Air Industries (AIRI) - 2025 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to uncertainties, and actual results may differ materially from expectations - The report contains forward-looking statements that are predictive and subject to uncertainties, and actual results may differ materially from expectations[8][9] Investors are cautioned not to place undue reliance on these statements and should review risk factors in the Annual Report on Form 10-K and other SEC filings[10] PART I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and notes, detailing financial position and performance for specified periods Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 ($ thousands, unaudited) | December 31, 2024 ($ thousands) | | :--------------------------------- | :----------------------------------- | :------------------------------ | | Cash | $507 | $753 | | Total Current Assets | $38,133 | $39,187 | | Total Assets | $50,377 | $51,011 | | Total Current Liabilities | $28,367 | $27,411 | | Total Liabilities | $35,111 | $36,063 | | Total Stockholders' Equity | $15,266 | $14,948 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2025, and 2024 | Metric | 3 Months Ended June 30, 2025 ($ thousands) | 3 Months Ended June 30, 2024 ($ thousands) | 6 Months Ended June 30, 2025 ($ thousands) | 6 Months Ended June 30, 2024 ($ thousands) | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Net Sales | $12,659 | $13,572 | $24,802 | $27,633 | | Gross Profit | $2,028 | $2,644 | $4,062 | $4,550 | | Operating Expenses | $2,020 | $1,892 | $4,800 | $4,057 | | Net (Loss) Income | $(422) | $298 | $(1,410) | $(408) | | (Loss) Income per share - Basic | $(0.11) | $0.09 | $(0.38) | $(0.12) | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in the company's equity accounts, including net income/loss and stock transactions, for the period - Total stockholders' equity increased from $14,948,000 at January 1, 2025, to $15,266,000 at June 30, 2025, primarily due to common stock issued for cash ($855,000) and stock-based compensation ($592,000 for six months), partially offset by a net loss of $988,000 for the six months ended March 31, 2025, and $422,000 for the three months ended June 30, 2025[20] Condensed Consolidated Statements of Cash Flows Reports the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024 | Cash Flow Activity | Six Months Ended June 30, 2025 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net Cash Provided by Operating Activities | $1,870 | $334 | | Net Cash Used in Investing Activities | $(2,113) | $(1,224) | | Net Cash (Used in) Provided by Financing Activities | $(3) | $791 | | Net Decrease in Cash | $(246) | $(99) | | Cash at End of Period | $507 | $247 | - Net cash provided by operating activities increased significantly to $1,870,000 for the six months ended June 30, 2025, compared to $334,000 in the prior year, primarily due to collections of accounts receivable and an increase in non-cash expenses, partially offset by the net loss and an increase in inventory[22][140] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Organization and Basis of Presentation Describes the company's operations, going concern considerations, and management's plans to address financial challenges - As of June 30, 2025, the company was in default of its minimum Fixed Charge Coverage Ratio (0.76x vs. 1.05x required) and its Current Credit Facility expires on December 30, 2025, raising substantial doubt about its ability to continue as a going concern[29][34] - Management plans to increase revenues, reduce costs (estimated $1.0 million annually starting Q3 2025), negotiate debt extensions, and raise capital through common stock sales, having received $1,243,000 by June 30, 2025, and an additional $3,623,000 subsequent to the period[30][31][110] - The company's funded backlog as of June 30, 2025, was $128.5 million, with anticipated sales increases not expected until early next year due to long lead times for raw materials and manufacturing[30] Note 2. Summary of Significant Accounting Policies Outlines the key accounting principles and policies used in preparing the financial statements, including inventory and revenue recognition Inventory Valuation | Inventory Category | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :----------------- | :-------------------------- | :------------------------------ | | Raw Materials | $6,754 | $6,318 | | Work In Progress | $14,373 | $13,028 | | Semi-Finished Goods | $8,043 | $8,805 | | Final-Finished Goods | $1,017 | $660 | | Total Inventory | $30,187 | $28,811 | Customer Concentration | Customer (Percentage of Net Sales) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | RTX | 44.3% | 25.2% | 36.7% | 29.3% | | Lockheed Martin | 27.5% | 25.4% | 33.4% | 25.6% | | Northrop | 8.0% | 30.5% | 8.1% | 20.6% | Revenue by Type | Revenue Type | 3 Months Ended June 30, 2025 ($ thousands) | 3 Months Ended June 30, 2024 ($ thousands) | 6 Months Ended June 30, 2025 ($ thousands) | 6 Months Ended June 30, 2024 ($ thousands) | | :----------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Military | $6,831 | $8,920 | $15,171 | $19,304 | | Commercial | $5,828 | $4,652 | $9,631 | $8,329 | | Total | $12,659 | $13,572 | $24,802 | $27,633 | Note 3. Property and Equipment Details the company's property and equipment, including gross values, accumulated depreciation, and net book values Property and Equipment, Net | Category | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :----------------------- | :-------------------------- | :------------------------------ | | Total Property and Equipment (Gross) | $48,151 | $46,188 | | Accumulated Depreciation | $(38,416) | $(37,379) | | Property and Equipment, net | $9,735 | $8,809 | - Depreciation expense for the six months ended June 30, 2025, was approximately $1,187,000, an increase from $1,022,000 in the prior year period[56] Note 4. Operating Lease Liabilities Presents information on operating lease costs, cash payments, and key lease terms as of June 30, 2025 Operating Lease Costs and Cash Paid | Metric | 3 Months Ended June 30, 2025 ($ thousands) | 3 Months Ended June 30, 2024 ($ thousands) | 6 Months Ended June 30, 2025 ($ thousands) | 6 Months Ended June 30, 2024 ($ thousands) | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Operating lease cost | $283 | $319 | $561 | $640 | | Cash paid for operating leases | $239 | $266 | $512 | $531 | - As of June 30, 2025, the weighted average remaining lease term for operating leases is 1.25 years, with a weighted average discount rate of 9.50%[59] Note 5. Debt Provides a breakdown of the company's debt obligations, including credit facilities, finance leases, and related party notes Debt Outstanding | Debt Type | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :--------------------------------- | :-------------------------- | :------------------------------ | | Current Credit Facility – Revolver | $12,094 | $12,905 | | Current Credit Facility – Term Loan | $6,380 | $5,225 | | Solar Credit Facility | $970 | $970 | | Finance lease obligations | $898 | $1,007 | | Loans Payable - financed assets | $9 | $14 | | Subtotal (Third Party Debt) | $20,351 | $20,121 | | Subordinated Notes - Related Party | $4,871 | $6,162 | | Total Debt Outstanding | $25,222 | $26,283 | - The company was in default of its Fixed Charge Coverage Ratio (0.76x vs. 1.05x required) as of June 30, 2025, and the Current Credit Facility expires on December 30, 2025, resulting in the entire Term Loan being classified as short-term[63][66] - Related Party Notes decreased by $1,291,000 during the six months ended June 30, 2025, due to principal payments made with funds raised from the At The Market Offering[79][80] Note 6. Stockholders' Equity Details changes in stockholders' equity, including common stock issuances and restricted stock unit vesting - The company issued 307,806 shares of common stock for gross proceeds of $1,243,000 through an At The Market (ATM) offering during the six months ended June 30, 2025[85] An additional 905,787 shares were sold in July 2025 for gross proceeds of $3,623,000[86] - During the second quarter of 2025, 95,210 Restricted Stock Units (RSUs) vested, resulting in the issuance of 57,192 shares of common stock after withholding shares for tax obligations[84][94] Note 7. Stock Options and Restricted Stock Units Discusses the company's equity incentive plan, stock-based compensation expense, and unrecognized compensation costs - Shareholders approved an amendment to the 2022 Equity Incentive Plan, increasing the number of authorized shares by 250,000 to a total of 900,000 shares[87] - Stock-based compensation expense for employees and directors from stock options was $22,000 for the six months ended June 30, 2025, compared to $36,000 in the prior year[89] - As of June 30, 2025, there was $681,000 of unrecognized compensation cost related to non-vested RSUs, to be recognized over a remaining weighted average vesting period of 1.8 years[95] Note 8. Commitments and Contingencies Addresses the company's legal actions and other potential future obligations - The company is involved in a legal action with Contract Pharmacal Corp. relating to a sublease, where Contract Pharmacal is seeking damages of $700,000[96] The company disputes the validity of these claims and intends to continue its defense[96] Note 9. Income Taxes Explains the company's income tax provision, effective tax rate, and valuation allowance against deferred tax assets - The company recorded no income tax expense for the three and six months ended June 30, 2025 and 2024, due to an estimated annual effective tax rate of zero and a full valuation allowance against its net deferred tax assets[98][99] Note 10. Segment Information States that the company operates as a single segment, with all revenues and assets located in the United States - The company operates as one operating segment, with its Chief Executive Officer serving as the Chief Operating Decision Maker (CODM) who reviews consolidated financial information[100] All revenues and long-lived tangible assets are located in the United States[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition, results of operations, liquidity, and capital resources Business Overview Describes the company's core business as a manufacturer of precision components for aerospace and defense, highlighting key products and market position - Air Industries Group is a leading manufacturer of precision components and assemblies for large aerospace and defense contractors, with products used in mission-critical operations for the U.S. government, foreign governments, and commercial airlines[105][106] - The company's products are used in high-profile platforms and programs including the F-18 Hornet, E-2 Hawkeye, UH-60 Black Hawk Helicopters, Geared Turbo-Fan (GTF) Engines, CH-53 Helicopter, F-35 Lighting II, and F-15 Eagle Tactical Fighter[107] - As of June 30, 2025, the company had total unfilled contract values of $272.9 million, including a $128.5 million backlog, providing a foundation for future growth[111] Significant improvement in sales and profitability is expected to begin in early 2026 due to long lead times[111] Results of Operations Analyzes the company's financial performance, including net sales, gross profit, and net income (loss), for the reported periods Results of Operations for the three months ended June 30, 2025 Details the financial performance for the three-month period, including sales, gross profit, and net income (loss) comparisons Three Months Ended June 30, 2025 vs 2024 | Metric | 3 Months Ended June 30, 2025 ($ thousands) | 3 Months Ended June 30, 2024 ($ thousands) | Change ($ thousands) | Percent Change | | :-------------------- | :--------------------------------- | :--------------------------------- | :------------------- | :------------- | | Net Sales | $12,659 | $13,572 | $(913) | -6.73% | | Gross Profit | $2,028 | $2,644 | $(616) | -23.30% | | Gross Profit % | 16.0% | 19.5% | -3.5% | - | | Operating Expenses | $2,020 | $1,892 | $128 | 6.77% | | Net (Loss) Income | $(422) | $298 | $(720) | -241.61% | - The decrease in gross margin was attributed to changes in sales across major platforms, shifts in product mix, and underutilization of personnel[117] Platform or Program Percentage of Net Sales (3 Months) | Platform or Program (Percentage of Net Sales) | 2025 | 2024 | | :-------------------------------------------- | :--- | :--- | | Geared Turbo-Fan Engine | 37.0% | 20.2% | | UH-60 Black Hawk Helicopter | 13.9% | 18.1% | | CH-53 Helicopter | 16.7% | 5.4% | | E-2D Hawkeye | 10.5% | 32.8% | | F-35 Lightning II | 5.7% | 2.8% | | F-18 Hornet | 0.2% | 1.0% | | All other platforms | 16.0% | 19.7% | Results of Operations for the six months ended June 30, 2025 Presents a comparative analysis of financial results for the six-month period, focusing on sales, gross profit, and net loss Six Months Ended June 30, 2025 vs 2024 | Metric | 6 Months Ended June 30, 2025 ($ thousands) | 6 Months Ended June 30, 2024 ($ thousands) | Change ($ thousands) | Percent Change | | :-------------------- | :--------------------------------- | :--------------------------------- | :------------------- | :------------- | | Net Sales | $24,802 | $27,633 | $(2,831) | -10.24% | | Gross Profit | $4,062 | $4,550 | $(488) | -10.73% | | Gross Profit % | 16.4% | 16.5% | -0.1% | - | | Operating Expenses | $4,800 | $4,057 | $743 | 18.31% | | Net Loss | $(1,410) | $(408) | $(1,002) | 245.59% | - The increase in operating expenses was primarily driven by increases in stock compensation expense and costs associated with the continued improvement of information technology systems and cybersecurity defenses[123] Platform or Program Percentage of Net Sales (6 Months) | Platform or Program (Percentage of Net Sales) | 2025 | 2024 | | :-------------------------------------------- | :--- | :--- | | Geared Turbo-Fan Engine | 31.0% | 19.6% | | UH-60 Black Hawk Helicopter | 20.9% | 22.4% | | CH-53 Helicopter | 13.6% | 3.7% | | E-2D Hawkeye | 10.3% | 27.9% | | F-35 Lightning II | 4.3% | 4.0% | | F-18 Hornet | 1.6% | 4.0% | | All other platforms | 18.3% | 18.4% | Liquidity and Capital Resources Discusses the company's ability to meet its short-term and long-term financial obligations and its strategies for capital management - The company is in default of its Fixed Charge Coverage Ratio (0.76x vs. 1.05x required) as of June 30, 2025, and its Current Credit Facility expires on December 30, 2025, raising substantial doubt about its ability to continue as a going concern[127][128] - Management is negotiating with its lender and related party noteholders to extend debt maturity dates and has raised $5,375,000 in gross proceeds from its At The Market (ATM) offering since December 2024, including $3,623,000 in July 2025[133][138] Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2025 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Operating activities | $1,870 | $334 | | Investing activities | $(2,113) | $(1,224) | | Financing activities | $(3) | $791 | | Net decrease in cash | $(246) | $(99) | Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements as of June 30, 2025 - The company did not have any off-balance sheet arrangements as of June 30, 2025[146] Critical Accounting Estimates Identifies the key accounting estimates that require significant judgment and their impact on the financial statements - Critical accounting estimates include inventory valuation, useful lives and impairment of long-lived assets, income tax provision, and allowance for credit losses[148] No material changes to these estimates were reported compared to the 2024 Annual Report[149] Item 4. Controls and Procedures Addresses the effectiveness of the company's disclosure controls and internal controls over financial reporting Evaluation of Disclosure Controls and Procedures Concludes that disclosure controls were ineffective due to an un-remediated material weakness in IT internal controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to an un-remediated material weakness in internal controls over financial reporting related to IT systems, as reported in the 2024 Form 10-K[150][151] Changes in Internal Control over Financial Reporting Reports no material changes in internal control over financial reporting, apart from ongoing remediation efforts - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter, other than the ongoing efforts to remediate the previously identified material weakness[153] PART II. Other Information This section includes additional information not covered in Part I, such as risk factors and exhibits Item 1A. Risk Factors Advises investors to review the company's risk factors detailed in its 2024 Form 10-K and other SEC filings - Investors are encouraged to consider the risks described in the company's 2024 Form 10-K, the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this report, and other SEC filings[155] Item 6. Exhibits Lists the certifications and XBRL interactive data files included as exhibits to the Form 10-Q - The report includes certifications from the principal executive officer (31.1) and principal financial officer (31.2, 32.2) and XBRL interactive data files (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[156] Signatures Confirms the official signing of the report by the Chief Financial Officer on behalf of Air Industries Group - The report was signed by Scott Glassman, Chief Financial Officer, on behalf of Air Industries Group on August 14, 2025[159]