AIR INDUSTRIES GROUP

Previous wording

Winning a new contract award is highly competitive. Our ability to win new contract awards generally requires us to deliver superior quality products, more quickly and with lower pricing than our competitors. Accordingly, we must continually invest in process improvements and capital equipment. Recent investments in new equipment have improved the productive capacity of our employees, increased our efficiency and speed, and expanded the size of products we can manufacture. We strategically operate two state-of-the-art manufacturing centers in the U.S. This allows for rigorous oversight of production and the adherence to stringent quality standards. Although there is currently a shortage of skilled workers, we maintain a highly trained and close- knit team of over 180 professionals committed to driving excellence and precision in every aspect of our operations.

Current wording

Winning a new contract award is highly competitive. Our ability to win new contract awards generally requires us to deliver superior quality products, more quickly and with lower pricing than our competitors. Accordingly, we must continually invest in process improvements and capital equipment. Recent investments in new equipment have improved the productive capacity of our employees, increased our efficiency and speed, and expanded the size of products we can manufacture. We strategically operate two state-of-the-art manufacturing centers in the U.S. This allows for rigorous oversight of production and the adherence to stringent quality standards. Although there is currently a shortage of skilled workers, we maintain a highly trained and close- knit team of over 184 professionals committed to driving excellence and precision in every aspect of our operations.

Previous wording

With total unfilled contract values amounting to $191.9 million (including our $98.3 million in backlog and all potential orders against LTA agreements previously awarded to us), as of December 31, 2023, we are confident in our ability to boost sales in 2024, attain profitability and improve our financial position.

Current wording

With total unfilled contract values amounting to $271.3 million (including our $117.9 million in backlog and all potential orders against LTA agreements previously awarded to us), as of December 31, 2024, we are confident in our ability to boost sales in 2025, attain profitability and improve our financial position.

Previous wording

***Gross Profit:***Gross profit for the year ended December 31, 2023, amounted to $7,428,000, comparable to the $7,452,000 achieved in 2022. Our gross profit percentage in fiscal 2023 increased to 14.4% from the 14.0% we achieved in 2022. This improvement can be attributable to changes in the sales across our major platforms, shifts in product mix, and overall operating efficiencies.

Current wording

***Gross Profit:***Gross profit for the year ended December 31, 2024, amounted to $8,932,000, an increase from the $7,428,000 achieved in 2023. Our gross profit percentage in fiscal 2024 increased to 16.2% from the 14.4% we achieved in 2023. This improvement can be attributed to our increase in sales, changes in sales across our major platforms, shifts in product mix, and overall operating efficiencies.

Previous wording

Operating Expenses: In fiscal 2023, operating expenses totaled $7,723,000, slightly higher than the $7,646,000 recorded in 2022. As a percentage of consolidated net sales, operating expenses rose to 15.0%, compared to the 14.4% achieved in fiscal 2022. The increase in both dollars and percentage was primarily driven by higher professional fees and costs associated with the improvement of our information technology system and hardening our cyber-security protection. We continue to look for ways to reduce our costs and improve our operating performance and financial results.

Current wording

Operating Expenses: In fiscal 2024, operating expenses totaled $8,473,000, higher than the $7,723,000 recorded in 2023. As a percentage of consolidated net sales, operating expenses rose to 15.4%, compared to the 15.0% achieved in fiscal 2023. The increase in both dollars and percentage was primarily driven by higher professional fees and costs associated with the improvement of our information technology system and hardening our cyber-security protection. We continue to look for ways to reduce our costs and improve our operating performance and financial results.

Previous wording

***Interest Expense:***Interest expense (which includes amortization of deferred financing costs) was $1,920,000 in fiscal 2023, an increase of $582,000 or 43.5% from $1,338,000 in 2022. The increase is primarily attributable to an increase in the average interest rate on outstanding debt pursuant to our Current Credit Facility which increased to 7.55% in 2023 as compared to 4.50% in 2022.

Current wording

***Interest Expense:***Interest expense (which includes amortization of deferred financing costs) was $1,893,000 in fiscal 2024, a decrease of $27,000 or 1.4% from $1,920,000 in 2023. The decrease is primarily attributable to a decrease in the average amount outstanding under our Current Credit Facility. The average interest rate on our Current Credit Facility increased to 7.66% in 2024 as compared to 7.55% in 2023.

Previous wording

Net Loss: Net loss for the year ended December 31, 2023 was $2,131,000, compared to a net loss of $1,076,000 for the year ended December 31, 2022, for the reasons discussed above.

Current wording

Net Loss: Net loss for the year ended December 31, 2024 was $1,366,000, compared to a net loss of $2,131,000 for the year ended December 31, 2023, for the reasons discussed above.

Previous wording

Under the terms of the Current Credit Facility, we are required to meet a Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and leases expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. As of December 31, 2023, we achieved a Fixed Charge Coverage Ratio of 1.31x as compared to the required ratio of 0.95x and were in full compliance with all other covenants. However, as of March 31, 2024, we were not in compliance with the required ratio of 1.10x.

Current wording

Under the terms of the Current Credit Facility, as amended, we are required to achieve prescribed levels of EBITDA (as defined in the Current Credit Facility) at the end of each Fiscal Quarter on a rolling basis, for the Fiscal Quarters ending September 30, 2024 and December 31, 2024. Beginning with the Fiscal Quarter ending March 31, 2025 we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. For the twelve months cumulative period ending December 31, 2024, we achieved an EBITDA of $3,640,000 as compared to the required $2,800,000.

Previous wording

Although we have started discussions with our lender to receive a waiver with respect to our failure to meet the Fixed Charge Coverage Ratio at March 31, 2024, it is reasonably possible such waiver will not be granted. Even if such waiver is granted, we may fail to achieve the Fixed Charge Coverage Ratio in the future or otherwise fail to meet covenants in the Current Credit Facility. Therefore, we have classified the term loan that expires on December 30, 2025 as current as of December 31, 2023, in accordance with the guidance in ASC 470-10-45, “Debt – Other Presentation Matters”, related to the classification of callable debt. We are required to maintain a collection account with our lender into which substantially all of our cash receipts are remitted. If we were to default under our Current Credit Facility, our lender could choose to increase the rate of interest we pay or refuse to make loans under the revolving portion of the Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest we pay, it would adversely impact our operating results. If the lender were to cease making new loans under our revolving facility, we would lack the funds to continue our operations. The rights granted to our lender under the Current Credit Facility combined with the possibility that we might fail to meet covenants in the future raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the issuance of the opinion of our auditors contained in this report.

Current wording

The Current Credit Facility expires on December 30, 2025. In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are remitted. If we were to default under the Current Credit Facility, our lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact our operating results. If the lender were to cease making new loans under the revolving facility, we would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, combined with the reasonable possibility that the we might fail to meet covenants in the future, raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report.

Previous wording

Although navigating the current business landscape remains challenging and it is difficult to predict period-to-period financial performance, we believe we will be able to meet our financial obligations for the foreseeable future. However, if we are unable to obtain a waiver from our lender and they were to cease lending, we would not be able meet our financial obligations. As of December 31, 2023, we have borrowing capacity of approximately $9,830,000 under the Revolving Loan (including $383,000 pursuant to the Capital Expenditure Line).

Current wording

Although navigating the current business landscape remains challenging and it is difficult to predict period-to-period financial performance, we believe we will be able to meet our financial obligations for the foreseeable future. However, if we are unable to obtain a waiver from our lender and they were to cease lending, we would not be able meet our financial obligations. As of December 31, 2024, we have borrowing capacity of approximately $7,095,000 under the Revolving Loan.

Previous wording

In addition to required Term Loan payments of approximately $948,000 in fiscal 2024, we may have to make additional payments. For so long as the Term Loan under the Current Credit Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow 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, 2023, based on the calculation there was no Excess Cash Flow payment required.

Current wording

In addition to required Term Loan payments of approximately $1,011,000 in fiscal 2025, we may have to make additional payments. For so long as the Term Loan under the Current Credit Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan. Such payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such fiscal year. For the fiscal year ended December 31, 2024, based on the calculation there is a $43,500 Excess Cash Flow payment required.

Previous wording

Our material cash requirements are for debt service, capital expenditures and funding working capital. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility and strength of our backlog, we believe that we have sufficient liquidity to meet our cash requirements. However, if we are unable to obtain a waiver from our lender and they were to cease lending we may not have sufficient liquidity to meet our cash requirements for the next twelve months from the date of issuance of our consolidated financial statements included in this Report.

Current wording

Our material cash requirements are for debt service, capital expenditures and funding working capital. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility and strength of our backlog, we believe that we have sufficient liquidity to meet our cash requirements for our operations. However,

Previous wording

For the year ended December 31, 2023, we generated cash flows from operations of $4,862,000 as compared to only $448,000 for fiscal 2022.

Current wording

For the year ended December 31, 2024, we generated cash flows from operations of $324,000 as compared to $4,862,000 for fiscal 2023.

Previous wording

We continue to make significant investments to enhance our competitiveness and market position. Cash used in investing activities of $2,112,000 and $2,361,000, in 2023 and 2022, respectively, was for new property and equipment.

Current wording

We continue to make significant investments to enhance our competitiveness and market position. Cash used in investing activities of $2,285,000 and $2,112,000, in 2024 and 2023, respectively, was for new property and equipment.

Previous wording

We continue to make strategic investments in capital equipment to enhance our competitiveness. The investments in 2023 and 2022 increased production efficiency and speed, while maintaining closer tolerances. They also expanded the size of products we can manufacture. We expect to invest approximately $2,000,000 in 2024 for new or upgraded equipment.

Current wording

We continue to make strategic investments in capital equipment to enhance our competitiveness. The investments in 2024 and 2023 increased production efficiency and speed, while maintaining closer tolerances. They also expanded the size of products we can manufacture. We expect to invest approximately $1,600,000 in 2025 for new or upgraded equipment.

Previous wording

For the year ended December 31, 2022, cash provided by financing activities was $1,567,000. During fiscal 2022, we increased borrowings under our Current Credit Facility by $2,130,000 (consisting of a net increase in Revolving Loan borrowings of $916,000 and a net increase of $1,214,000 against the Term loan). We also made payments of $284,000 pursuant to financing lease obligations. $250,000 of Related Loan principal repayments, and $9,000 on a loan payable. During fiscal 2022, we paid $20,000 of amendment fees.

Current wording

For the year ended December 31, 2024, cash provided by financing activities was $2,368,000. During fiscal 2024, we increased borrowings under our Current Credit Facility by $2,238,000 (consisting of a net increase in Revolving Loan borrowings of $2,101,000 and a net increase of $137,000 against the Term Loan) and received advances of $533,000 against the Solar Facility. We also made payments of $196,000 pursuant to financing lease obligations and $9,000 on a loan payable.

Previous wording

For the year ended December 31, 2023, cash used in financing activities was $2,685,000. During fiscal 2023, we reduced borrowings under our Current Credit Facility by $2,921,000 (consisting of net reduction in Revolving Loan borrowings of $2,548,000 and a net decrease of $373,000 against the Term Loan). We also made payments of $123,000 pursuant to financing lease obligations and $9,000 on a loan payable. During fiscal 2023, we also took advances of $393,000 against the Solar Facility including originations fees of $25,000.

Current wording

For the year ended December 31, 2023, cash used in financing activities was $2,685,000. During fiscal 2023, we reduced borrowings under our Current Credit Facility by $2,921,000 (consisting of net reduction in Revolving Loan borrowings of $2,548,000 and a net decrease of $373,000 against the Term Loan). We also made payments of $123,000 pursuant to financing lease obligations and $9,000 on a loan payable. During fiscal 2023, we also took advances of $393,000 against the Solar Facility including origination fees of $25,000.

Previous wording

Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include, inventory valuation, useful lives and impairment of long-lived assets, income tax provision, and allowance for credit losses. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

Current wording

Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include, inventory valuation and income tax provision. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.