AIR INDUSTRIES GROUP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures An evaluation was conducted under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”), our principal executive officer, and Chief Financial Officer (“CFO”), our principal financial officer (“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 over Financial Reporting Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting refers to those policies, procedures and processes that pertain to the maintenance of records that accurately and fairly reflect transactions with respect to our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are made only in accordance with authorizations of our management; and provide reasonable assurance regarding the prevention and timely detection of unauthorized transactions with respect to our assets that could have a material effect on our financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). In connection with their review of our internal control over financial reporting as of December 31, 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 remediated. 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. 34 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 report of our registered public accounting firm regarding internal control over financial reporting. The rules of the Securities and Exchange Commission do not require an attestation of the Management’s report by our registered public accounting firm in this annual report. Change in Internal Control over Financial Reporting During the fourth quarter of 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. ITEM 9B. OTHER INFORMATION None ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION Not Applicable 35 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Our directors and executive officers are: Name: Age Position Scott Glassman 48 Acting Chief Executive Officer and President (effective 03-18-2026) Brian Drisgula 53 Vice President of Finance (effective 03-18-2026) Michael N. Taglich 60 Director Robert F. Taglich 59 Director David J. Buonanno 70 Director Peter D. Rettaliata 75 Chairman of the Board Michael Brand 68 Director Michael D. Porcelain 57 Director Scott Glassman was appointed to the positions of Acting Chief Executive Officer and President of the Company on March 18, 2026. Mr. 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. Mr. Glassman previously had been employed by the Company from February of 2007 to February of 2015, serving in various senior positions in the Company’s Financial Department. From March of 2015 to November of 2018, Mr. Glassman worked at a privately held distributor of commercial equipment where he served as Controller. Mr. Glassman holds a Bachelor of Science degree in Accounting from the State University of New York at Albany. Mr. Glassman has been a CPA licensed 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. Mr. 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. Mr. 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. Peter D. Rettaliata has been a director of our Company since 2005 and was appointed Chairman of the Board on July 11, 2024. He served as our Acting President and Chief Executive Officer from March 2, 2017 to November 15, 2017 and served as our President and Chief Executive Officer from November 30, 2005 to December 31, 2014. He also served as the President of our wholly-owned subsidiary, AIM, from 1994 to 2008. Prior to his involvement at AIM, Mr. Rettaliata was employed by Grumman Aerospace Corporation for twenty-two years, as the Senior Procurement Officer. Professionally, Mr. Rettaliata has served as the Chairman of “ADDAPT”, an organization of regional aerospace companies, as a member of the Board of Governors of the Aerospace Industries Association, and as a member of the Executive Committee of the AIA Supplier Council. He is a graduate of Niagara University where he received a B.A. in History and Harvard Business School where he completed the PMD Program. Michael N. Taglich served as Chairman of our Board of Directors from September 22, 2008 until July 11, 2024. He is Chairman and President of Taglich Brothers, a New York City based securities firm which he co-founded in 1992. Mr. Taglich is currently Chairman of the Board of Mare Island Dry Dock LLC, a company engaged in ship repair services, He also serves as a Chairman of the Board of Intellinetics Inc., and is on the board of a number of private companies. Robert F. Taglich has been a director of our Company since 2008. He is a Managing Director of Taglich Brothers, which he co-founded in 1992. Prior to founding Taglich Brothers, Mr. Taglich was a Vice President at Weatherly Securities. Mr. Taglich has served in various positions in the securities brokerage industry for the past 25 years Mr. Taglich holds a Bachelor’s degree from New York University. David J. Buonanno has been a director of our Company since 2008. He is the Founder and President of Buonanno Enterprises Consulting, providing strategic management, supply chain/operations and recruitment services to aerospace and defense industry clients. Mr. Buonanno has extensive experience in manufacturing, supply management and operations. He was employed by Sikorsky Aircraft, Inc., a subsidiary of United Technologies Corporation, as Vice President, Supply Management and International Offset (from January 1997 to July 2006) and as Director, Systems Subcontracts (from November 1992 to January 1997). From May 1987 to November 1992, he was employed by General Electric Company serving as Operations Manager and Manager, Program Materials Management of GE’s Astro-Space Division. From June 1977 to May 1987, he was employed by RCA and affiliated companies. Mr. Buonanno attended Lehigh University College of Electrical Engineering and holds a B.S. in Business Administration from Rutgers University. He completed the Program for Management Development at Harvard Business School in 1996. 36 Michael Brand has been a director of our Company since 2012. He enjoyed a successful 32-year career in aerospace manufacturing primarily focused on jet engines and landing gear. In 2005, he joined Goodrich as President of Goodrich Landing Gear. Prior to joining Goodrich, he had senior management roles at GE Aircraft Engines and Teleflex Aerospace. Mr. Brand has a BS from Clarkson University, with advanced degrees and certificates from Xavier University and the Wharton School. Michael Porcelain has been a director of our Company since October 23, 2017. Mr. Porcelain has been a CPA since 1996 and currently acts as a consultant and board member for The Independent Adviser Corporation. This privately held company operates various financial planning and advisory websites including TheAdviser.com, 1800ADVISER.com and IRSADVISER.com. In addition to managing these platforms, the company itself provides consulting services. Mr. Porcelain is also a private investor in a number of small and emerging companies. From 2006 through 2022, Mr. Porcelain served in several executive positions including service as a member of the Board of Directors of Comtech Telecommunications Corp. (“Comtech”), a publicly traded company and a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies. He was appointed Chief Executive Officer of Comtech in January 2022 and President of Comtech in January 2020. He also served as Comtech’s Chief Operating Officer from October 2018 to January 2022. Prior to holding these positions, he served as Comtech’s Chief Financial Officer from 2006 through 2018, and from 2002 to March 2006, he served as Comtech’s Vice President of Finance and Internal Audit. From 1998 to 2002, Mr. Porcelain was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company. Previously, he spent five years in public accounting holding various positions, including Manager in the Transaction Advisory Services Group of PricewaterhouseCoopers. In March 2021, Mr. Porcelain was elected to the Board of Directors of The Fund for Modern Court, an independent court reform organization that advocates for the improvements of the New York State Court system to ensure a diverse, highly qualified, and independent judiciary. Since 1998, he has owned and operated The Independent Adviser Corporation, a privately held company which holds the rights to use certain intellectual properties and trademarks (including various Internet websites) related to the financial planning and advisory industry. Mr. Porcelain has served as an Adjunct Professor at both Adelphi University and St. John’s University located in New York where he taught graduate level accounting courses. Mr. Porcelain has a B.S. in Business Economics from State University of Oneonta, New York, a M.S. in Accounting and an M.B.A. degree from Binghamton University. Michael N. Taglich and Robert F. Taglich are brothers. All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services as directors. Non-employee directors are entitled to receive compensation for serving as directors and may receive option or stock grants from our company. Information Concerning the Board of Directors Board Leadership Structure and Risk Oversight The Board does not have a policy requiring separation of the roles of Chief Executive Officer and Chairman of the Board. The Board has determined that a non-employee director serving as Chairman is in the best interests of our stockholders at this time. This structure ensures a greater role of non-employee Directors in the active oversight of our business, including risk management oversight, and in setting agendas and establishing Board priorities and procedures. This structure also allows the Chief Executive Officer to focus to a greater extent on the management of our day-to-day operations. 37 The Board of Directors as a whole is responsible for consideration and oversight of the risks we face and is responsible for ensuring that material risks are identified and managed appropriately. Certain risks are overseen by committees of the Board of Directors and these committees make reports to the full Board of Directors, including reports on noteworthy risk-management issues. Members of the Company’s senior management team regularly report to the full Board about their areas of responsibility and a component of these reports is the risks within their areas of responsibility and the steps management has taken to monitor and control such exposures. Additional review or reporting on risks is conducted as needed or as requested by the Board or one of its committees. Board Independence Our Board of Directors has determined that David Buonanno, Peter Rettaliata, Michael Brand and Michael Porcelain are “independent directors” within the meaning of NYSE American Rule 803A(2). Director Compensation Non-employee Directors are entitled to receive compensation for serving as directors and may receive option grants from our company. Each Director also is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board of Directors or committees of our Board of Directors or stockholder meetings or otherwise in connection with the discharge of his duties as a Director. The compensation committee will assist the directors in reviewing and approving the compensation structure for our directors. The following table sets forth certain information regarding the compensation paid to, earned by or accrued for, our directors during the fiscal year ended December 31, 2025. DIRECTOR COMPENSATION Name Fees Earned or Paid In Cash ($) Stock Awards ($) (1) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Non-Qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Michael Taglich 34,353 12,596 14,600 — — — 61,549 Robert Taglich 34,353 12,596 14,600 — — — 61,549 David Buonanno 37,500 — 14,600 — — — 52,100 Michael Brand 37,500 — 14,600 — — — 52,100 Michael Porcelain — 57,223 14,600 — — — 71,823 Peter Rettaliata 63,252 14,600 — — — 77,852 (1) Director fees paid in shares. Board Meetings; Committees and Membership The Board of Directors held 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 served. 38 We maintain the following committees of the Board of Directors: the Audit Committee, the Compensation Committee, the Nominating Committee and the Executive Committee. Each committee other than the Executive Committee is comprised entirely of directors who are “independent” within the meaning of NYSE American Rule 803A(2). Each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved by the Board of Directors. Copies of the committee charters are available on our website at airindustriesgroup.com under the heading “Investor Relations.” Audit Committee . Messrs. Porcelain, Brand and Buonanno are members of the Audit Committee. Mr. Porcelain serves as Chairman of the Audit Committee and also qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K. The Board has determined that each member of our Audit Committee meets the financial literacy requirements under the Sarbanes-Oxley Act and SEC rules and the independence requirements under NYSE American Rule 803A(2). Our Audit Committee is responsible for preparing reports, statements and charters of audit committees required by the federal securities laws, as well as: ● overseeing and monitoring the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters, and our internal accounting and financial controls; ● preparing the report that SEC rules require be included in our annual proxy statement; ● overseeing and monitoring our independent registered public accounting firm’s qualifications, independence and performance; ● providing the Board with the results of its monitoring and its recommendations; and ● providing to the Board additional information and materials as it deems necessary to make the Board aware of significant financial matters that require the attention of the Board. The Audit Committee held five meetings during fiscal 2025. Compensation Committee . Our Compensation Committee is composed of Messrs. Rettaliata, Brand and Buonanno. The Compensation Committee is responsible for: ● establishing our company’s general compensation policy, in consultation with senior management, and overseeing the development and implementation of compensation programs; ● reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, and evaluating the performance of the CEO at least annually in light of those goals and objectives and communicating the results of such evaluation to the CEO and the Board, and determining the CEO’s compensation level based on this evaluation, subject to ratification by the independent directors on the Board. In determining the incentive component of CEO compensation, the Committee will consider, among other factors, the performance of our company and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, the awards given to the CEO in past years, and such other factors as the Committee may determine to be appropriate; ● reviewing and approving the compensation of all other executive officers of our company, such other managers as may be directed by the Board, and the directors of our company; ● overseeing the Board’s benefit and equity compensation plans, overseeing the activities of the individuals and committees responsible for administering these plans, and discharging any responsibilities imposed on the Committee by any of these plans; 39 ● approving issuances under, or any material amendments to, any stock option or other similar plan pursuant to which a person not previously an employee or director of our company, as an inducement material to the individual’s entering into employment with our company, will acquire stock or options; ● in consultation with management, overseeing regulatory compliance with respect to compensation matters, including overseeing the company’s policies on structuring compensation programs to preserve related tax objectives; ● reviewing and approving any severance or similar termination payments proposed to be made to any current or former officer of our company; and ● preparing an annual report on executive compensation for inclusion in our proxy statement for the election of directors, if required under the applicable SEC rules. The Compensation Committee held four meetings during fiscal 2025. Nominating Committee . Our Nominating Committee is composed of Messrs. Rettaliata, Brand and Porcelain. The purpose of the Nominating Committee is to seek and nominate qualified candidates for election or appointment to our Board of Directors. The Nominating Committee held one meeting during fiscal 2025. The Nominating Committee will seek candidates for election and appointment that possess the integrity, leadership skills and competency required to direct and oversee the Company’s management in the best interests of its stockholders, customers, employees, communities it serves and other affected parties. A candidate must be willing to regularly attend Committee and Board of Directors meetings, to develop a strong understanding of our company, its businesses and its requirements, to contribute his or her time and knowledge to our company and to be prepared to exercise his or her duties with skill and care. In addition, each candidate should have an understanding of all corporate governance concepts and the legal duties of a director of a public company. Stockholders may contact the Nominating Committee Chairman, the Chairman of the Board or the Corporate Secretary in writing when proposing a nominee. This correspondence should include a detailed description of the proposed nominee’s qualifications and a method to contact that nominee if the Nominating Committee so chooses. Executive Committee. Our Executive Committee is composed of our Chairman, Peter Rettaliata, Michael Taglich and Robert Taglich. The purpose of the Executive Committee is to assist the Board in fulfilling its functions during the intervals between meetings of the Board. The Executive Committee has all the powers and authority of the Board in connection with the business of the Company and may act in its stead, except as set forth in the Executive Committee Charter. Stockholder Communications Any stockholder who desires to contact any of our directors can write to Air Industries Group, 1460 Fifth Avenue, Bay Shore, New York 11706, Attention: Stockholder Relations. Your letter should indicate that you are an Air Industries Group stockholder. Depending on the subject matter, our stockholder relations personnel will: ● forward the communication to the Director(s) to whom it is addressed; ● forward the communication to the appropriate management personnel; ● attempt to handle the inquiry directly, for example where it is a request for information about the Company, or it is a stock-related matter; or ● not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic. 40 Code of Ethics We have adopted a written code of ethics that applies to our principal executive officers, senior financial officers and persons performing similar functions. Our code of ethics is available on our website and upon written request to our corporate secretary, we will provide you with a copy, without cost. ITEM 11. EXECUTIVE COMPENSATION The following summary compensation table shows, for the periods indicated, information regarding the compensation awarded to, earned by or paid to each individual that served as our principal executive officer during the fiscal year ended December 31, 2025, each other individual that was serving as an executive officer as of December 31, 2025, and each other individual who served as executive officer during the two years ended December 31, 2025 whose compensation for either of such fiscal years exceeded $100,000 for all services rendered in all capacities to our company and its subsidiaries. The individuals listed in the following table are referred to herein collectively as our “Named Executive Officers.” Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) Non-equity Incentive Plan Information ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Luciano Melluzzo* 2025 389,758 — — — — — 10,800 (1) 400,558 President and CEO 2024 374,566 — 620,350 — — — 10,800 (1) 1,005,716 Scott Glassman 2025 233,331 — — — — — — 233,331 CFO** 2024 224,231 — 371,363 — — — — 595,594 (*) Mr. Melluzzo resigned from his position effective March 11, 2026. (**) Mr. Glassman was appointed Acting Chief Executive Officer and President effective March 18, 2026. (1) Represents car allowance. Our executive officers named in the above table do not have employment agreements providing for a fixed term of employment. All are employees at will, terminable at any time without any severance, other than that payable to employees generally. 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 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 goal. As these goals were not met for 2025, the Committee believes the amounts to be paid to Messrs. Melluzzo and Glassman for services rendered in fiscal 2025 are appropriate. 41 Outstanding Equity Awards at 2025 Year-End The following table shows certain information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2025. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) ($) Luciano Melluzzo 48,000 — $ 3.43 6/30/2028 68,245 (2) $ 209,512 27,000 — 3.50 5/31/2028 — — 20,000 — 8.30 3/31/2027 — — 18,000 — 12.20 7/31/2026 — — 15,000 — 13.90 3/31/2026 — — Scott Glassman 5,000 — $ 3.50 5/31/2028 40,854 (2) $ 125,422 4,100 — 3.43 6/30/2028 — — 3,000 — 8.40 3/31/2027 — — 2,000 — 12.20 7/31/2026 — — 2,250 — 13.90 3/31/2026 — — (1) 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. (2) One-third of the RSUs subject to these awards were released on April 1, 2025, and subject to the terms of the award agreements, the remainder of the RSUs are scheduled to vest in two equal annual installments commencing on April 1, 2026. Based on Mr. 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 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 2022; 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; and the 2016 Equity Incentive Plan authorizes grants as to 35,000 shares and was approved by our stockholders in November 2016. 42 The Plans permit the Company to grant stock awards, non-qualified and incentive stock options, restricted stock units and other forms of rewards to employees, directors and consultants. The Plans are administered by the Compensation Committee of the Board and each has a term of ten years from the date it was adopted by the Board. We adopted the Plans to provide a means by which employees, directors, and consultants of our Company and those of our subsidiaries and other designated affiliates, which we refer to together as our affiliates, may be given an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for our success and the success of our affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information known to us regarding beneficial ownership of our Common Stock as of 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. Directors and Executive Officers: Number of Shares Beneficially Owned Percent Michael N. Taglich 694,634 (1) 13.84 % Robert F. Taglich 492,423 (2) 9.88 % Peter D. Rettaliata 84,951 (3) 1.76 % David Buonanno 40,722 (4) * Michael Brand 44,170 (5) * Michael Porcelain 155,818 (6) 3.20 % Scott Glassman, Acting Chief Executive Officer and President 60,918 (7) 1.26 % All Directors and Executive Officers as a group (7 persons owning shares) 1,573,636 (8) 28.67 % Brian Drisgula, Vice President of Finance - * Beneficial Ownership of More than 5% of Shares: Charles L. Frischer 444,998 (9) 9.31 % Star Equity Fund and Jeffery E. Eberwein 285,000 (10) 5.96 % * Less than 1% (1) Includes shares owned by Mr. 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. (2) Includes shares owned by Mr. 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. (3) 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. (4) 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. (5) 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. 43 (6) 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. (7) 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. (8) 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. (9) 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. Sole Voting Power Shared Voting Power Sole Dispositive Power Shared Dispositive Power Total Percent Charles L. Frischer 444,998 — 444,998 — 444,998 9.31 % The address for Charles L. Frischer is 3156 East Laurelhurst Drive, NE, Seattle, WA 98105. (10) 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. Sole Voting Power Shared Voting Power Sole Dispositive Power Shared Dispositive Power Total Percent Star Equity Holdings, Inc — 85,000 — — 85,000 1.78 % Star Operating Companies, Inc. - 85,000 - 85,000 85,000 1.78 % Star Equity Fund, LP - 85,000 - 85,000 85,000 1.78 % Star Equity Fund, GP, LLC - 85,000 - 85,000 85,000 1.78 % Star Investment Management, LLC - 85,000 - 85,000 85,000 1.78 % Star Value Investments, LLC - 85,000 - 85,000 85,000 1.78 % Jeffrey E. Eberwein 200,000 85,000 200,000 85,000 285,000 5.96 % The address for Star Equity, Star Operating Companies, Star Equity Fund, Star Equity GP, Star Investment Management, Star Value Investments and Mr. Jeffrey E. Eberwein is 53 Forest Avenue, Suite 101, Old Greenwich, Connecticut 06870. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Our Policy Concerning Transactions with Related Persons Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest. We recognize that transactions between us and any of our Directors or Executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders. 44 The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party. There were no transactions completed by us since January 1, 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. As of 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 12%. 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 currently proposed by us in which a related party has a direct or indirect financial interest in which the amount involved exceeds $120,000. ITEM 14. PRINCIPAL ACCOUNTANT FEES and SERVICES As required by our Audit Committee charter, our Audit Committee pre-approved the engagement of 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 firm. 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: Year Ended December 31, 2025 Year Ended December 31, 2024 Audit Fees (1) $ 620,000 $ 579,000 Tax Fees (2) - 2,000 $ 620,000 $ 581,000 (1) 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. (2) Tax fees - the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning. 45 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Consolidated Financial Statements of Air Industries Group for the Year ended December 31, 2025 and 2024. (b) The following exhibits are included as part of this report. References to “the Company” in this Exhibit List mean Air Industries Group, a Nevada Corporation. Exhibit No. Description 3.1 Articles of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 30, 2013). 3.2 Certificate of Amendment increasing number of authorized shares of preferred stock and Series A Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 19, 2017). 3.3 Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on July 10, 2025). 3.4 Certificate of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019) 3.5 Certificate of Change filed with the Secretary of State of Nevada to effectuate reverse stock split (incorporated herein by reference to Exhibit 3.01 to the Company’s Report on Form 8-K filed October 18, 2022). 3.6 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) . 4.1 Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020). 10.1 Loan and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 6, 2020) 10.2 Guaranty Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 6, 2020) 10.3 Pledge Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 6, 2020) 10.4 First Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2020) 10.5 Second Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 5, 2021) 10.6 Third Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 8, 2021) 46 10.7 Fourth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 18, 2022). 10.8 Fifth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 10, 2024). 10.9 Sixth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 27, 2024). 10.10 Waiver and Seventh Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 3, 2025). 10.11 Eighth Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2025). 10.12 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). 10.13 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). 10.14 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). 10.15* Form of Indemnification Agreement between the Company and each Director and Officer. 10.16* Form of Restricted Stock Unit Award Agreement under 2022 Equity Incentive Plan As Amended and Restated as of May 23, 2024. 10.17* Form of Per Diem Expense Reimbursement and Compensation Agreement between the Company and each Director. 10.18 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). 10.19 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). 10.20 2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016). 10.21 2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company’s Registration Statement on Form S-1 (Registration No. 333-219490) filed July 26, 2017 and declared effective August 4, 2017). 10.22 2022 Equity Incentive Plan As Amended and Restated as of May 23, 2024 (incorporated herein by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed August 4, 2024). 47 14.1 Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2017 filed on April 30, 2018. 19.1 Insider Trading Policies and Procedures (incorporated herein by reference to Exhibit 19.1 to the Company’s Annual Report of Form 10K for the year ended December 31, 2024 filed on April 15, 2025). 21.1 Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 1, 2019. 23.1* Consent of CBIZ CPAs P.C. 23.2* Consent of Marcum LLP 31.1* Certification of principal executive officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934. 31.2* Certification of principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act of 1934. 32.1** Certification of principal executive officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). 32.2** Certification of principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). 97.1 Policy related to Recovery of Erroneously Awarded Compensation (incorporated herein by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed on April 15, 2025). 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** Furnished herewith 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 27, 2026 AIR INDUSTRIES GROUP By: /s/ Scott Glassman Scott Glassman Acting Chief Executive Officer and President (principal executive officer) By: /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. Signature Capacity /s/ Scott Glassman 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) /s/ Michael N. Taglich Director Michael N. Taglich /s/ Peter D. Rettaliata Chairman of the Board Peter D. Rettaliata /s/ Robert F. Taglich Director Robert F. Taglich /s/ David J. Buonanno Director David J. Buonanno /s/ Michael Brand Director Michael Brand /s/ Michael Porcelain Director Michael Porcelain 49 AIR INDUSTRIES GROUP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Report of Independent Registered Public Accounting Firm – CBIZ CPAs P.C. (PCAOB ID No: 199 ) F-2 Report of Independent Registered Public Accounting Firm – Marcum LLP (PCAOB ID No: 688) F-3 Consolidated Financial Statements: Consolidated Balance Sheets – As of December 31, 2025 and 2024 F-4 Consolidated Statements of Operations – For the Years Ended December 31, 2025 and 2024 F-5 Consolidated Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2025 and 2024 F-6 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2025 and 2024 F-7 Notes to Consolidated Financial Statements F-9 F- 1 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, 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 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. The 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 management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. 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 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: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ 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 March 27, 2026 F- 2 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 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 Marcum llp We have served as the Company’s auditor from 2008 through 2025. Saddle Brook, NJ April 15, 2025 F- 3 AIR INDUSTRIES GROUP Consolidated Balance Sheets December 31, December 31, 2025 2024 ASSETS Current Assets Cash $ 680,000 $ 753,000 Restricted Cash 3,930,000 - Accounts Receivable, Net of Allowance for Credit Losses of $ 464,000 and $ 396,000 7,071,000 8,900,000 Inventory 34,261,000 28,811,000 Prepaid Expenses and Other Current Assets 766,000 371,000 Contract Costs Receivable - 296,000 Prepaid Taxes 76,000 56,000 Total Current Assets 46,784,000 39,187,000 Property and Equipment, Net 9,501,000 8,809,000 Finance Lease Right-Of-Use-Assets 916,000 1,113,000 Operating Lease Right-Of-Use-Assets 514,000 1,190,000 Deferred Financing Costs, Net, Deposits and Other Assets 614,000 712,000 TOTAL ASSETS $ 58,329,000 $ 51,011,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Debt $ 23,721,000 $ 18,362,000 Subordinated Notes - Related Party 4,871,000 $ - Accounts Payable and Accrued Expenses 7,903,000 7,015,000 Operating Lease Liabilities 702,000 881,000 Deferred Gain on Sale 28,000 38,000 Customer Deposits 391,000 1,115,000 Total Current Liabilities 37,616,000 27,411,000 Long Term Liabilities Debt 1,512,000 1,759,000 Subordinated Notes - Related Party - 6,162,000 Operating Lease Liabilities - 702,000 Deferred Gain on Sale - 29,000 TOTAL LIABILITIES 39,128,000 36,063,000 Commitments and Contingencies (see Note 12) Stockholders’ Equity Preferred Stock, par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both December 31, 2025 and December 31, 2024. - - Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 4,776,454 and 3,474,970 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively 5,000 3,000 Additional Paid-In Capital 89,608,000 84,052,000 Accumulated Deficit ( 70,412,000 ) ( 69,107,000 ) TOTAL STOCKHOLDERS’ EQUITY 19,201,000 14,948,000 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 58,329,000 $ 51,011,000 See Notes to Consolidated Financial Statements F- 4 AIR INDUSTRIES GROUP Consolidated Statements of Operations For the Years Ended December 31, 2025 2024 Net Sales $ 47,921,000 $ 55,108,000 Cost of Sales 39,734,000 46,176,000 Gross Profit 8,187,000 8,932,000 Operating Expenses 8,525,000 8,473,000 (Loss)/Income from Operations ( 338,000 ) 459,000 Interest Expense ( 1,485,000 ) ( 1,421,000 ) Interest Expense - Related Parties ( 356,000 ) ( 472,000 ) Other Income, Net 743,000 68,000 Loss before Benefit From Income Taxes ( 1,436,000 ) ( 1,366,000 ) Benefit from Income Taxes ( 131,000 ) - Net Loss $ ( 1,305,000 ) $ ( 1,366,000 ) Loss per share - Basic and diluted $ ( 0.31 ) $ ( 0.41 ) Weighted Average Shares Outstanding - Basic and diluted 4,216,918 3,336,464 See Notes to Consolidated Financial Statements F- 5 AIR INDUSTRIES GROUP Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2025 and 2024 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2024 3,303,045 $ 3,000 $ 82,928,000 $ ( 67,741,000 ) $ 15,190,000 Common Stock issued for directors fees 39,845 - 157,000 - 157,000 Stock Based Compensation - - 640,000 - 640,000 Exercise of stock options 15,229 - - - - Common Stock issued for cash 116,851 - 327,000 - 327,000 Net Loss - - - ( 1,366,000 ) ( 1,366,000 ) Balance, December 31, 2024 3,474,970 $ 3,000 $ 84,052,000 $ ( 69,107,000 ) $ 14,948,000 Common Stock issued for directors fees 30,699 - 108,000 - 108,000 Stock Based Compensation - - 939,000 - 939,000 Common Stock issued for cash 1,213,593 2,000 4,636,000 - 4,638,000 Common Stock issued upon settlement of restricted stock units, net 57,192 - ( 127,000 ) - ( 127,000 ) Net Loss - - - ( 1,305,000 ) ( 1,305,000 ) Balance, December 31, 2025 4,776,454 $ 5,000 $ 89,608,000 $ ( 70,412,000 ) $ 19,201,000 See Notes to Consolidated Financial Statements F- 6 AIR INDUSTRIES GROUP Consolidated Statements of Cash Flows For the Years Ended December 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 1,305,000 ) $ ( 1,366,000 ) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation of property and equipment 2,499,000 2,072,000 Stock-based Compensation 1,047,000 797,000 Amortization of Finance Lease Right-of-Use Assets 197,000 176,000 Amortization of Operating Lease Right-of-Use Assets 676,000 676,000 Deferred gain on sale of real estate ( 39,000 ) ( 38,000 ) (Gain)/Loss on sale of equipment ( 68,000 ) ( 15,000 ) Allowances for Credit Losses 68,000 52,000 Amortization of deferred financing costs 69,000 68,000 Changes in Operating Assets and Liabilities (Increase) Decrease in Operating Assets: Accounts receivable 1,761,000 ( 1,060,000 ) Inventory ( 5,450,000 ) 1,040,000 Prepaid expenses and other current assets ( 395,000 ) ( 74,000 ) Contract costs receivable 296,000 - Prepaid taxes ( 20,000 ) ( 19,000 ) Deposits and other assets 29,000 375,000 Increase (Decrease) in Operating Liabilities: Accounts payable and accrued expenses 888,000 961,000 Operating lease liabilities ( 881,000 ) ( 879,000 ) Customer deposits ( 724,000 ) ( 2,442,000 ) NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ( 1,352,000 ) 324,000 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 3,322,000 ) ( 2,301,000 ) Proceeds from sale of fixed assets 200,000 16,000 NET CASH USED IN INVESTING ACTIVITIES ( 3,122,000 ) ( 2,285,000 ) CASH FLOWS FROM FINANCING ACTIVITIES Note payable - revolver - net - Current Credit Facility 4,713,000 2,101,000 Proceeds from term loan - Current Credit Facility 1,640,000 1,006,000 Proceeds from term loan - Solar Facility - 8,000 Net proceeds from Common Stock issued for cash 4,638,000 327,000 Payments for taxes related to net share settlement of equity awards ( 127,000 ) - Payments of subordinated Notes - Related party ( 1,291,000 ) - Payments of term loan - Current Credit Facility ( 1,010,000 ) ( 869,000 ) Payments of finance lease obligations ( 223,000 ) ( 196,000 ) Payments of loan payable - financed asset ( 9,000 ) ( 9,000 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 8,331,000 2,368,000 NET INCREASE IN CASH 3,857,000 407,000 CASH AT BEGINNING OF YEAR 753,000 346,000 CASH AT END OF YEAR $ 4,610,000 $ 753,000 See Notes to Consolidated Financial Statements F- 7 AIR INDUSTRIES GROUP Consolidated Statements of Cash Flows For the Years Ended December 31, (Continued) 2025 2024 Supplemental cash flow information Cash paid during the year for interest $ 1,829,000 $ 1,849,000 Cash paid during the year for taxes $ 21,000 $ 20,000 2025 2024 Supplemental Disclosure of non-cash investing and finance activities Financing from Solar Credit Facility directly to contractor $ - $ 533,000 Acquisition of financed lease asset $ - $ 319,000 See Notes to Consolidated Financial Statements F- 8 AIR INDUSTRIES GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. ORGANIZATION AND BASIS OF PRESENTATION Organization Air Industries Group is a Nevada corporation (“AIRI”). As of and for the years ended December 31, 2025 and 2024, the accompanying consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries; Air Industries Machining Corp. (“AIM”), Nassau Tool Works, Inc. (“NTW”), and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”). Principal Business Activity The Company is a leading manufacturer of precision assemblies and components for large aerospace and defense prime contractors. Its products include landing gears, flight controls, engine mounts and components for aircraft jet engines, ground turbines and other complex machines. Most of its machined components and assemblies are integral to high-profile platforms and named programs including the F-18 Hornet, the E2D Hawkeye, the UH-60 Black Hawk Helicopter, the Geared Turbo-Fan Engine, the CH-53 Helicopter, the F-35 Lighting II (also known as the Joint Strike Fighter) and the F-15 Eagle Tactical Fighter. The Company’s direct customers are primarily large aerospace and defense prime contractors. The ultimate end-users for most of its products are the U.S. Government, international governments, and commercial global airlines. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and the rules and regulations of the Securities and Exchange Commission. All dollar amounts have been rounded to the nearest whole number. As a result, totals may not sum precisely due to rounding. Going Concern and Management’s Plan 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. While 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 lender. 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 31, 2025. The terms of all outstanding indebtedness are discussed further in “Note 8. Debt”. F- 9 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 results. 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 from China. 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 conditions. 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. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Accounts Receivable Accounts receivable are carried at the original invoice amount less an estimate made for expected credit losses based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for expected credit losses primarily using historical experience as well as current conditions that affect the collectability of the reported amount. Accounts receivable are written off when deemed uncollectible. Bad debt expenses are recorded in operating expenses on the consolidated statements of operations. F- 10 Inventory Valuation The Company values inventory at the lower of cost or estimated net realizable value using the first-in first out method. The Company periodically evaluates inventory items not secured by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value. Adjustments to inventory net realizable value are recorded in cost of sales. Property and Equipment Property and equipment are carried at cost net of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements. Expenditures for repairs and improvements in excess of $ 10,000 that add to the productive capacity or extend the useful life of an asset are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings. Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There were no events triggering a review for impairment during the years ended December 31, 2025 and 2024. Deferred Financing Costs Costs incurred with obtaining and executing revolving debt arrangements are capitalized and recorded in other Deferred financing costs, net, deposits, and other assets and amortized using the effective interest method over the term of the related debt. Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related debt. The amortization of financing costs is included in interest expense in the Consolidated Statements of Operations. Contract Costs Receivable Contract costs receivable represent costs to be reimbursed from a terminated contract. Contract costs receivable totals $0 at December 31, 2025 and $ 296,000 at December 31, 2024. The Company collected this receivable on March 18, 2025. Risks and Uncertainties The continuing impacts of rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine, 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 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. F- 11 There can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and results of operations. Segment Reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company operates as a single reportable segment, as the Chief Operating Decision Maker (“CODM”) reviews financial performance and makes decisions on a consolidated basis. (See Note 15. Segment Reporting). Revenue Recognition The Company recognizes revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). In evaluating our contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred. 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. The 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. Contracts can be subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, 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. 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. F- 12 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 products. Warranties are provided on certain contracts, but do not provide for services beyond standard assurances and are therefore not considered to be separate performance obligations. Warranties during the years ended December 31, 2025 and 2024, were not material. Customer Deposits The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s invoice. At December 31, 2025 and 2024, customer deposits were $ 391,000 and $ 1,115,000 , respectively. 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 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 scheduled. The Company anticipates that sales during the aforementioned periods will also include sales from expected new orders that are not in our backlog. Use of Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The more significant management estimates are inventory valuation, and income tax provision. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known. F- 13 Credit and Concentration Risks A large percentage of the Company’s revenues are derived directly from large aerospace and defense prime contractors for which the ultimate end-user is the U.S. Government, international governments or commercial airlines. The composition of customers that exceeded 10% of net sales for the years ended December 31, 2025 or 2024 are shown below: Percentage of Net Sales Customer 2025 2024 RTX (A) 36.2 % 29.3 % Lockheed Martin 32.3 % 25.1 % Northrop 6.7 % 18.3 % (A) RTX includes Collins Landing Systems and Collins Aerostructures The composition of customers that exceeded 10% of accounts receivable at December 31, 2025 or 2024 are shown below: Percentage of Net Receivables Customer 2025 2024 RTX (A) 39.8 % 38.2 % Lockheed 11.9 % 8.6 % Ontic 7.6 % 14.6 % Northrop 1.3 % 11.0 % (A) RTX includes Collins Landing Systems and Collins Aerostructures Disaggregation of Revenue The following table summarizes revenue from contracts with customers for the years ended December 31, 2025 and 2024: Product December 31, 2025 December 31, 2024 Military $ 27,921,000 $ 38,498,000 Commercial 20,000,000 16,610,000 Total $ 47,921,000 $ 55,108,000 Cash For the years ended December 31, 2025 and 2024, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts. 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. F- 14 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: December 31, December 31, 2025 2024 Cash $ 680,000 $ 753,000 Restricted Cash 3,930,000 - Total cash and restricted cash $ 4,610,000 $ 753,000 Major Suppliers The Company utilizes sole-source suppliers to supply raw materials or other parts used in production. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable or unwilling to provide parts for any reason, its business could be severely harmed. Income Taxes The Company accounts for income taxes in accordance with accounting guidance now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. The Company accounts for uncertainties in income taxes under the provisions of ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Earnings (Loss) per share Basic earnings (loss) per share (“EPS”) is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method. F- 15 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: December 31, December 31, 2025 2024 Stock Options 425,703 417,003 Restricted Stock units 188,418 282,628 Convertible notes payable 361,700 405,800 975,821 1,105,431 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing reported market value. Stock compensation expense for employees amounted to $ 939,000 and $ 640,000 for the years ended December 31, 2025 and 2024, respectively. Stock compensation expense for directors amounted to $ 108,000 and $ 157,000 for the years ended December 31, 2025 and 2024, respectively. Stock compensation expenses for employees and directors were included in operating expenses in the accompanying consolidated statements of operations. Freight Out Freight out is included in operating expenses and amounted to $ 52,000 and $ 67,000 for the years ended December 31, 2025 and 2024, respectively. Leases In accordance with FASB ASC 842, “Leases” (“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. The lease classification affects the expense recognition in the consolidated statement of operations. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all of the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under the practical expedient. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rates within the Company’s operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using its estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives. F- 16 An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain the Company will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option. Assets held under finance lease obligations are depreciated over the shorter of their related lease terms or their estimated useful lives. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, related to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The 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 15, 2027. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will have on its consolidated financial statements and footnote disclosures. The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements. Note 3. ACCOUNTS RECEIVABLE The components of accounts receivable at December 31, are detailed as follows: December 31, 2025 December 31, 2024 Accounts Receivable Gross $ 7,535,000 $ 9,296,000 Allowance for Credit Losses ( 464,000 ) ( 396,000 ) Accounts Receivable Net $ 7,071,000 $ 8,900,000 The allowance for credit losses for the years ended December 31, 2025 and 2024 is as follows: Charged Balance at to Deductions Balance at Beginning of Costs and from End of Year Expenses Reserves Year Year ended December 31, 2025 Allowance for Credit Losses $ 396,000 $ 164,000 $ ( 96,000 ) $ 464,000 Year ended December 31, 2024 Allowance for Credit Losses $ 344,000 $ 203,000 $ ( 151,000 ) $ 396,000 F- 17 Note 4. INVENTORY The components of inventory at December 31, consisted of the following: December 31, December 31, 2025 2024 Raw Materials $ 7,306,000 $ 6,318,000 Work In Progress 17,072,000 13,028,000 Semi-Finished Goods 9,206,000 8,805,000 Final-Finished Goods 677,000 660,000 Total Inventory $ 34,261,000 $ 28,811,000 Note 5. PROPERTY AND EQUIPMENT The components of property and equipment at December 31, consisted of the following: December 31, December 31, 2025 2024 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 Less: Accumulated Depreciation ( 39,201,000 ) ( 37,379,000 ) Property and Equipment, net $ 9,501,000 $ 8,809,000 Depreciation expense for the years ended December 31, 2025 and 2024 was approximately $ 2,499,000 and $ 2,072,000 , respectively. Note 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses at December 31, are detailed as follows: December 31, 2025 December 31, 2024 Accounts Payable $ 7,100,000 $ 5,580,000 Accrued Payroll 428,000 369,000 Accrued Bonuses - 350,000 Accrued Expenses – other 375,000 716,000 Accounts Payable and accrued expenses $ 7,903,000 $ 7,015,000 F- 18 Note 7. SALE-LEASEBACK TRANSACTION On October 24, 2006, the Company consummated a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay Shore Property”) for a purchase price of $ 6,200,000 . The Company realized a gain on the sale of $ 1,051,000 of which $ 300,000 was recognized during the year ended December 31, 2006. The remaining $ 751,000 is being recognized ratably over the remaining term of the twenty - year lease at approximately $ 38,000 per year. The gain is included in Other Income in the accompanying Consolidated Statements of Operations. The unrecognized portion of the gain in the amount of $ 28,000 and $ 67,000 as of December 31, 2025 and 2024, respectively, is classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets. The Company accounted for these transactions under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.” Simultaneous with the closing of the sale of the Bay Shore Property, the Company entered into a 20-year lease (the “Lease”) expiring in September 2026 with the purchaser for the property. Base annual rent is approximately $ 540,000 for the first five years , $ 560,000 for the sixth year, and thereafter increases 3 % per year. The Lease grants the Company an option to renew the Lease for an additional period of five years . The Company has on deposit with the landlord $ 89,000 as security for the performance of its obligations under the Lease. Pursuant to the terms of the Lease, the Company is required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance. The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions and grants the landlord customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold the Company liable for any deficiency in future rent. See Note 9 – Operating Lease Liabilities. Note 8. Debt Indebtedness to third parties consists of the following: December 31, December 31, 2025 2024 Revolving loan to Webster Bank (“Webster”) $ 17,618,000 $ 12,905,000 Term loan, Webster 5,855,000 5,225,000 CT Green Bank Loan 971,000 970,000 Finance lease obligations 784,000 1,007,000 Loans Payable - financed assets 5,000 14,000 Subtotal 25,233,000 20,121,000 Less: Current portion ( 23,721,000 ) ( 18,362,000 ) Long Term Portion $ 1,512,000 $ 1,759,000 Current Credit Facility 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 Loan”). 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 $ 5,855,000 under the Term Loan. F- 19 As discussed in Note 1, the Current Credit Facility 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 Loan: For the year ending Amount December 31, 2026 $ 5,855,000 Term Loan payable 5,855,000 Less: Current portion of Term Loan payable ( 5,855,000 ) Total long-term portion of Term Loan payable $ - Interest expense related to the Current Credit Facility amounted to approximately $ 1,361,000 and $ 1,304,000 for the years ended December 31, 2025 and 2024, respectively. Interest expense includes the amortization of deferred finance costs of $ 69,000 and $ 68,000 in 2025 and 2024, respectively. 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, 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 below summarizes historical amendments to the Current Credit Facility ● 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 . F- 20 ● 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 offering. 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 Current Credit Facility that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying consolidated balance sheets and are amortized over the term of the loan. As of December 31, 2025, the Company has borrowing capacity of approximately $ 2,382,000 under the Revolving Loan. F- 21 Solar Credit Facility On August 16, 2024, the Company entered into a financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility. The Solar Credit Facility provided for advances to be made by CT Green Bank upon its approval of costs incurred on the Project up to $934,000. As of October 1, 2025, cumulative advances totaling $ 934,000 had been made including the payment of CT Green Bank’s closing costs of $ 25,000 . Total interest accrued on the advances at the rate of 5 % was $ 36,000 . On October 1, 2024, the total cumulative advances of $ 934,000 along with the total accrued interest of $ 36,000 was converted by CT Green Bank, in accordance with the financing agreement, to a 20 -year level payment term loan in the amount of $ 970,000 with interest accruing at the rate of 5.75 %. Semi-annual payments in the amount of $ 42,000 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 amounted to approximately $ 57,000 and $ 44,000 for the years ended December 31, 2025 and 2024, respectively. Finance Lease Obligations The Company has entered into finance leases for the purchase of manufacturing equipment. The obligations for the finance leases totaled $ 784,000 and $ 1,007,000 as of December 31, 2025 and 2024, respectively. The 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 Year Ended December 31, December 31, 2025 2024 Finance Lease cost: Amortization of ROU assets $ 197,000 $ 176,000 Interest on lease liabilities 66,000 73,000 Total lease Costs $ 263,000 $ 249,000 Other Information: Cash Paid for amounts included in the measurement lease liabilities: Financing cash flow from finance lease obligations $ 223,000 $ 196,000 Supplemental disclosure of non-cash activity Acquisition of finance lease asset $ - $ 319,000 December 31, December 31, 2025 2024 Weighted Average Remaining Lease Term - in years 4.1 4.8 Weighted Average Discount rate - % 7.43 % 7.44 % F- 22 As of December 31, 2025, the aggregate future minimum finance lease payment , including imputed interest are as follows: For the year ending Amount December 31, 2026 $ 266,000 December 31, 2027 190,000 December 31, 2028 190,000 December 31, 2029 190,000 December 31, 2030 74,000 Total future minimum finance lease payments $ 910,000 Less: imputed interest ( 126,000 ) Less: Current portion ( 215,000 ) Long-term portion $ 569,000 Loans Payable – Financed Assets 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: For the year ending Amount December 31, 2026 5,000 Loans Payable - financed assets 5,000 Less: Current portion ( 5,000 ) Long-term portion $ - Related Party Indebtedness Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich. Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services. From 2016 through 2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”) with Michael and Robert Taglich which generated proceeds to the Company totaling $ 6,550,000 . In connection with the issuance of the Related Party Notes, Michael and Robert Taglich were issued a total of 35,508 shares of common stock and Taglich Brothers, Inc. was issued promissory notes totaling $ 554,000 for placement agency fees. 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, Director Director Inc. Total Convertible Subordinated Notes $ 2,416,000 $ 1,905,000 $ - $ 4,321,000 Subordinated Notes - 550,000 - 550,000 Total $ 2,416,000 $ 2,455,000 $ - $ 4,871,000 F- 23 The Related Party Notes outstanding as of December 31, 2024 consist of: Michael Taglich, Director Robert Taglich, Director Taglich Brothers, Inc. Total Convertible Subordinated Notes $ 2,666,000 $ 1,905,000 $ 241,000 $ 4,812,000 Subordinated Notes 800,000 550,000 - 1,350,000 Total $ 3,466,000 $ 2,455,000 $ 241,000 $ 6,162,000 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 %. 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 notes can be converted at the option of the holder into Common Stock of the Company at $ 15.00 per share, while the remaining $ 1,802,000 of the convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $ 9.30 per share. The remaining $ 550,000 is not convertible. 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 October 1, 2026. There are no principal payments due on these notes prior to October 1, 2026. Note 9. OPERATING LEASE LIABILITIES The Company has operating leases for leased office and manufacturing facilities. The leases have remaining lease terms of one to five years , some of which include options to extend or terminate the leases. Year Ended December 31, December 31, 2025 2024 Operating lease cost: $ 1,044,000 $ 1,286,000 Total lease cost $ 1,044,000 $ 1,286,000 Other Information Cash paid for amounts included in the measurement lease liability: 1,249,000 1,070,000 Operating cash flow from operating leases $ 1,249,000 $ 1,070,000 December 31, December 31, 2025 2024 Weighted Average Remaining Lease Term - in years 0.75 1.72 Weighted Average discount rate - % 9.50 % 9.36 % F- 24 The aggregate undiscounted cash flows of operating lease payments, with remaining terms greater than one year are as follows: Amount December 31, 2026 730,000 Total future minimum lease payments 730,000 Less: discount ( 28,000 ) Total operating lease maturities 702,000 Less: current portion of operating lease liabilities ( 702,000 ) Total long term portion of operating lease maturities $ - Note 10. STOCKHOLDERS’ EQUITY Common Stock – Issuances of Securities The Company issued 30,699 and 39,845 shares of common stock totaling $ 108,000 and $ 157,000 in payment of Director’s fees for the years ended December 31, 2025 and 2024, respectively. Such expense is included in Operating Expenses in the consolidated statements of operations. 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. The balance 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 issued 4,600 shares of common stock in payment of Director’s fees totaling $ 14,000 . Common Stock – Sale of Securities 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 . Note 11. EMPLOYEE BENEFITS PLANS The Company employs both union and non-union employees and maintains several benefit plans. Union 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. The Union’s retirement plan is a defined contribution plan. As such, the Company is not responsible for the obligations of other companies in the Union’s retirement plan. F- 25 Medical benefits for union employees are provided through a policy with Insperity Services, Inc. (“Insperity”), a professional employer organization that provides out-sourced human resource services. The cost of such benefits are substantially borne by the Company. The collective bargaining agreement contains a “no-strike” clause and a “no-lock-out” clause. The Company believes it maintains good relationships with the Union. Others All of the Company’s employees are covered under a co-employment agreement with Insperity, a professional employer organization that provides out-sourced human resource services. The Company has defined contribution plans under Section 401(k) of the Internal Revenue Code (the “Plans”). Pursuant to the Plans, qualified employees may contribute a percentage of their pre-tax eligible compensation to the Plan. The Company does not match any contributions that employees may make to the Plans. Note 12. COMMITMENTS AND CONTINGENCIES On October 2, 2018, Contract Pharmacal Corp. (“Contract Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with respect to the property 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 date. 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. Following 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 appeal. 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 various lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest. F- 26 Note 13. INCOME TAXES For financial reporting purposes, the net pre-tax book loss for the United States and foreign entities, in the aggregate, was: Year Ended Year Ended December 31, December 31, 2025 2024 Federal $ ( 1,436,000 ) $ ( 1,366,000 ) Foreign - - Total $ ( 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: Year Ended Year Ended December 31, December 31, Current 2025 2024 Federal $ ( 131,000 ) $ - State - - Foreign - - Total Provision for Income Taxes $ ( 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: Year Ended December 31, 2025 Current tax at U.S statutory rate $ ( 301,000 ) 21.0 % State and local taxes, net of federal taxes (a) - 0.0 % Changes in Valuation Allowance 154,000 - 10.7 % Nondeductible / non taxable items Nondeductible/ nontaxable items 31,000 - 2.2 % Other Adjustments Deferred Adjustment - Asset Write-Down Related to Transferable Credit 115,000 - 8.0 % True-up and Other 1,000 - 0.1 % Sale of Transferable Credit ( 131,000 ) 9.1 % Income tax expense $ ( 131,000 ) 9.1 % (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. 2023-09. The Company has adopted this guidance on a prospective basis. F- 27 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. Year Ended December 31, 2024 U.S. statutory income tax rate 21.00 % State taxes, net of federal benefit 0.22 % Permanent difference, overaccruals,and non-deductible items - 0.82 % Change in state rate - 7.53 % Deferred tax valuation allowance - 13.77 % True-up and Other 0.90 % Total 0.00 % 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. Realization 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: December 31, December 31, 2025 2024 Deferred tax assets: Current: Net operation loss $ 4,990,000 $ 4,871,000 Allowance for doubtful accounts 158,000 140,000 Inventory - IRC 263A adjustment 356,000 296,000 Stock based compensation - options and restricted stock 425,000 218,000 Capitalized engineering costs 75,000 134,000 Amortization - NTW Transaction 107,000 178,000 Inventory reserve 470,000 644,000 Deferred gain on sale of real estate 5,000 14,000 Accrued Expenses 54,000 113,000 Disallowed interest 2,480,000 2,269,000 Operating lease liabilities 153,000 339,000 Charitable Contributions 2,000 - Total deferred tax asset before valuation allowance 9,275,000 9,216,000 Valuation allowance ( 8,306,000 ) ( 8,091,000 ) Total deferred tax asset after valuation allowance 969,000 1,125,000 Right of Use Asset ( 112,000 ) ( 255,000 ) Property and equipment ( 857,000 ) ( 870,000 ) Total deferred tax liabilities ( 969,000 ) ( 1,125,000 ) Net deferred tax asset $ - $ - F- 28 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, the Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, at this time sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2025 and 2024, the Company provided a valuation allowance on its net deferred tax assets of $ 8,306,000 and $ 8,091,000 , respectively. The Company’s valuation allowance increased by $ 215,000 and $ 188,000 for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, the Company had a Federal net operating loss carry forward of approximately $ 22,396,000 , of which approximately $ 14,016,000 expires from 2033 through 2037 and $ 8,380,000 does not expire. In addition, the Company has net operating loss carryforwards from various states of approximately $ 4,492,000 which expire starting in 2035. The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization. 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 third party. 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 no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in interest expense. As of December 31, 2025, and 2024, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions. In certain cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2022 through 2025 tax years generally remain subject 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. F- 29 Note 14. STOCK OPTIONS AND RESTRICTED STOCK UNITS Stock-Based Compensation Stock Options 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 under the plan by 250,000 shares, from 650,000 shares to 900,000 shares. In September 2024, the shareholders of the Company approved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used under the plan by 300,000 shares, from 350,000 shares to 650,000 shares. During the years ended December 31, 2025 and 2024, the Company granted options to purchase 60,000 and 80,000 shares of common stock, respectively, to certain of its employees and directors. The Company recorded stock-based compensation expense for certain employees and members of the Company’s Board of Directors of $ 182,000 and $ 317,000 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 values of stock options granted were estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31: 2025 2024 Risk-free interest rates 3.8 % 3.8 % Expected life (in years) 2.6 2.7 Expected volatility 76.52 % 64.00 % Dividend yield 0 % 0 % Weighted-average grant date fair value per share $ 3.00 $ 3.75 The expected life is the number of years that the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. In addition to the inputs referenced above regarding the option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture rates that are revised prospectively according to forfeiture experience. The stock volatility factor is based on the Company’s experience. F- 30 A summary of the status of the Company’s stock options as of December 31, 2025 and 2024, and changes during the years then ended are presented below. Wtd. Avg. Exercise Options Price Balance, January 1, 2024 461,870 $ 8.34 Granted during the period 80,000 3.75 Exercised during the period ( 15,229 ) 3.45 Terminated/Expired during the period ( 109,638 ) 9.86 Balance, December 31, 2024 417,003 $ 7.00 Granted during the period 60,000 3.00 Exercised during the period - - Terminated/Expired during the period ( 51,300 ) 10.57 Balance, December 31, 2025 425,703 $ 6.01 Exercisable at December 31, 2025 395,703 $ 6.23 Issuance of Stock Options 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 directors’ stock options to purchase an aggregate of 80,000 shares of the Company’s common stock at a price of $ 3.75 per share. The options expire on August 31, 2029 and vest over a term of one year. The following table summarizes information about outstanding stock options at December 31, 2025: Wtd. Avg. Range of Exercise Price Number Outstanding Wtd.Avg, Life Exercise Price $3.00 - $23.80 425,703 2.5 years $ 6.01 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 during the years ended December 31, 2025 and 2024 was $ 3.75 and $ 3.46 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $ 20,000 and $ 0 . The total fair value of shares vested during the years ended December 31, 2025 and 2024 was $ 100,000 and $ 417,000 , respectively. F- 31 Restricted Stock Units (“RSUs”) 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 Weighted Average Grant Date Fair Value per Unit Unvested Units at January 1, 2024 - $ - Granted during the period 282,628 6.06 Vested during the period - - Terminated/Forfeited during the period - - Unvested Units at December 31, 2024 282,628 $ 6.06 Granted during the period 3,000 6.06 Vested during the period ( 95,210 ) 6.06 Terminated/Forfeited during the period ( 2,000 ) 6.06 Unvested Units at December 31, 2025 188,418 $ 6.06 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 $ 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. F- 32 Note 15. SEGMENT INFORMATION The Company operates as one operating segment. The Company’s CODM is its Chief Executive Officer , who reviews financial information presented on a consolidated basis. The CODM used consolidated sales, gross margin and net income (loss) to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the need to allocate its budget to operating expenses and invest in additional equipment. The segment assets are equal to the assets presented in the consolidated balance sheets. The significant expenses that are regularly provided to the CODM are disclosed in the consolidated statements of operations as a part of the consolidated net income (loss). See the consolidated financial statements for all financial information regarding the Company’s operating segment. All revenues of the Company are earned in the United States of America. The Company’s long-lived tangible assets, as well as the Company’s operating lease right-of use assets recognized on the Consolidated Balance Sheets were located in the United States. Note 16. 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). Based 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 stock. 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. F- 33