What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-22 · 264 added, 195 removed, 460 unchanged (50% of the section changed)

1 unchanged sentence

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)

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

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

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

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

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Condensed Consolidated Balance Sheets

September 30,

Current Assets

18 unchanged sentences

Debt - Net of Current Portion

Subordinated Notes Payable - Related Party

Subordinated Notes Payable - Related Parties

Operating Lease Liabilities - Net of Current Portion

3 unchanged sentences

Stockholders’ Equity

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,

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

Common Stock - Par Value $ .001 - Authorized 6,000,000 Shares, 3,232,467 and 3,212,801 Shares Issued and Outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional Paid-In Capital

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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

Share and per share data have been adjusted for all

periods presented to reflect the one-for-10 reverse stock split effective October 18, 2022.

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of Sales

7 unchanged sentences

Net (Loss) Income

$ ( 142,000 )

$ ( 177,000 )

(Loss) Income per share - Basic

2 unchanged sentences

Weighted Average Shares Outstanding - diluted

Share and per share data have been adjusted for all

periods presented to reflect the one-for-10 reverse stock split effective October 18, 2022.

See Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’

For the Three and Six Months Ended June 30,

For the Three and Nine Months Ended September 30,

2022 and 2021

10 unchanged sentences

$ ( 64,569,000 )

Common Stock issued for directors fees

Stock Compensation Expense

Balance, September 30, 2022

$ ( 64,711,000 )

Balance January 1, 2021

9 unchanged sentences

$ ( 66,074,000 )

Common Stock issued for directors fees

Stock Compensation Expense

Balance, September 30, 2021

$ ( 66,140,000 )

Share data have been adjusted for all periods presented

to reflect the one-for-10 reverse stock split effective October 18, 2022.

See Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) Income

$ ( 177,000 )

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

4 unchanged sentences

Non-cash interest expense

Amortization of Right-of-Use Asset

Amortization of operating Right-of-Use assets

Deferred gain on sale of real estate

Bad debt (recovery) expense

Bad debt recovery

Amortization of deferred financing costs

9 unchanged sentences

Accounts payable and accrued expenses

( 1,261,000 )

Operating lease liabilities

Customer deposits

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

5 unchanged sentences

Note payable - revolver - net - Webster Bank

( 2,187,000 )

Proceeds from term loan - Webster Bank

1 unchanged sentence

( 1,430,000 )

( 1,147,000 )

Payments of deferred Financing Costs

Payment of subordinated note payable - related party

Payments of finance lease obligations

2 unchanged sentences

( 3,344,000 )

NET INCREASE (DECREASE) IN CASH

NET DECREASE IN CASH

( 1,813,000 )

4 unchanged sentences

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, (Continued)

For the Nine Months Ended September 30, (Continued)

Supplemental cash flow information

Cash paid during the period for interest

Cash paid during the period for

Supplemental disclosure of non-cash investing and financing activities

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND BASIS OF PRESENTATION

FORMATION AND BASIS OF PRESENTATION

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

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;

of September 30, 2022, and for the three and nine months ended September 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,

(“AIM”), Nassau

Tool Works, Inc.

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

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

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.

Operating results for the three and nine months ended

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

These unaudited

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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.

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

Effective with the Company’s first quarter ended

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

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”).

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

Reverse Stock Split

On October 4, 2022, the Company announced a reverse

stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10.

The reverse stock split was effective

on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time.

All share and per share amounts of

its common stock presented have been retroactively adjusted to reflect the 1-for-10 reverse stock split.

As result of the reverse stock

split there were no fractional shares issued and all holders were rounded up to the next whole share.

See Note 7 for more information.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventory Valuation

For annual periods, the Company values inventory

at the lower of cost on a first-in-first-out basis or estimated net realizable value.

The Company does not take physical inventories at

interim quarterly reporting periods.

For interim periods, substantially all of the inventory value has been estimated using a gross profit

percentage based on the annual gross profit percentage of the immediately preceding year as applied to the net sales of the current period.

Adjustments to reconcile the annual physical inventory to the Company’s books are recorded in the fourth quarter.

For annual periods, the Company values inventory at

the lower of cost on a first-in-first-out basis or estimated net realizable value.

The Company does not take physical inventories at interim

quarterly reporting periods.

For interim periods, substantially all of the inventory value has been estimated using a gross profit percentage

based on the annual gross profit percentage of the immediately preceding year as applied to the net sales of the current period.

to reconcile the annual physical inventory to the Company’s books are recorded in the fourth quarter.

Inventories consist of the following at:

September 30,

Raw Materials

Work In Progress

Finished Goods

( 2,761,000 )

( 3,154,000 )

Total Inventory

Credit and Concentration Risks

There were three customers that represented 66.2 %

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

There were two customers that represented 63.9 % and

67.7 % of total net sales for the three months ended September 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.

September 30,

There were three customers that represented 68.9 %

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

and 75.5 % of total sales for the nine months ended September 30, 2022 and 2021, respectively.

This is set forth in the table below.

Percentage of Sales

September 30,

There were two customers that represented 70.2 % and

three customers that represented 74.7 % of gross accounts receivable at September 30, 2022 and December 31, 2021, respectively.

set forth in the table below.

Percentage of Receivables

September 30,

● Customer was less than 10 % of accounts receivable at September 30, 2022.

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:

The following table summarizes revenue from contracts with customers for

the three and nine month periods ending September 30, 2022 and 2021:

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine Months Ended

September 30,

Concentration of Credit Risk

During the period, the Company had occasionally maintained balances

in its bank accounts that were in excess of the FDIC limit.

During the period, the Company had occasionally maintained

balances in its bank accounts that were in excess of the FDIC insurance limit.

The Company has not experienced any losses on these accounts.

5 unchanged sentences

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.

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

At September 30, 2022 and December 31, 2021, customer

deposits were $ 1,291,000 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,

“Leases.” All leases are required to be recorded on the balance sheet and are classified as either operating leases or finance

The lease classification affects the expense recognition in the income statement.

Operating lease charges are recorded entirely

in operating expenses.

Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses

and an implied interest component is recorded in interest expense.

The Company recognized revenue of $ 73,000 and $ 126,000 during the three and nine

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

recognized revenue of $ 132,000 and $ 507,000 during the three and nine months ended September 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 September 30, 2022, backlog relating to remaining

performance obligations in contracts was approximately $65,000,000.

We expect to recognize revenue amounts in future periods related to

these remaining performance obligations as follows:

approximately $13,000,000 to $15,000,000 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 $11,000,000 to $15,000,000 from July

1, 2023 through December 31, 2023.

This expectation assumes that raw material suppliers, and that outsourced processing is completed and

delivered on-time and that its customers will accept delivery as scheduled.

The Company anticipates that sales during the aforementioned

periods will also include sales pursuant to contracts that are not currently in backlog.

The Company accounts for leases under ASC 842, “Leases.”

All leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases.

classification affects the expense recognition in the income statement.

Operating lease charges are recorded entirely in operating expenses.

Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest

component is recorded in interest expense.

Earnings (Loss) per share

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outstanding for the period.

For purposes of calculating diluted earnings 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 is the calculation of net income

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

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 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 is the calculation of net (loss) income

applicable to common stockholders utilized to calculate the EPS:

Three Months Ended

Six Months Ended

Net (Loss) Income - Basic

Nine Months Ended

September 30,

(Loss) Income - Basic

$ ( 142,000 )

$ ( 177,000 )

Convertible Note Interest for Potential Note Conversion

(Loss) Income used to calculate diluted earnings per share

$ ( 142,000 )

$ ( 177,000 )

The following is a reconciliation of the denominators

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted average shares outstanding used to compute basic earnings per share

1 unchanged sentence

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

Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share

The following securities have been excluded from the

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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

the calculation even though the exercise price was less than the average market price of the common shares during the periods set forth

below because the effect of including these potential shares was anti-dilutive due to the net loss incurred during these periods:

Three Months Ended

Nine Months Ended

September 30,

Stock Options

Convertible notes payable

6 unchanged sentences

Stock based compensation expense

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.

for employees amounted to $ 55,000 and $ 147,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 262,000 and

$ 361,000 for the nine months ended September 30, 2022 and 2021, respectively.

Stock compensation expense for directors amounted to $ 54,000

and $ 52,000 for the three months ended September 30, 2022 and 2021, respectively and $ 162,000 and $ 156,000 for the nine months ended September

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 June 30, 2022

The goodwill amount of $ 163,000 at both September 30,

2022 and December 31, 2021 relates to the acquisition of NTW.

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PROPERTY AND EQUIPMENT

The components of property and equipment at June

The components of property and equipment at September

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

September 30,

Buildings and Improvements

12 unchanged sentences

Depreciation expense for the three months ended

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.

September 30, 2022 and 2021 was $ 598,000 and $ 688,000 , respectively.

Depreciation expense for the nine months ended September 30, 2022

and 2021 was $ 1,906,000 and $ 2,105,000 , respectively.

Assets held under financed lease obligations are

3 unchanged sentences

Accumulated depreciation on these assets was approximately $ 12,000 and $ 32,000

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

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

The Company has operating and finance leases for

2 unchanged sentences

and leases its offices and manufacturing facilities under operating leases.

The leases have remaining lease terms of one to five years,

The leases have remaining lease terms of one to six years,

some of which include options to extend or terminate the leases.

September 30,

Weighted Average Remaining Lease Term - in years

13 unchanged sentences

finance lease obligations consist of the following:

September 30,

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

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of the Term Loan.

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

As of September 30, 2022, there is currently $ 14,097,000

outstanding under the Revolving Loan and $ 4,691,000 under the Term Loan.

14 unchanged sentences

Interest expense related to the Webster Facility

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.

amounted to approximately $ 204,000 and $ 181,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 506,000 and

$ 542,000 for the nine months ended September 30, 2022 and 2021, respectively.

The below summarizes historical amendments to

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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

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

In connection with these changes, the Company paid an amendment fee of $ 10,000 .

On December 7, 2021, the Company entered into

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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 .

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 , reduced the monthly principal installments to be made in respect to the term loan, 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, thereby increasing 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 30, 2025.

In connection with these changes,

the Company paid an amendment fee of $ 20,000 .

Under the terms of the Webster Facility, both

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

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.

interest rate charged was 4.70% and 3.50% for the three months ended September 30, 2022 and 2021, respectively and was 3.94% and 3.50%

for the nine months ended September 30, 2022 and 2021, respectively.

All amendment fees paid in connection with the

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assets are pledged as collateral under the Webster Facility.

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

loan covenants.

As of September 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 totaled $ 0 and $ 263,000 as of June 30, 2022

The obligation for the Finance lease totaled $ 0 and $ 263,000 as of September

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.

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 to the Webster Facility, this Finance Lease was paid in

Loan Payable – Financed Asset

1 unchanged sentence

vehicle in July 2020.

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.

The loan obligation totaled $ 33,000 and $ 39,000 as of September 30, 2022 and December 31, 2021, respectively.

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

The future minimum loan payments are as follows:

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proceeds to the Company totaling $6,550,000.

In connection with these notes, Michael and Robert were issued a total of 355,082 shares

of common stock and Taglich Brothers Inc.

In connection with these notes, Michael and Robert were issued a total of 35,508 shares of

common stock and Taglich Brothers Inc.

was issued promissory notes totaling $554,000 for placement agency fees.

12 unchanged sentences

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:

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

For the three and nine months ended September

30, 2022, a principal payment 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.

The note holders and the principal balance of

the notes of September 30, 2022 are shown below:

Michael Taglich,

3 unchanged sentences

Subordinated Notes

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 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.

Interest expense for the three months ended September

30, 2022 and 2021 on all related party notes payable was $ 118,000 and $ 126,000 , respectively, and $ 369,000 and $ 376,000 for the nine months

ended September 30, 2022 and 2021, respectively.

LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION

12 unchanged sentences

The timing of the payments is based upon the net sales of AMK .

If the Purchasers have not received the entire Remaining Amount by March

31, 2023, they have the right to demand payment of their pro rata portion of the unpaid Remaining Amount from the Company (“Put

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

The Company recognized $ 0 and $ 79,000 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.

income for the three months ended September 30, 2022 and 2021, respectively, and $ 94,000 and $ 274,000 of non-cash income for the nine

months ended September 30, 2022 and 2021, respectively, reflected in “other income, net” on the condensed consolidated statements

of operations and recorded $ 0 and $ 24,000 of related non-cash interest expense related to the Purchase Agreement for the three months

ended September 30, 2022 and 2021, respectively, and $ 35,000 and $ 82,000 for the nine months ended September 30, 2022 and 2021, respectively.

The table below shows the activity within the

liability account for:

December 31, 2021

Liabilities related to sale of future

proceeds from disposition of subsidiaries - beginning balance

September 30,

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, 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.

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

STOCKHOLDERS’ EQUITY

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 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.

On October 4, 2022 the Company announced a reverse

stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10.

The reverse stock split was effective

on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time.

As result of the reverse stock split

there were no fractional shares issued and all holders were rounded up to the next whole share.

An additional 7,287 shares were issued

to account for this.

As such all references to shares and per share price has been adjusted to retrospectively account for this transaction.

Common Stock – Sale of Securities

The Company issued 7,715 and 3,998 shares of common

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

19,667 and 11,934 shares totaling $ 162,000 and $ 156,000 for the nine months ended September 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

the Company issued 5,122 shares of common stock upon the cashless exercise of stock options during the nine months ended September 30,

During the fourth quarter of 2022, the Company

issued 8,183 shares of common stock in payment of directors’ fees totaling $ 54,000 .

3 unchanged sentences

employees, stock options to purchase an aggregate of 3,000 shares of the Company’s common stock at a price of $ 8.50 per share.

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

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,

23 unchanged sentences

specifically discussed herein.

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.

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 the Company’s former 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.

On March 10, 2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which the Company will

The Company disputes the validity of the claims asserted by Contract Pharmacal and intends contest them vigorously.

The Company recorded no income tax expense for

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

In determining the estimated

annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and

taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits

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

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.

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

In determining the

estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual

earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to

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

As of September 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.

Management has evaluated subsequent events through the date of this

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