What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-22 compared with 2022-05-11 · 303 added, 193 removed, 352 unchanged (58% of the section changed)

Condensed Consolidated

Financial statements

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited)

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 (unaudited)

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

Condensed Consolidated Financial Statements:

Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited)

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 (unaudited)

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)

Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

Current Assets

Cash and Cash Equivalents

Accounts Receivable, Net of Allowance for Doubtful Accounts of $ 477,000 and $ 594,000

7 unchanged sentences

Current Liabilities

Notes Payable and Finance Lease Obligations - Current Portion

Debt - Current Portion

Accounts Payable and Accrued Expenses

1 unchanged sentence

Deferred Gain on Sale - Current Portion

Deferred Revenue

Liability Related to the Sale of Future Proceeds from

Disposition of Subsidiary - Current Portion

Deferred payroll tax liability - CARES Act - Current Portion

Customer Deposits

Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary

Deferred payroll tax liability - CARES Act

Total Current Liabilities

Long Term Liabilities

Notes Payable and Finance Lease Obligations - Net of Current Portion

Notes Payable - Related Party

Debt - Net of Current Portion

Subordinated Notes Payable - Related Party

Operating Lease Liabilities - Net of Current Portion

1 unchanged sentence

TOTAL LIABILITIES

Commitments and Contingencies

Commitments and Contingencies (Notes 4 and 8)

Stockholders’ Equity

Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both March 31, 2022 and December 31, 2021.

Common Stock - Par Value $ .001 - Authorized 60,000,000 Shares, 32,183,221 and 32,128,006 Shares Issued and Outstanding as of March 31, 2022 and December 31, 2021, respectively

Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both June 30, 2022 and December 31, 2021.

Common Stock - Par Value $ .001 - Authorized 60,000,000 Shares, 32,247,513 and 32,128,006 Shares Issued and Outstanding as of June 30, 2022 and December 31, 2021,

Additional Paid-In Capital

7 unchanged sentences

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31,

Three Months Ended

Six Months Ended

Cost of Sales

4 unchanged sentences

Other Income, Net

Loss before Provision for Income Taxes

(Loss) Income before Provision for Income Taxes

Provision for Income Taxes

$ ( 152,000 )

Loss per share - Basic

Loss per share - Diluted

Net (Loss) Income

(Loss) Income per share - Basic

(Loss) Income per share - Diluted

Weighted Average Shares Outstanding - basic

3 unchanged sentences

Condensed Consolidated Statements of Stockholders’

For the Three Months Ended March 31, 2022 and

For the Three and Six Months Ended June 30,

2022 and 2021

Stockholders’

5 unchanged sentences

$ ( 64,562,000 )

Common Stock issued for directors fees

Stock Compensation expense

Balance, June 30, 2022

$ ( 64,569,000 )

Balance January 1, 2021

5 unchanged sentences

$ ( 66,313,000 )

Common Stock issued for directors fees

Stock Compensation expense

Balance, June 30, 2021

$ ( 66,074,000 )

See Notes to Condensed Consolidated Financial Statements

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash

For the Three Months Ended March 31,

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Net (Loss) Income

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities

Depreciation of property and equipment

5 unchanged sentences

Deferred gain on sale of real estate

Bad debt recovery

Bad debt (recovery) expense

Amortization of deferred financing costs

2 unchanged sentences

Accounts receivable

( 3,435,000 )

( 3,456,000 )

Prepaid expenses and other current assets

Prepaid taxes

Deposits and other assets

2 unchanged sentences

Operating lease liabilities

Deferred revenue

NET CASH PROVIDED BY OPERATING ACTIVITIES

Customer deposits

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

( 1,327,000 )

NET CASH USED IN INVESTING ACTIVITIES

( 1,327,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

Note payable - revolver - net

Payments of note payable - term note

Note payable - revolver - net - Webster Bank

Proceeds from term loan - Webster Bank

Payments of term loan - Webster Bank

( 1,251,000 )

Payments of finance lease obligations

Payments of loan payable - financed asset

NET CASH USED IN FINANCING ACTIVITIES

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

( 1,178,000 )

NET INCREASE (DECREASE) IN CASH

( 1,990,000 )

CASH AT BEGINNING OF PERIOD

CASH AT END OF PERIOD

See Notes to Condensed Consolidated Financial Statements

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash

For the Three Months Ended March 31, (Continued)

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, (Continued)

Supplemental cash flow information

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FORMATION AND BASIS OF PRESENTATION

ORGANIZATION AND BASIS OF PRESENTATION

Air Industries Group is a Nevada corporation (“AIRI”).

of and for the three months ending March 31, 2022 and 2021, the accompanying condensed consolidated financial statements presented are

those of AIRI, and its wholly-owned subsidiaries;

of June 30,2022 and for the three and six months ended June 30, 2022 and 2021, 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.

and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”).

(“AIM”), Nassau Tool Works,

(“NTW”), and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”).

Basis of Presentation

7 unchanged sentences

recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three months ended March

31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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, 2021, as filed with the Securities and Exchange Commission,

from which the accompanying condensed consolidated balance sheet dated December 31, 2021 was derived.

Operating results for the three and six months ended

June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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, 2021, as filed with the Securities

and Exchange Commission, from which the accompanying condensed consolidated balance sheet dated December 31, 2021 was derived.

Effective with the Company’s first quarter

ended March 31, 2022, the Company is presenting its operations as one reportable operating segment.

See Note 10 for further information.

Historically the Company operated its businesses and

reported its results as two separate segments with AIM and NTW comprising the Complex Machining segment (“CMS”) and SEC as

the Turbine & Engine Component segment (“TEC”).

Our CMS segment specialized in flight critical components including flight

controls and landing gear.

Historically the Company operated its businesses

and reported its results as two separate segments with AIM and NTW comprising the Complex Machining segment (“CMS”) and Sterling

as the Turbine & Engine Component segment (“TEC”).

The CMS segment specialized in flight critical components including

flight controls and landing gear.

The TEC segment focused on manufacturing components for jet engines.

6 unchanged sentences

The Company made these changes to take advantage of the long-term growth opportunities

we see in the aerospace and defense market.

it sees in the aerospace and defense market.

In early fiscal 2022, the Company further changed its management approach and is now making

1 unchanged sentence

As such, effective with the first quarter ended March 31, 2022, the Company is presenting its operations as one reportable operating segment.

Subsequent Events

Management has evaluated subsequent events through

the date of this filing.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 unchanged sentences

There were three customers that represented 66.2 %

and 77.9 % of total net sales for the three months ended March 31, 2022 and 2021, respectively.

and 76.2 % of total net sales for the three months ended June 30, 2022 and 2021, respectively.

This is set forth in the table below.

Percentage of Sales

* Customer was less than 10% of sales for the three months ended June 30, 2021.

** Customer was less than 10% of sales for the three months ended June 30, 2022.

There were four customers that represented 77.9 %

and three customers that represented 77.0 % of total net sales for the six months ended June 30, 2022 and 2021, respectively.

forth in the table below.

Percentage of Sales

* Customer was less than 10 % of sales for the six months ended June 30, 2021.

There were three customers that represented 67.7 %

and 74.7 % of gross accounts receivable at March 31, 2022 and December 31, 2021, respectively.

and 74.7 % of gross accounts receivable at June 30, 2022 and December 31, 2021, respectively.

This is set forth in the table below.

Percentage of Receivables

Cash and Cash Equivalents

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three and six month periods ending

June 30, 2022 and 2021:

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Concentration of Credit Risk

During the period, the Company had occasionally maintained balances

6 unchanged sentences

in the event any of them were to go out of business or be unable to provide parts for any reason, its business could be severely harmed.

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 June 30, 2022 and December 31, 2021, customer

deposits were $ 1,417,000 and $ 1,470,000 respectively.

The Company recognized revenue of $ 0 and $ 53,000 during the three and six months

ended June 30, 2022, respectively, that was included in the customer deposits balance as of December 31, 2021.

The Company recognized

revenue of $ 370,000 and $ 375,000 during the three and six months ended June 30, 2021, respectively, that was included in the customer

deposits balance as of December 31, 2020.

Backlog represents executed non-cancellable contracts that represent

firm orders that are deliverable over the next 18- month period.

As of June 30, 2022, backlog relating to remaining performance obligations

in contracts was approximately $73,000,000.

We expect to recognize revenue amounts in future periods related to these remaining performance

obligations as follows:

approximately $25,000,000 to $30,000,000 of our backlog during the remainder of 2022, approximately $25,000,000

to $30,000,000 from January 1, 2023 - June 30, 2023, and approximately $13,000,000 to $18,000,000 from July 1, 2023 through December 31,

This expectation is based on the Company’s belief that raw material will be delivered on time from its suppliers, and that

its customers will accept delivery as scheduled.

The Company accounts for leases under ASC 842,

10 unchanged sentences

For purposes of calculating diluted earnings per

common share, the numerator includes net income plus interest on convertible notes payable assumed converted as of the first day of the

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.

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 as the exercise price was greater than the average market price of the common stock:

The following is the calculation of net income

(loss) applicable to common stockholders utilized to calculate EPS:

Three Months Ended

Stock Options

Six Months Ended

Net (Loss) Income - Basic

Convertible Note Interest for Potential Note Conversion

(Loss) Income used to calculate diluted earnings per share

The following is a reconciliation of the denominators

of basic and diluted earnings per share computations:

Three Months Ended

Six Months Ended

Weighted average shares outstanding used to compute basic earnings per share

Effect of dilutive stock options and warrants

Effect of dilutive convertible notes payable

Weighted average shares outstanding and dilutive securities

used to compute dilutive earnings per share

The following securities have been excluded from

the calculation even though the exercise price was less than the average market price of the common shares because the effect of including

these potential shares was anti-dilutive due to the net loss incurred during that period:

the calculation as the exercise price was greater than the average market price of the common shares:

Three Months Ended

Six Months Ended

Stock Options

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 and Six Months Ended

Convertible notes payable

6 unchanged sentences

Stock based compensation expense

for employees amounted to $ 66,000 and $ 157,000 for the three months ended March 31, 2022 and 2021, respectively.

Stock compensation expense

for directors amounted to $ 54,000 and $ 52,000 for the three months ended March 31, 2022 and 2021, respectively.

Stock compensation expenses

for employees and directors were included in operating expenses on the accompanying Condensed Consolidated Statements of Operations.

for employees amounted to $ 141,000 and $ 57,000 for the three months ended June 30, 2022 and 2021, respectively, and $ 207,000 and $ 214,000

for the six months ended June 30, 2022 and 2021, respectively.

Stock compensation expense for directors amounted to $ 54,000 and $ 52,000

for the three months ended June 30, 2022 and 2021, respectively and $ 108,000 and $ 104,000 for the six months ended June 30, 2022 and 2021,

respectively.

Stock compensation expense for employees and directors was included in operating expenses on the accompanying Condensed

Consolidated Statements of Operations.

Goodwill represents the excess of the acquisition

cost of businesses over the fair value of the identifiable net assets acquired.

The goodwill amount of $ 163,000 at both March 31, 2022

The goodwill amount of $ 163,000 at both June 30, 2022

and December 31, 2021 relates to the acquisition of NTW.

1 unchanged sentence

annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying

The Company has determined that there has been

no impairment of goodwill at March 31, 2022 and 2021.

Recently Issued Accounting Pronouncements

2 unchanged sentences

Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified as a result of the complexity

associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

For convertible instruments,

ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information

transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis

of feedback from financial statement users.

The adoption of ASU 2020-06 did not have a material effect on the Company’s financial

associated with applying accounting principles generally accepted in the United States of America for certain financial instruments with

characteristics of liabilities and equity.

For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible

debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures

for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users.

The adoption of ASU

2020-06 did not have a material effect on the Company’s financial statements.

In June 2016, the FASB issued ASU No.

19 unchanged sentences

for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies.

Early adoption is permitted.

The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.

3 unchanged sentences

PROPERTY AND EQUIPMENT

The components of property and equipment at March

The components of property and equipment at June

30, 2022 and December 31, 2021 consisted of the following:

13 unchanged sentences

Depreciation expense for the three months ended

March 31, 2022 and 2021 was approximately $ 665,000 and $ 713,000 , respectively.

Assets held under finance lease obligations are

June 30, 2022 and 2021 was $ 643,000 and $ 704,000 , respectively.

Depreciation expense for the six months ended June 30, 2022 and 2021 was

$ 1,308,000 and $ 1,417,000 , respectively.

Assets held under financed lease obligations are

depreciated over the shorter of their related lease terms or their estimated productive lives.

2 unchanged sentences

Accumulated depreciation on these assets was approximately $ 10,000 and $ 36,000

as of March 31, 2022 and December 31, 2021, respectively.

OPERATING LEASE LIABILITIES

as of June 30, 2022 and December 31, 2021, respectively.

The Company has operating and finance leases for

6 unchanged sentences

Weighted Average discount rate - %

The aggregate undiscounted cash flows of operating lease payments as

of March 31, 2022, with remaining terms greater than one year are as follows:

The aggregate undiscounted cash flows of operating lease payments for

leases with remaining terms greater than one year are as follows:

December 31, 2022 (remainder of year)

7 unchanged sentences

Total long term portion of operating lease maturities

NOTES PAYABLE, RELATED PARTY

NOTES PAYABLE AND FINANCE LEASE OBLIGATIONS

Notes payable, related party notes payable and

finance lease obligations consist of the following:

Revolving credit note payable to Webster Bank (F/K/A Sterling National Bank) (“Webster”)

Revolving loan payable to Webster Bank (F/K/A Sterling National Bank) (“Webster”)

Term loan, Webster

1 unchanged sentence

Loans payable - financed assets

Related party notes payable

Current portion of notes payable, related party notes payable and finance lease obligations

Related party subordinated notes payable

Current portion

( 14,066,000 )

( 14,112,000 )

Notes payable, related party notes payable and finance lease obligations, net of

current portion

Long Term Portion

Webster Bank (F/K/A Sterling National Bank)

The Company has a loan facility (“Webster Facility”)

with Webster Bank that expires on December 30, 2025.

The Webster Facility, which was first entered into on December 31, 2019, was amended

several times, and now provides for a $ 20,000,000 revolving loan (“Revolving Line of Credit”) and a $ 5,685,000 term loan (“Term

As of March 31, 2022, there is currently $ 11,555,000

outstanding under the Revolving Line of Credit and $ 3,999,000 under the Term Loan.

The below table shows the timing of payments due under

the Term Loan:

The Company has a loan facility (“Webster

Facility”) with Webster Bank that expires on December 30, 2025 .

The Webster Facility, which was first entered into on December 31,

2019, was amended several times, and now provides for a $ 20,000,000 revolving loan (“Revolving Line of Credit”), a $5,000,000

term loan (“Term Loan”) and a $2,000,000 Equipment Line of Credit, which as it is drawn upon will be added to the balance

of the Term Loan.

As of June 30, 2022, there is currently $ 13,343,000

outstanding under the Revolving Loan and $ 4,879,000 under the Term Loan.

The below table shows the timing of payments due under the Term

For the period ending

9 unchanged sentences

As of December 31, 2021, our debt to Webster in

the amount of $16,648,000 consisted of the Webster revolving line of credit note in the amount of $12,456,000 and the Webster term loan

in the amount of $4,192,000.

the amount of $16,648,000 consisted of the Webster Revolving Loan in the amount of $12,456,000 and the Webster term loan in the amount

of $4,192,000.

Interest expense related to the Webster Facility

amounted to approximately $ 155,000 and $ 181,000 for the three months ended March 31, 2022 and 2021, respectively.

amounted to approximately $ 147,000 and $ 180,000 for the three months ended June 30, 2022 and 2021, respectively, and $ 302,000 and $ 261,000

for the six months ended June 30, 2022 and 2021.

The below summarizes historical amendments to

the facility and various terms:

the Webster Facility and various terms:

In 2020, the Company entered into the First Amendment

to the Loan and Security Agreement which increased the Term Loan to $5,685,000 and required the Company to make monthly principal installments

in the amount of $67,679 beginning on December 1, 2020.

to the Webster Facility which increased the Term Loan to $ 5,685,000 and required the Company to make monthly principal installments in

the amount of $ 67,679 beginning on December 1, 2020.

Other minor modifications were made and the Company paid an amendment fee of $ 20,000 .

In June 2021, the Company entered into the Second

Amendment to the Loan and Security Agreement, which clarified the definition and calculation of Excess Cash Flow, and to confirm the due

date of required payment of the Excess Cash Flow payment.

For so long as the Webster term loan remains outstanding, if Excess Cash Flow

(as defined) is a positive number for any fiscal year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five

percent (25%) of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan.

Such payment shall

be made to Webster and applied to the outstanding principal balance of the term loan, on or prior to the close of the fiscal year immediately

following such fiscal year.

The Company made Excess Cash Flow payments of $558,750 in 2021 (for the fiscal year ended December 31, 2020)

and paid $854,000 in April 2022 (for fiscal year ended December 31, 2021).

In connection with these changes, the Company paid an amendment

fee of $10,000.

On December 7, 2021, the Company entered into the

Third Amendment to the Loan and Security Agreement (“Third Amendment”).

The purpose of the amendment was to provide a maturity

date for the Webster Facility of December 30, 2025 as compared to the original maturity date of December 30, 2022.

Such amendment also

increased the Revolving Line of Credit to its current limit of $20,000,000 (up from the original $16,000,000) and also provided for a

similar increase in the inventory sublimit to $14,000,000 (up from the original $11,000,000).

The Third Amendment, also allows the Company,

subject to certain limitations, to begin amortizing a portion of its subordinated debt.

In connection with these changes, the Company

paid an amendment fee of $75,000.

Amendment to the Webster Facility, which clarified the definition and calculation of Excess Cash Flow, and to confirm the due date of

required payment of the Excess Cash Flow payment.

For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined)

is a positive number for any fiscal year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five percent ( 25 %)

of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan.

Such payment shall be made to

Webster and applied to the outstanding principal balance of the term loan, on or prior to the close of the fiscal year immediately following

such fiscal year.

The Company made Excess Cash Flow payments of $ 558,750 in 2021 (for the fiscal year ended December 31, 2020) and paid

$ 854,000 in April 2022 (for fiscal year ended December 31, 2021).

In connection with these changes, the Company paid an amendment fee

of $ 10,000 .

On December 7, 2021, the Company entered into

the Third Amendment to the Webster Facility (“Third Amendment”).

The purpose of the amendment was to provide a maturity date

for the Webster Facility of December 30, 2025 as compared to the original maturity date of December 30, 2022.

Such amendment also increased

the Revolving Line of Credit to its current limit of $20,000,000 (up from the original $16,000,000) and also provided for a similar increase

in the inventory sublimit to $14,000,000 (up from the original $11,000,000).

The Third Amendment, also allows the Company, subject to

certain limitations, to begin amortizing $250,000 of its related party subordinated notes payable each quarter as long as certain conditions

In connection with these changes, the Company paid an amendment fee of $ 75,000 .

On May 17, 2022, the Company entered into the Fourth Amendment to the Webster Facility (“Fourth Amendment”).

The purpose of

the amendment was to increase the Term Loan to $ 5,000,000 , generating proceeds of $ 1,945,000 and establish a capital expenditure line

of credit in the amount of $ 2,000,000 which the Company can draw upon from time to time to finance purchases of machinery and equipment,

reduce the monthly principal installments to be made in respect to the term loan and increase the amount of capital expenditures that

the Company may make each year.

The principle payments are $ 59,524 per month commencing in June 2022 with a balloon payment due on December

In connection with these changes, the Company paid an amendment fee of $ 20,000 .

Under the terms of the Webster Facility, both

3 unchanged sentences

for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum.

interest rate charged during both of the three months ended March 31, 2022 and 2021 was 3.5%.

All amendment fees paid in connection with the Webster Facility 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.

interest rate charged was 3.60% and 3.50% the three months ended June 30, 2022 and 2021, respectively and was 3.55% and 3.50% for the

six months ended June 30, 2022 and 2021, respectively.

All amendment fees paid in connection with the

Webster Facility 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.

In connection with the Webster Facility, the Company

4 unchanged sentences

assets are pledged as collateral under the Webster Facility.

As of March 31, 2022, the Company was in compliance with all loan covenants.

As of June 30, 2022, the Company was in compliance with all financial

loan covenants.

Finance Lease Obligations

1 unchanged sentence

of 2021 for the purchase of new manufacturing equipment.

The obligation for the Finance lease as of December 31, 2021 is $ 262,000 .

lease has an imputed interest rate of 4.2 % per annum and is payable monthly with the final payment due on December 17, 2026.

As of March 31, 2022, the aggregate future

minimum finance lease payments, including imputed interest are as follows:

For the period ending

December 31, 2022 (remainder of the year)

December 31, 2023

December 31, 2024

December 31, 2025

December 31, 2026

Total future minimum finance lease payments

imputed interest

Current portion

Long-term portion

The obligation for the Finance lease totaled $ 0 and $ 263,000 as of June 30, 2022

and December 31, 2021, respectively.

The lease had an imputed interest rate of 4.2 % per annum and was payable monthly with the final payment

due on December 17, 2026.

In connection with the Fourth Amendment, this Finance Lease was paid in full.

Loan Payable – Financed Asset

1 unchanged sentence

vehicle in July 2020.

The loan obligation totaled $ 37,000 and $ 39,000 as of March 31, 2022 and December 31, 2021, respectively.

The loan obligation totaled $ 35,000 and $ 39,000 as of June 30, 2022 and December 31, 2021, respectively.

bears no interest and a final payment is due and payable for all unpaid principal on July 20, 2026.

5 unchanged sentences

December 31, 2025

December 31, 2026

Loans Payable - financed assets

22 unchanged sentences

and are due on July 1, 2026.

Approximately $2,732,000 of the related party subordinated notes can be converted at the option of the holder

into Common Stock of the Company at $1.50 per share, while the remaining $2,080,000 of the related party subordinated notes can be converted

at the option of the holder into common stock of the Company at $0.93 per share.

There are no principal payments due on these notes.

the terms of the Third Amendment to the Webster Facility, the Company is now allowed, subject to certain limitations, to begin amortizing

a portion of this subordinated debt.

The note holders and the principal balance of the notes as amended on January 1, 2021 are shown below:

Approximately $ 2,732,000 of the related party convertible subordinated notes can be converted at the option

of the holder into Common Stock of the Company at $ 1.50 per share, while the remaining $ 2,080,000 of the related party convertible subordinated

notes can be converted at the option of the holder into common stock of the Company at $ 0.93 per share.

There are no principal payments

due on these notes.

Under the terms of the Third Amendment to the Webster Facility, the Company is now allowed, subject to certain limitations,

to begin making principal payments of $ 250,000 per quarter of this subordinated debt.

The note holders and the principal balance of the

notes as amended on January 1, 2021 are shown below:

Michael Taglich,

3 unchanged sentences

Subordinated Notes

For the three months ended March 31, 2022 and

For the three and six months ended June 30, 2022,

no principal payments have been made on these notes and the principal balances remain unchanged from the table above.

Interest expense

for the three months ended March 31, 2022 and 2021 on all related party notes payable was $ 125,000 and $ 125,000 , respectively.

for the three months ended June 30, 2022 and 2021 on all related party notes payable was $ 126,000 and $ 125,000 , respectively, and $ 251,000

and $ 250,000 for the six months ended June 30, 2022 and 2021, respectively.

On July 14, 2022, a principal payment in the amount of $ 250,000

was made against the Subordinated Notes due to Michael Taglich.

This payment was made pursuant to the conditions set forth in the Third

Amendment to the Webster Facility.

LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION

6 unchanged sentences

(the “Maximum Amount”).

On January 15,

In order to increase liquidity, on January 15,

2019, the Company entered into a “Purchase Agreement” with 15 accredited investors (the “Purchasers”), including

6 unchanged sentences

To the extent the Purchasers exercise their Put Right, the remaining payments from Meyer will be retained by the Company.

The Company recognized $ 89,000 and $ 104,000 of

non-cash income reflected in “other income, net” on the condensed consolidated statement of operations and recorded $ 38,000

and $ 31,000 of related non-cash interest expense related to the Purchase Agreement, for the three months ended March 31, 2022 and 2021,

respectively.

The Company recognized $ 5,000 and $ 91,000 of non-cash

income for the three months ended June 30, 2022 and 2021, respectively, and $ 94,000 and $ 195,000 of non-cash income for the six months

ended June 30, 2022 and 2021, respectively, reflected in “other income, net” on the condensed consolidated statements of operations

and recorded $ 0 and $ 27,000 of related non-cash interest expense related to the Purchase Agreement for the three months ended June 30,

2022 and 2021, respectively, and $ 38,000 and $ 58,000 for the six months ended June 30, 2022 and 2021, respectively.

The table below shows the activity within the

liability account for the three months ended March 31, 2022, and the year ended December 31, 2021:

Liabilities related to sale of future proceeds from disposition of subsidiaries - beginning

liability account for:

December 31, 2021

Liabilities related to sale of future

proceeds from disposition of subsidiaries - beginning balance

Non-Cash other income recognized

Non-Cash interest expense recognized

Liabilities related to sale of future proceeds from disposition of subsidiary - ending balance

Liabilities related to sale of future proceeds from disposition of subsidiary

- ending balance

unamortized transaction costs

Liability related to sale of future proceeds from disposition of subsidiary,

Liability related to sale of future

proceeds from disposition of subsidiary, net

The accredited investors have received the entire

$ 1,137,000 due from Meyer and the Company has no remaining liability to the purchasers pursuant to the Purchase Agreement.

STOCKHOLDERS’ EQUITY

Common Stock – Sale of Securities

Common Stock – Sale and Other Issuances

The Company issued 64,292 and 37,392 shares of

common stock in payment of director fees totaling $ 54,000 and $ 52,000 for the three months ended March 31, 2022 and 2021, respectively.

Additionally, the Company issued 51,224 shares of common stock upon the cashless exercise of stock options during the three months ended

March 31, 2021.

During the second quarter of 2022, the Company

common stock in payment of director fees totaling $ 54,000 and $ 52,000 for the three months ended June 30, 2022 and 2021, respectively,

and 119,507 and 79,352 shares totaling $ 108,000 and $ 104,000 for the six months ended June 30, 2022 and 2021, respectively.

Additionally,

the Company issued 51,224 shares of common stock upon the cashless exercise of stock options during the six months ended June 30, 2021.

During the third quarter of 2022, the Company

issued 77,157 shares of common stock in payment of directors’ fees totaling $ 54,000 .

Issuance of Stock Options

Issued in 2022

On January 31, 2022, the Company granted certain

employees, stock options to purchase an aggregate of 30,000 shares of the Company’s common stock at a price of $ 0.85 per share.

The options expire on the fifth anniversary of the grant date and vest over a term of three years.

On April 6, 2022, the Company granted to its directors,

stock options to purchase an aggregate of 60,000 shares of the Company’s common stock at a price of $ 0.84 per share.

expire on the fifth anniversary of the grant date and vest over a term of one year .

On April 11, 2022, the Company granted to certain

members of management and certain employees, stock options to purchase an aggregate of 530,000 shares of the Company’s common stock

at a price of $ 0.84 per share.

The options expire on the fifth anniversary of the grant date and vest over a term of three years.

Issued in 2021

On January 11, 2021, the Company granted to its

directors, stock options to purchase an aggregate of 70,000 shares of the Company’s common stock at a price of $ 1.32 per share.

The options expire on the seventh anniversary of the grant date and vested over a term of one year.

On March 24, 2021, the Company granted to certain

members of management and certain employees, stock options to purchase an aggregate of 327,500 shares of the Company’s common stock

at a price of $ 1.39 per share.

The options expire on the fifth anniversary of the grant date and vest over a term of three years.

On July 30, 2021, the Company granted to certain

members of management and certain employees, stock options to purchase an aggregate of 415,000 shares of the Company’s common stock

at a price of $ 1.22 per share.

The options expire on the fifth anniversary of the grant date and vest over a term of one to three years .

CONTINGENCIES

4 unchanged sentences

specifically discussed herein.

On October 2, 2018, Contract Pharmacal Corp.

Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with

respect to the property that was formerly occupied by its subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York.

In the action Contract

Pharmacal sought damages for an amount in excess of $ 1,000,000 for the Company’s failure to make the entire premises available by

the Sublease commencement date.

On July 8, 2021, the Court denied Contract Phamacal’s motion for summary judgement.

In the Order,

the court granted Contract Pharmacal’s Motions to drop its claim for specific performance and to amend its Complaint to reduce its

claim for damages to $ 700,000 .

Contract Pharmacal filed a Motion to reargue which the Court denied on November 30, 2021.

2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which the Company will oppose.

Company disputes the validity of the claims asserted by Contract Pharmacal, continues to believe it has a meritorious defense to those

claims and intends to dispute the validity of the claim asserted by Contract Pharmacal.

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 that was formerly occupied by its

subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York.

In the action Contract Pharmacal sought damages for an amount in excess of

$ 1,000,000 for the Company’s failure to make the entire premises available by the Sublease commencement date.

On July 8, 2021,

the Court denied Contract Phamacal’s motion for summary judgement.

In the Order, the court granted Contract Pharmacal’s

Motions to drop its claim for specific performance and to amend its Complaint to reduce its claim for damages to $ 700,000 .

Pharmacal filed a Motion to reargue which the Court denied on November 30, 2021.

On March 10, 2022, Contract Pharmacal filed an

appeal to the Court’s decision with the Appellate Division which the Company will oppose.

The Company disputes the validity of

the claims asserted by Contract Pharmacal and intends to dispute the validity of the claim asserted by Contract Pharmacal.

The Company recorded no income tax expense for

the three months ended March 31, 2022 and 2021 because the estimated annual effective tax rate was zero .

the three and six months ended June 30, 2022 and 2021 because the estimated annual effective tax rate was zero .

In determining the estimated

2 unchanged sentences

and net operating loss carry forwards, and available tax planning alternatives.

As of March 31, 2022 and December 31, 2021, the

As of June 30, 2022, and December 31, 2021, 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.

SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of this filing.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements