{"url_path":"/sec/airi/10-k/2026/item-1a","section_key":"item-1a","section_title":"Item 1A RISK FACTORS**","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":11589,"has_tables":true,"body_markdown":"** **\n\n**ITEM 1A. RISK FACTORS** \n\n \n\nThe purchase of our common\nstock involves a very high degree of risk.\n\n \n\nIn evaluating our common\nstock and our business, you should carefully consider the risks and uncertainties described below and the other information and our consolidated\nfinancial statements and related notes included herein. If any of the events described in the risks below actually occurs, our financial\ncondition or operating results may be materially and adversely affected, the price of our common stock may decline, perhaps significantly,\nand you could lose all or a part of your investment.\n\n \n\n7\n\n \n\n \n\nThe risks below can be characterized into\nfour groups:\n\n \n\n1)Risks\nrelated to our business, including risks specific to the defense and aerospace industry;\n\n \n\n2)Risks\nrelated to our indebtedness;\n\n \n\n3)Risks\nrelated to the proposed Merger with Tenax Aerospace Acquisition, LLC; and\n\n \n\n4)Risks\nrelated to our status as a public company and our common stock.\n\n \n\n**Risks Related to\nOur Business**\n\n \n\n**We have a history of net losses, have recently increased our\ndebt to support ongoing business operations, need to refinance our debt and the opinion of our auditor contains an explanatory paragraph\nas to our ability to continue as a going concern.**\n\n** **\n\nWe incurred net losses for the years ended December 31, 2025 and 2024\nof $1,305,000 and $1,366,000, respectively. During the year ended December 31, 2025, we used $1,352,000 to support our operations and\nour total indebtedness grew from $20,121,000 as of December 31, 2024, to $25,233,000 as of December 31, 2025. As of December 31, 2025,\nwe had approximately $23,473,000 of indebtedness outstanding pursuant to our Current Credit Facility that matures on September 30, 2026\nwith Webster Bank (“Current Credit Facility”) and approximately $4,871,000 of subordinated notes (“Related Party Notes”)\nthat mature on October 1, 2026, which are held by two directors Michael N. Taglich and Robert F. Taglich. We must\npay or refinance this indebtedness on or prior to its respective due dates. Further, Webster has indicated that it does not want to renew\nthe Current Credit Facility. Since it is not likely that we will be able to pay this debt, we have initiated steps to satisfy portions\nand refinance the balance. These steps included the sale of shares of our common stock pursuant to our Registration Statement that was\ndeclared effective on December 19, 2024, and the entry into a Merger Agreement with Tenax with respect to a proposed merger that would\ncause Tenax to become our wholly-owned subsidiary. Our financial statements included in this Report have been prepared on the assumption\nthat we will continue as a going concern. Because of the uncertainty regarding our ability to refinance our indebtedness our auditors\nhave included an explanatory paragraph in their opinion as to our ability to continue as a going concern. Our financial statements included\nin this Report do not include any adjustments that might result if we were not to continue as a going concern.  If we were not to\nconsummate the Merger Agreement with Tenax, refinancing our indebtedness may require us to pay higher interest rates than we currently\npay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity or new securities convertible into\nor exercisable or exchangeable for our common stock. Any failure to refinance our existing debt or obtain additional working capital when\nrequired would have a material adverse effect on our business and financial condition.\n\n** **\n\n**We may need additional\nfinancing to fund operations and to invest in new or upgraded property or equipment**.\n\n \n\nDuring fiscal 2025 we\nused $1,352,000 to fund ongoing business operations and used in excess of $3,000,000 to purchase new equipment to improve our operating\nefficiencies. As a result, the amount of our indebtedness grew from $20,121,000 as of December 31, 2024, to $25,233,000 as of December\n31, 2025. We will require additional financing to fund operations and investments in new or upgraded property or equipment in order to\nremain competitive and will need to obtain the agreement of holders of portions of our debt to incur new debt or otherwise refinance our\nexisting debt. In order to gain their consent, we may need to offer these holders increases in the rates of interest they receive or otherwise\ncompensate them through payments of cash or issuances of our equity securities. Such additional financing or refinancing may involve the\nissuance of debt, equity or securities convertible into or exercisable or exchangeable for our equity securities and may not be available\nto us on reasonable terms, if at all. If we are unable to obtain additional financing or refinance our existing debt, the trading price\nof our common stock could be adversely affected. If we are able to obtain additional financing or refinance our existing debt, the terms\nof such financing may adversely affect the interests of our existing stockholders. Any failure to fund working capital when required would\nhave a material adverse effect on our business and financial condition and may result in a decline in our stock price. Additionally, we\nmay need to consider other types of restructuring including seeking protection under U.S. bankruptcy law. Any issuances of our common\nstock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital\nstock, would have a dilutive effect on the voting and economic interest of our existing stockholders.\n\n \n\n8\n\n \n\n \n\n**A reduction in\nbudgeted or actual U.S. government spending for defense or changes in the mix of defense products could materially adversely impact our\nbusiness strategy, revenues, operating results and financial condition. **\n\n \n\nThe ultimate end-user\nfor a significant portion of our products is the U.S. Government, with significant emphasis on military aircraft. In certain instances,\nour products may be exported to allied foreign governments by the U.S. Government. Although we expect to generate sales from all of our\nkey aerospace and defense platforms and programs for many years, they are subject to significant risk. Congressional appropriation and\npresidential approval are required for funding, leaving our platforms and programs vulnerable to potential budget reductions at any point.\nFor instance, a decrease in U.S. government defense spending or a strategy shift to rocket and drone platforms instead of helicopters\nand large military aircraft platforms, could curtail demand for landing gear parts and other components we provide which would likely\nhave a materially adverse effect on our business strategy, revenues, operating results and financial condition.\n\n \n\nOur operations have historically\nbeen subject to the fluctuations in government procurement cycles and spending patterns by our customers. There can be no assurance that\nour financial condition and future results of operations will not be materially adversely impacted by volatility in defense spending or\nchanges in the mix of product favored by the U.S. Government or other nations, or the perception among our customers regarding the likelihood\nof such shifts.\n\n** **\n\n **Although\nwe have cultivated long-standing relationships with many of our customers, the aerospace and defense industry is characterized by a small\nnumber of large and well-known prime customers. A majority of our revenue is derived from sales to a limited number of customers and any\nloss, cancellation, reduction, or interruption in these relationships could harm our business.**\n\n \n\nOur products are purchased\nby a relatively small number of large aerospace and defense customers who incorporate them into larger products for ultimate end-use by\nthe U.S. Government, international governments, and commercial global airlines. A majority of our revenue is derived from sales to a limited\nnumber of customers. Consequently, we have a high degree of sales concentration among specific customers making it challenging to diversify\nour customer base. In fiscal years 2025 and 2024, four customers, two of which were part of the same corporate group, accounted for approximately\n75.2% and 73.4% of net sales, respectively.\n\n \n\nOur future success relies\nheavily on nurturing, expanding and effectively managing these relationships. Nevertheless, we cannot assure retention of these customers\nor their continuing to purchase at previous levels. The loss of any key customer, a decline or interruption in sales to them, or our inability\nto establish relationships with new customers, could significantly impact our business.\n\n \n\n**We depend on revenues\nfrom components for a few aircraft programs and platforms and the cancellation or reduction of funding of them will harm our business.**\n\n \n\nWe derive a significant\nportion of our net sales from supplying components for select aircraft programs and platforms, such as the F-18 Hornet, the E-2D Hawkeye,\nthe UH-60 Black Hawk Helicopter, Pratt & Whitney Geared Turbo-Fan Engine, the CH-53 Helicopter, the F-35 Lightning II (also known\nas the Joint Strike Fighter) and the F-15 Eagle Tactical Fighter. A decrease in demand for our products, stemming from reduced aircraft\nproduction or diminished aircraft utilization, would adversely affect our future operating results and financial condition.\n\n \n\n9\n\n \n\n \n\n**Changes in outsourcing\nstrategies and intense competition in our markets may lead to a reduction in our revenues and market share.**\n\n \n\nThe defense and aerospace\ncomponent manufacturing market is highly competitive. Competition has been increasing and is expected to intensify further. Our large\naerospace and defense prime customers, Tier One suppliers and many of our competitors have significantly greater technical, manufacturing,\nfinancial and marketing resources than we do. In the future, our defense and aerospace customers could make changes in their supply chain\nstrategies that could adversely impact us. For instance, they could decide to in-source manufacturing, stop purchasing pursuant to existing\nLTA agreements or seek other sources at any time. If they seek other suppliers, we may not be able to compete successfully against either\ncurrent or future competitors. including commercial manufacturers that wish to diversify their revenues and expand into the defense supply\nchain. Increased competition could result in reduced revenue, lower margins or loss of market share, any of which could significantly\nharm our business, our operating results and financial condition.\n\n \n\n**We may lose sales if we fail to timely\nmeet the specifications and requirements of our customers.**\n\n** **\n\nMost of our customers\nincorporate our products into larger products such as aircraft assemblies or completed aircraft. They rely upon us to deliver products\npursuant to existing LTA agreements that include detailed specifications and requirements. If a customer were to conclude that it could\nnot rely upon us for any reason, it could look to dual source a product or rely upon another party altogether. We could be informed of\na change in sourcing decisions with limited notice or not at all. Any decision by a customer to rely upon an alternate supplier for some\nor all of its needs could significantly harm our business, our operating results and our financial condition.\n\n \n\n**We may lose sales if our suppliers fail\nto meet our needs or ship raw materials to us on schedule.**\n\n \n\nWe must deliver our products\ntimely with high quality to ensure smooth operation of our customers’ production lines. In order to do so, we attempt to procure\nour raw materials, parts and components as well as subcontracted services from various sources and utilize multiple subcontractors. However,\ncertain materials, components and services are exclusively available from a sole or limited number of suppliers and we are reliant upon\nthem. Additionally, materials sourced from overseas are susceptible to supply chain disruptions stemming from global events and political\ndecisions. While we believe that, in many cases, alternative supplies, components, assemblies, or subcontractors could be secured, sourcing\nsubstitutes may necessitate the development of new suppliers or require product re-engineering and qualification, potentially leading\nto shipment delays. Any interruptions in raw material shipments or subcontracted service performance could significantly harm our business,\nour operating results and our financial condition.\n\n \n\n**We may not be able\nto improve our gross margin and a reduction in future sales levels could have a disproportionate effect on our gross profit as a percentage\nof our net sales.**\n\n \n\nOur state-of-the-art\nmanufacturing facilities currently have a large percentage of fixed factory overhead relative to our overall expenses. Consequently, our\ngross profit as a percentage of sales is highly linked with sales volume. If we do not increase our sales volume, it will be difficult\nto materially improve our gross profit margin. Although we have plans to improve operating efficiencies at our current sales levels, we\nmay not be able to do so. Further, any reduction in sales volume would likely cause us to absorb the fixed overhead costs over a smaller\nbase of sales, causing our gross profit as a percentage of sales to decline from current levels. Any reduction in our profit margin adversely\nimpacts our reported performance and would have a material adverse impact on results of operation and our financial position.\n\n** **\n\n**There are risks associated with the\nbidding processes in which we compete.**\n\n \n\nWe obtain many LTA and\nother contracts through a competitive bidding process. We must devote substantial time and resources to prepare bids and proposals which\nmay not result in contract awards to us. Even if we win contracts, there can be no assurance that the prices that we bid will be sufficient\nto allow us to generate a profit from any particular contract. On occasion, we may submit a bid for an initial contract award that will\ngenerate negative or minimal gross margin in anticipation of price increases or operational efficiencies which lead to improved gross\nmargins on subsequent orders. There are significant costs involved with producing a small number of initial units of any new product and\nit may not be possible to recoup such costs on later production runs.\n\n \n\n10\n\n \n\n \n\n**Due to fixed contract\npricing, increasing contract costs expose us to reduced profitability and the potential loss of business.**\n\n \n\nThe cost estimation process\nrequires significant judgment and expertise. Reasons for cost growth include unavailability and productivity of labor, the nature and\ncomplexity of the work to be performed, the effect of change orders, the availability of materials, the ability of subcontractors to meet\ntheir commitments, the effect of delays in performance, availability and timing of funding from the customer, natural disasters, supply\nchain disruptions and the inability to recover any claims for added services necessary to complete production. A significant change in\ncosts from those on which we based our estimates on one or more programs could have a material effect on our consolidated financial position\nor results of operations.\n\n  \n\n**The prices of raw materials we use are\nvolatile.**\n\n \n\nThe prices of raw materials\nused in our manufacturing processes are volatile. Some LTA agreements with customers allow us to increase our prices due to increases\nin the price of raw materials. However, these LTA agreements generally require that we first absorb all or a portion of the price increases\nbefore being able to pass on the increase to the customer. For some LTA agreements, we are at full risk for future price agreements. If\nthe prices of raw materials rise, we may not be able to pass along all of such increases to our customers and this could have an adverse\nimpact on our financial position and results of operations. It is possible that some of the raw materials we use might become subject\nto new or increased tariffs. Significant increases in the prices of raw materials could adversely impact our customers’ demand for\ncertain products which could lead to a reduction in our revenues and have a material adverse impact on our revenues and on our financial\nposition and results of operations.\n\n \n\n**Some of the products we produce have\nlong lead times.**\n\n \n\nSome of the products\nwe produce require months to produce and we sometimes produce products in excess of the number ordered intending to sell the excess as\nspares when orders arise. As a result, our inventory turns slowly and ties up our working capital. Our inventory represented approximately\n58.7% of our assets as of December 31, 2025. Any requirement to write down the value of our inventory due to obsolescence, excess and\nslow moving quantities or a drop in the price of materials could have a material adverse effect on our consolidated financial position\nand results of operations.\n\n \n\n**We do not own the intellectual property\nrights to products we produce.**\n\n \n\nAlthough we develop internal\nproduction processes, nearly all the parts and subassemblies we produce are built to customer specifications and the customer owns the\nintellectual property, if any, related to the product. Consequently, if a customer desires to use another manufacturer to fabricate its\npart or subassembly, it is free to do so, which could have a material adverse effect on our business, our operating results and financial\ncondition.\n\n \n\n**There are risks associated with new\nprograms.**\n\n \n\nNew programs typically\ncarry risks associated with design changes, acquisition of new production tools, funding commitments, imprecise or changing specifications,\ntiming delays and the accuracy of cost estimates associated with such programs. In addition, any new program may experience delays for\na variety of reasons after significant expenditures are made. If we were unable to perform under new programs to the customers’\nsatisfaction or if a new program in which we made a significant investment was terminated or experienced weak demand, delays or other\nproblems, then our business, financial condition and results of operations could be materially adversely affected. This could result in\nlow margin or forward loss contracts, and the risk of having to write-off costs and estimated earnings in excess of billings on uncompleted\ncontracts if it were deemed to be unrecoverable over the life of the program.\n\n \n\nTo perform on new programs,\nwe may be required to incur material up-front costs which may not have been separately negotiated and may not be recoverable. Such charges\nand the loss of up-front costs could have a material impact on our liquidity.\n\n \n\n11\n\n \n\n \n\nThe need to control our\nexpenses places a significant strain on our management and operational resources. If we are unable to control our expenses effectively,\nour business, results of operations and financial condition may be adversely affected.\n\n \n\n**There are risks\nassociated with offering new services to our customers.**\n\n** **\n\nFrom time-to-time, to\nreduce our dependence on subcontractors, increase our customers’ reliance upon us or increase our gross margins we offer new services\nto our customers, such as painting and finishing products we manufacture. There are risks associated with offering new products and services\nand even if performed timely and correctly, it is likely that our margins for these new services will be relatively low, or even negative,\nin the initial phases when volume is low. We may not be successful in achieving positive gross margins for new services or be able to\nultimately meet our customer requirements. If we are unsuccessful, it could hurt our relationship with our customers. \n\n \n\n**Attracting and retaining executive talent\nand other key personnel is an essential element of our future success.**\n\n \n\nOur future success depends\nto a significant extent upon our ability to attract executive talent, as well as the continued service of our existing executive officers\nand other key management and technical personnel. We are a relatively small company and experienced management and technical, marketing\nand support personnel in the defense and aerospace industries are in demand and competition for their talents is intense. Our failure\nto attract or retain executive, key management and technical personnel could have a material adverse effect on our business, financial\ncondition and results of operations.\n\n \n\n**We are subject\nto intense competition for the skilled machinists necessary to manufacture our products.**\n\n** **\n\nWe are subject to intense\ncompetition for the services of skilled machinists necessary to manufacture our products and those of other companies in the aerospace\nand defense industry. In recent years, the competition for skilled employees has intensified and we have experienced wage inflation. We\nhave strategically located our operations in the U.S. and many companies are expanding their domestic production. As such, there is currently\na shortage of skilled workers in the U.S. In order to increase production levels, we must hire new employees and machinists for our two\nstate-of-the art manufacturing facilities and we may not be able to do so or the costs to hire and/or train them may significantly exceed\nour budget. If the U.S. economy continues to experience inflation, our labor costs may further increase which could have a material adverse\neffect on our business, financial condition and results of operations.\n\n \n\n **We are subject\nto strict governmental regulations relating to the environment, which could result in fines and remediation expense in the event of non-compliance.**\n\n \n\nWe are required to comply\nwith extensive and frequently changing environmental regulations at the federal, state and local levels. Among other things, these regulatory\nbodies impose restrictions to control air, soil and water pollution, to protect against occupational exposure to chemicals, including\nhealth and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous substances into\nthe environment. This extensive regulatory framework imposes significant compliance burdens and risks on us. In addition, these regulations\nmay impose liability for the cost of removal or remediation of certain hazardous substances released on or in our facilities without regard\nto whether we knew of, or caused, the release of such substances.\n\n \n\nWe are also required\nto provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to\nemployees, provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances.\nOur operations require the use of chemicals and other materials for painting and cleaning that are classified under applicable laws as\nhazardous chemicals and substances. If we are found to be in violation of any of these rules, regulations or permits, we may be subject\nto fines, remediation expenses and the obligation to change our business practice, any of which could result in substantial costs that\nwould adversely impact our business operations and financial condition.\n\n \n\n12\n\n \n\n \n\n**We may be subject\nto fines and disqualification for non-compliance with Federal Aviation Administration regulations.**\n\n \n\nWe are subject to regulation\nby the FAA under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes standards and licensing requirements\nfor aircraft and aircraft components. We are subject to inspections by the FAA and may be subjected to fines and other penalties (including\norders to cease production) for noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in\nthe termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations. We\nhave never been subject to such fines or disqualification.\n\n  \n\n**Cyber security\nattacks, internal system or service failures, and any unauthorized access to our customer data will have an adverse effect on our business\nand reputation.**\n\n \n\nMost of our products\nare used by large aerospace and prime contractors who ultimately provide them to the U.S. Government, foreign governments and commercial\nairlines. As such, in most cases, we are required to maintain confidential and proprietary information on our information systems. Hackers,\nwhether they be individuals, entities or hostile enemies, may attempt to penetrate our network or those of our third-party hosting and\nstorage providers, to gain access to confidential and proprietary data. If any of this data is hacked or leaked, obtained by others or\ndestroyed without authorization, it could harm our reputation, we could be exposed to civil and criminal liability, which will materially\nimpact our financial results and financial condition. Any system or service disruptions caused by hackers or those caused by projects\nto improve our information technology capabilities, if not mitigated, could significantly disrupt our production and assembly and could\nhave an immediate material adverse effect on our business. We could also be subject to systems failures, including network, software or\nhardware failures, whether caused by us or third-party service providers, computer viruses, natural disasters or power shortages.\n\n \n\nIf hackers gain access\nto sensitive, confidential or otherwise protected information, they may attempt to force us to pay a ransom before stopping their attack.\nAny hacker penetration could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs or subject\nus to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt\nor suspend our operations or otherwise adversely affect our business. Although we utilize various procedures and controls to monitor and\nmitigate the risk of these threats and have increased recent investment to improve our cyber-security posture, there can be no assurance\nthat these procedures and controls or new investments will be sufficient. Our property and business interruption insurance may be inadequate\nto compensate us for all losses that may occur as a result of any system or operational failure or disruption which would adversely affect\nour business, results of operations and financial condition. Moreover, expenditures incurred in implementing cyber security and other\nprocedures and controls could adversely affect our results of operations and financial condition.\n\n \n\n**We are subject\nto an extensive and evolving regulatory landscape and requirements imposed by our customers to secure our communications, and any adverse\nchanges to, or our failure to comply with, any laws and regulations or requirements of our clients could adversely affect our brand, reputation,\nbusiness, operating results, and financial condition.**\n\n \n\nWe are subject to extensive\nlaws, rules and regulations directed to those who conduct business over the internet, in addition to security requirements imposed by\nour clients, including those governing privacy, data governance, data protection and cybersecurity. Many LTAs that we sign with our customers\nrequire us to comply with strict vendor clauses including replications of specific sections of the FAR. These legal and regulatory regimes,\nincluding the laws, rules, and regulations thereunder, may be modified, interpreted, and applied in an inconsistent manner. To the extent\nwe have not complied with such laws, rules, and regulations, or requirements imposed by our LTAs, we could be subject to significant fines,\nlimitations on the products and services we provide, reputational harm, and other regulatory consequences, each of which may be significant\nand could adversely affect our business, operating results, and financial condition.\n\n \n\nComplying with the requirements\nimposed by the U.S. Government and our customers with respect to privacy, data governance, data protection and cybersecurity is costly\nand requires a significant amount of attention from management.\n\n \n\n13\n\n \n\n \n\n**Any disruptive\nnational or international events, such as potential future public health crises, ongoing or new conflicts, domestic or foreign terrorist\nactivities, banking crises, the imposition of tariffs, shifts in government alliances, and responses from the U.S. Government, other nations,\nand the public to such occurrences, could significantly disrupt the operations of us or our suppliers and impede our ability to procure,\nreceive, or replenish inventory (including raw materials). These disruptions may also present challenges in communication and lead to\nsudden and unexpected shifts in product demand by our customers. Furthermore, global financial markets could experience disruptions, affecting\nour business and our ability to secure future financing, including accessing debt or equity. The occurrence of any of these events could\nresult in lost sales and otherwise adversely affect our business, operating results, and financial condition.**\n\n \n\nConflicts between nations\n(such as the ongoing Russia-Ukraine conflict or the conflict with Iran), or between nations and terrorist organizations (such as the ongoing\nconflict between terrorist groups and Israel), as well as terrorist attacks, natural disasters (such as hurricanes, fires, floods and\nearthquakes), unusually adverse weather conditions, pandemic outbreaks or a banking crisis, the imposition of tariffs, or shifts in government\nalliances, could adversely affect our operations and financial performance. If any of these events impact us or our suppliers, it could\nresult in an inability on our part to manufacture products and/or result in lost sales, materially affecting our operations and financial\nperformance.\n\n \n\nAdditionally, such events\ncould disrupt travel, making it a challenge to communicate with our customers, as evidenced during the coronavirus pandemic. Moreover,\nthey could lead to increases in fuel or other energy prices, fuel shortages, temporary labor shortages, temporary or long-term disruptions\nin delivery of products from our suppliers and disruption to our information systems, any of which could have an adverse impact on our\nbusiness, operating results and financial condition. Disruptive events could make it difficult for us to access debt and equity capital\non attractive terms, or at all, and impact our ability to service or refinance our debt, fund business activities, and repay debt on a\ntimely basis.\n\n \n\n**Russia’s\nongoing war with Ukraine, the conflict in the Middle East (including the ongoing U.S. military operations in Iran), continued tensions\nbetween the US and the European Union with China and Russia, and tension between the US and the European Union with respect to funding\nUkraine’s war effort, tariffs and other issues, may alter countries’ willingness to rely on others as the source of certain\nproducts and material.**\n\n \n\nHistorically, prime contractors\nand the entire U.S. aerospace and defense supply chain have relied upon parts, components, and raw materials from foreign suppliers including\nthose located in Russia and China. Conversely, many nations chose to rely upon U.S. manufacturers as their primary source for defense\nproducts, such as helicopters and fighter aircraft. Geo-political tensions have increased during the past several years and we expect\nthem to continue. Supply chain disruptions resulting from escalating political tensions and the economic disruption resulting from retaliatory\nmeasures between countries could result in production delays and cancellations of programs.\n\n \n\nAdditionally, any material\nchanges to the current aerospace and defense supplier structure resulting from geo-political tensions or otherwise could disrupt the markets\nfor raw materials and supplies and our ability and the ability of our suppliers to obtain raw materials, may be significantly impacted.\nWe cannot forecast with any certainty whether such disruptions, restrictions imposed by various governments in response thereto and resulting\nchanges in business practices, may materially impact our ability and the ability of our suppliers to obtain necessary raw material, our\nbusiness and our consolidated financial position, results of operations, and cash flows.\n\n \n\n14\n\n \n\n \n\n**Risks Related to Our Indebtedness**\n\n \n\n**As of December 31, 2025, we have total indebtedness of approximately\n$30.1million, large portions of which must be paid or refinanced prior to September 30, 2026. We have been advised\nby Webster Bank, our principal lender, that it will not renew our Current Credit Facility. Although Tenax has agreed in the Merger Agreement\nthat it or an affiliate, will pay or cause us to pay our indebtedness, if the Merger with Tenax is not consummated, we may not be able\nto refinance our existing loans prior to their respective maturity dates. Failure to do so would materially impact our business and our\nstock price, and we could be forced to cease or suspend our operations or become insolvent.**\n\n \n\nAs of December 31, 2025, we had approximately $23,473,000 of indebtedness\noutstanding pursuant to the Current Credit Facility with Webster Bank, as amended (“Current Credit Facility”), that matures\nSeptember 30, 2026. This indebtedness is secured by a lien on substantially all our assets. Additionally, as of December 31, 2025, we\nhad approximately $4,871,000 of Related Party Notes that mature October 1, 2026, which are held by two directors, Michael N. Taglich and\nRobert F. Taglich. In addition to approximately $784,000 of finance lease obligations, at December 31, 2025, we\nalso had $971,000 of borrowings for the solar energy systems installed at our Barkhamsted facility pursuant to a 20-year level payment\nterm loan with CT Green Bank (“Solar Facility”).\n\n \n\nIf we are unable to pay or refinance our indebtedness when due, our\noperations may be materially and adversely affected. We must pay or refinance large portions of our indebtedness prior to September 30, 2026. Since it is unlikely that we will be able to pay this debt, we have initiated steps to satisfy portions and refinance\nthe balance, including entering into a Merger Agreement with Tenax. If we were not to consummate the Merger Agreement, refinancing our\nindebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants\nor involve the issuance of debt, equity or new securities convertible into or exercisable or exchangeable for our common stock which may\nadversely affect the trading price of our common stock and the interests of our existing stockholders. Any failure to refinance our existing\ndebt or obtain additional working capital when required would have a material adverse effect on our business and financial condition and\nmay result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes\nthat are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic\ninterest of our existing stockholders.\n\n \n\nOur current or future\nleverage may adversely affect our ability to finance future operations and capital needs, may limit our ability to pursue business opportunities\nand may make our results of operations more susceptible to adverse economic conditions. Ultimately, we may not be able to successfully\nrefinance our indebtedness and if we cannot, we would become insolvent.\n\n \n\n**The weighted average\ninterest rate we paid in 2025 on borrowings outstanding on the Current Credit Facility was 6.72% and this interest rate may increase in\nthe future. Further, we agreed to pay Webster $40,000 as a condition to its agreement to extend the due date of the Current Credit Facility\nfrom December 31, 2025, to March 31, 2026, and an additional $175,000 for its agreement to extend the due date to September 30, 2026.**\n\n \n\nThe weighted average\ninterest rate paid during the year-ended December 31, 2025 and 2024, on borrowings outstanding on the Current Credit Facility was 6.72%\nand 7.66%, respectively. Under the terms of our Current Credit Facility, amounts due bear interest at a per annum rate equal to the greater\nof (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\nof the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information)\nas the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one\npercent per annum. Consequently, we may be susceptible to future rate increases if the Federal Reserve chooses to increase its target\nrate of interest. Further, Webster Bank has indicated that it will not refinance the Current Credit Facility and advised us to seek a\nnew lender. If we were not to consummate the Merger Agreement with Tenax and seek to refinance our debt, it is likely that the interest\nrate and other consideration we would have to pay would exceed the rates and amounts payable pursuant to the Current Credit Agreement.\nIn addition, in consideration for its agreement to extend the due date of the Current Credit Facility first from December 31, 2025, to\nMarch 31, 2026, and subsequently, to September 30, 2026, we agreed to pay Webster Bank fees of $40,000 and $175,000 respectively. If we\nare unable to refinance the Current Credit Facility and Webster Bank was to continue to fund us pursuant to the Current Credit Facility,\nit is likely that the rate of interest and other consideration we pay to Webster Bank would increase.\n\n \n\n15\n\n \n\n \n\n**We may not be able\nto comply with the covenants of the Current Credit Facility and our debt could be called.**\n\n \n\nAs a result of our Merger\nAgreement (see additional risks below), the Current Credit Facility has been amended to extend the Maturity Date of the loans to September\n30, 2026. Under the terms of the Current Credit Facility, we are required to maintain certain business and financial covenants. If we\nfail to maintain compliance with the covenants of the Current Credit Facility, we would have to seek a waiver from our lender, which may\nnot be given. If we fail to maintain compliance with the covenants of the Current Credit Facility and are unable to obtain a waiver, we\nmay have to pay increased interest rates or other compensation to Webster, may be required to immediately pay any outstanding debt or\nWebster could retain amounts deposited in the Collection Account and refuse to make advances under the revolving portion of the credit\nfacility. An increase in the interest rate would likely have a material adverse impact on our consolidated financial position and results\nof operations. If we were required to make immediate repayment or Webster were to refuse to make advances under the revolving portion\nof the credit facility, we may not be able to obtain financing to repay the amounts due or maintain our operations and would become insolvent.\n\n \n\n*T**he terms of our Current Credit Facility\nlimit our ability to pay dividends.***\n\n \n\nThe terms and covenants\nof our Current Credit Facility do not allow us to pay dividends. In the future, should we decide to pay dividends, we would need covenant\nchanges or a waiver under our Current Credit Facility. There can be no assurance our lender would agree to covenant changes or grant a\nwaiver. In addition, we may in the future incur additional indebtedness or otherwise become subject to agreements whose terms restrict\nour ability to pay dividends in the future.\n\n \n\n**Risks Related to\nthe Merger**\n\n** **\n\n**Consummation of\nthe Merger Agreement with Tenax is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if\nat all.**\n\n** **\n\nUnless waived by the\nparties to the Merger Agreement, and subject to applicable law, the consummation of the Merger Agreement is subject to a number of conditions\nset forth in the Merger Agreement.  \n\n \n\noStockholder approval of the proposal to increase our authorized common stock;\n\n \n\noStockholder approval of the proposal to permit action in lieu of a stockholders meeting by consent only\nif Majority Ownership (as defined in the Merger Agreement) exists;\n\n \n\noStockholder approval of the proposal, in compliance with Section 713(b) of the NYSE American Guide, authorizing\nthe issuance of the Merger Consideration to the Tenax members resulting in a “change in control;”\n\n \n\no\nThe absence of any AIR Material Adverse Effect or Tenax Material Adverse\nEffect (each as defined in the Merger Agreement);\n\n \n\noNo litigation or regulatory issue threatening to affect the Merger;\n\n \n\noThe expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act;\n\n \n\n \no\nThe listing of the shares of our common stock to be issued to the Tenax Members on the NYSE American.\n\n  \n\nIf any of the conditions\nto the obligation of Tenax to consummate the Merger is not satisfied, Tenax could elect to decline to consummate the Merger or seek to\nadjust the merger consideration to be received by the Tenax Members.\n\n** **\n\n16\n\n \n\n** **\n\n**We have incurred\nand we will continue to incur significant transaction and transition costs in connection with the Merger.**\n\n \n\nWe have incurred and\nexpect to incur significant, non-recurring costs in connection with our efforts to consummate the Merger. Certain transaction costs incurred\nin connection with the Merger Agreement will only be paid if the Merger is consummated. Nevertheless, there are significant costs, including\nlegal, accounting, consulting, and other fees, expenses and costs, and under certain conditions, breakup fees, that will be paid by the\nCompany even if the Merger is not consummated and which, in the aggregate, may have a material adverse impact on our business, operating\nresults, and financial condition.\n\n \n\n**Management has\ndevoted significant time and effort to the negotiation of the Merger Agreement, responding to due diligence requests and seeking to consummate\nthe Merger and will continue to do so until the Merger is consummated or abandoned**.\n\n \n\nOur management and other\npersonnel have devoted a substantial amount of time and resources to negotiation and execution of the Merger Agreement and will devote\nsignificant time and efforts seeking to consummate the Merger diverting time and attention from revenue generating business activities\nwhich could have an adverse impact on our business, operating results, and financial condition.\n\n \n\n**Consummation\nof the Merger requires the consent of our shareholders to certain actions prior to the Merger and***t**he Merger Agreement may\nbe amended without shareholder approval.***\n\n \n\nWhile our\nshareholders will not be asked to approve the merger agreement, approval of our shareholders is required for certain actions which\nmust be taken in order to consummate the Merger, including a proposal to increase our authorized stock, a proposal to permit action\nin lieu of a stockholders meeting by consent only if Majority Ownership (as defined in the Merger Agreement) exists and of the\nproposal, in compliance with Section 713(b) of the NYSE American Guide, authorizing the issuance of the Merger Consideration to the Tenax members\nresulting in a “change in control. ”The Merger Agreement contains provisions relating to the issuance of\nthe Company’s shares, the payment of certain obligations of the Company, including the Related Party Notes, a tender offer for\na portion of the shares of the Company currently outstanding, and the redemption on the first anniversary of the date on which the\nMerger is consummated (the “Closing Date”) of all of the shares of the Company outstanding prior to consummation of the\nMerger. The Merger Agreement may be amended by the parties thereto, without approval of the shareholders of the Company. While the\nCompany does not expect the Company’s Board of Directors to approve any amendment to the Merger Agreement prior to the Merger,\nit may be possible that the Company’s Board, in exercising its business judgment and subject to its fiduciary duties and any\nrestrictions under the Merger Agreement, chooses to approve one or more amendments to such agreement. Any such amendment may have an\nadverse effect on the trading price of the Company’s common stock or the prices at which the tender offer is to be conducted\nand to be paid upon redemption of the shares of the Company outstanding prior to consummation of the Merger or the likelihood that\nthe Merger will be consummated.\n\n** **\n\n**The Directors and\nOfficers of the Company have entered into an agreement with Tenax to vote in favor of the Merger, regardless of how the Company’s\nother shareholders vote.**\n\n \n\nThe Directors and Officers\nof the Company have agreed, among other things, to vote in favor of all proposals to be presented to our shareholders at the meeting which\nmust be held to approve certain actions which must be taken to consummate the Merger (the “Shareholders Meeting”), including\nproposals to increase the number of shares of common stock we are authorized to issue from 20 million to 200 million, authorize stockholder\naction by written consent in lieu of a shareholders meeting at any time while Majority Ownership (as defined in the proposed Charter Amendment)\nexists and in order to comply with Section 713(b) of the NYSE American Company Guide, to approve the issuance of the shares of common\nstock pursuant to the Merger Agreement to the Tenax Members resulting in a change of control. Accordingly, such proposals, which are a\ncondition to consummation of the Merger, could be approved even if the majority of the votes cast by the public shareholders are against\nit. Further, the directors and officers have agreed to vote against any Competing Proposal, as defined, and any other action, agreement\nor transaction involving the Company that is intended, or would reasonably be expected, to impede, interfere with, delay, postpone, adversely\naffect or prevent the consummation of the Merger.\n\n** **\n\n17\n\n \n\n** **\n\n**The\nexercise of the Company’s directors’ and executive officers’ discretion in agreeing to the Merger Agreement or changes\nor waivers in the terms of the Merger Agreement may be impacted by conflicts of interest.**\n\n \n\nIn the period leading\nup to the Closing of the Merger, events may occur that, pursuant to the Merger Agreement, would require the Company to agree to amend\nthe Merger Agreement, to consent to certain actions taken by Tenax, or to waive rights to which the Company is entitled to under the Merger\nAgreement. Such events could arise because of changes in the Company’s business, a request by the Company to undertake actions that\nwould otherwise be prohibited by the terms of the Merger Agreement, or the occurrence of other events that would have a material adverse\neffect on the Company’s business and which would entitle Tenax to terminate the Merger Agreement. In any of such circumstances,\nit would be at the Company’s discretion, acting through the Company’s Board, to grant its consent or waive those rights. The\nexistence of financial and personal interests of one or more of the directors in the consummation of the Merger may result in a conflict\nof interest on the part of such director(s) between what he or they may believe is best for the Company and the Company’s shareholders\nand what he or they may believe is best for himself or themselves in determining whether or not to take the requested action.\n\n \n\n**The announcement\nof the proposed Merger could disrupt our relationships with our customers, suppliers, business partners and others, as well as our operating\nresults and business generally.**\n\n \n\nWhether or not the Merger\nis ultimately consummated, as a result of uncertainty related to the proposed transaction, risks relating to the impact of the announcement\nof the Merger on our business include the following:\n\n \n\n \n●\nour employees may experience uncertainty about their future roles, which might adversely affect their performance and the Company’s ability to retain and hire key personnel and other employees; and\n\n \n\n \n●\ncustomers, suppliers, business partners and other parties with which we maintain business relationships may experience uncertainty about our future and seek alternative relationships with third parties, seek to alter their business relationships with us or fail to extend an existing relationship with us; and\n\n \n\nIf any of the aforementioned\nrisks were to materialize, they could lead to significant costs or impacts on our business which may impact us and could have an adverse\nimpact on our business, operating results, and financial condition.\n\n** **\n\n**Our issuance of shares of common stock in\nthe Merger will dilute your ownership and could adversely affect our stock price.**\n\n \n\nPursuant to the Merger Agreement, based upon our\nIndebtedness as of December 31, 2025, we will issue approximately 112.5 million shares of our common stock to the Members of Tenax and entities\nholding warrants to acquire membership interests in Tenax. As a result, the interests of current holders of our common stock will be substantially\ndiluted and they will own in the aggregate, less than 5% of the number of shares of common stock outstanding immediately after consummation\nof the Merger.\n\n** **\n\n**The number of shares\nof our common stock to be issued in the Merger is subject to adjustment and likely to increase.**\n\n \n\nThe number of shares\nof our common stock to be issued to the members of Tenax is subject to adjustment based upon our operating performance between the date\nhereof and the end of the month preceding the month in which the Merger is consummated. Specifically, the number of shares to be issued\nwill increase pursuant to the formula set forth in the Merger Agreement if our indebtedness, as defined in the Merger Agreement, increases\n(“Indebtedness”). Our Indebtedness increased during the year ended December 31, 2025, and likely will increase during the\nperiod commencing January 1, 2026, until the Merger is consummated or abandoned.\n\n** **\n\n18\n\n \n\n** **\n\n**There is currently no meaningful information\nregarding the business, operations and historical financial operating results of Tenax available to prospective purchasers of our common\nstock in the public markets.**\n\n \n\nTenax is a privately held company and is not obligated\nto and does not make information regarding its business and financial results available to the public. Although information including\nhistorical financial results of Tenax will be made available in the proxy statement (“Proxy”) to be distributed to our shareholders\nprior to the Shareholders Meeting, the historical financial results of Tenax do not reflect the financial condition, results of operations\nor cash flows it would have achieved as a public company during the periods presented or those we will achieve in the future. Our financial\ncondition and future results of operations could be materially different from amounts reflected in the historical financial statements\nof Tenax included in the Proxy. Such information as is currently publicly available regarding Tenax and as may become available, will\nbe limited and may not be sufficient for an investor to make an informed decision regarding the future prospects of our Company if the\nMerger is consummated.\n\n** **\n\n**Risks of Being a Public Company**\n\n** **\n\n**There is only a limited public market\nfor our common stock.**\n\n \n\nAlthough our common stock\nis listed on the NYSE American, there is only a limited number of our common shares available in the public float and the related market\ncapitalization of our float is relatively small. Further, the proportion of our shares in the float will represent a very minor portion\nof our outstanding shares immediately following consummation of the Merger. The trading volume for our common stock has been limited and\na more active public market for our common stock may not develop or be sustained over time. The lack of a robust market may impair a stockholder’s\nability to sell shares of our common stock. In the absence of a more active trading market, any attempt to sell our shares could result\nin a decrease in the price of our stock. Specifically, our shareholders may not be able to resell their shares of common stock at or above\nthe price paid for such shares or at all.\n\n \n\n**The ownership of\nour common stock is highly concentrated amongst related parties, and their interests may conflict with the interests of other stockholders.**\n\n \n\nTwo of our directors,\nMichael N. Taglich and Robert F. Taglich, and their affiliates own a significant portion of our outstanding shares of common stock. They\nalso held $4,871,000 of Related Party Notes as of December 31, 2025, some of which are convertible into our common stock. Although the\nRelated Party Notes are subordinate to our debt pursuant to the Current Credit Facility, we may require additional concessions from the\nholders of the Related Party Notes and Tenax if we seek to refinance the Current Credit Facility or issue new debt. These related parties\nhave significant influence over the outcome of corporate actions, including those actions requiring stockholder approval to permit the\nMerger to be consummated. The interests of these related parties may be different from the interests of other stockholders on these and\nother matters. Additionally, this concentration of ownership could also have the effect of delaying or preventing a change in our control\nor otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common\nstock.\n\n \n\n**Future sales, or the perception of future\nsales, of our common stock by us or our existing stockholders in the public market could cause the market price for our common stock to\ndecline.**\n\n \n\nThe sale of substantial amounts of shares of our\ncommon stock in the public market or the perception that such sales could occur, could negatively impact the market price of shares of\nour common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us or our shareholders\nto sell equity securities in the future at a time and at a price that we or they deem appropriate.\n\n \n\nIn connection with the Merger, our directors and\nofficers agreed that they will not, during the period beginning upon execution of the Merger Agreement and terminating on the date on\nwhich the Merger is consummated or the Merger Agreement is terminated, directly or indirectly, offer, sell, contract to sell, pledge,\ngrant any option to purchase, make any short sale, or otherwise dispose of any shares of our common stock, or any options or warrants\nto purchase any shares of our common stock, or any securities convertible into, exchangeable for, or that represent the right to receive\nshares of our common stock, or any interest in any of the foregoing.\n\n \n\n19\n\n \n\n \n\nUpon consummation of the Merger or termination\nof the Merger Agreement, shares held by our directors and officers will be eligible for resale, subject to, in the case of stockholders\nwho are our affiliates, volume, manner of sale, and other limitations under Rule 144 promulgated under the Securities Act. In addition,\nshares of our common stock issuable upon exercise or vesting of incentive awards under our incentive plans are, once issued, eligible\nfor sale in the public market, subject, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144.\nFurthermore, shares of our common stock reserved for future issuance under our Equity Incentive Plans may become available for sale in\nfuture.\n\n \n\nThe market price of our common stock could drop\nsignificantly if the holders of the shares described above sell them or are perceived by the market as intending to sell them. These factors\ncould also make it more difficult for us to raise additional funds through future offerings of shares of our common stock or other securities.\n\n** **\n\n**The market price\nof our common stock is highly volatile, which could result in substantial losses to investors.**\n\n* *\n\nThe market price of our\ncommon stock has historically been volatile and is likely to continue to be volatile. The market price of our common stock could fluctuate\nwidely due to factors relating to our operations, the terms of our Merger Agreement with Tenax, as well as those beyond our control, including\npublic perception of the business prospects of Tenax and the likelihood of consummation of the Merger with Tenax. Because our common stock\nis thinly traded, the trading price may be volatile due to factors concerning our operations, such as variations in our operating results,\nfailure to meet the covenants under the Current Credit Facility, news regarding the loss of a major customer or termination or a reduction\nin funding for a program we are on, the loss of management personnel, the outcome or perception of the potential outcome of any litigation,\npublic perception of the business prospects of Tenax and the likelihood of consummation of the Merger with Tenax, general industry conditions\nand significant industry developments. In addition, the market price of our common stock may be affected by factors unrelated to our operations,\nsuch as general economic factors, government budgeting decisions affecting our industry and developments in the financial markets and\navailability of credit.\n\n \n\n**Our operating results and financial condition\nmay fluctuate on a quarterly and annual basis.**\n\n \n\nOur operating results and financial condition\nfluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which will\nnot be within our control. Fluctuations in our operating results and financial condition may be due to a number of factors, including\nthose set forth in these Risk Factors and in our discussion of our results of operations. Due to the risks discussed in these Risk factors\nand elsewhere this Report, you should not rely on quarter-over-quarter and year-over-year comparisons of our operating results as\nan indicator of our future performance.\n\n** **\n\n**Disruptive national\nand international events and the response of the United States, other countries and the public to such events, and the resulting macroeconomic\ndisruption to the financial markets could lead to increased volume and price volatility for publicly traded securities which could adversely\nimpact the price of our common stock.**\n\n** **\n\nDisruptive national and\ninternational events, such as the outbreak of a public health crisis, conflicts between nations or between nations and terrorist organizations,\nterrorists acts, natural disasters, a banking crisis, the imposition of tariffs, shifts in international alliances, the possibility of\ndefault by the U.S. Government on its obligations due to its debt ceiling or the actuality of such an event, and the response of the U.S.\nGovernment, other countries and the public to such events, and the resulting macroeconomic disruption to the financial markets could lead\nto increased volume and price volatility for publicly traded securities which could adversely impact the price of our common stock.\n\n** **\n\n**We are a “smaller reporting company”\nand the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.**\n\n \n\nWe are a “smaller reporting company.”\nAs a smaller reporting company, we may follow reduced disclosure requirements and do not have to make all of the disclosures that are\nmade by public companies that are not smaller reporting companies. For so long as we remain a smaller reporting company, we are permitted\nand intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies. We cannot predict\nwhether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less\nattractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.\n\n** **\n\n20\n\n \n\n** **\n\n**We can provide no assurance that our\ncommon stock will continue to be listed on the NYSE American. If we fail to meet the continued listing standards of the NYSE American,\nour common stock could be delisted. The delisting of our common stock could impair your ability to purchase shares of our common stock\nor sell your common stock when you wish to do so which could have a negative effect on the price of our common stock.**\n\n \n\nIf we fail to satisfy\nthe continued listing requirements of the NYSE American, it may take steps to delist our common stock. There are measures that can be\ntaken to remain in compliance with certain of the listing requirements of NYSE American which often require the undertaking of a reverse\nstock split, selling common stock at prices below what the Board of Directors may believe is its true value or completing a merger to\nacquire a new business. There are other exchanges and trading platforms on which we could choose to list our common stock. Our Board periodically\nexamines the costs and benefits of listing our common stock on the NYSE American with the costs and benefits that would result from an\nalternative trading platform.  If our Board were to choose to seek another platform for the trading of our common stock, this could\nentail suspending our obligation to file periodic reports with the SEC and using other means to make information publicly available to\nshareholders and potential buyers of our common stock.  There can be no assurance that any cost savings and other benefits we might\nachieve from trading on another platform would outweigh any negative impact to the trading market and price of our common stock that would\nresult from delisting from the NYSE American.\n\n \n\nIf the NYSE delists the\nCompany’s securities from trading on its exchange and the Company is not able to list its securities on another national securities\nexchange, the Company’s securities could be quoted on an over-the-counter market. If this were to occur, the Company could face\nsignificant material adverse consequences, including:\n\n \n\n \n●\na limited availability of market quotations for its securities;\n\n \n\n \n●\nreduced liquidity for its securities;\n\n \n\n \n●\na determination that the Company’s common stock is a “penny stock” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities;\n\n \n\n●\na decreased ability to issue additional securities or obtain additional financing in the future.\n\n \n\n**The NYSE American may require us to meet\nthe requirements for an initial listing if we consummate the Merger with Tenax**\n\n \n\nIf we consummate the Merger with Tenax the NYSE\nAmerican may require us to meet the requirements for an initial listing. The NYSE American has announced it intends to amend its initial\nlisting rules to require, among other criteria, a per share price of at least $4.00 per share and a market capitalization of at least\n$15,000,000. If we are unable to satisfy such requirements, it may take steps to delist our common stock. There are measures that can\nbe taken to comply with certain of the listing requirements of NYSE American, such as effecting a reverse stock split or selling shares\nof our common stock.  We cannot assure you that the Company will be able to meet those initial listing requirements after the Merger.\n\n** **\n\n**If we fail to meet\nthe expectations of securities analysts or investors, our stock price could decline significantly.**\n\n \n\nOur quarterly and annual\noperating results fluctuate significantly due to a variety of factors, some of which are outside our control. Accordingly, we believe\nperiod-to-period comparisons should not be relied upon as indications of future performance. Some of the factors that could cause quarterly\nor annual operating results to fluctuate include conditions inherent in government contracting and our business such as the timing of\ncost and expense recognition for contracts, the U.S. Government contracting and budget cycles, introduction of new government regulations\nand standards, contract closeouts, variations in manufacturing efficiencies, our ability to obtain components and subassemblies from contract\nmanufacturers and suppliers, general economic conditions and economic conditions specific to the defense market and disruptions caused\nby global events. Because we base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed\nin the short term, any delay in generating or recognizing forecasted revenues could significantly harm our business.\n\n \n\n21\n\n \n\n \n\nFluctuations in quarterly\nresults may cause earnings to fall below the expectations of securities analysts and investors. In this event, the trading price of our\ncommon stock could significantly decline. These fluctuations, as well as general economic and market conditions, may adversely affect\nthe future market price of our common stock, as well as our overall operating results. Consequently, our share price may experience significant\nvolatility and may not necessarily reflect the value of our expected performance.\n\n \n\n**If securities or industry analysts publish\ninaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.**\n\n \n\nThe trading market for our common stock depends,\nin part, on the research and reports that third-party securities analysts publish about us and the industries in which we operate. Currently,\nthere is limited analyst coverage of our Company. We may be unable or slow to attract research coverage and if one or more analysts cease\ncoverage of us, the price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover\nus change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors,\nthe price of our common stock would likely decline. If any analyst that may cover us ceases covering us or fails to regularly publish\nreports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to\ndecline. Moreover, if one or more of the analysts who cover us downgrades our common stock, or if our reporting results do not meet their\nexpectations, the market price of our common stock could decline.\n\n** **\n\n**Future financings or acquisitions may\nadversely affect the market price of our common stock.**\n\n \n\nFuture sales or issuances\nof our common stock, including upon conversion of our outstanding convertible notes, upon exercise of our outstanding warrants and options,\nor as part of the Merger and other future financings or acquisitions, would be substantially dilutive to the outstanding shares of common\nstock. Any dilution or potential dilution may cause our stockholders to sell their shares, which would contribute to a downward movement\nin the price of common stock.\n\n \n\nIssuing additional shares of our capital stock,\nother equity securities, or securities convertible into equity may dilute the economic and voting rights of our existing stockholders,\nreduce the market price of our common stock, or both. Debt securities convertible into equity could be subject to adjustments in the conversion\nratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred stock, if issued,\ncould have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our\nability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market\nconditions and other factors beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. As\na result, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute\ntheir percentage ownership.\n\n \n\n**We incur significant\ncosts as a result of operating as a public company, and our management is required to devote substantial effort to compliance requirements,\nincluding establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are\nunable to comply with these requirements. Costs to comply may increase in the future. The requirements of being a public company affect\nour ability to attract and retain qualified board members.**\n\n \n\nWe are and after completion of the Merger intend\nto continue to be, subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and any rules promulgated thereunder,\nas well as the rules of NYSE American. The requirements of these rules and regulations increase our legal and financial compliance\ncosts, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Sarbanes-Oxley\nAct requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting.\nIn order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to\nmeet this standard, significant resources and management oversight are required, and, as a result, management’s attention may be\ndiverted from other business concerns. These rules and regulations can also make it more difficult for us to attract and retain qualified\nindependent members of our board of directors. Additionally, these rules and regulations make it more difficult and more expensive\nfor us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher\ncosts to obtain coverage. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy\nthese requirements can have a material adverse effect on our operations, business, financial condition, or results of operations.\n\n \n\n22\n\n \n\n \n\nThe Sarbanes-Oxley Act,\namong other things, requires that we maintain effective internal controls for financial reporting and disclosure controls and procedures.\nIn particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management\nto report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.\nCompliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. Our testing\nmay reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. In the event we identify\nsignificant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price\nof our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject\nto sanctions or investigations by the SEC or other applicable regulatory authorities.\n\n \n\n**If we are unable\nto effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial\nresults and our stock price could be adversely affected.**\n\n \n\nOur management determined that as of December\n31, 2025, our disclosure controls and procedures and internal control over financial reporting were not effective due to a material weakness\nregarding appropriate segregation of duties with respect to and validation of data produced by certain modules of our financial IT systems.\nWe first determined this weakness in fiscal 2022 and have not been able to address these weaknesses without incurring significant costs\nand/or process changes. Although improved controls have been implemented during fiscal 2023, 2024, and 2025, we will need to enhance and\nfurther formalize these controls during fiscal 2026. We expect to conclude our testing of effectiveness in fiscal 2026 but we may find\nthat the remediations implemented were not effective and have to incur additional costs to adopt new controls. A significant increase\nin costs in 2026 or any failure to maintain our controls or operation of these controls, could harm our operations, decrease the reliability\nof our financial reporting, and cause us to fail to meet our financial reporting obligations, which could adversely affect our business\nand reduce our stock price.\n\n** **\n\n**We do not expect to pay any cash dividends for the foreseeable\nfuture.**\n\n \n\nWe currently intend to retain all available funds\nand any future earnings to fund the development and growth of our business. As a result, we do not anticipate declaring or paying any\ncash dividends on our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at\nthe discretion of our board of directors and will depend on, among other things, our business prospects, results of operations, financial\ncondition, cash requirements and availability, certain restrictions related to our indebtedness, industry trends, and other factors that\nour board of directors may deem relevant. In addition, we may incur additional indebtedness, the terms of which may further restrict or\nprevent us from paying dividends on our common stock. As a result, you may have to sell some or all of your common stock after price appreciation\nin order to generate cash flow from your investment, which you may not be able to do. Our inability or decision not to pay dividends,\nparticularly when others in our industry have elected to do so, could also adversely affect the market price of our common stock.** **\n\n** **\n\n23"}