Air Industries (AIRI) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and an evaluation of internal controls and procedures Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets As of June 30, 2021, total assets slightly decreased to $56.25 million, driven by lower cash and inventory, while total liabilities decreased and stockholders' equity increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $515 | $2,505 | | Accounts Receivable, Net | $12,210 | $8,798 | | Inventory | $30,209 | $32,120 | | Total Current Assets | $43,171 | $43,611 | | Total Assets | $56,250 | $57,777 | | Total Current Liabilities | $26,424 | $27,327 | | Total Liabilities | $40,736 | $42,668 | | Total Stockholders' Equity | $15,514 | $15,109 | Condensed Consolidated Statements of Operations The company achieved a significant profitability turnaround, with Q2 2021 net sales growing 81.9% to $15.45 million and H1 2021 sales up 32.9% to $29.17 million, both periods returning to net income Three Months Ended June 30, (in thousands) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $15,453 | $8,494 | 81.9% | | Gross Profit | $2,603 | $614 | 323.9% | | Income (Loss) from Operations | $440 | $(1,292) | N/A | | Net Income (Loss) | $239 | $(1,584) | N/A | | EPS - Diluted | $0.01 | $(0.05) | N/A | Six Months Ended June 30, (in thousands) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $29,165 | $21,941 | 32.9% | | Gross Profit | $4,400 | $2,795 | 57.4% | | Income (Loss) from Operations | $467 | $(1,373) | N/A | | Net Income (Loss) | $87 | $(526) | N/A | | EPS - Diluted | $0.01 | $(0.02) | N/A | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $15.11 million to $15.51 million by June 30, 2021, primarily due to net income, stock compensation, and common stock issued for directors' fees - Total stockholders' equity increased by approximately $405,000 during the first six months of 2021, from $15,109,000 to $15,514,000[16] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, the company experienced a net cash outflow of $1.99 million, driven by uses in operating, investing, and financing activities Cash Flow Summary for Six Months Ended June 30, (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(181) | $(1,043) | | Net Cash Used in Investing Activities | $(631) | $(309) | | Net Cash (Used in) Provided by Financing Activities | $(1,178) | $2,126 | | Net (Decrease) Increase in Cash | $(1,990) | $774 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and financial statement items, covering liquidity, customer concentration, debt, leases, and segment reporting, with management projecting adequate cash through August 2022 - Management believes operations substantially returned to normal in fiscal 2021 and projects adequate cash to support operations through at least August 31, 2022[28] - For the six months ended June 30, 2021, three customers represented 77.0% of total net sales, indicating significant customer concentration risk[33][34] - The company operates in two segments: Complex Machining, generating $25.9 million in sales, and Turbine Engine Components, generating $3.2 million in sales for the first six months of 2021[94][97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant financial performance improvement for Q2 and H1 2021, highlighting sales recovery, return to profitability, and enhanced liquidity measures - The company is an aerospace firm primarily serving the defense industry, manufacturing flight safety components for military aircraft like the F-35, F-18, and UH-60 Blackhawk[100] - Recent capital investments in new equipment and expansion of the Connecticut facility are expected to increase production volume, efficiency, and service offerings[102] Consolidated Financial Performance Summary (in thousands) | Period | Net Sales | Gross Profit | Net Income (Loss) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, 2021 | $15,453 | $2,603 | $239 | | Three Months Ended June 30, 2020 | $8,494 | $614 | $(1,584) | | Six Months Ended June 30, 2021 | $29,165 | $4,400 | $87 | | Six Months Ended June 30, 2020 | $21,941 | $2,795 | $(526) | Results of Operations The company demonstrated strong year-over-year recovery, with Q2 2021 net sales surging 81.9% to $15.45 million and H1 2021 sales up 32.9%, both periods returning to net income Q2 2021 vs Q2 2020 Performance (in thousands) | Metric | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $15,453 | $8,494 | 81.9% | | Gross Profit | $2,603 | $614 | 323.9% | | Net Income (Loss) | $239 | $(1,584) | N/A | H1 2021 vs H1 2020 Performance (in thousands) | Metric | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $29,165 | $21,941 | 32.9% | | Gross Profit | $4,400 | $2,795 | 57.4% | | Net Income (Loss) | $87 | $(526) | N/A | - Increased profitability was driven by higher sales volumes, improving fixed factory overhead absorption and leading to higher gross margins of 16.8% in Q2 2021 compared to 7.2% in Q2 2020[115][104] Liquidity and Capital Resources The company enhanced liquidity in 2020 through CARES Act programs, including $2.4 million in SBA loan forgiveness, and secured a new financing facility with Sterling National Bank, remaining compliant with all loan covenants - In 2020, the company received full forgiveness for $2.4 million in SBA loans and deferred $627,000 in employer Social Security taxes under the CARES Act[127][128] - The company entered a new loan facility with Sterling National Bank (SNB) expiring in December 2022, including a $16 million revolving line of credit and a term loan[130] - As of June 30, 2021, total debt to SNB was $20.05 million, and the company was in compliance with all loan covenants, including the Fixed Charge Coverage Ratio[136][134] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[150] - No material changes were made to the company's internal control over financial reporting during the most recently completed fiscal quarter[150] PART II. OTHER INFORMATION This section provides additional information, including updates on risk factors, unregistered equity sales, and a list of exhibits filed with the report Risk Factors This section supplements prior risk factors, specifically addressing the ongoing uncertainty of the COVID-19 pandemic and its potential material impact on the business - The company highlights the ongoing risk from the COVID-19 pandemic, noting that while operations have substantially normalized, its future impact remains uncertain and could materially affect the business[153] Unregistered Sales of Equity Securities and Use of Proceeds The company confirms no unregistered equity securities were issued or sold during the quarter, beyond those previously disclosed - No unregistered equity securities were issued or sold during the quarter, other than those previously reported[154] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, loan agreements, and officer certifications - A key exhibit filed with this report is the Second Amendment to the Loan and Security Agreement with Sterling National Bank[155] - The filing includes certifications from the principal executive officer and principal financial officer as required by the Sarbanes-Oxley Act of 2002[155]