AIRI 10-K & 10-Q changes, risk factors and insider trading

The risks below can be characterized into three four groups:

We may need additional financing to fund investments operations and to invest in new or upgraded property or equipment.

During fiscal 2025 we used $1,352,000 to fund ongoing business operations and used in excess of $3,000,000 to purchase new equipment to improve our operating efficiencies. 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 31, 2025. We maywill require additional financing to fund operations and investments in new or upgraded property or equipment,equipment in order to remain competitive.competitive Ifand we do, we may alsowill need to obtain the agreement of holders of portions of our debt to extendincur new debt or otherwise refinance suchour existing debt. In order to gain their consent, we may need to offer these holders increases in the rates of interest they receive or otherwise compensate them through payments of cash or issuances of our equity securities. Such additional financing or refinancing may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities and may not be available to us on reasonable terms, if at all. If we are unable to consummate suchobtain additional financing or re-financing,refinance our existing debt, the trading price of our common stock could be adversely affected,affected. andIf we are able to obtain additional financing or refinance our existing debt, the terms of such financing may adversely affect the interests of our existing stockholders. Any failure to fund working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Additionally, we may need to consider other types of restructuring including seeking protection under U.S. bankruptcy law. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

The ultimate end-user for mosta significant portion of our products is the U.S. Government, with significant emphasis on military aircraft. In certain instances, our products may be exported to allied foreign governments by the U.S. Government. Although we expect to generate net sales from all of our key aerospace and defense platforms and programs for many years, they are subject to significant risk. Congressional appropriation and presidential approval are required for funding, leaving our platforms and programs vulnerable to potential budget reductions at any point. For instance, a decrease in U.S. government defense spending or a strategy shift to rocket and drone platforms instead of helicopters and large military aircraft platforms, could curtail demand for our landing gear parts and other components we provide which would likely have a materially adverse effect on our business strategy, revenues, operating results and financial condition.

Although we have cultivated long-standing relationships with many of our customers, the aerospace and defense industry is characterized by a smaller small number of large and well-known prime customers. WeA dependmajority onof revenuesour revenue is derived from thesesales relationshipsto a limited number of customers and any loss, cancellation, reduction, or interruption in these relationships could harm our business.

Our products are purchased by a relatively small number of large aerospace and defense customers who incorporate them into larger products for ultimate end-use by the U.S. Government, international governments, and commercial global airlines. A majority of our revenue is derived from sales to a limited number of customers. Consequently, we have a high degree of sales concentration among specific customers making it challenging to diversify our customer base. In fiscal years 20242025 and 2023,2024, four customers, two of which were part of the same corporate group, accounted for approximately 75.2% and 73.4% and 64.2% of net sales, respectively.

Our future success relies heavily on nurturing nurturing, expanding and effectively managing these relationships. Nevertheless, we cannot assure retention of these customers or their continuing to purchasingpurchase at previous levels. The loss of any key customers,customer, a decline or interruption in sales to them, or our inability to establish relationships with new customers, could significantly impact our business.

The defense and aerospace component manufacturing market is highly competitive. Competition has been increasing and is expected to intensify further. Our large aerospace and defense prime customers, Tier One suppliers and many of our competitors have significantly greater technical, manufacturing, financial and marketing resources than we do. In the future, our defense and aerospace customers could make changes in their supply chain strategies that could adversely impact us. For instance, they could decide to in-source manufacturing, stop purchasing pursuant to existing LTA agreements or seek other sources at any time. If they seek other suppliers, we may not be able to compete successfully against either current or future competitors (competitors. including commercial manufacturers that wish to diversify their revenues and expand into the defense supply chain). chain. Increased competition could result in reduced revenue, lower margins or loss of market share, any of which could significantly harm our business, our operating results and financial condition.

We may lose sales if our suppliers fail to meet our needs or ship raw materials to us on timely.schedule.

We must deliver our products timely with high quality to ensure smooth operation of our customercustomers’ production lines. In order to do so, we attempt to procure our raw materials, parts and components as well as subcontracted services from various sources and utilize multiple subcontractors. However, certain materials, components and services are exclusively available from a sole or limited number of suppliers and we are reliant upon them. Additionally, material materials sourced from overseas are susceptible to supply chain disruptions stemming from global events and political decisions. While we believe that, in many cases, alternative supplies, components, assemblies, or subcontractors could be secured, sourcing substitutes substitutes may necessitate the development of new suppliers or require product re-engineering and qualification, potentially leading to shipment delays. Any interruptions in raw material shipments or subcontracted service performance could significantly harm our business, our operating results and our financial condition.

We obtain many LTA and other contracts through a competitive bidding process. We must devote substantial time and resources to prepare bids and proposals and which may not haveresult contracts awardedin contract awards to us. Even if we win contracts, there can be no assurance that the prices that we bid will be sufficient to allow us to generate a profit from any particular contract. On occasion, we may submit a bid for an initial contract award that will generate negative or minimal gross margin in anticipation of price increases or operational efficiencies which lead to improved gross margins on subsequent orders. There are significant costs involved with producing a small number of initial units of any new product and it may not be possible to recoup such costs on later production runs.

The cost estimation process requires significant judgment and expertise. Reasons for cost growth include unavailability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the ability of subcontractors to meet their commitments, the effect of delays in performance, availability and timing of funding from the customer, natural disasters, supply chain disruptions and the inability to recover any claims for added services necessary to complete production. A significant change in costs from those on which we based our estimates on one or more programs could have a material effect on our consolidated financial position or results of operations.

The prices of raw materials used in our manufacturing processes are volatile. Some LTA agreementagreements with customers allow us to increase our prices due to increases in the price of raw materials. However, these LTA agreements generally require that we first absorb all or a portion of the price increases before being able to pass on the increase to the customer. For some LTA agreements, we are at full risk for future price agreements. If the 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 impact on our financial position and results of operations. It is possible that some of the raw materials we use might become subject to new or increased tariffs. Significant increases in the prices of raw materials could adversely impact our customers’ demand for certain products which could lead to a reduction in our revenues and have a material adverse impact on our revenues and on our financial position and results of operations.

Some of the products we produce require months to produce and we sometimes produce products in excess of the number ordered intending to sell the excess as spares when orders arise. As a result, our inventory turns slowly and ties up our working capital. Our inventory represented approximately 56% 58.7% of our assets as of December 31, 2024.2025. Any requirement to write down the value of our inventory due to obsolescence, excess and slow moving,moving quantities or a drop in the price of materials could have a material adverse effect on our consolidated financial position and results of operations.

Although we develop our internal production processes, nearly all the parts and subassemblies we produce are built to customer specifications and the customer owns the intellectual property, if any, related to the product. Consequently, if a customer desires to use another manufacturer to fabricate its part or subassembly, it would beis free to do so, which could have a material adverse effect on our business, our operating results and financial condition.

From time-to-time in ordertime-to-time, to reduce our dependence on subcontractors, increase our customers’ reliance upon us or increase our gross margins we offer new services to our customers, such as painting and finishing products we already manufacture for them.manufacture. There are risks associated with offering new servicesproducts and services and even if performed timely and correctly, it is likely that our margins for these new services will be relatively low, or even negative, in the initial phases when volume is low. We may not be successful in achieving positive gross margins for new services or be able to ultimately ultimately meet our customer requirements. If we are unsuccessful, it could hurt our relationship with our customers.

Our future success depends to a significant extent upon our ability to attract executive talent, as well as the continued service of our existing executive officers and other key management and technical personnel. We are a relatively small company and experienced management and technical, marketing and support personnel in the defense and aerospace industries are in demand and competition for their talents is intense. Our failure to attract or retain executive, key management and technical personnel,personnel could have a material adverse effect on our business, financial condition and results of operations.

We are subject to intense competition for the services of skilled machinists necessary to manufacture our products and those of other companies in the aerospace and defense industry. In recent years, the competition for skilled employees has intensified and we have experienced wage inflation. We have strategically located our operations in the U.S. and many companies are expanding their domestic production. As such, there is currently a shortage of skilled workers in the U.S. In order to maintain and increase production levels, we must hire new employees and machinists for our two state-of-the state-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 our budget. If the U.S. economy continues to experience inflation, our labor costs may further increase which could have a material adverse effect effect on our business, financial condition and results of operations.

Most of our products are used by large aerospace and prime contractors who ultimately provide them to the U.S. Government, foreign governments and commercial airlines. As such, in most cases, we are required to maintain confidential and proprietary information on our information systems. Hackers, whether they be individuals, entities or hostile enemies, may attempt to penetrate our network or those of our third-party hosting and storage providers, to gain access to confidential and proprietary data. If any of this data is hacked or leaked, obtained by others or destroyed without authorization, it could harm our reputation, we could be exposed to civil and criminal liability, which will materially impact our financial results and financial condition. Any system or service disruptions caused by hackers or even those caused by projects to improve our information technology capabilities, if not mitigated, could significantly disrupt our production and assembly and could have an immediate material adverse effect on our business. We could also be subject to systems failures, including network, software or hardware failures, whether caused by us or third-party service providers, computer viruses, natural disasters or power shortages.

We are subject to an extensive and highly-evolving evolving regulatory landscape,landscape and requirements imposed by our customers to secure our communications, and any adverse changes to, or our failure to comply with, any laws and regulations or requirements of our clients could adversely affect our brand, reputation, business, operating results, and financial condition.

We are subject to extensive laws, rules and regulations directed to those who conduct business over the internet, in addition to security requirements imposed by our clients, including those governing privacy, data governance, data protection and cybersecurity. Many LTAs that we sign with our customers also require us to comply with strict vendor clauses including replications of specific sections of the FAR. These legal and regulatory regimes, including the laws, rules, and regulations thereunder, may be modified, interpreted, and applied in an inconsistent manner. To the extent we have not complied with such laws, rules, and regulations, or requirements imposed by our LTAs, we could be subject to significant fines, limitations on the products and services we provide, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect our business, operating results, and financial condition.

Complying with the requirements imposed by the U.S. Government and our customers with respect to privacy, data governance, data protection and cybersecurity is costly and requires a significant amount of attention formfrom management.

Conflicts between nations (such as the ongoing Russia-Ukraine conflict or the conflict with Iran), or between nations and terrorist organizations (such as the ongoing conflict between terrorist groups and Israel), as well as terrorist attacks, natural disasters (such as hurricanes, fires, floods and earthquakes), unusually adverse weather conditions, pandemic outbreaks or a banking crisis, the imposition of tariffs, or shifts in government alliances, could adversely affect our operations and financial performance. If any of these events affectimpact us or our suppliers, it could result in an inability on our part to manufacture products and/or result in lost sales, materially affecting our operations and financial performance.

Russia’s ongoing war with Ukraine, the conflict in the Middle East,East (including the ongoing U.S. military operations in Iran), continued tensions between the US and the European Union with China and Russia, and tension between the US and the European Union with respect to funding Ukraine’s war effort, tariffs and other issues, may alter countries’ willingness to rely on others as the source of certain products and material.

Historically, prime contractors and the entire U.S. aerospace and defense supply chain have relied upon parts, components, and raw materials from foreign suppliers including those located in Russia and China. Conversely, many nations chose to rely upon U.S. manufacturers as their primary source for defense products, such as helicopters and fighter aircraft. Geo-political tensions have increased during the past several years and we expect them to continue. Supply chain disruptions resulting from escalating political tensions and the economic disruption resulting from retaliatory measures measures between any countries could result in production delays and cancellations of programs.

As of December 31, 2024,2025, we have total indebtedness of approximately $26,283,000, $30.1million, large portions of which must be redeemedpaid or refinanced prior to DecemberSeptember 30, 2025 and July 1, 2026. We have been advised by Webster Bank, our principal lender, that it will not renew our Current Credit Facility. Although Tenax has agreed in the Merger Agreement that 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 to achieve favorable financing terms in the future or consummate any refinancing ofrefinance our existing loans prior to their respective maturity dates. Failure to do so would materially impact our business and our stock price.price, and we could be forced to cease or suspend our operations or become insolvent.

If we are unable to pay or refinance our indebtedness when due, our operations may be materially and adversely affected. We must pay or refinance large portions of thisour indebtedness prior to DecemberSeptember 30, 2025, and July 1, 2026. Since it is unlikely that we will be able to pay this debt, we have initiated steps to satisfy portions and refinance the balance, including entering into a Merger Agreement with Tenax. If we were not to consummate the balance.Merger RefinancingAgreement, refinancing our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock which may adversely affect the trading price of our common stock and the interests of our existing stockholders. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

The weighted average interest rate we paid in 20242025 on borrowings outstanding on the Current Credit Facility was 7.66%6.72% and this interest rate may increase in the future. Further, we agreed to pay Webster $40,000 as a condition to its agreement to extend the future.due date of the Current Credit Facility from December 31, 2025, to March 31, 2026, and an additional $175,000 for its agreement to extend the due date to September 30, 2026.

The weighted average interest rate paid during the year-ended December 31, 20242025 and 2024, on borrowings outstanding on the Current Credit Facility was 7.66%6.72% and as7.66%, compared to 7.55% for the year-ended December 31, 2023, the increase reflects the increase in the target rates set by the Federal Reserve.respectively. Under the terms of our Current Credit Facility, amounts due bear interest at a per annum 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. Consequently, we may be susceptible to future increased ratesrate increases if the Federal Reserve chooses to increase its target rate of interest. Further, Webster Bank has indicated that it will not refinance the Current Credit Facility and advised us to seek a new lender. If we were not to consummate the Merger Agreement with Tenax and seek to refinance our debt, it is likely that the interest rate and other consideration we would have to pay would exceed the rates and amounts payable pursuant to the Current Credit Agreement. In addition, in consideration for its agreement to extend the due date of the Current Credit Facility first from December 31, 2025, to March 31, 2026, and subsequently, to September 30, 2026, we agreed to pay Webster Bank fees of $40,000 and $175,000 respectively. If we are unable to refinance the Current Credit Facility and Webster Bank was to continue to fund us pursuant to the Current Credit Facility, it is likely that the rate of interest.interest and other consideration we pay to Webster Bank would increase.

WeThe currently do not pay dividends and the terms of our Current Credit Facility limit our ability to pay dividends.

We currently do not pay dividends and have no foreseeable plans to do so. Additionally, theThe terms and covenants of our Current Credit Facility do not currently allow us to.to pay dividends. In the future future, should we decide to pay dividends, we would need to seek covenant changes or a waiver under our Current Credit Facility. There can be no assurance our lenderslender would agree to covenant changes or grant a waiver. In addition, we may in the future incur additional indebtedness or otherwise become subject to agreements whose terms restrict our ability to pay dividends in the future.

For the past several years, despite facing significant financial and operational challenges, we have strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster our competitive position. Additionally, we expanded our sales and marketing efforts, with a sharp focus on expanding relationships with existing customers and cultivating new ones. Fiscal 2024 marked a year of overall progress and positioning for growth. Looking forward to fiscal 2025,2026, our business strategy is geared towards achieving sustainable and profitable business growth. Wewe are firmly focused on securing new contract awards, improving operations and successful execution.completion of the Merger Agreement (as discussed elsewhere in this filing).

WithAs of December 31, 2025, we have total unfilled contract values amounting to $271.3$270.1 million (including our $117.9$136.8 million in backlog and all potential orders against LTA agreements previously awarded to us), as of December 31, 2024, we are confident in our ability to boost sales in 2025, attain profitability and improve our financial position..

Net Sales: Net sales in 20242025 were $47,921,000, $55,108,000,a an increasedecrease of $3,592,000$7,187,000 or 7.0%, 13.0%, compared with $51,516,000$55,108,000 that we achieved in 2023.2024. The year-over-year increasedecrease in net sales was primarily drivendue byto the impact of the Company’s enhanced salestiming and marketing initiatives which contributed to higher shipment volumes against our expanding backlog. Additionally, there have beenoverall changes in customerthe mix andof productionproducts requirements for other key platformsrequested and programs.delivered in response to customer orders.

(A) RTX includes Collins Landing Systems and Collins Aerostructures The composition of our net sales by platform or program profiles for the years ended December 31, 20242025 and 20232024 are shown below:

Gross Profit: Gross profit for the year ended December 31, 2024,2025, amounted to $8,932,000,$8,187,000, ana increasedecrease from the $7,428,000$8,932,000 achieved in 2023.2024. Our gross profit percentage in fiscal 20242025 increased to 16.2%17.1% from the 14.4%16.2% we achieved in 2023.2024. This improvement can be attributed to ourchanges increase in sales, changes in sales across our major platforms, shifts in product mix, and overallcost operatingreductions efficiencies.implemented during the period.

Operating Expenses: In fiscal 2024,2025, operating expenses totaled $8,473,000,$8,525,000, higheran thanincrease theof $7,723,000$52,000, from $8,473,000 recorded in 2023.2024. As a percentage of consolidated net sales, operating operating expenses rose to 15.4%,17.8%, compared to the 15.0% achieved15.4% in fiscal 2023.2024. The dollar increase in both dollars and percentage was due primarily drivento stock compensation expense by higher professional fees and costs associated with the improvement of our information technology systemexpenses andoffset hardeningby ourlower cyber-security protection.personnel costs. We continue to look for ways to reduce our costs and improve our operating performance and financial results.expenses.

Interest Expense: Interest expense (which includes amortization of deferred financing costs) was $1,893,000$1,841,000 in fiscal 2024,2025, a decrease of $27,000$52,000 or 1.4%2.8% from $1,920,000$1,893,000 in 2023.2024. The decrease is primarily attributable to lower levels of subordinated debt during a portion of the year and a decrease in the average amount outstanding under our Current Credit Facility. The average interest rate on debt outstanding pursuant to our Current Credit Facility increasedwhich decreased to 7.66%6.72% in 20242025 as compared to 7.55% 7.66% in 2023.2024.

Under the terms of the Current Credit Facility, as amended, we are required to achieve prescribed levels of EBITDA (as defined in the Current Credit Facility) at the end of each Fiscal Quarter on a rolling basis, for the Fiscal Quarters ending September 30, 2024 and December 31, 2024. Beginning with the Fiscal Quarter ending March 31, 2025 we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. ForWe theare twelve months cumulative period ending December 31, 2024, we achieved an EBITDA of $3,640,000 as compared to thealso required $2,800,000.to meet other business and financial covenants.

The Current Credit Facility expires on DecemberSeptember 30, 2025.2026. In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are remitted. If we were to default under the Current Credit Facility, our lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact our operating results. If the lender were to cease making new loans under the revolving facility, we would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, combined with the reasonable possibility that the we might fail to meet covenants in the future, raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report.

In addition to required Term Loan payments ofwe approximately $1,011,000 in fiscal 2025, we may have to make additional payments.payments under the Current Credit Facility. For so long as the Term Loan under the Current Credit Facility Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan. Such Such payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such such fiscal year. For the fiscal year ended December 31, 2024,2025, based on the calculation there is a $43,500no Excess Cash Flow payment required.

Our material cash requirements are for debt service, capital expenditures and funding working capital. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility andvisibility, strength of our backlog, and availability under our Current Credit Facility, we believe that we have sufficient liquidity to meet our day-to-day cash requirements for our operations. However, we must pay or refinance large portions of our indebtedness prior to DecemberSeptember 30, 2025,2026, and JulyOctober 1, 2026. Further, as a condition to refinancing our Current Credit Facility prior to December 31,September 2025,30, 2026, our lender or a new lender may require that the holders of our Related Party Notes extend or otherwise modify the subordination agreements they have given in favor of the lender. Since it is not likely that we will be able to pay this debt, we have initiated steps to satisfy portions and refinance the balance. These steps included entering an At The Market Offering Agreement dated December 13, 2024, with Craig-Hallum Capital Group LLC pursuant to which, as of March 31, 2025, we have sold 326,791 shares of our common stock for gross proceeds of $1,412,000 of which $1,291,000 has been used to satisfy portions of the Related Party Notes.

WeIf expectwe do not close the contemplated Merger, it is unlikely we will be able to engagepay inexisting discussionsdebt duringand 2025will withneed to refinance our lender under the Current Credit Facility and relatedRelated partyParty noteNotes. We have engaged in discussions with Webster Bank and the holders of our Related Party Notes to explore potential extensions or refinancingrefinancings of our obligations. Webster Bank has advised us that it will not extend our Current Credit Facility. Refinancing our indebtedness with other parties may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock. Any failure failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business business and financial condition.

Cash (Used in) Provided By Operating Activities

For the year ended December 31, 2024, we generated cash flows from operations of $324,000 as compared to $4,862,000 for fiscal 2023. The decrease in cash flows was primarily due to the use of a portion, $2,442,000, of customer deposits which had been advanced prior to 2024 for the procurement of long lead time raw materials expected to be utilized in 2024.

WeDuring continue2025 we continued to make significant investments to enhance enhance our competitiveness and market position. Cash used in investing activities of $2,285,000$3,122,000 and $2,112,000,$2,285,000, in 20242025 and 2023,2024, respectively, was for new property and equipment.

We continue to make strategic investments in capital equipment to enhance our competitiveness. The investments in 20242025 and 20232024 increased production efficiency and speed, while maintaining closer tolerances. They also expanded the size of products we can manufacture. WeAny expect to invest approximately $1,600,000investment in 20252026 for newwill orbe upgradedat equipment.a much lower level.

Cash Provided by (UsedFinancing In) Financing Activities

For the year ended December 31, 2024,2025, cash provided by financing activities was $2,368,000.$8,331,000. During fiscal 2024,2025, we increased borrowings under our Current Credit Facility by $2,238,000$5,343,000 (consisting of a net increase in Revolving Loan borrowings of $2,101,000$4,713,000 and a net increase of $137,000$630,000 against the Term Loan). andWe receivedalso advancessold an aggregate of $533,0001,213,593 againstshares of common stock to the Solarpublic Facility.for net proceeds of $4,638,000. We used cash by paying $1,291,000 of the Related Party Notes. We also made payments of $196,000$223,000 pursuant to financing lease obligations and $9,000$8,000 on a loan payable.

For the year ended December 31, 2023,2024, cash usedprovided inby financing activities was $2,685,000.$2,368,000. During fiscal 2023,2024, we reducedincreased borrowings under our Current Credit Facility by $2,921,000$2,238,000 (consisting of a net reductionincrease in Revolving Loan borrowings of $2,548,000$2,101,000 and a net decreaseincrease of $373,000$137,000 against the Term Loan). and received advances of $8,000 against the Solar Facility. We also sold an aggregate of 116,851 shares of common stock to the public for net proceeds of $327,000. Additionally, we made payments of $123,000$196,000 pursuant to financing lease obligations and $9,000 on a loan payable. During fiscal 2023, we also took advances of $393,000 against the Solar Facility including origination fees of $25,000.

Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements in this Report include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include, inventory valuation and income tax provision. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

Investors are encouraged to consider the risks described in our Registration Statement on Form S-4 filed with the SEC on July 22, 2026, our 2025 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.

The following discussion of our financial condition condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Form 10-Q and with the audited consolidated financial statements and the notes thereto included included in our Annual Report on Form 10-K, for the year ended December 31, 2025 (the “2025 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this report and our 2025 Form 10-K and the Registration Statement on Form S-4 filed with the SEC on July 22, 2026, that could cause actual results to differ materially from those anticipated in these forward-looking statements. Further, although we believe we will not face a material increase in the price of raw materials due to tariffs that may be imposed, ongoing geopolitical conflicts could adversely impact our ability to manufacture our products, the markets for some of our products, and our ability to access debt or equity financing.

Our products include landing gear, flight controls, engine mounts and components for aircraft jet engines and ground turbines and other complex machines. The ultimate end-user for most of our products is the U.S. government, internationalforeign governments, and commercial global airlines. Whether it is a small individual component for assembly by others or complete assemblies we manufacture ourselves, our high quality and extremely reliable products are used in mission critical operations that are essential for safety of military personnel and civilians.

Although our net sales are concentrated amongst a number of defense and aerospace prime contractors, we have cultivated long-standing relationships with a number of their subsidiaries and/or business units. Additionally, our net sales are generated across several high-profile platforms and programs including: the F-18 Hornet, the E-2 Hawkeye, the UH-60 Black Hawk Helicopters, Geared Turbo-Fan (“GTF”) Engines (used on smaller aircraft such as the Airbus A220 and Embraer E2), the CH-53 Helicopter, the F-35 LightingLightning II and the F-15 Eagle Tactical Fighter. In many cases, we are the sole or single supplier of certain parts and components and receive LTAs from our customers, both demonstrating their commitment to us.

Winning a new contract award is highly competitive. Our ability to win new contract awards generally requires us to deliver superior quality products, more quickly and with lower pricing than our competitors. Accordingly, we must continually invest in process improvements and capital equipment. Recent investments in new equipment have improved the productive capacity of our employees, increased our efficiency and speed, and expanded the size of products we can manufacture. We strategically operate two state-of-the-art manufacturing centers in the U.S. This allows for rigorous oversight of production and the adherence to stringent quality standards. Although there is currently a shortage of skilled workers, we maintain a highly trained and close- knitclose-knit team of over 160150 professionals committed to driving excellence and precision in every aspect of our operations.

As of March 31,June 30, 2026, we have total unfilled contract values amounting to $269.2$279.0 million (including our $134.7$139.7 million in backlog and all potential orders against LTA agreements previously awarded to us).

Pursuant to the A&R Merger Agreement, the number of shares of common stock we will issue has been fixed at 126,900,000 shares of(25,380,000 shares ourafter commongiving stockeffect to a 1 for 5 Reverse Stock Split described herein) (the “Merger Consideration”) tofor the holdersTenax ofMembers in connection with the membership interests of Tenax (the “Tenax Members”) at the closing of the merger.Merger. A portion of the Merger Consideration allocated in respect of membership interests of Tenax underlying certain Tenax warrants that remain unexercised as of the closing, if any, will be reserved by us for future issuance upon the exercise of such warrants. The numberA&R ofMerger sharesAgreement offurther ourprovides common stock to be issued tothat the Tenax MembersDebt will be adjusted based on a calculation ofAdjusted AIR NetShare IndebtednessPrice (as defined in the A&R Merger Agreement) Agreementshall be $3.05 ($15.25 after giving effect to a 1 for 5 Reverse Stock Split described herein). Based on the amount of Air Net Indebtedness as of March 31, 2026, the calculation would result in the issuance of approximately 122.6 million shares of AIR common stock. Consequently, based upon the calculationEach of the Merger Consideration and asthe Debt Adjusted AIR Share Price is subject to appropriate and equitable adjustment in the event of Marchany 31,subdivision, 2026,stock followingdividend or thestock closingsplit, ofcombination, the Merger,recapitalization, theexchange Tenaxor Members will collectively own approximately 96% of the outstanding sharesreclassification of our common stock.stock prior to the closing, including the 1 for 5 Reverse Stock Split described herein.

The closing of the merger Merger pursuant to the A&R Merger Agreement is subject to risks and uncertainties and certain specified conditions, including, among other things: (a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, (b) the listing of the Merger Consideration on the NYSE American, and (c) other customary conditions for a transaction such as the Merger, such as the absence of any legal restraint prohibiting the consummation of the Merger and there not having occurred with respect to AIRthe Company or Tenax’s business a material adverse event, subject to certain customary exceptions.

Except where specifically noted, the discussion of our business, operations, management team and financial results contained herein,herein gives no effect to changes that would occur as a result of or subsequent to the consummation of the Merger.

Net Sales: Net sales for the three months ended MarchJune 31,30, 2026 were $11,606,000,$11,995,000, a decrease of $529,000,$664,000, or 4.4%,5.2%, compared with $12,135,000 $12,659,000 that we achieved in the three months ended MarchJune 31,30, 2025. The period-over-period decrease in net sales was primarily due to overall changes in the mix of products requested bydelivered customers,in whichresponse areto discussedcustomer further below.orders.

The composition of customers that exceeded 10% of our net sales for the three months ended MarchJune 31,30, 2026 and 2025 are shown below:

The composition of our net sales by platform or program profiles for the three months ended MarchJune 31,30, 2026 and 2025 are shown below:

Gross Profit: Gross profit for the three months ended March 31, 2026, was $2,602,000 as compared to $2,034,000 for the three months ended MarchJune 31,30, 2026, was $2,483,000 as compared to $2,028,000 for the three months ended June 30, 2025. Our gross profit percentage for the three months ended MarchJune 31,30, 2026 increased to 22.4%20.7% from the 16.8%16.0% for the three months ended MarchJune 31,30, 2025. The increase in margin canwas be attributableattributed to changes in the sales across our major platforms, shifts in product mix, and overall operating efficiencies. During the second half of 2025, we implemented several cost reductions that benefited our gross profit during the three months ended MarchJune 31,30, 2026 that were not in place during the three months ended MarchJune 31,30, 2025.

Operating Expenses: Operating expenses were $3,167,000,$2,849,000, for the three months ended March 31,June 30, 2026, an increase of $387,000,$829,000, from $2,780,000$2,020,000 for the three months ended March 31,June 30, 2025. As a percentage of consolidated net sales, operating expenses increased to 27.3%,23.8%, compared to the 22.9%16.0% achieved during the three months ended MarchJune 31,30, 2025. The dollar increase was primarily driven by increasesprofessional inexpenses stock-basedassociated compensationwith costsour andpending professional feesmerger, as well as costs associated with the continued improvement of our information technology system and hardening our cyber-security defenses, offset by decreases in stock-based compensation costs. defenses.The professional expenses related to the merger were approximately $1,195,000. We continue to look for ways to reduce our costs and improve our operating performance and financial results.

Interest Expense: Interest expense (which includes amortization of deferred financing costs) was $494,000$500,000 during the three months ended MarchJune 31,30, 2026, an increase of $50,000 $54,000 or 11.2%12.1% from $444,000 $446,000 during the three months ended MarchJune 31,30, 2025. The increase is primarily attributable to the higher loanborrowing balanceslevels during a portion of the underperiod ourpartially Currentoffset Creditby Facility.a Thedecrease in the average interest rate on outstanding debt pursuant to our Current Credit Facility which decreased decreased to 6.10% in 2026 as compared to 6.85% in 2025.

Net Loss: Net loss for the three months ended MarchJune 31,30, 2026 was $1,020,000,$846,000, compared to a net loss of $988,000$422,000 for the three months ended MarchJune 31,30, 2025, for the reasons discussed above.

As of March 31,June 30, 2026, we have debt service requirements related to:

Under the terms of the Current Credit Facility, as amended, we are required to meet a prescribed Fixed Charge Coverage Ratio (“FCCR”) (as defined) that is determined at the end of each fiscal quarter.quarter on a rolling twelve-month basis. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation depreciation and amortization. As of MarchJune 31,30, 2026, the Company is required to meet a FCCRFixed Charge Coverage Ratio on a rolling twelve-month basis of 1.10x. As of MarchJune 31,30, 2026, we were not in compliance with this ratio having only attained a ratio of 0.93x.1.36x. WeAdditionally, we are in compliance with all other required business and financial covenants.covenants in the Current Credit Facility.

The Current Credit Facility and Related Party SubordinatedNotes are due on September 30 and October 1, 2026, respectively and are classified as current liabilities on the condensed consolidated balance sheet as of March 31,June 30, 2026. As a result of the due dates of this debt, there is substantial doubt about our ability to continue as a going concern for the twelve twelve months following the date of filing of these consolidated financial statements. In addition, we are in default under our Current Credit Facility due to our failure to meet the FCCR required for the period ended March 31, 2026.Moreover, Webster Bank has advised us that it willdoes not not want to renew our Current Credit Facility. In addition to discussions with our lenders, as discussed in our Current Report on Form 8-K filed on February 17, 2026, and Registration Statement on Form S-4 filed on July 22, 2026, we enteredare intoseeking ato merge with Tenax pursuant to the terms of the A&R Merger AgreementAgreement, as amended by the Amendment. It is likely that we will not complete the Merger with Tenax.Tenax prior to September 30, 2026. However, we are currently engaged in discussions with Webster Bank as well as the holders of the Related Party Notes as to the terms and conditions on which they will extend the maturity dates of their debt to the Outside Date of November 30, 2026, as defined in the Amendment to the A&R Merger Agreement.

ThePursuant to the Current Credit Facility expires on September 30, 2026. In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are remitted. As we are in to default under the Current Credit Facility,Should our lender couldchoose choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest,account, it would adversely impact our operating results. If the lender were to cease making new loans under the revolving facility, we would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, combined with the reasonable possibility that we might fail to meet covenants in the future, raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report. To date, the lender has chosen not to exercise any of its remedies, though we have agreed to place $3,930,000 of ATM proceeds in an interest bearing account with the lender to serve as additional security for the Company’sour obligations under the Current Credit Facility and agreed to pay $150,000 for its agreement to Facility.extend the maturity date to September 30, 2026. It is likely that the lender under our Current Credit Facility and the holders of our Related Party Notes will require additional fees for their respective agreement to extend the maturity date of the Current Credit Facility and the Related Party Notes beyond September 30, 2026.

To support current operations and strategic initiatives, beginning beginning in December 2024 we raised capital through public market sales of our common stock and believe we can continue to access equity markets markets in future periods, though there is no assurance as to our ability to do so or as to the price and terms under which we could issue equity equity securities. During the year ended December 31, 2025, the Companywe sold 1,213,593 shares of common stock in the public market and generated gross proceeds of $4,869,000, of which approximately $3,930,000 is restricted for the benefit of the Current Credit Facility lender. Since initiating the sales in December 2024, we have sold a total of 1,330,444 shares for gross proceeds of $5,375,000. In light of ongoing negotiations with our lenders and in accordance with the A & R Merger Agreement with Tenax, we have temporarily paused all equity raising activity.

The following is a brief discussion of the recent amendments to the Current Credit Facility (all of which have been included as exhibits to reports filed with the SEC):

If we are unable to close the merger with Tenax contemplated by the A & R Merger Agreement or obtain a new lender to replace the Current Credit Facility we may not be able to meet our financial obligations. As of MarchJune 31,30, 2026, we have borrowing capacity of approximately $787,000$1,317,000 under the Revolving Loan.

Our material cash requirements are for debt service, funding working capital and capital expenditures. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility, strength of our backlog, and availability under our Current Credit Facility, we believe that we have sufficient liquidity to meet our day-to-day cash requirements for our operations. However, we must pay or refinance large portions of our indebtedness prior to September 30, 2026.2026 and, even if the lender under our Current Credit Facility were to agree to additional extensions, the extensions are likely to be short term and require the payment of significant fees. Further, as a condition to any extension which might be agreed to by our current lender or a refinancing of our Current Credit FacilityFacility, priorour tocurrent Septemberlender 30, 2026,or a new lender may require that the holders of our Related Party Notes extend or otherwise modify the subordination agreements they have given in favor of our current lender and the holders of the lender.Related Party Notes may seek consideration for agreeing to do so.

If we do not close the contemplated Merger, it is unlikely we will be able to pay existing debt and will need to refinance our Current Credit Facility and Related Party Notes. We have engaged in discussions with Webster Bank and the holders of our Related Party Notes to explore potential extensions or refinancings of our obligations. Webster Bank has advised us that it will not extend our Current Credit Facility.Facility indefinitely and required us to make significant payments in consideration of its agreement to extend the Current Credit Facility to September 30, 2026. Refinancing our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock.stock to our lenders or to third parties to reduce the amount of our debt. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

Cash FlowsFlow

The following table summarizes our net cash flows flow from operating, investing and financing activities for the periods indicated below (in thousands):

Cash (Used in) Provided by Operating Activities

For the three six months ended MarchJune 31,30, 2026, we used $1,298,000generated in$225,000 of cash flows from operations as compared to a cash flow provided of $1,525,000$1,870,000 for the threesix months ended June March 31,30, 2025. The decrease was due primarily to the increase in our net loss, increases in inventory and accounts receivable and a decreasedecreases in accounts payable partially offset by an increase in customer deposits.

For the three six months ended MarchJune 31,30, 2025, we generated $1,525,000$1,870,000 from operations which was mainly attributable to a decrease in accounts receivable and an increase in non-cash expenses partially offset by the net loss and thean collectionincrease ofin contract costs receivable.inventory.

During the ourfirst mosthalf recentof quarter,2026, we continued to make investments to enhance our competitiveness and market position. Cash used in investing activities of $425,000$485,000 and $1,217,000,$2,113,000, during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively, was for new propertymachinery and equipment.

For the three six months ended MarchJune 31,30, 2026, cash provided by financing activities was $1,329,000.$274,000. During this period, we increased borrowings under our Current Credit Facility by $1,403,000 $541,000 (consisting of a net increase in Revolving Loan borrowings of $1,665,000$1,065,000 and a net decrease of $262,000 $524,000 against the Term Loan). Additionally, we made payments of $59,000$118,000 pursuant to financing lease obligations, $13,000$14,000 on our Solar Credit FacilityFacility, and $2,000$4,000 on a loan payable.payable and $131,000 for taxes related to the net share settlement of equity awards.

We did not have any off-balance sheet arrangements as of MarchJune 31,30, 2026.

A critical accounting estimate is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgements,judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include,include inventory valuation, useful lives and impairment of long-lived assets, income tax provision, and allowance for credit losses. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.