{"url_path":"/sec/airi/10-k/2026/item-15","section_key":"item-15","section_title":"Item 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-03-27","source_url":"https://www.sec.gov/Archives/edgar/data/1009891/0001213900-26-035731-index.html","accession_number":"0001213900-26-035731","cik":"0001009891","ticker":"AIRI","issuer_name":"AIR INDUSTRIES GROUP","edgar_url":"https://www.sec.gov/Archives/edgar/data/1009891/0001213900-26-035731-index.html","primary_entity_key":"0001009891","primary_entity_name":"AIR INDUSTRIES GROUP"},"word_count":15869,"has_tables":true,"body_markdown":"**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**\n\n \n\n \n(a)\nConsolidated Financial Statements of Air Industries Group for the Year ended December 31, 2025 and 2024.\n\n \n\n \n(b)\nThe following exhibits are included as part of this report. References to “the Company” in this Exhibit List mean Air Industries Group, a Nevada Corporation.\n\n \n\n**Exhibit No.**\n \n**Description**\n\n3.1\n \n[Articles of Incorporation of Air Industries Group (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 30, 2013).](http://www.sec.gov/Archives/edgar/data/1009891/000119380513001557/e611262_ex3-1.htm)\n\n \n \n \n\n3.2\n \n[Certificate of Amendment increasing number of authorized shares of preferred stock and Series A Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on April 19, 2017).](http://www.sec.gov/Archives/edgar/data/1009891/000119380517000662/e616037_ex3-3.htm)\n\n \n \n \n\n3.3\n \n[Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on July 10, 2025).](http://www.sec.gov/Archives/edgar/data/1009891/000119380515000450/e613482_ex3-2.htm)\n\n \n \n \n\n3.4\n \n[Certificate of Amendment increasing number of authorized shares of common stock to 60,000,000 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 8, 2019)](http://www.sec.gov/Archives/edgar/data/1009891/000121390019014973/f10q0619ex3-5_airindustries.htm)\n\n \n \n \n\n3.5\n \n[Certificate of Change filed with the Secretary of State of Nevada to effectuate reverse stock split (incorporated herein by reference to Exhibit 3.01 to the Company’s Report on Form 8-K filed October 18, 2022).](http://www.sec.gov/Archives/edgar/data/1009891/000121390022064456/ea167154ex3-1_airindust.htm)\n\n \n \n \n\n3.6\n \n[Certificate of Amendment increasing number of authorized shares of common stock to 20,000,000 (incorporated by reference to the Company’s Current Report on Form 8-K filed on July 10, 2025)](http://www.sec.gov/Archives/edgar/data/1009891/000121390019014973/f10q0619ex3-5_airindustries.htm).\n\n \n \n \n\n4.1\n \n[Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 27, 2020).](http://www.sec.gov/Archives/edgar/data/1009891/000121390020007657/f10k2019ex4-1_airindus.htm)\n\n \n \n \n\n10.1\n \n[Loan and Security Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 6, 2020)](http://www.sec.gov/Archives/edgar/data/1009891/000121390020000225/f8k123119ex10-1_airindustri.htm)\n\n \n \n \n\n10.2\n \n[Guaranty Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 6, 2020)](http://www.sec.gov/Archives/edgar/data/1009891/000121390020000225/f8k123119ex10-2_airindustri.htm)\n\n \n \n \n\n10.3\n \n[Pledge Agreement dated as of December 31, 2019 with Sterling National Bank (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 6, 2020)](http://www.sec.gov/Archives/edgar/data/1009891/000121390020000225/f8k123119ex10-3_airindustri.htm)\n\n \n \n \n\n10.4\n \n[First Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2020)](http://www.sec.gov/Archives/edgar/data/1009891/000121390020035943/f10q0920ex10-4_airindustries.htm)\n\n \n \n \n\n10.5\n \n[Second Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 5, 2021)](http://www.sec.gov/Archives/edgar/data/1009891/000121390021040428/f10q0621ex10-1_airindustries.htm)\n\n \n \n \n\n10.6\n \n[Third Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 8, 2021)](http://www.sec.gov/Archives/edgar/data/1009891/000121390021064211/ea151960ex10-1_airindustries.htm)\n\n \n\n46\n\n \n\n \n\n10.7\n \n[Fourth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 18, 2022).](http://www.sec.gov/Archives/edgar/data/1009891/000121390022027831/ea160199ex10-1_airindust.htm)\n\n \n \n \n\n10.8\n \n[Fifth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 10, 2024).](http://www.sec.gov/Archives/edgar/data/1009891/000121390023065140/ea183027ex99-1_airindustries.htm)\n\n \n \n \n\n10.9\n \n[Sixth Amendment to Loan and Security Agreement with Sterling National Bank (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 27, 2024).](http://www.sec.gov/Archives/edgar/data/1009891/000121390023090173/ea189080ex99-1_airindust.htm)\n\n \n \n \n\n10.10\n \n[Waiver and Seventh Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 3, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390024048783/ea020722501ex10-1_airindust.htm)\n\n \n \n \n\n10.11\n \n[Eighth Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390025009093/ea022955101ex10-1_airindus.htm)\n\n \n \n \n\n10.12\n \n[Ninth Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 15, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390025009093/ea022955101ex10-1_airindus.htm)\n\n \n \n \n\n10.13\n \n[Tenth Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 16, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390025009093/ea022955101ex10-1_airindus.htm)\n\n \n \n \n\n10.14\n \n[Eleventh Amendment to Loan and Security Agreement with Webster Bank, National Association successor to Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 27, 2026).](https://www.sec.gov/Archives/edgar/data/1009891/000121390025009093/ea022955101ex10-1_airindus.htm)\n\n \n \n \n\n10.15*\n \n[Form of Indemnification Agreement between the Company and each Director and Officer.](ea028229801ex10-15.htm)\n\n \n \n \n\n10.16*\n \n[Form of Restricted Stock Unit Award Agreement under 2022 Equity Incentive Plan As Amended and Restated as of May 23, 2024.  ](ea028229801ex10-16.htm)\n\n \n \n \n\n10.17*\n \n[Form of Per Diem Expense Reimbursement and Compensation Agreement between the Company and each Director.](ea028229801ex10-17.htm)\n\n \n \n \n\n10.18\n \n[At The Market Offering Agreement dated December 13, 2014, By and between the Company and Craig -Hallum Capital Group LLC (incorporated herein by reference to Exhibit 1.2 to the Company’s Registration Statement on Form S-3 filed December 13, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390024108879/ea022434901ex1-2_air.htm)\n\n \n \n \n\n10.19\n \n[Separation and Release Agreement date March 13, 2026, between the Company and Mr. Lou Melluzzo (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 16, 2026).](http://www.sec.gov/Archives/edgar/data/1009891/000119380515001372/e613999_ex10-1.htm)\n\n \n \n \n\n10.20\n \n[2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016).](http://www.sec.gov/Archives/edgar/data/1009891/000119380516004256/e615570_ex10-9.htm)\n\n \n \n \n\n10.21\n \n[2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.79 to the Company’s Registration Statement on Form S-1 (Registration No. 333-219490) filed July 26, 2017 and declared effective August 4, 2017).](http://www.sec.gov/Archives/edgar/data/1009891/000119380517001329/e616397_ex10-79.htm)\n\n \n \n \n\n10.22\n \n[2022 Equity Incentive Plan As Amended and Restated as of May 23, 2024 (incorporated herein by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed August 4, 2024).](http://www.sec.gov/Archives/edgar/data/1009891/000121390023063747/def14a0723_airindust.htm)\n\n \n\n47\n\n \n\n \n\n14.1\n \n[Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2017 filed on April 30, 2018.](http://www.sec.gov/Archives/edgar/data/1009891/000119380518000599/e617958_ex14-1.htm)\n\n \n \n \n\n19.1\n \n[Insider Trading Policies and Procedures (incorporated herein by reference to Exhibit 19.1 to the Company’s Annual Report of Form 10K for the year ended December 31, 2024 filed on April 15, 2025).](https://www.sec.gov/Archives/edgar/data/1009891/000121390024033018/ea020242801ex19-1_air.htm)\n\n \n \n \n\n21.1\n \n[Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 1, 2019.](http://www.sec.gov/Archives/edgar/data/1009891/000121390019005550/f10k2018ex21-1_airindus.htm)\n\n \n \n \n\n23.1*\n \n\n[Consent of CBIZ CPAs P.C.](ea028229801ex23-1.htm)\n\n \n \n \n\n23.2*\n \n[Consent of Marcum LLP](ea028229801ex23-2.htm)\n\n \n \n \n\n31.1*\n \n[Certification of principal executive officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934.](ea028229801ex31-1.htm)\n\n \n \n \n\n31.2*\n \n[Certification of principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act of 1934.](ea028229801ex31-2.htm)\n\n \n \n \n\n32.1**\n \n[Certification of principal executive officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).](ea028229801ex32-1.htm)\n\n \n \n \n\n32.2**\n \n[Certification of principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).](ea028229801ex32-2.htm)\n\n \n \n \n\n97.1\n \n[Policy related to Recovery of Erroneously Awarded Compensation (incorporated herein by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed on April 15, 2025).](http://www.sec.gov/Archives/edgar/data/1009891/000121390024033018/ea020242801ex97-1_air.htm)\n\n \n \n \n\n101.INS\n \nInline XBRL Instance Document.\n\n \n \n \n\n101.SCH\n \nInline XBRL Taxonomy Extension Schema Document.\n\n \n \n \n\n101.CAL\n \nInline XBRL Taxonomy Extension Calculation Linkbase Document.\n\n \n \n \n\n101.DEF\n \nInline XBRL Taxonomy Extension Definition Linkbase Document.\n\n \n \n \n\n101.LAB\n \nInline XBRL Taxonomy Extension Label Linkbase Document.\n\n \n \n \n\n101.PRE\n \nInline XBRL Taxonomy Extension Presentation Linkbase Document.\n\n \n \n \n\n104\n \nCover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).\n\n \n\n*\nFiled herewith\n\n \n\n**\nFurnished herewith\n\n** **\n\n48\n\n \n\n** **\n\n**SIGNATURES**\n\n \n\nPursuant to the requirements\nof Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by\nthe undersigned, thereunto duly authorized.\n\n \n\nDated:\nMarch 27, 2026\n\n \n\n \n**AIR INDUSTRIES GROUP**\n\n \n \n \n\n \nBy:\n/s/ Scott Glassman\n\n \n \nScott Glassman\n\n \n \n\nActing Chief Executive Officer and President\n\n(principal executive officer)\n\n \n \n \n\n \nBy:\n/s/ Brian Drisgula\n\n \n \nBrian Drisgula\n\nVice President of Finance\n\n(principal financial and accounting officer)\n\n \n\nPursuant to the requirements of the Securities\nExchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 27, 2026 in the\ncapacities indicated.\n\n \n\n**Signature**\n** **\n**Capacity**\n\n \n \n \n\n/s/ Scott Glassman\n \nActing Chief Executive Officer and President\n\nScott Glassman\n \n(principal executive officer)\n\n \n \n \n\n/s/ Brian Drisgula\n \nVice President of Finance\n\nBrian Drisgula\n \n(principal financial and accounting officer)\n\n \n \n \n\n/s/ Michael N. Taglich\n \nDirector\n\nMichael N. Taglich\n \n \n\n \n \n \n\n/s/ Peter D. Rettaliata\n \nChairman of the Board\n\nPeter D. Rettaliata\n \n \n\n \n \n \n\n/s/ Robert F. Taglich\n \nDirector\n\nRobert F. Taglich\n \n \n\n \n \n \n\n/s/ David J. Buonanno\n \nDirector\n\nDavid J. Buonanno\n \n \n\n \n \n \n\n/s/ Michael Brand\n \nDirector\n\nMichael Brand\n \n \n\n \n \n \n\n/s/ Michael Porcelain\n \nDirector\n\nMichael Porcelain\n \n \n\n \n\n49\n\n \n\n \n\n**AIR INDUSTRIES GROUP**\n\n** **\n\n**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**\n\n**December 31, 2025 and 2024**\n\n \n\n[Report of Independent Registered Public Accounting Firm – CBIZ CPAs P.C. (PCAOB ID No: 199)](#F_028)   F-2\n\n     \n\n[Report of Independent Registered Public Accounting Firm – Marcum LLP (PCAOB ID No: 688)](#F_029)   F-3\n\n     \n\nConsolidated Financial Statements:    \n\n     \n\n[Consolidated Balance Sheets – As of December 31, 2025 and 2024](#F_030)   F-4\n\n     \n\n[Consolidated Statements of Operations – For the Years Ended December 31, 2025 and 2024](#F_031)   F-5\n\n     \n\n[Consolidated Statements of Changes in Stockholders’ Equity – For the Years Ended December 31, 2025 and 2024](#F_032)   F-6\n\n     \n\n[Consolidated Statements of Cash Flows – For the Years Ended December 31, 2025 and 2024](#F_034)   F-7\n\n     \n\n[Notes to Consolidated Financial Statements](#F_035)   F-9\n\n \n\nF-1\n\n \n\n \n\n**Report of Independent Registered Public Accounting\nFirm**\n\n** **\n\nTo the Shareholders and Board of Directors of\n\nAir Industries Group\n\n** **\n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited the accompanying consolidated\nbalance sheet of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2025, the related consolidated statements\nof operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2025, and the related notes (collectively\nreferred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,\nthe financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended\nDecember 31, 2025, in conformity with accounting principles generally accepted in the United States of America.\n\n \n\n**Explanatory Paragraph – Going Concern**\n\n \n\nThe accompanying consolidated financial statements have been prepared\nassuming that the Company will continue as a going concern. As more fully described in Note 1, the Current Credit Facility is scheduled\nto expire on September 30, 2026 and the Related Party Subordinated Notes mature on October 1, 2026. In addition, the Company is required\nto maintain a collection account with its lender into which substantially all the Company’s cash receipts are remitted. If the Company’s\nlender were to cease lending and keep the funds remitted to the collection account, the Company would lack the funds to continue its operations.\nThe Current Credit Facility and Related Party Subordinated notes expiration dates and the rights granted to the lender raise substantial\ndoubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The\nconsolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.\n\n** **\n\n**Basis for Opinion**\n\n \n\nThese financial statements are the responsibility\nof the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We\nare a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (\"PCAOB\") and are\nrequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and\nregulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audit in accordance with the\nstandards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial\nstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged\nto perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding\nof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal\ncontrol over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audit included performing procedures to assess\nthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond\nto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.\nOur audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating\nthe overall presentation of the financial statements. We believe that our audit provide**s** a reasonable basis for our opinion.\n\n \n\n**Critical Audit Matters**\n\n \n\nCritical audit matters are matters arising from\nthe current period audit of the financial statements that were communicated or required to be communicated to the audit committee and\nthat: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,\nsubjective, or complex judgments. We determined that there are no critical audit matters.\n\n \n\n/s/ CBIZ CPAs P.C.\n\n \n\nCBIZ CPAs P.C.\n\n \n\nWe have served as the Company’s auditor\nsince 2008 (such date takes into account the acquisition of the attest business of Marcum llp\nby CBIZ CPAs P.C. effective November 1, 2024).\n\n** **\n\nSaddle Brook, NJ\n\n \n\nMarch\n27, 2026\n\n \n\nF-2\n\n \n\n \n\n**Report of Independent Registered\nPublic Accounting Firm**\n\n** **\n\nTo the Shareholders and Board of Directors of\n\nAir Industries Group\n\n \n\n**Opinion on the Financial Statements**\n\n** **\n\nWe have audited the accompanying consolidated\nbalance sheet of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2024, the related consolidated statements\nof operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2024, and the related notes (collectively\nreferred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,\nthe financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended\nDecember 31, 2024 in conformity with accounting principles generally accepted in the United States of America.\n\n \n\n**Explanatory Paragraph – Going Concern**\n\n \n\nThe accompanying financial statements have been\nprepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Current Credit Facility expires\non December 30, 2025. In addition, the Company is required to maintain a collection account with its lender into which substantially all\nthe Company’s cash receipts are remitted. If the Company’s lender were to cease lending and keep the funds remitted to the\ncollection account, the Company would lack the funds to continue its operations. The current credit facility expiration date and the rights\ngranted to the lender, combined with the reasonable possibility that the Company might fail to meet covenants in the future, raise substantial\ndoubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note\n1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.\n\n** **\n\n**Basis for Opinion**\n\n \n\nThese financial statements are the responsibility\nof the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our\naudit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)\nand are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable\nrules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audit in accordance with the\nstandards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial\nstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged\nto perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding\nof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s\ninternal control over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audit included performing procedures to assess\nthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond\nto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.\nOur audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating\nthe overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.\n\n \n\n/s/ Marcum llp\n\n \n\nMarcum llp\n\n \n\nWe have served as the Company’s auditor from 2008 through 2025.\n\n \n\nSaddle Brook, NJ\n\n \n\nApril 15, 2025\n\n \n\nF-3\n\n \n\n \n\n**AIR INDUSTRIES GROUP**\n\n**Consolidated Balance Sheets**\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nASSETS \n   \n  \n\nCurrent Assets \n   \n  \n\nCash \n$680,000  \n$753,000 \n\nRestricted Cash \n 3,930,000  \n \n-\n \n\nAccounts Receivable, Net of Allowance for Credit Losses of $464,000 and $396,000 \n 7,071,000  \n 8,900,000 \n\nInventory \n 34,261,000  \n 28,811,000 \n\nPrepaid Expenses and Other Current Assets \n 766,000  \n 371,000 \n\nContract Costs Receivable \n \n-\n  \n 296,000 \n\nPrepaid Taxes \n 76,000  \n 56,000 \n\nTotal Current Assets \n 46,784,000  \n 39,187,000 \n\n  \n    \n   \n\nProperty and Equipment, Net \n 9,501,000  \n 8,809,000 \n\nFinance Lease Right-Of-Use-Assets \n 916,000  \n 1,113,000 \n\nOperating Lease Right-Of-Use-Assets \n 514,000  \n 1,190,000 \n\nDeferred Financing Costs, Net, Deposits and Other Assets \n 614,000  \n 712,000 \n\n  \n    \n   \n\nTOTAL ASSETS \n$58,329,000  \n$51,011,000 \n\n  \n    \n   \n\nLIABILITIES AND STOCKHOLDERS’ EQUITY \n    \n   \n\nCurrent Liabilities \n    \n   \n\nDebt \n$23,721,000  \n$18,362,000 \n\nSubordinated Notes - Related Party \n 4,871,000  \n$\n-\n \n\nAccounts Payable and Accrued Expenses \n 7,903,000  \n 7,015,000 \n\nOperating Lease Liabilities \n 702,000  \n 881,000 \n\nDeferred Gain on Sale \n 28,000  \n 38,000 \n\nCustomer Deposits \n 391,000  \n 1,115,000 \n\nTotal Current Liabilities \n 37,616,000  \n 27,411,000 \n\n  \n    \n   \n\nLong Term Liabilities \n    \n   \n\nDebt \n 1,512,000  \n 1,759,000 \n\nSubordinated Notes - Related Party \n \n-\n  \n 6,162,000 \n\nOperating Lease Liabilities \n \n-\n  \n 702,000 \n\nDeferred Gain on Sale \n \n-\n  \n 29,000 \n\nTOTAL LIABILITIES \n 39,128,000  \n 36,063,000 \n\n  \n    \n   \n\nCommitments and Contingencies (see Note 12) \n \n \n  \n \n \n \n\n  \n    \n   \n\nStockholders’ Equity \n    \n   \n\nPreferred Stock, par value $.001 - Authorized 3,000,000 shares, 0 shares outstanding, at both December 31, 2025 and December 31, 2024. \n \n-\n  \n \n-\n \n\nCommon Stock - Par Value $.001 - Authorized 6,000,000 shares, 4,776,454 and 3,474,970 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively \n 5,000  \n 3,000 \n\nAdditional Paid-In Capital \n 89,608,000  \n 84,052,000 \n\nAccumulated Deficit \n (70,412,000) \n (69,107,000)\n\nTOTAL STOCKHOLDERS’ EQUITY \n 19,201,000  \n 14,948,000 \n\n  \n    \n   \n\nTOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY \n$58,329,000  \n$51,011,000 \n\n \n\nSee Notes to Consolidated Financial Statements\n\n \n\nF-4\n\n \n\n** **\n\n**AIR INDUSTRIES GROUP**\n\n**Consolidated Statements of Operations\nFor the Years Ended December 31,**\n\n \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nNet Sales \n$47,921,000  \n$55,108,000 \n\n  \n    \n   \n\nCost of Sales \n 39,734,000  \n 46,176,000 \n\n  \n    \n   \n\nGross Profit \n 8,187,000  \n 8,932,000 \n\n  \n    \n   \n\nOperating Expenses \n 8,525,000  \n 8,473,000 \n\n  \n    \n   \n\n(Loss)/Income from Operations \n (338,000) \n 459,000 \n\n  \n    \n   \n\nInterest Expense \n (1,485,000) \n (1,421,000)\n\n  \n    \n   \n\nInterest Expense - Related Parties \n (356,000) \n (472,000)\n\n  \n    \n   \n\nOther Income, Net \n 743,000  \n 68,000 \n\n  \n    \n   \n\nLoss before Benefit From Income Taxes \n (1,436,000) \n (1,366,000)\n\n  \n    \n   \n\nBenefit from Income Taxes \n (131,000) \n \n-\n \n\n  \n    \n   \n\nNet Loss \n$(1,305,000) \n$(1,366,000)\n\n  \n    \n   \n\nLoss per share - Basic and diluted \n$(0.31) \n$(0.41)\n\n  \n    \n   \n\nWeighted Average Shares Outstanding - Basic and diluted \n 4,216,918  \n 3,336,464 \n\n \n\nSee Notes to Consolidated Financial Statements\n\n \n\nF-5\n\n \n\n \n\n**AIR INDUSTRIES GROUP**\n\n**Consolidated Statements of Changes in Stockholders’\nEquity**\n\n**For the Years Ended December 31, 2025 and 2024**\n\n \n\n  \n   \n   \nAdditional  \n   \nTotal \n\n  \nCommon Stock  \nPaid-in  \nAccumulated  \nStockholders’ \n\n  \nShares  \nAmount  \nCapital  \nDeficit  \nEquity \n\nBalance January 1, 2024 \n 3,303,045  \n$3,000  \n$82,928,000  \n$(67,741,000) \n$15,190,000 \n\nCommon Stock issued for directors fees \n 39,845  \n \n-\n  \n 157,000  \n \n-\n  \n 157,000 \n\nStock Based Compensation \n -  \n \n-\n  \n 640,000  \n \n-\n  \n 640,000 \n\nExercise of stock options \n 15,229  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nCommon Stock issued for cash \n 116,851  \n \n-\n  \n 327,000  \n \n-\n  \n 327,000 \n\nNet Loss \n -  \n \n-\n  \n \n-\n  \n (1,366,000) \n (1,366,000)\n\nBalance, December 31, 2024 \n 3,474,970  \n$3,000  \n$84,052,000  \n$(69,107,000) \n$14,948,000 \n\n  \n    \n    \n    \n    \n   \n\nCommon Stock issued for directors fees \n 30,699  \n \n-\n  \n 108,000  \n \n-\n  \n 108,000 \n\nStock Based Compensation \n -  \n \n-\n  \n 939,000  \n \n-\n  \n 939,000 \n\nCommon Stock issued for cash \n 1,213,593  \n 2,000  \n 4,636,000  \n \n-\n  \n 4,638,000 \n\nCommon Stock issued upon settlement of restricted stock units, net \n 57,192  \n \n-\n  \n (127,000) \n \n-\n  \n (127,000)\n\nNet Loss \n -  \n \n-\n  \n \n-\n  \n (1,305,000) \n (1,305,000)\n\nBalance, December 31, 2025 \n 4,776,454  \n$5,000  \n$89,608,000  \n$(70,412,000) \n$19,201,000 \n\n \n\nSee Notes to Consolidated Financial Statements\n\n \n\nF-6\n\n \n\n \n\n**AIR INDUSTRIES GROUP**\n\n**Consolidated Statements of Cash Flows\nFor the Years Ended December 31,**\n\n \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nCASH FLOWS FROM OPERATING ACTIVITIES \n   \n  \n\nNet Loss \n$(1,305,000) \n$(1,366,000)\n\nAdjustments to reconcile net loss to net cash provided by operating activities\n  \n  \n  \n  \n  \n  \n  \n  \n\nDepreciation of property and equipment \n 2,499,000  \n 2,072,000 \n\nStock-based Compensation \n 1,047,000  \n 797,000 \n\nAmortization of Finance Lease Right-of-Use Assets \n 197,000  \n 176,000 \n\nAmortization of Operating Lease Right-of-Use Assets \n 676,000  \n 676,000 \n\nDeferred gain on sale of real estate \n (39,000) \n (38,000)\n\n(Gain)/Loss on sale of equipment \n (68,000) \n (15,000)\n\nAllowances for Credit Losses \n 68,000  \n 52,000 \n\nAmortization of deferred financing costs \n 69,000  \n 68,000 \n\nChanges in Operating Assets and Liabilities \n    \n   \n\n(Increase) Decrease in Operating Assets: \n    \n   \n\nAccounts receivable \n 1,761,000  \n (1,060,000)\n\nInventory \n (5,450,000) \n 1,040,000 \n\nPrepaid expenses and other current assets \n (395,000) \n (74,000)\n\nContract costs receivable \n 296,000  \n \n-\n \n\nPrepaid taxes \n (20,000) \n (19,000)\n\nDeposits and other assets \n 29,000  \n 375,000 \n\nIncrease (Decrease) in Operating Liabilities: \n    \n   \n\nAccounts payable and accrued expenses \n 888,000  \n 961,000 \n\nOperating lease liabilities \n (881,000) \n (879,000)\n\nCustomer deposits \n (724,000) \n (2,442,000)\n\nNET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES \n (1,352,000) \n 324,000 \n\n  \n    \n   \n\nCASH FLOWS FROM INVESTING ACTIVITIES \n    \n   \n\nPurchase of property and equipment \n (3,322,000) \n (2,301,000)\n\nProceeds from sale of fixed assets \n 200,000  \n 16,000 \n\nNET CASH USED IN INVESTING ACTIVITIES \n (3,122,000) \n (2,285,000)\n\n  \n    \n   \n\nCASH FLOWS FROM FINANCING ACTIVITIES \n    \n   \n\nNote payable - revolver - net - Current Credit Facility \n 4,713,000  \n 2,101,000 \n\nProceeds from term loan - Current Credit Facility \n 1,640,000  \n 1,006,000 \n\nProceeds from term loan - Solar Facility \n \n-\n  \n 8,000 \n\nNet proceeds from Common Stock issued for cash \n 4,638,000  \n 327,000 \n\nPayments for taxes related to net share settlement of equity awards \n (127,000) \n \n-\n \n\nPayments of subordinated Notes - Related party \n (1,291,000) \n \n-\n \n\nPayments of term loan - Current Credit Facility \n (1,010,000) \n (869,000)\n\nPayments of finance lease obligations \n (223,000) \n (196,000)\n\nPayments of loan payable - financed asset \n (9,000) \n (9,000)\n\nNET CASH PROVIDED BY FINANCING ACTIVITIES \n 8,331,000  \n 2,368,000 \n\n  \n    \n   \n\nNET INCREASE IN CASH \n 3,857,000  \n 407,000 \n\nCASH AT BEGINNING OF YEAR \n 753,000  \n 346,000 \n\nCASH AT END OF YEAR \n$4,610,000  \n$753,000 \n\n \n\nSee Notes to Consolidated Financial Statements\n\n \n\nF-7\n\n \n\n** **\n\n**AIR INDUSTRIES GROUP**\n\n**Consolidated Statements of Cash Flows\nFor the Years Ended December 31, (Continued) **\n\n \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nSupplemental cash flow information \n   \n  \n\nCash paid during the year for interest \n$1,829,000  \n$1,849,000 \n\nCash paid during the year for taxes \n$21,000  \n$20,000 \n\n \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nSupplemental Disclosure of non-cash investing and finance activities \n   \n  \n\nFinancing from Solar Credit Facility directly to contractor \n$\n      -\n  \n$533,000 \n\nAcquisition of financed lease asset \n$\n-\n  \n$319,000 \n\n \n\nSee Notes to Consolidated Financial Statements\n\n \n\nF-8\n\n \n\n \n\n**AIR INDUSTRIES GROUP**\n\n**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**Note 1. ORGANIZATION AND BASIS OF PRESENTATION**\n\n \n\n**Organization**\n\n \n\nAir Industries Group is a Nevada corporation (“AIRI”). As\nof and for the years ended December 31, 2025 and 2024, the accompanying consolidated financial statements presented are those of AIRI,\nand its wholly-owned subsidiaries; Air Industries Machining Corp. (“AIM”), Nassau Tool Works, Inc. (“NTW”), and the\nSterling Engineering Corporation (“Sterling”), (together, the “Company”).\n\n \n\n**Principal Business Activity**\n\n \n\nThe Company is a leading manufacturer of precision\nassemblies and components for large aerospace and defense prime contractors. Its products include landing gears, flight controls, engine\nmounts and components for aircraft jet engines, ground turbines and other complex machines. Most of its machined components and assemblies\nare integral to high-profile platforms and named programs including the F-18 Hornet, the E2D Hawkeye, the UH-60 Black Hawk Helicopter,\nthe Geared Turbo-Fan Engine, the CH-53 Helicopter, the F-35 Lighting II (also known as the Joint Strike Fighter) and the F-15 Eagle Tactical\nFighter.\n\n \n\nThe Company’s direct customers are primarily large aerospace\nand defense prime contractors. The ultimate end-users for most of its products are the U.S. Government, international governments, and\ncommercial global airlines.\n\n \n\n**Basis of Presentation**\n\n** **\n\nThe accompanying consolidated financial statements\nof the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States\nof America and the rules and regulations of the Securities and Exchange Commission. All dollar amounts have been rounded to the nearest\nwhole number. As a result, totals may not sum precisely due to rounding.\n\n \n\n**Going Concern and Management’s Plan**\n\n** **\n\nAs of December 31, 2025, debt under the Company’s Current Credit\nFacility and Related Party Subordinated Notes approximates $28,344,000. The Current Credit Facility is scheduled to expire on September\n30, 2026, and the Related Party Subordinated Notes mature on October 1, 2026. These obligations are classified as current liabilities\non the consolidated balance sheets as of December 31, 2025. As a result of the aforementioned and rights that the Current Credit Facility\nlender could exercise, there is substantial doubt about the Company’s ability to continue as a going concern for the twelve months\nfollowing the date of filing of these consolidated financial statements. \n\n \n\nThe Company is actively engaged in constructive\ndiscussions with various lenders as the Company has been advised by its lender that it will not renew its Current Credit Facility. While\nthese discussions have been professional and remain ongoing, there can be no assurance that agreements will be reached with existing lenders\nor through alternative financing sources.\n\n \n\nTo support current operations and strategic initiatives,\nthe Company has raised capital through public market sales of its common stock since December 2024 and believes it can continue to access\nequity markets in future periods. During the year ended December 31, 2025, the Company generated gross proceeds of $4,869,000 through\nan At The Market (“ATM”) Offering, of which approximately $3,930,000 is restricted for the benefit of the Current Credit Facility\nlender. In light of ongoing negotiations with all of our lenders and the terms of the Merger Agreement with Tenax, the Company has temporarily\npaused all equity raising activity.\n\n \n\nAs of December 31, 2025, the Company was in compliance with its minimum\nFixed Coverage Charge ratio (“FCCR”) of 1.10x on a quarterly basis as well as the requirement that fixed asset acquisitions\nnot exceed $3,300,000. All other financial and business covenants under the terms its Current Credit Facility were met as of December\n31, 2025. The terms of all outstanding indebtedness are discussed further in “Note 8. Debt”.\n\n \n\nF-9\n\n \n\n \n\nThe Company is required to maintain a collection account with its lender\ninto which substantially all cash receipts are remitted. Additionally, if the Company were to be in default of its Current Credit Facility\nthe lender could choose to exercise its rights, for example, increasing the rate of interest or refusing to make loans under the revolving\nportion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of\ninterest or exercise other remedies available under the Current Credit Facility, it would adversely impact the Company’s operating\nresults. If the lender were to cease making new loans under the revolving facility or limit availability under the revolving facility,\nthe Company would lack the funds to continue operations or, possibly, expand its operations.\n\n \n\nAs a result of recent contract awards, as of December 31, 2025, the\nCompany had total unfilled contract values amounting to $270.1 million (including its $136.8 million in funded backlog plus additional\npotential funded orders against Long-Term Agreements (“LTAs”). These unfilled contract values support a positive outlook for\nfuture growth; however, extended lead times for raw material procurement and the complexity of manufacturing processes are expected to\ndelay revenue acceleration until late 2026.\n\n \n\nThe Company generally sources its raw material, principally metal casting\nor forgings, from domestic sources. As such, the Company is generally not exposed to increased prices on imports but would be subject\nto increased prices if proposed tariffs or disruptions in supply chains resulting from tariffs or other geopolitical events, cause the\ngeneral level of prices for its products to increase. One component used by the Company on a key commercial aviation program is sourced\nfrom China. The Company’s contract with its customer for the product requires the Company to absorb the first five percent (5%)\nof any cost increases with further increases absorbed by the customer.\n\n \n\nA substantial portion of the Company’s products are used in United\nStates military aviation and as such, changes in the US defense budget are more material to demand than to changes in general economic\nconditions. However, the Company does have significant exposure in commercial aviation; demand for these products may be reduced if general\neconomic conditions deteriorate reducing demand for commercial air travel.\n\n \n\nThe accompanying consolidated financial statements do not include any\nadjustments relating to the recoverability and classification of recorded assets or the classification of liabilities that might be necessary\nshould the Company be unable to continue as a going concern.\n\n** **\n\n**Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**\n\n \n\n**Principles of Consolidation**\n\n \n\nThe accompanying consolidated financial statements\ninclude accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated\nin consolidation.\n\n \n\n**Accounts Receivable**\n\n \n\nAccounts receivable are carried at the original\ninvoice amount less an estimate made for expected credit losses based on a review of all outstanding amounts on a quarterly basis. Management\ndetermines the allowance for expected credit losses primarily using historical experience as well as current conditions that affect the\ncollectability of the reported amount. Accounts receivable are written off when deemed uncollectible.  Bad debt expenses are\nrecorded in operating expenses on the consolidated statements of operations.\n\n \n\nF-10\n\n \n\n \n\n**Inventory Valuation**\n\n \n\nThe Company values inventory at the lower of cost\nor estimated net realizable value using the first-in first out method. The Company periodically evaluates inventory items not secured\nby backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for\nother impairments of value. Adjustments to inventory net realizable value are recorded in cost of sales.\n\n \n\n**Property and Equipment**\n\n \n\nProperty and equipment are carried at cost net\nof accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements\nare depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements. Expenditures\nfor repairs and improvements in excess of $10,000 that add to the productive capacity or extend the useful life of an asset are capitalized.\nUpon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected\nin earnings.\n\n  \n\n**Long-Lived Assets**\n\n \n\nLong-lived assets are reviewed for impairment\nwhenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets\nto be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be\ngenerated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which\nthe carrying amount of the assets exceeds the fair value of the assets. There were no events triggering a review for impairment during\nthe years ended December 31, 2025 and 2024. \n\n \n\n**Deferred Financing Costs**\n\n \n\nCosts incurred with obtaining and executing revolving\ndebt arrangements are capitalized and recorded in other Deferred financing costs, net, deposits, and other assets and amortized using\nthe effective interest method over the term of the related debt. Costs incurred with obtaining and executing other debt arrangements are\npresented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method\nover the term of the related debt. The amortization of financing costs is included in interest expense in the Consolidated Statements\nof Operations.\n\n** **\n\n**Contract Costs Receivable**\n\n** **\n\nContract costs receivable represent costs to be\nreimbursed from a terminated contract. Contract costs receivable totals $0 at December 31, 2025 and $296,000 at December 31, 2024. The\nCompany collected this receivable on March 18, 2025.\n\n \n\n**Risks and Uncertainties**\n\n** **\n\nThe continuing impacts of rising interest rates,\ninflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine,\nthe ongoing conflict between Israel and Hamas, and the ongoing conflict between the United States, Israel and Iran, the imposition of\ntariffs and shifts in international alliances, have resulted, and may continue to result, in a global slowdown of economic activity, which\nmay decrease demand for a broad variety of goods and services, including those provided by the Company’s clients and as a result,\nthe Company, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time.\nAdditionally, recent changes to U.S. policy implemented by the U.S. Congress, and the Executive Branch and the responses of other nations\nto such actions have impacted and may in the future impact, among other things, the U.S. and global economy, international alliances and\ntrade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. As a result\nof the current uncertainty regarding economic activity, the Company is unable to predict the size and duration of the impact on its revenue\nand its results of operations, if any, of actions taken to date and those that may occur in the future. The extent of the potential impact\nof these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including\nthe extent of geopolitical disruption and its impact on the Company’s clients, partners, industry, and employees, all of which are\nuncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of these macroeconomic factors\nand intends to take steps deemed appropriate to limit the impact on its business.\n\n \n\nF-11\n\n \n\n \n\nThere can be no assurance that precautionary measures,\nwhether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing,\nand client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity,\nor create operational or other challenges, any of which could harm its business and results of operations.\n\n** **\n\n**Segment Reporting**\n\n** **\n\nOperating segments are identified as components\nof an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or\ndecision-making group, in making decisions on how to allocate resources and assess performance. The Company operates as a single reportable\nsegment, as the Chief Operating Decision Maker (“CODM”) reviews financial performance and makes decisions on a consolidated\nbasis. (See Note 15. Segment Reporting).\n\n** **\n\n**Revenue Recognition**\n\n** **\n\nThe Company recognizes revenue to depict the transfer of promised goods\nto customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.\n\nRevenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations).\nIn evaluating our contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred.\n\n \n\nThe Company’s revenue is generated from\nfixed-price contracts. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price, which\nis estimated during the bidding process before the contract is awarded. To the extent actual costs vary from the estimates upon which\nthe price was negotiated, the Company will generate more or less profit or could incur a loss.\n\n \n\nThe Company evaluates the products promised in\neach contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The\nCompany’s contracts are typically accounted for as one performance obligation. The Company classifies net sales as products on its\nconsolidated statements of operations based on the predominant attributes of the performance obligations.\n\n \n\nThe Company determines the transaction price for\neach contract based on the consideration expected to be received for the products being provided under the contract.\n\n \n\nAt the inception of a contract, the Company estimates\nthe transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on\ncontracts until they become legally enforceable. Contracts can be subsequently modified to include changes in specifications, requirements\nor price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the\nCompany considers whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally,\nmodifications to contracts are not distinct from the existing contract due to the significant integration and interrelated tasks provided\nin the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and recognized\nas a cumulative adjustment to revenue.\n\n \n\nThe Company recognizes revenue at the point in\ntime in which the performance obligation is fully satisfied. This is satisfied when the product has shipped, which is the point in time\nthe customer obtains control of the product and the Company no longer maintains control of the product.\n\n \n\nF-12\n\n \n\n \n\nPayment terms and conditions vary by contract, although terms generally\ninclude a requirement of payment within 30 to 75 days.\n\n \n\nPayments received in advance from customers are recorded as customer\ndeposits until earned, at which time revenue is recognized. The Terms and Conditions contained in customer purchase orders often provide\nfor liquidated damages in the event that a stop work or contract termination order is issued prior to final delivery. While the products\nmanufactured are specific to the type of aircraft that they are used on, there are alternate customers that can acquire and utilize these\nproducts.\n\n \n\nWarranties are provided on certain contracts, but do not provide for services beyond standard assurances and are therefore not considered\nto be separate performance obligations. Warranties during the years ended December 31, 2025 and 2024, were not material.\n\n \n\n**Customer Deposits**\n\n** **\n\nThe Company receives advance payments on certain\ncontracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves\nthe product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s\ninvoice.\n\n** **\n\nAt December 31, 2025 and 2024, customer deposits\nwere $391,000 and $1,115,000, respectively. The Company recognized revenue of $724,000 during year ended December 31, 2025, that was included\nin the customer deposits balance as of December 31, 2024. The Company recognized revenue of $2,442,000 during the year ended December\n31, 2024, that was included in the customer deposits balance of $3,557,000 as of December 31, 2023.\n\n \n\n**Backlog**\n\n \n\nBacklog represents the value of orders received pursuant to Long-Term\nAgreements (“LTA”) or spot orders pursuant to a customer purchase order. As of December 31, 2025, backlog relating to remaining\nperformance obligations on contracts was approximately $136.8 million. The Company estimates that a substantial portion of this backlog\nwill be recognized as net sales during the next twenty-four months, with the rest thereafter. This expectation assumes that raw material\nsuppliers and outsourced processing is completed and delivered on time and that the Company’s customers will accept delivery as\nscheduled. The Company anticipates that sales during the aforementioned periods will also include sales from expected new orders that\nare not in our backlog.\n\n** **\n\n**Use of Estimates**\n\n \n\nIn preparing the financial statements, management\nis required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The\nmore significant management estimates are inventory valuation, and income tax provision. Actual results could differ from those estimates.\nChanges in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known. \n\n \n\nF-13\n\n \n\n \n\n**Credit and Concentration Risks**\n\n \n\nA large percentage of the Company’s revenues\nare derived directly from large aerospace and defense prime contractors for which the ultimate end-user is the U.S. Government, international\ngovernments or commercial airlines. \n\n \n\nThe composition of customers that exceeded 10% of net sales for the\nyears ended December 31, 2025 or 2024 are shown below:\n\n \n\n  \nPercentage of Net Sales \n\n**Customer** \n2025  \n2024 \n\nRTX (A) \n 36.2% \n 29.3%\n\nLockheed Martin \n 32.3% \n 25.1%\n\nNorthrop \n 6.7% \n 18.3%\n\n \n\n(A) RTX includes Collins Landing Systems and Collins Aerostructures\n\n \n\nThe composition of customers that exceeded 10% of accounts receivable\nat December 31, 2025 or 2024 are shown below:\n\n \n\n  \nPercentage of Net Receivables \n\n**Customer** \n2025  \n2024 \n\n  \n   \n  \n\nRTX (A) \n 39.8% \n 38.2%\n\nLockheed \n 11.9% \n 8.6%\n\nOntic \n 7.6% \n 14.6%\n\nNorthrop \n 1.3% \n 11.0%\n\n \n\n(A) RTX includes Collins Landing Systems and Collins Aerostructures\n\n \n\n**Disaggregation of Revenue**\n\n  \n\nThe following table summarizes revenue from contracts with customers\nfor the years ended December 31, 2025 and 2024:\n\n \n\nProduct \nDecember 31, 2025  \nDecember 31, 2024 \n\n  \n   \n  \n\nMilitary \n$27,921,000  \n$38,498,000 \n\nCommercial \n 20,000,000  \n 16,610,000 \n\n  \n    \n   \n\nTotal \n$47,921,000  \n$55,108,000 \n\n \n\n**Cash**\n\n \n\nFor the years ended December 31, 2025 and 2024,\nthe Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced\nany losses on these accounts.\n\n \n\nAs of December 31, 2025, and December 31, 2024 the Company reported\nrestricted cash of $3,930,000 and $0 on its consolidated balance sheets. Restricted cash represents proceeds from the Company’s\nATM offering that are pledged as security for its obligations under the Current Credit Facility.\n\n \n\nF-14\n\n \n\n \n\nThe following table reconciles cash and restricted cash reported with\nthe condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nCash \n$680,000  \n$753,000 \n\nRestricted Cash \n 3,930,000  \n \n-\n \n\nTotal cash and restricted cash \n$4,610,000  \n$753,000 \n\n \n\n**Major Suppliers**\n\n \n\nThe Company utilizes sole-source suppliers to\nsupply raw materials or other parts used in production. These suppliers are its only source for such parts and, therefore, in the event\nany of them were to go out of business or be unable or unwilling to provide parts for any reason, its business could be severely harmed.\n\n** **\n\n**Income Taxes**\n\n \n\nThe Company accounts for income taxes in accordance\nwith accounting guidance now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)\n740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences\nbetween the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the\nyears the differences are expected to reverse.\n\n \n\nThe provision for, or benefit from, income taxes\nincludes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method.\nSuch temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of\ndeferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate,\non a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation\nallowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation,\nas prescribed by ASC 740-10, includes the consideration of all available evidence, both positive and negative, regarding historical operating\nresults including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences,\nestimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies\nwhich may be employed to prevent an operating loss or tax credit carryforward from expiring unused.\n\n \n\nThe Company accounts for uncertainties in income\ntaxes under the provisions of ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s\nfinancial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition\nand measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition,\nclassification, interest and penalties, accounting in interim periods, disclosure and transition.\n\n** **\n\n**Earnings (Loss) per share**\n\n \n\nBasic earnings (loss) per share (“EPS”)\nis computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding\nfor the period.\n\n \n\nFor purposes of calculating diluted earnings (loss)\nper common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first\nday of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and\nthe number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents\npotentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.\n\n \n\nF-15\n\n \n\n \n\nThere were no adjustments to net loss applicable\nto common shareholders utilized to calculate EPS.\n\n \n\nThe following securities have been excluded from the calculation as\nthe exercise price was greater than the average market price of the common stock and because the effect of including these potential shares\nwas anti-dilutive due to the net loss incurred during that period:\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nStock Options \n 425,703  \n 417,003 \n\nRestricted Stock units \n 188,418  \n 282,628 \n\nConvertible notes payable \n 361,700  \n 405,800 \n\n  \n 975,821  \n 1,105,431 \n\n** **\n\n**Stock-Based Compensation**\n\n \n\nThe Company accounts for stock-based compensation\nin accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of\nthe ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the\nfair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model and stock grants at their closing\nreported market value. Stock compensation expense for employees amounted to $939,000 and $640,000 for the years ended December 31, 2025\nand 2024, respectively. Stock compensation expense for directors amounted to $108,000 and $157,000 for the years ended December 31, 2025\nand 2024, respectively. Stock compensation expenses for employees and directors were included in operating expenses in the accompanying\nconsolidated statements of operations.\n\n \n\n**Freight Out**\n\n \n\nFreight out is included in operating expenses\nand amounted to $52,000 and $67,000 for the years ended December 31, 2025 and 2024, respectively.\n\n \n\n**Leases**\n\n \n\nIn accordance with FASB ASC 842, “Leases”\n(“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with\nterms longer than 12 months and classifies them as either operating or finance leases. The lease classification affects the expense recognition\nin the consolidated statement of operations. Operating lease charges are recorded entirely in operating expenses. Finance lease charges\nare split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded\nin interest expense.\n\n \n\nAt the inception of an arrangement, the Company\ndetermines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of\nthe lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially\nall of the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with\na term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease\nliabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under the practical expedient.\nFor contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account\nfor the lease and non-lease components as a single lease component.\n\n \n\nLease liabilities and their corresponding ROU\nassets are recorded based on the present value of lease payments over the expected lease term. The implicit rates within the Company’s\noperating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement\ndate to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment.\nThe Company determines the incremental borrowing rate for each lease using its estimated borrowing rate, adjusted for various factors\nincluding level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes\nany lease prepayments, offset by lease incentives.\n\n \n\nF-16\n\n \n\n \n\nAn option to extend the lease is considered in\nconnection with determining the ROU asset and lease liability when it is reasonably certain the Company will exercise that option. An\noption to terminate is considered unless it is reasonably certain we will not exercise the option.\n\n \n\nAssets held under finance lease obligations are\ndepreciated over the shorter of their related lease terms or their estimated useful lives.\n\n** **\n\n**Recently Issued Accounting Pronouncements**\n\n** ** \n\nIn December 2023, the FASB issued ASU 2023-09\n“Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, related to improvements to income tax disclosures. The\namendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation\nand income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The Company adopted\nthe guidance prospectively in the fiscal year beginning January 1, 2025 and additional required disclosures have been included in Note13.\n\n \n\nIn November 2024, the FASB issued ASU 2024-03,\n“Disaggregation of Income Statement Expenses”, which requires public business entities to disclose additional information\nabout specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in ASU\n2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December\n15, 2027. Early adoption is permitted. The Company is currently assessing the impact that adoption of this new accounting guidance will\nhave on its consolidated financial statements and footnote disclosures.\n\n \n\nThe Company does not believe that any other recently\nissued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated\nfinancial statements. \n\n \n\n**Note 3. ACCOUNTS RECEIVABLE**\n\n \n\nThe components of accounts receivable at December\n31, are detailed as follows:\n\n \n\n  \nDecember 31, 2025  \nDecember 31, 2024 \n\n  \n   \n  \n\nAccounts Receivable Gross \n$7,535,000  \n$9,296,000 \n\nAllowance for Credit Losses \n (464,000) \n (396,000)\n\nAccounts Receivable Net \n$7,071,000  \n$8,900,000 \n\n \n\nThe allowance for credit losses for the years\nended December 31, 2025 and 2024 is as follows:\n\n \n\n  \n   \nCharged  \n   \n  \n\n  \nBalance at  \nto  \nDeductions  \nBalance at \n\n  \nBeginning of  \nCosts and  \nfrom  \nEnd of \n\n  \nYear  \nExpenses  \nReserves  \nYear \n\nYear ended December 31, 2025 Allowance for Credit Losses \n$396,000  \n$164,000  \n$(96,000) \n$464,000 \n\nYear ended December 31, 2024 Allowance for Credit Losses \n$344,000  \n$203,000  \n$(151,000) \n$396,000 \n\n \n\nF-17\n\n \n\n** **\n\n**Note 4. INVENTORY**\n\n \n\nThe components of inventory at December 31, consisted\nof the following:\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nRaw Materials \n$7,306,000  \n$6,318,000 \n\nWork In Progress \n 17,072,000  \n 13,028,000 \n\nSemi-Finished Goods \n 9,206,000  \n 8,805,000 \n\nFinal-Finished Goods \n 677,000  \n 660,000 \n\nTotal Inventory \n$34,261,000  \n$28,811,000 \n\n \n\n**Note 5. PROPERTY AND EQUIPMENT**\n\n \n\nThe components of property and equipment at December\n31, consisted of the following:\n\n \n\n   December 31,   December 31,    \n\n   2025   2024    \n\n            \n\nLand & Improvements  $313,000   $300,000    \n\nBuildings and Improvements   2,739,000    2,739,000   31.5 years\n\nMachinery and Equipment   26,953,000    25,592,000   5 - 8 years\n\nTools and Instruments   16,278,000    15,238,000   1.5 - 7 years\n\nAutomotive Equipment   266,000    266,000   5 years\n\nFurniture and Fixtures   309,000    309,000   5 - 8 years\n\nLeasehold Improvements   1,139,000    1,139,000   Term of lease\n\nComputers and Software   705,000    605,000   4 - 6  years\n\nTotal Property and Equipment   48,702,000    46,188,000    \n\nLess: Accumulated Depreciation   (39,201,000)   (37,379,000)   \n\nProperty and Equipment, net  $9,501,000   $8,809,000    \n\n \n\nDepreciation expense for the years ended December\n31, 2025 and 2024 was approximately $2,499,000 and $2,072,000, respectively.\n\n \n\n**Note 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES**\n\n \n\nThe components of accounts payable and accrued\nexpenses at December 31, are detailed as follows:\n\n \n\n  \nDecember 31,\n\n2025  \nDecember 31,\n\n2024 \n\n  \n   \n  \n\nAccounts Payable \n$7,100,000  \n$5,580,000 \n\nAccrued Payroll \n 428,000  \n 369,000 \n\nAccrued Bonuses \n \n-\n  \n 350,000 \n\nAccrued Expenses – other \n 375,000  \n 716,000 \n\nAccounts Payable and accrued expenses \n$7,903,000  \n$7,015,000 \n\n \n\nF-18\n\n \n\n \n\n**Note 7. SALE-LEASEBACK TRANSACTION**\n\n \n\nOn October 24, 2006, the Company consummated a\nSale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay\nShore Property”) for a purchase price of $6,200,000. The Company realized a gain on the sale of $1,051,000 of which $300,000 was\nrecognized during the year ended December 31, 2006. The remaining $751,000 is being recognized ratably over the remaining term of the\ntwenty - year lease at approximately $38,000 per year. The gain is included in Other Income in the accompanying Consolidated Statements\nof Operations. The unrecognized portion of the gain in the amount of $28,000 and $67,000 as of December 31, 2025 and 2024, respectively,\nis classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets.\n\n \n\nThe Company accounted for these transactions under\nthe provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.” \n\n  \n\nSimultaneous with the closing of the sale of the\nBay Shore Property, the Company entered into a 20-year lease (the “Lease”) expiring in September 2026 with the purchaser for\nthe property. Base annual rent is approximately $540,000 for the first five years, $560,000 for the sixth year, and thereafter increases\n3% per year. The Lease grants the Company an option to renew the Lease for an additional period of five years. The Company has on deposit\nwith the landlord $89,000 as security for the performance of its obligations under the Lease. Pursuant to the terms of the Lease, the\nCompany is required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance,\ntaxes and maintenance. The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions\nand grants the landlord customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold\nthe Company liable for any deficiency in future rent. See Note 9 – Operating Lease Liabilities.\n\n \n\n**Note 8. Debt**\n\n \n\nIndebtedness to third parties consists of the\nfollowing:\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nRevolving loan to Webster Bank (“Webster”) \n$17,618,000  \n$12,905,000 \n\nTerm loan, Webster \n 5,855,000  \n 5,225,000 \n\nCT Green Bank Loan \n 971,000  \n 970,000 \n\nFinance lease obligations \n 784,000  \n 1,007,000 \n\nLoans Payable - financed assets \n 5,000  \n 14,000 \n\nSubtotal \n 25,233,000  \n 20,121,000 \n\nLess: Current portion \n (23,721,000) \n (18,362,000)\n\nLong Term Portion \n$1,512,000  \n$1,759,000 \n\n \n\n**Current Credit Facility**\n\n \n\nThe Company has a credit facility (“Current Credit Facility”)\nwith Webster Bank that expires on September 30, 2026. This facility, which was entered into on December 31, 2019, was amended several\ntimes, and now provides for a $20,000,000 revolving loan (“Revolving Line of Credit”), and a $5,700,000 term loan (“Term\nLoan”). An additional advance under the Term Loan was made during the first quarter of 2025 in the amount of $1,640,000 and reference\nherein to the “Term Loan” for periods after the date of such advance include the $1,640,000. The loan is secured by a lien\non substantially all of the assets of the Company.\n\n \n\nAs of December 31, 2025, there is $17,618,000\noutstanding under the Revolving Line of Credit and $5,855,000 under the Term Loan.\n\n \n\nF-19\n\n \n\n \n\nAs discussed in Note 1, the Current Credit Facility\nexpires on September 30, 2026. Therefore, amounts owed under the agreement are classified as short term as of December 31, 2025.\n\n \n\nThe below table shows the timing of payments due\nunder the Term Loan:\n\n \n\nFor the year ending \nAmount \n\nDecember 31, 2026 \n$5,855,000 \n\nTerm Loan payable \n 5,855,000 \n\nLess: Current portion of Term Loan payable \n (5,855,000)\n\nTotal long-term portion of Term Loan payable \n$\n-\n \n\n \n\nInterest expense related to the Current Credit\nFacility amounted to approximately $1,361,000 and $1,304,000 for the years ended December 31, 2025 and 2024, respectively. Interest expense\nincludes the amortization of deferred finance costs of $69,000 and $68,000 in 2025 and 2024, respectively.\n\n \n\nThe below summarizes various terms of the Current\nCredit Facility:\n\n \n\n \n●\n\nThe Company was required to meet a Fixed Charge Coverage Ratio (as\ndefined) that is determined at the end of each fiscal quarter on a rolling twelve month basis of 1.05x and beginning with the fiscal quarter\nending September 30, 2025, the Company is required to meet a Fixed Coverage Charge Ratio of 1.25x. The Company achieved the required FCCR\nfor the period ended September 30, 2025, but did not meet the required FCCR for the period ended June 30, 2025, having attained a ratio\nof only 0.76x. Pursuant to the 10th Amendment to the current credit facility (detailed below), the Company was required to\nand achieved the required Fixed Coverage Charge Ratio of 1.10x for the three months ending December 31, 2025. At both December 31, 2025\nand 2024, the Company was in full compliance with its covenants.\n\n \n\nThe Current Credit Facility limits the amount of capital expenditures\nand dividends the Company can pay to its stockholders. As of December 31, 2025, the Company was in compliance with this Covenant.\n\n \n\nSubstantially all of the Company’s assets\nare pledged as collateral.\n\n \n\n  ● For so long as the Term Loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal year the Company shall pay an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan. Such payment shall be applied to the outstanding principal balance of the Term Loan, on or prior to the April 15 immediately following such fiscal year. For the fiscal year ended December 31, 2025, based on the calculation there is no Excess Cash Flow payment required.\n\n \n\n  ● Both the Revolving Line of Credit and the Term Loan will bear an interest rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. The average interest rate charged was 6.72% and 7.55% for the years ended December 31, 2025 and 2024, respectively.\n\n \n\nThe below summarizes historical amendments to\nthe Current Credit Facility \n\n \n\n  ● On May 31, 2024, the Company entered into a Seventh Amendment that\nwaived the default caused by the failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment. This amendment further\nrevised the Financial Covenants. For the six months ending June 30, 2025, EBITDA shall not be less than $740,000; for the nine months\nending September 30, 2025, EBITDA shall not be less than $1,500,000; for the twelve months ending December 31, 2025, EBITDA shall not\nbe less than $2,800,000. For the rolling twelve-month period ending March 31, 2025, the Company is required to achieve a Fixed Charge\nCoverage Ratio of 1.05x. Beginning with the rolling twelve-month period ending June 30, 2025, and going forward the required Fixed Charge\nCoverage Ratio is 1.25x. All other covenants remain unchanged. Additionally, this amendment increased the Term Loan by approximately $1,000,000\nto $5,700,000, with monthly principal installments in the amount of $68,000. In connection with these changes, the Company paid an amendment\nfee of $20,000.\n\n \n\nF-20\n\n \n\n \n\n  ●\n\nOn January 30, 2025, the Company entered into an Eighth Amendment to\nprovide for an additional Term Loan in the amount of $1,640,000 for the acquisition of additional equipment. The monthly principal installments\non this additional Term Loan are $19,524. This amendment further revised the Financial Covenants. For the rolling twelve-month period\nending March 31, 2025 and June 30, 2025, the Company is required to achieve a Fixed Charge Coverage Ratio of 1.05x. Beginning with the\nrolling twelve-month period ending September 30, 2025 and going forward, the required Fixed Charge Coverage Ratio is 1.25x. Additionally,\nthe Company is allowed to pay off up to $4,800,000 of related party notes with funds raised in the Company’s At The Market debt\noffering.  All other covenants remain unchanged. In connection with these changes, the Company paid an amendment fee of $20,000.\n\n \n\n  ●\nOn September 10, 2025, the Company entered into a Ninth Amendment where it agreed that $3,930,000 of the proceeds from its ATM Offering would be maintained in an interest bearing account. The funds in this account serve as additional security for its obligations under the Current Credit Facility. Additionally, this amendment waived the default as June 30, 2025.\n\n \n\n  ●\nOn December 15, 2025, the Company entered into a Tenth Amendment which waived the defaults caused by the failure to achieve the required fixed charge coverage ratio for the fiscal quarter ended June 30, 2025, and for exceeding the permitted amount of capital expenditures for the fiscal year ending December 31, 2025. Additionally, the maturity date of the revolving credit and term loans were extended to March 31, 2026, and amended the capital expenditure covenant. The Company paid an amendment fee of $40,000.\n\n \n\n  ●\n\nOn February 26, 2026, the Company entered into an Eleventh Amendment\nwhich extended the maturity date of the revolving credit and term loans to September 30, 2026. The Company paid an amendment fee of $25,000.\n\n \n\nCurrently, at any time, Webster Bank could choose to exercise additional\nrights, that it has as a result of the Company’s defaults under the Current Credit Facility. For example, it could increase the\nrate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the\ncollection account. If the lender were to cease making new loans under the revolving facility or limit the amount of loans under the revolving\nfacility, the Company would lack the funds to continue or, possibly, expand operations. To date, the lender has chosen not to exercise\nany of its remedies, though we agreed to put $3,930,000 of ATM proceeds in an interest bearing account to serve as additional security\nfor the Company’s obligations under the Current Credit Facility. We remain in constructive discussions with Webster Bank regarding\npotential extension of these obligations but there can be no assurance that an agreement will be reached.\n\n \n\nAll amendment fees paid in connection with the\nCurrent Credit Facility that are for a future benefit of the Company are included in Deferred Financing Costs, Net, Deposits and Other\nAssets, in the accompanying consolidated balance sheets and are amortized over the term of the loan.\n\n \n\nAs of December 31, 2025, the Company has borrowing\ncapacity of approximately $2,382,000 under the Revolving Loan.\n\n \n\nF-21\n\n \n\n \n\n**Solar Credit Facility**\n\n \n\nOn August 16, 2024, the Company entered into a\nfinancing agreement (“Solar Credit Facility”) with CT Green Bank, a quasi-public agency of the State of Connecticut, for the\ninstallation of solar energy systems including replacing the existing roof (“Project”) at its Sterling facility. The Solar\nCredit Facility provided for advances to be made by CT Green Bank upon its approval of costs incurred on the Project up to $934,000. As\nof October 1, 2025, cumulative advances totaling $934,000 had been made including the payment of CT Green Bank’s closing costs of\n$25,000. Total interest accrued on the advances at the rate of 5% was $36,000.\n\n \n\nOn October 1, 2024, the total cumulative advances\nof $934,000 along with the total accrued interest of $36,000 was converted by CT Green Bank, in accordance with the financing agreement,\nto a 20-year level payment term loan in the amount of $970,000 with interest accruing at the rate of 5.75%. Semi-annual payments in the\namount of $42,000 commenced on July 1, 2025. The first semi-annual payment was for interest only, subsequent semi-annual payments beginning\nwith the payment due on January 1, 2026 will include both principal and interest. As of December 31, 2025, the amount classified as long\nterm is $943,000 and the amount classified as current is $28,000.\n\n \n\nInterest expense related to the Solar Credit Facility\namounted to approximately $57,000 and $44,000 for the years ended December 31, 2025 and 2024, respectively.\n\n** **\n\n**Finance Lease Obligations**\n\n \n\nThe Company has entered into finance leases for the purchase of manufacturing\nequipment. The obligations for the finance leases totaled $784,000 and $1,007,000 as of December 31, 2025 and 2024, respectively. The\nleases have an average imputed interest rate of 7.43% per annum and are payable monthly with the final payments due between September\nof 2026 and May of 2030. Interest expense related to the finance leases amounted to approximately $66,000 and $73,000 for the years ended\nDecember 31, 2025 and 2024, respectively\n\n \n\n  \nYear Ended \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\nFinance Lease cost: \n   \n  \n\nAmortization of ROU assets \n$197,000  \n$176,000 \n\nInterest on lease liabilities \n 66,000  \n 73,000 \n\nTotal lease Costs \n$263,000  \n$249,000 \n\n  \n    \n   \n\nOther Information: \n    \n   \n\nCash Paid for amounts included in the measurement lease liabilities: \n    \n   \n\nFinancing cash flow from finance lease obligations \n$223,000  \n$196,000 \n\n  \n    \n   \n\nSupplemental disclosure of non-cash activity \n    \n   \n\nAcquisition of finance lease asset \n$\n-\n  \n$319,000 \n\n \n\n   December 31,   December 31, \n\n   2025   2024 \n\n         \n\nWeighted Average Remaining Lease Term - in years   4.1    4.8 \n\nWeighted Average Discount rate - %   7.43%   7.44%\n\n \n\nF-22\n\n \n\n \n\nAs of December 31, 2025, the aggregate future\nminimum finance lease payment, including imputed interest are as follows:\n\n \n\nFor the year ending \nAmount \n\nDecember 31, 2026 \n$266,000 \n\nDecember 31, 2027 \n 190,000 \n\nDecember 31, 2028 \n 190,000 \n\nDecember 31, 2029 \n 190,000 \n\nDecember 31, 2030 \n 74,000 \n\nTotal future minimum finance lease payments \n$910,000 \n\nLess: imputed interest \n (126,000)\n\nLess: Current portion \n (215,000)\n\nLong-term portion \n$569,000 \n\n \n\n**Loans Payable – Financed Assets**\n\n \n\nThe Company financed the purchase of a delivery\nvehicle in July 2020. The loan obligation totaled $5,000 and $14,000 as of December 31, 2025 and 2024, respectively. The loan bears no\ninterest and a final payment is due and payable for all unpaid principal on July 20, 2026.\n\n** **\n\nAnnual maturities of this loan are as follows:\n\n \n\nFor the year ending \nAmount \n\nDecember 31, 2026 \n 5,000 \n\nLoans Payable - financed assets \n 5,000 \n\nLess: Current portion \n (5,000)\n\nLong-term portion \n$\n-\n \n\n \n\n**Related Party Indebtedness**\n\n** **\n\nTaglich Brothers, Inc. is a corporation co-founded\nby two directors of the Company, Michael and Robert Taglich.\n\n \n\nTaglich Brothers, Inc. has acted as placement\nagent for various debt and equity financing transactions and has received cash and equity compensation for their services.\n\n \n\nFrom 2016 through 2020, the Company entered into\nvarious subordinated notes payable and convertible subordinated notes payable (together referred to as “Related Party Notes”)\nwith Michael and Robert Taglich which generated proceeds to the Company totaling $6,550,000. In connection with the issuance of the Related\nParty Notes, Michael and Robert Taglich were issued a total of 35,508 shares of common stock and Taglich Brothers, Inc. was issued promissory\nnotes totaling $554,000 for placement agency fees.\n\n \n\nUnder the Eighth Amendment to the Current Credit Facility, the Company\nwas allowed to make principal payments of up to $4,800,000 prior to June 30, 2025, with funds raised in the Company’s ATM Offering.\nThe Company paid a total of $1,291,000 of principal payments. Of the $1,291,000 paid, $1,050,000 was paid to Michael Taglich and $241,000\nwas paid to Taglich Brothers, Inc.\n\n \n\nThe Related Party Notes outstanding as of December\n31, 2025 consists of:\n\n \n\n  \nMichael\nTaglich,  \nRobert\nTaglich,  \nTaglich\nBrothers,  \n  \n\n  \nDirector  \nDirector  \nInc.  \nTotal \n\nConvertible Subordinated Notes \n$2,416,000  \n$1,905,000  \n$\n          -\n  \n$4,321,000 \n\nSubordinated Notes \n \n-\n  \n 550,000  \n \n-\n  \n 550,000 \n\nTotal \n$2,416,000  \n$2,455,000  \n$\n-\n  \n$4,871,000 \n\n \n\nF-23\n\n \n\n \n\nThe Related Party Notes outstanding as of December\n31, 2024 consist of:\n\n \n\n  \nMichael Taglich,\nDirector  \nRobert Taglich,\nDirector  \nTaglich Brothers,\nInc.  \nTotal \n\nConvertible Subordinated Notes \n$2,666,000  \n$1,905,000  \n$241,000  \n$4,812,000 \n\nSubordinated Notes \n 800,000  \n 550,000  \n \n-\n  \n 1,350,000 \n\nTotal \n$3,466,000  \n$2,455,000  \n$241,000  \n$6,162,000 \n\n \n\nOf the $4,871,000, approximately $2,519,000 bears\nan annual rate of interest of 6%, $1,802,000 bears an annual rate of 7% and $550,000 bears an annual interest rate of 12%. Interest expense\nfor the years ended December 31, 2025 and 2024 was $356,000 and $472,000, respectively.\n\n \n\nApproximately $2,519,000 of the convertible subordinated\nnotes can be converted at the option of the holder into Common Stock of the Company at $15.00 per share, while the remaining $1,802,000\nof the convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $9.30 per share.\nThe remaining $550,000 is not convertible.\n\n \n\nOn March 26, 2026, the holders of the Related\nParty Notes extended the maturity date to October 1, 2026. \n\n \n\nThe Related Party Notes are subordinate to outstanding\ndebt pursuant to the Current Credit Facility and mature on October 1, 2026. There are no principal payments due on these notes prior to\nOctober 1, 2026.\n\n \n\n**Note 9. OPERATING LEASE LIABILITIES**\n\n** **\n\nThe Company has operating leases for leased office\nand manufacturing facilities. The leases have remaining lease terms of one to five years, some of which include options to extend or terminate\nthe leases.\n\n \n\n  \nYear Ended \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\nOperating lease cost: \n$1,044,000  \n$1,286,000 \n\nTotal lease cost \n$1,044,000  \n$1,286,000 \n\n  \n    \n   \n\nOther Information \n    \n   \n\nCash paid for amounts included in the measurement lease liability: \n 1,249,000  \n 1,070,000 \n\nOperating cash flow from operating leases \n$1,249,000  \n$1,070,000 \n\n \n\n   December 31,   December 31, \n\n   2025   2024 \n\nWeighted Average Remaining Lease Term - in years   0.75    1.72 \n\nWeighted Average discount rate - %   9.50%   9.36%\n\n \n\nF-24\n\n \n\n \n\nThe aggregate undiscounted cash flows of operating\nlease payments, with remaining terms greater than one year are as follows:\n\n \n\n  \nAmount \n\nDecember 31, 2026 \n 730,000 \n\nTotal future minimum lease payments \n 730,000 \n\nLess: discount \n (28,000)\n\nTotal operating lease maturities \n 702,000 \n\nLess: current portion of operating lease liabilities \n (702,000)\n\nTotal long term portion of operating lease maturities \n$\n-\n \n\n \n\n**Note 10. STOCKHOLDERS’ EQUITY**\n\n \n\n**Common Stock – Issuances of Securities**\n\n** **\n\nThe Company issued 30,699 and 39,845 shares of\ncommon stock totaling $108,000 and $157,000 in payment of Director’s fees for the years ended December 31, 2025 and 2024, respectively.\nSuch expense is included in Operating Expenses in the consolidated statements of operations.\n\n \n\nDuring the second quarter of 2025, the Company\nissued 57,192 shares of common stock upon the vesting of Restricted Stock Units (“RSUs”) to certain employees. The balance\nof the units vested were withheld to satisfy the withholding tax required to be paid on the 95,210 Restricted Share Units which vested.\n\n \n\nThere were no issuances of common stock due to\nthe exercise of stock options for year ended December 31, 2025. The Company issued 15,229 shares, of common stock to net settle the exercise\nof stock options for the year ended December 31, 2024.\n\n \n\nDuring the first quarter of 2026, the Company\nissued 4,600 shares of common stock in payment of Director’s fees totaling $14,000.\n\n** **\n\n**Common Stock – Sale of Securities**\n\n \n\nIn connection with its’ At The Market offering, the Company sold\nand issued 1,213,593 and 116,851 shares during the years ended December 31, 2025 and 2024, respectively, pursuant to a Registration Statement\non Form S-3 declared effective on December 19, 2024. The gross proceeds for the years ended December 31, 2025 and 2024 were $4,866,000\nand $509,000, respectively. Costs associated with sales for the years ended December 31, 2025 and 2024 were $228,000 and $182,000.\n\n \n\n**Note 11. EMPLOYEE BENEFITS PLANS**\n\n \n\nThe Company employs both union and non-union employees\nand maintains several benefit plans.\n\n \n\n**Union**\n\n \n\nThe Company’s AIM subsidiary has a\ncollective bargaining agreement with the United Service Workers, IUJAT, Local 355 (the “Union”). This agreement is\neffective until December 31, 2027 and covers the majority of AIM’s 125 personnel. The Company is not required to make a\nmonthly contribution to Union’s United Welfare Fund and the United Services Worker’s Security Fund, the sole pension\nbenefit for covered employees. The Company is not obligated to provide any future defined benefits. The Company is obligated to make\ncontributions for union dues and a security fund (defined contribution plan) for the benefit of each union employee. Contributions\nto the security fund amounted to $146,000 and $145,000 for the years ended December 31, 2025 and 2024, respectively. The\nUnion’s retirement plan is a defined contribution plan. As such, the Company is not responsible for the obligations of other\ncompanies in the Union’s retirement plan.** **\n\n \n\nF-25\n\n \n\n \n\nMedical benefits for union employees are provided\nthrough a policy with Insperity Services, Inc. (“Insperity”), a professional employer organization that provides out-sourced\nhuman resource services. The cost of such benefits are substantially borne by the Company.\n\n \n\nThe collective bargaining agreement contains a\n“no-strike” clause and a “no-lock-out” clause. The Company believes it maintains good relationships with the Union.\n\n \n\n**Others**\n\n \n\nAll of the Company’s employees are covered\nunder a co-employment agreement with Insperity, a professional employer organization that provides out-sourced human resource services.\n\n \n\nThe Company has defined contribution plans under\nSection 401(k) of the Internal Revenue Code (the “Plans”). Pursuant to the Plans, qualified employees may contribute a percentage\nof their pre-tax eligible compensation to the Plan. The Company does not match any contributions that employees may make to the Plans.\n\n \n\n**Note 12. COMMITMENTS AND CONTINGENCIES**\n\n \n\nOn October 2, 2018, Contract Pharmacal Corp. (“Contract\nPharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with\nrespect to the property that was formerly occupied by the Company’s former subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York.\nIn the action, Contract Pharmacal sought damages for an amount in excess of $1,000,000 for the Company’s alleged violation of the\nterms of the subject sublease, specifically the failure to make the entire premises available by what it claims was the Sublease commencement\ndate. The validity of the action is extremely suspect in that the subject sublease had no specific commencement date and Contract Pharmacal\nultimately received all the space. Discovery was conducted and the Plaintiff moved for summary judgement and to amend its complaint to\nadd a new cause of action all of which the company opposed. On July 8, 2021, the Court denied Contract Pharmacal’s motion for summary\njudgement and to add an additional cause of action. In the Order, the Court granted Contract Pharmacal’s Motions to drop its claim\nfor specific performance and to amend its Complaint to reduce its claim for damages to $700,000 both of which benefit the Company. Following\nthe Court’s decision, Contract Pharmacal filed a Motion to reargue its original motion which the Company opposed. The Court denied\nthat motion on November 30, 2021 and then on March 10, 2022, Contract Pharmacal filed an appeal of the Court’s decision with the\nAppellate Division of the State of New York. The Company opposed that action. The Company was again successful as the Appellate Division\nupheld the lower court’s denial of Contract Pharmacal’s motion for summary judgement and its motion to amend its Complaint.\nContract Pharmacal has now submitted a motion to the Appellate Division requesting leave to reargue the court’s denial of its original\nappeal. The Company will oppose that motion. The Appellate Division has yet to act in respect to Contract Pharmacal’s most recent\nmotion to reargue the Court’s denial of the original appeal. The Company continues to dispute the validity of the claims asserted\nby Contract Pharmacal and intends to contest them vigorously\n\n \n\nFrom time to time the Company may be engaged in\nvarious lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings\nthe ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business,\nfinancial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates,\nor any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.\n\n \n\nF-26\n\n \n\n \n\n**Note 13. INCOME TAXES**\n\n \n\nFor financial reporting purposes, the net pre-tax\nbook loss for the United States and foreign entities, in the aggregate, was:\n\n \n\n  \nYear Ended  \nYear Ended \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nFederal \n$(1,436,000) \n$(1,366,000)\n\nForeign \n \n-\n  \n \n-\n \n\nTotal \n$(1,436,000) \n$(1,366,000)\n\n \n\nThe provision for (benefit from) income taxes\nfor the years ended December 31, 2025 and 2024, is set forth below:\n\n \n\n  \nYear Ended  \nYear Ended \n\n  \nDecember 31,  \nDecember 31, \n\n**Current** \n2025  \n2024 \n\nFederal \n$(131,000) \n$\n      -\n \n\nState \n \n-\n  \n \n-\n \n\nForeign \n \n-\n  \n \n-\n \n\nTotal Provision for Income Taxes \n$(131,000) \n$\n-\n \n\n \n\nThe following is a reconciliation of our effective\ntax rate on income and the statutory rate for the year ended December 31, 2025:\n\n \n\n  \nYear Ended  \n  \n\n  \nDecember 31,  \n  \n\n  \n2025  \n  \n\n  \n   \n  \n\nCurrent tax at U.S statutory rate \n$(301,000) \n 21.0%\n\nState and local taxes, net of federal taxes (a) \n \n-\n  \n 0.0%\n\n  \n    \n   \n\nChanges in Valuation Allowance \n 154,000  \n -10.7%\n\n  \n    \n   \n\nNondeductible / non taxable items \n    \n   \n\nNondeductible/ nontaxable items \n 31,000  \n -2.2%\n\nOther Adjustments \n    \n   \n\nDeferred Adjustment - Asset Write-Down Related to Transferable Credit \n 115,000  \n -8.0%\n\nTrue-up and Other \n 1,000  \n -0.1%\n\nSale of Transferable Credit \n (131,000) \n 9.1%\n\nIncome tax expense \n$(131,000) \n 9.1%\n\n \n\n(a)For the year ended December 31, 2025, state taxes in California and New York made up the majority\n(greater than 50% of the tax effect).\n\n \n\nThe rate reconciliation above has been adjusted\nto be presented in compliance with the guidance under ASU No. 2023-09. The Company has adopted this guidance on a prospective basis.\n\n \n\nF-27\n\n \n\n \n\nAs previously disclosed for the year ended December\n31, 2024, prior to the adoption of ASU No. 2023-09, the following is a reconciliation of our income tax rate computed using the federal\nstatutory rate to our actual income tax rate.\n\n \n\n  \nYear Ended \n\n  \nDecember 31, \n\n  \n2024 \n\nU.S. statutory income tax rate \n 21.00%\n\nState taxes, net of federal benefit \n 0.22%\n\nPermanent difference, overaccruals,and non-deductible items \n -0.82%\n\nChange in state rate \n -7.53%\n\nDeferred tax valuation allowance \n -13.77%\n\nTrue-up and Other \n 0.90%\n\nTotal \n 0.00%\n\n \n\nDeferred income taxes reflect the net effects of temporary differences\nbetween carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization\nof net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.\n\n \n\nThe components of net deferred tax assets at December\n31, are set forth below:\n\n \n\n  \nDecember 31,  \nDecember 31, \n\n  \n2025  \n2024 \n\nDeferred tax assets: \n   \n  \n\nCurrent: \n   \n  \n\nNet operation loss \n$4,990,000  \n$4,871,000 \n\nAllowance for doubtful accounts \n 158,000  \n 140,000 \n\nInventory - IRC 263A adjustment \n 356,000  \n 296,000 \n\nStock based compensation - options and restricted stock \n 425,000  \n 218,000 \n\nCapitalized engineering costs \n 75,000  \n 134,000 \n\nAmortization - NTW Transaction \n 107,000  \n 178,000 \n\nInventory reserve \n 470,000  \n 644,000 \n\nDeferred gain on sale of real estate \n 5,000  \n 14,000 \n\nAccrued Expenses \n 54,000  \n 113,000 \n\nDisallowed interest \n 2,480,000  \n 2,269,000 \n\nOperating lease liabilities \n 153,000  \n 339,000 \n\nCharitable Contributions \n 2,000  \n \n-\n \n\nTotal deferred tax asset before valuation allowance \n 9,275,000  \n 9,216,000 \n\nValuation allowance \n (8,306,000) \n (8,091,000)\n\nTotal deferred tax asset after valuation allowance \n 969,000  \n 1,125,000 \n\n  \n    \n   \n\nRight of Use Asset \n (112,000) \n (255,000)\n\nProperty and equipment \n (857,000) \n (870,000)\n\nTotal deferred tax liabilities \n (969,000) \n (1,125,000)\n\n  \n    \n   \n\nNet deferred tax asset \n$\n-\n  \n$\n-\n \n\n \n\nF-28\n\n \n\n \n\nOn July 4, 2025, the One Big Beautiful Bill was\nenacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components\ninclude restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property.  \nAnother major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”)\nwhich in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated\ntax deductions of R&E that was previously capitalized for larger businesses.  The legislation also reinstates EBITDA-based interest\ndeductions for tax purposes and makes several business tax incentives permanent.  Less favorable business provisions include limitations\non tax deductions for charitable contributions. In accordance with ASC 740, the Company recognized the effects of the OBBBA in the\nperiod that included the enactment date. The Company continues to evaluate the ongoing effects of the OBBBA, including the interaction\nof the enacted provisions with its existing tax attributes and elections.\n\n \n\nDuring the years ended December 31, 2025 and 2024,\nthe Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of\nnet losses, at this time sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable\nincome. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the\nvaluation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability\nis fully offset by a corresponding change in the valuation allowance. At December 31, 2025 and 2024, the Company provided a valuation\nallowance on its net deferred tax assets of $8,306,000 and $8,091,000, respectively. The Company’s valuation allowance increased\nby $215,000 and $188,000 for the years ended December 31, 2025 and 2024, respectively.\n\n \n\nAs of December 31, 2025, the Company had a Federal\nnet operating loss carry forward of approximately $22,396,000, of which approximately $14,016,000 expires from 2033 through 2037 and $8,380,000\ndoes not expire. In addition, the Company has net operating loss carryforwards from various states of approximately $4,492,000 which expire\nstarting in 2035.\n\n \n\nThe utilization of the Company’s net operating\nlosses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal\nRevenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of\nnet operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their\nutilization.\n\n \n\nDuring the year ended December 31, 2025, the Company\ngenerated Section 48 Energy Property Tax Credits related to qualifying energy property. The Company sold these credits to an unrelated\nthird party. The impact of the sale are reflected in the transferable credit line items outlined in the rate reconciliation above.\n\n \n\nAt December 31, 2025 and 2024, the Company had\nno material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that\nits unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related\nto uncertain tax positions in interest expense. As of December 31, 2025, and 2024, the Company has not recorded any provisions for accrued\ninterest and penalties related to uncertain tax positions.\n\n \n\nIn certain cases, the Company’s uncertain\ntax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and\nstate income tax returns in jurisdictions with varying statutes of limitations. The 2022 through 2025 tax years generally remain subject\nto examination by federal and state tax authorities.\n\n \n\nThere were no payments made in relation to income\ntaxes for the year ending December 31, 2025.\n\n \n\nF-29\n\n \n\n \n\n**Note 14. STOCK OPTIONS AND RESTRICTED STOCK\nUNITS**\n\n \n\n**Stock-Based Compensation**\n\n \n\n**Stock Options**\n\n \n\nIn June 2025, the shareholders of the Company\napproved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used\nunder the plan by 250,000 shares, from 650,000 shares to 900,000 shares.\n\n \n\nIn September 2024, the shareholders of the Company\napproved the amendment to the 2022 Equity Incentive Plan (“2022 Plan”) to increase the number of shares authorized to be used\nunder the plan by 300,000 shares, from 350,000 shares to 650,000 shares.\n\n  \n\nDuring the years ended December 31, 2025 and 2024,\nthe Company granted options to purchase 60,000 and 80,000 shares of common stock, respectively, to certain of its employees and directors.\n\n \n\nThe Company recorded stock-based compensation expense\nfor certain employees and members of the Company’s Board of Directors of $182,000 and $317,000 in its consolidated statements of operations\nfor the years ended December 31, 2025 and 2024, respectively, and such amounts were included as a component of operating expenses on the\nconsolidated statement of operations.\n\n \n\nThe fair values of stock options granted were\nestimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31:\n\n \n\n   2025   2024 \n\nRisk-free interest rates   3.8%   3.8%\n\nExpected life (in years)   2.6    2.7 \n\nExpected volatility   76.52%   64.00%\n\nDividend yield   0%   0%\n\n           \n\nWeighted-average grant date fair value per share  $3.00   $3.75 \n\n \n\nThe expected life is the number of years that\nthe Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture. Expected life is determined\nusing the “simplified method” permitted by Staff Accounting Bulletin No. 107. In addition to the inputs referenced above regarding\nthe option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture rates that are revised prospectively\naccording to forfeiture experience. The stock volatility factor is based on the Company’s experience.\n\n \n\nF-30\n\n \n\n \n\nA summary of the status of the Company’s\nstock options as of December 31, 2025 and 2024, and changes during the years then ended are presented below.\n\n \n\n  \n   \nWtd. Avg. \n\n  \n   \nExercise \n\n  \nOptions  \nPrice \n\nBalance, January 1, 2024 \n 461,870  \n$8.34 \n\nGranted during the period \n 80,000  \n 3.75 \n\nExercised during the period \n (15,229) \n 3.45 \n\nTerminated/Expired during the period \n (109,638) \n 9.86 \n\nBalance, December 31, 2024 \n 417,003  \n$7.00 \n\nGranted during the period \n 60,000  \n 3.00 \n\nExercised during the period \n \n-\n  \n \n-\n \n\nTerminated/Expired during the period \n (51,300) \n 10.57 \n\nBalance, December 31, 2025 \n 425,703  \n$6.01 \n\n  \n    \n   \n\nExercisable at December 31, 2025 \n 395,703  \n$6.23 \n\n \n\n**Issuance of Stock Options**\n\n \n\nIssued in 2025\n\n \n\nOn December 8, 2025, the Company granted to its\ndirectors’ stock options to purchase an aggregate of 60,000 shares of the Company’s common stock at a price of $3.00 per share.\nThe options expire on November 30, 2030 and vest over a term of six months.\n\n \n\nIssued in 2024\n\n \n\nOn August 13, 2024, the Company granted to its\ndirectors’ stock options to purchase an aggregate of 80,000 shares of the Company’s common stock at a price of $3.75 per share.\nThe options expire on August 31, 2029 and vest over a term of one year.\n\n \n\nThe following table summarizes information about\noutstanding stock options at December 31, 2025:\n\n \n\n          Wtd. Avg. \n\nRange of Exercise Price  Number\n\nOutstanding   Wtd.Avg,\nLife  Exercise\n\nPrice \n\n$3.00 - $23.80   425,703   2.5 years  $6.01 \n\n \n\nAs of December 31, 2025, there was $35,000 of\nunrecognized compensation cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average\nvesting period of 0.5 years.\n\n \n\nThe aggregate intrinsic value at December 31, 2025, based on the Company’s\nclosing stock price of $4.07 was $121,000. The aggregate intrinsic value at December 31, 2024, based on the Company’s closing stock\nprice of $3.25 was approximately $0. The aggregate intrinsic value was calculated based on the positive difference between the closing\nmarket price of the Company’s Common Stock and the exercise prices of the underlying options.\n\n \n\nThe weighted average fair value of options granted\nduring the years ended December 31, 2025 and 2024 was $3.75 and $3.46 per share, respectively. The total intrinsic value of options exercised\nduring the years ended December 31, 2025 and 2024 was $20,000 and $0. The total fair value of shares vested during the years ended December\n31, 2025 and 2024 was $100,000 and $417,000, respectively.\n\n \n\nF-31\n\n \n\n \n\n**Restricted Stock Units (“RSUs”)**\n\n \n\nDuring the year ended December 31, 2024, the Company\ngranted 285,628 RSUs to certain employees with a grant date fair value of $1,713,000. These Restricted Stock Units vest solely on the\nbasis of continued service through the vesting dates.\n\n \n\nA summary of the status of the Company’s\nRSUs as of December 31, 2025 is presented below:\n\n \n\n  \nNumber of\n\nUnits  \nWeighted\n\nAverage Grant\n\nDate Fair Value\n\nper Unit \n\nUnvested Units at January 1, 2024 \n \n-\n  \n$\n-\n \n\nGranted during the period \n 282,628  \n 6.06 \n\nVested during the period \n \n-\n  \n \n-\n \n\nTerminated/Forfeited during the period \n \n-\n  \n \n-\n \n\nUnvested Units at December 31, 2024 \n 282,628  \n$6.06 \n\nGranted during the period \n 3,000  \n 6.06 \n\nVested during the period \n (95,210) \n 6.06 \n\nTerminated/Forfeited during the period \n (2,000) \n 6.06 \n\nUnvested Units at December 31, 2025 \n 188,418  \n$6.06 \n\n  \n    \n   \n\nVested Units at December 31, 2025 \n \n-\n  \n$\n-\n \n\n \n\nDuring the first quarter of 2026, the Company\ngranted 243,172 RSUs to certain employees and directors with a grant date fair value of approximately $800,000. These RSUs vested immediately\nupon being awarded.\n\n \n\nThe Company recorded stock-based compensation\nexpense of $865,000 and $480,000 in its consolidated statements of operations for the years ended December 31, 2025 and 2024, respectively,\nand such amounts were included as a component of operating expenses on the consolidated statement of operations.\n\n \n\nThe fair value of the RSUs vested during the year ended December 31,\n2025 was $318,000. All of the RSUs vested were net settled such that the Company withheld shares with a value equivalent to the employees’\nobligation for the applicable income and other employment taxes, and remitted cash to the appropriate taxing authorities. The total shares\nwithheld were 38,018 and were valued on their vesting date as determined by the Company’s closing stock price. Total payments to\ntaxing authorities for tax obligations were $127,000.\n\n \n\nAs of December 31, 2025, there was $373,000 of\nunrecognized compensation cost related to non-vested RSUs, which is to be recognized over the remaining weighted average vesting period\nof 1.25 years.\n\n** **\n\nF-32\n\n \n\n** **\n\n**Note 15. SEGMENT INFORMATION**\n\n \n\nThe Company operates as one operating segment.\nThe Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM\nused consolidated sales, gross margin and net income (loss) to assess financial performance and allocate resources. These financial metrics\nare used by the CODM to make key operating decisions, such as the need to allocate its budget to operating expenses and invest in additional\nequipment. The segment assets are equal to the assets presented in the consolidated balance sheets.\n\n \n\nThe significant expenses that are regularly provided\nto the CODM are disclosed in the consolidated statements of operations as a part of the consolidated net income (loss). See the consolidated\nfinancial statements for all financial information regarding the Company’s operating segment.\n\n \n\nAll revenues of the Company are earned in the\nUnited States of America.\n\n \n\nThe Company’s long-lived tangible assets,\nas well as the Company’s operating lease right-of use assets recognized on the Consolidated Balance Sheets were located in the United\nStates.\n\n \n\n**Note 16. SUBSEQUENT EVENTS**\n\n \n\nOn February 17, 2026,\nthe Company filed a Current Report on Form 8-K (the “Merger 8-K”), with respect to the Agreement and Plan of Merger (the “Merger\nAgreement”) the Company and Transitory Air Sub LLC, its wholly owned subsidiary\n(“Merger Sub”), entered into on February 16, 2026, with Tenax Aerospace Acquisition, LLC, a Delaware limited liability\ncompany (“Tenax”). Upon consummation of the Merger Agreement Tenax, will become a wholly owned Subsidiary of the Company.\n\n \n\nPursuant to the Merger\nAgreement, the Company will issue shares of its common stock (the “Merger Consideration”) to the holders of the membership\ninterests of Tenax at the Closing (the “Tenax Members”). A portion of the Merger Consideration allocated in respect\nof membership interests of Tenax underlying certain Tenax warrants that remain unexercised as of the Closing, if any, will be reserved\nby the Company for future issuance upon the exercise of such warrants. The number of shares of the Company’s common stock to be\nissued to the Tenax Members will be adjusted based on a calculation of AIR Net Indebtedness (as defined in the Merger Agreement). Based\non the amount of AIR Net Indebtedness as of December 31, 2025, the calculation would result in the issuance of approximately 112.5 million\nshares of the Company’s Common Stock. Consequently, based upon the calculation of the Merger Consideration as of December 31, 2025,\nfollowing the closing of the Merger, the Tenax Members will collectively own approximately 95% of the outstanding shares of our Common\nstock.\n\n \n\nThe closing of the merger\ncontemplated by the Merger Agreement (the “Merger”) is subject to risks and uncertainties and certain specified conditions,\nincluding, among other things: (a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, (b) the\nlisting of the Merger Consideration on the NYSE American, and (c) other customary conditions for a transaction such as the Merger,\nsuch as the absence of any legal restraint prohibiting the consummation of the Merger and there not having occurred with respect to the\nCompany or Tenax’s business a material adverse event, subject to certain customary exceptions.\n\n \n\nTenax is a leading provider\nof special mission aviation solutions that combine aircraft sourcing, financing and modification with aviation services including pilots,\nmaintenance and other types of program support. 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