What changed in this filing

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Item 9A. Controls and Procedures

2026-03-27 compared with 2025-04-15 · 826 added, 610 removed, 1124 unchanged (56% of the section changed)

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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

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.

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 (“PFO”), of the effectiveness of the design and operation of our disclosure

controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, as of December 31, 2025.

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, 2025 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.

Management’s Report on Internal Control

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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.

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.

In connection with their review of our internal control over financial

reporting as of December 31, 2025, our Chief Executive Officer and Chief Financial Officer have concluded that our internal controls over

financial reporting were not effective as of December 31, 2025 as a result of a material weakness identified in 2022 that were not yet

Historically, 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 our personnel.

Further, we identified a material weakness with respect

to the activities of our 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 2024 and continuing in fiscal 2025,

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, 2025.

This annual report does not include an attestation

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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.

During the fourth quarter of 2025, we implemented and enhanced our

internal control over financial reporting to include additional processes to monitor users being granted privileged access and enhanced

our 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, 2025, which is the subject of this report, that have materially

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

OTHER INFORMATION

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Not Applicable

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS, EXECUTIVE OFFICERS

AND CORPORATE GOVERNANCE

Our directors and executive officers

Luciano (Lou) Melluzzo

President and Chief Executive Officer

Scott Glassman

Chief Financial Officer

Acting Chief Executive Officer and President (effective 03-18-2026)

Brian Drisgula

Vice President of Finance (effective 03-18-2026)

Chairman of the Board

Michael Brand

Luciano (Lou) Melluzzo

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

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

From November 2003 to September 2011, Mr.

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

rising to the level of Chief Operating Officer in 2005.

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

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

listed on the Nasdaq Capital Market.

From September 2011 to November 2015, Mr.

Melluzzo was self-employed in the residential real estate

redevelopment industry.

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

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

Scott Glassman was

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

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

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

Financial Department.

Scott Glassman was appointed to the positions of Acting Chief Executive

Officer and President of the Company on March 18, 2026.

Glassman has been employed by the Company since March of 2019, most recently

serving as the Chief Financial Officer, Principal Accounting Officer and Secretary of our Company since October 16, 2024.

Prior to that

he served as Chief Accounting Officer.

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.

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

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

worked at a privately held distributor of commercial equipment where he served as Controller.

Glassman holds a Bachelor of Science

degree in Accounting from the State University of New York at Albany.

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

Brian Drisgula was appointed to the position

of Vice President of Finance, Principal Accounting Officer and Secretary of our Company on March 18, 2026.

Drisgula has been employed

by the Company since October 14, 2024, most recently as the Director of Finance.

From April 2023 to October 2024, Mr.

Drisgula served

as Senior Finance Manager at Circor International, Inc, a large aerospace and defense contractor listed on the New York Stock Exchange.

Prior to joining Circor, from May of 2015 through February of 2023, he was Plant Controller for Akorn, Inc., a publicly held generic

pharmaceutical manufacturer.

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

and has been licensed as a CPA by the State of New York since 2000.

has been a director of our Company since 2005 and was appointed Chairman of the Board on July 11, 2024.

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

Taglich is currently Chairman of the Board of Mare Island Dry

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

of a number of private companies.

Taglich is currently Chairman of the Board of Mare Island Dry Dock

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

a number of private companies.

been a director of our Company since 2008.

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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)

eleven meetings during the fiscal year ended December 31, 2025 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

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

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

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

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

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

providing to the Board additional information

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

The Audit Committee

held f ive meetings during fiscal 2024.

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;

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

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

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

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 five meetings during fiscal

Compensation Committee .

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is responsible for:

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

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

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

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

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

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

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

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

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

● establishing

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

of compensation programs;

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;

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;

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;

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;

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;

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

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

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relations personnel will:

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

forward the communication to the appropriate management personnel;

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

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

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

the communication to the appropriate management personnel;

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

forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic.

Code of Ethics

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Summary Compensation Table

Name and Principal Position

Name and Principal

Luciano Melluzzo*

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Scott Glassman

Michael Recca CFO

Melluzzo resigned from his position effective March 11, 2026.

Glassman was appointed Acting Chief Executive Officer and President effective March 18, 2026.

Represents car allowance.

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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 our executive officers and other employees.

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.

has determined that the current compensation structure aligns the interests of the executive officers with those of the Company without

providing rewards for excessive risk taking by awarding a mix of fixed and performance based or discretionary bonuses with the performance-based

compensation focused on profits as opposed to revenue growth.

The Compensation Committee

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

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

Melluzzo and Glassman for services rendered in fiscal

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

Equity Awards – 2024

The following table shows

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

GRANT OF PLAN-BASED AWARDS

Luciano Melluzzo

Scott Glassman

Each named executive officer

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

exceeding targeted goal.

As these goals were not met for 2025, the Committee believes the amounts to be paid to Messrs.

Glassman for services rendered in fiscal 2025 are appropriate.

Outstanding Equity Awards at 2025 Year-End

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Rights That Have

Equity Incentive Plan

Incentive Plan

Units or Other Rights

That Have Not Vested (1) ($)

That Have Not

Luciano Melluzzo

Scott Glassman

The dollar amounts shown in this column are

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

stock on December 31, 2024.

One-third of the RSUs subject to these awards

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

equal annual installments commencing on April 1, 2026.

The dollar amounts shown in this column are determined by multiplying the number of shares or units in the preceding column by $3.07, the closing price of the Company’s common stock on December 31, 2025.

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.

Melluzzo’s retirement, it was agreed that the awards to be received on April 1, 2026, would be released, and those for 2027 will be forfeited.

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;

We have three 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 1,055,000 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 was approved by our stockholders in June

and amendments to the 2022 Equity Incentive Plan were approved by our stockholders at our Annual Meeting in 2023 and 2024, and most

recently at our Annual Meeting in 2025 to increase the number of shares as to which grants may be awarded to 900.000;

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.

and the 2016 Equity Incentive

Plan authorizes grants as to 35,000 shares and was approved by our stockholders in November 2016.

The Plans permit the Company

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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

The following table sets forth information known

to us regarding beneficial ownership of our Common Stock as of March 25, 2026 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 Principal Financial Officer,

our only 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 March 25, 2026, we had outstanding 4,781,054

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.

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

Directors and Executive Officers:

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Michael Porcelain

Luciano Melluzzo, President and CEO

Scott Glassman, CFO

Scott Glassman, Acting Chief Executive Officer and President

All Directors and Executive Officers as a group (7 persons owning shares)

1,573,636 (8)

Brian Drisgula, Vice President of Finance

Beneficial Ownership of More than 5% of Shares:

Star Equity Fund and Jeffery E.

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.

Taglich, 203,012 shares he may acquire upon conversion of convertible notes, but excluding shares for accrued interest thereon, 12,159 shares that he may acquire upon exercising RSUs and 23,620 shares he may acquire upon exercise of options, in each case exercisable within 60 days.

Includes shares owned by Mr.

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

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

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

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

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

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

Taglich, 168,907 shares he may acquire upon conversion of convertible notes, but excluding shares for accrued interest thereon, 12,159 shares he may acquire upon exercising RSUs and 23,620 shares he may acquire upon exercise of options, in each case exercisable within 60 days.

Includes 12,159 shares he may acquire upon converting RSUs and 46,640 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 12,159 shares he may acquire upon converting RSUs and 23,760 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 12,159 shares he may acquire upon converting RSUs and 25,760 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 60,791 shares he may acquire upon converting RSUs and 23,760 shares he may acquire upon exercise of options exercisable within 60 days.

Includes 32,586 shares he may acquire upon converting 12,159 RSUs and upon 20,427 RSUs vesting within 60 days.

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

Includes 371,919 shares that may be acquired upon conversion of convertible notes, and 182,510 shares that may be acquired upon exercise of options, in each case exercisable within 60 days.

The share information set forth below is based on the Schedule 13D filed with the SEC and the Company on March 23, 2026 reflecting ownership as of that date.

The beneficial ownership percentage set forth below is based upon 4,781,054 shares outstanding as of March 25, 2026.

The address for Charles L.

Frischer is 3156 East Laurelhurst Drive,

NE, Seattle, WA 98105.

The share information set forth below is based on the Schedule 13D filed with the SEC and the Company on January 21, 2026 reflecting ownership as of that date.

The beneficial ownership percentage set forth below is based upon 4,781,054 shares outstanding as of March 25, 2026.

Star Equity Holdings, Inc

Star Operating Companies, Inc.

Star Equity Fund, LP

Star Equity Fund, GP, LLC

Star Investment Management, LLC

Star Value Investments, LLC

The address for Star Equity, Star Operating Companies, Star Equity

Fund, Star Equity GP, Star Investment Management, Star Value Investments and Mr.

Eberwein is 53 Forest Avenue, Suite 101, Old

Greenwich, Connecticut 06870.

CERTAIN RELATIONSHIPS AND RELATED

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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.

completed by us since January 1, 2025, in which the amount involved exceeded $120,000 and in which any related person has a direct

or indirect material interest except that during 2025, we repaid $1,041,000 of subordinate notes and we incurred interest expense of

$356,000 in respect of the subordinated notes held by Michael Taglich, Robert Taglich and certain of their affiliates.

December 31, 2025, Michael Taglich and Robert Taglich held subordinated notes in the aggregate

principal amount of $4,871,000 as a result of transactions entered into prior to January 2025.

Of the $4,871,000, approximately

$2,519,000 bears an annual rate of interest of 6%, $1,802,000 bears an annual rate of 7% and $550,000 bears an annual interest rate

Of the $4,871,000, approximately $2,519,000 can be converted at the option of the holder into our common stock at $15.00 per

share and $1,802,000 can be converted at the option of the holder into our common stock at $9.30 per share.

The remaining $550,000

is not convertible.

There are no transactions

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PRINCIPAL ACCOUNTANT FEES

As required by our Audit Committee

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

The Audit Committee

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

fees charged by our principal accounting firm.

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

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

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

During fiscal years 2024 and

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

As required by our Audit Committee charter, our Audit Committee pre-approved

the engagement of our principal accounting firm CBIZ CPAs P,C, (“CBIZ CPAs”) and our predecessor principal accounting firm

Marcum LLP (“Marcum”) 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

The Audit Committee considered the role of CBIZ CPAs 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 2025 and 2024, the aggregate fees which we paid

to or were billed by CBIZ CPAs and Marcum for professional services were as follows:

Audit Fees (1)

Audit Related Fees (2)

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

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

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

Audit fees relate to professional services rendered in connection with

the audit of the Company’s annual financial statements, quarter reviews of financial statements and audit services provided in connection

with other statutory and regulatory filings.

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

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

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

Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on July 10, 2025).

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

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

Certificate of Amendment increasing number of authorized shares of common stock to 20,000,000 (incorporated by reference to the Company’s Current Report on Form 8-K filed on July 10, 2025) .

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).

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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).

Ninth 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 September 15, 2025).

Tenth 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 December 16, 2025).

Eleventh 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 27, 2026).

Form of Indemnification Agreement between the Company and each Director and Officer.

Form of Restricted Stock Unit Award Agreement under 2022 Equity Incentive Plan As Amended and Restated as of May 23, 2024.

Form of Per Diem Expense Reimbursement and Compensation Agreement between the Company and each Director.

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, 2025).

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).

Separation and Release Agreement date March 13, 2026, between the Company and Mr.

Lou Melluzzo (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 16, 2026).

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).

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

Consent of CBIZ CPAs P.C.

Consent of Marcum LLP

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Section 1350).

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).

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, 2024 filed on April 15, 2025).

Inline XBRL Instance Document.

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the undersigned, thereunto duly authorized.

April 15, 2025

March 27, 2026

AIR INDUSTRIES GROUP

/s/ Luciano Melluzzo

Luciano Melluzzo

President and Chief Executive Officer

(principal executive officer)

/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.

/s/ Luciano Melluzzo

President and CEO

Luciano Melluzzo

Acting Chief Executive Officer and President

(principal executive officer)

/s/ Brian Drisgula

Brian Drisgula

Vice President of Finance

(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 March 27, 2026 in the

capacities indicated.

/s/ Scott Glassman

Chief Financial Officer

Acting Chief Executive Officer and President

Scott Glassman

(principal executive officer)

/s/ Brian Drisgula

Vice President of Finance

Brian Drisgula

(principal financial and accounting officer)

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December 31, 2025 and 2024

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

Report of Independent Registered Public Accounting Firm – CBIZ CPAs P.C.

(PCAOB ID No:

Report of Independent Registered Public Accounting Firm – Marcum LLP (PCAOB ID No:

Consolidated Financial Statements:

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Notes to Consolidated Financial Statements F-9

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Report of Independent Registered Public Accounting

To the Shareholders and Board of Directors of

Air Industries Group

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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.

balance sheet of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2025, the related consolidated statements

of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2025, 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, 2025, and the results of its operations and its cash flows for the year ended

December 31, 2025, 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

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

The accompanying consolidated 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 is scheduled

to expire on September 30, 2026 and the Related Party Subordinated Notes mature on October 1, 2026.

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 and Related Party Subordinated notes expiration dates and the rights granted to the lender 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.

consolidated 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

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.

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 audit.

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 audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit 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 audit 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.

Our audit 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 audit 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 audit provide s 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:

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

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

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We determined that there are no critical audit matters.

/s/ CBIZ CPAs P.C.

CBIZ CPAs P.C.

We have served as the Company’s auditor

since 2008 (such date takes into account the acquisition of the attest business of Marcum llp

by CBIZ CPAs P.C.

effective November 1, 2024).

Saddle Brook, NJ

Report of Independent Registered

Public Accounting Firm

To the Shareholders and Board of Directors of

Air Industries Group

Opinion on the Financial Statements

We have audited the accompanying consolidated

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

of operations, changes in stockholders’ equity and cash flows for the year 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 the results of its operations and its cash flows for the year 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

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

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 audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ Marcum llp

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

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

We have served as the Company’s auditor from 2008 through 2025.

Saddle Brook, NJ

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Current Assets

Restricted Cash

Accounts Receivable, Net of Allowance for Credit Losses of $ 464,000 and $ 396,000

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Current Liabilities

Subordinated Notes - Related Party

Accounts Payable and Accrued Expenses

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Operating Expenses

Income/(Loss) from Operations

(Loss)/Income from Operations

Interest Expense

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( 1,366,000 )

Provision for Income Taxes

Benefit from Income Taxes

$ ( 1,305,000 )

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Stock Based Compensation

Exercise of stock options

Common Stock issued for cash

( 1,366,000 )

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Stock Based Compensation

Exercise of stock options

Common Stock issued for cash

Common Stock issued upon settlement of restricted stock units, net

( 1,305,000 )

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( 1,060,000 )

( 5,450,000 )

Prepaid expenses and other current assets

Contract costs receivable

Prepaid taxes

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Accounts payable and accrued expenses

( 1,451,000 )

Operating lease liabilities

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( 2,442,000 )

NET CASH PROVIDED BY OPERATING ACTIVITIES

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

( 1,352,000 )

CASH FLOWS FROM INVESTING ACTIVITIES

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Note payable - revolver - net - Current Credit Facility

( 2,548,000 )

Proceeds from term loan - Current Credit Facility

Proceeds from term loan - Solar Facility

Proceeds from Common Stock issued for cash

Net proceeds from Common Stock issued for cash

Payments for taxes related to net share settlement of equity awards

Payments of subordinated Notes - Related party

( 1,291,000 )

Payments of term loan - Current Credit Facility

( 1,010,000 )

Payments of deferred Financing Costs

Payments of finance lease obligations

Payments of loan payable - financed asset

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

( 2,685,000 )

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE IN CASH

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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

Our direct customers are primarily large aerospace

The Company’s direct customers are primarily large aerospace

and defense prime contractors.

The ultimate end-users for most of our products are the U.S.

The ultimate end-users for most of its products are the U.S.

Government, international governments, and

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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

As of December 31, 2025, debt under the Company’s Current Credit

Facility and Related Party Subordinated Notes approximates $ 28,344,000 .

The Current Credit Facility is scheduled to expire on September

30, 2026, and the Related Party Subordinated Notes mature on October 1, 2026.

These obligations are classified as current liabilities

on the consolidated balance sheets as of December 31, 2025.

As a result of the aforementioned and rights that the Current Credit Facility

lender could exercise, there is substantial doubt about the Company’s ability to continue as a going concern for the twelve months

following the date of filing of these consolidated financial statements.

The Company is actively engaged in constructive

discussions with various lenders as the Company has been advised by its lender that it will not renew its Current Credit Facility.

these discussions have been professional and remain ongoing, there can be no assurance that agreements will be reached with existing lenders

or through alternative financing sources.

To support current operations and strategic initiatives,

the Company has raised capital through public market sales of its common stock since December 2024 and believes it can continue to access

equity markets in future periods.

During the year ended December 31, 2025, the Company generated gross proceeds of $ 4,869,000 through

an At The Market (“ATM”) Offering, of which approximately $ 3,930,000 is restricted for the benefit of the Current Credit Facility

In light of ongoing negotiations with all of our lenders and the terms of the Merger Agreement with Tenax, the Company has temporarily

paused all equity raising activity.

As of December 31, 2025, the Company was in compliance with its minimum

Fixed Coverage Charge ratio (“FCCR”) of 1.10x on a quarterly basis as well as the requirement that fixed asset acquisitions

not exceed $ 3,300,000 .

All other financial and business covenants under the terms its Current Credit Facility were met as of December

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

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

as compared to fiscal 2024.

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

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

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

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

The Company generally sources its raw material,

principally metal casting or forgings, from domestic sources.

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

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

One product for commercial

aviation is sourced from China.

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

increases by more than five percent ( 5 %).

The Company’s products are used primarily

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

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

economic conditions deteriorate.

The Current Credit Facility expires on December

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

are remitted.

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

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

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

If the lender

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

The Current Credit

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

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

of the date of filing these consolidated financial statements.

The accompanying consolidated financial statements

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.

The Company is required to maintain a collection account with its lender

into which substantially all cash receipts are remitted.

Additionally, if the Company were to be in default of its Current Credit Facility

the lender could choose to exercise its rights, for example, increasing the rate of interest or refusing 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 or exercise other remedies available under the Current Credit Facility, it would adversely impact the Company’s operating

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

the Company would lack the funds to continue operations or, possibly, expand its operations.

As a result of recent contract awards, as of December 31, 2025, the

Company had total unfilled contract values amounting to $ 270.1 million (including its $ 136.8 million in funded backlog plus additional

potential funded orders against Long-Term Agreements (“LTAs”).

These unfilled contract values support a positive outlook for

future growth;

however, extended lead times for raw material procurement and the complexity of manufacturing processes are expected to

delay revenue acceleration until late 2026.

The Company generally sources its raw material, principally metal casting

or forgings, from domestic sources.

As such, the Company is generally not exposed to increased prices on imports but would be subject

to increased prices if proposed tariffs or disruptions in supply chains resulting from tariffs or other geopolitical events, cause the

general level of prices for its products to increase.

One component used by the Company on a key commercial aviation program is sourced

The Company’s contract with its customer for the product requires the Company to absorb the first five percent ( 5 %)

of any cost increases with further increases absorbed by the customer.

A substantial portion of the Company’s products are used in United

States military aviation and as such, changes in the US defense budget are more material to demand than to changes in general economic

However, the Company does have significant exposure in commercial aviation;

demand for these products may be reduced if general

economic conditions deteriorate reducing demand for commercial air travel.

The accompanying consolidated financial statements do not include any

adjustments relating to the recoverability and classification of recorded assets or the classification of liabilities that might be necessary

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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 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.

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.

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.

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

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

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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.

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, 2025 and 2024.

Deferred Financing Costs

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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.

Contract costs receivable totals $0 at December 31, 2025 and $ 296,000 at December 31, 2024.

Company collected this receivable on March 18, 2025.

Risks and Uncertainties

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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.

the ongoing conflict between Israel and Hamas, and the ongoing conflict between the United States, Israel and Iran, the imposition of

tariffs and shifts in international alliances, have resulted, and may continue to result, in a global slowdown of economic activity, which

may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients and as a result,

the Company, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time.

Additionally, recent changes to U.S.

policy implemented by the

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

among other things, the U.S.

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

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.

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,

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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.

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

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.

The Company’s revenue is generated from

fixed-price contracts.

Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price, which

is estimated during the bidding process before the contract is awarded.

To the extent actual costs vary from the estimates upon which

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

The Company evaluates the products promised in

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

Company’s contracts are typically accounted for as one performance obligation.

The Company classifies net sales as products on its

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

The Company determines the transaction price for

each contract based on the consideration expected to be received for the products being provided under the contract.

At the inception of a contract, the Company estimates

the transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on

contracts until they become legally enforceable.

1 unchanged sentence

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.

Depending on the nature of the modification, the

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

modifications to 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.

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

contract termination order is issued prior to final delivery.

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

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

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

separate performance obligations.

The Company recognizes 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 the Company no longer maintains 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 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

manufactured are specific to the type of aircraft that they are used on, there are alternate customers that can acquire and utilize these

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, 2025 and 2024, were not material.

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were $ 391,000 and $ 1,115,000 , 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 $ 724,000 during year ended December 31, 2025, that was included

in the customer deposits balance as of December 31, 2024.

The Company recognized revenue of $ 2,442,000 during the year ended December

31, 2024, that was included in the customer deposits balance of $ 3,557,000 as of December 31, 2023.

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.

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

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

As of December 31, 2025, backlog relating to remaining

performance obligations on contracts was approximately $ 136.8 million.

The Company estimates that a substantial portion of this backlog

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

This expectation assumes that raw material

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

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

are not in our backlog.

Use of Estimates

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(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:

The composition of customers that exceeded 10% of accounts receivable

at December 31, 2025 or 2024 are shown below:

Percentage of Net Receivables

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for the years ended December 31, 2025 and 2024:

December 31, 2025

December 31, 2024

For the years ended December 31, 2025 and 2024,

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any losses on these accounts.

As of December 31, 2025, and December 31, 2024 the Company reported

restricted cash of $ 3,930,000 and $ 0 on its consolidated balance sheets.

Restricted cash represents proceeds from the Company’s

ATM offering that are pledged as security for its obligations under the Current Credit Facility.

The following table reconciles cash and restricted cash reported with

the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:

Restricted Cash

Total cash and restricted cash

Major Suppliers

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

The following securities have been excluded from

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

Stock Options

The following securities have been excluded from

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

There were no adjustments to net loss applicable

to common shareholders utilized to calculate EPS.

The following securities have been excluded from the calculation as

the exercise price was greater than the average market price of the common stock and because the effect of including these potential shares

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

Stock Options

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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

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

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

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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.

Assets held under finance lease obligations are

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

Recently Issued Accounting Pronouncements

In November 2023, Financial Accounting Standards

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

Improvements to Reportable

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

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

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

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

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

The amendments in this update are effective

for fiscal years beginning after December 15, 2023.

The Company has retrospectively adopted this pronouncement.

These updates resulted

in expanded disclosures.

Segment Information.

In December 2023, the FASB issued ASU 2023-09

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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.

The Company adopted

the guidance prospectively in the fiscal year beginning January 1, 2025 and additional required disclosures have been included in Note13.

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 expense 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

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 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

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31, are detailed as follows:

December 31, 2025

December 31, 2024

Accounts Receivable Gross

4 unchanged sentences

Year ended December 31, 2025 Allowance for Credit Losses

$ ( 151,000 )

Year ended December 31, 2024 Allowance for Credit Losses

$ ( 151,000 )

The components of inventory at December 31, consisted

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31, consisted of the following:

Buildings and Improvements

Machinery and Equipment

Tools and Instruments

1.5 - 7 years

Automotive Equipment

Furniture and Fixtures

Leasehold Improvements

Term of lease

Computers and Software

December 31, December 31,

Land & Improvements $ 313,000 $ 300,000

Buildings and Improvements 2,739,000 2,739,000 31.5 years

Machinery and Equipment 26,953,000 25,592,000 5 - 8 years

Tools and Instruments 16,278,000 15,238,000 1.5 - 7 years

Automotive Equipment 266,000 266,000 5 years

Furniture and Fixtures 309,000 309,000 5 - 8 years

Leasehold Improvements 1,139,000 1,139,000 Term of lease

Computers and Software 705,000 605,000 4 - 6 years

Total Property and Equipment 48,702,000 46,188,000

Accumulated Depreciation ( 39,201,000 ) ( 37,379,000 )

( 37,379,000 )

( 35,519,000 )

Property and Equipment, net $ 9,501,000 $ 8,809,000

49 unchanged sentences

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.

The Company has a credit facility (“Current Credit Facility”)

with Webster Bank that expires on September 30, 2026 .

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”), and a $ 5,700,000 term loan (“Term

An additional advance under the Term Loan was made during the first quarter of 2025 in the amount of $ 1,640,000 and reference

herein to the “Term Loan” for periods after the date of such advance include the $ 1,640,000 .

The loan is secured by a lien

on substantially all of the assets of the Company.

As of December 31, 2025, there is $ 17,618,000

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

outstanding under the Revolving Line of Credit and $ 5,855,000 under the Term Loan.

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.

expires on September 30, 2026.

Therefore, amounts owed under the agreement are classified as short term as of December 31, 2025.

The below table shows the timing of payments due

under the Term Loans:

under the Term Loan:

For the year ending

8 unchanged sentences

includes the amortization of deferred finance costs of $ 69,000 and $ 68,000 in 2025 and 2024, respectively.

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

The below summarizes various terms of the Current Credit Facility:

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

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

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

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

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

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

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

Charge Ratio of 1.25x .

The below summarizes various terms of the Current

Credit Facility:

The Company was 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.

The Company achieved the required FCCR

for the period ended September 30, 2025, but did not meet the required FCCR for the period ended June 30, 2025, having attained a ratio

of only 0.76x.

Pursuant to the 10 th Amendment to the current credit facility (detailed below), the Company was required to

and achieved the required Fixed Coverage Charge Ratio of 1.10x for the three months ending December 31, 2025.

At both December 31, 2025

and 2024, the Company was in full compliance with its covenants.

The Current Credit Facility limits the amount of capital expenditures

and dividends the Company can pay to its stockholders.

As of December 31, 2025, the Company was in compliance with this Covenant.

Substantially all of the Company’s assets

are pledged as collateral.

● 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.

For the fiscal year ended December 31, 2025, based on the calculation there is no Excess Cash Flow payment required.

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

The average interest rate charged was 6.72 % and 7.55 % for the years ended December 31, 2025 and 2024, 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 .

● 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.

● On May 31, 2024, the Company entered into a Seventh Amendment that

waived the default caused by the failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment.

This amendment further

revised the Financial Covenants.

For the six months ending June 30, 2025, EBITDA shall not be less than $ 740,000 ;

for the nine months

ending September 30, 2025, EBITDA shall not be less than $ 1,500,000 ;

for the twelve months ending December 31, 2025, EBITDA shall not

be less than $ 2,800,000 .

For the rolling twelve-month period ending March 31, 2025, the Company is 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 required Fixed Charge

Coverage Ratio is 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.

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, the Company 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 the Financial Covenants.

For the rolling twelve-month period

ending March 31, 2025 and June 30, 2025, the Company is 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 required Fixed Charge Coverage Ratio is 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

All other covenants remain unchanged.

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

● On September 10, 2025, the Company entered into a Ninth Amendment where it agreed that $ 3,930,000 of the proceeds from its ATM Offering would be maintained in an interest bearing account.

The funds in this account serve as additional security for its obligations under the Current Credit Facility.

Additionally, this amendment waived the default as June 30, 2025.

● On December 15, 2025, the Company entered into a Tenth Amendment which waived the defaults caused by the failure to achieve the required fixed charge coverage ratio for the fiscal quarter ended June 30, 2025, and for exceeding the permitted amount of capital expenditures for the fiscal year ending December 31, 2025.

Additionally, the maturity date of the revolving credit and term loans were extended to March 31, 2026, and amended the capital expenditure covenant.

The Company paid an amendment fee of $ 40,000 .

On February 26, 2026, the Company entered into an Eleventh Amendment

which extended the maturity date of the revolving credit and term loans to September 30, 2026.

The Company paid an amendment fee of $ 25,000 .

Currently, at any time, Webster Bank could choose to exercise additional

rights, that it has as a result of the Company’s defaults under the Current Credit Facility.

For example, it could 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 cease making new loans under the revolving facility or limit the amount of loans under the revolving

facility, the Company would lack the funds to continue or, possibly, expand operations.

To date, the lender has chosen not to exercise

any of its remedies, though we agreed to put $ 3,930,000 of ATM proceeds in an interest bearing account to serve as additional security

for the Company’s obligations under the Current Credit Facility.

We remain in constructive discussions with Webster Bank regarding

potential extension of these obligations but there can be no assurance that an agreement will be reached.

All amendment fees paid in connection with the

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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 .

amount of $ 42,000 commenced on July 1, 2025.

The first semi-annual payment was 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, 2025, the amount classified as long

term is $ 943,000 and the amount classified as current is $ 28,000 .

Interest expense related to the Solar Credit Facility

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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

The Company has entered into finance leases for the purchase of manufacturing

The obligations for the finance leases totaled $ 784,000 and $ 1,007,000 as of December 31, 2025 and 2024, respectively.

leases have an average imputed interest rate of 7.43 % 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 $ 66,000 and $ 73,000 for the years ended

December 31, 2025 and 2024, respectively

Finance Lease cost:

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Loans Payable – Financed Assets

The Company financed the purchase of a delivery vehicle in July 2020.

loan obligation totaled $ 14,000 and $ 22,000 as of December 31, 2024 and 2023, respectively.

The loan bears no interest and a final payment

is due and payable for all unpaid principal on July 20, 2026.

The Company financed the purchase of a delivery

vehicle in July 2020.

The loan obligation totaled $ 5,000 and $ 14,000 as of December 31, 2025 and 2024, 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:

1 unchanged sentence

December 31, 2026

Loans Payable - financed assets

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notes totaling $ 554,000 for placement agency fees.

Under the Eighth Amendment to the Current Credit Facility, the Company

was allowed to make principal payments of up to $ 4,800,000 prior to June 30, 2025, with funds raised in the Company’s ATM Offering.

The Company paid a total of $ 1,291,000 of principal payments.

Of the $ 1,291,000 paid, $ 1,050,000 was paid to Michael Taglich and $ 241,000

was paid to Taglich Brothers, Inc.

The Related Party Notes outstanding as of December

31, 2025 consists of:

Michael Taglich, Robert Taglich, Taglich Brothers,

Convertible Subordinated Notes

Subordinated Notes

The Related Party Notes outstanding as of December

31, 2024 consist of:

Michael Taglich,

Robert Taglich,

Taglich Brothers,

Convertible Subordinated Notes

Subordinated Notes

Of the $ 4,871,000 , approximately $ 2,519,000 bears

an annual rate of interest of 6 %, $ 1,802,000 bears an annual rate of 7 % and $ 550,000 bears an annual interest rate of 12 %.

expense for the years ended December 31, 2024 and 2023 was $ 472,000 and $ 472,000 , respectively.

Interest expense

for the years ended December 31, 2025 and 2024 was $ 356,000 and $ 472,000 , respectively.

Approximately $ 2,519,000 of the convertible subordinated

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The remaining $ 550,000 is not convertible.

There are no principal payments due on these notes prior to July 1, 2026.

On March 26, 2026, the holders of the Related

Party Notes extended the maturity date to October 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.

debt pursuant to the Current Credit Facility and mature on October 1, 2026.

There are no principal payments due on these notes prior to

October 1, 2026.

OPERATING LEASE LIABILITIES

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December 31, 2026

Total future minimum lease payments

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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 second quarter of 2025, the Company

issued 57,192 shares of common stock upon the vesting of Restricted Stock Units (“RSUs”) to certain employees.

of the units vested were withheld to satisfy the withholding tax required to be paid on the 95,210 Restricted Share Units which vested.

There were no issuances of common stock due to

the exercise of stock options for year ended December 31, 2025.

The Company issued 15,229 shares, of common stock to net settle the exercise

of stock options for the year ended December 31, 2024.

During the first quarter of 2026, the Company

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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 .

In connection with its’ At The Market offering, the Company sold

and issued 1,213,593 and 116,851 shares during the years ended December 31, 2025 and 2024, respectively, pursuant to a Registration Statement

on Form S-3 declared effective on December 19, 2024.

The gross proceeds for the years ended December 31, 2025 and 2024 were $ 4,866,000

and $ 509,000 , respectively.

Costs associated with sales for the years ended December 31, 2025 and 2024 were $ 228,000 and $ 182,000 .

EMPLOYEE BENEFITS PLANS

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and maintains several benefit plans.

Our AIM subsidiary has a collective bargaining

agreement with the United Service Workers, IUJAT, Local 355 (the “Union”).

This agreement is effective until December 31,

2027 and covers the majority of AIM’s 125 personnel.

The Company is not required to make a monthly contribution to Union’s

United Welfare Fund and the United Services Worker’s Security Fund, the sole pension benefit for covered employees.

is not obligated to provide any future defined benefits.

The Company is obligated to make contributions for union dues and a security

fund (defined contribution plan) for the benefit of each union employee.

Contributions to the security fund amounted to $ 145,000 and $ 147,000

for the years ended December 31, 2024 and 2023, respectively.

The Union’s retirement plan is a defined contribution plan.

the Company is not responsible for the obligations of other companies in the Union’s retirement plan.

The Company’s 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 $ 146,000 and $ 145,000 for the years ended December 31, 2025 and 2024, respectively.

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

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

respect to the property formerly occupied by the Company’s former subsidiary, Welding Metallurgy, Inc (“WMI”), at 110

Plant Avenue, Hauppauge, New York.

Contract Pharmacal sought damages for an amount in excess of $ 1,000,000 for the Company’s failure

to make the entire premises available by what it claims was the Sublease commencement date.

On July 8, 2021, the Court denied Contract

Pharmacal’s motion for summary judgement.

In the Order, the court granted Contract Pharmacal’s Motions to drop its claim for

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

Subsequently, Contact Pharmacal moved to

amend its Complaint.

The Company opposed and the Court denied the request to amend the Complaint.

Contract Pharmacal filed a Motion to

reargue which the Court denied on November 30, 2021.

On March 10, 2022, Contract Pharmacal filed an appeal to the Court’s decision

with the Appellate Division.

The Appellate Division upheld the denial of Contract Pharmacal’s motion for summary judgement and upheld

the denial of its motion to amend its Complaint.

On March 28, 2024, Contract Pharmacal filed a motion to reargue the appeal previously

denied by the Appellate Division.

Pending a decision by the Appellate Division the Trial Court has adjourned the case.

of the decision by the Appellate Division, Contract Pharmacal will be required to file an amended complaint.

The Company has consistently

disputed the validity of the claims asserted by Contract Pharmacal and continues to believe it has a meritorious defense to those claims

based on, among other items, language in the Sublease.

The Company intends to continue to dispute the validity of the claim asserted by

Contract Pharmacal.

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

In the action, Contract Pharmacal sought damages for an amount in excess of $ 1,000,000 for the Company’s alleged violation of the

terms of the subject sublease, specifically the failure to make the entire premises available by what it claims was the Sublease commencement

The validity of the action is extremely suspect in that the subject sublease had no specific commencement date and Contract Pharmacal

ultimately received all the space.

Discovery was conducted and the Plaintiff moved for summary judgement and to amend its complaint to

add a new cause of action all of which the company opposed.

On July 8, 2021, the Court denied Contract Pharmacal’s motion for summary

judgement and to add an additional cause of action.

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 both of which benefit the Company.

the Court’s decision, Contract Pharmacal filed a Motion to reargue its original motion which the Company opposed.

The Court denied

that motion on November 30, 2021 and then on March 10, 2022, Contract Pharmacal filed an appeal of the Court’s decision with the

Appellate Division of the State of New York.

The Company opposed that action.

The Company was again successful as the Appellate Division

upheld the lower court’s denial of Contract Pharmacal’s motion for summary judgement and its motion to amend its Complaint.

Contract Pharmacal has now submitted a motion to the Appellate Division requesting leave to reargue the court’s denial of its original

The Company will oppose that motion.

The Appellate Division has yet to act in respect to Contract Pharmacal’s most recent

motion to reargue the Court’s denial of the original appeal.

The Company continues to dispute the validity of the claims asserted

by Contract Pharmacal and intends to contest them vigorously

From time to time the Company may be engaged in

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or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.

The provision for income taxes for the years ended

December 31, 2024 and 2023, is set forth below:

For financial reporting purposes, the net pre-tax

book loss for the United States and foreign entities, in the aggregate, was:

$ ( 1,436,000 )

$ ( 1,366,000 )

$ ( 1,436,000 )

$ ( 1,366,000 )

The provision for (benefit from) income taxes

for the years ended December 31, 2025 and 2024, is set forth below:

$ ( 131,000 )

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

$ ( 131,000 )

The following is a reconciliation of our effective

tax rate on income and the statutory rate for the year ended December 31, 2025:

Current tax at U.S statutory rate

$ ( 301,000 )

State and local taxes, net of federal taxes (a)

Changes in Valuation Allowance

Nondeductible / non taxable items

Nondeductible/ nontaxable items

Other Adjustments

Deferred Adjustment - Asset Write-Down Related to Transferable Credit

True-up and Other

Sale of Transferable Credit

Income tax expense

$ ( 131,000 )

(a) For the year ended December 31, 2025, state taxes in California and New York made up the majority

(greater than 50% of the tax effect).

The rate reconciliation above has been adjusted

to be presented in compliance with the guidance under ASU No.

The Company has adopted this guidance on a prospective basis.

As previously disclosed for the year ended December

31, 2024, prior to the adoption of ASU No.

2023-09, the following is a reconciliation of our income tax rate computed using the federal

statutory rate to our actual income tax rate.

statutory income tax rate

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True-up and Other

The components of net deferred tax assets at

December 31, are set forth below:

Deferred income taxes reflect the net effects of temporary differences

between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

The components of net deferred tax assets at December

31, are set forth below:

Deferred tax assets:

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Operating lease liabilities

Charitable Contributions

Total deferred tax asset before valuation allowance

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Total deferred tax asset after valuation allowance

Deferred tax liabilities

( 1,114,000 )

Right of Use Asset

Property and equipment

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( 1,125,000 )

( 1,528,000 )

Net deferred tax asset

On July 4, 2025, the One Big Beautiful Bill was

enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S.

federal tax system.

Significant components

include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property.

Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”)

which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated

tax deductions of R&E that was previously capitalized for larger businesses.

The legislation also reinstates EBITDA-based interest

deductions for tax purposes and makes several business tax incentives permanent.

Less favorable business provisions include limitations

on tax deductions for charitable contributions.

In accordance with ASC 740, the Company recognized the effects of the OBBBA in the

period that included the enactment date.

The Company continues to evaluate the ongoing effects of the OBBBA, including the interaction

of the enacted provisions with its existing tax attributes and elections.

During the years ended December 31, 2025 and 2024,

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net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their

During the year ended December 31, 2025, the Company

generated Section 48 Energy Property Tax Credits related to qualifying energy property.

The Company sold these credits to an unrelated

The impact of the sale are reflected in the transferable credit line items outlined in the rate reconciliation above.

At December 31, 2025 and 2024, the Company had

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to examination by federal and state tax authorities.

There were no payments made in relation to income

taxes for the year ending December 31, 2025.

STOCK OPTIONS AND RESTRICTED STOCK

1 unchanged sentence

Stock Options

In September 2024, the shareholders of the Company

In June 2025, 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

1 unchanged sentence

In September 2024, the shareholders of the Company

approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be issued

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.

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, 2025 and 2024,

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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.

stock options as of December 31, 2025 and 2024, and changes during the years then ended are presented below.

Balance, January 1, 2024

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Issued in 2025

On December 8, 2025, the Company granted to its

directors’ stock options to purchase an aggregate of 60,000 shares of the Company’s common stock at a price of $ 3.00 per share.

The options expire on November 30, 2030 and vest over a term of six months.

Issued in 2024

On August 13, 2024, the Company granted to its

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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.

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, 2025:

Range of Exercise Price Number Outstanding Wtd.

Life Exercise Price

Range of Exercise Price Number

Outstanding Wtd.Avg,

Life Exercise

$3.00 - $23.80 425,703 2.5 years $ 6.01

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.

As of December 31, 2025, there was $ 35,000 of

unrecognized compensation cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average

vesting period of 0.5 years.

The aggregate intrinsic value at December 31, 2025, based on the Company’s

closing stock price of $ 4.07 was $ 121,000 .

The aggregate intrinsic value at December 31, 2024, 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

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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.

During the year ended December 31, 2024, the Company

granted 285,628 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, 2025 is presented below:

Number of Units

Average Grant

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Unvested Units at December 31, 2024

Granted during the period

Vested during the period

Terminated/Forfeited during the period

Unvested Units at December 31, 2025

Vested Units at December 31, 2025

During the first quarter of 2026, the Company

granted 243,172 RSUs to certain employees and directors with a grant date fair value of approximately $ 800,000 .

These RSUs vested immediately

upon being awarded.

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

expense of $ 865,000 and $ 480,000 in its consolidated statements of operations for the years ended December 31, 2025 and 2024, respectively,

and such amounts were included as a component of operating expenses on the consolidated statement of operations.

The fair value of the RSUs vested during the year ended December 31,

2025 was $ 318,000 .

All of the RSUs vested were net settled such that the Company withheld shares with a value equivalent to the employees’

obligation for the applicable income and other employment taxes, and remitted cash to the appropriate taxing authorities.

The total shares

withheld were 38,018 and were valued on their vesting date as determined by the Company’s closing stock price.

Total payments to

taxing authorities for tax obligations were $ 127,000 .

As of December 31, 2025, there was $ 373,000 of

unrecognized compensation cost related to non-vested RSUs, which is to be recognized over the remaining weighted average vesting period

of 1.25 years.

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as well as the Company’s operating lease right-of use assets recognized on the Consolidated Balance Sheets were located in the United

SUBSEQUENT EVENTS

On February 17, 2026,

the Company filed a Current Report on Form 8-K (the “Merger 8-K”), with respect to the Agreement and Plan of Merger (the “ Merger

Agreement ”) the Company and Transitory Air Sub LLC , its wholly owned subsidiary

(“ Merger Sub ”), entered into on February 16, 2026, with Tenax Aerospace Acquisition, LLC, a Delaware limited liability

company (“ Tenax ”).

Upon consummation of the Merger Agreement Tenax, will become a wholly owned Subsidiary of the Company.

Pursuant to the Merger

Agreement, the Company will issue shares of its common stock (the “ Merger Consideration ”) to the holders of the membership

interests of Tenax at the Closing (the “ Tenax Members ”).

A portion of the Merger Consideration allocated in respect

of membership interests of Tenax underlying certain Tenax warrants that remain unexercised as of the Closing, if any, will be reserved

by the Company for future issuance upon the exercise of such warrants.

The number of shares of the Company’s common stock to be

issued to the Tenax Members will be adjusted based on a calculation of AIR Net Indebtedness (as defined in the Merger Agreement).

on the amount of AIR Net Indebtedness as of December 31, 2025, the calculation would result in the issuance of approximately 112.5 million

shares of the Company’s Common Stock.

Consequently, based upon the calculation of the Merger Consideration as of December 31, 2025,

following the closing of the Merger, the Tenax Members will collectively own approximately 95 % of the outstanding shares of our Common

The closing of the merger

contemplated by the Merger Agreement (the “Merger”) is subject to risks and uncertainties and certain specified conditions,

including, among other things:

(a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, (b) the

listing of the Merger Consideration on the NYSE American, and (c) other customary conditions for a transaction such as the Merger,

such as the absence of any legal restraint prohibiting the consummation of the Merger and there not having occurred with respect to the

Company or Tenax’s business a material adverse event, subject to certain customary exceptions.

Tenax is a leading provider

of special mission aviation solutions that combine aircraft sourcing, financing and modification with aviation services including pilots,

maintenance and other types of program support.

Additionally, Tenax has a long-standing relationship with key government customers.

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

What changed 10-K

Item 9A. Controls and Procedures