What changed in this filing

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Item 1. Financial Statements

2023-12-06 compared with 2023-08-18 · 358 added, 221 removed, 365 unchanged (61% of the section changed)

Financial statements

Consolidated Financial Statements:

Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (unaudited)

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)

Notes to Condensed Consolidated Financial Statements

INDUSTRIES GROUP

Consolidated Balance Sheets

Condensed Consolidated Financial Statements:

Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)

Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)

to Condensed Consolidated Financial Statements (unaudited)

AIR INDUSTRIES GROUP

Condensed Consolidated Balance Sheets

September 30,

Current Assets

Accounts Receivable, Net of Allowance for Credit Loss of $ 319,000 and $ 281,000

Accounts Receivable, Net of Allowance for Credit Loss of $ 348,000 and $ 281,000 , at September 30, 2023 and December 31, 2022, respectively

Prepaid Expenses and Other Current Assets

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Stockholders’ Equity

Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both June 30, 2023 and December 31, 2022.

Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 3,274,597 and 3,247,937 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Preferred Stock, Par Value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both September 30, 2023 and December 31, 2022.

Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 3,289,827 and 3,247,937 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional Paid-In Capital

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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

Notes to Condensed Consolidated Financial Statements

INDUSTRIES GROUP

See Notes to Condensed Consolidated Financial Statements.

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Operations

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of Sales

Operating Expenses

Income (Loss) from Operations

(Loss) Income from Operations

Interest and Financing Costs

( 1,118,000 )

Interest Expense - Related Parties

Other Income, Net

Loss before Benefit From Income Taxes

Loss before Provision For Income Taxes

( 1,299,000 )

( 2,312,000 )

Provision for Income Taxes

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$ ( 142,000 )

(Loss) Income per share - Basic and diluted

$ ( 2,312,000 )

$ ( 177,000 )

Loss per share - Basic and diluted

Weighted Average Shares Outstanding - Basic and diluted

Notes to Condensed Consolidated Financial Statements

INDUSTRIES GROUP

Consolidated Statements of Stockholders’ Equity

the Three and Six Months Ended June 30, 2023 and 2022

See Notes to Condensed Consolidated Financial Statements.

AIR INDUSTRIES GROUP

Condensed Consolidated

Statements of Changes in Stockholders’ Equity

For the Three and Nine Months Ended September

30, 2023 and 2022

Stockholders’

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$ ( 66,623,000 )

Common Stock issued for directors fees

Stock Compensation Expense

( 1,299,000 )

Balance, September 30, 2023

$ ( 67,922,000 )

Balance January 1, 2022

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$ ( 64,569,000 )

Notes to Condensed Consolidated Financial Statements

INDUSTRIES GROUP

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

Common Stock issued for directors fees

Stock Compensation Expense

Balance, September 30, 2022

$ ( 64,711,000 )

See Notes to Condensed Consolidated Financial Statements.

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 2,312,000 )

$ ( 177,000 )

Adjustments to reconcile net loss to net cash provided by operating activities

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Customer deposits

NET CASH PROVIDED BY OPERATING ACTIVITIES

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

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Note payable - revolver - net - Webster Bank

( 4,908,000 )

Proceeds from term loan - Webster Bank

Proceeds from term loan - CT Green Bank

Payments of term loan - Webster Bank

( 1,430,000 )

Payments of deferred financing costs

Payment of subordinated note payable - related party

Payments of finance lease obligations

Payments of loan payable - financed asset

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE IN CASH

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

( 4,767,000 )

NET INCREASE (DECREASE) IN CASH

CASH AT BEGINNING OF PERIOD

CASH AT END OF PERIOD

Notes to Condensed Consolidated Financial Statements

INDUSTRIES GROUP

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, (Continued)

See Notes to Condensed Consolidated Financial

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, (Continued)

Supplemental cash flow information

Cash paid during the period for interest

Supplemental disclosure of non-cash investing and financing activities

Supplemental Disclosure of non-cash investing and finance activities

Acquisition of financed lease asset

Notes to Condensed Consolidated Financial Statements

See Notes to Condensed Consolidated Financial Statements.

AIR INDUSTRIES GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND BASIS OF PRESENTATION

FORMATION, BASIS OF PRESENTATION AND GOING CONCERN

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

of June 30,2023, and for the three and six months ended June 30, 2023 and 2022, the accompanying condensed consolidated financial statements

presented are those of AIRI, and its wholly-owned subsidiaries;

of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Operating results for the three and nine months ended

September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

These unaudited

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and Exchange Commission, from which the accompanying condensed consolidated balance sheet dated December 31, 2022 was derived.

Going Concern

As of September 30, 2023, the Company had aggregate debt of $ 13,715,000

payable to Webster Bank.

For the nine months ended September 30, 2023, net cash provided by operating activities was $ 7,093,000 .

this year-to-date positive operating cash flow, as discussed in further detail in Note 5, the Company was in violation of two of its financial

covenants, including the Fixed Charge Coverage Ratio, as a result of the losses incurred by the Company as well as

the large increase in interest rates charged on our debt with Webster Bank.

In November 2023, we entered into an amended credit facility with Webster

Bank to (a) waive such defaults including our failure to maintain a Fixed Charge Coverage Ratio of 0.95 to 1.00 for the fiscal quarter

ended September 30, 2023 and (b) reduce the Fixed Charge Coverage Ratio compliance requirements for the fiscal quarters ending December

31, 2023, March 31 and June 30, 2024.

This amended credit facility is intended to provide us with additional flexibility to meet future

financial covenants.

Navigating the current business landscape poses significant

Accurately projecting future financial periods and ensuring covenant compliance has become extremely difficult.

We are grappling

with supply chain issues, particularly in securing critical inventory essential for fulfilling specific orders.

Additionally, the recent

Middle East war has heightened geopolitical instability that we expect will cause fluctuations in our future business results.

Our future liquidity may be adversely impacted

by various risks and uncertainties, including but not limited to the ongoing wars in Ukraine and Israel, other geopolitical volatility,

deterioration in the financial markets or defense industries and other macroeconomic events.

While we are presently in full compliance

with our Webster Facility, the Company has failed to meet its covenants, as amended, during two out of three of last fiscal quarters.

Additionally, it is possible, that the Company may not meet its financial covenants in one of the upcoming fiscal quarters over the next

twelve months due to either future losses and/or raising interest rates.

Therefore, we have classified the term loan that expires on

December 30, 2025 as current as of September 30, 2023, in accordance with the guidance in ASC 470-10-45 related to the classification

of callable debt.

Failure to meet the revised covenants in future periods and secure any necessary waivers raises substantial doubt about

the Company’s ability to continue as a going concern within one year after the issuance date of this report.

The Company is required

to maintain a collection account with Webster Bank into which substantially all of the Company’s cash receipts are remitted.

Webster were to cease lending and keep the funds remitted to the collection account, the Company would lack the funds to continue its

The accompanying 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounts Receivable

Accounts receivable are carried at the original invoice

amount less an estimate made for credit losses based on a review of all outstanding amounts on a quarterly basis.

Management determines

the allowance for credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition,

credit history, current economic conditions and other relevant factors, including specific reserves for certain accounts.

Accounts receivable

are written off when deemed uncollectible.

Bad debt expenses are recorded in selling, general, and administrative expense.

The activity for the allowance for credit losses

during the nine months ended September 30, 2023 and 2022 is set forth in the table below

September 30,

Balance, January 1,

Provision (Reversal)

Balance, September 30

Inventory Valuation

As of June 30, 2023, the Company values inventory

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

Prior to 2023, for interim periods, substantially

all of the inventory value was 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.

The Company generally purchases raw materials

and supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts

for orders have been received for finished goods.

It occasionally produces larger more complex products, such as landing gear, in excess

of purchase order quantities in anticipation of future purchase order demand, when it is economically advantageous to do so, since historically

The Company values inventory at the lower of cost

on a first-in-first-out basis or estimated net realizable value.

The Company generally purchases raw materials and

supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts for

orders have been received for finished goods.

It occasionally produces larger more complex products, such as landing gear, in excess of

purchase order quantities in anticipation of future purchase order demand, when it is economically advantageous to do so, since historically

this excess has been used in fulfilling future purchase orders.

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Inventories consist of the following at:

September 30,

Raw Materials

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There were three customers that represented 60.8 %

and 66.2 % of total net sales for the three months ended June 30, 2023 and 2022, respectively.

This is set forth in the table below.

Percentage of Sales

There were three customers that represented 54.5 %

and four customers that represented 77.9 % of total net sales for the six months ended June 30, 2023 and 2022, respectively.

forth in the table below.

and two customers that represented 63.9 % of total net sales for the three months ended September 30, 2023 and 2022, respectively.

is set forth in the table below.

Percentage of Sales

* Customer was less than 10 % of sales for the six months ended

June 30, 2023

** Customer was less than 10 % of sales for the six months ended

June 30, 2022

There were two customers that represented 60.8 %

and three customers that represented 70.3 % of gross accounts receivable at June 30, 2023 and December 31, 2022, respectively.

September 30,

* Customer was less than 10 % of sales for the three months ended September 30, 2023

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

There were four customers that represented 62.9 %

and three customers that represented 68.9 % of total sales for the nine months ended September 30, 2023 and 2022, respectively.

set forth in the table below.

Percentage of Accounts

* Customer was less than 10 % of accounts receivable at June

** Customer was less than 10 % of accounts receivable at June

Percentage of Sales

September 30,

* Customer was less than 10 % of sales for the nine months ended September 30, 2023

** Customer was less than 10 % of sales for the nine months ended September 30, 2022

There were three customers that represented 56.7 %

and 70.3 % of gross accounts receivable at September 30, 2023 and December 31, 2022, respectively.

is set forth in the table below.

Percentage of Accounts Receivables

September 30,

* Customer was less than 10 % of accounts receivable at September 30, 2023

** 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, 2023 and 2022:

for the three and nine month periods ending September 30, 2023 and 2022:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

During the period, the Company had occasionally

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At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s

At June 30, 2023 and December 31, 2022, customer

At September 30, 2023 and December 31, 2022, customer

deposits were $ 3,476,000 and $ 781,000 respectively.

The Company recognized revenue of $ 42,000 and $ 314,000 during the three and six months

ended June 30, 2023, respectively, that was included in the customer deposits balance as of December 31, 2022.

The Company recognized

revenue of $ 8,000 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 $ 147,000 and $ 461,000 during the three and nine

months ended September 30, 2023, respectively, that was included in the customer deposits balance as of December 31, 2022.

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.

Backlog represents executed non-cancellable contracts

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

As of June 30, 2023, 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 $ 22,500,000 to $ 25,000,000 of our backlog during the remainder of 2023, approximately

$ 25,000,000 to $ 27,000,000 from January 1, 2024 through June 30, 2024, and approximately $ 21,000,000 to $ 25,500,000 from July 1, 2024

through December 31, 2024.

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.

As of September 30, 2023, backlog relating to remaining

performance obligations in contracts was approximately $ 66,900,000 .

We expect to recognize revenue amounts in future periods related to

these remaining performance obligations as follows:

approximately $ 11,900,000 to $ 13,900,000 of our backlog during the remainder of 2023,

approximately $ 48,500,000 from January 1, 2024 through December 31, 2024, and approximately $ 3,000,000 to $ 4,500,000 from January 1, 2025

through March 31, 2025.

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.

Contract Costs Receivable

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reimbursed from a terminated contract.

The Company expects to collect the receivable in the next twelve months.

Contract costs receivable

totals $ 296,000 at both June 30, 2023 and December 31, 2022.

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 expense recognition in the income statement.

Operating lease charges are recorded entirely in

operating expenses.

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

implied interest component is recorded in interest expense.

Contract costs receivable totals $ 296,000 at both September 30, 2023 and December 31, 2022.

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 condensed consolidated statement of operations.

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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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.

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.

Dilutive common stock equivalents potentially

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

Three Months Ended

Six Months Ended

Three and Nine Months

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

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

Three and Nine Months Ended

September 30,

Stock options

1 unchanged sentence

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.

Stock based compensation expense

for employees amounted to $ 187,000 and $ 141,000 for the three months ended June 30, 2023 and 2022, respectively, and $ 232,000 and $ 207,000

for the six months ended June 30, 2023 and 2022, respectively.

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

for the three months ended June 30, 2023 and 2022, respectively and $ 108,000 and $ 108,000 for the six months ended June 30, 2023 and 2022,

respectively.

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

Consolidated Statements of Operations.

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.

Stock-based compensation expense for employees amounted to $ 28,000

and $ 55,000 for the three months ended September 30, 2023 and 2022, respectively, and $ 260,000 and $ 262,000 for the nine months ended

September 30, 2023 and 2022, respectively.

Stock compensation expense for directors amounted to $ 54,000 and $ 54,000 for the three months

ended September 30, 2023 and 2022, respectively, and $ 162,000 and $ 162,000 for the nine months ended September 30, 2023 and 2022, respectively.

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

of Operations.

Recently Issued Accounting Pronouncements

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on the financial asset.

The Company, the allowance for credit losses must be adjusted for management’s current estimate at each

reporting date.

The allowance for credit losses must be adjusted for management’s current estimate at each reporting date.

The new guidance provides no threshold for recognition of impairment allowance.

Therefore, entities must also measure

expected credit losses on assets that have a low risk of loss.

For instance, trade receivables that are either current or not yet due

may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company

will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13.

The adoption of ASU 2016-13 did

not have a material effect on the Company’s financial statements.

Therefore, entities must also measure expected credit

losses on assets that have a low risk of loss.

For instance, trade receivables that are either current or not yet due may not require

an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate

an allowance for expected credit losses on trade receivables under ASU 2016-13.

The adoption of ASU 2016-13 did not have a material effect

on the Company’s financial statements.

The Company does not believe that any other recently

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PROPERTY AND EQUIPMENT

The components of property and equipment at June

The components of property and equipment at September

30, 2023 and December 31, 2022 consisted of the following:

September 30,

Buildings and Improvements

Machinery and Equipment

Finance Lease ROU Assets - Machinery and Equipment

Finance Lease Right-of-Use Assets - Machinery and Equipment

Tools and Instruments

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Depreciation expense for the three months ended

June 30, 2023 and 2022 was $ 622,000 and $ 643,000 , respectively.

Depreciation expense for the six months ended June 30, 2023 and 2022 was

$ 1,239,000 and $ 1,308,000 , respectively.

September 30, 2023 and 2022 was $ 614,000 and $ 598,000 , respectively.

Depreciation expense for the nine months ended September 30, 2023

and 2022 was $ 1,853,000 and $ 1,906,000 , respectively.

Assets held under financed lease obligations are

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is included in depreciation expense.

Accumulated depreciation on these assets was approximately $ 25,000 and $ 0 as of June 30, 2023 and

December 31, 2022, respectively.

Accumulated depreciation on these assets was approximately $ 46,000 and $ 0 as of September 30, 2023

and December 31, 2022, respectively.

The Company has operating leases for leased office

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The leases have remaining lease terms of one to five years , some of which include options to extend or terminate

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30, September 30, September 30,

2023 2022 2023 2022

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Operating cash flow from operating leases $ 258,000 $ 250,000 $ 773,000 $ 750,000

September 30,

Weighted Average Remaining Lease Term - in years

Weighted Average discount rate - %

The aggregate undiscounted cash flows of operating

lease payments for leases 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, 2023 (remainder of year)

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finance lease obligations consist of the following:

Revolving loan to Webster Bank (“Webster”)

September 30,

Revolving loan to Webster Bank

Term loan, Webster

Connecticut Green Bank loan

Finance lease obligations

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Current portion

( 14,951,000 )

( 14,477,000 )

Long Term Portion

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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 $ 5,000,000

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 is added to the balance of the

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in March 2023 with a balloon payment due on December 30, 2025 .

As of June 30, 2023, there is currently $ 13,837,000

As of September 30, 2023, there is currently $ 8,444,000

outstanding under the Webster Revolving Loan and $ 5,275,000 under the Webster term loan, inclusive of amounts drawn under the Equipment

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Total long-term portion of Webster Term Loan payable

As of December 31, 2022, our debt to Webster in

the amount of $ 18,748,000 consisted of the Webster Revolving Loan in the amount of $ 13,352,000 and the Webster term loan in the amount

of $ 5,396,000 which included $ 878,000 of what was drawn on the equipment line of credit.

As of December 31, 2022, our debt to Webster in the amount of $ 18,748,000

consisted of the Webster Revolving Loan in the amount of $ 13,352,000 and the Webster term loan in the amount of $ 5,396,000 which included

$ 878,000 drawn on the equipment line of credit.

As discussed in Note 1, there is no assurance that the Company will be able to meet its

financial covenants in one of the upcoming fiscal quarters over the next twelve months, therefore in accordance with the guidance in ASC

470-10-45 related to the classification of callable debt the entire term loan has been classified as short term as of September 30,2023.

Interest expense related to the Webster Facility

amounted to approximately $ 372,000 and $ 147,000 for the three months ended June 30, 2023 and 2022, respectively, and $ 704,000 and $ 302,000

for the six months ended June 30, 2023 and 2022.

amounted to approximately $ 380,000 and $ 204,000 for the three months ended September 30, 2023 and 2022, respectively, and $ 1,084,000 and

$ 506,000 for the nine months ended September 30, 2023 and 2022, respectively.

The below summarizes historical amendments to

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following such fiscal year.

The Company made an Excess Cash Flow payments of $ 854,000 in April 2022 (for fiscal year ended December 31,

The Company made an Excess Cash Flow payment of $ 854,000 in April 2022 (for fiscal year ended December 31,

As required, the Company provided the calculation for the Excess Cash Flow payment of $ 195,000 for fiscal year ended December 31,

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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 7.51 % and 3.60 % the three months ended June 30, 2023 and 2022, respectively and was 7.27 % and 3.55 % for the

six months ended June 30, 2023 and 2022, respectively.

All amendment fees paid in connection with the Webster

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.

In connection with the Webster Facility, the Company

is required to maintain a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter.

The Webster 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 under the Webster Facility.

On August 4, 2023, the Company entered into the Fifth

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

The amendment waived the default caused by the failure to achieve the

required Fixed Coverage Charge Ratio for the Fiscal Quarter ended March 31, 2023 and decreased the required Fixed Coverage Charge Ratio

to 0.95 to 1.00 for the Fiscal Quarters ending June 30, 2023 and September 30, 2023.

Additionally, the Fifth Amendment increased the amount

of purchase money secured Debt (including Capital Leases) the Company is allowed to have outstanding at any time to $2,000,000.

In connection

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

As a result of the Company’s entry into the

Fifth Amendment, the Company was in compliance with all financial covenants of the Webster Facility for the Fiscal Quarter ended June

interest rate charged was 7.78 % and 4.70 % the three months ended September 30, 2023 and 2022, respectively and was 7.44 % and 3.94 % for

the nine months ended September 30, 2023 and 2022, respectively.

The Webster 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

under the Webster Facility.

All amendment fees paid in connection with the Webster 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.

The Webster Facility required that the Company maintain

a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter.

On August 4, 2023, the Company entered into the

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

The amendment waived the default caused by the failure to achieve

the required Fixed Charge Coverage Ratio for the Fiscal Quarter ended March 31, 2023 and decreased the required Fixed Charge Coverage

Ratio to 0.95 to 1.00 for the Fiscal Quarters ending June 30, 2023 and September 30, 2023.

Additionally, the Fifth Amendment increased

the amount of purchase money secured Debt (including Finance Leases) the Company is allowed to have outstanding at any time to $2,000,000.

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

November 20, 2023, the Company entered into the Sixth Amendment to the Webster Facility (“Sixth Amendment”).

The amendment

waived the default caused by the failure to achieve the required Fixed Charge Coverage Ratio for the Fiscal Quarter ended September 30,

2023 and the fact that the Company’s Capital Expenditures were in excess of the amount permitted in the Webster Facility.

Amendment allows for the Fixed Charge Coverage Ratio to be calculated on a rolling basis ( w)

for the Fiscal Quarter Ending December 31, 2023, three month basis, (x) for the Fiscal Quarter Ending March 31, 2024, six month basis,

(y) for the Fiscal Quarter Ending June 30, 2024, nine month basis, and (z) for all other Fiscal Quarters, twelve month basis.

Additionally,

the Fixed Charge Coverage Ratio shall not be less than (i) 0.95 to 1.00 for the Fiscal Quarters ending June 30, 2023, September 30, 2023,

and December 31, 2023, (ii) 1.10 to 1.00 for the Fiscal Quarter ending March 31, 2024, (iii) 1.20 to 1.00 for the Fiscal Quarter ending

June 30, 2024, and (iv) 1.25 to 1.00 for all other Fiscal Quarters.

The Sixth Amendment has increased the Capital Expenditure limit to

$2,500,000 in any Fiscal Year.

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

As a result of the Company’s entry into

the Sixth Amendment, the Company was in compliance with all financial covenants of the Webster Facility for the Fiscal Quarter ended September

Connecticut Green Bank (“Green Bank”)

On August 16, 2023, the Company entered into a Financing Agreement

with 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 Green Bank upon its approval of costs incurred on

the Project up to $ 934,553 .

As of September 30, 2023, an advance of $ 393,233 had been made including the payment of Green Bank’s

closing costs of $ 25,233 .

Interest accrues at the rate of 5 % on advances and is capitalized and added to the outstanding principal of

Upon project completion, the cumulative total of the advances and capitalized interest will convert to a 20 -year level payment

term loan with interest accruing at the rate of 5.75 %.

Semi-annual payments are projected to be approximately $ 41,000 inclusive of interest

over the 20-year term.

Finance Lease Obligations

4 unchanged sentences

The obligations for the finance leases totaled $ 962,000 and $ 328,000 as

of June 30, 2023 and December 31, 2022, respectively.

The leases have an average imputed interest rate of 7.32 % per annum and are payable

monthly with the final payments due between September of 2026 and May of 2030.

of September 30, 2023 and December 31, 2022, respectively.

The leases have an average imputed interest rate of 7.32 % per annum and are

payable monthly with the final payments due between September of 2026 and May of 2030.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Finance Lease cost:

Amortization of ROU assets

Amortization of Right-of-Use assets

Interest on lease liabilities

5 unchanged sentences

Acquisition of finance lease asset

Weighted Average Remaining Lease Term - in years

Weighted Average Discount rate - %

As of June 30, 2023, the aggregate future minimum

finance lease payments, including imputed interest are as follows:

As of September 30, 2023, the aggregate future

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

For the year ending

12 unchanged sentences

vehicle in July 2020.

The loan obligation totaled $ 27,000 and $ 30,000 as of June 30, 2023 and December 31, 2023, respectively.

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

The loan obligation totaled $ 24,000 and $ 30,000 as of September 30, 2023 and December 31, 2022, 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:

27 unchanged sentences

Per the terms of the Webster Facility, these notes remain subordinate to the Webster Facility

the outstanding principal amount and any accrued but unpaid interest due on July 1, 2026.

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 $ 15.00 per share and bears

interest at a rate of 6 % per annum, 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 $ 9.30 per share and bears interest rate of 7 % per annum.

The subordinated

notes which are not convertible bear interest at the rate of 12 % per annum.

There are no periodic principal payments due on the subordinated

notes payable and convertible subordinated notes payable.

Under the terms of the Third Amendment to the Webster Facility, the Company

is now allowed, subject to certain limitations, to make principal payments of $ 250,000 per quarter of this subordinated debt.

For the three and six months ended June 30, 2023

and 2022, no principal payments have been made on these notes.

and the outstanding principal amount of the notes and any accrued but unpaid interest is due on July 1, 2026.

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 $ 15.00

per share and bears interest at a rate of 6 % per annum, 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 $ 9.30 per share and bears interest rate of 7 % per annum.

The subordinated notes which are not convertible bear interest at the rate of 12 % per annum.

There are no periodic principal payments

due on the subordinated notes payable and convertible subordinated notes payable.

Under the terms of the Webster Facility, as amended,

the Company is now allowed, subject to certain limitations, to make principal payments of $ 250,000 per quarter of this subordinated debt.

For the three and nine months ended September

30, 2023 no principal payments have been made on these notes.

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 Webster Facility, as amended.

The note holders and the principal balance of

the notes of June 30, 2023 and December 31, 2022 are shown below:

Michael Taglich,

Robert Taglich,

Taglich Brothers,

the notes of September 30, 2023 are shown below:

Convertible Subordinated Notes

Subordinated Notes

Interest expense amounted to approximately $ 118,000

and $ 126,000 for the three months ended June 30, 2023 and 2022, respectively, and $ 236,000 and $ 251,000 for the six months ended June

30, 2023 and 2022.

Interest expense on all related party notes payable

for the three months ended September 30, 2023 and 2022 was $ 118,000 and $ 118,000 , respectively, and $ 354,000 and $ 369,000 for the nine

months ended September 30, 2023 and 2022, respectively.

STOCKHOLDERS’ EQUITY

Common Stock – Issuance of Securities

The Company issued 15,230 and 6,429 shares of

common stock in payment of director fees totaling $ 54,000 and $ 54,000 for the three months ended June 30, 2023 and 2022, respectively,

and 26,660 and 11,951 shares totaling $ 108,000 and $ 108,000 for the six months ended June 30, 2023 and 2022, respectively.

During the third quarter of 2023, the Company

The Company issued 15,230 and 7,715 shares of common stock in payment

of director fees totaling $ 54,000 and $ 54,000 for the three months ended September 30, 2023 and 2022, respectively, and 41,890 and 19,666

shares totaling $ 162,000 and $ 162,000 for the nine months ended September 30, 2023 and 2022, respectively.

During the fourth quarter of 2023, the Company

issued 13,218 shares of common stock in payment of directors’ fees totaling $ 54,000 .

2022 Equity Incentive Plan

At the 2023 annual meeting of shareholders, an amendment to the Air

Industries Group 2022 Equity Incentive Plan, was approved.

The amendment increased the number of shares of the Company’s common

stock, par value $ .001 per share, that are available for issuance by 250,000 shares from 100,000 shares to 350,000 .

CONTINGENCIES

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.

(“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 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 .

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 .

Subsequently, Contact Pharmacal moved to amend its Complaint.

The Company opposed and the

Court denied the request to amend the Complaint.

The Company opposed and the Court denied

the request to amend the Complaint.

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 has

The date for argument of the appeal has not been set by the Appellate Division.

The Company disputes the validity of the claims

asserted by Contract Pharmacal and intends to contest them vigorously.

10, 2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which the Company has opposed.

The argument of the appeal filed by Contract Pharmacal was heard by the Appellate Division on November 9, 2023.

The Appellate Division

has yet to render a decision with respect to Contract Phamacal’s appeal.

The Company disputes the validity of the claims asserted

by Contract Pharmacal and intends to contest them vigorously.

The Company recorded no income tax expense for

the three and six months ended June 30, 2023 and 2022 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, 2023, and December 31, 2022, 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, 2023 and 2022 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, 2023, and December 31, 2022,

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

On November 21, 2023, the Company received a notice

from NYSE American (the “Exchange”) stating that the Company is not in compliance with the continued listing standards of

the Exchange under the timely filing criteria included in Section 1007 of the NYSE American Company Guide because the Company failed to

file by the extended due date of November 20, 2023, its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Form

In accordance with Section 1007 of the Company Guide,

the Company will have six months from the date of the filing delinquency, or until May 20, 2024 (the “Initial Cure Period”),

to file the Form 10-Q with the Securities and Exchange Commission.

If the Company fails to file the Form 10-Q during the Initial Cure

Period, the Exchange may, in its sole discretion, provide an additional six-month cure period depending on the Company’s specific

circumstances.

Upon filing of the Form 10-Q, the Company will cure this delinquency.

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