# Air Industries Group: Form 10-Q for the period ended Mar 31, 2024

- Company: [Air Industries Group](/companies/airi.md) (CIK 1009891)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 16:01 ET
- Period: 2024-03-31
- Accession: 0001213900-24-043567
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1009891/000121390024043567/ea0205845-10q_airindust.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1009891/000121390024043567/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $14.1m | us-gaap:Revenues |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $1.9m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$259.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $344.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$706.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 3,314,420 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$232.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $111.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $225.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $38.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $50.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $26.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $35.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $1.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $16.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $14.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,197 characters.

*The following discussion of our financial 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 in our Annual Report on Form 10-K, for the year ended December 31, 2023 (the “2023 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 2023 Form 10-K that could cause actual results to differ materially from those anticipated in these forward-looking statements.*

### Business Overview

We believe we are one of the leading manufacturers of precision components and assemblies for large aerospace and defense contractors. Our rich history dates to 1941, producing parts for World War II fighter aircraft. Since then, we have maintained an impeccable record with no known incidents of part failure leading to a fatal mission. We became a public company in 2005.

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, foreign 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 Engines (used on smaller aircraft such as the Airbus A220 and Embraer E2), the CH-53 Helicopter, the F-35 Lighting 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 knit team of over 180 professionals committed to driving excellence and precision in every aspect of our operations.

Our period-to-period net sales and operating results are significantly impacted by timing. In addition, our gross profit is affected by a variety of factors, including the mix and complexity of products, production efficiencies, price competition and general business operating environments. In some cases, our gross profit is impacted by our ability to deliver replacement parts on short notice. Our operations have a large percentage of fixed factory overhead. As a result, our profit margins are highly variable with sales volumes.

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 2023 marked a year of overall progress and positioning for growth. During the first quarter of 2024 and looking forward, our business strategy is geared towards achieving sustainable and profitable business growth. We are firmly focused on securing new contract awards, improving operations and successful execution. We are also working with our existing lender to obtain adjusted or new financing that better meets our operational requirements and strategic goals.

With total unfilled contract values amounting to $179.1 million (including our $99.3 million in backlog and all potential orders against LTA agreements previously awarded to us), as of March 31, 2024, we are confident in our ability to boost sales during the remainder of 2024, attain profitability and improve our financial position.

### RESULTS OF OPERATIONS

### Selected Financial Information:

|  | Three Months Ending March 31, 2024 | 2024 Percentage of Net Sales | Three Months Ending March 31, 2023 | 2023 Percentage of Net Sales | Change 2024 vs 2023 | Percent Change 2024 vs 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $14,061,000 | 100.0% | $12,549,000 | 100.0% | $1,512,000 | 12.05% |
| Cost of sales | 12,155,000 | 86.4% | 10,669,000 | 85.0% | 1,486,000 | 13.93% |
| Gross profit | 1,906,000 | 13.6% | 1,880,000 | 15.0% | 26,000 | 1.38% |
| Operating expenses | 2,165,000 | 15.4% | 2,038,000 | 16.2% | 127,000 | 6.23% |
| Interest expense | 462,000 | 3.3% | 476,000 | 3.8% | (14,000) | -2.94% |
| Other income, net | 15,000 | 0.1% | 16,000 | 0.1% | (1,000) | -6.25% |
| Provision for income taxes | - | 0.0% | - | 0.0% | - | - |
| Net loss | $(706,000) | -5.0% | $(618,000) | -4.9% | $(88,000) | 14.24% |

### Balance Sheet Data:

|  | March 31, 2024 | December 31, 2023 | Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Cash | $225,100 | $346,000 | (120,900) | -34.94% |
| Working capital | $11,610,000 | $12,117,000 | (507,000) | -4.18% |
| Total assets | $50,262,000 | $50,715,000 | (453,000) | -0.89% |
| Total stockholders’ equity | $14,546,000 | $15,190,000 | (644,000) | -4.24% |

***Net Sales:*** Net sales for the three months ended March 31, 2024 were $14,061,000, an increase of $1,512,000, or 12.0%, compared with $12,549,000 that we achieved in the three months ended March 31, 2023. The period-over-period increase in net sales was primarily due to overall changes in the mix of products requested by customers, which are discussed further below.

The composition of customers that exceeded 10% of our net sales in either 2024 or 2023 are shown below:

| Customer | Percentage of Net Sales 2024 | 2023 |
| --- | ---: | ---: |
| RTX (a) | 30.7% | 22.8% |
| Lockheed Martin | 25.9% | 24.3% |
| Northrop | 11.0% | 3.7% |
| RUAG | 4.2% | 10.0% |

(a) RTX includes Collins Landing Systems and Collins Aerostructures

The composition of our net sales by platform or program profiles for the three months ended March 31, 2024 and 2023 are shown below:

| Platform or Program | Percentage of Net Sales 2024 | 2023 |
| --- | ---: | ---: |
| F-18 Hornet | 6.9% | 18.0% |
| E2-D Hawkeye | 23.3% | 12.8% |
| UH-60 Black Hawk Helicopter | 26.0% | 13.9% |
| GTF | 19.0% | 11.2% |
| CH-53 Helicopter | 2.1% | 17.0% |
| F-35 Lightning II | 5.0% | 6.3% |
| F-15 Eagle Tactical Fighter | 0.0% | 6.0% |
| All other platforms | 17.7% | 14.8% |
| Total | 100.0% | 100.0% |

Period-to-period changes in customer mix and related platforms and programs are largely attributable to customer requirements, availability of parts, production capacity and timing.

***Gross Profit:*** Gross profit for the three months ended March 31, 2024, was $1,906,000 as compared to $1,880,000 for the three months ended March 31, 2023. Our gross profit percentage for the three months ended March 31, 2024 decreased to 13.6% from the 15.0% for the three months ended March 31, 2023. The decrease in margin can be attributable to changes in the sales across our major platforms, shifts in product mix, and overall operating efficiencies.

***Operating Expenses***: Operating expenses was $2,165,000, for the three months ended March 31, 2024, an increase of $127,000, from $2,038,000 for the three months ended March 31, 2023. As a percentage of consolidated net sales, operating expenses decreased to 15.4%, compared to the 16.2% achieved during the three months ended March 31, 2023. The dollar increase was primarily driven by the increases in professional fees as well as costs associated with the continued improvement of our information technology system and hardening our cyber-security defenses. 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 $462,000 during the three months ended March 31, 2024, a decrease of $14,000 or 2.9% from $476,000 during the three months ended March 31, 2023. The decrease is primarily attributable to lower borrowing levels partially offset by an increase in the average interest rate on outstanding debt pursuant to our Current Credit Facility which increased to 7.85% in 2024 as compared to 7.04% in 2023.

***Net Loss:*** Net loss for the three months ended March 31, 2024 was $706,000, compared to a net loss of $618,000 for the three months ended March 31, 2023, for the reasons discussed above.

### LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2024, we have debt service requirements related to:

1\) Outstanding indebtedness under our Current Credit Facility of $16,119,000 (consisting of a Revolving Loan of $11,305,000 and a Term Loan in the amount of $4,814,000). This debt matures on December 30, 2025, and requires us to make monthly payments on the term loan of approximately $79,000 until the loan matures.

2\) Related Party Notes of approximately $6,162,000. This debt matures on July 1, 2026. Pursuant to the Current Credit Facility we are permitted to make principal payments against this debt in the amount of $250,000 per quarter, as long as certain conditions are met.

3\) Various equipment leases and contractual obligations related to our normal business, including advances under our Solar Facility for the installation of solar energy systems including the replacement of the existing roof at our Sterling Facility

Under the terms of the Current Credit Facility, we are required to meet a Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and leases expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. As of March 31, 2024, we achieved a Fixed Charge Coverage Ratio of 0.86 as compared to the 1.10x required, for the six months cumulative period ending March 31, 2024.

Although we have started discussions with our lender to receive a waiver with respect to our failure to meet the Fixed Charge Coverage Ratio at March 31, 2024, it is reasonably possible such waiver will not be granted. Even if such waiver is granted, we may fail to achieve the Fixed Charge Coverage Ratio in the future or otherwise fail to meet covenants in the Current Credit Facility. Therefore, we have classified the term loan that expires on December 30, 2025 as current as of March 31, 2024, in accordance with the guidance in ASC 470-10-45, “Debt – Other Presentation Matters”, related to the classification of callable debt. We are required to maintain a collection account with our lender into which substantially all of our cash receipts are remitted. If we were to default under our Current Credit Facility, our lender could choose to increase the rate of interest we pay or refuse to make loans under the revolving portion of the Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest we pay, it would adversely impact our operating results. If the lender were to cease making new loans under our revolving facility, we would lack the funds to continue our operations. The rights granted to our lender under the Current Credit Facility combined with the 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 issuance of these condensed consolidated financial statements.

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

- On August 4, 2023, we entered into a Fifth Amendment that waived a default caused by our failure to meet the required Fixed Coverage Charge Ratio for the fiscal quarter ended March 31, 2023. Additionally, the amendment provided for a revised Fixed Coverage Charge Ratio for the fiscal quarters ending June 30, 2023 and September 30, 2023 and increased the amount of purchase money secured debt (or finance leases) we are allowed to have outstanding at any time to $2,000,000. In connection with this amendment, we paid a fee of $10,000.
- On November 20, 2023, we entered into a Sixth Amendment that waived defaults caused by the failure by us to achieve the Fixed Charge Coverage Ratio of the Fifth Amendment and because we purchased capital expenditures (as defined) in excess of permitted amounts. This amendment further revised the Fixed Charge Coverage Ratio by requiring it to be calculated on a rolling period basis and not be less than, (a) 1.10x (as calculated on a six-months basis) for the fiscal quarter ending March 31, 2024, (b) 1.20x (as calculated on a nine-months basis) for the fiscal quarter ending June 30, 2024, and (c) 1.25 (as calculated on a twelve-months basis) for all fiscal quarters beginning with September 30, 2024, until the Current Credit Facility expires. This amendment also increased our ability to make additional capital expenditures up to a limit of $2,000,000 in any fiscal year. In connection with this amendment, we paid a fee of $20,000.

Although navigating the current business landscape remains challenging and it is difficult to predict period-to-period financial performance, we believe we will be able to meet our financial obligations for the foreseeable future. However, if we are unable to obtain a waiver from our lender and they were to cease lending, we would not be able meet our financial obligations. As of March 31, 2024, we have borrowing capacity of approximately $9,078,000 under the Revolving Loan (including $383,000 pursuant to the Capital Expenditure Line).

In addition to required Term Loan payments of approximately $709,000 for the remainder of fiscal 2024, we may have to make additional payments. For so long as the Term Loan under the Current Credit 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 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 payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such fiscal year. For the fiscal year ended December 31, 2023, based on the calculation there was no Excess Cash Flow payment required.

In addition to the outstanding indebtedness under the Current Credit Facility and Related Party Notes, we have various equipment leases and contractual obligations of an ongoing nature which we service in the ordinary course out of our cash flow from operations.

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 and strength of our backlog, we believe that we have sufficient liquidity to meet our cash requirements. However, if we are unable to obtain a waiver from our lender and they were to cease lending we may not have sufficient liquidity to meet our cash requirements for the next twelve months from the date of issuance of our condensed consolidated financial statements included in this Quarterly Report.

### Cash Flows

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

| Cash provided by (used in) | Three months ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $(232) | $1,438 |
| Investing activities | (111) | (973) |
| Financing activities | 222 | 379 |
| Net (decrease) increase in cash | $(121) | $844 |

21

### Cash (Used in) Provided by Operating Activities

For the three months ended March 31, 2024, we used $232,000 in operations as compared to cash flow generation of $1,438,000 for the three months ended March 31, 2023. The reduction was due primarily to the net loss and the use of a portion of customer deposits which had been advanced in 2023 for the procurement of long lead time raw materials expected to be utilized during 2024.

For the three months ended March 31, 2023, we generated $1,438,000 in operations as compared to cash generation of $1,285,000 for the three months ended March 31, 2022. The increase was mainly attributable to the decrease in accounts receivable off set by an increase in inventory.

### Cash Used in Investing Activities

During our most recent quarter, we continued to make investments to enhance our competitiveness and market position. Cash used in investing activities of $111,000 and $973,000, during the three months ended March 31, 2024 and 2023, respectively, was for new property and equipment. Investments in 2024 and 2023 increased our production efficiency and speed, while enabling us to maintain closer tolerances. They also expanded the size of products we can manufacture.

During fiscal 2024, we expect to continue to make strategic investments in capital equipment to enhance our competitiveness. We expect to invest approximately $2,000,000 during the remainder of 2024 for new or upgraded equipment.

### Cash Provided by Financing Activities

For the three months ended March 31, 2024, cash provided by financing activities was $222,000. During this period, we increased borrowings under our Current Credit Facility by $265,000 (consisting of net increase in Revolving Loan borrowings of $501,000 and a net decrease of $236,000 against the Term Loan). We also made payments of $41,000 pursuant to financing lease obligations and $2,000 on a loan payable.

For the three months ended March 31, 2023, cash provided by financing activities was $379,000. During this period, we increased borrowings under our Current Credit Facility by $400,000 (consisting of a net decrease in Revolving Loan borrowings of $132,000, and a net increase of $532,000 in the Term Loan. We also made payments of $20,000 pursuant to financing lease obligations and $1,000 on a loan payable.

### OFF-BALANCE SHEET ARRANGEMENTS

We did not have any off-balance sheet arrangements as of March 31, 2024.

### Critical Accounting Estimates

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, 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, 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.

There have been no material changes to the Company’s critical accounting estimates as compared to the estimates described in the 2023 Annual Report which we believe are the most critical to our business and understanding of our results of operations and affect the more significant judgments and estimates that we use in preparation of our condensed consolidated financial statements.

## Controls and procedures

As filed, 3,399 characters.

### Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting refers to those policies, procedures and processes that pertain to the maintenance of records that accurately and fairly reflect transactions with respect to our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are made only in accordance with authorizations of our management; and provide reasonable assurance regarding the prevention and timely detection of unauthorized transactions with respect to our assets that could have a material effect on our financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management relies upon the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in designing a system intended to meet the needs of our Company and provide reasonable assurance for its assessment.

In connection with their review of our internal controls over financial reporting for the three months ended March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were not effective as of March 31, 2024. As reported in our 2023 Form 10-K, in connection with their review of our internal controls as of and for the year ended December 31, 2023, our management identified a material weakness in our internal controls over financial reporting related to our IT systems which have yet to be remediated. During fiscal 2023, we implemented new controls and procedures to eliminate this weakness but have not yet had sufficient time to test their effectiveness. Tests of such controls and procedures are ongoing and the material weakness noted will only be deemed to have been remediated after the new controls and procedures have been in place for a sufficient period and management has concluded through appropriate testing that the controls are operating effectively. For more information, see Item 9A. Controls and Procedures, included in our Annual Report on Form 10-K.

During 2024, the Company is continuing to test such controls and procedures designed to remediate the aforementioned material weakness.

### Changes in Internal Control over Financial Reporting

Except for the ongoing changes described above intended to remediate the material weakness with respect to our IT System, there have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 347 characters.

Investors are encouraged to consider the risks described in our 2023 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.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-043567. Last ingested by Listed: Nov 6, 2026, 11:05 ET. No prices; not investment advice.