[FORM 10-Q General Information](index=1&type=section&id=FORM%2010-Q%20General%20Information) This section provides general filing details for the Quarterly Report on Form 10-Q, including registrant classification and outstanding common stock [Filing Details](index=1&type=section&id=Filing%20Details) This section details the Form 10-Q filing, identifying AIR INDUSTRIES GROUP as a Smaller Reporting Company with 31.7 million shares outstanding - The registrant is a **Smaller Reporting Company**[3](index=3&type=chunk) - Total of **31,729,755 shares of common stock outstanding** as of November 4, 2020[3](index=3&type=chunk) [INDEX](index=2&type=section&id=INDEX) This section provides a comprehensive table of contents for the Form 10-Q report [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section cautions investors that forward-looking statements are subject to uncertainties and actual results may differ materially - Forward-looking statements are predictive and subject to uncertainties, and actual results may differ materially[5](index=5&type=chunk)[6](index=6&type=chunk) - Factors that could cause actual results to differ materially are discussed under 'Risk Factors' in the Annual Report on Form 10-K and other SEC filings[6](index=6&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and related notes for the periods ended September 30, 2020 and 2019 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show an increase in total assets and liabilities from December 2019 to September 2020, driven by current assets and liabilities Condensed Consolidated Balance Sheet Highlights | Metric | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | |:---|:---|:---| | Total Current Assets | $44,448,000 | $38,245,000 | | Total Assets | $58,764,000 | $51,090,000 | | Total Current Liabilities | $35,363,000 | $32,622,000 | | Total Liabilities | $47,412,000 | $40,884,000 | | Total Stockholders' Equity | $11,352,000 | $10,206,000 | - Cash and Cash Equivalents increased from **$1,294,000** at December 31, 2019, to **$1,460,000** at September 30, 2020[10](index=10&type=chunk) - Inventory increased significantly from **$28,646,000** to **$32,840,000**, and Accounts Receivable, Net, rose from **$7,858,000** to **$9,748,000**[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss for both the three and nine months ended September 30, 2020, due to decreased sales and gross profit Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Net Sales | $13,662,000 | $13,997,000 | $35,603,000 | $41,243,000 | | Gross Profit | $1,656,000 | $2,963,000 | $4,451,000 | $7,428,000 | | Income (Loss) from Operations | $(240,000) | $1,155,000 | $(1,613,000) | $1,311,000 | | Net Income (Loss) | $(477,000) | $187,000 | $(1,003,000) | $(1,471,000) | | Net Income (Loss) per share – Basic (Continuing Operations) | $(0.02) | $0.01 | $(0.03) | $(0.05) | - Net sales decreased by **2.4%** for the three months and **13.7%** for the nine months ended September 30, 2020, compared to the prior year[11](index=11&type=chunk) - Gross profit declined by **44.1%** for the three months and **40.1%** for the nine months, reflecting operational inefficiencies and increased safety costs due to COVID-19[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased from January to September 2020, primarily due to common stock issuance, partially offset by net losses Stockholders' Equity Changes (Jan 1 - Sep 30, 2020) | Item | Amount ($) | |:---|:---|\ | Balance, January 1, 2020 | 10,206,000 | | Common stock issued for directors' fees | 159,000 | | Costs related to issuance of stock | (145,000) | | Issuance of Common Stock | 984,000 | | Common Stock Issued for Convertible Notes | 885,000 | | Stock Compensation Expense | 266,000 | | Net Loss | (1,003,000) | | Balance, September 30, 2020 | 11,352,000 | - Common stock issued for directors' fees totaled **$159,000** for the nine months ended September 30, 2020[13](index=13&type=chunk) - The company issued common stock for **$984,000** and for convertible notes totaling **$885,000** during the nine months ended September 30, 2020[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased for the nine months ended September 30, 2020, driven by financing activities offsetting operating and investing uses Condensed Consolidated Statements of Cash Flows Highlights | Activity Type | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Net Cash Provided by (Used in) Operating Activities | $(3,184,000) | $270,000 | | Net Cash Used in Investing Activities | $(1,471,000) | $(397,000) | | Net Cash Provided by (Used in) Financing Activities | $4,821,000 | $(1,552,000) | | Net Increase (Decrease) in Cash and Cash Equivalents | $166,000 | $(1,679,000) | | Cash and Cash Equivalents at End of Period | $1,460,000 | $333,000 | - Operating activities used **$3,184,000** in cash for the nine months ended September 30, 2020, a significant change from **$270,000** provided in the prior year[14](index=14&type=chunk) - Financing activities provided **$4,821,000** in cash, largely due to SBA loans (**$2,414,000**), SNB revolving loan (**$3,340,000**), and common stock issuance (**$984,000**)[14](index=14&type=chunk)[191](index=191&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, COVID-19 impact, debt, equity, and segment reporting, contextualizing the financial statements [Note 1. FORMATION AND BASIS OF PRESENTATION](index=11&type=section&id=Note%201.%20FORMATION%20AND%20BASIS%20OF%20PRESENTATION) This note outlines the company's aerospace defense business, financial statement basis, and the significant impact of the COVID-19 pandemic - Air Industries Group (AIRI) is a Nevada corporation primarily engaged in manufacturing aircraft structural parts and assemblies for prime defense contractors in the aerospace industry[17](index=17&type=chunk)[18](index=18&type=chunk) - The company was deemed an essential business during the COVID-19 pandemic and continued operations, but experienced reduced capacity and productivity in Q2 2020 due to safety procedures, absenteeism, and supplier disruptions[21](index=21&type=chunk)[23](index=23&type=chunk) - The company deferred **$429,000** in payroll taxes under the CARES Act and received a **$1,416,000** tax refund from a net operating loss carryback claim[28](index=28&type=chunk)[29](index=29&type=chunk) [Note 2. DISCONTINUED OPERATIONS](index=13&type=section&id=Note%202.%20DISCONTINUED%20OPERATIONS) This note details the disposal of EPC and ECC subsidiaries in March 2019, with their results recast as discontinued operations - The company disposed of its EPC and ECC subsidiaries in March 2019, and their results are reported as discontinued operations[17](index=17&type=chunk)[32](index=32&type=chunk) Loss from Discontinued Operations (Net of Income Tax) | Period | Loss from Discontinued Operations, Net of Income Tax | |:---|:---|\ | Three Months Ended Sep 30, 2019 | $(211,000) | | Nine Months Ended Sep 30, 2019 | $(139,000) | [Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=Note%203.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines key accounting policies including inventory, credit risk, leases, earnings per share, stock compensation, and goodwill impairment - Inventory is valued at the lower of cost (FIFO) or estimated net realizable value, with interim estimates based on gross profit percentages[34](index=34&type=chunk) Customer Concentration (Percentage of Total Net Sales) | Customer | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Customer 1 | 25.8% | 35.0% | 32.1% | 31.1% | | Customer 2 | 23.2% | 26.7% | 28.2% | 31.0% | | Customer 3 | 21.6% | <10% | 13.9% | <10% | - The company performed a qualitative assessment for goodwill impairment due to COVID-19 and determined that fair value exceeds carrying value as of September 30, 2020[53](index=53&type=chunk) [Note 4. PROPERTY AND EQUIPMENT](index=17&type=section&id=Note%204.%20PROPERTY%20AND%20EQUIPMENT) This note details the composition and increase of property and equipment, net, primarily due to machinery additions, and related depreciation expense Property and Equipment, Net | Category | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | |:---|:---|:---|\ | Total Property and Equipment (Gross) | $36,373,000 | $33,139,000 | | Less: Accumulated Depreciation | $(27,466,000) | $(25,561,000) | | Property and Equipment, Net | $8,907,000 | $7,578,000 | - Depreciation expense for the nine months ended September 30, 2020, was **$1,920,000**, down from **$2,085,000** in the prior year[57](index=57&type=chunk) [Note 5. LEASES](index=17&type=section&id=Note%205.%20LEASES) This note details the company's operating and finance leases under ASC 842, including weighted-average terms, discount rates, and rent expense - The company leases office, manufacturing facilities, and equipment under operating and finance leases, with terms ranging from one to six years[59](index=59&type=chunk) Lease Metrics (September 30, 2020) | Metric | Value | |:---|:---|\ | Weighted Average Remaining Lease Term | 5.77 years | | Weighted Average Discount Rate | 8.88% | - Rent expense for the nine months ended September 30, 2020, was **$892,000**, a decrease from **$936,000** in the prior year[61](index=61&type=chunk) [Note 6. NOTES PAYABLE, RELATED PARTY NOTES PAYABLE AND FINANCE LEASE OBLIGATIONS](index=18&type=section&id=Note%206.%20NOTES%20PAYABLE%2C%20RELATED%20PARTY%20NOTES%20PAYABLE%20AND%20FINANCE%20LEASE%20OBLIGATIONS) This note details significant debt obligations, including SNB facilities, related party notes, convertible notes, and SBA loans, noting covenant non-compliance Notes Payable and Finance Lease Obligations (Net of Current Portion) | Category | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | |:---|:---|:---|\ | Revolving credit note payable to SNB | $15,883,000 | $12,543,000 | | Term loan, SNB | $3,386,000 | $3,800,000 | | Related party notes payable, net | $6,018,000 | $6,862,000 | | Convertible notes payable-third parties, net | $1,440,000 | $2,338,000 | | SBA loans | $2,414,000 | $- | | Total long-term portion | $7,139,000 | $3,406,000 | - As of September 30, 2020, the company was not in compliance with all SNB loan covenants, resulting in the reclassification of the full term note balance as a current liability. A waiver for these defaults was obtained post-period[72](index=72&type=chunk) - The company received **$2,414,000** in SBA Loans in May 2020, which are expected to be forgiven, and has applied for forgiveness[99](index=99&type=chunk)[102](index=102&type=chunk) [NOTE 7. LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION OF SUBSIDIARY](index=23&type=section&id=NOTE%207.%20LIABILITY%20RELATED%20TO%20THE%20SALE%20OF%20FUTURE%20PROCEEDS%20FROM%20DISPOSITION%20OF%20SUBSIDIARY) This note explains the accounting for the sale of future proceeds from a subsidiary disposition, recorded as a liability with an 18% effective interest rate - The company assigned rights to **$1,137,000** in future payments from the AMK Welding subsidiary sale for an immediate **$800,000**, recording this as a liability[106](index=106&type=chunk)[108](index=108&type=chunk) - The liability is amortized into income as payments are received, with an estimated effective annual interest rate of approximately **18%**[109](index=109&type=chunk) Liability Related to Sale of Future Proceeds Activity (Nine Months Ended Sep 30, 2020) | Item | Amount ($) | |:---|:---|\ | Balance, December 31, 2019 | 603,000 | | Non-Cash other income recognized | (302,000) | | Non-Cash interest expense recognized | 90,000 | | Balance, September 30, 2020 (net) | 388,000 | [Note 8. STOCKHOLDERS' EQUITY](index=24&type=section&id=Note%208.%20STOCKHOLDERS'%20EQUITY) This note details changes in stockholders' equity, including common stock issuance for cash and directors' fees in January 2020 - In January 2020, the company issued **419,597 shares of common stock** for gross proceeds of **$984,000**[113](index=113&type=chunk) - The company issued common stock in lieu of cash payments for directors' fees, totaling **41,915 shares** for the three months and **132,812 shares** for the nine months ended September 30, 2020[114](index=114&type=chunk) [Note 9. CONTINGENCIES](index=24&type=section&id=Note%209.%20CONTINGENCIES) The company is involved in legal actions, including disputes over a subsidiary sale and a sublease, with uncertain outcomes and no loss accruals - The company is in a dispute with CPI Aerostructures over an alleged **$4.1 million** working capital deficit from the sale of Welding Metallurgy, Inc., with the court denying CPI's motion on procedural grounds[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Contract Pharmacal Corp. is seeking over **$1,000,000** in damages related to a sublease, which the company disputes[120](index=120&type=chunk) [Note 10. INCOME TAXES](index=25&type=section&id=Note%2010.%20INCOME%20TAXES) No federal income tax expense or benefit was recorded due to a full valuation allowance, and a $1.4 million CARES Act refund was received - No federal income tax expense or benefit was recorded for the three and nine months ended September 30, 2020 and 2019[122](index=122&type=chunk)[124](index=124&type=chunk) - The company maintains a full valuation allowance against its net deferred tax assets, believing they are not likely to be realized[125](index=125&type=chunk) - A **$1,416,000** tax refund was received from a net operating loss carryback claim under the CARES Act[124](index=124&type=chunk) [Note 11. SEGMENT REPORTING](index=26&type=section&id=Note%2011.%20SEGMENT%20REPORTING) The company operates in Complex Machining and Turbine Engine Components segments, with performance evaluated by revenue, gross profit, and assets - The company has two operating segments: Complex Machining (AIM and NTW) and Turbine Engine Components (Sterling), plus a corporate division[128](index=128&type=chunk) Segment Net Sales and Gross Profit (Three Months Ended Sep 30) | Segment | Net Sales 2020 | Net Sales 2019 | Gross Profit 2020 | Gross Profit 2019 | |:---|:---|:---|:---|:---|\ | Complex Machining | $12,423,000 | $12,283,000 | $1,735,000 | $2,762,000 | | Turbine Engine Components | $1,239,000 | $1,714,000 | $(79,000) | $201,000 | | Corporate | $- | $- | $- | $- | | Consolidated | $13,662,000 | $13,997,000 | $1,656,000 | $2,963,000 | Segment Net Sales and Gross Profit (Nine Months Ended Sep 30) | Segment | Net Sales 2020 | Net Sales 2019 | Gross Profit 2020 | Gross Profit 2019 | |:---|:---|:---|:---|:---|\ | Complex Machining | $31,795,000 | $36,402,000 | $4,584,000 | $7,070,000 | | Turbine Engine Components | $3,808,000 | $4,841,000 | $(133,000) | $358,000 | | Corporate | $- | $- | $- | $- | | Consolidated | $35,603,000 | $41,243,000 | $4,451,000 | $7,428,000 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operational results, COVID-19 impact, and liquidity strategies [Business Overview](index=28&type=section&id=Business%20Overview) Air Industries Group is an aerospace defense company manufacturing structural parts, focusing on profitability, cash flow, and capital investments - The company operates primarily in the defense aerospace industry, manufacturing structural parts and assemblies for military and commercial aircraft[134](index=134&type=chunk) - Products are deployed on high-profile military aircraft (e.g., UH-60 Blackhawk, F-35, F-18, F-16) and commercial airliners (e.g., Boeing 777, Airbus 380)[134](index=134&type=chunk) - Significant capital investments were made in new equipment and expanded operations in Connecticut in fiscal 2020 to increase production volume, efficiency, and product size[136](index=136&type=chunk) [COVID -19](index=29&type=section&id=COVID%20-19) The COVID-19 pandemic significantly impacted operations, leading to reduced productivity, increased costs, and supply chain challenges, with uncertain future effects - The company was deemed an essential business and continued operations, but experienced reduced capacity and productivity in Q2 2020 due to enhanced safety procedures, increased employee absenteeism, and intermittent supplier closures[140](index=140&type=chunk)[142](index=142&type=chunk) - Implementation of employee safety procedures (cleaning, physical distancing) resulted in increased operating costs[144](index=144&type=chunk) - By September 30, 2020, most employees had returned to facilities, and supplier challenges were largely ameliorated, but the overall economic impact remains dynamic and unpredictable[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) [Segment Data](index=29&type=section&id=Segment%20Data) The company's operations are divided into Complex Machining and Turbine Engine Components segments, with EPC and ECC classified as discontinued - Operations are divided into Complex Machining and Turbine Engine Components segments, plus a corporate office[146](index=146&type=chunk) - EPC and ECC were closed on March 31, 2019, and are classified as discontinued operations[146](index=146&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) Consolidated net sales decreased for both the three and nine months ended September 30, 2020, resulting in a net loss Selected Financial Information (Continuing Operations) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Net Sales | $13,662,000 | $13,997,000 | $35,603,000 | $41,243,000 | | Gross Profit | $1,656,000 | $2,963,000 | $4,451,000 | $7,428,000 | | Income (Loss) from continuing operations | $(477,000) | $398,000 | $(1,003,000) | $(1,332,000) | - Consolidated net sales decreased by **2.4%** for the three months and **13.7%** for the nine months ended September 30, 2020, primarily due to COVID-19 impacts on the Turbine Engine Components segment[153](index=153&type=chunk)[160](index=160&type=chunk) - Gross profit percentage declined from **21.2%** to **12.1%** for the three months and from **18.0%** to **12.5%** for the nine months, attributed to COVID-19 related operating inefficiencies and increased safety costs[156](index=156&type=chunk)[164](index=164&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity was bolstered by government aid and a new SNB financing facility, with capital investments aimed at improving future cash flows and efficiency - COVID-19 negatively impacted liquidity, but the company utilized US government incentive programs, including **$2.4 million** in SBA Loans and a **$1,416,000** net operating loss carryback refund under the CARES Act[172](index=172&type=chunk)[173](index=173&type=chunk)[176](index=176&type=chunk) - The company entered into a new, lower-cost financing facility with Sterling National Bank (SNB) on December 31, 2019, providing a **$16,000,000** revolving loan and a term loan[177](index=177&type=chunk) - Capital investments of **$2.5 million** were made for four state-of-the-art machines, with one operational and the rest expected by December 31, 2020, to increase production volume and efficiency[170](index=170&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=36&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) As of September 30, 2020, the company did not have any off-balance sheet arrangements - The company did not have any off-balance sheet arrangements as of September 30, 2020[192](index=192&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies critical accounting policies and estimates requiring significant management judgment, where actual results may differ from assumptions - Key critical accounting policies and estimates include Revenue recognition, Inventory valuation, Lease accounting, Legal contingencies, Stock-based compensation, and Goodwill[194](index=194&type=chunk) - These policies involve subjective and complex judgments, and actual results may differ from management's estimates[194](index=194&type=chunk)[196](index=196&type=chunk) [Recently Issued Accounting Pronouncements](index=37&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company is evaluating the impact of ASU 2020-06 and ASU 2019-12 on its financial statements, effective for fiscal years after December 2021 and 2020, respectively - The company is evaluating ASU No. 2020-06, effective for fiscal years beginning after December 15, 2021, which addresses accounting for financial instruments with liability and equity characteristics[197](index=197&type=chunk) - The company is evaluating ASU No. 2019-12, effective for fiscal years beginning after December 15, 2020, which simplifies accounting for income taxes[198](index=198&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective as of September 30, 2020, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were effective as of September 30, 2020[202](index=202&type=chunk) - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[203](index=203&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part addresses other important information, including risk factors and exhibits, providing additional context to the financial report [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section highlights key risks, primarily the uncertain impact of COVID-19 on operations and the terms and potential forgiveness of SBA loans - The COVID-19 pandemic's macroeconomic disruption has affected operations, customers, and suppliers, with its duration and extent of impact on future results remaining uncertain[206](index=206&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk) - The company's **$2.4 million** in SBA Loans are subject to terms and conditions, and while forgiveness is expected, there's no assurance it will be granted in whole or in part. The company will also be subject to an audit due to receiving over **$2.0 million**[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - Default on SBA Loans or other SNB loans could lead to acceleration of debt, potentially impacting cash flows and financial condition[214](index=214&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including agreements, articles of incorporation, promissory notes, and certifications - Exhibits include merger agreements, articles of incorporation, promissory notes (e.g., SBA loans, SNB facility amendment), and certifications (e.g., CEO/CFO certifications)[217](index=217&type=chunk) [SIGNATURES](index=42&type=section&id=SIGNATURES) This section contains the required signatures, certifying the accuracy and completeness of the Form 10-Q report

Air Industries Group (NYSE:AIRI) Q3 2020 Earnings Conference Call October 30, 2020 8:30 AM ET Company Participants Lou Melluzzo – Chief Executive Officer Mike Recca – Chief Financial Officer Conference Call Participants Operator Good day, and welcome to the Air Industries Conference Call. Today's conference is being recorded. Except for the historical information contained herein, the matters discussed in this presentation contain forward-looking statements. The accuracy of these statements is subject to si ...

Financial Data and Key Metrics Changes - Net sales for Q2 2020 were $8.5 million, representing a 36% decline from the prior year [8] - Gross profit declined by $1.6 million, or 76%, which was a greater decline than sales [8] - For the first six months, sales totaled $21.9 million, a decline of 21% [10] - The company reported an operating loss of $1.4 million for the first half, with 95% of that loss attributable to Q2 [10] - EBITDA for Q2 was negative, while EBITDA for the first six months was $894,000 [10] Business Line Data and Key Metrics Changes - The business is heavily concentrated on military aircraft components, with little change in demand for military products despite disruptions in commercial aerospace [7] - The backlog of firm orders remains at approximately $100 million, only marginally reduced [7] Market Data and Key Metrics Changes - The company faced significant impacts from COVID-19, including employee absenteeism and temporary shutdowns of subcontractors, which affected production and shipping [5][6] - Total manufacturing hours were 8,000 hours less than in Q2 2019, leading to under absorption of manufacturing overheads [9] Company Strategy and Development Direction - The company announced a major investment in equipment totaling about $2.5 million to accelerate production and enhance manufacturing capabilities [11] - The new machinery is expected to be operational by Q4 2020 and reflects the company's confidence in future demand [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the workforce is stabilizing and absenteeism has returned to historical levels of 2% to 3% [15] - The company is optimistic about alleviating bottlenecks in production with new machinery, which will allow for increased efficiency and capability [22][25] Other Important Information - The company has maintained compliance with all loan covenants and expects to continue doing so [10] - There have been cancellations and reductions in commercial business, but military product production is being accelerated to fill gaps [7][28] Q&A Session Summary Question: Update on second quarter conditions and supplier stability - Management indicated that suppliers are stabilizing and returning to normal operations, with most of the workforce maintained [13][15] Question: Impact of new machinery on bottlenecks - The new equipment is expected to alleviate significant portions of current bottlenecks and enhance production capabilities [22][24] Question: Status of long-term agreement for thrust struts - Management confirmed a push out on order requirements but noted that there are no cancellations, and military product production is being accelerated to fill gaps [28][30]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2020 or ☐ Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to_______ Commission File No. 001-35927 AIR INDUSTRIES GROUP (Exact name of registrant as specified in its charter) 1460 Fifth Avenue, Bay Shore, New York 11706 ( ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q1 2020, detailing financial position, performance, and cash flows, along with explanatory notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2020, total assets increased to **$54.1 million** from **$51.1 million** at year-end 2019, driven by higher current assets including a new income tax receivable, while stockholders' equity improved to **$13.2 million** Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $41,794 | $38,245 | | **Total Assets** | $54,051 | $51,090 | | **Total Current Liabilities** | $19,546 | $20,079 | | **Total Liabilities** | $40,868 | $40,884 | | **Total Stockholders' Equity** | $13,183 | $10,206 | - A new Income Tax Receivable of **$1,416,000** was recorded on the balance sheet as of March 31, 2020, which was not present at the end of 2019[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2020, the company reported net income of **$1.06 million**, a significant turnaround from a net loss of **$0.92 million** in the same period of 2019, primarily driven by a **$1.41 million** income tax benefit and lower interest costs Condensed Consolidated Statements of Operations (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Sales | $13,447 | $13,878 | | Gross Profit | $2,181 | $2,274 | | Loss from Operations | ($81) | ($63) | | Interest and Financing Costs | ($380) | ($963) | | Benefit from Income Taxes | ($1,414) | $0 | | **Net Income (Loss)** | **$1,058** | **($923)** | | **EPS - Diluted (Continuing Ops)** | **$0.03** | **($0.03)** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2020, net cash used in operating activities was **$0.31 million**, a substantial improvement from **$1.73 million** used in Q1 2019, with overall cash and cash equivalents increasing by **$0.2 million** Summary of Cash Flows (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($314) | ($1,728) | | Net Cash (Used in) Provided by Investing Activities | ($78) | $54 | | Net Cash Provided by Financing Activities | $592 | $104 | | **Net Increase (Decrease) in Cash** | **$200** | **($1,570)** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business structure, accounting policies, and the financial impact of significant events, including COVID-19, discontinued operations, and customer concentration - The company has been deemed an essential business and has not curtailed operations due to COVID-19, but expects the pandemic to result in a reduction to 2020 revenue and operating margins, with no material financial impact in Q1 2020[19](index=19&type=chunk)[23](index=23&type=chunk) - In May 2020, subsequent to the quarter end, the company's subsidiaries entered into government-subsidized SBA loans totaling **$2.4 million** under the Paycheck Protection Program (PPP)[26](index=26&type=chunk) - The company has significant customer concentration, with **three customers** representing **79.9%** of total net sales for the three months ended March 31, 2020[31](index=31&type=chunk) - The company filed a net operating loss carryback claim of **$1,416,000** as a result of the CARES Act, which is reflected as an income tax benefit and a receivable[27](index=27&type=chunk)[102](index=102&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the business overview, COVID-19 impact, and provides a detailed analysis of Q1 2020 financial results, covering segment performance, liquidity, capital resources, and cash flows [Business Overview and COVID-19 Impact](index=26&type=section&id=Business%20Overview%20and%20COVID-19%20Impact) The company operates in aerospace and defense, with operations impacted by COVID-19, anticipating reduced 2020 revenue and margins despite being deemed an essential business - The company's products are used on high-profile military aircraft like the F-35, F-18, F-16, and UH-60 Blackhawk, as well as commercial airliners like the Boeing 777 and Airbus 380[112](index=112&type=chunk) - The company has been designated as part of the Defense Industrial Base critical infrastructure workforce, allowing continued operations during the pandemic[122](index=122&type=chunk) - In May 2020, the company secured **$2.4 million** in government-subsidized SBA loans to mitigate the impact of COVID-19[127](index=127&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q1 2020 saw a **3.1%** decrease in net sales, stable gross profit margin, and a significant reduction in interest costs, leading to a net income of **$1.06 million** driven by a tax benefit Segment Net Sales (in thousands) | Segment | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Complex Machining | $12,064 | $12,418 | -2.9% | | Turbine Engine Components | $1,383 | $1,460 | -5.3% | | **Consolidated** | **$13,447** | **$13,878** | **-3.1%** | - Interest and financing costs fell by **$583,000** (**60.5%**) year-over-year due to lower interest rates under the new SNB credit facility which replaced the previous PNC facility[144](index=144&type=chunk) - Net income improved by **$1.98 million** year-over-year, primarily due to the reduction in interest expense and the **$1.414 million** income tax benefit from the CARES Act[146](index=146&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved with a new SNB credit facility, post-quarter SBA loans, and an anticipated CARES Act tax refund, expected to cover foreseeable cash requirements - On December 31, 2019, the company entered into a new loan facility with SNB, providing a **$16 million** revolving line of credit and a **$3.8 million** term loan, which was used to repay the previous PNC facility[154](index=154&type=chunk) - As of March 31, 2020, total debt to SNB was **$17.2 million**, consisting of **$13.6 million** on the revolving credit line and **$3.6 million** on the term loan[158](index=158&type=chunk) Cash Flow Summary (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Cash Used in Operating Activities | ($314) | ($1,728) | | Cash Used in Investing Activities | ($78) | $54 | | Cash Provided by Financing Activities | $592 | $104 | [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[173](index=173&type=chunk) - There were no changes in internal control over financial reporting during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, these controls[174](index=174&type=chunk) PART II. OTHER INFORMATION [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section supplements 2019 Form 10-K risk factors with a new risk concerning the COVID-19 pandemic's uncertain impact on operations, financial performance, and capital access - A new risk factor has been added regarding the COVID-19 pandemic, noting that its impact on future results of operations and overall financial performance remains uncertain[177](index=177&type=chunk) - Potential negative impacts from the pandemic include increased operating costs, forced closure or reduction of operations, supply chain disruptions, and difficulty accessing debt and equity capital[179](index=179&type=chunk)[180](index=180&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company confirms no unregistered sales of equity securities occurred during Q1 2020, except as previously disclosed in Exchange Act reports - The company did not issue or sell any unregistered equity securities during the period covered by this report, other than what was previously disclosed[182](index=182&type=chunk) [Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including promissory notes for SBA loans obtained by the company's subsidiaries in May 2020 - Key exhibits filed with this report include three promissory notes dated in May 2020 between Sterling National Bank and the company's subsidiaries for the SBA loans[182](index=182&type=chunk)

Part I [Business](index=5&type=section&id=Item%201.%20Business) Air Industries Group is an aerospace and defense company designing and manufacturing flight-critical structural parts for military and commercial aircraft - The company manufactures and designs structural parts for high-profile military and commercial aircraft, including the UH-60 Black Hawk, F-35 Joint Strike Fighter, Boeing 777, and Airbus A380[13](index=13&type=chunk) - Operations are conducted through two segments: **Complex Machining** and **Turbine Engine Components**[15](index=15&type=chunk) - The company has recently repositioned its business by selling non-core assets and consolidating operations in Bay Shore, New York to focus on core competencies[14](index=14&type=chunk) - As of February 29, 2020, the company's 18-month firm funded backlog was approximately **$114.5 million**[25](index=25&type=chunk) - As of March 15, 2020, the company employed approximately **159 people**, with 101 in manufacturing[29](index=29&type=chunk) [Risk Factors](index=7&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business, indebtedness, and common stock-related risks, including pandemic impacts, customer concentration, and high leverage [Risks Related to Our Business](index=8&type=section&id=Risks%20Related%20to%20Our%20Business) - The **COVID-19 pandemic** is expected to have a highly negative impact on the general economy and may force the company to reduce or close operations[39](index=39&type=chunk)[40](index=40&type=chunk) - The company has a high customer concentration, with three customers accounting for approximately **76% of total sales in 2019**[46](index=46&type=chunk) - A significant portion of revenue is derived from components for a few specific aircraft platforms, including the **Sikorsky BlackHawk helicopter** and the **F-16 and F-18 fighter jets**[48](index=48&type=chunk) - A large percentage of revenue is derived from products for U.S. military aviation, making the company vulnerable to **reductions in government defense spending**[44](index=44&type=chunk) - The company faces a potential liability of approximately **$3.6 million** in a dispute with CPI Aerostructures, Inc[61](index=61&type=chunk)[62](index=62&type=chunk) [Risks Related to Our Indebtedness](index=13&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) - The company has substantial indebtedness, with approximately **$16,343,000 outstanding** under its Loan Facility as of December 31, 2019, secured by substantially all of its assets[67](index=67&type=chunk) - A significant amount of subordinated convertible notes are payable on December 31, 2020, and an inability to pay or refinance this debt could **materially and adversely affect operations**[68](index=68&type=chunk) [Risks Related to our common stock](index=13&type=section&id=Risks%20Related%20to%20our%20common%20stock) - Ownership is highly concentrated, with two directors and their affiliates owning a significant number of shares, giving them **substantial influence over corporate actions**[73](index=73&type=chunk) - The common stock is listed on the NYSE American, but **trading volume has been limited**, which may impair a stockholder's ability to sell shares[76](index=76&type=chunk) - Failure to comply with the continuing listing standards of the NYSE American could result in the **delisting of the company's common stock**[74](index=74&type=chunk)[75](index=75&type=chunk) [Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - The company reports no unresolved staff comments[84](index=84&type=chunk) [Properties](index=16&type=section&id=Item%202.%20Properties) The company consolidated its operations at its 5.4-acre corporate campus in Bay Shore, New York, while its Sterling subsidiary operates in Connecticut - The company's executive offices and the operations of NTW and AIM are located at a **5.4-acre corporate campus** in Bay Shore, New York[85](index=85&type=chunk) - The Sterling subsidiary operates in a **74,923 square foot facility** in Barkhamsted, Connecticut[86](index=86&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in several legal proceedings, most notably a dispute with CPI Aerostructures seeking approximately $4.2 million - The company is in a legal dispute with CPI Aerostructures regarding the sale of its subsidiary, Welding Metallurgy, Inc, with CPI seeking a judgment of around **$4,200,000**[91](index=91&type=chunk) - Contract Pharmacal Corp has filed an action seeking damages in excess of **$1,000,000** related to a sublease for a property formerly occupied by Welding Metallurgy, Inc[90](index=90&type=chunk) [Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - The company has no mine safety disclosures to report[93](index=93&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock (AIRI) is listed on the NYSE American with 247 stockholders of record as of March 20, 2020 - The company's common stock is listed on the NYSE American under the symbol **"AIRI"**[94](index=94&type=chunk) - As of March 20, 2020, there were **247 stockholders of record**[94](index=94&type=chunk) Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2019 | Plan Category | Number of Securities to Be Issued Upon Exercise | Weighted Average Exercise Price | Number of Remaining Shares Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,369,649 | $2.01 | 1,130,649 | | Equity compensation plans not approved by security holders | 2,182,902 | $2.90 | None | | **Total** | **3,552,551** | | **1,130,649** | [Selected Financial Data](index=18&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not required as the company is a smaller reporting company - This item is not required for smaller reporting companies[97](index=97&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operation](index=18&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operation) Financial performance improved in 2019 with a 22.6% increase in net sales and a narrowed operating loss, driven by restructuring and cost reductions [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Consolidated Results of Operations (Continuing Operations) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Sales | $54,573,000 | $44,530,000 | | Gross Profit | $9,142,000 | $5,445,000 | | Loss from continuing operations | $(2,598,000) | $(8,551,000) | Segment Net Sales (2019 vs 2018) | Segment | 2019 Net Sales | 2018 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Complex Machining | $48,226,000 | $39,745,000 | +21.3% | | Turbine Engine Components | $6,347,000 | $4,785,000 | +32.6% | - The increase in gross profit and margin was primarily due to **cost reduction measures**, operational consolidation, and better absorption of fixed charges over greater revenues[119](index=119&type=chunk) - The loss from continuing operations in 2018 was negatively impacted by a **$2,043,000 write-off** of capitalized engineering costs due to a change in accounting policy[123](index=123&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) - On December 31, 2019, the company entered into a new loan facility with Sterling National Bank (SNB), which provides a **$16 million revolving loan** and a **$3.8 million term loan**[126](index=126&type=chunk)[127](index=127&type=chunk)[130](index=130&type=chunk) - The company has financed operations in part through private placements of debt and equity securities, with **substantial investments from directors Michael and Robert Taglich**[133](index=133&type=chunk) - In January 2019, Michael and Robert Taglich each purchased **$1,000,000 of 7% senior subordinated convertible promissory notes** due December 31, 2020[136](index=136&type=chunk) Summary of Cash Flows (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Cash used in Operating Activities | $(888) | $(2,336) | | Cash (used in) provided by Investing Activities | $(764) | $3,685 | | Cash provided by Financing Activities | $934 | $33 | [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) - Management has evaluated conditions and believes that projected positive cash flows for 2020 **alleviate substantial doubt** about the company's ability to continue as a going concern[163](index=163&type=chunk)[243](index=243&type=chunk) - As of December 31, 2018, the company changed its policy to expense pre-production engineering costs as incurred, writing off the entire capitalized balance of **$2,043,000** in 2018[169](index=169&type=chunk) - The company adopted FASB ASC 606 "Revenue from Contracts with Customers" using the modified retrospective approach, which **did not have a material impact** on revenue recognition timing[171](index=171&type=chunk)[172](index=172&type=chunk) - Goodwill is tested for impairment annually; **no impairment was recorded for continuing operations in 2019**[183](index=183&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) Disclosure for this item is not required for smaller reporting companies - Disclosure for this item is not required for smaller reporting companies[188](index=188&type=chunk) [Financial Statements and Supplementary Data](index=33&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the Consolidated Financial Statements which begin on page F-1 of the report - The financial statements required by this item begin on page F-1 of the report[188](index=188&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=33&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - The company reports no changes in or disagreements with accountants on accounting and financial disclosure[188](index=188&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2019[189](index=189&type=chunk) - Management concluded that the company's internal controls over financial reporting were **effective** as of December 31, 2019[195](index=195&type=chunk) - In 2019, changes to internal controls included disposing of certain subsidiaries, acquiring new consolidation software, and hiring a new Chief Accounting Officer to address previously identified deficiencies[197](index=197&type=chunk) [Other Information](index=34&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - The company reports no other information[198](index=198&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=35&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) This section lists key personnel, with most other required information incorporated by reference from the company's forthcoming proxy statement - Most information required by this item is **incorporated by reference** from the company's definitive proxy statement[199](index=199&type=chunk) Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Luciano (Lou) Melluzzo | 55 | President and Chief Executive Officer | | Michael E. Recca | 69 | Chief Financial Officer | | Michael N. Taglich | 54 | Chairman of the Board | | Robert F. Taglich | 53 | Director | | David J. Buonanno | 64 | Director | | Peter D. Rettaliata | 69 | Director | | Robert C. Schroeder | 53 | Director | | Michael Brand | 62 | Director | | Michael D. Porcelain | 51 | Director | [Executive Compensation](index=37&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this Item is incorporated by reference from the company's definitive proxy statement - Information regarding executive compensation is **incorporated by reference** from the company's proxy statement[213](index=213&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=37&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this Item is incorporated by reference from the company's definitive proxy statement - Information regarding security ownership is **incorporated by reference** from the company's proxy statement[214](index=214&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=37&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information required by this Item is incorporated by reference from the company's definitive proxy statement - Information regarding related transactions and director independence is **incorporated by reference** from the company's proxy statement[215](index=215&type=chunk) [Principal Accountant Fees and Services](index=37&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required by this Item is incorporated by reference from the company's definitive proxy statement - Information regarding principal accountant fees and services is **incorporated by reference** from the company's proxy statement[216](index=216&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=38&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the annual report, including key agreements, corporate documents, and required certifications - The report includes a comprehensive list of exhibits, such as the Loan and Security Agreement with Sterling National Bank, the Stock Purchase Agreement with CPI Aerostructures, and various convertible note agreements with related parties[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) [Consolidated Financial Statements](index=45&type=section&id=Consolidated%20Financial%20Statements) The audited financial statements for 2019 and 2018 show a net loss of $2.7 million in 2019, an improvement from an $11.0 million loss in 2018 [Report of Independent Registered Public Accounting Firm](index=45&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - The auditor, Rotenberg Meril Solomon Bertiger & Guttilla, P.C., issued an **unqualified opinion**, stating that the financial statements present fairly the financial position of the company[226](index=226&type=chunk) [Financial Statement Tables](index=46&type=section&id=Financial%20Statement%20Tables) Consolidated Balance Sheet Data (as of December 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Current Assets | $38,245,000 | $38,048,000 | | Total Assets | $51,090,000 | $47,756,000 | | Total Current Liabilities | $32,622,000 | $29,007,000 | | Total Liabilities | $40,884,000 | $36,150,000 | | Total Stockholders' Equity | $10,206,000 | $11,606,000 | Consolidated Statement of Operations Data (for the year ended December 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Sales | $54,573,000 | $44,530,000 | | Gross Profit | $9,142,000 | $5,445,000 | | Loss from Continuing Operations | $(2,598,000) | $(8,551,000) | | Net Loss | $(2,732,000) | $(10,992,000) | | Net Loss per share - basic | $(0.09) | $(0.32) | [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - Management believes that improved financial performance and a new credit facility have **alleviated substantial doubt** about the company's ability to continue as a going concern[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - The results of the sold WMI Group and closed EPC and ECC subsidiaries are reported as discontinued operations, with a loss from discontinued operations of **$134,000 in 2019** and **$2,441,000 in 2018**[263](index=263&type=chunk)[265](index=265&type=chunk) - On January 1, 2019, the company adopted the new lease accounting standard, ASC 842, resulting in the recognition of operating lease right-of-use assets of **$4.4 million** and related lease liabilities[248](index=248&type=chunk)[251](index=251&type=chunk) - As of December 31, 2019, related party notes payable, primarily to directors Michael and Robert Taglich and their affiliates, totaled **$6.9 million**[330](index=330&type=chunk)[361](index=361&type=chunk)

Air Industries Group (NYSE:AIRI) Q4 2019 Earnings Conference Call March 25, 2020 8:30 AM ET Company Participants Luciano Melluzzo - President and Chief Executive Officer Michael Recca - Chief Financial Officer Conference Call Participants John Nobile - Taglich Brothers, Inc. Operator Good day, and welcome to the Air Industries Conference Call. Today’s conference is being recorded. Air Industries Group’s Safe Harbor statement. Except for the historical information contained herein, the matters discussed in t ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited financial statements, management's analysis of operations and liquidity, and assessment of internal controls [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, accompanied by notes detailing accounting policies, debt, and a going concern warning [Condensed Consolidated Financial Statements](index=6&type=section&id=Condensed%20Consolidated%20Financial%20Statements) The financial statements reflect increased net sales and a shift to net income for Q3 2019, alongside balance sheet changes and improved operating cash flow for the nine-month period Financial Metric (in thousands USD) | Financial Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $14,000 | $10,700 | $41,200 | $33,600 | | **Gross Profit** | $3,000 | $1,400 | $7,400 | $4,900 | | **Income (Loss) from Operations** | $1,200 | ($800) | $1,300 | ($2,000) | | **Net Income (Loss)** | $200 | ($3,100) | ($1,500) | ($4,400) | | **EPS (Diluted)** | $0.01 (Continuing Ops) | ($0.06) (Continuing Ops) | ($0.05) (Continuing Ops) | ($0.16) (Continuing Ops) | Balance Sheet Item (in thousands USD) | Balance Sheet Item | September 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $37,700 | $38,000 | | **Total Assets** | $50,800 | $47,800 | | **Total Current Liabilities** | $33,000 | $29,000 | | **Total Liabilities** | $40,200 | $36,200 | | **Total Stockholders' Equity** | $10,600 | $11,600 | Cash Flow Activity (Nine Months Ended Sep 30, in thousands USD) | Cash Flow Activity (Nine Months Ended Sep 30) | 2019 (Unaudited) | 2018 (Unaudited) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $300 | ($2,900) | | **Net Cash used in Investing Activities** | ($400) | ($1,000) | | **Net Cash (used in) provided by Financing Activities** | ($1,600) | $4,200 | | **Net (Decrease) Increase in Cash** | ($1,700) | $300 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide critical context to the financial statements, detailing significant accounting policies, debt, customer concentration, and a going concern warning - The company's ability to continue as a going concern is in **substantial doubt** due to a history of operating losses, negative cash flows, and significant reliance on debt and equity infusions to maintain operations[16](index=16&type=chunk)[17](index=17&type=chunk) - On January 1, 2019, the company adopted the new lease accounting standard, ASC 842, which resulted in the recognition of **$4.4 million** in operating lease right-of-use assets and corresponding lease liabilities on the balance sheet[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk) - The company faces significant customer concentration risk, with three customers (Sikorsky Aircraft, Goodrich Landing Gear Systems, and Rohr) accounting for **73.4%** of total sales for the nine months ended September 30, 2019[50](index=50&type=chunk)[51](index=51&type=chunk) - The company is involved in a significant legal dispute with CPI Aerostructures regarding a working capital adjustment from the 2018 sale of the WMI Group, with CPI seeking approximately **$4.2 million**[113](index=113&type=chunk) Segment Performance (Nine Months Ended Sep 30, 2019, in thousands USD) | Segment Performance (Nine Months Ended Sep 30, 2019) | Net Sales | Gross Profit | Pretax Income (Loss) | | :--- | :--- | :--- | :--- | | **Complex Machining** | $36,400 | $7,100 | $4,800 | | **Turbine Engine Components** | $4,800 | $400 | ($300) | | **Corporate** | — | — | ($5,800) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses operational repositioning, highlighting significant sales growth and improved gross margins, while acknowledging high leverage and ongoing going concern risks [Results of Operations](index=31&type=section&id=Results%20of%20Operations) The company achieved significant net sales and gross profit growth for both the third quarter and nine-month period, driven by increased sales volume and cost reduction efforts Metric (Three Months Ended Sep 30, in thousands USD) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $14,000 | $10,700 | +30.4% | | **Gross Profit** | $3,000 | $1,400 | +116.8% | | **Gross Margin** | 21.2% | 12.7% | +8.5 p.p. | | **Net Income (Loss)** | $200 | ($3,100) | N/A | Metric (Nine Months Ended Sep 30, in thousands USD) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $41,200 | $33,600 | +22.7% | | **Gross Profit** | $7,400 | $4,900 | +52.7% | | **Gross Margin** | 18.0% | 14.5% | +3.5 p.p. | | **Net Loss** | ($1,500) | ($4,400) | N/A | - Consolidated operating expenses decreased by **17.2%** in Q3 2019 and **14.5%** in the nine-month period year-over-year, primarily due to cost reduction efforts, including the consolidation of corporate offices and NTW operations into the Bay Shore location[148](index=148&type=chunk)[156](index=156&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains constrained by high leverage and reliance on its PNC Bank facility and related-party financing, despite recent liquidity-enhancing transactions and covenant compliance - The company is **highly leveraged** and relies on its Loan Facility with PNC Bank and debt/equity from principal stockholders to support operations, with the PNC facility maturing on December 31, 2019[158](index=158&type=chunk)[164](index=164&type=chunk) - As of September 30, 2019, the company was in **compliance** with the minimum EBITDA covenants required by its PNC Loan Facility[165](index=165&type=chunk) - In January 2019, the company raised **$2.0 million** by issuing 7% senior subordinated convertible notes to directors Michael and Robert Taglich to meet conditions for extending its PNC loan maturity[172](index=172&type=chunk) - The company sold its rights to **$1.1 million** in future payments from the sale of its AMK subsidiary for an immediate cash payment of **$0.8 million** in January 2019 to increase liquidity[178](index=178&type=chunk) - Management explicitly states that historical losses and reliance on external financing raise **substantial doubt** about the company's ability to continue as a going concern[189](index=189&type=chunk)[190](index=190&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in inventory, financial closing, and accounting personnel, with remediation plans contingent on financial ability - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective** as of the end of the reporting period[219](index=219&type=chunk) - Material weaknesses were identified in several areas, including: inventory control systems, the quarterly closing process, accounting for complex or non-standard transactions, and a lack of sufficient accounting personnel[219](index=219&type=chunk) - Planned remediation efforts include supplementing the accounting staff with experienced professionals and using third-party consultants, contingent on the company's financial ability[220](index=220&type=chunk) [PART II. OTHER INFORMATION](index=43&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section details legal proceedings, risk factors, equity security sales, and a comprehensive list of exhibits [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) This section details an ongoing legal dispute with CPI Aerostructures regarding a working capital adjustment from a prior sale, where CPI seeks approximately $4.2 million - The company is in a legal dispute with CPI Aerostructures over the final working capital adjustment from the sale of the WMI Group[222](index=222&type=chunk) - An independent expert determined the working capital deficit to be approximately **$4.1 million**, and CPI has filed a motion seeking a judgment of about **$4.2 million**, with **$2.0 million** to be satisfied from funds in escrow[223](index=223&type=chunk)[224](index=224&type=chunk) - The company believes the expert's determination is void and intends to "contest vigorously" CPI's claim, though it has agreed to release **$0.6 million** from the escrow for undisputed items[225](index=225&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section does not introduce any new risk factors, instead incorporating by reference the risks and uncertainties previously disclosed in the company's 2018 Annual Report on Form 10-K - The report refers to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K and does not present any new or updated risks[226](index=226&type=chunk) [Sales of Unregistered Equity Securities](index=44&type=section&id=Item%202.%20Sales%20of%20Unregistered%20Equity%20Securities) The company reports that it did not issue or sell any unregistered equity securities during the third quarter of 2019, other than what may have been previously disclosed in its other SEC filings - No unregistered equity securities were sold during the period covered by this report, except as previously disclosed in other Exchange Act reports[227](index=227&type=chunk) [Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section provides a list of all exhibits filed with the Form 10-Q, including corporate governance documents, certifications by officers, and interactive data files - The report includes standard exhibits such as CEO and CFO certifications pursuant to Rule 13a-14 and Section 906 of the Sarbanes-Oxley Act, as well as XBRL data files[227](index=227&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2019 or ☐ Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to_______ Commission File No. 001-35927 AIR INDUSTRIES GROUP (Exact name of registrant as specified in its charter) Nevada 80-0948413 (State or other jurisdiction ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: March 31, 2019 or ☐ Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to_______ Commission File No. 001-35927 AIR INDUSTRIES GROUP (Exact name of registrant as specified in its charter) Nevada 80-0948413 (State or other jurisdictio ...