RESULTS OF OPERATIONS

Financial results for 2015 were positive, though mixed, with an 18.7% increase in assembly equipment segment revenues offset by a 4.5% decline in the larger fastener segment. The strength in assembly equipment segment sales was evident in all major product categories, while the decline in the fastener segment sales was primarily due to lower export sales and the transition period where certain parts reached the end of their normal production life before newer parts started shipping in full production quantities. Overall, net sales in 2015 were $36,174,604 compared to $37,135,207 in 2014, a decline of 2.6%. Net income for 2015 was $1,687,641, or $1.75 per share, compared to $1,951,889, or $2.02 per share, in 2014.

2015 Compared to 2014

Fastener segment revenues were $7,759,833 in the fourth quarter of 2015, a decline of $208,203, or 2.6%, from $7,968,036 in the fourth quarter of 2014. Fastener segment sales for the full year were $32,590,015 in 2015, compared with $34,116,301 in 2014, a decline of $1,526,286, or 4.5%. This breaks a string of five consecutive years of fastener segment sales growth. Our fastener segment, which relies on the automotive sector for the majority of its revenues, was supported by another year of growth in domestic automobile and light truck sales, however, our sales to certain export markets experienced significant declines. Shipments to China were down approximately $700,000 as their economy went through a significant slowdown in 2015. Also contributing to the decline in sales were certain automotive parts that reached the end of their regular production lives during the year. The decrease in net sales was the primary factor contributing to lower fastener segment margins during 2015. Although we experienced favorable raw material prices during the year and reduced our tooling expense by $396,000, the lower production volume negatively impacted our labor efficiency while our health insurance expense increased approximately $101,000 during the year, resulting in a net reduction in gross margin for the fastener segment of $98,106 in the fourth quarter of 2015 and $651,598 for the full year of 2015 compared to 2014.

Assembly equipment segment revenues were $906,534 in the fourth quarter of 2015, an increase of $186,290, or 25.9%, compared to the fourth quarter of 2014, when revenues were $720,244. For the full year, 2015 assembly equipment segment revenues were $3,584,589, an increase of $565,683, or 18.7%, compared to $3,018,906 reported in 2014. The increase in fourth quarter and full year sales was the result of an increase in

the number of machines shipped compared to the year earlier periods and an increase in the sale of tools and machine parts. The increase in sales in the fourth quarter and the full year resulted in an improvement in segment margins of $25,015 and $241,910, respectively.

Selling and administrative expenses were $5,408,281 in 2015, a decrease of $31,274, or 0.6%, compared to the 2014 total of $5,439,555. The change is primarily due to a reduction in profit sharing expense of $40,917, related to lower operating profit. As a percentage of net sales, selling and administrative expenses were 15% in 2015 compared to 14.6% in 2014.

Other income was $44,443 in 2015 compared to $41,280 in 2014. Both interest income and other miscellaneous income increased slightly in 2015 compared to the prior year.

The Company’s effective income tax rates were 33.3% and 32.9% in 2015 and 2014, respectively. Rates were lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

DIVIDENDS

In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends totaling $.72 per share during 2015. In addition, an extra dividend of $.25 per share was paid during the first quarter, bringing the total distribution for the year to $.97 per share. On February 15, 2016, the Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 18, 2016 to shareholders of record on March 4, 2016. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 82 years. At that same meeting, the Board also declared an extra dividend of $.25 per share payable March 18, 2016 to shareholders of record on March 4, 2016.

PROPERTY, PLANT AND EQUIPMENT

Capital expenditures during 2015 totaled $2,104,267, of which $1,545,533 related to investments in our fastener operations. The expansion of our H & L Tool manufacturing plant, undertaken to increase capacity and improve production efficiency, totaled $696,246. Cold heading and screw machine equipment comprised $416,268 of the fastener segment additions, $333,395 was expended for

equipment used in performing secondary operations on parts and quality control and the remaining $99,624 relates to general plant equipment. Assembly equipment segment additions totaled $455,139, primarily for the installation of a new state-of-the-art horizontal machining center. Additional investments of $103,595 for technology upgrades and building improvements were made in 2015 that benefit both operating segments.

Total capital expenditures in 2014 were $1,735,041. Fastener segment additions accounted for $1,667,248 of the total, including $801,139 for cold heading and screw machine equipment and $201,901 for secondary processing equipment. Inspection equipment comprised $325,133 of the fastener segment additions, while the remaining additions of $339,075 were for various general plant equipment and facilities improvements. Assembly equipment segment additions in 2014 were $42,411, for production equipment. Investments for the benefit of both operating segments, primarily for building improvements, totaled $25,382 during 2014.

Depreciation expense amounted to $1,261,446 in 2015 and $1,262,725 in 2014.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at December 31, 2015 was approximately $16.1 million, an increase of $.1 million from the beginning of the year. Contributing to the change was a $.6 million reduction in inventory which was only partially offset by a $.4 million increase in unearned revenue. The Company’s holdings in cash, cash equivalents and certificates of deposit amounted to $7.4 million at the end of 2015, an increase of $1.1 million. The Company’s investing activities in 2015 consisted primarily of capital expenditures of $2.1 million. The only financing activity during 2015 was the payment of $.9 million in dividends.

Management believes that current cash, cash equivalents and operating cash flow will be sufficient to provide adequate working capital for the next twelve months.

Off-Balance Sheet Arrangements

The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures 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 at the date of the financial statements and the amounts of

revenue and expenses during the reporting period. A summary of critical accounting policies can be found in Note 1 of the financial statements.

NEW ACCOUNTING STANDARDS

The Company’s financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. A summary of recent accounting pronouncements can be found in Note 1 of the financial statements.

OUTLOOK FOR 2016

U.S. auto and light truck sales are forecast to remain at record levels in 2016 due to the improving job market, favorable financing rates and lower gasoline prices. This is favorable to our fastener segment, as the majority of that segment’s revenue comes from the automotive sector. However, there is expected to be continuing weakness in certain foreign markets we serve.

The near-term outlook for our assembly equipment segment remains favorable based on current order backlog, but a cautious sentiment for capital expenditures is a concern in looking at the second half of the year as the overall economy is expected to continue the tepid growth rate of recent years.

During the past year, we benefited from declining commodity prices and lower fuel costs, but along with lower volume, increases in certain other expenses, especially health insurance, partially offset these lower costs and resulted in fractionally lower margins overall. Increased costs can be difficult to recover in our market, as many of our customers expect prices to be held constant over the life of a part. As in the past, we will continue our efforts to improve operational efficiency as a means to improve margins.

Our profitable results in recent years have allowed us to consistently make investments in our operations which we consider necessary to remain competitive. Over the last five years, we have invested $10.1 million on such upgrades. The investments we made in 2015 in our facilities and equipment have expanded our production capacity and should result in more efficient operations. We believe these investments are necessary to allow us to take advantage of opportunities that may improve revenue and profitability in the future. In the upcoming year, we will continue to make investments designed to further improve operations. We will continue our efforts to foster new customer relationships and build on existing ones in all the markets we serve by emphasizing value over price and by focusing our efforts on producing more complex parts for which our expertise, quality and customer service are important factors in purchasing decisions.

The positive results in the past year would not have been possible without the dedicated efforts of our employees, who consistently work to meet the daily challenges of today’s manufacturing environment. We are

grateful for their contributions as well as the loyalty of our customers, who have placed their confidence in us to help them achieve their goals. We also take this opportunity to acknowledge our shareholders for their support.

1—Nature of Business and Significant Accounting Policies

Nature of Business—The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines.

A summary of the Company’s significant accounting policies follows:

Principles of Consolidation—The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (“H & L Tool”). All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition—Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience. Cash received by the Company prior to shipment is recorded as deferred revenue. The Company experiences a certain degree of sales returns that varies over time. The Company is able to make a reasonable estimation of expected sales returns based upon history. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred.

Credit Risk—The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States. The Company has established an allowance for accounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of the financial condition of the customer and historical experience. The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses. The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation. Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered.

Cash and Cash Equivalents and Certificates of Deposit—The Company considers all highly liquid investments, including certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents. Certificates of deposit with an original

maturity of greater than three months are separately presented at cost which approximates market value. The Company maintains cash on deposit in several financial institutions. At times, the account balances may be in excess of Federal Deposit Insurance Corporation insured limits.

Fair Value of Financial Instruments—The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable approximate fair value based on their short term nature.

Inventories—Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. The value of inventories is reduced for estimated excess and obsolete inventories based on a review of on-hand inventories compared to historical and estimated future sales and usage.

Property, Plant and Equipment—Properties are stated at cost and are depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software’s useful life when the software is placed in service. The estimated useful lives by asset category are:

The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. There were no triggering events requiring assessment of impairment as of December 31, 2015 and 2014.

When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations. Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred.

Income Taxes—Deferred income taxes are determined under the asset and liability method. Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements.

The Company applies a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. In the first step of the two-step process, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. In the second step, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2015 and 2014, the Company determined that there are no uncertain tax positions with a more than 50% likelihood of being realized upon settlement.

The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no such expenses in 2015 or 2014.

The Company’s federal income tax returns for the 2012 through 2014 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company.

No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2012, 2013 and 2014 federal income tax returns will expire on September 15, 2016, 2017 and 2018, respectively.

The Company’s state income tax returns for the 2012 through 2014 tax years are subject to examination by various state authorities with the latest closing period on October 31, 2018. The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

Segment Information—The Company reports segment information based on the internal structure and reporting of the Company’s operations.

Net Income Per Share—Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2015 and 2014.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant items subject to estimates and assumptions include depreciable lives, deferred taxes and valuation allowances for accounts receivable and inventory

obsolescence. Actual results could differ from those estimates.

Reclassifications—Certain items in 2014 have been reclassified to conform to the presentation in 2015. These changes have no effect on net income or the financial position of the Company.

Recent Accounting Pronouncements—In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (”ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” Under ASU 2015-11, inventory will be measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The standard will be effective for periods beginning after December 15, 2016, including interim periods within that reporting period. The Company has not yet evaluated the impact of the adoption of this ASU on the consolidated financial statements.

In November 2015, the FASB issued an ASU No. 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. ASU 2015-17 requires all deferred assets and liabilities be classified as noncurrent in the balance sheet. The standard will be effective for periods beginning after December 15, 2016, including interim periods within that reporting period. The impact of adopting this ASU will be a reclassification of the current deferred income tax asset to the long-term deferred income tax liability on the consolidated balance sheets.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The guidance permits two methods of transition upon adoption: full retrospective and modified retrospective. Under the full retrospective method, prior periods would be restated under the new revenue standard, providing a comparable view across all periods presented. Under the modified retrospective method, prior periods would not be restated. Rather, revenue and other disclosures for periods prior to the effective date would be provided in the notes to the financial statements as previously reported under the current revenue standard. In August 2015, the FASB issued final revised guidance that defers the effective date of the revenue recognition standard to be for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating both the effect of adopting this new accounting guidance and determining the appropriate

method of transition it will use to apply the new standard. It has not yet determined the impact, if any, that the implementation of this guidance will have on its consolidated financial statements.

2—Balance Sheet Details

3—Income Taxes—The provision for income tax expense consists of the following:

The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:

The Company’s effective tax rates were lower than the U.S. federal statutory rate in 2015 and 2014 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

The deferred tax liabilities and assets consist of the following:

Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria. The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions. A deferred tax valuation allowance was not required at December 31, 2015 or 2014.

4—Profit Sharing Plan—The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $273,000 in 2015 and $314,000 in 2014.

5—Other Income—consists of the following:

6—Segment Information—The Company operates, primarily in the United States, in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company’s fastener operations, includes rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:

The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to accounts receivable, inventory and long-lived assets. Certain long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable. Sales to two customers in the fastener segment accounted for 21 and 20 percent and 12 and 13 percent of consolidated revenues during 2015 and 2014, respectively. The accounts receivable balances for these customers accounted for 26 and 23 percent of consolidated accounts receivable for the larger customer and 13 and 12 percent for the other customer as of December 31, 2015 and 2014, respectively.

7—Commitments and Contingencies—The Company recorded rent expense aggregating approximately $26,000 and $24,000 for 2015 and 2014, respectively. Total future minimum rentals at December 31, 2015 are not significant.

The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.

8—Subsequent Events—On February 15, 2016, the Board of Directors declared a regular quarterly dividend of $.18 per share, or $173,904, and an extra dividend of $.25 per share, or $241,533, payable March 18, 2016 to shareholders of record on March 4, 2016.

On February 15, 2016, the Company amended its shareholder rights agreement, originally adopted November 16, 2009, to accelerate the expiration date from December 1, 2019 to February 29, 2016. As part of the amendment, the Series A Junior Participating Preferred Stock, none of which was outstanding, was eliminated.

BOARD OF DIRECTORS

John A. Morrissey (e)

Chairman of the Board

of the Company

Chairman of the Board of

Algonquin State Bank, N.A.

Algonquin, Illinois

Michael J. Bourg (e)

President of the Company

Edward L. Chott (a) (c) (n)

Chairman of the Board of

The Broaster Co.

Beloit, Wisconsin

Kent H. Cooney (a)

Chief Financial Officer of

Heldon Bay Limited Partnership

Bigfork, Montana

William T. Divane, Jr. (a) (c) (n)

Chairman of the Board and

Chief Executive Officer of

Divane Bros. Electric Co.

Franklin Park, Illinois

Walter W. Morrissey (e)

Attorney at Law

Lillig & Thorsness, Ltd.

Oak Brook, Illinois

John L. Showel (n)

Portfolio Manager

Maggiore Fund I, LP

Chicago, Illinois

CORPORATE OFFICERS

John A. Morrissey

Chairman, Chief

Executive Officer

Michael J. Bourg

President, Chief Operating

Officer and Treasurer

Kimberly A. Kirhofer

Secretary

CHICAGO RIVET & MACHINE CO.

Administrative & Sales Offices

Naperville, Illinois

Pembroke, Massachusetts

Manufacturing Facilities

Albia Division

Albia, Iowa

Tyrone Division

Tyrone, Pennsylvania

H & L Tool Company, Inc.

Madison Heights, Michigan