cash flow hedges.

Share Based Compensation: The Company accounts for share-based compensation in accordance with FASB ASC Topic 718, Compensation — Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of FASB ASC Topic 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). The Company elected to adopt the modified prospective transition method of FASB ASC Topic 718 and, accordingly, financial statement amounts for the prior periods have not been restated to reflect the fair value method of expensing share-based compensation. Under this application, the Company is required to record compensation cost for all share-based payments granted after the date of adoption based on the grant date fair value estimated in accordance with the provisions of FASB ASC Topic 718 and for the unvested portion of all share-based payments previously granted that remain outstanding which were based on the grant date fair value estimated in accordance with the original provisions of FASB ASC Topic 718. The majority of the Company’s share-based compensation arrangements vest over three years. The Company expenses its share-based compensation under the straight-line method.

Pension: The Company accounts for postemployment benefits in accordance with FASB ASC Topic 715, Compensation-Retirement Benefits. The Company recognizes the overfunded or underfunded status of the Company’s defined benefit pension plan. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards are recognized in Accumulated Other Comprehensive Loss, net of tax effects, until they are amortized as a component of net periodic benefit cost. The Company uses its fiscal year-end as the measurement date for its pension plan assets and the benefit obligation.

Fair Value: The Company complies with FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. The FASB has partially delayed the effective date for one year for certain fair value measurements when those measurements are used for financial statement items that are not measured at fair value on a recurring basis.

FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Accounting Pronouncements Not Yet Adopted: In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements.” This ASU establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This ASU provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this ASU also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating this new ASU.

No other accounting pronouncements not yet adopted are expected to have a material impact on the Company.

Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE B — FINANCIAL INSTRUMENTS

Concentrations of Credit Risk

The Company’s financial instruments that are subject to concentrations of credit risk consist of cash and accounts receivable.

The Company places its cash deposits with a high credit quality financial institution. Bank deposits may at times be in excess of the federal depository insurance limit.

Sales to United Technologies Corporation for 2010 and 2009 amounted to 44% and 41%, respectively, of the Company’s sales. Sales to MTU for 2010 amounted to 11%. The Company’s international sales for 2010 and 2009, amounted to 21%, and 13%, respectively, of the Company’s sales. At January 1, 2011, the Company had $7,648 or 51%, and $2,272 or 15% of its accounts receivable due from United Technologies Corporation and MTU, respectively. The Company reviews a customer’s credit history before extending credit and typically does not require collateral. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Such losses have been within management’s expectations.

Fair Value of Financial Instruments

FASB ASC Topic 825, The Fair Value Option for Financial Assets and Financial Liabilities, requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amount of the Company’s financial instruments approximates their fair value as outlined below.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Cash, accounts receivable and accounts payable: The carrying amounts approximate their fair value because of the short maturity of those instruments.

Notes payable and long-term debt: The carrying amounts approximate their fair value as the interest rates on the debt approximates the Company’s current incremental borrowing rate.

The Company’s financial instruments are held for other than trading purposes.

NOTE C — COMMON STOCK AND STOCK OPTIONS

The following table presents share-based compensation expense for continuing operations and the effects on earnings per share included in the Company’s consolidated statements of income:

		Fiscal				Fiscal
		Year Ended				Year Ended
		January 1, 2011				January 2, 2010
Selling, general and administrative:
Share-based compensation expense before tax		$	446			$	260
Income tax			122				98
Net share-based compensation expense		$	324			$	162

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted during the fiscal years ended January 1, 2011 and January 2, 2010. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

		Fiscal				Fiscal
		Year Ended				Year Ended
		January 1, 2011				January 2, 2010
Expected option term (1)		3.5 years				3.5 years
Expected volatility factor (2)			66.6%-70.6%				69.2%
Risk-free interest rate (3)			0.05%-0.17%				0.06%
Expected annual dividend yield			0%				0%

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Stock Incentive Plans

The Company has issued stock options from the 2000 Employee Stock Option Plan, the 2000-B Employee Stock Option Plan and the 2008 Equity Incentive Plan. The terms of the options and vesting requirements shall be for such period as the Compensation Committee designates. The option price is not less than the fair market value of the shares on the date of the grant.

As of January 1, 2011, 57,415 shares were reserved for future issuance for stock options including 5,500 shares for the 2000 Employee Stock Option Plan, 10,766 shares for the 2000-B Employee Stock Option Plan and 41,149 for the 2008 Equity Incentive Plan.

A summary of the status of the Company’s stock option plans as of January 1, 2011 and January 2, 2010, and changes during the years then ended is presented below:

		January 1, 2011								January 2, 2010
						Weighted-								Weighted-
						Average								Average
						Exercise								Exercise
		Options				Price				Options				Price
Outstanding at beginning of year			874,334			$	4.28				540,834			$	4.69
Granted			31,851				3.14				372,000				3.59
Exercised			(28,666	)			1.20				(15,500	)			1.34
Expired/Forfeited			(10,001	)			5.96				(23,000	)			4.11
Outstanding at end of year			867,518			$	4.34				874,334			$	4.28
Options exercisable at year-end			589,518			$	4.77				382,833			$	4.75
Weighted-average fair value of options granted during the year		$	1.64							$	1.70

     The following table summarizes information about stock options outstanding at January 1, 2011:

		Options Outstanding												Options Exercisable
						Weighted-				Weighted-				Number				Weighted-
		Number				Remaining				Average				Exercisable				Average
Exercise Price		At				Contractual Life				Exercise				At				Exercise
Range		1/1/2011				(in years)				Price				1/1/2011				Price
$0.51 to $2.00			85,000				1.18			$	1.33				85,000			$	1.33
$2.01 to $3.50			201,814				3.70				2.49				145,147				2.53
$3.51 to $5.50			402,204				4.05				3.70				180,871				3.72
$5.51 to $9.28			178,500				1.92				9.28				178,500				9.28
$0.51 to $9.28			867,518				3.25			$	4.34				589,518			$	4.77

The aggregate intrinsic value of outstanding options as of January 1, 2011 was $354. The intrinsic value of options exercised during the fiscal year ended January 1, 2011 was $111. The intrinsic value of options vested during the fiscal year ended January 1, 2011 was $57.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

The following table summarizes the status of the Company’s non-vested options since January 3, 2009:

		Non-Vested Options
						Weighted
		Number of				Average
		Options				Fair Value
Non-vested at January 3, 2009			248,831			$	1.92
Granted			372,000				1.70
Vested			(115,004	)			1.75
Forfeited			(14,333	)			2.56
Non-vested at January 2, 2010			491,494				1.75
Granted			31,851				1.64
Vested			(240,344	)			1.89
Forfeited			(5,001	)			1.77
Non-vested at January 1, 2011			278,000			$	1.59

As of January 1, 2011, there was $436 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s stock plans. That cost is expected to be recognized over a weighted-average period of 2.5 years.

Cash received from option exercises under all share based payment arrangements for the fiscal years ended January 1, 2011 and January 2, 2010 was $34 and $21, respectively. The actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements was $41 and $10 for the fiscal years ended January 1, 2011 and January 2, 2010, respectively.

NOTE D — NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt and lines of credit consist of the following:

		Jan 1, 2011				Jan 2, 2010
Lines of credit		$	4,793			$	1,591
Term notes			8,967				8,420
Mortgage loans			5,261				5,475
Capital lease obligations			—				92
			19,021				15,578
Less — equipment line of credit			743				1,391
Less — revolving line of credit			4,050				200
Less — current portion of long-term debt			4,370				1,833
		$	9,858			$	12,154

The Company’s credit facility with TD Bank, N.A. includes a revolving line of credit, which provides for borrowings up to $10,500 ($8,000 after reserving $2,500 for the scheduled payment in full on May 27, 2011, of a term note with MTU associated with the AERO acquisition), and an equipment line of credit, which provides for borrowings up to $4,700. The revolving line of credit is limited to an amount determined by a formula based on percentages of receivables and inventory and bears interest at a variable rate equal to the greater of the highest Prime Rate as published in the Wall Street Journal, adjusted daily (3.25% at January 1, 2011) or 4%. The revolving line of credit is payable on demand and is reviewed annually as of July 31 with renewal at the bank’s discretion. The equipment line of credit provides advances to purchase eligible equipment and bears interest at a variable rate equal to the highest Prime Rate as published in the Wall Street Journal, adjusted daily. Amounts advanced on the equipment line of credit will convert to a term note on July 31, 2011, unless converted earlier at the option of the Company, with monthly payments of

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

principal and interest in an amount to amortize the then existing principal balance in 60 equal monthly payments including interest at the then FHLBB 5 year Regular Amortizing Advance Rate plus 3%. The credit facility gives TD Bank, N.A. a first security interest in accounts receivable, inventory, equipment and other assets and requires approval from TD Bank, N.A. prior to paying cash dividends. As of January 1, 2011, there was $3,950 and $3,957 available for borrowing on the revolving line of credit and on the equipment line of credit, respectively, and the Company was in compliance with its debt covenants.

The Company’s acquisition of AERO in May 2009 was funded by a five year term note in the amount of $4,360 and a ten year mortgage on the AERO real estate in the amount of $2,640, both with TD Bank, N.A. The Company fixed the interest rates on the note and mortgage at 5.8% and 6.1%, respectively, through interest rate swap arrangements with TD Bank, N.A. In addition, the Company issued a $2,500 secured promissory note to AENA, the principal amount of which is due on May 27, 2011, with interest payable quarterly at the annual rate of 5.0%. As of January 1, 2011, the amounts outstanding on the five-year term note, the mortgage and the secured promissory note were $3,521, $2,541 and $2,500, respectively.

In addition, the Company has two mortgages secured by the Company’s real estate. One is due in monthly installments of $16, including interest at 7.625% through February 2021. The payment will be adjusted by the bank on March 1, 2011 and every 5 years thereafter to reflect interest at the Five Year Federal Home Loan Bank “Classic Credit Rate” plus 2.75%. The second is due in monthly installments of $12 including interest at 5.89% with a balloon payment due on April 1, 2014. As of January 1, 2011, the amounts outstanding on the mortgages were $1,406 and $1,314, respectively.

The Company has five term notes with TD Bank, N.A. that were used to finance the purchase of machinery and equipment with interest rates ranging between 4.88% and 7.47% and maturity dates ranging between April 2011 and July 2015. As of January 1, 2011, the outstanding balance of the five notes totaled $2,946.

The following table sets forth leased property under capital leases.

Class of Property		2010				2009
Machinery & equipment		$	1,547			$	983
Less: accumulated amortization			232				461
		$	1,315			$	522

Amortization expense related to leased property under capital leases is included in depreciation expense disclosed in Note A.

Aggregate annual maturities of long-term debt for the five year period subsequent to January 1, 2011, are as follows: 2011—$4,370; 2012—$1,488; 2013—$1,359; 2014—$3,506; 2015—$505; 2016 and thereafter—$3,000.

NOTE E — INTEREST RATE SWAPS

Simultaneous with the AERO acquisition, the Company entered into two pay-fixed, receive-variable interest rate swaps to reduce exposure to changes in cash payments caused by changes in interest rates on certain senior long-term notes payable that were also entered into on the date of the AERO acquisition. Both relationships are designated as cash flow hedges and meet the criteria for the shortcut method for assessing hedge effectiveness; therefore, the hedge is assumed to be 100% effective and all changes in the fair value of the interest rate swaps are recorded in consolidated accumulated other comprehensive loss. At January 1, 2011 and January 2, 2010, the Company has accumulated other comprehensive loss of $278 and $110, respectively, due to the interest rate swaps. These changes in fair value must be reclassified in whole or in part from consolidated accumulated other comprehensive loss into earnings if, and when, a comparison of the swaps and the related hedged cash flows demonstrates that the shortcut method is no longer applicable. The Company expects these hedges to meet the criteria of the shortcut method for the duration of the hedging relationship and therefore, it does not expect to reclassify any portion of any unrealized loss from consolidated accumulated other comprehensive loss to earnings in the future. Under FASB ASC 820, the Company has determined that the inputs associated with the fair value determination are readily observable at commonly quoted intervals and as a result the interest rate swaps were classified within Level 2 of the fair value hierarchy. The Company has recorded consolidated accumulated other comprehensive loss

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

NOTE F — PENSION PLANS

The Company maintains a noncontributory defined benefit pension plan covering substantially all employees that met certain minimum age and service requirements prior to April 1, 1993. The benefits are generally based on years of service and compensation during the last five years of employment prior to April 1, 1993. The Company’s policy is to contribute annually the amount necessary to satisfy the requirements of the Employee Retirement Income Security Act of 1974. In March 1993, the Board of Directors approved a curtailment to the plan which resulted in the freezing of all future benefits under the plan as of April 1, 1993.

The Company uses its fiscal year-end as the measurement date for its pension plan assets and benefit obligation.

The following tables set forth the changes in benefit obligations and plan assets, and reconciles amounts recognized in the Company’s consolidated balance sheets:

		2010				2009
Change in Benefit Obligation:
Benefit obligation at beginning of year		$	5,743			$	5,457
Interest cost			317				328
Actuarial loss (gain)			740				399
Benefits paid			(464	)			(441	)
Benefit obligation at end of year		$	6,336			$	5,743
Change in Plan Assets:
Fair value of plan assets at beginning of year		$	4,255			$	3,759
Actual return (loss) on plan assets			728				962
Employer contributions			30				—
Expenses			(19	)			(25	)
Benefits paid			(464	)			(441	)
Fair value of plan assets at end of year		$	4,530			$	4,255
Unfunded status		$	(1,806	)		$	(1,488	)
Amounts recognized in the consolidated balance sheets consist of:
Accrued expense — current		$	(280	)		$	(40	)
Other liabilities — long term			(1,526	)			(1,448	)
		$	(1,806	)		$	(1,488	)
Amounts recognized in accumulated other comprehensive income consist of:
Net loss		$	(2,787	)		$	(2,590	)

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

		2010				2009
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation		$	6,336			$	5,743
Accumulated benefit obligation			6,336				5,743
Fair value of plan assets			4,530				4,255
Components of Net Periodic Benefit Cost:
Interest cost		$	317			$	328
Service cost			26				22
Expected return on plan assets			(282	)			(248	)
Amortization of net loss			90				109
Net periodic benefit cost (income)		$	151			$	211
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Current year net (loss) gain		$	288			$	(312	)
Amortization of net (loss) gain			(90	)			(109	)
Total recognized in other comprehensive income		$	198			$	(421	)
Total recognized in net periodic benefit cost and other comprehensive income		$	349			$	(210	)

The estimated amount of net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2011 is $100.

		2010				2009
Assumptions:
Weighted-average assumptions used to determine benefit obligation as of year-end:
Discount rate			5.25	%			5.75	%
Rate of compensation increase			n/a				n/a
Weighted-average assumptions used to determine net benefit cost:
Discount rate			5.75	%			6.25	%
Rate of compensation increase			n/a				n/a
Expected return on plan assets			7.00	%			7.00	%

The expected long-term rate of return on assets assumption is 7%. This assumption represents the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. The assumption has been determined by reflecting expectations regarding future rates of return for the investment portfolio, with consideration given to the distribution of investments by asset class and historic rates of return for each individual asset class.

Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk while also providing adequate liquidity to meet benefit payment requirements.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

Plan Assets

						Target
		Fair Value				Allocation
Asset Category		Jan. 1, 2011				2010				2009
Equity securities		$	3,603				80	%			80	%
Debt securities			709				16				16
Real estate equity fund			90				3				3
Cash			128				1				1
Total		$	4,530				100	%			100	%

Under the fair value hierarchy of FASB ASC 820, the Company has classified the Plan’s assets as Level 1, since the inputs associated with the fair value determination utilize quoted prices in active markets for identical assets.

Cash Flows

Contributions

The expected employer contribution for 2011 is $280.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:

2011			480
2012			470
2013			470
2014			463
2015			456
Years 2016 – 2020			2,265

The Company maintains a defined contribution plan known as the EDAC Technologies Corporation 401(k) Retirement Plan. All employees who have completed at least three consecutive months of service and are age eighteen or older are eligible to participate. For 2011 and 2010, the Company did not provide matching contributions.

NOTE G — INCOME TAXES

The provision for income taxes is as follows:

		2010				2009
Current provision		$	702			$	224
Deferred			(384	)			4,338
Total provision for income taxes		$	318			$	4,562

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

The following table reconciles the expected federal tax provision applied to pre-tax income based on the federal statutory tax rate of 34% to the actual tax provision:

		2010				2009
Income before income taxes		$	1,163			$	12,188
Income tax provision at Federal statutory rate		$	395			$	4,144
State income taxes			—				432
Changes in estimated effective tax rates			(64	)			—
Other			(13	)			(14	)
Total income tax provision		$	318			$	4,562

The tax effect of temporary differences giving rise to the Company’s deferred tax assets and liabilities are as follows:

		2010				2009
Deferred tax assets:
Allowance for uncollectible accounts receivable		$	44			$	90
Employee compensation and amounts withheld			253				175
Accrued expenses			591				434
Unicap and inventory reserves			554				269
State tax credits			108				67
Interest rate swap (in equity)			101				40
Pension liability (in equity)			1,076				1,004
Goodwill			689				965
		$	3,416			$	3,044
Deferred tax liabilities:
Property, plant and equipment		$	5,926			$	6,010
Pension			350				411
			6,276				6,421
Net deferred tax asset (liability)		$	(2,860	)		$	(3,377	)
Reflected in consolidated balance sheets as:
Net current deferred tax asset		$	1,613			$	1,098
Net long-term deferred tax liability			(4,473	)			(4,475	)
		$	(2,860	)		$	(3,377	)
The change in the net deferred tax asset is reflected in the accompanying consolidated financial statements as:
Deferred provision allocated to income		$	(384	)		$	4,338
Deferred provision allocated to equity			(133	)			128
		$	(517	)		$	4,466

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

The Company will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not.

Under FASB ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has no uncertain tax positions.

On January 21, 2010, the Internal Revenue Service completed its examination of the Company’s 2007 and 2008 tax returns, increasing the Company’s net tax by $9. The Company’s subsequent years’ returns are subject to examination by federal taxing authorities.

The statute of limitations for Connecticut tax returns is closed for all tax years prior to 2002. This is due to utilization of credit carryforwards and net operating loss carryfowards.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of the provisions of FASB ASC 740, Income Taxes, as it relates to the accounting for uncertainty in income taxes, there was no accrued interest or penalties associated with any recognized tax benefits, nor was any interest expense recognized during the year.

The Company also has approximately $277 of state tax credit carryforwards relating to property taxes paid on electronic data processing equipment, training expenses, and capital investments available for use on the 2010 tax return. The Company expects the carryforward to 2011 to be approximately $163. The state credits have various carryforward periods and will begin to expire if they are not utilized over the next five years.

NOTE H — COMMITMENTS AND CONTINGENCIES

Lease expense under operating leases was $333 and $171 for 2010 and 2009, respectively. Minimum rental commitments as of January 1, 2011 for noncancelable operating leases with an initial or remaining term of one year or more are as follows: 2011—$399; 2012—$367; 2013—$355; 2014—$357; 2015—$316; 2016 and thereafter—$155.

NOTE I — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which financial information is available that is evaluated regularly by the Company’s President in deciding how to allocate resources and in assessing performance. The Company has determined that it operates as one segment.

NOTE J — QUARTERLY DATA (Unaudited)

Following is selected quarterly data for 2011 and 2010. All quarterly information was obtained from unaudited consolidated financial statements not otherwise contained herein. The unaudited results for any quarter are not necessarily indicative of the results for any future period.

EDAC Technologies Corporation
NOTES TO FINANCIAL STATEMENTS
For the years ended January 1, 2011 and January 2, 2010
(in thousands except per share and option amounts)

2010		1st quarter				2nd quarter				3rd quarter				4th quarter
Sales		$	17,787			$	18,841			$	18,528			$	17,902
Gross profit			2,141				2,258				1,768				1,811
Income from operations			410				729				375				242
Net income			360				345				84				56
Basic income per common share		$	0.07			$	0.07			$	0.02			$	0.01
Diluted income per common share		$	0.07			$	0.07			$	0.02			$	0.01

2009		1st quarter				2nd quarter				3rd quarter				4th quarter
Sales		$	9,584			$	13,629			$	15,132			$	16,298
Gross profit			1,080				1,696				1,762				1,389
Income (loss) from operations			219				515				456				(114	)
Net income			56				7,376				80				114
Basic income per common share		$	0.01			$	1.53			$	0.02			$	0.02
Diluted income per common share		$	0.01			$	1.49			$	0.02			$	0.02

OFFICERS

Dominick A. Pagano		President and Chief Executive Officer
Glenn L. Purple		Vice President-Finance, Chief Financial Officer and Secretary
BOARD OF DIRECTORS
Daniel C. Tracy		Chairman
Dominick A. Pagano		President and Chief Executive Officer
Lee K. Barba		Former Chairman and CEO of thinkorswim Group Inc.
Joseph Lebel		Private Investor
John A. Rolls		Managing Partner, Core Capital Partners LLP
Ross C. Towne		Owner, Management Partners, Inc.

CORPORATE OFFICES

1806 New Britain Avenue
Farmington, CT 06032

GENERAL COUNSEL

Robinson & Cole LLP
280 Trumbull Street
Hartford, CT 06103-3597

INDEPENDENT AUDITORS		TRANSFER AGENT
CCR LLP		American Stock Transfer & Trust Company, LLC
124 Hebron Avenue		6201 15th Avenue
Glastonbury, CT 06033		Brooklyn, NY 11219

ANNUAL MEETING

The 2011 annual meeting of shareholders will be held on the date and at the time and place indicated in the Notice of Annual Meeting and Proxy Statement accompanying this report.

10-K INFORMATION

A copy of EDAC’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission is available without charge by writing to: Glenn L. Purple, Secretary, EDAC Technologies Corporation, 1806 New Britain Avenue, Farmington, CT 06032.