What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2025-04-15 compared with 2024-04-15 · 1310 added, 894 removed, 424 unchanged (84% of the section changed)

AND PROCEDURES

Evaluation of

Disclosure Controls and Procedures

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was conducted under the supervision

6 unchanged sentences

is accumulated and communicated to our management to allow timely decisions when required.

Report on Internal Control over Financial Reporting

Management’s Report on Internal Control

over Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002

9 unchanged sentences

could have a material effect on our financial statements.

Because of inherent

limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of

effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies or procedures may deteriorate.

Because of inherent limitations, internal control

over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the

policies or procedures may deteriorate.

Management assessed the effectiveness of our internal

5 unchanged sentences

our internal controls over financial reporting were not effective as of December 31, 2024 as a result of a material weakness identified

in 2022 that was considered to not yet be remediated because we have not completed our effectiveness testing.

in 2022 that was considered to not yet be remediated.

Both in 2024 and 2023, we outsourced certain information

8 unchanged sentences

financial IT applications and underlying data account records.

In fiscal 2023, we implemented new IT controls

In fiscal 2023 and continuing in fiscal 2024, we implemented new IT controls

that required our third-party vendor to make only changes to our IT systems with specific authorization and a requirement that such change

be monitored, in real-time by an employee of our company that is familiar with the changes that are being made by our third-party vendor.

Although we implemented this change in the second half of fiscal 2023, we have not yet had a sufficient period of time to perform testing

to conclude that the control was operating effectively.

As such, because our testing of effectiveness is ongoing and not yet complete,

we consider this material weakness not to be remediated as of December 31, 2023.

This annual report

does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

The rules of the Securities and Exchange Commission do not require an attestation of the Management’s report by our registered

public accounting firm in this annual report.

Change in Internal Control over

Financial Reporting

During the fourth quarter of 2023, we implemented

several new changes in internal control over financial reporting including:

(a) new IT controls that require our third-party vendor to

make only changes to our IT systems with specific authorization by our IT department and a requirement that such changes be monitored,

in real-time by an employee of our company that is familiar with the changes that are being made, (b) enhanced review of our inventory

reserve policy to ensure that aged-inventory is appropriately reviewed for obsolescence and excess, and (c) we engaged a new third-party

tax consulting firm and implemented new company-level controls over our tax footnote preparation.

Except for these items, there have not

been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the

Exchange Act, during our most recently completed fiscal quarter ended December 31, 2023, which is the subject of this report, that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION

EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

Although we implemented a process to monitor users being granted privileged access and that such access is being monitored by a periodic

user review process, additional enhancements and more formalized documentation is still required.

As such, we consider this material weakness

not to be remediated as of December 31, 2024.

This annual report does not include an attestation

report of our registered public accounting firm regarding internal control over financial reporting.

The rules of the Securities and Exchange

Commission do not require an attestation of the Management’s report by our registered public accounting firm in this annual report.

Change in Internal Control over Financial Reporting

During the fourth quarter of 2024, we implemented and enhanced our internal

control over financial reporting to include a process to monitor users being granted privileged access and periodic user reviews to ensure

such privileged access continues to be appropriate.

Except for these items, there have not been any changes in our internal control over

financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed

fiscal quarter ended December 31, 2024, which is the subject of this report, that have materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT

Not Applicable

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our directors and executive officers

Luciano (Lou) Melluzzo

President and Chief Executive Officer

Scott Glassman

Chief Financial Officer

Chairman of the Board

Michael Brand

Luciano (Lou) Melluzzo

has been our President and Chief Executive Officer since November 15, 2017.

He joined our company on September 11, 2017 as Chief Executive

From November 2003 to September 2011, Mr.

Melluzzo was employed in various capacities by EDAC Technologies Corporation (“EDAC”)

rising to the level of Chief Operating Officer in 2005.

EDAC is a designer, manufacturer and distributor of precision aerospace components

and assemblies, precision spindles and complex fixturing, tooling and gauging with design and build capabilities, whose shares were then

listed on the Nasdaq Capital Market.

From September 2011 to November 2015, Mr.

Melluzzo was self-employed in the residential real estate

redevelopment industry.

From November 2015 to January 2017, he was general manager of Polar Corporation, a privately-held company specializing

in computer numeric controlled milling and turning of small hardware components for the aerospace industry.

Scott Glassman was

appointed to the positions of Chief Financial Officer, Principal Accounting Officer and Secretary of our Company on October 16, 2023.

Glassman has been employed by the Company since March of 2019, most recently serving as the Chief Accounting Officer.

previously had been employed by the Company from February of 2007 to February of 2015, serving in various senior positions in the Company’s

Financial Department.

From March of 2015 to November of 2018, Mr.

Glassman worked at a privately held distributor of commercial equipment

where he served as Controller.

Glassman holds a Bachelor of Science degree in Accounting from the State University of New York at

Glassman has been a CPA licensed in the state of NY since 2002.

has been a director of our Company since 2005 and was appointed Chairman of the Board on July 11, 2023.

He served as our Acting President

and Chief Executive Officer from March 2, 2017 to November 15, 2017 and served as our President and Chief Executive Officer from November

30, 2005 to December 31, 2014.

He also served as the President of our wholly-owned subsidiary, AIM, from 1994 to 2008.

Prior to his involvement

Rettaliata was employed by Grumman Aerospace Corporation for twenty-two years, as the Senior Procurement Officer.

Professionally,

Rettaliata has served as the Chairman of “ADDAPT”, an organization of regional aerospace companies, as a member of the

Board of Governors of the Aerospace Industries Association, and as a member of the Executive Committee of the AIA Supplier Council.

is a graduate of Niagara University where he received a B.A.

in History and Harvard Business School where he completed the PMD Program.

Taglich served

as Chairman of our Board of Directors from September 22, 2008 until July 11, 2023.

He is Chairman and President of Taglich Brothers,

a New York City based securities firm which he co-founded in 1992.

Taglich is currently Chairman of the Board of Mare Island Dry

Dock LLC, a company engaged in ship repair services, He also serves as a Chairman of the Board of Intellinetics Inc., and is on the board

of a number of private companies.

been a director of our Company since 2008.

He is a Managing Director of Taglich Brothers, which he co-founded in 1992.

Prior to founding

Taglich Brothers, Mr.

Taglich was a Vice President at Weatherly Securities.

Taglich has served in various positions in the securities

brokerage industry for the past 25 years Mr.

Taglich holds a Bachelor’s degree from New York University.

been a director of our Company since 2008.

He is the Founder and President of Buonanno Enterprises Consulting, providing strategic management,

supply chain/operations and recruitment services to aerospace and defense industry clients.

Buonanno has extensive experience in manufacturing,

supply management and operations.

He was employed by Sikorsky Aircraft, Inc., a subsidiary of United Technologies Corporation, as Vice

President, Supply Management and International Offset (from January 1997 to July 2006) and as Director, Systems Subcontracts (from November

1992 to January 1997).

From May 1987 to November 1992, he was employed by General Electric Company serving as Operations Manager and Manager,

Program Materials Management of GE’s Astro-Space Division.

From June 1977 to May 1987, he was employed by RCA and affiliated companies.

Buonanno attended Lehigh University College of Electrical Engineering and holds a B.S.

in Business Administration from Rutgers University.

He completed the Program for Management Development at Harvard Business School in 1996.

Michael Brand has been

a director of our Company since 2012.

He enjoyed a successful 32-year career in aerospace manufacturing primarily focused on jet

engines and landing gear.

In 2005, he joined Goodrich as President of Goodrich Landing Gear.

Prior to joining Goodrich, he had senior

management roles at GE Aircraft Engines and Teleflex Aerospace.

Brand has a BS from Clarkson University, with advanced degrees

and certificates from Xavier University and the Wharton School.

Michael Porcelain has

been a director of our Company since October 23, 2017.

Porcelain has been a CPA since 1996 and currently acts as a consultant

and board member for The Independent Adviser Corporation.

This privately held company operates various financial planning and advisory

websites including TheAdviser.com, 1800ADVISER.com and IRSADVISER.com.

In addition to managing these platforms, the company itself provides

consulting services.

Porcelain is also a private investor in a number of small and emerging companies.

From 2006 through 2022, Mr.

Porcelain served in several executive positions including service as a member of the Board of Directors of Comtech Telecommunications

(“Comtech”), a publicly traded company and a leading global provider of next-generation 911 emergency systems and secure

wireless communications technologies.

He was appointed Chief Executive Officer of Comtech in January 2022 and President of Comtech in

January 2020.

He also served as Comtech’s Chief Operating Officer from October 2018 to January 2022.

Prior to holding these

positions, he served as Comtech’s Chief Financial Officer from 2006 through 2018, and from 2002 to March 2006, he served as Comtech’s

Vice President of Finance and Internal Audit.

From 1998 to 2002, Mr.

was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company.

he spent five years in public accounting holding various positions, including Manager in the Transaction Advisory Services Group of PricewaterhouseCoopers.

In March 2021, Mr.

Porcelain was elected to the Board of Directors of The Fund for Modern Court, an independent court reform organization

that advocates for the improvements of the New York State Court system to ensure a diverse, highly qualified, and independent judiciary.

Since 1998, he has owned and operated The Independent Adviser Corporation, a privately held company which holds the rights to use certain

intellectual properties and trademarks (including various Internet websites) related to the financial planning and advisory industry.

Porcelain has served as

an Adjunct Professor at both Adelphi University and St.

John’s University located in New York where he taught graduate level accounting

Porcelain has a B.S.

in Business Economics from State University of Oneonta, New York, a M.S.

in Accounting and an M.B.A.

degree from Binghamton University.

Taglich and Robert

Taglich are brothers.

All directors hold office

until the next annual meeting of shareholders and until their successors have been duly elected and qualified.

Officers are elected by

and serve at the discretion of the Board of Directors.

Employee directors do not receive any compensation for their services as directors.

Non-employee directors are entitled to receive compensation for serving as directors and may receive option or stock grants from our company.

Information Concerning the Board of Directors

Board Leadership Structure and Risk Oversight

The Board does not have a

policy requiring separation of the roles of Chief Executive Officer and Chairman of the Board.

The Board has determined that a non-employee

director serving as Chairman is in the best interests of our stockholders at this time.

This structure ensures a greater role of non-employee

Directors in the active oversight of our business, including risk management oversight, and in setting agendas and establishing Board

priorities and procedures.

This structure also allows the Chief Executive Officer to focus to a greater extent on the management of our

day-to-day operations.

The Board of Directors as

a whole is responsible for consideration and oversight of the risks we face and is responsible for ensuring that material risks are identified

and managed appropriately.

Certain risks are overseen by committees of the Board of Directors and these committees make reports to the

full Board of Directors, including reports on noteworthy risk-management issues.

Members of the Company’s senior management team

regularly report to the full Board about their areas of responsibility and a component of these reports is the risks within their areas

of responsibility and the steps management has taken to monitor and control such exposures.

Additional review or reporting on risks is

conducted as needed or as requested by the Board or one of its committees.

Board Independence

Our Board of Directors has

determined that David Buonanno, Peter Rettaliata, Michael Brand and Michael Porcelain are “independent directors” within the

meaning of NYSE American Rule 803A(2).

Director Compensation

Non-employee Directors are

entitled to receive compensation for serving as directors and may receive option grants from our company.

Each Director also is entitled

to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings

of our Board of Directors or committees of our Board of Directors or stockholder meetings or otherwise in connection with the discharge

of his duties as a Director.

The compensation committee will assist the directors in reviewing and approving the compensation structure

for our directors.

The following table sets forth

certain information regarding the compensation paid to, earned by or accrued for, our directors during the fiscal year ended December

DIRECTOR COMPENSATION

Option Awards

Non-Qualified

Michael Taglich

Robert Taglich

David Buonanno

Michael Brand

Michael Porcelain

Peter Rettaliata

Director fees paid in shares.

Board Meetings;

Committees and Membership

The Board of Directors held

seven meetings during the fiscal year ended December 31, 2024 and each of the directors attended more than 75% of the aggregate of (i)

the number of meetings of the Board of Directors and (ii) the number of meetings of all committees of the Board on which such director

We maintain the following

committees of the Board of Directors:

the Audit Committee, the Compensation Committee, the Nominating Committee and the Executive Committee.

Each committee other than the Executive Committee is comprised entirely of directors who are “independent” within the meaning

of NYSE American Rule 803A(2).

Each committee acts pursuant to a separate written charter, and each such charter has been adopted and

approved by the Board of Directors.

Copies of the committee charters are available on our website at airindustriesgroup.com under the

heading “Investor Relations.”

Audit Committee .

Porcelain, Brand and Buonanno are members of the Audit Committee.

Porcelain serves as Chairman of the Audit Committee and also qualifies

as an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K.

The Board has determined

that each member of our Audit Committee meets the financial literacy requirements under the Sarbanes-Oxley Act and SEC rules and the independence

requirements under NYSE American Rule 803A(2).

Our Audit Committee is responsible

for preparing reports, statements and charters of audit committees required by the federal securities laws, as well as:

overseeing and monitoring the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters, and our internal accounting and financial controls;

preparing the report that SEC rules require be included in our annual proxy statement;

overseeing and monitoring our independent registered public accounting firm’s qualifications, independence and performance;

providing the Board with the results of its monitoring and its recommendations;

providing to the Board additional information

and materials as it deems necessary to make the Board aware of significant financial matters that require the attention of the Board.

The Audit Committee

held f ive meetings during fiscal 2024.

Compensation Committee .

Our Compensation Committee is composed of Messrs.

Rettaliata, Brand and Buonanno.

The Compensation Committee

is responsible for:

establishing our company’s general compensation policy, in consultation with senior management, and overseeing the development and implementation of compensation programs;

reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, and evaluating the performance of the CEO at least annually in light of those goals and objectives and communicating the results of such evaluation to the CEO and the Board, and determining the CEO’s compensation level based on this evaluation, subject to ratification by the independent directors on the Board.

In determining the incentive component of CEO compensation, the Committee will consider, among other factors, the performance of our company and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, the awards given to the CEO in past years, and such other factors as the Committee may determine to be appropriate;

reviewing and approving the compensation of all other executive officers of our company, such other managers as may be directed by the Board, and the directors of our company;

overseeing the Board’s benefit and equity compensation plans, overseeing the activities of the individuals and committees responsible for administering these plans, and discharging any responsibilities imposed on the Committee by any of these plans;

approving issuances under, or any material amendments to, any stock option or other similar plan pursuant to which a person not previously an employee or director of our company, as an inducement material to the individual’s entering into employment with our company, will acquire stock or options;

in consultation with management, overseeing regulatory compliance with respect to compensation matters, including overseeing the company’s policies on structuring compensation programs to preserve related tax objectives;

reviewing and approving any severance or similar termination payments proposed to be made to any current or former officer of our company;

preparing an annual report on executive compensation for inclusion in our proxy statement for the election of directors, if required under the applicable SEC rules.

The Compensation Committee held four meetings during

Nominating Committee .

Our Nominating Committee is composed of Messrs.

Rettaliata, Brand and Porcelain.

The purpose of the Nominating Committee is to seek and

nominate qualified candidates for election or appointment to our Board of Directors.

The Nominating Committee held one meeting during

The Nominating Committee will

seek candidates for election and appointment that possess the integrity, leadership skills and competency required to direct and oversee

the Company’s management in the best interests of its stockholders, customers, employees, communities it serves and other affected

A candidate must be willing

to regularly attend Committee and Board of Directors meetings, to develop a strong understanding of our company, its businesses and its

requirements, to contribute his or her time and knowledge to our company and to be prepared to exercise his or her duties with skill and

In addition, each candidate should have an understanding of all corporate governance concepts and the legal duties of a director

of a public company.

Stockholders may contact the

Nominating Committee Chairman, the Chairman of the Board or the Corporate Secretary in writing when proposing a nominee.

This correspondence

should include a detailed description of the proposed nominee’s qualifications and a method to contact that nominee if the Nominating

Committee so chooses.

Executive Committee.

Executive Committee is composed of our Chairman, Peter Rettaliata, Michael Taglich and Robert Taglich.

The purpose of the Executive Committee

is to assist the Board in fulfilling its functions during the intervals between meetings of the Board.

The Executive Committee has all

the powers and authority of the Board in connection with the business of the Company and may act in its stead, except as set forth in

the Executive Committee Charter.

Stockholder Communications

Any stockholder who desires

to contact any of our directors can write to Air Industries Group, 1460 Fifth Avenue, Bay Shore, New York 11706, Attention:

Your letter should indicate that you are an Air Industries Group stockholder.

Depending on the subject matter, our stockholder

relations personnel will:

forward the communication to the Director(s) to whom it is addressed;

forward the communication to the appropriate management personnel;

attempt to handle the inquiry directly, for example where it is a request for information about the Company, or it is a stock-related matter;

not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic.

Code of Ethics

We have adopted a written

code of ethics that applies to our principal executive officers, senior financial officers and persons performing similar functions.

code of ethics is available on our website and upon written request to our corporate secretary, we will provide you with a copy, without

EXECUTIVE COMPENSATION

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required

by Item 403 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant

to Regulation 14A within 120 days after the close of our fiscal year.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

PRINCIPAL ACCOUNTANT FEES and SERVICES

The information required

by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation

14A within 120 days after the close of our fiscal year.

AND FINANCIAL STATEMENT SCHEDULES

Consolidated Financial

Statements of Air Industries Group for the Year ended December 31, 2023 and 2022.

The following exhibits

are included as part of this report.

References to “the Company” in this Exhibit List mean Air Industries Group,

a Nevada Corporation.

of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on

Form 8-K filed August 30, 2013).

of Amendment increasing number of authorized shares of preferred stock and Series A Preferred Stock (incorporated herein by reference

to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 19, 2017).

and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report on Form

10-K for the year ended December 31, 2014 filed on March 31, 2015).

of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s

Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019)

of Change filed with the Secretary of State of Nevada to effectuate reverse stock split (incorporated herein by reference to Exhibit

3.01 to the Company’s Report on Form 8-K filed October 18, 2022).

of the Company’s securities registered pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1

to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020).

and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.1

to the Company’s Current Report on Form 8-K filed January 6, 2020)

Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s

Current Report on Form 8-K filed January 6, 2020)

The following summary compensation

table shows, for the periods indicated, information regarding the compensation awarded to, earned by or paid to each individual that served

as our principal executive officer during the fiscal year ended December 31, 2024, each other individual that was serving as an executive

officer as of December 31, 2024, and each other individual who served as executive officer during the two years ended December 31, 2024

whose compensation for either of such fiscal years exceeded $100,000 for all services rendered in all capacities to our company and its

subsidiaries.

The individuals listed in the following table are referred to herein collectively as our “Named Executive Officers.”

Summary Compensation Table

Name and Principal Position

Luciano Melluzzo

President and CEO

Scott Glassman

Michael Recca CFO

Represents car allowance.

Our executive officers named

in the above table do not have employment agreements providing for a fixed term of employment.

All are employees at will, terminable at

any time without any severance, other than that payable to employees generally.

Executive Compensation Policies as They Relate to Risk Management

The Compensation Committee

and management have considered whether our compensation policies might encourage inappropriate risk taking by the Company’s executive

officers and other employees.

The Compensation Committee has determined that the current compensation structure aligns the interests of

the executive officers with those of the Company without providing rewards for excessive risk taking by awarding a mix of fixed and performance

based or discretionary bonuses with the performance-based compensation focused on profits as opposed to revenue growth.

The Compensation Committee

working with management adopts a plan each year intended to award members of our management including executive officers for meeting or

exceeding targeted goals, The Committee believes the amounts to be paid to Messrs.

Melluzzo and Glassman for services rendered in fiscal

2024 are appropriate in light of the significant improvement in our financial performance 2024.

Equity Awards – 2024

The following table shows

the grant of stock option awards to the Named Executive Officers during 2024.

GRANT OF PLAN-BASED AWARDS

Luciano Melluzzo

Scott Glassman

Each named executive officer

was granted restricted stock units (RSUs) on August 23, 2024.

Outstanding Equity Awards at 2024 Year-End

The following table shows

certain information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2024.

Option Awards

Unexercisable

Equity Incentive

Unearned Shares,

Units or Other

Rights That Have

Equity Incentive Plan

Units or Other Rights

That Have Not Vested (1) ($)

Luciano Melluzzo

Scott Glassman

The dollar amounts shown in this column are

determined by multiplying the number of shares or units in the preceding column by $4.07, the closing price of the Company’s common

stock on December 31, 2024.

One-third of the RSUs subject to these awards

were released on April 1, 2025, and subject to the terms of the award agreements, the remainder of the RSUs are scheduled to vest in two

equal annual installments commencing on April 1, 2026.

Equity Incentive Plans

We have four equity incentive

plans all of which are substantially identical except as to the number of awards which may be granted, pursuant to which we can grant

awards with respect to an aggregate of 540,000 shares of our common stock.

We have the right to grant awards pursuant to each plan until

the tenth anniversary of the date on which it was approved by our stockholders.

The 2022 Equity Incentive Plan, as amended, authorizes

grants as to 350,000 shares and was approved by our stockholders on June 2022, and amended and restated in May 23 2023;

the 2017 Equity

Incentive Plan authorizes grants as to 120,000 shares and was approved by our stockholders in October 2017;

the 2016 Equity Incentive

Plan authorizes grants as to 35,000 shares and was approved by our stockholders in November 2016, and the 2015 Equity Incentive Plan authorizes

grants as to 35,000 shares and was approved by our stockholders in June 2015.

The Plans permit the Company

to grant stock awards, non-qualified and incentive stock options, restricted stock units and other forms of rewards to employees, directors

and consultants.

The Plans are administered by the Compensation Committee of the Board and each has a term of ten years from the date

it was adopted by the Board.

We adopted the Plans to provide

a means by which employees, directors, and consultants of our Company and those of our subsidiaries and other designated affiliates, which

we refer to together as our affiliates, may be given an opportunity to purchase our common stock, to assist in retaining the services

of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons

to exert maximum efforts for our success and the success of our affiliates.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth

information known to us regarding beneficial ownership of our Common Stock as of April 3, 2025 by (i) each person known by us to own beneficially

more than 5% of our outstanding Common Stock, (ii) each of our directors, (iii) our chief executive officer and the other Named Executive

Officers, and (iii) all of our directors and executive officers as a group.

Except as otherwise indicated,

we believe, based on information provided by each of the individuals named in the table below, that such individuals have sole investment

and voting power with respect to such shares, subject to community property laws, where applicable.

As of April 3, 2025, we had outstanding

3,694,095 shares of Common Stock.

Except as stated in the table, the address of the holder is c/o our company, 1460 Fifth Avenue, Bay

Shore, New York 11706.

Directors and Executive Officers:

David Buonanno

Michael Brand

Michael Porcelain

Luciano Melluzzo, President and CEO

Scott Glassman, CFO

All Directors and Executive Officers as a group (8 persons owning shares)

Includes shares owned by Mr.

Taglich, 23,995 shares owned by Taglich Brothers, 219,679 shares he may acquire upon conversion of convertible notes, but excluding shares for accrued interest thereon and 17,120 shares he may acquire upon exercise of options, in each case exercisable within 60 days.

Includes shares owned by Mr.

Taglich, 23,995 shares owned by Taglich Brothers, 4,476 shares owned by custodial accounts for the benefit of his children under the NY UGMA, 168,907 shares he may acquire upon conversion of convertible notes, but excluding shares for accrued interest thereon and 17,120 shares he may acquire upon exercise of options, in each case exercisable within 60 days.

Includes 39,140 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 17,260 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 19,260 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 17,260 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 128,000 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 16,350 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 388,586 shares that may be acquired upon conversion of convertible notes, and 315,510 shares that may be acquired upon exercise of options, in each case exercisable within 60 days.

CERTAIN RELATIONSHIPS AND RELATED

TRANSACTIONS AND DIRECTOR INDEPENDENCE

Our Policy Concerning Transactions with Related Persons

Under Item 404 of SEC Regulation

S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions,

arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries

were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the

lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which

any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities

(a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct

or indirect material interest.

We recognize that transactions

between us and any of our Directors or Executives or with a third party in which one of our officers, directors or significant shareholders

has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations

other than the best interests of our Company and stockholders.

The Audit Committee of the

Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any

related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions,

as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise,

and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.

There were no transactions

completed by us since January 1, 2023, in which the amount involved exceeded $120,000 and in which any related person has a direct or

indirect material interest except that during 2024 we incurred interest expense of $472,000 in respect of the subordinated noted held

by Michael Taglich, Robert Taglich and certain of their affiliates.

As of December 31, 2024, Michael Taglich, Robert Taglich and certain

of their affiliates held subordinated notes in the aggregate principal amount of $6,162,000 as a result of transactions entered into prior

to January, 2024.

Of the $6,162,000, approximately $2,732,000 bears an annual rate of interest of 6%, $2,080,000 bears an annual rate

of 7% and $1,350,000 bears an annual interest rate of 12%.

Of the $6,162,000, approximately $2,732,000 can be converted at the option

of the holder into our common stock at $15.00 per share and $2,080,000 can be converted at the option of the holder into our common stock

at $9.30 per share.

Subsequent to December 31, 2024 we repaid $1,291,000 of these related party notes.

There are no transactions

currently proposed by us in which a related party has a direct or indirect financial interest in which the amount involved exceeds $120,000.

PRINCIPAL ACCOUNTANT FEES

As required by our Audit Committee

charter, our Audit Committee pre-approved the engagement of Marcum LLP for all audit and permissible non-audit services.

The Audit Committee

annually reviews the audit and permissible non-audit services performed by our principal accounting firm and reviews and approves the

fees charged by our principal accounting firm.

The Audit Committee considered the role of Marcum LLP in providing tax and audit services

and other permissible non-audit services to us while it was serving as our auditor and concluded that the provision of such services,

if any, was compatible with the maintenance of such firm’s independence in the conduct of its auditing functions.

During fiscal years 2024 and

2023, the aggregate fees which we paid to or were billed by Marcum for professional services were as follows:

Audit Fees (1)

Audit Related Fees (2)

Audit fees - these fees relate to the audit of our consolidated annual financial statements and the review of our interim quarterly condensed financial statements, comfort letters and our registration statements.

The annual audit fee included in this category was $315,000 and $250,000 for 2024 and 2023, respectively.

Audit-related fees - the aggregate fees billed for assurance and related services by the principal accountant that are related to the performance of the audit or review of the registrant’s financial statements and not reported under paragraph (1) above.

Tax fees - the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Consolidated Financial Statements of Air Industries Group for the Year ended December 31, 2024 and 2023.

The following exhibits are included as part of this report.

References to “the Company” in this Exhibit List mean Air Industries Group, a Nevada Corporation.

Articles of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 30, 2013).

Certificate of Amendment increasing number of authorized shares of preferred stock and Series A Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 19, 2017).

Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 31, 2015).

Certificate of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019)

Certificate of Change filed with the Secretary of State of Nevada to effectuate reverse stock split (incorporated herein by reference to Exhibit 3.01 to the Company’s Report on Form 8-K filed October 18, 2022).

Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020).

Loan and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 6, 2020)

Guaranty Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 6, 2020)

Pledge Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 6, 2020)

First Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2020)

Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s

Quarterly Report on Form 10-Q filed August 5, 2021)

Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s

Current Report on Form 8-K filed December 8, 2021)

Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s

Current Report on Form 8-K filed May 18, 2022).

Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s

Current Report on Form 8-K filed August 10, 2023).

Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s

Current Report on Form 8-K filed November 27, 2023).

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8

(Registration No.

Second Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 5, 2021)

Third Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 8, 2021)

Fourth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 18, 2022).

Fifth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 10, 2023).

Sixth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 27, 2023).

Waiver and Seventh Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 3, 2024).

Eighth Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2025).

At The Market Offering Agreement dated December 13, 2014, By and between the Company and Craig -Hallum Capital Group LLC (incorporated herein by reference to Exhibit 1.2 to the Company’s Registration Statement on Form S-3 filed December 13, 2024).

2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (Registration No.

333-206341) filed on August 13, 2015).

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for

the quarterly period ended September 30, 2016 filed on November 14, 2016).

Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company’s Registration Statement on Form S-1

(Registration No.

2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016).

2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company’s Registration Statement on Form S-1 (Registration No.

333-219490) filed July 26, 2017 and declared effective August 4, 2017).

Equity Incentive Plan As Amended and Restated as of May 23, 2023 (incorporated herein by reference to Appendix A to the Company’s

Proxy Statement on Schedule 14A filed August 4, 2023).

of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K/A (Amendment No.

2022 Equity Incentive Plan As Amended and Restated as of May 23, 2023 (incorporated herein by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed August 4, 2023).

Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K/A (Amendment No.

2) for the year ended December 31, 2017 filed on April 30, 2018.

Insider Trading Policies

and Procedures

(incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December 31,

2018 filed on April 1, 2019.

Insider Trading Policies and Procedures (incorporated herein by reference to Exhibit 19.1 to the Company’s Annual Report of Form 10K for the year ended December 31, 2023 filed on April 15, 2024).

Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 1, 2019.

Consent of Marcum LLP

5 unchanged sentences

Section 1350).

Policy Relating to Recovery of Erroneously Awarded Compensation

Policy related to Recovery

of Erroneously Awarded Compensation (incorporated herein by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K

for the year ended December 31, 2023 filed on April 15, 2024).

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File (formatted as Inline

XBRL and contained in Exhibit 101).

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Filed herewith

Furnished herewith

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed

on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by

the undersigned, thereunto duly authorized.

April 15, 2025

AIR INDUSTRIES GROUP

/s/ Luciano Melluzzo

Luciano Melluzzo

1 unchanged sentence

(principal executive officer)

/s/ Scott Glassman

Scott Glassman

4 unchanged sentences

15, 2025 in the capacities indicated.

/s/ Luciano Melluzzo

President and CEO

1 unchanged sentence

(principal executive officer)

/s/ Scott Glassman

Chief Financial Officer

1 unchanged sentence

(principal financial and accounting officer)

/s/ Michael N.

Chairman of the Board

/s/ Robert F.

/s/ Michael Brand

Michael Brand

/s/ Michael Porcelain

Michael Porcelain

AIR INDUSTRIES

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

AIR INDUSTRIES GROUP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

Report of Independent Registered Public Accounting Firm (Marcum LLP., Saddle Brook, NJ, PCAOB ID:

5 unchanged sentences

Notes to Consolidated Financial Statements F-8

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders of

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Air Industries Group

Opinion on the

Financial Statements

We have audited the accompanying consolidated balance

sheets of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated

statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December

31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the

consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,

2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023,

in conformity with accounting principles generally accepted in the United States of America.

31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023,

and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024 in conformity with

accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements

The accompanying financial statements

have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 1, for the period ending

March 31, 2024, the Company was not in compliance with the financial covenants required under the terms of its current credit facility,

and it is reasonably possible that the Company will not receive a waiver and may fail to meet these financial covenants in future periods.

The Company is required to maintain a collection account with its lender into which substantially all of the Company’s cash receipts

are remitted.

If the Company’s lender were to cease lending and keep the funds remitted to the collection account, the Company would

lack the funds to continue its operations.

Failure to receive a waiver or meet the financial covenants in future periods raise substantial

doubt about the Company’s ability to continue as a going concern.

As more fully described in Note 1, the Current Credit Facility

expires on December 30, 2025.

In addition, the Company is required to maintain a collection account with its lender into which substantially

all the Company’s cash receipts are remitted.

If the Company’s lender were to cease lending and keep the funds remitted to

the collection account, the Company would lack the funds to continue its operations.

The Current Credit Facility expiration date and the

rights granted to the lender, combined with the reasonable possibility that the Company might fail to meet covenants in the future, raise

substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are

the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting

Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

These financial statements are the responsibility of the Company's

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting

firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent

with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an

audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control

over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material

misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from

the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee

(1) relate to accounts or disclosures that are material to the consolidatedfinancial statements and (2) involved our especially

challenging, subjective, or complex judgments.

Critical audit matters are matters arising from the current period

audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s auditor

since 2008 (such date takes into account the acquisition of Rotenberg Meril Solomon Bertiger &Guttilla, P.C., by Marcum LLP effective

February 1, 2022).

Saddle Brook, New Jersey

We have served as the Company’s auditor since 2008 (such date

takes into account the acquisition of Rotenberg Meril Solomon Bertiger & Guttilla, P.C., by Marcum LLP effective February 1, 2022).

Saddle Brook, NJ

April 15 , 2025

INDUSTRIES GROUP

AIR INDUSTRIES GROUP

Consolidated Balance Sheets

Current Assets

Accounts Receivable, Net of Allowance for Credit Loss of $ 344,000 and $ 281,000

Prepaid Expenses and Other

Current Assets

Accounts Receivable, Net of Allowance for Credit Losses of $ 396,000 and $ 344,000

Prepaid Expenses and Other Current Assets

Contract Costs Receivable

Prepaid Taxes

Total Current Assets

Property and Equipment,

Property and Equipment, Net

Finance Lease Right-Of-Use-Assets

Operating Lease Right-Of-Use-Assets

Financing Costs, Net, Deposits and Other Assets

LIABILITIES AND STOCKHOLDERS’

Deferred Financing Costs, Net, Deposits and Other Assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts Payable and Accrued

Accounts Payable and Accrued Expenses

Operating Lease Liabilities

Deferred Gain on Sale - Leaseback

Deferred Gain on Sale

Customer Deposits

Total Current Liabilities

Long Term Liabilities

Subordinated Notes - Related

Subordinated Notes - Related Party

Operating Lease Liabilities

Gain on Sale – Leaseback

Commitments and Contingencies

(see Note 12)

Deferred Gain on Sale

TOTAL LIABILITIES

Commitments and Contingencies (see Note 12)

Stockholders’ Equity

Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both December 31, 2024 and December 31, 2023.

Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 3,303,045

and 3,247,937 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 3,474,970 and 3,303,045 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively

Additional Paid-In Capital

Accumulated Deficit

( 69,107,000 )

( 67,741,000 )

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

See Notes to Consolidated

Financial Statements

INDUSTRIES GROUP

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Operations

2 unchanged sentences

Operating Expenses

Loss from Operations

Income/(Loss) from Operations

Interest Expense

( 1,421,000 )

( 1,448,000 )

Interest Expense - Related Parties

Other Income, Net

Gain on write-off of accounts payable

Loss before Benefit From Income Taxes

6 unchanged sentences

Weighted Average Shares Outstanding - Basic and diluted

See Notes to Consolidated

Financial Statements

INDUSTRIES GROUP

Statements of Changes in Stockholders’ Equity

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Changes in Stockholders’

For the Years Ended December 31, 2024 and 2023

3 unchanged sentences

Common Stock issued for directors fees

Common Stock issued in conjunction with reverse split

S tock-based-compensation-employees

Stock Based Compensation

( 2,131,000 )

3 unchanged sentences

Common Stock issued for directors fees

Stock-based-compensation-employees

Stock Based Compensation

Exercise of stock options

Common Stock issued for cash

( 1,366,000 )

2 unchanged sentences

$ ( 69,107,000 )

See Notes to Consolidated

Financial Statements

INDUSTRIES GROUP

Statements of Cash Flows

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

Consolidated Statements of Cash Flows

For the Years Ended December 31,

5 unchanged sentences

Stock-based Compensation

Non-cash other income recognized

Non-cash interest expense

Non-cash gain on accounts payable write-off

Amortization of Finance Lease Right-of-Use Assets

Amortization of Operating Lease Right-of-Use Assets

Deferred gain on sale-leaseback

Loss on sale of equipment

Allowance for Credit Loss

Loss on impairment of goodwill

Deferred gain on sale of real estate

(Gain)/Loss on sale of equipment

Allowances for Credit Losses

Amortization of deferred financing costs

11 unchanged sentences

Customer deposits

Deferred payroll tax liability

NET CASH PROVIDED BY OPERATING

( 2,442,000 )

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

2 unchanged sentences

( 2,119,000 )

Proceeds from sale of property and equipment

NET CASH USED IN INVESTING

Proceeds from sale of fixed assets

NET CASH USED IN INVESTING ACTIVITIES

( 2,285,000 )

5 unchanged sentences

Proceeds from term loan - Solar Facility

Proceeds from Common Stock issued for cash

Payments of term loan - Current Credit Facility

( 1,113,000 )

( 1,609,000 )

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 (USED IN) PROVIDED

BY FINANCING ACTIVITIES

Payments of loan payable - financed asset

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

( 2,685,000 )

NET INCREASE (DECREASE) IN CASH

NET INCREASE IN CASH

CASH AT BEGINNING OF YEAR

CASH AT END OF YEAR

See Notes to Consolidated

Financial Statements

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

3 unchanged sentences

Cash paid during the year for interest

Cash paid during the year for income

Supplemental Disclosure of non-cash investing and finance

Cash paid during the year for taxes

Supplemental Disclosure of non-cash investing and finance activities

Financing from Solar Credit Facility directly to contractor

Acquisition of financed lease asset

See Notes to Consolidated

Financial Statements

AIR INDUSTRIES

TO CONSOLIDATED FINANCIAL STATEMENTS

AND BASIS OF PRESENTATION

Air Industries Group is a Nevada corporation

As of and for the years ended December 31, 2023 and 2022, the accompanying consolidated financial statements

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

See Notes to Consolidated Financial Statements

AIR INDUSTRIES GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND BASIS OF PRESENTATION

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

of and for the years ended December 31, 2024 and 2023, the accompanying consolidated financial statements presented are those of AIRI,

and its wholly-owned subsidiaries;

Air Industries Machining Corp.

(“AIM”), Nassau Tool Works,

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

Principal Business

(“AIM”), Nassau Tool Works, Inc.

(“NTW”), and the

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

Principal Business Activity

The Company is a leading manufacturer of precision

14 unchanged sentences

of America and the rules and regulations of the Securities and Exchange Commission.

Since 2022, the

Company makes decisions about resources to be allocated and assesses performance based on one integrated business and reports its results

as one segment.

All of its operations are integrated, share manufacturing facilities and use most, if not all, of the same sales and

marketing functions.

All dollar amounts have been rounded to the nearest

whole number.

As a result, totals may not sum precisely due to rounding.

Going Concern and Management’s Plan

8 unchanged sentences

cash needs and comparing those needs to the current cash balance and expectations regarding cash to be generated over the following year.

During 2023, the

Company generated $ 4,862,000 of cash from operating activities as compared to only $ 448,000 in fiscal 2022.

It also made $ 1,113,000 of

required payments pursuant to its Current Credit Facility and reduced total debt in 2023 by $ 1,958,000 .

As of December 31, 2024, the Company met all the

financial and business covenants required under the terms of its Current Credit Facility including achieving a Fixed Charge Coverage Ratio

of 1.31 x compared to the required ratio of 0.95 x.

financial and business covenants required under the terms of its Current Credit Facility which included a minimum EBITDA on a twelve-month

basis of $ 2.8 million.

In the past, the Company has not met its financial and business covenants, most recently as of March 31, 2024,

and therefore historically classified the term loan as current at December 31, 2023 in accordance with the guidance in Accounting Standards

Codification (“ASC”) 470-10-45.

“Debt – Other Presentation Matters”, related to the classification of callable

The terms of all outstanding indebtedness are discussed further in “Note 8.

For the period ending March 31, 2024 the Company was not in compliance with the required ratio of 1.10x.

Management’s plans are to increase net sales

for fiscal 2024 as compared to fiscal 2023.

The Company believes that these plans are supported by the Company’s backlog which,

as of December 31, 2023, stood at $ 98.3 million.

Further, it anticipates receiving additional funded orders in 2024 pursuant to Long-Term

Agreements (“LTA”) agreements from its key customers as well as new customers.

With this visibility, the Company is confident

in its ability to generate sufficient cash flow to make required principal payments of $ 944,000 to its lender.

Although the Company has begun discussions to

obtain a waiver of the failure to meet the Fixed Coverage Charge Ratio at March 31, 2024, it is reasonably possible that it will not be

Even if such waiver is granted, the Company may fail to achieve the Fixed Charge Coverage Ratio in the future or otherwise fail

to meet covenants in the Current Credit Facility.

Therefore, the Company has classified the term loan that expires on December 30, 2025

as current as of December 31, 2023, in accordance with the guidance in Accounting Standards Codification (“ASC”) 470-10-45,

“Debt – Other Presentation Matters”, related to the classification of callable debt.

The Company is required to maintain

a collection account with its lender into which substantially all cash receipts are remitted.

If we were to default under the Current

Credit Facility, the Company’s lender could choose to increase the rate of interest or refuse to make loans under the revolving

portion of the Facility and keep the funds remitted to the collection account.

If the lender were to raise the rate of interest, it would

adversely impact the Company’s operating results.

If the lender were to cease making new loans under the revolving facility, the

Company would lack the funds to continue operations.

The rights granted to the lender under the Current Credit Facility combined with

the reasonable possibility that the Company might fail to meet covenants in the future raise substantial doubt about its ability to continue

as a going concern for the one year commencing as of the date of issuance of this report.

Management’s plans are to increase net sales for fiscal 2025

as compared to fiscal 2024.

The Company believes that these plans are supported by the Company’s 18- month funded backlog which,

as of December 31, 2024, was $ 117.9 million.

Further, it anticipates increases in funded orders in 2025 pursuant to Long-Term Agreements

(“LTA”) agreements from its existing customers as well as new customers.

The Company generally sources its raw material,

principally metal casting or forgings, from domestic sources.

As such the company is not exposed to increased prices on imports but would

be subject to increased prices if proposed tariffs cause the general level of prices for its products to increase.

One product for commercial

aviation is sourced from China.

The Company’s contract for this product provides for a price adjustment if the cost of the raw material

increases by more than five percent ( 5 %).

The Company’s products are used primarily

in United States military aviation and as such are more susceptible to changes in the US defense budget than to changes in general economic

However, the Company does have exposure to the commercial aviation, and demand for these products may be reduced if general

economic conditions deteriorate.

The Current Credit Facility expires on December

In addition, the Company is required to maintain a collection account with its lender into which substantially all cash receipts

are remitted.

If it were to default under the Current Credit Facility, the Company’s lender could choose to increase the rate of

interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection

If the lender were to raise the rate of interest, it would adversely impact the Company’s operating results.

If the lender

were to cease making new loans under the revolving facility, the Company would lack the funds to continue operations.

The Current Credit

Facility expiration date and the rights granted to the lender, combined with the reasonable possibility that the Company might fail to

meet covenants in the future, raise substantial doubt about its ability to continue as a going concern for the one year commencing as

of the date of filing these consolidated financial statements.

The accompanying consolidated financial statements

1 unchanged sentence

that might be necessary should the Company be unable to continue as a going concern.

Reverse Stock

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

All share and per share amounts of its common stock presented have been retroactively adjusted to reflect the 1-for-10 reverse

As result of the reverse stock split there were no fractional shares issued and all holders were rounded up to the next

See Note 10 – Stockholders’ Equity for more information.

SUMMARY OF SIGNIFICANT ACCOUNTING

Principles of

Consolidation

The accompanying

consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries.

Significant intercompany accounts

and transactions have been eliminated in consolidation.

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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements

include accounts of the Company and its wholly-owned subsidiaries.

Significant intercompany accounts and transactions have been eliminated

in consolidation.

Accounts Receivable

are written off when deemed uncollectible.

Bad debt expenses are recorded in operating expenses on the consolidated statements

of operations.

Accounts receivable are carried at the original invoice amount less an

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

Management determines the

allowance for expected credit losses primarily using historical experience as well as current conditions that affect the collectability

of the reported amount.

Accounts receivable are written off when deemed uncollectible.

Bad debt expenses are recorded in operating

expenses on the consolidated statements of operations.

Inventory Valuation

The Company values

inventory at the lower of cost on a or an estimated net realizable value.

The Company periodically evaluates inventory items not secured

by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for

other impairments of value.

The Company values inventory at the lower of cost or estimated net realizable

value using the first-in first out method.

The Company periodically evaluates inventory items not secured by backlog and establishes write-downs

to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value.

to inventory net realizable value are recorded in cost of sales.

Property and Equipment

are carried at cost net of accumulated depreciation and amortization.

Property and equipment are carried at cost net

of accumulated depreciation and amortization.

Repair and maintenance charges are expensed as incurred.

equipment, and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular

improvements.

Expenditures for repairs and improvements in excess of $ 10,000 that add to the productive capacity or extend the useful

life of an asset are capitalized.

Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any

related gain or loss is reflected in earnings.

Long-Lived Assets

Property, equipment, and improvements

are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements.

for repairs and improvements in excess of $ 10,000 that add to the productive capacity or extend the useful life of an asset are capitalized.

Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected

Long-Lived Assets

subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the

related carrying amount may be impaired.

The Company records an impairment loss if the undiscounted future cash flows are found to be

less than the carrying amount of the asset.

If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of

the asset to fair value.

Deferred Financing

Costs incurred

with obtaining and executing revolving debt arrangements are capitalized and recorded in other current assets and amortized using the

effective interest method over the term of the related debt.

Long-lived assets are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets

to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to

be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by

which the carrying amount of the assets exceeds the fair value of the assets.

There were no events triggering a review for impairment

during the years ended December 31, 2024 and 2023.

Deferred Financing Costs

Costs incurred with obtaining and executing revolving

debt arrangements are capitalized and recorded in other Deferred financing costs, net, deposits, and other assets and amortized using

the effective interest method over the term of the related debt.

Costs incurred with obtaining and executing other debt arrangements are

3 unchanged sentences

of Operations.

Contract Costs

Contract costs receivable represent costs to be reimbursed from a terminated

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

Contract costs receivable totals $ 296,000 at both December

31, 2023 and 2022.

Contract Costs Receivable

Contract costs receivable represent costs to be

reimbursed from a terminated contract.

Contract costs receivable totals $ 296,000 at both December 31, 2024 and 2023.

The Company collected

this receivable on March 18, 2025.

Risks and Uncertainties

The continuing impacts of rising interest rates,

inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine,

and the ongoing conflict between Israel and Hamas, the imposition of tariffs and shifts in international alliances, have resulted, and

may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services,

including those provided by the Company’s clients and as a result, the Company, while also disrupting supply channels, sales channels

and advertising and marketing activities for an unknown period of time.

Additionally, recent changes to U.S.

policy implemented by the

Congress, and the Executive Branch and the responses of other nations to such actions have impacted and may in the future impact,

among other things, the U.S.

and global economy, international alliances and trade relations, unemployment, immigration, healthcare, taxation,

regulatory environment, inflation and other areas.

As a result of the current uncertainty regarding economic activity, the Company

is unable to predict the size and duration of the impact on its revenue and its results of operations, if any, of actions taken to date

and those that may occur in the future.

The extent of the potential impact of these macroeconomic factors on the Company’s operational

and financial performance will depend on a variety of factors, including the extent of geopolitical disruption and its impact on the Company’s

clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.

The Company continues

to monitor the effects of these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on its business.

There can be no assurance that precautionary measures,

whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing,

and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity,

or create operational or other challenges, any of which could harm its business and results of operations.

Segment Reporting

Operating segments are identified as components

of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or

decision-making group, in making decisions on how to allocate resources and assess performance.

The Company operates as a single reportable

segment, as the Chief Operating Decision Maker (“CODM”) reviews financial performance and makes decisions on a consolidated

(See Note 15.

Segment Reporting).

Revenue Recognition

The Company recognizes

revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects

to be entitled in exchange for those goods.

Revenue is recognized

as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations).

In evaluating our

contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred.

Our revenue is

generated from fixed-price contracts.

Under fixed-price contracts, we agree to perform the specified work for a pre-determined price,

which we estimate during the bidding process before the contract is awarded.

To the extent our actual costs vary from the estimates upon

which the price was negotiated, we will generate more or less profit or could incur a loss.

We evaluate the

products promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance

Our contracts are typically accounted for as one performance obligation.

We classify net sales as products on our consolidated

statements of operations based on the predominant attributes of the performance obligations.

We determine the

transaction price for each contract based on the consideration we expect to receive for the products being provided under the contract.

At the inception

of a contract, we estimate the transaction price based on our current rights and do not contemplate future modifications (including unexercised

options) or follow-on contracts until they become legally enforceable.

Contracts can be subsequently modified to include changes in specifications,

requirements or price, which may create new or change existing enforceable rights and obligations.

Depending on the nature of the modification,

we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract.

The Company recognizes revenue to depict the

transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange

for those goods.

Revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance

obligations).

In evaluating our contracts with our customers, we have determined that there is no future performance obligation once

delivery has occurred.

Our revenue is generated from fixed-price contracts.

Under fixed-price contracts, we agree to perform the specified work for a pre-determined price, which we estimate during the bidding

process before the contract is awarded.

To the extent our actual costs vary from the estimates upon which the price was negotiated, we

will generate more or less profit or could incur a loss.

We evaluate the products promised in each contract

at inception to determine whether the contract should be accounted for as having one or more performance obligations.

Our contracts are

typically accounted for as one performance obligation.

We classify net sales as products on our consolidated statements of operations

based on the predominant attributes of the performance obligations.

We determine the transaction price for each contract

based on the consideration we expect to receive for the products being provided under the contract.

At the inception of a contract, we estimate the

transaction price based on our current rights and do not contemplate future modifications (including unexercised options) or follow-on

contracts until they become legally enforceable.

Contracts can be subsequently modified to include changes in specifications, requirements

or price, which may create new or change existing enforceable rights and obligations.

Depending on the nature of the modification, we

consider whether to account for the modification as an adjustment to the existing contract or as a separate contract.

Generally, modifications

3 unchanged sentences

as a cumulative adjustment to revenue.

We recognize revenue

at the point in time in which the performance obligation is fully satisfied.

This is fully satisfied when the product has shipped, which

is the point in time the customer obtains control of the product and we no longer maintain control of the product.

Payment terms and conditions vary by contract, although terms generally

include a requirement of payment within 30 to 75 days.

Payments received

in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.

The Terms and Conditions

contained in our customer purchase orders often provide for liquidated damages in the event that a stop work or contract termination

order is issued prior to final delivery.

While the products we manufacture are specific to the type of aircraft that they are used on,

there are alternate customers that can acquire and utilize these products .

We recognize revenue at the point in time in

which the performance obligation is fully satisfied.

This is satisfied when the product has shipped, which is the point in time the customer

obtains control of the product and we no longer maintain control of the product.

Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 75 days.

Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized.

Terms and Conditions contained in our customer purchase orders often provide for liquidated damages in the event that a stop work or

contract termination order is issued prior to final delivery.

While the products we manufacture are specific to the type of aircraft

that they are used on, there are alternate customers that can acquire and utilize these products.

are provided on certain contracts, but do not provide for services beyond standard assurances and are therefore not considered to be

separate performance obligations.

Warranties during the years ended December 31, 2024 and 2023, were not material.

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 December 31, 2023 and 2022, customer deposits were $ 3,557,000 and

$ 781,000 , respectively.

The Company recognized revenue of $ 461,000 during year ended December 31, 2023, that was included in the customer

deposits balance as of December 31, 2022.

The Company recognized revenue of $ 440,000 during the year ended December 31, 2022, that was

included in the customer deposits balance of $ 1,470,000 as of December 31, 2021.

Backlog represents the value of orders received pursuant to our Long-Term

Agreements (“LTA”) or spot orders pursuant to a customer purchase order.

As of December 31, 2023, backlog relating to remaining

performance obligations on contracts was approximately $ 98.3 million.

The Company estimates that a substantial portion of this backlog

will be recognized as net sales during the next twenty-four-months, with the rest thereafter.

This expectation assumes that raw material

suppliers and outsourced processing is completed and delivered on time and that the Company’s customers will accept delivery as

The Company anticipates that sales during the aforementioned periods will also include sales from expected new orders that

are not in our backlog.

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

At December 31, 2024 and 2023, customer deposits

were $ 1,115,000 and $ 3,557,000 , respectively.

The Company recognized revenue of $ 2,442,000 during year ended December 31, 2024, that was

included in the customer deposits balance as of December 31, 2023.

The Company recognized revenue of $ 461,000 during the year ended December

31, 2023, that was included in the customer deposits balance of $ 781,000 as of December 31, 2022.

Backlog represents the value of orders received

pursuant to our Long-Term Agreements (“LTA”) or spot orders pursuant to a customer purchase order.

As of December 31, 2024,

backlog relating to remaining performance obligations on contracts was approximately $ 117.9 million.

The Company estimates that a substantial

portion of this backlog will be recognized as net sales during the next twenty-four-months, with the rest thereafter.

This expectation

assumes that raw material suppliers and outsourced processing is completed and delivered on time and that the Company’s customers

will accept delivery as scheduled.

The Company anticipates that sales during the aforementioned periods will also include sales from expected

new orders that are not in our backlog.

Use of Estimates

In preparing the financial statements, management is required to make

estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

The more significant management

estimates are inventory valuation, useful lives and impairment of long-lived assets, income tax provision and the allowance for credit

In preparing the financial statements, management

is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

more significant management estimates are inventory valuation, and income tax provision.

Actual results could differ from those estimates.

Changes in facts and circumstances may result in revised estimates, which are

recorded in the period in which they become known.

Credit and Concentration

A large percentage of the Company’s revenues are derived directly

from large aerospace and defense prime contractors for which the ultimate end-user is the U.S.

Government, international governments or

commercial airlines.

The composition of customers that exceeded

10% of net sales in either 2023 or 2022 are shown below:

Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.

Credit and Concentration Risks

A large percentage of the Company’s revenues

are derived directly from large aerospace and defense prime contractors for which the ultimate end-user is the U.S.

Government, international

governments or commercial airlines.

The composition of customers that exceeded 10% of net sales for the

years ended December 31, 2024 or 2023 are shown below:

Percentage of Net Sales

Lockheed Martin

United States Government

(A) RTX includes Collins Landing Systems and Collins Aerostructures

The composition of customers that exceed 10% of

accounts receivable in either 2023 or 2022 are shown below:

of Net Receivables

Lockheed Martin

accounts receivable 2024 or 2023 are shown below:

Percentage of Net Receivables

(A) RTX includes Collins Landing Systems and Collins Aerostructures

Disaggregation

The following table summarizes revenue

from contracts with customers for the years ended December 31, 2023 and 2022:

For the years ended December 31, 2023 and 2022, the Company had occasionally

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

The Company has not experienced any losses on these accounts.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers

for the years ended December 31, 2024 and 2023:

For the years ended December 31, 2024 and 2023,

the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit.

The Company has not experienced

any losses on these accounts.

Major Suppliers

The Company utilizes

sole-source suppliers to supply raw materials or other parts that used in production.

These suppliers are its only source for such parts

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

be severely harmed.

The Company accounts for income taxes in accordance with accounting

guidance now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

The Company utilizes sole-source suppliers to

supply raw materials or other parts used in production.

These suppliers are its only source for such parts and, therefore, in the event

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

The Company accounts for income taxes in accordance

with accounting guidance now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences

1 unchanged sentence

years the differences are expected to reverse.

The provision for, or benefit from, income taxes includes deferred

taxes resulting from the temporary differences in income for financial and tax purposes using the liability method.

Such temporary differences

result primarily from the differences in the carrying value of assets and liabilities.

Future realization of deferred income tax assets

requires sufficient taxable income within the carryback, carryforward period available under tax law.

We evaluate, on a quarterly basis

whether, based on all available evidence, it is probable that the deferred income tax assets are realizable.

Valuation allowances are

established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

The evaluation, as prescribed

by ASC 740-10, includes the consideration of all available evidence, both positive and negative, regarding historical operating results

including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated

future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may

be employed to prevent an operating loss or tax credit carryforward from expiring unused.

The Company accounts for uncertainties in income taxes under the provisions

of ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.

standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax

position taken or expected to be taken in a tax return.

The Subtopic provides guidance on the de-recognition, classification, interest

and penalties, accounting in interim periods, disclosure and transition.

Earnings (Loss)

Basic earnings (loss) per share (“EPS”) is computed by

dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

For purposes of

calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable

assumed converted as of the first day of the period.

The denominator includes both the weighted-average number of shares of common stock

outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive.

Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes

payable using the if-converted method.

The following securities

have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:

The provision for, or benefit from, income taxes

includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method.

Such temporary differences result primarily from the differences in the carrying value of assets and liabilities.

Future realization of

deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law.

on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable.

allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

The evaluation,

as prescribed by ASC 740-10, includes the consideration of all available evidence, both positive and negative, regarding historical operating

results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences,

estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies

which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

The Company accounts for uncertainties in income

taxes under the provisions of ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s

financial statements.

The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition

and measurement of a tax position taken or expected to be taken in a tax return.

The Subtopic provides guidance on the de-recognition,

classification, interest and penalties, accounting in interim periods, disclosure and transition.

Earnings (Loss) per share

Basic earnings (loss) per share (“EPS”)

is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding

for the period.

For purposes of calculating diluted earnings (loss)

per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first

day of the period.

The denominator includes both the weighted-average number of shares of common stock outstanding during the period and

the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive.

Dilutive common stock equivalents

potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.

The following securities have been excluded from

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

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 these periods:

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 these periods:

Stock Options

Restricted Stock units

Convertible notes payable

The Company accounts for stock-based compensation in accordance with

FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based

compensation cost is estimated at the grant date based on the fair value of the award.

The Company estimates the fair value of stock options

and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing reported market value.

compensation expense for employees amounted to $ 283,000 and $ 310,000 for the years ended December 31, 2023 and 2022, respectively.

compensation expense for directors amounted to $ 200,000 and $ 216,000 for the years ended December 31, 2023 and 2022, respectively.

compensation expenses for employees and directors were included in operating expenses in the accompanying consolidated statements of operations.

Goodwill represented the excess of the acquisition cost of businesses

over the fair value of the identifiable net assets acquired.

In accordance with the provisions of Accounting Standards Update (“ASU”)

2017-04 (“ASU 2017-04”), “Intangibles Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment”,

the Company determined that the goodwill was fully impaired at December 31, 2022 and recorded an impairment charge of $ 163,000 is which

included in operating expenses in the consolidated statements of operations.

Freight out is

included in operating expenses and amounted to $ 87,000 and $ 162,000 for the years ended December 31, 2023 and 2022, respectively.

In accordance with FASB ASC 842, “Leases” (“ASC 842”),

the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months

and classifies them as either operating or finance leases.

The lease classification affects the expense recognition in the consolidated

statement of operations.

Stock-Based Compensation

The Company accounts for stock-based compensation

in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of

the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award.

The Company estimates the

fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing

reported market value.

Stock compensation expense for employees amounted to $ 640,000 and $ 282,000 for the years ended December 31, 2024

and 2023, respectively.

Stock compensation expense for directors amounted to $ 157,000 and $ 200,000 for the years ended December 31, 2024

and 2023, respectively.

Stock compensation expenses for employees and directors were included in operating expenses in the accompanying

consolidated statements of operations.

Freight out is included in operating expenses

and amounted to $ 67,000 and $ 87,000 for the years ended December 31, 2024 and 2023, respectively.

In accordance with FASB ASC 842, “Leases”

(“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with

terms longer than 12 months and classifies them as either operating or finance leases.

The lease classification affects the expense recognition

in the 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.

At the inception of an arrangement, the Company determines whether

the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including

whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all of the

economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset.

Leases with a term greater

than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities.

Company has elected not to recognize on the balance sheet leases with terms of one year or less under the practical expedient.

For contracts

with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease

and non-lease components as a single lease component.

Lease liabilities

and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.

rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the

lease commencement date to determine the present value of lease payments.

The determination of the Company’s incremental borrowing

rate requires judgment.

The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted

for various factors including level of collateralization, term and currency to align with the terms of the lease.

The operating lease

ROU asset also includes any lease prepayments, offset by lease incentives.

An option to extend

the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise

An option to terminate is considered unless it is reasonably certain we will not exercise the option.

Reclassification

Certain amounts in the consolidated notes to the financial statements

have been reclassified to conform to the current year presentation.

The Right of use asset - finance lease has been reclassified from

the classification of Fixed Assets at December 31, 2022.

Such reclassifications do not impact the Company’s previously

reported financial position or results of operations.

Recently Issued

Accounting Pronouncements

In June 2016, the FASB issued ASU No 2016-13, “Financial Instruments

- Credit Losses:

2016-13”) to improve information on credit losses for financial assets and investment in leases

that are not accounted for at fair value through net income (loss).

ASU 2016-13 replaces the previous incurred loss impairment methodology

with a methodology that reflects expected credit losses.

Effective January 1, 2023, the Company adopted ASU 2016-13 which did not have

a material effect on the Company’s consolidated financial statements.

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.

At the inception of an arrangement, the Company

determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of

the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially

all of the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset.

a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease

The Company has elected not to recognize on the balance sheet leases with terms of one year or less under the practical expedient.

For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account

for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU

assets are recorded based on the present value of lease payments over the expected lease term.

The implicit rates within the Company’s

operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement

date to determine the present value of lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

The Company determines the incremental borrowing rate for each lease using it’s estimated borrowing rate, adjusted for various factors

including level of collateralization, term and currency to align with the terms of the lease.

The operating lease ROU asset also includes

any lease prepayments, offset by lease incentives.

An option to extend the lease is considered in

connection with determining the ROU asset and lease liability when it is reasonably certain the Company will exercise that option.

option to terminate is considered unless it is reasonably certain we will not exercise the option.

Assets held under finance lease obligations are depreciated

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

Recently Issued Accounting Pronouncements

In November 2023, Financial Accounting Standards

Board (“FASB) issued Accounting Standards Updated (“ASU”) 2023-07 - Segment Reporting (Topic 280):

Improvements to Reportable

Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard

and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment

expenses that are regularly provided to the CODM and included within the reported measure(s) of a segment’s profit or loss, the

amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of

a segment’s profit or loss to assess performance and decide how to allocate resources.

The amendments in this update are effective

for fiscal years beginning after December 15, 2023.

The Company has retrospectively adopted this pronouncement.

These updates resulted

in expanded disclosures.

Segment Information.

In December 2023, the FASB issued ASU 2023-09

1 unchanged sentence

Improvements to Income Tax Disclosures”, related to improvements to income tax disclosures.

The amendments

in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income

amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation

and income taxes paid.

The amendments in this update are effective for fiscal years beginning after December 15, 2024.

The adoption of this pronouncement

is not expected to have a material impact on the Company's consolidated financial statements.

The Company does

not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect

on the accompanying consolidated financial statements.

The components

of accounts receivable at December 31, are detailed as follows:

The adoption of

this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of

Income Statement Expenses”, which requires public business entities to disclose additional information about specific expenses categories

in the notes to financial statements at interim and annual reporting periods.

The amendments in ASU 2024-03 are effective for annual reporting

periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements

and footnote disclosures.

The Company does not believe that any other recently

issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated

financial statements.

ACCOUNTS RECEIVABLE

The components of accounts receivable at December

31, are detailed as follows:

Accounts Receivable Gross

1 unchanged sentence

Accounts Receivable Net

The allowance for

credit losses for the years ended December 31, 2023 and 2022 is as follows:

The allowance for credit losses for the years

ended December 31, 2024 and 2023 is as follows:

Year ended December 31, 2024 Allowance for Credit Losses

$ ( 151,000 )

Year ended December 31, 2023 Allowance for Credit Losses

The components

of inventory at December 31, consisted of the following:

The components of inventory at December 31, consisted

of the following:

Raw Materials

4 unchanged sentences

PROPERTY AND EQUIPMENT

The components

of property and equipment at December 31, consisted of the following:

The components of property and equipment at December

31, consisted of the following:

Buildings and Improvements

12 unchanged sentences

Property and Equipment, net

Depreciation expense

for the years ended December 31, 2023 and 2022 was approximately $ 2,268,000 and $ 2,522,000 , respectively.

Assets held under finance lease

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

PAYABLE AND ACCRUED EXPENSES

The components

of accounts payable and accrued expenses at December 31, are detailed as follows:

Depreciation expense for the years ended December

31, 2024 and 2023 was approximately $ 2,072,000 and $ 2,268,000 , respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The components of accounts payable and accrued

expenses at December 31, are detailed as follows:

Accounts Payable

Accrued Payroll

Accrued Bonuses

Accrued Expenses – other

Accounts Payable and accrued expenses

During the year ended December 31, 2022, the Company reviewed all old

outstanding payables that were not paid and based on the statute of limitations concluded that certain claims would no longer be enforceable.

The Company determined that approximately $ 317,000 of aged payables fell into this category.

This adjustment is recorded as write-off

of accounts payable in the accompanying consolidated statement of operations.

SALE-LEASEBACK TRANSACTION

On October 24,

2006, the Company consummated a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay

Shore, New York (the “Bay Shore Property”) for a purchase price of $ 6,200,000 .

The Company realized a gain on the sale of

$ 1,051,000 of which $ 300,000 was recognized during the year ended December 31, 2006.

The remaining $ 751,000 is being recognized ratably

over the remaining term of the twenty - year lease at approximately $ 38,000 per year.

The gain is included in Other Income in the accompanying

Consolidated Statements of Operations.

The unrecognized portion of the gain in the amount of $ 105,000 and $ 143,000 as of December 31,

2023 and 2022, respectively, is classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets.

The Company accounted

for these transactions under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.”

Simultaneous with the closing of the sale of the Bay Shore Property,

the Company entered into a 20-year lease (the “Lease”) expiring in September 2026 with the purchaser for the property.

annual rent is approximately $ 540,000 for the first five years , $ 560,000 for the sixth year, and thereafter increases 3 % per year.

Lease grants the Company an option to renew the Lease for an additional period of five years .

The Company has on deposit with the landlord

$ 89,000 as security for the performance of its obligations under the Lease.

Pursuant to the terms of the Lease, the Company is required

to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance.

The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions and grants the landlord

customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold the Company liable for

any deficiency in future rent.

On October 24, 2006, the Company consummated a

Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay

Shore Property”) for a purchase price of $ 6,200,000 .

The Company realized a gain on the sale of $ 1,051,000 of which $ 300,000 was

recognized during the year ended December 31, 2006.

The remaining $ 751,000 is being recognized ratably over the remaining term of the

twenty - year lease at approximately $ 38,000 per year.

The gain is included in Other Income in the accompanying Consolidated Statements

of Operations.

The unrecognized portion of the gain in the amount of $ 67,000 and $ 105,000 as of December 31, 2024 and 2023, respectively,

is classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets.

The Company accounted for these transactions under

the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.”

Simultaneous with the closing of the sale of the

Bay Shore Property, the Company entered into a 20-year lease (the “Lease”) expiring in September 2026 with the purchaser for

the property.

Base annual rent is approximately $ 540,000 for the first five years , $ 560,000 for the sixth year, and thereafter increases

3 % per year.

The Lease grants the Company an option to renew the Lease for an additional period of five years .

The Company has on deposit

with the landlord $ 89,000 as security for the performance of its obligations under the Lease.

Pursuant to the terms of the Lease, the

Company is required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance,

taxes and maintenance.

The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions

and grants the landlord customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold

the Company liable for any deficiency in future rent.

See Note 9 – Operating Lease Liabilities.

Indebtedness to third parties consists of the following:

Current Credit Facility – Revolving loan

Current Credit Facility – Term loan

Solar Credit Facility

Indebtedness to third parties consists of the

Revolving loan to Webster Bank (“Webster”)

Term loan, Webster

CT Green Bank Loan

Finance lease obligations

4 unchanged sentences

Long Term Portion

Current Credit

The Company has

a credit facility (“Current Credit Facility”) with Webster Bank that expires on December 30, 2025 .

This facility, which was

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

is added to the balance of the Term Loan.

Current Credit Facility

The Company has a credit facility (“Current

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

This facility, which was 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 $ 5,700,000 term

loan and a $ 1,640,000 term loan (“Term Loans”).

The loan is secured by a lien on substantially all of the assets of the Company.

On December 15,

2022, the Company made a draw against the capital expenditure line of credit in the amount of $ 877,913 .

The principal payments are $ 10,451

per month commencing in February 2023 with a balloon payment of $ 512,000 required on December 30, 2025 .

On January 4, 2023,

the Company made an additional draw against the capital expenditure line of credit in the amount of $ 739,500 .

The principal payments

are $ 8,804 per month commencing in March 2023 with a balloon payment of $ 440,000 required on December 30, 2025 .

As of December 31, 2023, there is $ 10,804,000 outstanding under the

Revolving Line of Credit and $ 5,045,000 under the Term Loan, inclusive of amounts drawn under the Equipment Line of Credit.

Additionally,

there was $ 382,000 remaining available under the Equipment Line of Credit.

As discussed in Note 1, the Company was not in

compliance with a required covenant as of March 31, 2024.

There is no assurance that the Company will be able obtain a waiver of its failure

to meet this covenant or 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 December 31, 2023.

The below table shows the timing of payments due under the

As of December 31, 2024, there is $ 12,905,000

outstanding under the Revolving Line of Credit and $ 5,225,000 under the Term Loans.

As discussed in Note 1, the Current Credit Facility

expires on December 30, 2025.

Therefore, the entire Term Loan is classified as short term as of December 31, 2024.

The below table shows the timing of payments due

under the Term Loans:

For the year ending

December 31, 2025

Term Loan payable

debt issuance costs

Total Term Loan payable, net of debt issuance costs

Current portion of Term Loan payable

5 unchanged sentences

includes the amortization of deferred finance costs of $ 68,000 and $ 68,000 in 2024 and 2023, respectively.

As of December 31, 2023, the Company was in full

compliance with all financial covenants.

The below summarizes various terms of the Current Credit Facility (all of which are described

in full in various SEC filings):

● The Company is required to maintain a defined Fixed Charge Coverage Ratio at the end of each Fiscal Quarter on a rolling basis.

As of December 31, 2023, the Company achieved a Fixed Charge Coverage Ratio of 1.31 x compared to the required 0.95 x.

As of December 31, 2024, the Company was in full compliance with all financial

The below summarizes various terms of the Current Credit Facility:

The Company is required to achieve a defined EBITDA (Non-GAAP measure)

amount at the end of each Fiscal Quarter on a rolling basis.

As of December 31, 2024, the Company achieved and exceeded the required EBITDA

for the cumulative twelve months period ending December 31, 2024.

Beginning with the Fiscal Quarter ending March 31, 2025, the Company

is required to meet a Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter on a rolling twelve

month basis of 1.05x and beginning with the fiscal quarter ending September 30, 2025 the Company is required to meet a Fixed Coverage

Charge Ratio of 1.25x .

● For so long as the Term Loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal year the Company shall pay an amount equal to the lesser of (i) twenty-five percent ( 25 %) of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan.

Such payment shall be applied to the outstanding principal balance of the Term Loan, on or prior to the April 15 immediately following such fiscal year.

The Company made an Excess Cash Flow $ 195,000 for fiscal year ended December 31, 2022.

For the Fiscal year ended December 31, 2023, based on the calculation there is no Excess Cash Flow payment required.

● Both the Revolving Line of Credit and the Term Loan will bear an interest

rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money

Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for

such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths

(-0.65%) of one percent per annum.

The average interest rate charged was 7.55 % and 4.50 % for the years ended December 31, 2023 and 2022,

respectively.

● The Current Credit Facility limits the amount of capital expenditures

and dividends the Company can pay to its stockholders.

For the fiscal year ended December 31, 2024, based on the calculation there is a $ 43,500 Excess Cash Flow payment required.

● Both the Revolving Line of Credit and the Term Loan will bear an interest rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum.

The average interest rate charged was 7.66 % and 7.55 % for the years ended December 31, 2024 and 2023, respectively.

The Current Credit Facility limits the amount of capital expenditures and dividends the Company can pay to its stockholders.

Substantially all of the Company’s assets are pledged as collateral.

The below summarizes

historical amendments to the Current Credit Facility

● On May 17, 2022, the Company entered into a Fourth Amendment that increased the Term Loan to $ 5,000,000 and reduced monthly principal repayments requirements.

It also provided for the establishment of a Capital Expenditure Line in the amount of $ 2,000,000 which the Company can draw upon to purchase machinery and equipment.

In 2022, the Company borrowed $ 878,000 , and in 2023, it borrowed $ 739,500 against the Capital Expenditure Line.

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

● On August 4, 2023, the Company entered into a Fifth Amendment that waived a default caused by the failure by the Company to meet the required Fixed Charge Coverage Ratio for the fiscal quarter ended March 31, 2023.

Additionally, the amendment provided for a revised Fixed Charge Ratio for the fiscal quarters ending June 30, 2023, and September 30, 2023, and increased the amount of purchase money secured debt (such as finance leases) the Company is allowed to have outstanding at any time to $ 2,000,000 .

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

● On November 20, 2023, the Company entered into a Sixth Amendment that waived defaults caused by our failure to achieve the required Fixed Charge Coverage Ratio of the Fifth Amendment and because we purchased capital expenditures (as defined) in excess of permitted amounts.

This amendment further revised the Fixed Charge Coverage Ratio by requiring it to be calculated on a rolling period basis and not be less than, (a) 1.10 x (as calculated on a six-months basis) for the fiscal quarter ending March 31, 2024 (b) 1.20 x (as calculated on a nine-months basis) for the fiscal quarter ending June 30, 2024, and (iv) 1.25 (as calculated on a twelve-months basis) for all other fiscal quarters.

This amendment also increased the Capital Expenditure limit to $ 2,500,000 in any fiscal year.

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

All amendment fees paid in connection with the Current Credit Facility

that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying

consolidated balance sheets and are amortized over the term of the loan.

As of December

31, 2023, the Company has borrowing capacity of approximately $ 9,830,000 under the Revolving Loan (including $ 383,000 pursuant to the

Capital Expenditure Line.

The below summarizes historical amendments to

the Current Credit Facility

● On August 4, 2023, we entered into a Fifth Amendment that waived a default caused by our failure to meet the required Fixed Coverage Charge Ratio for the fiscal quarter ended March 31, 2023.

Additionally, the amendment provided for a revised Fixed Coverage Charge Ratio for the fiscal quarters ending June 30, 2023 and September 30, 2023 and increased the amount of purchase money secured debt (or finance leases) we are allowed to have outstanding at any time to $ 2,000,000 .

In connection with this amendment, we paid a fee of $ 10,000 .

● On November 20, 2023, we entered into a Sixth

Amendment that waived defaults caused by the failure by us to achieve the Fixed Charge Coverage Ratio of the Fifth Amendment and because

we purchased capital expenditures (as defined) in excess of permitted amounts.

This amendment further revised the Fixed Charge Coverage

Ratio by requiring it to be calculated on a rolling period basis and not be less than, (a) 1.10x (as calculated on a six-months basis)

for the fiscal quarter ending March 31, 2024, (b) 1.20x (as calculated on a nine-months basis) for the fiscal quarter ending June 30,

2024, and (c) 1.25 (as calculated on a twelve-months basis) for all fiscal quarters beginning with September 30, 2024, until the Current

Credit Facility expires.

This amendment also increased our ability to make additional capital expenditures up to a limit of $ 2,500,000

in any fiscal year.

In connection with this amendment, we paid a fee of $ 20,000 .

● On May 31, 2024, we entered into a Seventh Amendment that waived the default caused by our failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment.

This amendment further revised our Financial Covenants.

For the six months ending June 30, 2024 our EBITDA shall not be less than $ 740,000 ;

for the nine months ending September 30, 2024 our EBITDA shall not be less than $ 1,500,000 ;

for the twelve months ending December 31, 2024 our EBITDA shall not be less than $ 2,800,000 .

For the rolling twelve-month period ending March 31, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

Beginning with the rolling twelve-month period ending June 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x.

All other covenants remain unchanged.

Additionally, this amendment increased the Term Loan by approximately $ 1,000,000 to $ 5,700,000 , with monthly principal installments in the amount of $ 68,000 .

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

● On January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $ 1,640,000 for the acquisition of additional equipment.

The monthly principal installments on this additional Term Loan are $ 19,524 .

This amendment further revised our Financial Covenants.

For the rolling twelve-month period ending March 31, 2025 and June 30, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

Beginning with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x.

Additionally, the Company is allowed to pay off up to $ 4,800,000 of related party notes with funds raised in the Company’s At The Market debt offering.

All other covenants remain unchanged.

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

All amendment fees paid in connection with the

Current Credit Facility that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other

Assets, in the accompanying consolidated balance sheets and are amortized over the term of the loan.

As of December 31, 2024, the Company has borrowing

capacity of approximately $ 7,095,000 under the Revolving Loan.

Solar Credit Facility

On August 16, 2023, the Company entered into a

financing agreement (“Solar Credit Facility”) with Green Bank, a quasi-public agency of the State of Connecticut, for the

financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the

installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility.

are made by Green Bank upon its approval of costs incurred on the Project up to $ 934,553 .

As of December 31, 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 the loan.

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

The Company entered

into a finance lease in November of 2022 for the purchase of new manufacturing equipment.

Additionally, during May of 2023, the Company

entered into an additional finance lease for the purchase of additional manufacturing equipment.

The obligations for the finance leases

totaled $ 884,000 and $ 328,000 as of December 31, 2023 and 2022, respectively.

The leases have an average imputed interest rate of 7.31 %

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

Credit Facility provided for advances to be made by CT Green Bank upon its approval of costs incurred on the Project up to $ 934,000 .

of October 1, 2024, cumulative advances totaling $ 934,000 had been made including the payment of CT Green Bank’s closing costs of

Total interest accrued on the advances at the rate of 5 % was $ 36,000 .

On October 1, 2024, the total cumulative advances

of $ 934,000 along with the total accrued interest of $ 36,000 was converted by CT Green Bank, in accordance with the financing agreement,

to a 20 -year level payment term loan in the amount of $ 970,000 with interest accruing at the rate of 5.75 %.

Semi-annual payments in the

amount of $ 42,000 are due commencing on July 1, 2025.

The first semi-annual payment will be for interest only, subsequent semi-annual

payments beginning with the payment due on January 1, 2026 will include both principal and interest.

As of December 31, 2024, the amount

classified as long term is $ 970,000 and the amount classified as current is $ 0 .

Interest expense related to the Solar Credit Facility

amounted to approximately $ 44,000 and $ 6,000 for the years ended December 31, 2024 and 2023, respectively.

Finance Lease Obligations

The Company has entered into finance leases for

the purchase of manufacturing equipment.

The obligations for the finance leases totaled $ 1,007,000 and $ 884,000 as of December 31, 2024

and 2023, respectively.

The leases have an average imputed interest rate of 7.31 % per annum and are payable monthly with the final payments

due between September of 2026 and May of 2030.

Interest expense related to the finance leases amounted to approximately $ 73,000 and $ 50,000

for the years ended December 31, 2024 and 2023, respectively

Finance Lease cost:

4 unchanged sentences

Cash Paid for amounts included in the measurement lease liabilities:

Financing cash flow from finance

lease obligations

Financing cash flow from finance lease obligations

Supplemental disclosure of non-cash activity

Acquisition of finance lease

Acquisition of finance lease asset

December 31, December 31,

Weighted Average Remaining Lease Term - in years 4.8 5.4

Weighted Average Discount rate - % 7.44 % 7.31 %

As of December 31, 2023, the aggregate future minimum finance lease

payment , including imputed interest are as follows:

As of December 31, 2024, the aggregate future

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

For the year ending

8 unchanged sentences

Long-term portion

Loans Payable

– Financed Assets

The Company financed

the purchase a delivery vehicle in July 2020.

The loan obligation totaled $ 22,000 and $ 30,000 as of December 31, 2023 and 2022, respectively.

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

Annual maturities of this loan are as

Loans Payable – Financed Assets

The Company financed the purchase of a delivery vehicle in July 2020.

loan obligation totaled $ 14,000 and $ 22,000 as of December 31, 2024 and 2023, respectively.

The loan bears no interest and a final payment

is due and payable for all unpaid principal on July 20, 2026.

Annual maturities of this loan are as follows:

For the year ending

1 unchanged sentence

December 31, 2026

Loans Payable - financed assets

2 unchanged sentences

Related Party Indebtedness

Taglich Brothers,

is a corporation co-founded by two directors of the Company, Michael and Robert Taglich.

Taglich Brothers,

has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for

their services.

From 2016 through

2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable (together referred to as

“Related Party Notes”) with Michael and Robert Taglich which generated proceeds to the Company totaling $ 6,550,000 .

In connection

with issuance, Michael and Robert were issued a total of 35,508 shares of common stock and Taglich Brothers, Inc.

Taglich Brothers, Inc.

is a corporation co-founded

by two directors of the Company, Michael and Robert Taglich.

Taglich Brothers, Inc.

has acted as placement

agent for various debt and equity financing transactions and has received cash and equity compensation for their services.

From 2016 through 2020, the Company entered into

various subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”)

with Michael and Robert Taglich which generated proceeds to the Company totaling $ 6,550,000 .

In connection with the issuance of the Related

Party Notes, Michael and Robert Taglich 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.

The Related Party

Notes outstanding as of December 31, 2023 consists of:

The Related Party Notes outstanding as of December

31, 2024 consists of:

Michael Taglich, Robert Taglich, Taglich Brothers,

Convertible Subordinated Notes

Subordinated Notes

Of the $ 6,162,000 ,

approximately $ 2,732,000 bears an annual rate of interest of 6 %, $ 2,080,000 bears an annual rate of 7 % and $ 1,350,000 bears an annual

interest rate of 12 %.

Interest expense for the years ended December 31, 2023 and 2022 was $ 472,000 and $ 487,000 , respectively.

Approximately $ 2,732,000 of the convertible subordinated notes can

be converted at the option of the holder into Common Stock of the Company at $ 15.00 per share, while the remaining $ 2,080,000 of the convertible

subordinated notes can be converted at the option of the holder into common stock of the Company at $ 9.30 per share.

The remaining $ 1,350,000

is not convertible.

Of the $ 6,162,000 , approximately $ 2,732,000 bears

an annual rate of interest of 6 %, $ 2,080,000 bears an annual rate of 7 % and $ 1,350,000 bears an annual interest rate of 12 %.

expense for the years ended December 31, 2024 and 2023 was $ 472,000 and $ 472,000 , respectively.

Approximately $ 2,732,000 of the convertible subordinated

notes can be converted at the option of the holder into Common Stock of the Company at $ 15.00 per share, while the remaining $ 2,080,000

of the convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $ 9.30 per share.

The remaining $ 1,350,000 is not convertible.

There are no principal payments due on these notes prior to July 1, 2026.

The Related Party

Notes are subordinate to outstanding debt pursuant to the Current Credit Facility and mature on July 1, 2026.

The Company is

allowed, subject to certain limitations, to make principal payments of $ 250,000 to reduce the value of outstanding Related Party Notes

During the year ended December 31, 2022, a principal payment of $ 250,000 was made against the Related Party Notes due to Michael

No payments were made in fiscal 2023.

LEASE LIABILITIES

The Company has

operating leases for leased office and manufacturing facilities.

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

which include options to extend or terminate the leases.

The Related Party Notes are subordinate to outstanding

debt pursuant to the Current Credit Facility and mature on July 1, 2026.

Under the Eighth Amendment to the Current Credit

Facility, the Company is allowed to make principal payments of up to $ 4,800,000 .

During the first quarter of 2025, the Company paid a

total of $ 1,291,000 of principal payments to reduce the outstanding Related Party Notes payable.

Of the $ 1,291,000 paid, $ 1,050,000 was

paid to Michael Taglich and $ 241,000 was paid to Taglich Brothers, Inc.

OPERATING LEASE LIABILITIES

The Company has operating leases for leased office

and manufacturing facilities.

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

Operating lease cost:

1 unchanged sentence

Other Information

Cash paid for amounts included in the measurement

lease liability:

Operating cash flow from operating

Cash paid for amounts included in the measurement lease liability:

Operating cash flow from operating leases

December 31, December 31,

Weighted Average Remaining Lease Term - in years 1.72 2.66

Weighted Average discount rate - % 9.36 % 9.10 %

The aggregate undiscounted

cash flows of operating lease payments, with remaining terms greater than one year are as follows:

December 31, 2024

The aggregate undiscounted cash flows of operating

lease payments, with remaining terms greater than one year are as follows:

December 31, 2025

4 unchanged sentences

Total long term portion of operating lease maturities

STOCKHOLDERS’

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

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.

– Issuances of Securities

STOCKHOLDERS’ EQUITY

Common Stock – Issuances of Securities

The Company issued 39,845 and 55,108 shares of

1 unchanged sentence

Such expense is included in Operating Expenses in the consolidated statements of operations.

During the first

quarter of 2024, the Company issued 12,323 shares of common stock in payment of Director’s fees totaling $ 38,000 .

BENEFITS PLANS

The Company employs

both union and non-union employees and maintains several benefit plans.

Our AIM subsidiary

has a collective bargaining agreement with the United Service Workers, IUJAT, Local 355 (the “Union”).

This agreement is

effective until December 31, 2024 and covers the majority of AIM’s 125 personnel.

The Company is not required to make a monthly

contribution to Union’s United Welfare Fund and the United Services Worker’s Security Fund, the sole pension benefit for

covered employees.

The Company is not obligated to provide any future defined benefits.

The Company is obligated to make contributions

for union dues and a security fund (defined contribution plan) for the benefit of each union employee.

Contributions to the security

fund amounted to $ 147,000 and $ 155,000 for the years ended December 31, 2023 and 2022, respectively.

The Union’s retirement plan

is a defined contribution plan.

As such, the Company is not responsible for the obligations of other companies in the Union’s retirement

Medical benefits

for union employees are provided through a policy with Insperity Services, Inc.

(“Insperity”), a professional employer organization

that provides out-sourced human resource services.

The cost of such benefits are substantially borne by the Company.

The collective

bargaining agreement contains a “no-strike” clause and a “no-lock-out” clause.

The Company believes it maintains

good relationships with the Union and expects to renew the collective bargaining agreement before it expires.

All of the Company’s

employees are covered under a co-employment agreement with Insperity, a professional employer organization that provides out-sourced

The Company issued 15,229 shares, of common stock

to net settle the exercise of stock options for the year ended December 31, 2024, respectively.

There were no issuances of common stock

due to the exercise of stock options for year ended December 31, 2023.

During the first quarter of 2025, the Company

issued 9,185 shares of common stock in payment of Director’s fees totaling $ 39,000 .

Common Stock – Sale of Securities

In December 2024 the Company issued and sold pursuant

to a Registration Statement on Form S-3 declared effective on December 19, 2024, 116,851 shares of common stock for gross proceeds of

$ 509,000 in an At The Market offering.

Costs of the sale amounted to $ 182,000 .

During the first quarter of 2025, the Company

issued and sold pursuant to a Registration Statement on Form S-3 declared effective on December 19, 2024, 209,940 shares of common stock

for gross proceeds of $ 903,000 .

Costs of the sale amounted to $ 49,000 .

EMPLOYEE BENEFITS PLANS

The Company employs both union and non-union employees

and maintains several benefit plans.

Our AIM subsidiary has a collective bargaining

agreement with the United Service Workers, IUJAT, Local 355 (the “Union”).

This agreement is effective until December 31,

2027 and covers the majority of AIM’s 125 personnel.

The Company is not required to make a monthly contribution to Union’s

United Welfare Fund and the United Services Worker’s Security Fund, the sole pension benefit for covered employees.

is not obligated to provide any future defined benefits.

The Company is obligated to make contributions for union dues and a security

fund (defined contribution plan) for the benefit of each union employee.

Contributions to the security fund amounted to $ 145,000 and $ 147,000

for the years ended December 31, 2024 and 2023, respectively.

The Union’s retirement plan is a defined contribution plan.

the Company is not responsible for the obligations of other companies in the Union’s retirement plan.

Medical benefits for union employees are provided

through a policy with Insperity Services, Inc.

(“Insperity”), a professional employer organization that provides out-sourced

human resource services.

The Company has

defined contribution plans under Section 401(k) of the Internal Revenue Code (the “Plans”).

Pursuant to the Plans, qualified

employees may contribute a percentage of their pre-tax eligible compensation to the Plan.

The Company does not match any contributions

that employees may make to the Plans.

AND CONTINGENCIES

The cost of such benefits are substantially borne by the Company.

The collective bargaining agreement contains a

“no-strike” clause and a “no-lock-out” clause.

The Company believes it maintains good relationships with the Union.

All of the Company’s employees are covered

under a co-employment agreement with Insperity, a professional employer organization that provides out-sourced human resource services.

The Company has defined contribution plans under

Section 401(k) of the Internal Revenue Code (the “Plans”).

Pursuant to the Plans, qualified employees may contribute a percentage

of their pre-tax eligible compensation to the Plan.

The Company does not match any contributions that employees may make to the Plans.

COMMITMENTS AND 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 formerly occupied by the Company’s former subsidiary, Welding Metallurgy, Inc (“WMI”), at 110

Plant Avenue, Hauppauge, New York.

Contract Pharmacal sought damages for an amount in excess of $ 1,000,000 for the Company’s failure

to make the entire premises available by what it claims was the Sublease commencement date.

On July 8, 2021, the Court denied Contract

Pharmacal’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 .

Subsequently, Contact Pharmacal moved to

amend its 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.

The Appellate Division upheld the denial of Contract Pharmacal’s motion for summary judgement and upheld

the denial of its motion to amend its Complaint.

On March 28, 2024, Contract Pharmacal filed a motion to reargue the appeal previously

denied by the Appellate Division.

Pending a decision by the Appellate Division the Trial Court has adjourned the case.

of the decision by the Appellate Division, Contract Pharmacal will be required to file an amended complaint.

The Company has consistently

disputed the validity of the claims asserted by Contract Pharmacal and continues to believe it has a meritorious defense to those claims

based on, among other items, language in the Sublease.

The Company intends to continue to dispute the validity of the claim asserted by

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 .

Subsequently, Contact Pharmacal moved to amend its 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.

10, 2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate.

The Appellate Division upheld the denial

of Contract Pharmacal’s motion for summary judgement and upheld the denial of its motion to amend its Complaint.

The Company disputes

the validity of the claims asserted by Contract Pharmacal and intends to contest them vigorously.

From time to time

the Company may be engaged in various lawsuits and legal proceedings in the ordinary course of business.

The Company is currently not

aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a

material adverse effect on its business, financial condition or operating results.

There are no proceedings in which any of the Company’s

directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material

interest adverse to our interest.

The provision for

income taxes for the years ended December 31, 2023 and 2022, is set forth below:

From time to time the Company may be engaged in

various lawsuits and legal proceedings in the ordinary course of business.

The Company is currently not aware of any legal proceedings

the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business,

financial condition or operating results.

There are no proceedings in which any of the Company’s directors, officers or affiliates,

or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.

The provision for income taxes for the years ended

December 31, 2024 and 2023, is set forth below:

Total Provision for Income Taxes

The following is

a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the years ended December

31, 2023 and 2022 is set forth below:

The following is a reconciliation of our income

tax rate computed using the federal statutory rate to our actual income tax rate for the years ended December 31, 2024 and 2023 is set

statutory income tax rate

State taxes, net of federal benefit

Permanent difference and non-deductible items

Permanent difference, overaccruals, and non-deductible items

Change in state rate

Deferred tax valuation allowance

The components

of net deferred tax assets at December 31, are set forth below:

True-up and Other

The components of net deferred tax assets at

December 31, are set forth below:

Deferred tax assets:

Net operation loss carryforwards

Allowance for credit loss

Net operation loss

Allowance for doubtful accounts

Inventory - IRC 263A adjustment

11 unchanged sentences

( 7,903,000 )

Total deferred tax asset, net of valuation allowance

Total deferred tax asset after valuation allowance

Deferred tax liabilities

( 1,114,000 )

( 1,583,000 )

Property and equipment

18 unchanged sentences

does not expire.

In addition, the Company has net operating loss carryforwards from various states of approximately $ 4,7783,000

which expire starting in 2035.

The utilization

of the Company’s net operating losses may be subject to a U.S.

federal limitation due to the “change in ownership provisions”

under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions.

Such limitations may result

in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating

loss carryforwards before their utilization.

At December 31,

2023 and 2022, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months.

The Company recognizes

interest and penalties related to uncertain tax positions in interest expense.

As of December 31, 2023, and 2022, the Company has not

recorded any provisions for accrued interest and penalties related to uncertain tax positions.

In certain cases,

the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities.

The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations.

The 2020 through 2023 tax

years generally remain subject to examination by federal and state tax authorities.

In August 2022, the Inflation Reduction Act of

2022 (the “IRA”) was signed into law which includes a stock buyback excise tax of 1 % on share repurchases, which will apply

to net stock buybacks after December 31, 2022.

We do not expect this to have a material impact if and when share repurchases occur.

OPTIONS AND WARRANTS

In addition, the Company has net operating loss carryforwards from various states of approximately $ 4,669,000 which expire

starting in 2035.

The utilization of the Company’s net operating

losses may be subject to a U.S.

federal limitation due to the “change in ownership provisions” under Section 382 of the Internal

Revenue Code and other similar limitations in various state jurisdictions.

Such limitations may result in a reduction of the amount of

net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their

At December 31, 2024 and 2023, the Company had

no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

The Company does not expect that

its unrecognized tax benefits will materially increase within the next twelve months.

The Company recognizes interest and penalties related

to uncertain tax positions in interest expense.

As of December 31, 2024, and 2023, the Company has not recorded any provisions for accrued

interest and penalties related to uncertain tax positions.

In certain cases, the Company’s uncertain

tax positions are related to tax years that remain subject to examination by the relevant tax authorities.

The Company files federal and

state income tax returns in jurisdictions with varying statutes of limitations.

The 2021 through 2024 tax years generally remain subject

to examination by federal and state tax authorities.

STOCK OPTIONS AND RESTRICTED STOCK

Stock-Based Compensation

Stock Options

In September 2024, the shareholders of the Company

approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be

issued under the plan by 250,000 shares, from 100,000 shares to 350,000 shares.

Additionally, this amendment to the 2022 Plan specified

that the Company may grant Restricted Stock Units under the 2022 Plan.

During the years

ended December 31, 2023 and 2022, the Company granted options to purchase 190,000 and 62,000 shares of common stock, respectively, to

certain of its employees and directors.

approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used

under the plan by 300,000 shares, from 350,000 shares to 650,000 shares.

In September 2023, the shareholders of the Company

approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be issued

under the plan by 250,000 shares, from 100,000 shares to 350,000 shares.

Additionally, this amendment to the 2022 Plan specified that

the Company may grant Restricted Stock Units under the 2022 Plan.

During the years ended December 31, 2024 and 2023,

the Company granted options to purchase 80,000 and 189,620 shares of common stock, respectively, to certain of its employees and directors.

The Company recorded stock-based compensation expense

for certain employees and members of the Company’s Board of Directors of $ 317,000 and $ 482,000 in its consolidated statements of operations

for the years ended December 31, 2023 and 2022, respectively, and such amounts were included as a component of operating expenses.

The fair values

of stock options granted were estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended

for the years ended December 31, 2024 and 2023, respectively, and such amounts were included as a component of operating expenses on the

consolidated statement of operations.

The fair values of stock options granted were

estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31:

Risk-free interest rates 3.8 3.70 % - 3.97 %

3.70 % - 3.97 %

1.38 % - 2.73 %

Expected life (in years) 2.7 2.50 - 3.5

Expected volatility 64 % 61 %

71.6 % - 72.0 %

Dividend yield 0.00 % 0.00 %

Weighted-average grant date fair value per share $ 3.75 $ 3.46

The expected life

is the number of years that the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture.

Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No.

In addition to

the inputs referenced above regarding the option pricing model, the Company adjusts the stock-based compensation expense for estimated

forfeiture rates that are revised prospectively according to forfeiture experience.

The stock volatility factor is based on the Company’s

A summary of the

status of the Company’s stock options as of December 31, 2023 and 2022, and changes during the two years then ended are presented

The expected life is the number of years that

the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture.

Expected life is determined

using the “simplified method” permitted by Staff Accounting Bulletin No.

In addition to the inputs referenced above regarding

the option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture rates that are revised prospectively

according to forfeiture experience.

The stock volatility factor is based on the Company’s experience.

A summary of the status of the Company’s

stock options as of December 31, 2024 and 2023, and changes during the two years then ended are presented below.

Balance, January 1, 2023

8 unchanged sentences

Exercisable at December 31, 2024

Stock Options

Issuance of Stock Options

Issued in 2024

On May 23, 2023,

the Company granted options to its directors and certain members of management and employees, stock options to purchase an aggregate

of 108,620 shares of the Company’s common stock at a price of $ 3.43 per share.

The options expire on the June 30, 2028 and vested

On June 2, 2023,

the Company granted to its directors, stock options to purchase an aggregate of 6,000 shares of the Company’s common stock at a

price of $ 3.50 per share.

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

On June 2, 2023,

the Company granted to certain members of management and employees, stock options to purchase an aggregate of 75,000 shares of the Company’s

common stock at a price of $ 3.50 per share.

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

On August 13, 2024, the Company granted to its

directors’ stock options to purchase an aggregate of 80,000 shares of the Company’s common stock at a price of $ 3.75 per share.

The options expire on August 31, 2029 and vest over a term of one year .

Issued in 2023

On January 31,

2022, the Company granted certain 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 .

On April 6, 2022,

the Company granted to its directors, stock options to purchase an aggregate of 6,000 shares of the Company’s common stock at a

On May 23, 2023, the Company granted to its directors

and certain members of management and employees, stock options to purchase an aggregate of 108,620 shares of the Company’s common

stock at a price of $ 3.43 per share.

The options expire on the June 30, 2028 and vested immediately.

On June 2, 2023, the Company granted to its directors,

stock options to purchase an aggregate of 6,000 shares of the Company’s common stock at a price of $ 3.50 per share.

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

On June 2, 2023, the Company granted to certain

members of management and employees, stock options to purchase an aggregate of 75,000 shares of the Company’s common stock at a

price of $ 3.50 per share.

The options 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 53,000 shares of

the Company’s common stock at a price of $ 8.40 per share.

The options expire on the fifth anniversary of the grant date and vest

over a term of three years .

The following table

summarizes information about outstanding stock options at December 31, 2023:

Range of Exercise

Wtd.Avg, Life

$3.46 - $15.60

The following table

summarizes information about exercisable stock options at December 31, 2022:

Range of Exercise Price

Wtd.Avg, Life

$8.40 - $15.60

As of December

31, 2023, there was $ 95,000 of unrecognized compensation cost related to non-vested stock option awards, which is to be recognized over

the remaining weighted average vesting period of 1.3 years.

The aggregate intrinsic

value at December 31, 2023 was based on the Company’s closing stock price of $ 3.25 was $ 0 .

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

The following table summarizes information about

outstanding stock options at December 31, 2024:

Range of Exercise Price Number Outstanding Wtd.

Life Exercise Price

$3.43 - $23.80 417,003 2.8 years $ 7.00

As of December 31, 2024, there was $ 21,000 of unrecognized compensation

cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average vesting period of .5 years .

The aggregate intrinsic value at December 31,

31, 2022 was based on the Company’s closing stock price of 4.25 was approximately $ 0 .

The aggregate intrinsic value was calculated

based on the positive difference between the closing market price of the Company’s Common Stock and the exercise prices of the

underlying options.

2024, based on the Company’s closing stock price of $ 4.07 was $ 121,000 .

The aggregate intrinsic value at December 31, 2023 was based

on the Company’s closing stock price of $ 3.25 was approximately $ 0 .

The aggregate intrinsic value was calculated based on the positive

difference between the closing market price of the Company’s Common Stock and the exercise prices of the underlying options.

The weighted average fair value of options granted

1 unchanged sentence

The total intrinsic value of options exercised

during the years ended December 31, 2023 and 2022 was $ 0 .

during the years ended December 31, 2024 and 2023 was $ 20,000 and $ 0 .

The total fair value of shares vested during the years ended December

31, 2024 and 2023 was $ 100,000 and $ 417,000 , respectively.

During both the

years ended December 31, 2023 and 2022, the Company did not issue any warrants.

The following tables

summarize the Company’s outstanding warrants as of December 31, 2023 and changes during the two years then ended:

Balance, January 1, 2022

Granted during the period

Terminated/Expired during the period

Balance, December 31, 2022

Restricted Stock Units (“RSUs”)

During the years ended December 31, 2024, the

Company granted 282,628 RSUs to certain employees with a grant date fair value of $ 1,713,000 .

These Restricted Stock Units vest solely

on the basis of continued service through the vesting dates.

A summary of the status of the Company’s

RSUs as of December 31, 2024 is presented below:

Number of Units

Average Grant

Date Fair Value

Unvested Units at January 1, 2024

Granted during the period

Terminated/Expired during the period

Balance, December 31, 2023

Exercisable at December 31, 2023

The aggregate intrinsic

value at both December 31, 2023 and 2022 was $ 0 based on the Company’s closing stock price of $ 3.25 and $ 4.25 , respectively.

Vested during the period

Terminated/Forfeited during the period

Unvested Units at December 31, 2024

Vested Units at December 31, 2024

The Company recorded stock-based compensation

expense of $ 480,000 for the year ended December 31, 2024 and such amounts were included as a component of operating expenses on the consolidated

statements of operations.

As of December 31, 2024, there was $ 1,233,000

of unrecognized compensation cost related to non-vested RSUs, which is to be recognized over the remaining weighted average vesting period

of 2.25 years.

SEGMENT INFORMATION

The Company operates as one operating segment.

The Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

used consolidated sales, gross margin and net income (loss) to assess financial performance and allocate resources.

These financial metrics

are used by the CODM to make key operating decisions, such as the need to allocate its budget to operating expenses and invest in additional

The segment assets are equal to the assets presented in the consolidated balance sheets.

The significant expenses that are regularly provided

to the CODM are disclosed in the consolidated statements of operations as a part of the consolidated net income (loss).

See the consolidated

financial statements for all financial information regarding the Company’s operating segment.

All revenues of the Company are earned in the

United States of America.

The Company’s long-lived tangible assets,

as well as the Company’s operating lease right-of use assets recognized on the Consolidated Balance Sheets were located in the United

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-K

Item 9A. Controls and Procedures