From 2004 to 2009 the New Jersey-based Swiss Technology had contracts with the Defense Department to make rifle and machine gun parts to use in military operations, said the Justice Department statement.

But rather than manufacture the parts itself, Swiss Technology outsourced plans for the work to China "at a much cheaper price per unit" without first obtaining the required license from the US State Department, the statement said.

"We simply can't risk that companies trying to manufacture military equipment on the cheap will expose our troops to more danger than they already face," said US Attorney Fishman.

The company has admitted that it entered into the Chinese contracts for its own financial benefit, the statement said.

The government said the fraudulent contracting meant a loss of more than $1.1 million to the Department of Defense.

Under terms of the plea agreement, Swiss Technology will pay that money back to the Department of Defense. Sentencing is currently set for November 15, 2011.

The assault rifles are being produced for the Azeri armed forces under the name "Khazri."

The Azeri AK-74M rifles have a number of modifications from the Russian model of the weapon, the Azerbaidzhanskoe Informatsionnoe Agentstvo news agency reported Tuesday.

The Izhevsk Machine-Building Plant -- Izhmash -- is a munitions manufacturer with headquarters in Izhevsk. Founded in 1807 by decree of Czar Alexander I during the Napoleonic wars, Izhmash is one of the largest armaments corporations in the world.

It is best known for its Kalashnikov series of assault rifles. Izhmash also manufactures other armaments, including artillery, missiles and shells along with other goods, such as motorcycles and cars.

While the Khazri uses the same 5.45mm ammunition as the Russian AK-74M, the Azeri variant can be fitted with night-vision devices, laser spotting, illumination and scope systems.

During the first phase of production the AK-74M assault rifles for Azerbaijan will be produced using Russian components until Azeri defense enterprises are capable of producing parts of the rifles' assemblies themselves.

The Azeri state defense order program envisages the production and delivery of 5,000 Khazri assault rifles to the country's defense ministry.

More than 5 million AK-74s have been manufactured since the weapon was introduced in 1974. The AK-74 is an adaptation of the 7.62mm AKM assault rifle, which features several significant design improvements.

The AK-74M is the main service rifle in the Russian army and was first used during the Soviet occupation of Afghanistan in the early 1980s. Other nations utilizing the AK-74M include Afghanistan, Armenia, Belarus, Bulgaria, Estonia, Georgia, Jordan, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, North Korea, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Poland and Romania manufacture their own variants of the AK-74M under license.

Last month, during a speech delivered during a military parade marking the 20th anniversary of Azerbaijan's independence, Azeri President Ilham Aliyev said Azerbaijan's military budget, which totaled $160 million in 2003, rose to $2.15 billion in 2010 and $3.3 billion in 2011.

"Today, the money Azerbaijan is spending on the military exceeds the entire budget of Armenia by 50 percent," Aliyev said. "We live in a time of war. The war is not over yet, only its first stage is, and a country at war should first of all focus on building the army.

"Today, military spending ranks first in the state budget of Azerbaijan and this will be the case until our land is freed from occupation."