UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
or
For the transition period from ______ to_______
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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Securities Registered pursuant to Section 1(b) of the Act
| Title of Each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | ☒ | |
| Accelerated Filer | ☐ | Smaller Reporting Company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
There were
INDEX
| Page No. | ||
| PART I. | FINANCIAL INFORMATION | 1 |
| Item 1. | Financial Statements | 2 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 4. | Controls and Procedures | 26 |
| PART II. | OTHER INFORMATION | 27 |
| Item 1A. | Risk Factors | 27 |
| Item 6. | Exhibits | 27 |
| SIGNATURES | 28 | |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q filed by Air Industries Group (herein referred to as “Air Industries”, the “company”, “we”, “us”, or “our”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act. Certain of the matters discussed herein concerning, among other items, our operations, cash flows, financial position and economic performance including, in particular, future sales, product demand, competition and the effect of economic conditions, include forward-looking statements.
Forward-looking statements are predictive in nature and can be identified by the fact that they do not relate strictly to historical or current facts and generally include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures, distribution channels, profitability, new products, adequacy of funds from operations, and general economic conditions, these statements and other projections contained herein expressing opinions about future outcomes and non-historical information, are subject to uncertainties and, therefore, there is no assurance that the outcomes expressed in these statements will be achieved.
Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the expectations expressed in forward-looking statements contained herein. Given these uncertainties, you should not place any reliance on these forward-looking statements which speak only as of the date hereof. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, and elsewhere in this report and the risks discussed in our other filings with the Security and Exchange Commission (“SEC”).
We do not intend to update or revise publicly and undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. You are advised, however, to review any additional disclosures we make in our reports filed with the SEC.
ii
PART I
FINANCIAL INFORMATION
1
Part I. Financial Information
Item 1. Financial Statements
AIR INDUSTRIES GROUP
Condensed Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net of Allowance for Credit Losses of $ | ||||||||
| Inventory | ||||||||
| Prepaid Expenses and Other Current Assets | ||||||||
| Contract Costs Receivable | ||||||||
| Prepaid Taxes | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Finance Lease Right-Of-Use-Assets | ||||||||
| Operating Lease Right-Of-Use-Assets | ||||||||
| Deferred Financing Costs, Net, Deposits and Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Debt | $ | $ | ||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Operating Lease Liabilities | ||||||||
| Deferred Gain on Sale | ||||||||
| Customer Deposits | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Debt | ||||||||
| Subordinated Notes - Related Party | ||||||||
| Operating Lease Liabilities | ||||||||
| Deferred Gain on Sale | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies (see Note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock - par value $ | ||||||||
| Common Stock - Par Value $ | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
2
AIR INDUSTRIES GROUP
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31,
(Unaudited)
| 2025 | 2024 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Interest Expense | ( | ) | ( | ) | ||||
| Interest Expense - Related Parties | ( | ) | ( | ) | ||||
| Other Income, Net | ||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding - Basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements
3
AIR INDUSTRIES GROUP
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended March 31, 2025 and 2024
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance January 1, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock issued to directors | ||||||||||||||||||||
| Stock-Based Compensation | - | |||||||||||||||||||
| Common Stock issued for cash | ||||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( | ) | |||||||||||||||
| Common Stock issued to directors | ||||||||||||||||||||
| Stock-Based Compensation | - | |||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||
See notes to accompanying condensed consolidated financial statements
4
AIR INDUSTRIES GROUP
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited)
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Depreciation of property and equipment | ||||||||
| Stock-based compensation | ||||||||
| Amortization of Finance Lease Right-of-Use Assets | ||||||||
| Amortization of Operating Lease Right-of-Use Assets | ||||||||
| Deferred gain on sale | ( | ) | ( | ) | ||||
| Allowance for credit losses | ( | ) | ||||||
| Amortization of deferred financing costs | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in Operating Assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Contract costs receivable | ||||||||
| Prepaid taxes | ( | ) | ||||||
| Deposits and other assets | ( | ) | ||||||
| Increase (Decrease) in Operating Liabilities: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Note payable - revolver - net - Current Credit Facility | ( | ) | ||||||
| Proceeds from term loan - Current Credit Facility | ||||||||
| Proceeds from Common Stock issued for cash | ||||||||
| Payments of Subordinated Notes - related party | ( | ) | ||||||
| Payments of term loan - Current Credit Facility | ( | ) | ( | ) | ||||
| Payments of finance lease obligations | ( | ) | ( | ) | ||||
| Payments of loan payable - financed asset | ( | ) | ( | ) | ||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | ( | ) | ||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
5
AIR INDUSTRIES GROUP
Condensed Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended March 31,
(Unaudited)
| 2025 | 2024 | |||||||
| Supplemental cash flow information | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Financing from Solar Credit Facility directly to contractor | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
6
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Air Industries Group is a Nevada corporation (“AIRI”). The accompanying condensed consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries: Air Industries Machining Corp. (“AIM”), Nassau Tool Works, Inc. (“NTW”), and the Sterling Engineering Corporation (“Sterling”) (together, the “Company”).
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on April 15, 2025, from which the accompanying condensed consolidated balance sheet dated December 31, 2024 was derived.
Going Concern and Management’s Plan
As of March 31, 2025, the Company met all the financial and business covenants
required under the terms of its Current Credit Facility which included a minimum Fixed Charge Coverage Ratio of 1.05x on a twelve-month
basis. The Current Credit Facility expires on
Management’s plans are to increase net sales
for fiscal 2025 as compared to fiscal 2024. The Company believes that these plans are supported by the Company’s 18 month funded
backlog which, as of March 31, 2025, was $
The Company generally sources its raw material,
principally metal casting or forgings, from domestic sources. As such the company is generally not exposed to increased prices on imports
but would be subject to increased prices if proposed tariffs or disruptions in supply chains resulting from tariffs or other geopolitical
events, cause the general level of prices for its products to increase. One component used by the Company on a key commercial aviation
program is sourced from China. The Company’s contract with its customer requires the Company to absorb the first five percent (
The Company’s products are used primarily in United States military aviation and as such are more susceptible to changes in the US defense budget than to changes in general economic conditions. However, the Company does have exposure in commercial aviation; demand for these products may be reduced if general economic conditions deteriorate.
7
The Company is required to maintain a collection account with its lender into which substantially all cash receipts are remitted. If it were to default under the Current Credit Facility, the Company’s lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact the Company’s operating results. If the lender were to cease making new loans under the revolving facility, the Company would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, raise substantial doubt about its ability to continue as a going concern for the one year commencing as of the date of filing these interim condensed consolidated financial statements.
The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable
Accounts receivable are carried at the original invoice amount less an estimate made for expected credit losses based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for expected credit losses based upon historical experiences as well as current conditions that affect the collectability of the reported amount and regularly evaluates individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions and other relevant factors, in setting specific reserves for certain accounts. Accounts receivable are written off when deemed uncollectible. Bad debt expenses are recorded in operating expenses on the condensed consolidated statements of operations.
The activity for the allowance for credit losses during the three months ended March 31, 2025 and 2024 is set forth in the table below:
| Balance at | Deductions | Balance at | ||||||||||||||
| Beginning of | Charged to | from the | End of | |||||||||||||
| Period | Expenses | Allowance | Period | |||||||||||||
| Three Months ended March 31, 2025 Allowance for Credit Losses | $ | $ | $ | $ | ||||||||||||
| Three Months ended March 31, 2024 Allowance for Credit Losses | $ | $ | $ | ( | ) | $ | ||||||||||
Inventory Valuation
The Company values inventory at the lower of cost or estimated net realizable value using the first-in first out method. The Company periodically evaluates inventory items not secured by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value. Adjustments to inventory net realizable value are recorded in cost of sales.
Inventories consist of the following at:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Raw Materials | $ | $ | ||||||
| Work In Progress | ||||||||
| Semi-Finished Goods | ||||||||
| Final-Finished Goods | ||||||||
| Total Inventory | $ | $ | ||||||
8
Credit and Concentration Risks
A large percentage of the Company’s revenues are derived directly from large aerospace and defense prime contractors for which the ultimate end-user is the U.S. Government, other governments, or commercial airlines.
The composition of customers that exceeded 10% of net sales for the three months ended March 31, 2025 and 2024 are shown below:
| Percentage of Net Sales | ||||||||
| Customer | 2025 | 2024 | ||||||
| Lockheed Martin | % | % | ||||||
| RTX (a) | % | % | ||||||
| Northrop | % | % | ||||||
| (a) |
The composition of customers that exceed 10% of accounts receivable at March 31, 2025 and December 31, 2024 are shown below:
| Percentage of Net Receivables | ||||||||
| March 31, | December 31, | |||||||
| Customer | 2025 | 2024 | ||||||
| RTX (a) | % | % | ||||||
| Lockheed Martin | % | % | ||||||
| Ontic | % | % | ||||||
| Northrop | % | % | ||||||
| (a) |
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the three month periods ended March 31, 2025 and 2024:
| Product | March 31, 2025 | March 31, 2024 | ||||||
| Military | $ | $ | ||||||
| Commercial | ||||||||
| Total | $ | $ | ||||||
Cash
During the period ended March 31, 2025, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.
Major Suppliers
The Company utilizes sole-source suppliers to supply raw materials or other parts used in production. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable or unwilling to provide parts for any reason, the Company’s business would be severely harmed.
9
Customer Deposits
The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s invoice.
At March 31, 2025 and December 31, 2024, customer
deposits were $
Backlog
Backlog represents the value of orders received
pursuant to our Long-Term Agreements (“LTA”) or spot orders pursuant to a purchase order. As of March 31, 2025, backlog relating
to remaining performance obligations on contracts was approximately $
Contract Costs Receivable
Contract costs receivable represent costs to be
reimbursed from a terminated contract. The Company collected the contract cost receivable of $
Earnings (Loss) per share
Basic earnings (loss) per share (“EPS”) is computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.
The following securities have been excluded from the calculation because the effect of including these potential shares was anti-dilutive due to the net loss incurred during that period:
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Stock Options | ||||||||
| Restricted Stock Units | ||||||||
| Convertible notes payable | ||||||||
10
Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of
the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the
fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing
reported market value. Stock-based compensation expense for employees amounted to $
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, related to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses”, which requires public business entities to disclose additional information about specific expenses categories in the notes to financial statements at interim and annual reporting periods. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures.
The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.
Note 3. PROPERTY AND EQUIPMENT
The components of property and equipment at March 31, 2025 and December 31, 2024 consisted of the following:
| March 31, | December 31, | |||||||||||
| 2025 | 2024 | |||||||||||
| Land | $ | $ | ||||||||||
| Buildings and Improvements | ||||||||||||
| Machinery and Equipment | ||||||||||||
| Tools and Instruments | ||||||||||||
| Automotive Equipment | ||||||||||||
| Furniture and Fixtures | ||||||||||||
| Leasehold Improvements | ||||||||||||
| Computers and Software | ||||||||||||
| Total Property and Equipment | ||||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||||
| Property and Equipment, net | $ | $ | ||||||||||
Depreciation expense for the three months ended
March 31, 2025 and 2024 was approximately $
11
Note 4. OPERATING LEASE LIABILITIES
The Company has operating leases for leased office
and manufacturing facilities. The leases have remaining lease terms of
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Operating lease cost: | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement lease liability: | ||||||||
| Operating cash flow from operating leases | $ | $ | ||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Weighted Average Remaining Lease Term - in years | ||||||||
| Weighted Average discount rate - % | % | % | ||||||
The aggregate undiscounted cash flows of operating lease payments as of March 31, 2025, with remaining terms greater than one year are as follows:
| Amount | ||||
| December 31, 2025 (remainder of year) | $ | |||
| December 31, 2026 | ||||
| Total future minimum lease payments | ||||
| Less: discount | ( | ) | ||
| Total operating lease maturities | ||||
| Less: current portion of operating lease liabilities | ( | ) | ||
| Total long term portion of operating lease maturities | $ | |||
12
Note 5. DEBT
Total debt outstanding as of March 31, 2025 is
$
Indebtedness to third parties consists of the following:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Current Credit Facility - Revolver | $ | $ | ||||||
| Current Credit Facility - Term Loan | ||||||||
| Solar Credit Facility | ||||||||
| Finance lease obligations | ||||||||
| Loans Payable - financed assets | ||||||||
| Subtotal | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long-Term Portion | $ | $ | ||||||
Current Credit Facility
The Company has a credit facility (“Current
Credit Facility”) with Webster Bank that expires on
As of March 31, 2025, there is $
As discussed in Note 1, the Current Credit Facility expires on December 30, 2025. Therefore, the entire Term Loan is classified as short term as of March 31, 2025.
The below table shows the timing of payments due under the Term Loan:
| For the year ending | Amount | |||
| December 31, 2025 | $ | |||
| Term Loan payable | ||||
| Less: Current portion of Term Loan payable | ( | ) | ||
| Total long-term portion of Term Loan payable | $ | |||
Interest expense related to the Current Credit
Facility amounted to approximately $
The below summarizes various terms of the Current Credit Facility:
| ● | The Company is required to meet a Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter on a rolling twelve month basis of 1.05x and beginning with the fiscal quarter ending September 30, 2025 the Company is required to meet a Fixed Coverage Charge Ratio of 1.25x. As of both March 31, 2025 and December 31, 2024, the Company was in full compliance with its covenants. |
| ● | For
so long as the Term Loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal year the Company shall
pay an amount equal to the lesser of (i) twenty-five percent ( |
13
| ● | Both
the Revolving Line of Credit and the Term Loan will bear an interest rate equal to the greater of |
| ● | The Current Credit Facility limits the amount of capital expenditures and dividends the Company can pay to its stockholders. Substantially all of the Company’s assets are pledged as collateral. |
The below summarizes certain historical amendments to the Current Credit Facility
| ● | On
May 31, 2024, we entered into a Seventh Amendment that waived the default caused by our failure to achieve the required Fixed Charge
Coverage Ratio of the Sixth Amendment. This amendment further revised our Financial Covenants. For the six months ending June 30, 2024
our EBITDA shall not be less than $ |
| ● | On
January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $ |
All amendment fees paid in connection with the Current Credit Facility that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying condensed consolidated balance sheets and are amortized over the term of the loan.
As of March 31, 2025, the Company has borrowing
capacity of approximately $
Solar Credit Facility
On August 16, 2023, the Company entered into a
financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the
installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility. Advances
are made by CT Green Bank upon its approval of costs incurred on the Project up to $
On October 1, 2024, the total cumulative advances
of $
14
Interest expense related to the Solar Credit Facility
amounted to approximately $
Finance Lease Obligations
The Company has entered into finance leases for
the purchase of additional manufacturing equipment. The obligations for the finance leases totaled $
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Finance Lease cost: | ||||||||
| Amortization of ROU assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total lease Costs | $ | $ | ||||||
| Other Information: | ||||||||
| Cash Paid for amounts included in the measurement lease liabilities: | ||||||||
| Financing cash flow from finance lease obligations | $ | $ | ||||||
| Supplemental disclosure of non-cash activity | ||||||||
| Acquisition of finance lease asset | $ | $ | ||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Weighted Average Remaining Lease Term - in years | ||||||||
| Weighted Average Discount rate - % | % | % | ||||||
As of March 31, 2025, the aggregate future minimum , including imputed interest are as follows:
| For the year ending | Amount | |||
| December 31, 2025 (remainder of year) | $ | |||
| December 31, 2026 | ||||
| December 31, 2027 | ||||
| December 31, 2028 | ||||
| December 31, 2029 | ||||
| Thereafter | ||||
| Total future minimum finance lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Less: Current portion | ( | ) | ||
| Long-term portion | $ | |||
15
Loan Payable – Financed Assets
The Company financed the purchase of a delivery
vehicle in July 2020. The loan obligation totaled $
Annual maturities of this loan are as follows:
| For the year ending | Amount | |||
| December 31, 2025 (remainder of year | $ | |||
| December 31, 2026 | ||||
| Loans Payable - financed assets | ||||
| Less: Current portion | ( | ) | ||
| Long-term portion | $ | |||
Related Party Indebtedness
Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich.
Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services.
From 2016 through 2020, the Company entered into
various subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”)
with Michael and Robert Taglich which generated proceeds to the Company totaling $
Under the Eighth Amendment to the Current Credit
Facility, the Company is allowed to make principal payments of up to $
The Related Party Notes outstanding as of March 31, 2025 consist of:
| Michael Taglich, | Robert Taglich, | Taglich Brothers, | ||||||||||||||
| Director | Director | Inc. | Total | |||||||||||||
| Convertible Subordinated Notes | $ | $ | $ | $ | ||||||||||||
| Subordinated Notes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Related Party Notes outstanding as of December 31, 2024 consist of:
| Michael Taglich, | Robert Taglich, | Taglich Brothers, | ||||||||||||||
| Director | Director | Inc. | Total | |||||||||||||
| Convertible Subordinated Notes | $ | $ | $ | $ | ||||||||||||
| Subordinated Notes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Of the $
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Approximately $
The Related Party Notes are subordinate to outstanding debt pursuant to the Current Credit Facility and mature on July 1, 2026. The Company is currently negotiating with the holders of these Related Party Notes to extend and/or modify the terms of these notes.
Note 6. STOCKHOLDERS’ EQUITY
Common Stock – Issuances of Securities
The Company issued
During the second quarter of 2025, the Company
issued
During the second quarter of 2025, the Company issued
Common Stock – Sale of Securities
During the first quarter of 2025, the Company issued
and sold pursuant to a Registration Statement on Form S-3 declared effective on December 19, 2024,
Note 7. STOCK OPTIONS AND RESTRICTED STOCK UNITS
Stock-Based Compensation
Stock Options
In September 2024, the shareholders of the Company approved the amendment
to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used under the plan by
The Company recorded stock-based compensation expense for certain
employees and members of the Company’s Board of Directors of $
A summary of the status of the Company’s stock options as of March 31, 2025 and December 31, 2024, and changes during the periods then ended are presented below:
| Wtd. Avg. | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Balance, January 1, 2024 | $ | |||||||
| Granted during the period | ||||||||
| Exercised during the period | ( | ) | ||||||
| Terminated/Expired during the period | ( | ) | ||||||
| Balance, December 31, 2024 | $ | |||||||
| Granted during the period | ||||||||
| Exercised during the period | ||||||||
| Terminated/Expired during the period | ( | ) | ||||||
| Balance, March 31, 2025 | $ | |||||||
| Exercisable at March 31, 2025 | $ | |||||||
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The following table summarizes information about outstanding stock options at March 31, 2025:
| Number | Wtd. Avg. | |||||||||
| Range of Exercise Price | Outstanding | Wtd.Avg, Life | Exercise Price | |||||||
| $3.43 - $23.80 | $ | |||||||||
The following table summarizes information about outstanding stock options at December 31, 2024:
| Number | Wtd. Avg. | |||||||||
| Range of Exercise Price | Outstanding | Wtd.Avg, Life | Exercise Price | |||||||
| $3.43 - $23.80 | $ | |||||||||
As of March 31, 2025, there was $
The aggregate intrinsic value at March 31, 2025 was based on the Company’s
closing stock price of $
Restricted Stock Units (“RSUs”)
A summary of the status of the Company’s RSUs as of March 31, 2025 is presented below.
| Wtd. Avg. | ||||||||
| Grant Date | ||||||||
| Number of Units | Fair Value per Unit | |||||||
| Unvested units as of January 1, 2025 | $ | |||||||
| Granted during the period | ||||||||
| Vested during the period | ||||||||
| Forfeited During the period | ||||||||
| Unvested Units as of March 31, 2025 | $ | |||||||
| Vested as of March 31, 2025 | $ | |||||||
The Company recorded stock-based compensation expense of $
As of March 31, 2025, there was $
Note 8. COMMITMENTS AND CONTINGENCIES
On October 2, 2018, Contract Pharmacal Corp. (“Contract
Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with
respect to the property formerly occupied by the Company’s former subsidiary, Welding Metallurgy, Inc (“WMI”), at 110
Plant Avenue, Hauppauge, New York. Contract Pharmacal sought damages for an amount in excess of $
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From time to time the Company may be engaged in various lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.
Note 9. INCOME TAXES
The Company recorded income tax expense for
the three months ended March 31, 2025 and 2024 because the estimated annual effective tax rate was
As of March 31, 2025, and December 31, 2024, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
Note 10. SEGMENT INFORMATION
The Company operates as
The significant expenses that are regularly provided to the CODM are disclosed in the consolidated statements of operations as a part of the condensed consolidated net income (loss). See the condensed consolidated financial statements for all financial information regarding the Company’s operating segment.
All revenues of the Company are earned in the United States of America.
The Company’s long-lived tangible assets, as well as the Company’s operating lease right-of use assets recognized on the Condensed Consolidated Balance Sheets were located in the United States.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Form 10-Q and with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K, for the year ended December 31, 2024 (the “2024 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this report and our 2024 Form 10-K that could cause actual results to differ materially from those anticipated in these forward-looking statements. Further, although we believe we will not face a material increase in the price of raw materials due to tariffs that may be imposed, ongoing geopolitical conflicts could adversely impact our ability to manufacture our products, the markets for some of our products, and our ability to access debt or equity financing.
Business Overview
We believe we are one of the leading manufacturers of precision components and assemblies for large aerospace and defense contractors. Our rich history dates to 1941, producing parts for World War II fighter aircraft. Since then, we have maintained an impeccable record with no known incidents of part failure leading to a fatal mission. We became a public company in 2005.
Our products include landing gear, flight controls, engine mounts and components for aircraft jet engines and ground turbines and other complex machines. The ultimate end-user for most of our products is the U.S. government, international governments, and commercial global airlines. Whether it is a small individual component for assembly by others or complete assemblies we manufacture ourselves, our high quality and extremely reliable products are used in mission critical operations that are essential for safety of military personnel and civilians.
Although our net sales are concentrated amongst a number of defense and aerospace prime contractors, we have cultivated long-standing relationships with a number of their subsidiaries and/or business units. Additionally, our net sales are generated across several high-profile platforms and programs including: the F-18 Hornet, the E-2 Hawkeye, the UH-60 Black Hawk Helicopters, Geared Turbo-Fan (“GTF”) Engines (used on smaller aircraft such as the Airbus A220 and Embraer E2), the CH-53 Helicopter, the F-35 Lighting II and the F-15 Eagle Tactical Fighter. In many cases, we are the sole or single supplier of certain parts and components and receive LTAs from our customers, both demonstrating their commitment to us.
Winning a new contract award is highly competitive. Our ability to win new contract awards generally requires us to deliver superior quality products, more quickly and with lower pricing than our competitors. Accordingly, we must continually invest in process improvements and capital equipment. Recent investments in new equipment have improved the productive capacity of our employees, increased our efficiency and speed, and expanded the size of products we can manufacture. We strategically operate two state-of-the-art manufacturing centers in the U.S. This allows for rigorous oversight of production and the adherence to stringent quality standards. Although there is currently a shortage of skilled workers, we maintain a highly trained and close- knit team of over 184 professionals committed to driving excellence and precision in every aspect of our operations.
Our period-to-period net sales and operating results are significantly impacted by timing. In addition, our gross profit is affected by a variety of factors, including the mix and complexity of products, production efficiencies, price competition and general business operating environments. In some cases, our gross profit is impacted by our ability to deliver replacement parts on short notice. Our operations have a large percentage of fixed factory overhead. As a result, our profit margins are highly variable with sales volumes.
For the past several years, despite facing significant financial and operational challenges, we have strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster our competitive position. Additionally, we expanded our sales and marketing efforts, with a sharp focus on expanding relationships with existing customers and cultivating new ones. Fiscal 2024 marked a year of overall progress and positioning for growth. During the first quarter of 2025 and looking forward, our business strategy is geared towards achieving sustainable and profitable business growth. We are firmly focused on securing new contract awards, improving operations and successful execution.
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With total unfilled contract values amounting to $270.3 million (including our $120.6 million in backlog and all potential orders against LTA agreements previously awarded to us), as of March 31, 2025, we are confident in our ability to boost sales during the remainder of 2025, attain profitability and improve our financial position.
RESULTS OF OPERATIONS
Selected Financial Information:
| Three Months Ending March 31, 2025 | 2025 Percentage of Net Sales | Three Months Ending March 31, 2024 | 2024 Percentage of Net Sales | Change 2025 vs 2024 | Percent Change 2025 vs 2024 | |||||||||||||||||||
| Net sales | $ | 12,135,000 | 100.0 | % | $ | 14,061,000 | 100.0 | % | $ | (1,926,000 | ) | -13.70 | % | |||||||||||
| Cost of sales | 10,101,000 | 83.2 | % | 12,155,000 | 86.4 | % | (2,054,000 | ) | -16.90 | % | ||||||||||||||
| Gross profit | 2,034,000 | 16.8 | % | 1,906,000 | 13.6 | % | 128,000 | 6.72 | % | |||||||||||||||
| Operating expenses | 2,780,000 | 22.9 | % | 2,165,000 | 15.4 | % | 615,000 | 28.41 | % | |||||||||||||||
| Interest expense | 444,000 | 3.7 | % | 462,000 | 3.3 | % | (18,000 | ) | -3.90 | % | ||||||||||||||
| Other income, net | 202,000 | 1.7 | % | 15,000 | 0.1 | % | 187,000 | 1246.67 | % | |||||||||||||||
| Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | - | ||||||||||||||||
| Net loss | $ | (988,000 | ) | -8.1 | % | $ | (706,000 | ) | -5.0 | % | $ | (282,000 | ) | 39.94 | % | |||||||||
Balance Sheet Data:
| March 31, 2025 | December 31, 2024 | Change | Percent Change | |||||||||||||
| Cash | $ | 285,000 | $ | 753,000 | (468,000 | ) | -62.15 | % | ||||||||
| Working capital | $ | 10,376,000 | $ | 11,776,000 | (1,400,000 | ) | -11.89 | % | ||||||||
| Total assets | $ | 48,388,000 | $ | 51,011,000 | (2,623,000 | ) | -5.14 | % | ||||||||
| Total stockholders’ equity | $ | 15,289,000 | $ | 14,948,000 | 341,000 | 2.28 | % | |||||||||
Net Sales: Net sales for the three months ended March 31, 2025 were $12,135,000, a decrease of $1,926,000, or 13.7%, compared with $14,061,000 that we achieved in the three months ended March 31, 2024. The period-over-period decrease in net sales was primarily due to overall changes in the mix of products requested by customers, which are discussed further below.
The composition of customers that exceeded 10% of our net sales in either 2025 or 2024 are shown below:
| Percentage of Net Sales | ||||||||
| Customer | 2025 | 2024 | ||||||
| Lockheed Martin | 39.6 | % | 25.9 | % | ||||
| RTX (a) | 28.9 | % | 33.4 | % | ||||
| Northrop | 8.1 | % | 11.0 | % | ||||
| (a) | RTX includes Collins Landing Systems and Collins Aerostructures |
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The composition of our net sales by platform or program profiles for the three months ended March 31, 2025 and 2024 are shown below:
| Percentage of Net Sales | ||||||||
| Platform or Program | 2025 | 2024 | ||||||
| F-18 Hornet | 3.1 | % | 6.9 | % | ||||
| E2-D Hawkeye | 10.1 | % | 23.3 | % | ||||
| UH-60 Black Hawk Helicopter | 28.2 | % | 26.0 | % | ||||
| GTF | 24.7 | % | 19.0 | % | ||||
| CH-53 Helicopter | 10.2 | % | 2.1 | % | ||||
| F-35 Lightning II | 2.9 | % | 5.0 | % | ||||
| All other platforms | 20.8 | % | 17.7 | % | ||||
| Total | 100.0 | % | 100.0 | % | ||||
Period-to-period changes in customer mix and related platforms and programs are largely attributable to customer requirements, availability of parts, production capacity and timing.
Gross Profit: Gross profit for the three months ended March 31, 2025, was $2,034,000 as compared to $1,906,000 for the three months ended March 31, 2024. Our gross profit percentage for the three months ended March 31, 2025 increased to 16.8% from the 13.6% for the three months ended March 31, 2024. The increase in margin can be attributable to changes in the sales across our major platforms, shifts in product mix, and overall operating efficiencies.
Operating Expenses: Operating expenses were $2,780,000, for the three months ended March 31, 2025, an increase of $615,000, from $2,165,000 for the three months ended March 31, 2024. As a percentage of consolidated net sales, operating expenses increased to 22.9%, compared to the 15.4% achieved during the three months ended March 31, 2024. The dollar increase was primarily driven by increases in stock-based compensation costs and professional fees as well as costs associated with the continued improvement of our information technology system and hardening our cyber-security defenses. We continue to look for ways to reduce our costs and improve our operating performance and financial results.
Interest Expense: Interest expense (which includes amortization of deferred financing costs) was $444,000 during the three months ended March 31, 2025, a decrease of $18,000 or 3.9% from $462,000 during the three months ended March 31, 2024. The decrease is primarily attributable to the repayment of a portion of our subordinated debt as well as a decrease in the in the average interest rate on outstanding debt pursuant to our Current Credit Facility which decreased to 6.85% in 2025 as compared to 7.85% in 2024.
Net Loss: Net loss for the three months ended March 31, 2025 was $988,000, compared to a net loss of $706,000 for the three months ended March 31, 2024, for the reasons discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2025, we have debt service requirements related to:
| 1) | Outstanding indebtedness under our Current Credit Facility of $17,846,000 (consisting of a Revolving Loan of $11,204,000 and a Term Loan in the amount of $6,642,000). This debt matures on December 30, 2025, and requires us to make monthly payments on the term loan of approximately $87,000 until the loan matures. |
| 2) | Related Party Notes of approximately $4,871,000. This debt matures on July 1, 2026. Pursuant to the Current Credit Facility we are permitted to make principal payments against this debt with money raised pursuant to the sale of our securities under our Registration Statement on Form S-3 declared effective December 19, 2024. |
| 3) | Various equipment leases and contractual obligations related to our normal business, including advances under our Solar Facility for the installation of solar energy systems including the replacement of the existing roof at our Sterling Facility. |
Under the terms of the Current Credit Facility, as amended, we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. As of March 31, 2025, for twelve month rolling cumulative period we achieved a Fixed Charge Coverage Ratio of 1.19x as compared to the required 1.05x.
The Current Credit Facility expires on December 30, 2025. In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are remitted. If we were to default under the Current Credit Facility, our lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact our operating results. If the lender were to cease making new loans under the revolving facility, we would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report.
The following is a brief discussion of the recent amendment to the Current Credit Facility (all of which have been filed with the SEC):
| ● | On May 31, 2024, we entered into a Seventh Amendment that waived the default caused by our failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment. This amendment further revised our Financial Covenants. For the six months ending June 30, 2024 our EBITDA shall not be less than $740,000; for the nine months ending September 30, 2024 our EBITDA shall not be less than $1,500,000; for the twelve months ending December 31, 2024 our EBITDA shall not be less than $2,800,000. For the rolling twelve month period ending March 31, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x. Beginning with the rolling twelve month period ending June 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x. All other covenants remain unchanged. Additionally, this amendment increased the Term Loan by approximately $1,000,000 to $5,700,000, with monthly principal installments in the amount of $68,000. In connection with these changes, the Company paid an amendment fee of $20,000. |
23
| ● | On January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $1,640,000 for the acquisition of additional equipment. The monthly principal installments on this additional Term Loan are $19,524. This amendment further revised our Financial Covenants. For the rolling twelve-month period ending March 31, 2025 and June 30, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x. Beginning with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x. All other covenants remain unchanged. In connection with these changes, the Company paid an amendment fee of $20,000. |
In addition to required Term Loan payments of approximately $1,011,000 in fiscal 2025, we may have to make additional payments. For so long as the Term Loan under the Current Credit Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan. Such payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such fiscal year. For the fiscal year ended December 31, 2024, based on the calculation, a payment was not required.
In addition to the outstanding indebtedness under the Current Credit Facility and Related Party Notes, we have various equipment leases and contractual obligations of an ongoing nature which we service in the ordinary course out of our cash flow from operations.
Our material cash requirements are for debt service, capital expenditures and working capital. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Although navigating the current business landscape remains challenging and it is difficult to predict period-to-period financial performance, based on our current revenue visibility and the strength of our backlog, we believe we have sufficient liquidity to meet our financial obligations for the next twelve months from the date of issuance of our condensed consolidated financial statements included in this Quarterly Report. However, if we were to default under our Current Credit Facility and were unable to obtain a waiver from our lender and it was to cease lending we would not be able to meet our financial obligations. As of March 31, 2025, the amount outstanding under our Revolving Line of Credit was $11,204,000, leaving $8,796,000 of availability to support our growth, subject to having the requisite collateral and maintaining compliance with the terms of the Credit Facility.
In May 2025, we began discussions with our lender under the Current Credit Facility and the holders of the Related Party Notes to explore potential extensions or refinancing of our obligations. Refinancing our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition.
Cash Flows
The following table summarizes our net cash flows from operating, investing and financing activities for the periods indicated (in thousands):
| Three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash provided by (used in) | ||||||||
| Operating activities | $ | 1,525 | $ | (232 | ) | |||
| Investing activities | (1,217 | ) | (111 | ) | ||||
| Financing activities | (776 | ) | 222 | |||||
| Net decrease in cash | $ | (468 | ) | $ | (121 | ) | ||
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Cash Provided by (Used in) Operating Activities
For the three months ended March 31, 2025, we generated $1,525,000 in operations as compared to a cash flow use of $232,000 for the three months ended March 31, 2024. The increase was due primarily to a decrease in accounts receivable and the collection of the contract costs receivable.
Cash Used in Investing Activities
During our most recent quarter, we continued to make investments to enhance our competitiveness and market position. Cash used in investing activities of $1,217,000 and $111,000, during the three months ended March 31, 2025 and 2024, respectively, was for new property and equipment. Investments in 2025 and 2024 increased our production efficiency and speed, while enabling us to maintain closer tolerances. They also expanded the size of products we can manufacture.
We continue to make strategic investments in capital equipment to enhance our competitiveness. The investments in 2024 and 2023 increased production efficiency and speed, while maintaining closer tolerances. They also expanded the size of products we can manufacture. We expect to additionally invest approximately $750,000 during the remainder of 2025 for new or upgraded equipment.
Cash (Used in) Provided by Financing Activities
For the three months ended March 31, 2025, cash used in financing activities was $776,000. During this period, we decreased borrowings under our Current Credit Facility by $284,000 (consisting of a net decrease in Revolving Loan borrowings of $1,701,000 and a net increase of $1,417,000 against the Term Loan). We also paid $1,291,000 of subordinated notes - related party and issued stock for cash in the amount of $855,000. Additionally, we made payments of $54,000 pursuant to financing lease obligations and $2,000 on a loan payable.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have any off-balance sheet arrangements as of March 31, 2025.
Critical Accounting Estimates
A critical accounting estimate is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include, inventory valuation, useful lives and impairment of long-lived assets, income tax provision, and allowance for credit losses. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.
There have been no material changes to the Company’s critical accounting estimates as compared to the estimates described in the 2024 Annual Report which we believe are the most critical to our business and understanding of our results of operations and affect the more significant judgments and estimates that we use in preparation of our condensed consolidated financial statements.
25
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2025. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, and as a result of the material weakness described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of March 31, 2025.
As reported in our 2024 Form 10-K, in connection with their review of our internal controls as of and for the year ended December 31, 2024, our management identified a material weakness in our internal controls over financial reporting related to our IT systems which has yet to be remediated. During fiscal 2024, we implemented new controls and procedures to eliminate this weakness but additional enhancements and more formalized documentation are still required. Tests of such controls and procedures are ongoing and the material weakness noted will only be deemed to have been remediated after the new controls and procedures have been in place for a sufficient period and management has concluded through appropriate testing that the controls are operating effectively. As such, we consider this material weakness to not be remediated as of March 31, 2025. Based on this evaluation and as a result of this material weakness, we have concluded that our disclosure controls and procedures were not effective as of March 31, 2025. For more information, see Item 9A. Controls and Procedures, included in our Annual Report on Form 10-K.
During 2025, the Company is continuing to test such controls and procedures designed to remediate the aforementioned material weakness.
Changes in Internal Control over Financial Reporting
Other than as described above, there have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1A. Risk Factors.
Investors are encouraged to consider the risks described in our 2024 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of principal executive officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934. | |
| 31.2* | Certification of principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act of 1934. | |
| 32.1** | Certification of principal executive officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | |
| 32.2** | Certification of principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | |
| XBRL Presentation | ||
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 15, 2025
| AIR INDUSTRIES GROUP | ||
| By: | /s/ Scott Glassman | |
| Scott Glassman | ||
| Chief Financial Officer | ||
| (principal financial and accounting officer) | ||
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