AIR INDUSTRIES GROUP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures An evaluation was conducted under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”), our principal executive officer, and Chief Financial Officer (“CFO”), our principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, as of December 31, 2024. Based on that evaluation, the CEO and CFO concluded for the reasons discussed below that our disclosure controls and procedures were not effective as of December 31, 2024 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the required time periods, and that such information is accumulated and communicated to our management to allow timely decisions when required. 27 Management’s Report on Internal Control over Financial Reporting Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting refers to those policies, procedures and processes that pertain to the maintenance of records that accurately and fairly reflect transactions with respect to our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are made only in accordance with authorizations of our management; and provide reasonable assurance regarding the prevention and timely detection of unauthorized transactions with respect to our assets that 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. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). In connection with their review of our internal control over financial reporting as of December 31, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that 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. Both in 2024 and 2023, we outsourced certain information technology (“IT”) related functions to a third-party vendor. In 2022, we identified a material weakness with respect to our IT systems in that we did not design and/or implement primary user access controls and program change management systems over key IT systems to validate that data produced by the relevant IT systems were complete and accurate and to ensure appropriate segregation of duties to adequately restrict user and privileged access to the financially relevant systems and data to the Company’s personnel. Further, we identified a material weakness with respect to the activities of such vendor in connection with the design and operation of our IT systems in that because this vendor is unable to provide a SOC 1 (Standard Operating Control) Report, we were unable to verify and validate the effectiveness of the vendor’s control procedures when implementing changes to our IT systems, including systems affecting our financial IT applications and underlying data account records. 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 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. ITEM 9B. OTHER INFORMATION None ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION Not Applicable 28 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Our directors and executive officers are: Name: Age Position Luciano (Lou) Melluzzo 60 President and Chief Executive Officer Scott Glassman 47 Chief Financial Officer Michael N. Taglich 59 Director Robert F. Taglich 58 Director David J. Buonanno 69 Director Peter D. Rettaliata 74 Chairman of the Board Michael Brand 67 Director Michael D. Porcelain 56 Director 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 Officer. 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. Mr. Glassman has been employed by the Company since March of 2019, most recently serving as the Chief Accounting Officer. Mr. Glassman 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. Mr. Glassman holds a Bachelor of Science degree in Accounting from the State University of New York at Albany. Mr. Glassman has been a CPA licensed in the state of NY since 2002. Peter D. Rettaliata 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 at AIM, Mr. Rettaliata was employed by Grumman Aerospace Corporation for twenty-two years, as the Senior Procurement Officer. Professionally, Mr. 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. He is a graduate of Niagara University where he received a B.A. in History and Harvard Business School where he completed the PMD Program. Michael N. 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. Mr. 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. Robert F. Taglich has 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. Mr. 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. 29 David J. Buonanno has 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. Mr. 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. Mr. 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. Mr. 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. Mr. 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. Mr. 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 Corp. (“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. Porcelain was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company. Previously, 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. Mr. 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 courses. Mr. 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. Michael N. Taglich and Robert F. 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. 30 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 31, 2024. DIRECTOR COMPENSATION Name Fees Earned or Paid In Cash ($) Stock Awards ($) (1) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Non-Qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Michael Taglich — 50,384 16,050 — — — 66,434 Robert Taglich — 50,384 16,050 — — — 66,434 David Buonanno 37,500 — 16,050 — — — 53,550 Michael Brand 37,500 — 16,050 — — — 53,550 Michael Porcelain — 57,223 16,050 — — — 73,273 Peter Rettaliata 63,252 48,150 — — — 111,402 (1) Director fees paid in shares. 31 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 served. 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 . Messrs. Porcelain, Brand and Buonanno are members of the Audit Committee. Mr. 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; and ● 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; 32 ● 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; and ● 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 fiscal 2024. 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 fiscal 2024. 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 parties. 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 care. 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. Our 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. 33 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: Stockholder Relations. 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; or ● 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. Our code of ethics is available on our website and upon written request to our corporate secretary, we will provide you with a copy, without cost. ITEM 11. EXECUTIVE COMPENSATION 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 $100,000 for all services rendered in all capacities to our company and its subsidiaries. The individuals listed in the following table are referred to herein collectively as our “Named Executive Officers.” Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) Non-equity Incentive Plan Information ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Luciano Melluzzo 2024 374,566 — 620,350 — — — 10,800 (1) 1,005,716 President and CEO 2023 374,575 — — 107,940 — — 10,800 (1) 493,315 Scott Glassman 2024 224,231 — 371,363 — — — — 595,594 CFO 2023 224,231 — — 13,332 — — — 237,563 Michael Recca CFO 2023 267,543 — 48,344 — — 4,950 (1) 320,837 (1) Represents car allowance. Our executive officers named in the above table do not have employment agreements providing for a fixed term of employment. All are employees at will, terminable at any time without any severance, other than that payable to employees generally. 34 Executive Compensation Policies as They Relate to Risk Management The Compensation Committee and management have considered whether our compensation policies might encourage inappropriate risk taking by the Company’s executive officers and other employees. The Compensation Committee has determined that the current compensation structure aligns the interests of the executive officers with those of the Company without providing rewards for excessive risk taking by awarding a mix of fixed and performance based or discretionary bonuses with the performance-based compensation focused on profits as opposed to revenue growth. The Compensation Committee working with management adopts a plan each year intended to award members of our management including executive officers for meeting or exceeding targeted goals, The Committee believes the amounts to be paid to Messrs. Melluzzo and Glassman for services rendered in fiscal 2024 are appropriate in light of the significant improvement in our financial performance 2024. Equity Awards – 2024 The following table shows the grant of stock option awards to the Named Executive Officers during 2024. GRANT OF PLAN-BASED AWARDS All Other Option Awards: Number of Grant Date Fair Shares of Stock or Value of Stock Name Grant Date Units (#) Awards ($) Luciano Melluzzo 8/26/2024 102,368 $ 620,350 Scott Glassman 8/26/2024 61,281 371,363 Each named executive officer was granted restricted stock units (RSUs) on August 23, 2024. 35 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 Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) ($) Luciano Melluzzo 48,000 — $ 3.43 6/30/2028 102,368 (2) $ 416,638 9,000 18,000 3.50 5/31/2028 — — 20,000 — 8.30 3/31/2027 — — 18,000 — 12.20 7/31/2026 — — 15,000 — 13.90 3/31/2026 — — 20,000 — 10.30 3/31/2025 — — Scott Glassman 1,667 3,333 $ 3.50 5/31/2028 61,281 (2) $ 249,414 4,100 — 3.43 6/30/2028 — — 3,000 — 8.40 3/31/2027 — — 2,000 — 12.20 7/31/2026 — — 2,250 — 13.90 3/31/2026 — — 2,000 — 10.30 3/21/2025 — — (1) 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. (2) 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. 36 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. ITEM 12. 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: Number of Shares Beneficially Owned Percent Michael N. Taglich 700,509 (1) 17.82 % Robert F. Taglich 486,107 (2) 12.53 % Peter D. Rettaliata 66,292 (3) 1.78 % David Buonanno 22,063 (4) * Michael Brand 25,511 (5) * Michael Porcelain 70,730 (6) 1.91 % Luciano Melluzzo, President and CEO 183,205 (7) 4.75 % Scott Glassman, CFO 36,779 (8)) * All Directors and Executive Officers as a group (8 persons owning shares) 1,567,201 (9) 35.55 % * Less than 1% (1) 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. (2) 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. 37 (3) Includes 39,140 shares he may acquire upon exercise of options exercisable within 60 days. (4) Includes 17,260 shares he may acquire upon exercise of options exercisable within 60 days. (5) Includes 19,260 shares he may acquire upon exercise of options exercisable within 60 days. (6) Includes 17,260 shares he may acquire upon exercise of options exercisable within 60 days. (7) Includes 128,000 shares he may acquire upon exercise of options exercisable within 60 days. (8) Includes 16,350 shares he may acquire upon exercise of options exercisable within 60 days. (9) 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. ITEM 13. 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. 38 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. ITEM 14. PRINCIPAL ACCOUNTANT FEES and SERVICES 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: Year Ended December 31, 2024 Year Ended December 31, 2023 Audit Fees (1) $ 579,000 $ 340,000 Audit Related Fees (2) - 21,000 Tax Fees (3) 2,000 62,000 $ 581,000 $ 423,000 (1) 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. (2) 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. (3) Tax fees - the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning. 39 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Consolidated Financial Statements of Air Industries Group for the Year ended December 31, 2024 and 2023. (b) 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. Exhibit No. Description 3.1 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). 3.2 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). 3.3 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). 3.4 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) 3.5 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). 4.1 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). 10.1 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) 10.2 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) 10.3 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) 10.4 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) 10.5 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) 10.6 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) 10.7 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). 40 10.8 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). 10.9 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). 10.10 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). 10.11 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). 10.12 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). 10.13 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). 10.14 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). 10.15 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). 10.16 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). 14.1 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. 19.1 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). 21.1 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. 23.1* Consent of Marcum LLP 31.1* Certification of principal executive officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934. 31.2* Certification of principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act of 1934. 32.1** Certification of principal executive officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). 32.2** Certification of principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). 97.1 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). 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** Furnished herewith 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 15, 2025 AIR INDUSTRIES GROUP By: /s/ Luciano Melluzzo Luciano Melluzzo President and Chief Executive Officer (principal executive officer) By: /s/ Scott Glassman Scott Glassman Chief Financial Officer (principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on April 15, 2025 in the capacities indicated. Signature Capacity /s/ Luciano Melluzzo President and CEO Luciano Melluzzo (principal executive officer) /s/ Scott Glassman Chief Financial Officer Scott Glassman (principal financial and accounting officer) /s/ Michael N. Taglich Director Michael N. Taglich /s/ Peter D. Rettaliata Chairman of the Board Peter D. Rettaliata /s/ Robert F. Taglich Director Robert F. Taglich /s/ David J. Buonanno Director David J. Buonanno /s/ Michael Brand Director Michael Brand /s/ Michael Porcelain Director Michael Porcelain 42 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: 688 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets – As of December 31, 2024 and 2023 F-3 Consolidated Statements of Operations – For the Years Ended December 31, 2024 and 2023 F-4 Consolidated Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2024 and 2023 F-5 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2024 and 2023 F-6 Notes to Consolidated Financial Statements F-8 F- 1 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, 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, 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 financial statements have been prepared assuming that the Company will 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 in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. 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 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 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 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, NJ April 15 , 2025 F- 2 AIR INDUSTRIES GROUP Consolidated Balance Sheets December 31, December 31, 2024 2023 ASSETS Current Assets Cash $ 753,000 $ 346,000 Accounts Receivable, Net of Allowance for Credit Losses of $ 396,000 and $ 344,000 8,900,000 7,892,000 Inventory 28,811,000 29,851,000 Prepaid Expenses and Other Current Assets 371,000 297,000 Contract Costs Receivable 296,000 296,000 Prepaid Taxes 56,000 37,000 Total Current Assets 39,187,000 38,719,000 Property and Equipment, Net 8,809,000 8,048,000 Finance Lease Right-Of-Use-Assets 1,113,000 970,000 Operating Lease Right-Of-Use-Assets 1,190,000 1,866,000 Deferred Financing Costs, Net, Deposits and Other Assets 712,000 1,112,000 TOTAL ASSETS $ 51,011,000 $ 50,715,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Debt $ 18,362,000 $ 16,036,000 Accounts Payable and Accrued Expenses 7,015,000 6,091,000 Operating Lease Liabilities 881,000 880,000 Deferred Gain on Sale 38,000 38,000 Customer Deposits 1,115,000 3,557,000 Total Current Liabilities 27,411,000 26,602,000 Long Term Liabilities Debt 1,759,000 1,112,000 Subordinated Notes - Related Party 6,162,000 6,162,000 Operating Lease Liabilities 702,000 1,582,000 Deferred Gain on Sale 29,000 67,000 TOTAL LIABILITIES 36,063,000 35,525,000 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, 3,474,970 and 3,303,045 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively 3,000 3,000 Additional Paid-In Capital 84,052,000 82,928,000 Accumulated Deficit ( 69,107,000 ) ( 67,741,000 ) TOTAL STOCKHOLDERS’ EQUITY 14,948,000 15,190,000 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 51,011,000 $ 50,715,000 See Notes to Consolidated Financial Statements F- 3 AIR INDUSTRIES GROUP Consolidated Statements of Operations For the Years Ended December 31, 2024 2023 Net Sales $ 55,108,000 $ 51,516,000 Cost of Sales 46,176,000 44,088,000 Gross Profit 8,932,000 7,428,000 Operating Expenses 8,473,000 7,723,000 Income/(Loss) from Operations 459,000 ( 295,000 ) Interest Expense ( 1,421,000 ) ( 1,448,000 ) Interest Expense - Related Parties ( 472,000 ) ( 472,000 ) Other Income, Net 68,000 84,000 Loss before Benefit From Income Taxes ( 1,366,000 ) ( 2,131,000 ) Provision for Income Taxes - - Net Loss $ ( 1,366,000 ) $ ( 2,131,000 ) Loss per share - Basic and diluted $ ( 0.41 ) $ ( 0.65 ) Weighted Average Shares Outstanding - Basic and diluted 3,336,464 3,278,513 See Notes to Consolidated Financial Statements F- 4 AIR INDUSTRIES GROUP Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2024 and 2023 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2023 3,247,937 $ 3,000 $ 82,446,000 $ ( 65,610,000 ) $ 16,839,000 Common Stock issued for directors fees 55,108 - 200,000 - 200,000 Stock Based Compensation - - 282,000 - 282,000 Net Loss - - - ( 2,131,000 ) ( 2,131,000 ) Balance, December 31, 2023 3,303,045 $ 3,000 $ 82,928,000 $ ( 67,741,000 ) $ 15,190,000 Common Stock issued for directors fees 39,845 - 157,000 - 157,000 Stock Based Compensation - - 640,000 - 640,000 Exercise of stock options 15,229 - - - - Common Stock issued for cash 116,851 - 327,000 - 327,000 Net Loss - - - ( 1,366,000 ) ( 1,366,000 ) Balance, December 31, 2024 3,474,970 $ 3,000 $ 84,052,000 $ ( 69,107,000 ) $ 14,948,000 See Notes to Consolidated Financial Statements F- 5 AIR INDUSTRIES GROUP Consolidated Statements of Cash Flows For the Years Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 1,366,000 ) $ ( 2,131,000 ) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation of property and equipment 2,072,000 2,268,000 Stock-based Compensation 797,000 482,000 Amortization of Finance Lease Right-of-Use Assets 176,000 84,000 Amortization of Operating Lease Right-of-Use Assets 676,000 607,000 Deferred gain on sale of real estate ( 38,000 ) ( 38,000 ) (Gain)/Loss on sale of equipment ( 15,000 ) 14,000 Allowances for Credit Losses 52,000 63,000 Amortization of deferred financing costs 68,000 68,000 Changes in Operating Assets and Liabilities (Increase) Decrease in Operating Assets: Accounts receivable ( 1,060,000 ) 1,528,000 Inventory 1,040,000 1,970,000 Prepaid expenses and other current assets ( 74,000 ) 10,000 Prepaid taxes ( 19,000 ) ( 9,000 ) Deposits and other assets 375,000 ( 600,000 ) Increase (Decrease) in Operating Liabilities: Accounts payable and accrued expenses 961,000 ( 1,451,000 ) Operating lease liabilities ( 879,000 ) ( 779,000 ) Customer deposits ( 2,442,000 ) 2,776,000 NET CASH PROVIDED BY OPERATING ACTIVITIES 324,000 4,862,000 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 2,301,000 ) ( 2,119,000 ) Proceeds from sale of fixed assets 16,000 7,000 NET CASH USED IN INVESTING ACTIVITIES ( 2,285,000 ) ( 2,112,000 ) CASH FLOWS FROM FINANCING ACTIVITIES Note payable - revolver - net - Current Credit Facility 2,101,000 ( 2,548,000 ) Proceeds from term loan - Current Credit Facility 1,006,000 740,000 Proceeds from term loan - Solar Facility 8,000 393,000 Proceeds from Common Stock issued for cash 327,000 - Payments of term loan - Current Credit Facility ( 869,000 ) ( 1,113,000 ) Payments of deferred Financing Costs - ( 25,000 ) Payments of finance lease obligations ( 196,000 ) ( 123,000 ) Payments of loan payable - financed asset ( 9,000 ) ( 9,000 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,368,000 ( 2,685,000 ) NET INCREASE IN CASH 407,000 65,000 CASH AT BEGINNING OF YEAR 346,000 281,000 CASH AT END OF YEAR $ 753,000 $ 346,000 See Notes to Consolidated Financial Statements F- 6 AIR INDUSTRIES GROUP Consolidated Statements of Cash Flows For the Years Ended December 31, (Continued) 2024 2023 Supplemental cash flow information Cash paid during the year for interest $ 1,849,000 $ 1,913,000 Cash paid during the year for taxes $ 20,000 $ 6,100 2024 2023 Supplemental Disclosure of non-cash investing and finance activities Financing from Solar Credit Facility directly to contractor $ 533,000 $ - Acquisition of financed lease asset $ 319,000 $ 679,000 See Notes to Consolidated Financial Statements F- 7 AIR INDUSTRIES GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. ORGANIZATION AND BASIS OF PRESENTATION Organization Air Industries Group is a Nevada corporation (“AIRI”). As 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, Inc. (“NTW”), and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”). Principal Business Activity The Company is a leading manufacturer of precision assemblies and components for large aerospace and defense prime contractors. Its products include landing gears, flight controls, engine mounts and components for aircraft jet engines, ground turbines and other complex machines. Most of its machined components and assemblies are integral to high-profile platforms and named programs including the F-18 Hornet, the E2D Hawkeye, the UH-60 Black Hawk Helicopter, the Geared Turbo-Fan Engine, the CH-53 Helicopter, the F-35 Lighting II (also known as the Joint Strike Fighter) and the F-15 Eagle Tactical Fighter. Our direct customers are primarily large aerospace and defense prime contractors. The ultimate end-users for most of our products are the U.S. Government, international governments, and commercial global airlines. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and the rules and regulations of the Securities and Exchange Commission. 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 At each reporting period, management evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company is required to make certain additional disclosures if management concludes substantial doubt exists about the Company’s ability to continue as a going concern provided that such doubt is not alleviated by the Company’s plans or when the Company’s plans do not alleviate substantial doubt about its ability to continue as a going concern. This evaluation entails analyzing prospective operating budgets and forecasts for expectations regarding cash needs and comparing those needs to the current cash balance and expectations regarding cash to be generated over the following year. As of December 31, 2024, the Company met all the 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 debt. The terms of all outstanding indebtedness are discussed further in “Note 8. Debt”. 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 conditions. However, the Company does have exposure to the commercial aviation, and demand for these products may be reduced if general economic conditions deteriorate. F- 8 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 cash receipts are remitted. If it were to default under the Current Credit Facility, the Company’s lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact the Company’s operating results. If the lender were to cease making new loans under the revolving facility, the Company would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, 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 do not include any adjustments relating to the recoverability and classification of recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 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 or estimated net realizable value using the first-in first out method. The Company periodically evaluates inventory items not secured by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value. Adjustments to inventory net realizable value are recorded in cost of sales. Property and Equipment Property and equipment are carried at cost net of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, 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 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 presented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related debt. The amortization of financing costs is included in interest expense in the Consolidated Statements of Operations. F- 9 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 U.S. 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, the U.S. 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 basis. (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 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. F- 10 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 to our contracts are not distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative adjustment to revenue. 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. 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. Warranties 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, 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 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, 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. F- 11 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 Customer 2024 2023 RTX (A) 29.3 % 29.3 % Lockheed Martin 25.1 % 24.7 % Northrop 18.3 % 3.6 % Boeing 0.7 % 12.2 % (A) RTX includes Collins Landing Systems and Collins Aerostructures The composition of customers that exceed 10% of accounts receivable 2024 or 2023 are shown below: Percentage of Net Receivables Customer 2024 2023 RTX (A) 38.2 % 45.5 % Ontic 14.6 % 1.1 % Northrop 11.0 % 8.2 % Boeing 2.6 % 16.3 % (A) RTX includes Collins Landing Systems and Collins Aerostructures Disaggregation of Revenue The following table summarizes revenue from contracts with customers for the years ended December 31, 2024 and 2023: December 31, 2024 December 31, 2023 Product Military $ 38,498,000 $ 42,394,000 Commercial 16,610,000 9,122,000 Total $ 55,108,000 $ 51,516,000 Cash 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 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. F- 12 Income Taxes 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 between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the 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. 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: December 31, December 31, 2024 2023 Stock Options 180,250 461,870 180,250 461,870 F- 13 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: December 31, December 31, 2024 2023 Stock Options 236,753 - Restricted Stock units 282,628 - Convertible notes payable 405,800 405,800 925,181 405,800 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 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. Leases 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. 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. An 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. F- 14 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. See Note 15. Segment Information. In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, related to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses”, which requires public business entities to disclose additional information about specific expenses categories in the notes to financial statements at interim and annual reporting periods. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures. The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements. Note 3. ACCOUNTS RECEIVABLE The components of accounts receivable at December 31, are detailed as follows: December 31, 2024 December 31, 2023 Accounts Receivable Gross $ 9,296,000 $ 8,236,000 Allowance for Credit Losses ( 396,000 ) ( 344,000 ) Accounts Receivable Net $ 8,900,000 $ 7,892,000 The allowance for credit losses for the years ended December 31, 2024 and 2023 is as follows: Balance at Charged to Deductions Balance at Beginning of Costs and from End of Year Expenses Reserves Year Year ended December 31, 2024 Allowance for Credit Losses $ 344,000 $ 203,000 $ ( 151,000 ) $ 396,000 Year ended December 31, 2023 Allowance for Credit Losses $ 281,000 $ 88,000 $ ( 25,000 ) $ 344,000 F- 15 Note 4. INVENTORY The components of inventory at December 31, consisted of the following: December 31, December 31, 2024 2023 Raw Materials $ 6,318,000 $ 4,968,000 Work In Progress 13,028,000 12,798,000 Semi-Finished Goods 8,805,000 10,296,000 Final-Finished Goods 660,000 1,789,000 Total Inventory $ 28,811,000 $ 29,851,000 Note 5. PROPERTY AND EQUIPMENT The components of property and equipment at December 31, consisted of the following: December 31, December 31, 2024 2023 Land $ 300,000 $ 300,000 Buildings and Improvements 2,739,000 2,206,000 31.5 years Machinery and Equipment 25,592,000 24,552,000 5 - 8 years Tools and Instruments 15,238,000 14,314,000 1.5 - 7 years Automotive Equipment 266,000 266,000 5 years Furniture and Fixtures 309,000 299,000 5 - 8 years Leasehold Improvements 1,139,000 1,025,000 Term of lease Computers and Software 605,000 605,000 4 - 6 years Total Property and Equipment 46,188,000 43,567,000 Less: Accumulated Depreciation ( 37,379,000 ) ( 35,519,000 ) Property and Equipment, net $ 8,809,000 $ 8,048,000 Depreciation expense for the years ended December 31, 2024 and 2023 was approximately $ 2,072,000 and $ 2,268,000 , respectively. Note 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses at December 31, are detailed as follows: December 31, 2024 December 31, 2023 Accounts Payable $ 5,580,000 $ 5,461,000 Accrued Payroll 369,000 373,000 Accrued Bonuses 350,000 - Accrued Expenses – other 716,000 257,000 Accounts Payable and accrued expenses $ 7,015,000 $ 6,091,000 F- 16 Note 7. 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 $ 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. Note 8. Debt Indebtedness to third parties consists of the following: December 31, December 31, 2024 2023 Revolving loan to Webster Bank (“Webster”) $ 12,905,000 $ 10,804,000 Term loan, Webster 5,225,000 5,045,000 CT Green Bank Loan 970,000 393,000 Finance lease obligations 1,007,000 884,000 Loans Payable - financed assets 14,000 22,000 Subtotal 20,121,000 17,148,000 Less: Current portion ( 18,362,000 ) ( 16,036,000 ) Long Term Portion $ 1,759,000 $ 1,112,000 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. 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. F- 17 The below table shows the timing of payments due under the Term Loans: For the year ending Amount December 31, 2025 $ 5,225,000 Term Loan payable 5,225,000 Less: Current portion of Term Loan payable ( 5,225,000 ) Total long-term portion of Term Loan payable $ - Interest expense related to the Current Credit Facility amounted to approximately $ 1,304,000 and $ 1,391,000 for the years ended December 31, 2024 and 2023, respectively. Interest expense includes the amortization of deferred finance costs of $ 68,000 and $ 68,000 in 2024 and 2023, respectively. As of December 31, 2024, the Company was in full compliance with all financial covenants. 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. 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 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 . F- 18 ● 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 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. The Solar 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 . As of October 1, 2024, cumulative advances totaling $ 934,000 had been made including the payment of CT Green Bank’s closing costs of $ 25,000 . 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. F- 19 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 Year Ended December 31, December 31, 2024 2023 Finance Lease cost: Amortization of ROU assets $ 176,000 $ 84,000 Interest on lease liabilities 73,000 50,000 Total lease Costs $ 249,000 $ 134,000 Other Information: Cash Paid for amounts included in the measurement lease liabilities: Financing cash flow from finance lease obligations $ 196,000 $ 123,000 Supplemental disclosure of non-cash activity Acquisition of finance lease asset $ 319,000 $ 679,000 December 31, December 31, 2024 2023 Weighted Average Remaining Lease Term - in years 4.8 5.4 Weighted Average Discount rate - % 7.44 % 7.31 % As of December 31, 2024, the aggregate future minimum finance lease payment , including imputed interest are as follows: For the year ending Amount December 31, 2025 $ 291,000 December 31, 2026 266,000 December 31, 2027 190,000 December 31, 2028 190,000 December 31, 2029 190,000 Thereafter 74,000 Total future minimum finance lease payments 1,201,000 Less: imputed interest ( 194,000 ) Less: Current portion ( 223,000 ) Long-term portion $ 784,000 F- 20 Loans Payable – Financed Assets The Company financed the purchase of a delivery vehicle in July 2020. The 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 Amount December 31, 2025 $ 9,000 December 31, 2026 5,000 Loans Payable - financed assets 14,000 Less: Current portion ( 9,000 ) Long-term portion $ 5,000 Related Party Indebtedness Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich. Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services. From 2016 through 2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”) with Michael and Robert Taglich which generated proceeds to the Company totaling $ 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, 2024 consists of: Michael Taglich, Robert Taglich, Taglich Brothers, Director Director Inc. Total Convertible Subordinated Notes $ 2,666,000 $ 1,905,000 $ 241,000 $ 4,812,000 Subordinated Notes 1,000,000 350,000 - 1,350,000 Total $ 3,666,000 $ 2,255,000 $ 241,000 $ 6,162,000 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, 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. 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. F- 21 Note 9. 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 the leases. Year Ended December 31, December 31, 2024 2023 Operating lease cost: $ 1,286,000 $ 1,156,000 Total lease cost $ 1,286,000 $ 1,156,000 Other Information Cash paid for amounts included in the measurement lease liability: 1,070,000 1,038,000 Operating cash flow from operating leases $ 1,070,000 $ 1,038,000 December 31, December 31, 2024 2023 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: Amount December 31, 2025 $ 992,000 December 31, 2026 730,000 Total future minimum lease payments 1,722,000 Less: discount ( 139,000 ) Total operating lease maturities 1,583,000 Less: current portion of operating lease liabilities ( 881,000 ) Total long term portion of operating lease maturities $ 702,000 Note 10. STOCKHOLDERS’ EQUITY Common Stock – Issuances of Securities The Company issued 39,845 and 55,108 shares of common stock totaling $ 157,000 and $ 200,000 in payment of Director’s fees for the years ended December 31, 2024 and 2023, respectively. Such expense is included in Operating Expenses in the consolidated statements of operations. 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 . F- 22 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 . Note 11. EMPLOYEE BENEFITS PLANS The Company employs both union and non-union employees and maintains several benefit plans. Union 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. 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 $ 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. As such, 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 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. Others 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. Note 12. COMMITMENTS AND CONTINGENCIES On October 2, 2018, Contract Pharmacal Corp. (“Contract Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with respect to the property formerly occupied by the Company’s former subsidiary, Welding Metallurgy, Inc (“WMI”), at 110 Plant Avenue, Hauppauge, New York. Contract Pharmacal sought damages for an amount in excess of $ 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. Regardless 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. F- 23 From time to time the Company may be engaged in various lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest. Note 13. INCOME TAXES The provision for income taxes for the years ended December 31, 2024 and 2023, is set forth below: Year Ended Year Ended December 31, December 31, 2024 2023 Current Federal $ - $ - State - - 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, 2024 and 2023 is set forth below: Year Ended Year Ended December 31, December 31, 2024 2023 U.S. statutory income tax rate 21.00 % 21.00 % State taxes, net of federal benefit 0.22 % 2.43 % Permanent difference, overaccruals, and non-deductible items - 0.82 % - 2.71 % Change in state rate - 7.53 % - 15.20 % Deferred tax valuation allowance - 13.77 % - 10.13 % True-up and Other 0.90 % 4.61 % Total 0.00 % 0.00 % F- 24 The components of net deferred tax assets at December 31, are set forth below: December 31, December 31, 2024 2023 Deferred tax assets: Current: Net operation loss $ 4,871,000 $ 4,996,000 Allowance for doubtful accounts 140,000 133,000 Inventory - IRC 263A adjustment 296,000 336,000 Stock based compensation - options and restricted stock 218,000 159,000 Capitalized engineering costs 134,000 211,000 Amortization - NTW Transaction 178,000 251,000 Inventory reserve 644,000 715,000 Deferred gain on sale of real estate 14,000 23,000 Accrued Expenses 113,000 37,000 Disallowed interest 2,269,000 2,024,000 Operating lease liabilities 339,000 546,000 Total deferred tax asset before valuation allowance 9,216,000 9,431,000 Valuation allowance ( 8,091,000 ) ( 7,903,000 ) Total deferred tax asset after valuation allowance 1,125,000 1,528,000 Deferred tax liabilities ( 255,000 ) ( 1,114,000 ) Property and equipment ( 870,000 ) ( 414,000 ) Total deferred tax liabilities ( 1,125,000 ) ( 1,528,000 ) Net deferred tax asset $ - $ - During the years ended December 31, 2024 and 2023, the Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, at this time sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2024 and 2023, the Company provided a valuation allowance on its net deferred tax assets of $ 8,091,000 and $ 7,903,000 , respectively. The Company’s valuation allowance increased by $ 188,000 and $ 202,000 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company had a Federal net operating loss carry forward of approximately $ 21,788,000 , of which approximately $ 14,144,000 expires from 2033 through 2037 and $ 7,644,000 does not expire. 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 utilization. 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. F- 25 Note 14. STOCK OPTIONS AND RESTRICTED STOCK UNITS Stock-Based Compensation Stock Options In September 2024, the shareholders of the Company approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used under the plan by 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, 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: 2024 2023 Risk-free interest rates 3.8 3.70 % - 3.97 % Expected life (in years) 2.7 2.50 - 3.5 Expected volatility 64 % 61 % 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. 107. 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. F- 26 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. Wtd. Avg. Exercise Options Price Balance, January 1, 2023 303,050 $ 11.70 Granted during the period 189,620 3.46 Exercised during the period - - Terminated/Expired during the period ( 30,800 ) 13.60 Balance, December 31, 2023 461,870 $ 8.34 Granted during the period 80,000 3.75 Exercised during the period ( 15,229 ) 3.45 Terminated/Expired during the period ( 109,638 ) 9.86 Balance, December 31, 2024 417,003 $ 7.00 Exercisable at December 31, 2024 372,005 $ 7.41 Issuance of Stock Options Issued in 2024 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 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. 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 years . The following table summarizes information about outstanding stock options at December 31, 2024: Wtd. Avg. Range of Exercise Price Number Outstanding Wtd. Avg. 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, 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 during the years ended December 31, 2024 and 2023 was $ 3.75 and $ 3.46 per share, respectively. The total intrinsic value of options exercised 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. F- 27 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 Weighted Average Grant Date Fair Value per Unit Unvested Units at January 1, 2024 - $ - Granted during the period 282,628 6.06 Vested during the period - - Terminated/Forfeited during the period - - Unvested Units at December 31, 2024 282,628 $ 6.06 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. Note 15. 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. The CODM 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 equipment. 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 States. F-28