What changed in this filing

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Item 1. Financial Statements

2026-08-12 compared with 2026-05-13 · 365 added, 517 removed, 235 unchanged (79% of the section changed)

Financial Statements

AIR INDUSTRIES GROUP

Condensed Consolidated Balance Sheets

AIR INDUSTRIES

Consolidated Balance Sheets

Current Assets

Cash $ 694,000 $ 680,000

Restricted cash 3,930,000 3,930,000

Accounts Receivable, Net of Allowance for Credit Losses of $ 629,000 and $ 464,000

Accounts Receivable, Net of Allowance for Credit Losses

of $ 554,000 and $ 464,000 7,164,000 7,071,000

Inventory 36,699,000 34,261,000

Prepaid Expenses and Other Current Assets 454,000 766,000

5 unchanged sentences

Deferred Financing Costs, Net, Deposits and Other Assets 630,000 614,000

TOTAL ASSETS $ 59,216,000 $ 58,329,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Debt $ 24,217,000 $ 23,721,000

Accounts Payable and Accrued Expenses 6,893,000 7,903,000

5 unchanged sentences

Long Term Liabilities

Debt 1,421,000 1,512,000

TOTAL LIABILITIES 41,114,000 39,128,000

1 unchanged sentence

Stockholders’ Equity

Preferred Stock - par value $ .001 - Authorized 3,000,000 shares, 0 shares outstanding, at both March 31, 2026 and December 31, 2025.

Common Stock - Par Value $ .001 - Authorized 6,000,000 shares, 4,781,054 and 4,776,454 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively

Preferred Stock - par value $ .001 - Authorized 3,000,000

shares, 0 shares outstanding, at both June 30, 2026 and

December 31, 2025.

Common Stock - Par Value $ .001 - Authorized 6,000,000

shares, 4,850,658 and 4,776,454 shares issued and

outstanding as of June 30, 2026 and December 31, 2025,

respectively 5,000 5,000

Additional Paid-In Capital 90,375,000 89,608,000

Accumulated Deficit ( 72,278,000 ) ( 70,412,000 )

( 71,432,000 )

( 70,412,000 )

TOTAL STOCKHOLDERS’ EQUITY 18,102,000 19,201,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 59,216,000 $ 58,329,000

See accompanying notes to condensed consolidated

financial statements

AIR INDUSTRIES GROUP

See accompanying

notes to condensed consolidated financial statements

AIR INDUSTRIES

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31,

Three and Six Months Ended June 30,

Three Months Ended

Six Months Ended

Net Sales $ 11,995,000 $ 12,659,000 $ 23,601,000 $ 24,802,000

Cost of Sales 9,512,000 10,631,000 18,516,000 20,740,000

Gross Profit 2,483,000 2,028,000 5,085,000 4,062,000

Operating Expenses 2,849,000 2,020,000 6,016,000 4,800,000

Loss from Operations

(Loss) Income from Operations ( 366,000 ) 8,000 ( 931,000 ) ( 738,000 )

Interest Expense ( 414,000 ) ( 360,000 ) ( 822,000 ) ( 705,000 )

2 unchanged sentences

Loss before Income Taxes ( 828,000 ) ( 422,000 ) ( 1,848,000 ) ( 1,410,000 )

( 1,020,000 )

Provision for Income Taxes 18,000 - 18,000 -

$ ( 1,020,000 )

$ ( 988,000 )

Net Loss $ ( 846,000 ) $ ( 422,000 ) $ ( 1,866,000 ) $ ( 1,410,000 )

Loss per share - Basic and diluted $ ( 0.18 ) $ ( 0.11 ) $ ( 0.39 ) $ ( 0.38 )

Weighted Average Shares Outstanding - Basic and diluted 4,809,394 3,731,335 4,807,335 3,699,084

See accompanying notes to condensed consolidated

financial statements

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Changes

in Stockholders’ Equity

For the Three Months Ended March 31, 2026 and

See accompanying

notes to condensed consolidated financial statements

AIR INDUSTRIES

Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2026 and 2025

Stockholders’

Balance January 1, 2026 4,776,454 $ 5,000 $ 89,608,000 $ ( 70,412,000 ) $ 19,201,000

$ ( 70,412,000 )

Common Stock issued to directors 4,600 - 14,000 - 14,000

Stock-Based Compensation - - 950,000 - 950,000

( 1,020,000 )

Net Loss - - - ( 1,020,000 ) ( 1,020,000 )

Balance, March 31, 2026 4,781,054 $ 5,000 $ 90,572,000 $ ( 71,432,000 ) $ 19,145,000

$ ( 71,432,000 )

Common Stock issued to directors 4,484 - 14,000 - 14,000

Stock-Based Compensation - - 45,000 - 45,000

Stock-Based Compensation forfeiture adjustment - - ( 125,000 ) - ( 125,000 )

Common Stock issued upon settlement of restricted stock units, net 65,120 - ( 131,000 ) - ( 131,000 )

Net Loss - - - ( 846,000 ) ( 846,000 )

Balance, June 30, 2026 4,850,658 $ 5,000 $ 90,375,000 $ ( 72,278,000 ) $ 18,102,000

Balance January 1, 2025 3,474,970 $ 3,000 $ 84,052,000 $ ( 69,107,000 ) $ 14,948,000

$ ( 69,107,000 )

Common Stock issued to directors 9,185 - 39,000 - 39,000

1 unchanged sentence

Common Stock issued for cash 209,940 1,000 854,000 - 855,000

Net Loss - - - ( 988,000 ) ( 988,000 )

Balance, March 31, 2025 3,694,095 $ 4,000 $ 85,380,000 $ ( 70,095,000 ) $ 15,289,000

$ ( 70,095,000 )

See accompanying notes to condensed consolidated

financial statements

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31,

Common Stock issued to directors 12,950 - 39,000 - 39,000

Stock-Based Compensation - - 157,000 - 157,000

Common Stock issued for cash 97,866 - 330,000 - 330,000

Common Stock issued upon settlement of restricted stock units, net 57,192 - ( 127,000 ) - ( 127,000 )

Net Loss - - - ( 422,000 ) ( 422,000 )

Balance, June 30, 2025 3,862,103 $ 4,000 $ 85,779,000 $ ( 70,517,000 ) $ 15,266,000

See accompanying

notes to condensed consolidated financial statements

AIR INDUSTRIES

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 1,020,000 )

$ ( 988,000 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities

Net Loss $ ( 1,866,000 ) $ ( 1,410,000 )

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

Depreciation of property and equipment 1,427,000 1,187,000

Stock-based compensation 1,023,000 670,000

Stock-Based Compensation forfeiture adjustment ( 125,000 ) -

Amortization of Finance Lease Right-of-Use Assets 98,000 98,000

6 unchanged sentences

Accounts receivable ( 182,000 ) 1,897,000

( 1,021,000 )

Inventory ( 2,438,000 ) ( 1,376,000 )

Prepaid expenses and other current assets 312,000 ( 17,000 )

6 unchanged sentences

Customer deposits 3,073,000 ( 673,000 )

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

( 1,298,000 )

NET CASH PROVIDED BY OPERATING ACTIVITIES 225,000 1,870,000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment ( 485,000 ) ( 2,113,000 )

( 1,217,000 )

NET CASH USED IN INVESTING ACTIVITIES ( 485,000 ) ( 2,113,000 )

( 1,217,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

Note payable - revolver - net - Current Credit Facility 1,065,000 ( 811,000 )

( 1,701,000 )

Proceeds from term loan - Current Credit Facility - 1,640,000

Proceeds from Common Stock issued for cash - 1,185,000

Payments for taxes related to net share settlement of equity awards ( 131,000 ) ( 127,000 )

Payments of Subordinated Notes - related party - ( 1,291,000 )

( 1,291,000 )

Payments of term loan - Current Credit Facility ( 524,000 ) ( 485,000 )

3 unchanged sentences

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 274,000 ( 3,000 )

NET DECREASE IN CASH

NET INCREASE (DECREASE) IN CASH 14,000 ( 246,000 )

CASH AT BEGINNING OF PERIOD 4,610,000 753,000

CASH AT END OF PERIOD $ 4,624,000 $ 507,000

See accompanying notes to condensed consolidated

financial statements

See accompanying

notes to condensed consolidated financial statements

AIR INDUSTRIES GROUP

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31,

Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30,

Supplemental cash flow information:

1 unchanged sentence

Cash paid during the period for taxes $ 41,000 $ 19,000

Supplemental disclosure of non-cash investing and financing activities:

See accompanying notes to condensed consolidated

financial statements

AIR INDUSTRIES GROUP

See accompanying

notes to condensed consolidated financial statements

AIR INDUSTRIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND BASIS OF PRESENTATION

1 unchanged sentence

The accompanying condensed consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries:

Air Industries

Machining Corp.

Air Industries Machining Corp.

(“AIM”), Nassau Tool Works, Inc.

(“NTW”), and the Sterling Engineering Corporation (“Sterling”)

(together, the “Company”).

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

Basis of Presentation

The accompanying unaudited condensed consolidated

financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles for interim financial

information and with Rule 8-03 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by generally

accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal

recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three months ended March

31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.

These unaudited condensed

consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission

on March 27, 2026, from which the accompanying condensed consolidated balance sheet dated December 31, 2025 was derived.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 27, 2026, from which the accompanying condensed consolidated balance sheet dated December 31, 2025 was derived.

Going Concern and Management’s Plan

As of March 31, 2026, the Company was in default

of its minimum Fixed Charge Coverage Ratio (“FCCR”), of 1.10x as of the last day of the Fiscal Quarter, having only attained

a ratio of 0.93 x.

All other financial and business covenants required under the terms of the Current Credit Facility were met.

The Company’s

debt under our Current Credit Facility and Related Party Subordinated Notes approximates $ 29,747,000 .

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 March 31, 2026.

As a result of the default, the expiration dates of our

Current Credit Facility and the rights that our 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 condensed consolidated financial statements.

As of June 30, 2026, the Company was in compliance with its minimum Fixed Charge Coverage Ratio (“FCCR”), of 1.10x as of the last day of the Fiscal Quarter on a rolling twelve-month basis, having attained a ratio of 1.36x.

Additionally, all other financial and business covenants required under the terms of the Current Credit Facility were met.

The Company’s debt under its Current Credit Facility and Related Party Subordinated Notes approximates $ 28,885,000 .

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 June 30, 2026.

As a result of the expiration dates of the Current Credit Facility and Related Party Subordinated Notes, 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 condensed consolidated financial statements.

The terms of all outstanding indebtedness are discussed further in “Note 5.

The Company is required to maintain a collection account with its lender into which substantially all cash receipts are remitted.

Additionally,

as the Company is 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.

The Company is actively engaged in constructive

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

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

or 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 the entry into the Merger Agreement with Tenax (each as defined in “Note 11.

The Company is actively engaged in constructive discussions with various lenders as the Company has been advised by its lender that it does not want to renew its Current Credit Facility.

However, the Company is currently engaged in discussions with Webster Bank as well as the holders of the Related Party Notes as to the terms and conditions on which they will extend the maturity dates of their debt to the Outside Date of November 30, 2026, as defined in the Amendment to the A&R Merger Agreement (as defined in “Note 11.

Merger Information”).

the Company has temporarily paused all equity raising activity.

While these discussions have been professional and remain ongoing, there can be no assurance that agreements will be reached with Webster Bank, the holders of the Related Party Notes or 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 the entry into the Merger Agreement with Tenax (each as defined in “Note 11.

Merger Information”), the Company has temporarily paused all equity raising activity.

See “Note 11.

Merger Information”.

As of March 31, 2026, the Company had total unfilled

contract values amounting to $ 269.2 million (including its $ 134.7 million in funded backlog plus additional potential funded orders against

Long-Term Agreements (“LTAs”).

As of June 30, 2026, the Company had total unfilled contract values amounting to $ 279.0 million (including its $ 139.7 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

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.

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 or inflationary pressures 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.

demand for these products may be reduced if general economic conditions deteriorate reducing demand for commercial air travel.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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

collectability of the reported amount.

Accounts receivable are carried at the original invoice amount less an estimate made for credit losses based on a review of all outstanding amounts on a quarterly basis.

Management determines the allowance for credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions and other relevant factors, including specific reserves for certain accounts.

Accounts receivable are written off when deemed uncollectible.

Bad debt expenses are

recorded in operating expenses on the consolidated statements of operations.

The activity for the allowance for credit losses

during the three months ended March 31, 2026 and 2025 is set forth in the table below:

Three Months ended March 31, 2026 Allowance for Credit Losses

Three Months ended March 31, 2025 Allowance for Credit Losses

Bad debt expenses are recorded in operating expenses on the condensed consolidated statements of operations.

The activity for the allowance for credit losses during the six months ended June 30, 2026 and 2025 is set forth in the table below:

Balance at Deductions Balance at

Beginning of Charged to from the End of

Period Expenses Allowance Period

Six Months ended June 30, 2026 Allowance for Credit Losses $ 464,000 $ 165,000 $ ( 75,000 ) $ 554,000

Six Months ended June 30, 2025 Allowance for Credit Losses $ 396,000 $ 28,000 $ ( 56,000 ) $ 368,000

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.

The Company values inventory at the lower of cost or an 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 are recorded in cost of sales.

Inventories consist of the following at:

June 30, December 31,

Raw Materials $ 6,641,000 $ 7,306,000

4 unchanged sentences

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, other

governments, or commercial airlines.

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

three months ended March 31, 2026 and 2025 are shown below:

Percentage of Net Sales

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, other governments, or commercial airlines.

The composition of customers that exceeded 10% of net sales for the three months ended June 30, 2026 and 2025 are shown below:

Customer Percentage of Net Sales

Lockheed Martin 28.1 % 27.5 %

RTX (a) 25.4 % 44.3 %

Ontic 10.8 % 2.5 %

(a) RTX includes Collins Landing Systems and Collins Aerostructures

The composition of customers that exceed 10% of

accounts receivable at March 31, 2026 and December 31, 2025 are shown below:

Percentage of Net Receivables

The composition of customers that exceeded 10% of net sales for the six months ended June 30, 2026 and 2025 are shown below:

Customer Percentage of Net Sales

Lockheed Martin 31.5 % 33.4 %

RTX (a) 26.9 % 36.7 %

(a) RTX includes Collins Landing Systems and Collins Aerostructures

The composition of customers that exceed 10% of accounts receivable at June 30, 2026 and December 31, 2025 are shown below:

Customer Percentage of Net Receivables

June 30, December 31,

RTX (a) 37.8 % 39.8 %

Ontic 18.2 % 7.6 %

Fokker 12.1 % 7.2 %

Lockheed Martin 8.6 % 11.9 %

(a) RTX includes Collins Landing Systems and Collins Aerostructures

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers

for the three month periods ended March 31, 2026 and 2025:

Cash and Restricted Cash

During the period ended March 31, 2026, 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 March 31, 2026, and December 31, 2025 the

Company reported restricted cash of $ 3,930,000 on its condensed consolidated balance sheets.

Restricted cash represents proceeds from

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

The following table reconciles cash and restricted

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

Restricted Cash

The following table summarizes revenue from contracts with customers for the three and six months ending June 30, 2026 and 2025:

Three Months Ended Six Months Ended

Product June 30,

2026 June 30,

2025 June 30,

2026 June 30,

Military $ 8,164,000 $ 6,831,000 $ 15,810,000 $ 15,171,000

Commercial 3,831,000 5,828,000 7,791,000 9,631,000

Total $ 11,995,000 $ 12,659,000 $ 23,601,000 $ 24,802,000

During the period ended June 30, 2026, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit.

The Company has not experienced any losses on these accounts.

Major Suppliers

The Company utilizes sole-source suppliers to

supply raw materials or other parts used in production.

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

any of them were to go out of business or be unable or unwilling to provide parts for any reason, the Company’s business would be

severely harmed.

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 to provide parts for any reason, the Company’s business would be severely harmed.

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

At March 31, 2026 and December 31, 2025, customer

deposits were $ 968,000 and $ 391,000 , respectively.

The Company recognized revenue of $ 100,000 during the three months ended March 31,

2026 that was included in customer deposits balance as of December 31, 2025.

The Company recognized revenue of $ 531,000 during the three

months ended March 31, 2025, that was included in the customer deposits balance as of December 31, 2024.

Backlog represents the value of orders received

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

As of March 31, 2026, backlog relating

to remaining performance obligations on contracts was approximately $ 134.7 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 supplies 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 included in our backlog.

The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment.

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

At June 30, 2026 and December 31, 2025, customer deposits were $ 3,464,000 and $ 391,000 respectively.

The Company recognized revenue of $ 51,000 and $ 151,000 during the three and six months ended June 30, 2026, respectively, that was included in the customer deposits balance as of December 31, 2025.

The Company recognized revenue of $ 142,000 and $ 673,000 during the three and six months ended June 30, 2025, respectively, that was included in the customer deposits balance as of December 31, 2024.

Backlog represents the value of orders received pursuant to our Long-Term Agreements (“LTA”) or spot orders pursuant to a purchase order.

As of June 30, 2026, backlog relating to remaining performance obligations on contracts was approximately $ 139.7 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 supplies 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 included in backlog.

Earnings (Loss) per share

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

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

outstanding for the period.

For purposes of calculating diluted earnings (loss)

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

day of the period.

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

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

Dilutive common stock equivalents

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

The following securities have been excluded from

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

Three Months Ended

Basic earnings (loss) per share (“EPS”) is computed by dividing the net income (loss) applicable to common stock by the weighted-average number of shares of common stock outstanding for the period.

For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period.

The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive.

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

The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common stock and because the effect of including these potential shares was anti-dilutive due to net loss incurred during the period:

Three Months Ended Six Months Ended

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

2026 2025 2026 2025

Stock Options 395,453 374,503 395,453 374,503

1 unchanged sentence

Convertible Notes Payable 361,700 361,700 361,700 361,700

817,239 926,621 817,239 926,621

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-based compensation expense for employees amounted to $ 535,000 and $ 435,000 for the three months ended March

31, 2026 and 2025, respectively.

Stock-based compensation expense for directors amounted to $ 429,000 and $ 39,000 for the three months

ended March 31, 2026 and 2025, respectively.

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

in the accompanying condensed consolidated statements of operations.

The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award.

The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing reported market value.

Stock-based compensation expense for employees amounted to $ 37,000 and $ 157,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 572,000 and $ 592,000 for the six months ended June 30, 2026 and 2025, respectively.

A forfeiture adjustment of stock-based compensation for an employee amounted to $ 125,000 and $ 0 for both the three and six months ending June 30, 2026 and 2025, respectively.

Stock-based compensation expense for directors amounted to $ 22,000 and $ 39,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 451,000 and $ 78,000 for the six months ended June 30, 2026 and 2025, respectively.

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

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03,

“Disaggregation of Income Statement Expenses”, which requires public business entities to disclose additional information

about specific expenses categories in the notes to financial statements at interim and annual reporting periods.

The amendments in ASU

2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses”, which requires public business entities to disclose additional information about specific expenses categories in the notes to financial statements at interim and annual reporting periods.

The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently assessing the impact that adoption of this new accounting guidance will

have on its consolidated financial statements and footnote disclosures.

The Company does not believe that any other recently

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

financial statements.

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

In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic326):

Measurement of Credit Loss for Accounts Receivable and Contract Assets”, which provides a practical expedient for estimating expected credit losses for current accounts receivable and contract assets arising under ASC 606 “Revenue from Contracts with Customers”.

The amendments in ASU 2025-05 are effective for annual reporting periods beginning after December 15, 2025, and for interim periods within those annual periods.

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

In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270):

Narrow-Scope Improvements”, which clarifies interim reporting disclosure requirements.

The amendments are effective for interim reporting periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related 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 condensed consolidated financial statements.

PROPERTY AND EQUIPMENT

The components of property and equipment at March

31, 2026 and December 31, 2025 consisted of the following:

March 31, December 31,

Land $ 313,000 $ 313,000

The components of property and equipment at June 30, 2026 and December 31, 2025 consisted of the following:

June 30, December 31,

Land and Improvements $ 313,000 $ 313,000

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

8 unchanged sentences

Property and Equipment, net $ 8,559,000 $ 9,501,000

Depreciation expense for the three months ended

March 31, 2026 and 2025 was approximately $ 711,000 and $ 580,000 , respectively.

Depreciation expense for the three months ended June 30, 2026 and 2025 was approximately $ 715,000 and $ 607,000 , respectively.

Depreciation expense for the six months ended June 30, 2026 and 2025 was approximately $ 1,427,000 and $ 1,187,000 , respectively.

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

Three Months Ended

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.

Three Months Ended Six Months Ended

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

2026 2025 2026 2025

Operating lease cost:

$ 248,000 $ 283,000 $ 496,000 $ 561,000

Total lease cost $ 248,000 $ 283,000 $ 496,000 $ 561,000

1 unchanged sentence

Cash paid for amounts included in the measurement lease liability:

243,000 239,000 486,000 512,000

Operating cash flow from operating leases $ 243,000 $ 239,000 $ 486,000 $ 512,000

March 31, December 31,

June 30, December 31,

Weighted Average Remaining Lease Term - in years 0.25 0.75

Weighted Average discount rate - % 9.50 % 9.50 %

The aggregate undiscounted cash flows of operating lease payments as

of March 31, 2026, with remaining terms greater than one year are as follows:

The aggregate undiscounted cash flows of operating lease payments as of June 30, 2026, with remaining terms greater than one year are as follows:

December 31, 2026 (remainder of year) $ 243,000

Total future minimum lease payments 243,000

discount ( 4,000 )

Total operating lease maturities 239,000

1 unchanged sentence

Total long term portion of operating lease maturities $ -

Total debt outstanding as of March 31, 2026 is

$ 26,562,000 and was $ 25,233,000 at December 31, 2025.

Total debt outstanding as of June 30, 2026 is $ 25,638,000 and was $ 25,233,000 at December 31, 2025.

Indebtedness to third parties consists of the following:

June 30, December 31,

Current Credit Facility – Revolver $ 18,683,000 $ 17,618,000

3 unchanged sentences

Loans Payable - financed assets 1,000 5,000

Subtotal 25,638,000 25,233,000

Current portion ( 24,217,000 ) ( 23,721,000 )

( 25,102,000 )

( 23,721,000 )

Long-Term Portion $ 1,421,000 $ 1,512,000

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”), a $ 5,700,000 term

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

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

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

As of March 31, 2026, there is $ 19,283,000 outstanding

under the Revolving Line of Credit and $ 5,593,000 under the Term Loans.

As discussed in Note 1, the Company was in

default of its minimum Fixed Charge Coverage Ratio (“FCCR”) of 1.10x as of March 31, 2026, and the Current Credit

Facility expires on September 30, 2026.

Therefore, the entire Term Loan and all amounts due under the Revolving Line of Credit are

classified as short term as of March 31, 2026.

The below table shows the timing of payments due

under the Term Loan:

For the year ending

As of June 30, 2026, there is $ 18,683,000 outstanding under the Revolving Line of Credit and $ 5,331,000 under the Term Loans.

As discussed in Note 1, the Current Credit Facility expires on September 30, 2026.

Therefore, the entire Term Loan and all amounts due under the Revolving Line of Credit are classified as short term as of June 30, 2026.

The below table shows the timing of payments due under the Term Loan:

For the year ending Amount

December 31, 2026 (remainder of year) $ 5,331,000

1 unchanged sentence

Current portion of Term Loan payable ( 5,331,000 )

( 5,593,000 )

Total long-term portion of Term Loan payable $ -

Interest expense related to the Current Credit

Facility amounted to approximately $ 379,000 and $ 315,000 for the three months ended March 31, 2026 and 2025, respectively.

Interest expense

includes the amortization of deferred finance costs of $0 and $ 17,000 for the three months ending March 31, 2026 and 2025, respectively.

The below summarizes various terms of the Current

Credit Facility:

The Company is required to meet a Fixed

Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter of 1.10x.

As of March 31,2026, the Company

was in default with this ratio having attained a ratio of only 0.93.

At December 31, 2025, 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 March 31, 2026, the Company was in compliance with this Covenant.

Substantially all of the Company’s assets

are pledged as collateral.

Interest expense related to the Current Credit Facility amounted to approximately $ 387,000 and $ 326,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 767,000 and $ 641,000 for the six months ended June 30, 2026 and 2025, respectively.

Interest expense includes the amortization of deferred finance costs of $ 0 and $ 17,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 0 and $ 34,000 for the six months ended June 30, 2026 and 2025, respectively.

The below summarizes various terms of the Current Credit:

● The Company is required to meet a Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter on a rolling twelve month basis of 1.10x.

As of June 30, 2026, the Company was in full compliance with this ratio having attained a ratio of 1.36x.

At December 31, 2025, 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 June 30, 2026, 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.

2 unchanged sentences

● 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 6.10 % and 6.85 % for the three months ended March 31, 2026 and 2025, respectively.

The below summarizes certain amendments to the

Current Credit Facility

On January 30, 2025, we entered into an Eighth

Amendment to provide for an additional Term Loan in the amount of $ 1,640,000 for the acquisition of additional equipment.

principal installments on this additional Term Loan are $ 19,524 .

The average interest rate charged was 6.10 % and 6.85 % for the three months ended June 30, 2026 and 2025, respectively, and 6.10 % and 6.85 % for the six months ended June 30, 2026 and 2025, respectively.

The below summarizes certain amendments to the Current Credit Facility

● On January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $ 1,640,000 for the acquisition of equipment.

The monthly principal installments on this additional Term Loan are $ 19,524 .

This amendment further revised our Financial Covenants.

For the rolling

twelve-month period ending March 31, 2025 and June 30, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage

Ratio of 1.25x.

Additionally, the Company is allowed to pay off up to $ 4,800,000 of related party notes with funds raised in the Company’s

At The Market debt offering.

For the rolling twelve-month period ending March 31, 2025 and June 30, 2025, the Company is are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

Beginning with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x.

Additionally, the Company is allowed to pay off up to $ 4,800,000 of related party notes with funds raised in the Company’s At The Market debt offering.

All other covenants remain unchanged.

In connection with these changes, the Company paid an amendment

fee of $ 20,000 .

● 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.

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 the capital expenditure covenant was amended.

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 at Webster Bank.

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 the capital expenditure covenant was amended.

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

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

Amendment to 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 and agreed to pay an additional fee of $ 150,000 on the maturity date.

As the Company is in default under the Current

Credit Facility, the lender could exercise additional rights and remedies, such as increasing the rate of interest on outstanding amounts

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.

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 with alternative financing sources.

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 March 31, 2026, the Company has borrowing

capacity of approximately $ 717,000 under the Revolving Loan.

● 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 and agreed to pay an additional fee of $ 150,000 on the maturity date.

Currently, at any time, Webster Bank could choose to exercise additional rights that it has as a result of the Company’s previous 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 the Company 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.

The Company is actively engaged in constructive discussions with Webster Bank and 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 with alternative financing sources.

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 June 30, 2026, the Company has borrowing capacity of approximately $ 1,317,000 under the Revolving Loan.

Solar Credit Facility

On August 16, 2023, the Company entered into a

financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the

installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility.

were made by CT Green Bank upon its approval of costs incurred on the Project up to $ 934,000 .

As of October 1, 2024, cumulative advances

totaling $ 934,000 had been made including the payment of CT Green Bank’s closing costs of $ 25,000 .

Total interest accrued on the

advances at the rate of 5 % was $ 36,000 .

On October 1, 2024, the total cumulative advances

of $ 934,000 along with the total accrued interest of $ 36,000 was converted by CT Green Bank, in accordance with the financing agreement,

to a 20 -year level payment term loan in the amount of $ 970,000 with interest accruing at the rate of 5.75 %.

Semi-annual payments in the

amount of $ 42,000 are due commencing on July 1, 2025.

On August 16, 2023, the Company entered into a financing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the installation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility.

Advances were made by CT Green Bank upon its approval of costs incurred on the Project up to $ 934,000 .

As of October 1, 2024, cumulative advances totaling $ 934,000 had been made including the payment of CT Green Bank’s closing costs of $ 25,000 .

Total interest accrued on the advances at the rate of 5 % was $ 36,000 .

On October 1, 2024, the total cumulative advances of $ 934,000 along with the total accrued interest of $ 36,000 was converted by CT Green Bank, in accordance with the financing agreement, to a 20 -year level payment term loan in the amount of $ 970,000 with interest accruing at the rate of 5.75 %.

Semi-annual payments in the amount of $ 42,000 are due commencing on July 1, 2025.

The first semi-annual payment was for interest only.

The second payment due January

1, 2026 and all subsequent semi-annual payments include both principal and interest.

As of March 31, 2026, the amount classified as short

term is $ 29,000 and the amount classified as long term is $ 928,000 .

Interest expense related to the Solar Credit Facility

amounted to approximately $ 14,000 and $ 14,000 for the three months ended March 31, 2026 and 2025, respectively.

The second payment due on January 1, 2026 and all subsequent semi-annual payments include both principal and interest.

As of June 30, 2026, the amount classified as short term is $ 29,000 and the amount classified as long term is $ 928,000 .

Interest expense related to the Solar Credit Facility amounted to approximately $ 14,000 and $ 14,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 28,000 and $ 28,000 for the six months ended June 30, 2026 and 2025, respectively.

Finance Lease Obligations

The Company has entered into finance leases for

the purchase of additional manufacturing equipment.

The obligations for the finance leases totaled $ 726,000 and $ 784,000 as of March 31,

2026 and December 31, 2025, 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.

Three Months Ended

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

The obligations for the finance leases totaled $ 666,000 and $ 784,000 as of June 30, 2026 and December 31, 2025, 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.

Three Months Ended Six Months Ended

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

2026 2025 2026 2025

Finance Lease cost:

7 unchanged sentences

Acquisition of finance lease asset $ - $ - $ - $ -

March 31, December 31,

June 30, December 31,

Weighted Average Remaining Lease Term - in years 3.6 4.8

Weighted Average Discount rate - % 7.43 % 7.44 %

As of March 31, 2026, the aggregate future minimum

finance lease payments , including imputed interest are as follows:

For the year ending

As of June 30, 2026, the aggregate future minimum finance lease payments , including imputed interest are as follows:

For the year ending Amount

December 31, 2026 (remainder of year) $ 120,000

7 unchanged sentences

Long-term portion $ 493,000

Loan Payable – Financed Assets

The Company financed the purchase of a delivery

vehicle in July 2020.

The loan obligation totaled $ 3,000 and $ 5,000 as of March 31, 2026 and December 31, 2025, respectively.

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

Loan Payable – Financed Asset

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

The loan obligation totaled $ 1,000 and $ 5,000 as of June 30, 2026 and December 31, 2025, 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

For the year ending Amount

December 31, 2026 (remainder of year) $ 1,000

4 unchanged sentences

Taglich Brothers, Inc.

is a corporation co-founded

by two directors of the Company, Michael and Robert Taglich.

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 is allowed to make principal payments of up to $ 4,800,000 with funds raised in the Company’s At the Market

For the three month period ended March 31, 2025, 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 March

31, 2026 and December 31, 2025 consist of:

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 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, 2026, with funds raised in the Company’s At The Market Offering.

For the three and six month periods ended June 30, 2025, the Company paid $ 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 June 30, 2026 and December 31, 2025 consist of:

Michael Taglich, Robert Taglich, Taglich Brothers,

Director Director Inc.

Convertible Subordinated Notes $ 2,416,000 $ 1,905,000 $ - $ 4,321,000

Subordinated Notes - 550,000 - 550,000

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

Interest expense for the three months ended March 31, 2026 and 2025 on all related party notes payable was $ 86,000 and $ 99,000 ,

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.

Total $ 2,416,000 $ 2,455,000 $ - $ 4,871,000

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 three months ended June 30, 2026 and 2025 on all related party notes payable was $ 86,000 and $ 86,000 , respectively, and $ 172,000 and $ 185,000 for the six months ended June 30, 2026 and 2025, 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.

There are no principal payments due prior 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.

The Related Party Notes are subordinate to outstanding debt pursuant to the Current Credit Facility and mature on October 1, 2026.

The Company is actively engaged in constructive discussions with Michael and Robert Taglich with respect to an extension of the Related Party Notes to a date after the Outside Date, as defined in the Amendment to the A&R Merger Agreement (as defined in “Note 11.

Merger Information”).

While these discussions have been professional and remain ongoing, there can be no assurance that agreements will be reached.

STOCKHOLDERS’ EQUITY

Common Stock – Issuances of Securities

The Company issued 4,600 and 9,185 shares of common

stock in payment of director fees totaling $ 14,000 and $ 39,000 for the three months ended March 31, 2026 and 2025, respectively.

During April of 2026, the Company issued 4,484

shares of common stock in payment of directors’ fees totaling $ 14,000 .

During April of 2026, the Company issued 57,345

shares of common stock upon the vesting of Restricted Stock Units (“RSUs”) to certain employees and withheld the balance of

the 94,210 RSUs in satisfaction of tax withholding obligations.

Common Stock – Issuance of Securities

The Company issued 4,484 and 12,950 shares of common stock in payment of director fees totaling $ 14,000 and $ 39,000 for the three months ended June 30, 2026 and 2025, respectively, and 9,084 and 22,135 shares totaling $ 28,000 and $ 78,000 for the six months ended June 30, 2026 and 2025, respectively.

During April of 2026, the Company issued 57,345 shares of common stock upon the vesting of Restricted Stock Units (“RSUs”) to certain employees and withheld the balance of the 94,210 RSUs in satisfaction of tax withholding obligations.

This represents a portion of the RSUs granted in 2024.

Additionally, during April of 2026, the Company

issued 7,775 shares of common stock upon the vesting of RSUs to a former executive pursuant a separation agreement and withheld the balance

of the 12,159 RSUs in satisfaction of withholding tax obligations.

Additionally, during April of 2026, the Company issued 7,775 shares of common stock upon the vesting of RSUs to a former executive pursuant to a separation agreement and withheld the balance of the 12,159 RSUs in satisfaction of withholding tax obligations.

This represents a portion of the RSUs granted in February of 2026.

3 unchanged sentences

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.

The Company recorded stock-based compensation expense for certain

employees and members of the Company’s Board of Directors of $ 27,000 and $ 18,000 for the three months ended March 31, 2026 and 2025,

respectively, in its condensed consolidated statements of operations, and such amounts were included as a component of operating

A summary of the status of the Company’s stock options as of

March 31, 2026 and December 31, 2025, and changes during the periods then ended are presented below:

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.

The Company recorded stock-based compensation expense for certain employees and members of the Company’s Board of Directors of $ 8,000 and $ 4,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 35,000 and $ 22,000 for the six months ended June 30, 2026 and 2025, respectively, in its condensed consolidated statements of operations, and such amounts were included as a component of operating expenses.

A summary of the status of the Company’s stock options as of June 30, 2026 and December 31, 2025, and changes during the periods then ended are presented below:

Options Price

Balance, January 1, 2025 417,003 $ 7.00

6 unchanged sentences

Terminated/Expired during the period ( 30,250 ) 13.90

Balance, March 31, 2026

Exercisable at March 31, 2026

The following table summarizes information about outstanding stock

options at March 31, 2026:

Balance, June 30, 2026 395,453 $ 5.40

Exercisable at June 30, 2026 395,453 $ 5.40

The following table summarizes information about outstanding stock options at June 30, 2026:

Range of Exercise Price Outstanding Wtd.Avg, Life Exercise Price

$ 3.00 - $ 23.80 395,453 1.8 Years $ 5.40

The following table summarizes information about outstanding stock

options at December 31, 2025:

The following table summarizes information about outstanding stock options at December 31, 2025:

Range of Exercise Price Outstanding Wtd.Avg, Life Exercise Price

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

As of March 31, 2026, there was $ 8,000 of unrecognized compensation

cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average vesting period of 0.2 years.

The aggregate intrinsic value at March 31, 2026 was based on the Company’s

closing stock price of $ 3.23 was $ 14,000 .

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

stock price of $ 3.07 was approximately $ 4,000 .

The aggregate intrinsic value was calculated based on the positive difference between the

closing market price of the Company’s Common Stock and the exercise prices of the underlying options.

As of June 30, 2026, there was $ 0 of unrecognized compensation cost related to non-vested stock option awards.

The aggregate intrinsic value at June 30, 2026 based on the Company’s closing stock price of $ 3.02 was $ 0 .

The aggregate intrinsic value at December 31, 2025 based on the Company’s closing stock price of $ 4.07 was approximately $ 121,000 .

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.

Restricted Stock Units (“RSUs”)

During the three months ended March 31, 2026 and 2025, the Company

granted 243,172 and 0 RSUs to certain employees and directors.

During the six months ended June 30, 2026 and 2025, the Company granted 243,172 and 0 RSUs to certain employees and directors.

These RSUs vested immediately.

A summary of the status of the Company’s RSUs as of March 31,

2026, is presented below.

Grant Date Fair

A summary of the status of the Company’s RSUs as of June 30, 2026 is presented below.

Number of Units Grant Date

Fair Value per

Unvested units as of January 1, 2025 282,628 $ 6.06

4 unchanged sentences

Granted during the period 243,172 $ 6.06

Vested during the period but shares not issued

Vested during the period ( 337,382 ) 3.99

Forfeited during the period ( 34,122 ) -

Unvested Units as of March 31, 2026

Vested as of March 31, 2026

The Company recorded stock-based compensation expense of $ 923,000

and $ 417,000 for the three months ended March 31, 2026 and 2025, respectively, in its condensed consolidated statements of operations,

and such amounts were included as a component of operating expenses.

As of March 31, 2026, there was $ 226,000 of unrecognized compensation

cost related to non-vested RSUs, which is to be recognized over the remaining weighted average vesting period of 1.0 year.

Unvested Units as of June 30, 2026 60,086 $ 6.06

Vested as of June 30, 2026 432,592 $ 4.45

The Company recorded stock-based compensation expense of $( 88,000 ) and $ 153,000 for the three months ended June 30, 2026 and 2025, respectively, and $ 835,000 and $ 570,000 for the six months ended June 30, 2026 and 2025, respectively, in its condensed consolidated statements of operations, and such amounts were included as a component of operating expenses.

The negative expense was a result of the forfeiture of RSUs during the three and six months ended June 30, 2026.

The fair value of the RSUs which were granted in 2024 and vested during the second quarter ended June 30, 2026 was $ 338,000 .

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 41,249 and were valued on their vesting date as determined by the Company’s closing stock price.

Payments to taxing authorities for tax obligations totaled $ 131,000 .

As of June 30, 2026, there was $ 108,000 of unrecognized compensation cost related to non-vested RSUs, which is to be recognized over the remaining weighted average vesting period of 0.75 years.

COMMITMENTS AND CONTINGENCIES

On October 2, 2018, Contract Pharmacal Corp.

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

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

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

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

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

ultimately received all the space.

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

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

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

judgement and to add an additional cause of action.

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

for specific performance and to amend its Complaint to reduce its claim for damages to $ 700,000 both of which benefit the Company.

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

The Court denied

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

Appellate Division of the State of New York.

The Company opposed that action.

The Company was again successful as the Appellate Division

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

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

The Company will oppose that motion.

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

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

The Company continues to dispute the validity of the claims asserted

by Contract Pharmacal and intends to contest them vigorously.

From time to time the Company may be engaged

in 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.

In consultation with legal counsel, there are no proceedings in

which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock,

is an adverse party or has a material interest adverse to our interest.

The Company recorded no income tax expense for

the three months ended March 31, 2026 and 2025 because the estimated annual effective tax rate was zero.

In determining the estimated

annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and

taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits

and net operating loss carry forwards, and available tax planning alternatives.

As of March 31, 2026, and December 31, 2025, the

Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not

that its deferred tax assets will not be realized.

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

This sublease involved property that had been occupied by the Company’s subsidiary WMI, the property address was 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, this alleged violation specifically involved the failure to make the entire premises available by what Contract Pharmacal 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 covered by the sublease.

Court ordered discovery was conducted and following same Contract Pharmacal moved for summary judgement and to amend its complaint to add a new cause of action.

The company opposed that motion.

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.

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 appeal.

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 did 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.

Even though no decision has ever been rendered by the Appellate Division, the trial court attempted to move the case forward by conducting numerous settlement conferences.

Due to the unreasonable nature of Contract Pharmacal’s demands in light of the strength of their case no settlement occurred.

As a result, the court ordered the matter to proceed.

Since that last court appearance in January of 2026 the action has stalled.

This stall is the direct result of Contract Pharmacal’s refusal to appear for depositions as ordered by the court.

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.

In consultation with legal counsel, there are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.

The Company recorded $ 18,000 and $ 0 for income tax expense for the three and six months ended June 30, 2026 and 2025 respectively.

The amount paid in 2026 is related to state taxes in a specific jurisdiction.

In 2025, the estimated annual effective tax rate was zero.

In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of June 30, 2026, and December 31, 2025, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

SEGMENT INFORMATION

The Company operates as one operating segment.

The Company’s Chief Operating Decision Maker (“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 condensed

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 condensed consolidated net income (loss).

the condensed 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 Condensed Consolidated Balance Sheets were located

in the United States.

The Company’s Chief Operating Decision Maker (“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 condensed 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 condensed consolidated net income (loss).

See the condensed 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 Condensed Consolidated Balance Sheets were located in the United States.

MERGER INFORMATION

On February 16, 2026,

the Company and Transitory Air Sub LLC , its wholly owned subsidiary (“ Merger Sub ”),

entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tenax Aerospace Acquisition, LLC, a Delaware limited

liability company (“ Tenax ”).

Upon consummation of the merger contemplated by the Merger Agreement (the “Merger”),

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 (the “ Tenax Members ”) at the closing of the Merger.

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 March 31, 2026, the calculation would result in the issuance of approximately 122.6

million shares of the Company’s common stock.

Consequently, based upon the calculation of the Merger Consideration as of March 31,

2026, following the closing of the Merger, the Tenax Members will collectively own approximately 96 % of the outstanding shares of the

Company’s common stock.

The closing of 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.

On February 16, 2026, the Company and Transitory Air Sub LLC , its wholly owned subsidiary (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Original Merger Agreement”) with Tenax Aerospace Acquisition, LLC, a Delaware limited liability company (“Tenax”), pursuant to which the Company agreed to combine with Tenax and issue shares of the Company’s common stock to the holders of the membership interests of Tenax (the “Tenax Members”) at the closing of the merger based on a calculation of AIR Net Indebtedness (as defined in the Original Merger Agreement).

On June 2, 2026, Air Industries Machining Corp.

received a payment of $ 1,971,070 (the “Advance”), from one of its customers for product to be delivered after receipt of the Advance.

Subsequently, on June 8, 2026, the Company, Merger Sub and Tenax entered into an amendment (“Amendment No.

1”) to the Original Merger Agreement, which amended the definition of AIR Net Indebtedness (as defined in the Original Merger Agreement) to mitigate the impact of the Advance on the calculation of AIR Net Indebtedness and thereby the number of shares of common stock to be issued pursuant to the Original Merger Agreement.

On July 2, 2026, the Company, Merger Sub and Tenax entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”), which amended and restated the Original Merger Agreement, as amended by Amendment No.

1, in its entirety.

Pursuant to the A&R Merger Agreement, Merger Sub will merge with and into Tenax, with Tenax continuing as the surviving company in such merger (the “Merger”) and becoming a wholly-owned subsidiary of the Company.

Pursuant to the terms of the A&R Merger Agreement, the Company will issue 126,900,000 shares of the Company’s common stock ( 25,380,000 shares after giving effect to a 1 for 5 Reverse Stock Split described herein) (the “Merger Consideration”) to the Tenax Members in connection with the Merger.

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 A&R Merger Agreement further provides that the Debt Adjusted AIR Share Price (as defined in the A&R Merger Agreement) shall be $ 3.05 ($ 15.25 after giving effect to a 1 for 5 Reverse Stock Split described herein).

Each of the Merger Consideration and the Debt Adjusted AIR Share Price is subject to appropriate and equitable adjustment in the event of any subdivision, stock dividend or stock split, combination, recapitalization, exchange or reclassification of the Company’s common stock prior to the closing, including the 1 for 5 Reverse Stock Split described herein.

Following the closing, the Tenax Members will collectively own approximately 96 % of outstanding Company common stock, and the Company’s stockholders as of immediately prior to the closing will collectively own approximately 4 % of outstanding Company common stock.

The A&R Merger Agreement requires the Company to amend its articles of incorporation (the “AIR Charter Amendment”) to increase the number of authorized shares of the Company’s common stock from 20 million to 200 million.

Subsequent to the effectiveness of the AIR Charter Amendment, the Company shall cause a certificate of change to be filed with the Secretary of State of the State of Nevada effecting a reverse stock split of the issued and outstanding shares of the Company’s common stock at a ratio of one post-split share of the Company’s common stock for every five pre-split shares of the Company’s common stock while simultaneously reducing the number of authorized shares of the Company’s common stock under the Company’s articles of incorporation (after giving effect to the AIR Charter Amendment) by a corresponding factor, with any fractional share of the Company’s common stock otherwise resulting from the split rounded up to the nearest whole share (the “ 1 for 5 Reverse Stock Split”).

Unless the parties agree otherwise, the number of authorized shares of the Company’s common stock immediately after the closing will be 40,000,000 .

The A&R Merger Agreement eliminates the post-closing tender offer contemplated by the Original Merger Agreement, under which the Company would have been required, within five business days following the closing, to commence a tender offer to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price equal to the Debt Adjusted AIR Share Price (as defined in the Original Merger Agreement) if the volume weighted average price of the Company’s common stock during the 20 trading days preceding the closing was less than the Debt Adjusted AIR Share Price.

The A&R Merger Agreement further requires that, promptly following the date of the A&R Merger Agreement, the Company file with the U.S.

Securities and Exchange Commission a Registration Statement on Form S-4, which will register the shares of the Company’s common stock to be issued to the Tenax Members pursuant to the A&R Merger Agreement, and will include a proxy statement/prospectus relating to the Merger, and the matters to be voted on by the Company stockholders.

Each of the Company and Tenax shall use its reasonable best efforts to cause the Registration Statement to become effective under the Securities Act as promptly as practicable and to keep the Registration Statement effective for so long as necessary to consummate the Merger.

On July 31, 2026, the Company, Merger Sub and Tenax entered into an amendment to the A & R Merger Agreement which extended the Outside Date (as defined in the A&R Merger Agreement) to close the transaction from September 30, 2026 to November 30, 2026.

The closing of the Merger is subject to risks and uncertainties and certain specified conditions, including, among other things:

(a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, (b) the listing of the Merger Consideration on the NYSE American, and (c) other customary conditions for a transaction such as the Merger, such as the absence of any legal restraint prohibiting the consummation of the Merger and there not having occurred with respect to the Company or Tenax’s business a material adverse event, subject to certain customary exceptions.

Tenax is a leading provider of special mission aviation solutions that combine aircraft sourcing, financing and modification with aviation services including pilots, maintenance and other types of program support.

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

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

What changed 10-Q

Item 1. Financial Statements