U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2009 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 000-29245 Air Industries Group, Inc. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) New York 20-4458244 - ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1479 N. Clinton Avenue Bay Shore, New York 11706 ------------------------------------------------ (Address of principal executive offices) (631) 968-5000 --------------------------- (Issuer's telephone number) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer." "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer (do not check if smaller reporting company) |_| Smaller reporting company |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of October 16, 2009, the registrant had outstanding 71,698,174 shares of common stock.INDEX PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheet as of June 30, 2009 (unaudited) and December 31, 2008 1 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (unaudited) 2 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited) 3 Notes to Condensed Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 ITEM 4T. Controls and Procedures 28 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 30 ITEM 1A. Risk Factors 30 ITEM 6. Exhibits 31 SIGNATURES 31
PART I. FINANCIAL INFORMATION Item 1. Financial statements AIR INDUSTRIES GROUP, INC. Condensed Consolidated Balance Sheets June 30, December 31, 2009 2008 ------------ ------------ (Unaudited) ASSETS Current Assets Cash and Cash Equivalents $ -- $ 164,000 Accounts Receivable, Net of Allowance for Doubtful Accounts of $198,000 and $135,000 4,742,000 5,279,000 Inventory 21,746,000 21,099,000 Assets Held for Sale 683,000 1,556,000 Prepaid Expenses and Other Current Assets 231,000 147,000 Taxes Receivable 49,000 53,000 Deposits - Customers 77,000 100,000 ------------ ------------ Total Current Assets 27,528,000 28,398,000 Property and Equipment, net 5,160,000 5,507,000 Capitalized Engineering Costs - net of Accumulated Amortization of $982,000 and $562,000 1,804,000 2,033,000 Deferred Financing Costs, net, deposit and other assets 723,000 994,000 Intangible Assets, net of accumulated amortization of $376,000 and $277,000 2,027,000 2,126,000 Goodwill 291,000 291,000 ------------ ------------ TOTAL ASSETS $ 37,533,000 $ 39,349,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current Portion Notes Payable and Capital Lease Obligations $ 20,661,000 $ 16,904,000 Accounts Payable and Accrued Expenses 4,116,000 5,167,000 Dividends Payable 436,000 366,000 Deferred Gain on Sale - Current Portion 38,000 38,000 ------------ ------------ Liabilities Held for Sale 2,317,000 2,878,000 ------------ ------------ Total current liabilities 27,568,000 25,353,000 ------------ ------------ Long term liabilities Notes Payable and Capital Lease Obligations - Net of Current Portion 2,154,000 5,973,000 Deferred Tax Liability 1,194,000 1,364,000 Deferred Gain on Sale - Net of Current Portion 618,000 637,000 Deferred Rent 515,000 420,000 ------------ ------------ Total liabilities 32,049,000 33,747,000 ------------ ------------ Contingencies Stockholders' Equity Preferred Stock Par Value $.001-Authorized 8,003,716 shares Designated as Series "A" Convertible Preferred -$.001 par Value, 1,000 Shares Authorized 0 Shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively. -- -- Designated as Series "B" Convertible Preferred -$.001 Par Value, 2,000,000 shares authorized, 1,813,071 and 1,387,205 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively; Liquidation Value, $18,130,000 1,000 1,000 Common Stock - $.001 Par, 250,000,000 Shares Authorized, 71,698,174 and 71,524,481 Shares Issued and Outstanding as of June 30, 2009 and December 31, 2008, respectively. 72,000 72,000 Additional Paid-In Capital 23,984,000 22,957,000 Accumulated Deficit (18,573,000) (17,428,000) ------------ ------------ Total Stockholders' Equity 5,484,000 5,602,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,533,000 $ 39,349,000 ============ ============ See notes to financial statements 1
AIR INDUSTRIES GROUP, INC. Condensed Consolidated Statements of Operations (Unaudited) 3-months ended June 30, 6-months ended June 30, 2009 2008 2009 2008 ------------ ------------ ------------ ------------ Net sales $ 11,096,000 $ 9,223,000 $ 22,279,000 $ 18,472,000 Cost of Sales 9,037,000 6,277,000 17,720,000 12,849,000 ------------ ------------ ------------ ------------ Gross profit 2,059,000 2,946,000 4,559,000 5,623,000 Operating costs and expenses: Selling and marketing 146,000 155,000 272,000 297,000 General and administrative 1,279,000 1,910,000 2,830,000 4,175,000 ------------ ------------ ------------ ------------ Total operating costs and expenses 1,425,000 2,065,000 3,102,000 4,472,000 ------------ ------------ ------------ ------------ Income from operations 634,000 881,000 1,457,000 1,151,000 Interest and financing costs (1,251,000) (582,000) (2,564,000) (876,000) Other (Loss) or Income (23,000) 10,000 (78,000) 12,000 ------------ ------------ ------------ ------------ (Loss) income before provision for (640,000) 309,000 (1,185,000) 287,000 income taxes (tax benefits) Provision for income taxes (tax benefits) (80,000) 7,000 (166,000) 7,000 ------------ ------------ ------------ ------------ (Loss) Income From Continuing Operations (560,000) 302,000 (1,019,000) 294,000 Loss From Discontinued Operations (163,000) (322,000) (126,000) (327,000) ------------ ------------ ------------ ------------ Net Loss (723,000) (20,000) (1,145,000) (33,000) Dividend attributable to preferred stockholders 316,000 151,000 583,000 299,000 ------------ ------------ ------------ ------------ Net Loss attributable to common stockholders $ (1,039,000) $ (171,000) $ (1,728,000) $ (332,000) ============ ============ ============ ============ Loss per share (basic and diluted)-Continuing Ops $ (0.01) $ 0.00 $ (0.02) $ (0.00) Loss per share (basic and diluted)- Discontinued ops (0.00) (0.00) (0.00) (0.01) ------------ ------------ ------------ ------------ Loss per share (basic and diluted) $ (0.01) $ (0.00) $ (0.02) $ (0.01) ============ ============ ============ ============ Weighted average shares outstanding (basic and diluted) 71,562,000 69,340,000 71,544,000 62,241,000 ============ ============ ============ ============ See notes to financial statements 2
AIR INDUSTRIES GROUP, INC. Condensed Consolidated Statement of Cash Flows For the Six Months Ended June 30, (Unaudited) 2009 2008 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $(1,145,000) $ (33,000) Adjustments to Reconcile Net Loss to Net Cash provided by (used in) Operating Activities, net of effect of acquisitions: Depreciation and amortization of property and equipment 926,000 608,000 Amortization of Intangible Assets 99,000 111,000 Amortization of Capitalized Engineering Costs 420,000 174,000 Bad Debt Expense 71,000 134,000 Non-Cash Compensation Expense 70,000 207,000 Non-Cash Interest Expense 1,331,000 90,000 Non-Cash Share Payment -- 40,000 Amortization of Deferred Financing costs 120,000 -- Gain on Sale of Real Estate (19,000) (19,000) Deferred Taxes (170,000) 4,000 Deferred Rent 95,000 95,000 Changes in Assets and Liabilities (Increase) Decrease in Operating Assets: Accounts Receivable 466,000 154,000 Assets Held for Sale 873,000 (342,000) Inventory (647,000) (3,258,000) Prepaid Expenses and Other Current Assets (84,000) 55,000 Deposits 23,000 177,000 Other Assets 78,000 (562,000) Increase (Decrease) in Operating Liabilities Accounts payable and accrued expenses (854,000) (532,000) Income Taxes payable 4,000 19,000 Liabilities Held For Sale (561,000) 1,485,000 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,096,000 (1,393,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Assets Held for Sale -- (182,000) Cash paid for Capitalized Engineering costs (191,000) (641,000) Purchase of property and equipment (528,000) (882,000) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (719,000) (1,705,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Notes payable - Sellers (138,000) (722,000) Proceeds from Private Placement -- 195,000 Capital lease obligations (79,000) 453,000 Notes Payable-Jr. Subordinated Debt 445,000 2,775,000 Notes Payable-Revolver (705,000) 491,000 Notes Payable-Bank (64,000) (74,000) Cash Paid for Deferred Financing Costs -- (20,000) ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (541,000) 3,098,000 ----------- ----------- Net decrease in cash and cash equivalents (164,000) -- Cash and cash equivalents at beginning of period 164,000 -- ----------- ----------- Cash and cash equivalents at end of period $ -- $ -- =========== =========== Supplemental cash flow information Cash paid during the period for interest $ 1,046,000 $ 748,000 =========== =========== Supplemental schedule of non cash investing and financing activities Property and Equipment acquired under capital leases $ 51,000 $ 468,000 =========== =========== Non-cash Dividends on Preferred Stock $ 583,000 $ 299,000 =========== =========== Issuances of common stock in settlement of vendor payables $ 169,000 $ -- =========== =========== See notes to financial statements 3
AIR INDUSTRIES GROUP INC. Notes to Condensed Consolidated Financial Statements Note 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of Air Industries Group, Inc. ("AIRI") and its wholly-owned subsidiaries Air Industries Machining Corporation ("AIM"), Sigma Metals, Inc. ("Sigma") and Welding Metallurgy, Inc. ("Welding"), (together, the "Company"). These condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. All intercompany accounts and transactions have been eliminated. These unaudited interim condensed consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. As a result of management's decision to cease the operations of the Company's metal distribution business, Sigma, as discussed in Note 10, the Company's financial statements reflect Sigma as discontinued operations. Its results of operations are treated as income (loss) from discontinued operations, net of tax, and separately stated on the Condensed Consolidated Statements of Operations after income (loss) from continuing operations. The amounts in the accompanying condensed consolidated financial statements have been rounded to the nearest thousand dollars. Certain reclassifications have been made to prior period presentation to conform to the current year presentation. Liquidity Concerns: The Company is highly leveraged and will need to generate substantial cash flow from operations to satisfy its debt service obligations. As of June 30, 2009, the Company's indebtedness was approximately $32,000,000, including approximately $15,100,000 payable to its bank lenders secured by substantially all its assets. The Company was in default of certain covenants in the agreements with its bank lenders as of the end of June 2009. These defaults continued into September 2009. In September 2009, the Company successfully negotiated amendments to the loan agreements with its bank lenders, in which the bank lenders waived prior events of covenant defaults. These amendments also modified the bank covenants for the period beginning September 30, 2009. However, the loan agreements include clauses that permit the lenders to demand payment at any time, and as the Company is required to maintain a "lock box" account with PNC Bank into which substantially all of the Company's cash receipts are paid, if its bank lenders were to demand repayment and cease lending, the Company would lack the funds to continue its operations. 4
The Company received gross proceeds from the sale of its junior subordinated notes and equity securities of $5,990,000 between May 2008 and the end of March 2009. A significant portion of the Company's bank debt matures as early as April 2010, there can be no assurance that the Company's lenders will agree to extend their loans and, in the absence of significant improvement in the Company's results of operations, it is not likely that the Company will be able to refinance its bank indebtedness with another lender. To alleviate its liquidity difficulties, the Company has liquidated some of the assets and the operations of its Sigma business and has extended the payment terms of its indebtedness to the former owners of Welding. In addition, due to its liquidity difficulties, the Company has issued, and will likely continue to issue, additional shares of its Series B Convertible Preferred Stock ("Series B Preferred Stock") in lieu of payment of cash dividends on its Series B Preferred Stock, which will dilute the equity ownership and voting power of holders of its Common Stock. Nevertheless, the ability of the Company to maintain its current level of operations is subject to the cooperation of its bank lenders and other parties which hold its notes. If the Company's bank lenders were to reduce the amounts loaned to the Company, the Company would have no choice other than to reduce its operations and seek to liquidate certain assets. Any forced liquidation of assets would likely yield less than the amounts at which such assets are valued by the Company. We have evaluated subsequent events, as defined by Statement of Financial Accounting Standards ("SFAS") No. 165 "Subsequent Events," through the date that the financial statements were issued on October 21, 2009. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings per share Basic earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive. The Company did not include 12,931,100 warrants and 6,494,764 options to purchase the Company's common stock for the six months ended June 30, 2009 and 7,846,256 warrants and 6,740,824 options to purchase the Company's common stock for the six months ended June 30, 2008 in the calculation of diluted earnings per share because the effects of their inclusion would have been anti-dilutive. The shares of Series B Preferred that are convertible into 76,376,751 and 31,463,795 shares of common stock at June 30, 2009 and 2008 are not included in the calculation of diluted earnings per shares because the effect of the inclusion would have been anti-dilutive. 5
Recently Issued Accounting Standards Effective January 1, 2009, the Company adopted Financial Accounting Standards Board ("FASB") Staff Position 157-2, "Effective Date of FASB Statement No. 157," which delays the effective date of SFAS No. 157 until January 1, 2009 for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of the delayed items of SFAS No. 157 did not have a material impact on the Company's consolidated financial statements as of and for the six months ended June 30, 2009. In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS 168"). SFAS 168 identifies the FASB Accounting Standards Codification as the authoritative source of generally accepted accounting principles in the United States. Rules and interpretive releases of the Securities and Exchange Commission under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect adoption to have a material impact on our consolidated financial statements. Effective January 1, 2009, the Company adopted FASB Staff Position No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3 amends FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other U.S. GAAP. The adoption did not have a material impact on the Company's consolidated financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements. Note 3. DISPOSITION On April 16, 2007, the Company acquired all of the issued and outstanding capital stock of Sigma pursuant to a Stock Purchase Agreement dated January 2, 2007. Sigma's results in 2008 began to deteriorate and the Company concluded that to revive the business would require a significant investment. Therefore, in the third quarter of 2008, the Board of Directors decided to discontinue the operations of Sigma. Operations were discontinued on October 31, 2008. The Company's financial statements reflect Sigma as discontinued operations. The results of operations of this entity is treated as income (loss) from discontinued operations, net of tax and separately stated on the Consolidated Statements of Operations below loss from continuing operations. Sigma's assets and liabilities have been classified as held for sale on the Company's consolidated balance sheet for all periods presented. 6
In January 2009, the Company sold certain assets including certain accounts receivable, property and equipment, customer list and the rights, title and interest in the name Sigma Metals, Inc. and the domain name Sigmametalsinc.com, to Sigma Aerospace LLC, itself owned by the former stockholders of Sigma. In connection with the sale, the Company and the former stockholders of Sigma consummated a Settlement Agreement in which the balances due under the notes issued for the Company's acquisition of Sigma were converted into 58,500 shares of the Company's Series B Preferred. See Note 6 Stockholders' Equity. In addition, the employment agreements entered into by the former stockholders of Sigma were terminated. Note 4. INVENTORY The components of inventory consisted of the following: June 30, December 31, 2009 2008 ------------ ------------ (Unaudited) Raw Materials 5,850,000 $ 6,809,000 Work In Progress 9,971,000 9,633,000 Finished Goods 6,212,000 5,224,000 Inventory Reserve (287,000) (567,000) ----------------------------------- Total Inventory $ 21,746,000 $ 21,099,000 =================================== Inventory for Welding is computed based on a "gross profit" method in the first and third quarters and are adjusted to physical inventories as of June and December. Inventory for AIM is stated at the lower of cost or market determined on the first-in, first-out method as determined by its perpetual system. AIM performs a physical inventory as of December 31. 7
Note 5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS Notes payable and capital leases obligations consist of the following June 30, December 31, 2009 2008 ----------- ----------- (Unaudited) Revolving credit notes payable to PNC Bank N.A. ("PNC") and secured by substantially all assets $10,074,000 $10,779,000 Term loan, subject to acceleration, secured 4,500,000 4,500,000 Junior subordinated notes 6,500,000 6,055,000 Notes payable to sellers of acquired businesses 2,337,000 3,071,000 Capital lease obligations 1,932,000 1,960,000 Other notes payable to PNC, secured 454,000 518,000 --------------------------------- Subtotal 25,797,000 26,883,000 Less: Current portion of notes and capital obligations 20,661,000 16,904,000 Unamortized debt discount on junior subordinated notes 2,982,000 4,006,000 --------------------------------- Notes payable and capital lease obligations, net of current portion $ 2,154,000 $ 5,973,000 ================================= PNC Bank N.A. ("PNC") On November 30, 2005, the Company executed a credit facility with PNC (the "Loan Facility"), secured by substantially all of its assets. The Loan Facility provided for maximum borrowings of $19,000,000 consisting of the following: (i) a $14,000,000 revolving loan (ii) a $3,500,000 term loan, (iii) a $1,500,000 equipment financing loan The revolving loans bear interest, at the option of the Company, that is based on (i) the higher of (A) PNC's base commercial lending rate as published from time to time ("PNC Rate") plus 0.25% or (B) the Federal Funds rate plus 0.5%, or (ii) the Eurodollar Rate for the Interest Period selected by the Company plus 2.5%. The revolving loans had an interest rate of 5.5% and 6.5% per annum at June 30, 2009 and December 31, 2008, respectively, and an outstanding balance of $10,074,000 and $10,779,000, respectively. The revolving loans are payable in full in April 2010. The interest rates were amended as part of the Ninth Amendment to the Loan Facility (see discussion below). Each day, the Company's cash collections (except for Welding) are swept directly by the bank to reduce the revolving loans and we then borrow according to a borrowing base. As such, the Company generally has no cash on hand. Because the revolving loans contain a subjective acceleration clause which could permit PNC to require repayment prior to maturity, the loans are classified with current portion of notes and capital lease obligations. 8
The term loan was for a period of four (4) years and bears interest, at the option of the Company, at the (i) PNC Rate plus 0.50% per annum or (ii) the Eurodollar Rate for the interest period selected by the Company plus 2.75 %. In October 2006, the Term Note was reduced by a payment of $2,800,000 and an Amended and Restated Term Note in the amount of $383,330 was issued providing for principal payments of $10,648 per month. The maturity date was extended to become the first business day of October 2009 and later extended again to April 30, 2010. At June 30, 2009 and December 31, 2008, the balance of the term loan was $43,000 and $107,000, respectively. In addition to the foregoing, the Loan Facility was further amended to allow the Company to borrow or to obtain the issuance, renewal, extension and increase of standby letters of credit, up to an aggregate availability of $500,000, for its account until November 30, 2009. At December 31, 2008 and at June 30, 2009 the Company had an outstanding letter of credit in the amount of $127,500. The equipment loans bear interest, at the option of the Company, that is based on (i) the PNC Rate plus 0.50% per annum or (ii) the Eurodollar Rate for the interest period selected plus 2.75% per annum. The equipment loan had an interest rate of 6.1% per annum at June 30, 2009. Such equipment financing is limited to an aggregate of $750,000 in any fiscal year and amortized in equal installments of sixty months following the close of each "borrowing period", the second of which ended December 31, 2008. Each subsequent "borrowing period" ends on each December 31 thereafter. All equipment loans are due and payable on November 30, 2010. At June 30, 2009 and December 31, 2008, the equipment financing loan had a balance of $411,000. The equipment financing loan was repaid in October 2009 as part of the renegotiation of the Company's loan covenants with PNC. To the extent that the Company may dispose of collateral used to secure the Loan Facility, other than inventory, the Company must promptly repay the draws on the credit facility in amount equal to the net proceeds of such sale. The terms of the Loan Facility require that, among other things, the Company maintain certain financial ratios and levels of working capital. As of December 31, 2008 and June 30, 2009, the Company had not met these terms and was in default of these covenants. Such defaults were waived as part of the Ninth Amendment to the Loan Facility (see discussion below). On October 9, 2009, the Ninth Amendment to the Loan Facility was signed. The terms of the Ninth Amendment included the following: o Waived prior defaults o Amended the financial ratios and now includes all entities, including the parent company, in the calculations 9
o Amended the formula to determine the amounts of revolving advances permitted to be borrowed under the Loan Facility. o Reduced the availability reserve so that the excess availability created by the reduction will be utilized to payoff in full the term loan and equipment loans. o Amended the revolving interest rate to (a) the sum of PNC Rate plus 2.25% or (b) the greater of (i) the sum of the Eurodollar rate plus 3.5% and (ii) 5.5%. The Company paid an amendment fee of $20,000. Under the terms of the Loan Facility, the amounts owed under the revolving loan and equipment loan are not due to be repaid until April 30, 2010, but have been included in current liabilities due to the right of PNC to demand immediate repayment. Steel City Capital Funding LLC ("SCCF") In connection with the Welding acquisition, SCCF provided a Term Loan (the "SCCF Loan Agreement") of $4,500,000, which is payable on August 24, 2010. Borrowings under the SCCF Loan Agreement bear interest, payable monthly, generally at a rate of 6% over the base commercial lending rate of PNC as publicly announced to be in effect from time to time. The interest rate on the outstanding indebtedness under the SCCF Loan Agreement was approximately 9.25% for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. At each of June 30, 2009 and December 31, 2008, the balance owed on the SCCF Loan Agreement amounted to $4,500,000. On January 29, 2009, SCCF notified the Company of a default of covenants under the SCCF Loan Agreement, and subsequently imposed a default rate of interest of 13.25 as of April 6, 2009. Such defaults were waived as part of the Fourth Amendment to the SCCF Loan Agreement (see discussion below). On September 24, 2009 the Fourth Amendment to the Term Loan was signed. The terms of the Fourth Amendment included the following: o Waived prior defaults o Amended the financial ratios and now includes all entities, including the parent company, in the calculations o Amended the interest rate to (a) the sum of (i) the greater of (1) PNC Rate or (2) 4.75% plus (ii) 6% for domestic loans and (b) the sum of (i) the greater of (1) the Eurodollar Rate or (2) 2.25% plus (ii) 8.5% for Eurodollar Rate loans. o Make cash payments to vendors of Sigma in excess of $150,000 in the aggregate during each of (i) the period September 1, 2009 through December 31, 2009, and (ii) each calendar year commencing January 1, 2010. 10
The Company paid an amendment fee of $50,000. To secure payment of the indebtedness under the SCCF Loan Agreement, AIRI pledged all of the outstanding shares of AIM and Sigma, which, in turn, pledged all of the outstanding shares of Welding. Such security, though, is subordinate to PNC. Under the terms of the SCCF Loan Agreement, the amounts are not due to be repaid until August 24, 2010, but have been included in current liabilities due to the right of SCCF to demand immediate repayment Interest expense related to these credit facilities amounted to approximately $270,000 and $333,000 for the three months ended June 30, 2009 and 2008, respectively and approximately $559,000 and $679,000 for the six months ended June 30, 2009 and 2008. Capital Leases Payable - Equipment The Company is committed under several capital leases for manufacturing and computer equipment. All leases have bargain purchase options exercisable at the termination of each lease. Capital lease obligations totaled $1,932,000 and $1,960,000 and as of June 30, 2009 and December 31, 2008, respectively with various interest rates ranging from 5% to 10%. On April 28, 2009, the Company refinanced and consolidated its existing capital leases into one new five-year capital lease. The monthly payment was reduced to $38,000 from an average of $52,000 under the existing leases. Notes Payable - Sellers As of June 30, 2009 and December 31, 2008, the balances owed to the sellers by acquisition are: June 30, December 31, 2009 2008 ---------- ---------- (Unaudited) AIM $ 337,000 $ 433,000 Sigma -- 638,000 Welding 2,000,000 2,000,000 ------------------------------ Subtotal 2,337,000 $3,071,000 Less: Current Portion 2,192,000 1,053,000 ------------------------------ Total long-term portion $ 145,000 $2,018,000 ============================== 11
AIM The balance owed at June 30, 2009 and December 31, 2008 amounted to $337,000 and $433,000, respectively, and matures on September 30, 2010. The remaining balance is subordinated to all of the Company's senior debt and is payable in twenty consecutive calendar quarters of equal installments of $48,100 principal plus accrued interest The interest rate on this note is equal to Prime Rate plus 0.5% per annum. Interest on outstanding balances at September 30, 2010, in the event of nonpayment, shall accrue at a floating rate equal to the Prime Rate plus 7% per annum. These notes are subordinated to all of the Company's PNC senior debt. Sigma In connection with the acquisition of Sigma, the Company incurred notes payable obligations to the former stockholders of Sigma. At December 31, 2008, the remaining principal balance totaled $638,000. This amount was classified as part of Liabilities Held for Sale on the Consolidated Balance Sheet. These notes were subordinated to all of the Company's indebtedness to PNC and SCCF. In January 2009, as part of the sale of Sigma to its former stockholders, such stockholders and the Company consummated a Settlement Agreement in which these notes were converted into 58,500 shares of Series B Preferred. See Note 6 Stockholders' Equity and Note 10 Discontinued Operations. Welding In connection with the acquisition of Welding Metallurgy, we paid the sellers $3,500,000 in cash and incurred a notes payable obligation to the former stockholders of Welding Metallurgy in the aggregate principal amount of $2,000,000, which bore no interest until August 24, 2008, and then at 7% per annum thereafter ("Old Note"). To reflect the fact that this note did not bear interest for the first year, we discounted the value of the note and expensed the imputed interest monthly accreting up the value of the note to its face value of $2,000,000 in August 2008. In August 2008, the Company and the former owners reached an agreement restructuring the Company's obligation under this note by executing an Amended and Restated Subordinated Promissory Note, the "New Note". The principal balance of this New Note is $ 2,050,000 (consisting of $2,000,000 principal amount of the promissory note dated August 25, 2007, plus an unpaid working capital adjustment in the amount of $50,000), Payments due under the New Note are: $25,000 on each of October 31, 2008 and December 31, 2008, an additional $50,000 12
on March 31, 2009, followed by 19 equal consecutive quarterly installments of $100,000, commencing on June 30, 2009 and continuing through December 31, 2013, payable on the last business day of each March, June, September and December, commencing June 30, 2009, and continuing through and including December 31, 2013, with one final payment of $50,000 on March 31, 2014, plus accrued interest thereon at the rate of 7% per annum from August 24, 2008. As additional consideration the former owners were granted a warrant exercisable for 5 years to purchase 100,000 shares of common stock at $0.109 per share. The warrant expires on August 24, 2014. The Company has made the payments due on September 30 and December 31, 2008, leaving a principal balance due of $2,000,000 at December 31, 2008. Our obligation under both the Old Note and New Note are subordinate to our indebtedness to PNC and SCCF. In March 2009, the Company received a notice from SCCF, exercising their right to block payments under the New Note. Accordingly, the payment due on March 31 was not made. In April 2009, the Company received a notice from the holders of the New Note that an event of default had occurred, and accordingly, interest under the New Note would now accrue at 11% per annum. Per the terms of the fourth amendment to the SCCF Loan, all payments have been blocked until April 30, 2010. As a result of this, the Company has entered into a modification agreement with the holder of the New Note to amend the payment terms. The Company has paid a fee to the holder of $50,000 to modify the loan agreement to block the payments until April 30, 2010 and accrue interest at a rate of 9% per annum. Interest expense on the Seller Notes amounted to approximately $53,000 and $24,000 for the three months ended June 30, 2009 and 2008, respectively. Interest expense on the Seller Notes amounted to approximately $97,000 and $55,000 for the six months ended June 30, 2009 and 2008, respectively Amortization of debt accretion for the three months ended June 30, 2009 and 2008 amounted to $0 and $35,000, respectively. Amortization of debt accretion for the six months ended June 30, 2009 and 2008 amounted to $0 and $70,000, respectively Junior Subordinated Notes In 2008, the Company raised gross proceeds of $5,545,000 in private placements through the issuance of notes. The notes bear interest at 1% per month (12% per year) and are payable on May 31, 2010, or earlier upon completion of one or a series of financings resulting in aggregate gross proceeds of at least $10 million. For the three months ended March 31, 2009, we sold in a private placement to accredited investors, an additional $445,000 principal amount of notes together with 35,600 shares of our Series B Preferred for a total purchase price of $445,000. For financial reporting purposes, the Company recorded a discount of $239,000 to reflect the value of the Series B Preferred issued. See Note 6 Stockholders' Equity. 13
The New Notes are subordinated to the Company's senior indebtedness. In connection with the 2008 private placement offerings, the Company issued to Taglich Brothers, Inc. ("Taglich"), as placement agent, a note in the principal amount of $510,000. The terms of the note issued to Taglich are identical to the other notes issued. In connection with the 2009 offerings, the Company issued to Taglich 3,560 shares of Series B Preferred and will pay Taglich a commission of $44,500. Such commission has been accrued and included in accounts payable and accrued expenses on the consolidated balance sheet. For financial reporting purposes, the Company recorded a discount of $68,000 to reflect the commission and the value of the Series B Preferred issued. See Note 6 Stockholders' Equity and Note 11 Related Party Transactions. Amortization of debt discount for the three months ended June 30, 2009 and 2008 amounted to $708,000 and $0, respectively. Amortization of debt discount for the six months ended June 30, 2009 and 2008 amounted to $1,331,000 and $0, respectively Interest expense amounted to $196,000 and $20,000 for the three months ended June 30, 2009 and 2008, respectively. Interest expense amounted to $389,000 and $20,000 for the six months ended June 30, 2009 and 2008, respectively. Note 6. STOCKHOLDERS EQUITY Common Stock Issuances In June 2009, the Company issued 173,693 shares of Common Stock valued at $43,423 to two vendors of Sigma as per settlement agreements signed with each. Preferred Stock Issuances For the three months ended March 31, 2009, the Company issued 76,381 shares of Series B Preferred as dividends in lieu of cash payments. In January 2009, as part of the sale of Sigma to its former stockholders, such stockholders and the Company consummated a Settlement Agreement in which these notes were converted into 58,500 shares of Series B Preferred. See Note 3 Disposition. The Company issued 35,600 shares of Series B Preferred to note holders in connection with the Company's placement of junior subordinated notes in the first quarter of 2009. In addition, the Company issued to Taglich 3,560 shares of Series B Preferred as a partial sales commission. See Note 5 Notes Payable and Capital Lease Obligations. In March 2009, the Company issued 4,211 shares of Series B Preferred valued at $25,000 to a vendor for services rendered in 2008. 14
In April 2009, the Company issued 236,814 shares of Series B Preferred as dividends in lieu of cash payments. In June 2009, the Company issued 10,000 shares of the Series B Preferred to Blair-HSM Companies in accordance with the settlement agreement. See Note 12 Litigation. As of June 30, 2009, there were outstanding 1,813,071 shares of Series B Preferred. The shares of Series B Preferred outstanding at June 30, 2009 are convertible into 65,905,889 shares of common stock. In July 2009, the Company issued 288,053 shares of Series B Preferred as dividends in lieu of cash payments. On October 16, 2009, the Company filed a Certificate of Amendment of the Certificate of Designation of its Series B Preferred to change the authorized issuance of shares from 2,000,000 to 4,000,000 shares. As of October 21, 2009, there were outstanding 2,101,124 shares of Series B Preferred. The shares of Series B Preferred outstanding are convertible into 76,376,751 shares of common stock. Dividends Dividends amounted to $316,000 and $583,000 for the three and six months ended June 30, 2009 and $151,000 and $299,000 for the three and six months ended June 30, 2008. Note 7. SHARE-BASED COMPENSATION ARRANGEMENTS The Company accounts for its stock option plans under the measurement provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ("SFAS 123R"). The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. During the three months ended June 30, 2008 and 2007, no options were granted. Certain of the Company's stock options contain features which include variability in grant prices. A portion of the currently issued stock options will be exercisable based on average trading prices of the Company's common stock at the end of a given future period. Due to this variable feature, these stock options are not deemed to be granted for purposes of applying SFAS 123(R) and accordingly, their fair value is calculated and expensed in the period that the price is known. During the three and six months ended June 30, 2009 and 2008, an expense of $33,410, $70,364, $57,000 and $117,000, respectively, the cost associated with options previously granted was recorded and is included as a component of general and administrative expenses. 15
Note 8. SIGNIFICANT CUSTOMERS Three customers accounted for approximately 77% and 71% of net sales for the three months ended June 30, 2009 and 2008, respectively. These three customers accounted for approximately 75% and 73% for the six months ending June 30, 2009 and 2008, respectively. Accounts receivable from these three customers at June 30, 2009 were approximately $3,437,000 or 65% of net receivables. Amounts receivable from these three customers at December 31, 2008 were approximately $3,096,000 or 59% of net receivables. Note 9. Business Segments In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", the Company discloses financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Financial information about the Company's operating segments for the three and six months ended June 30, 2009 and 2008 is as follows: For Three Months Ended June 30 ------------------------------ 2009 2008 ------------ ------------ Air Industries Machining Net Sales $ 9,788,000 $ 7,851,000 Gross Profit 1,601,000 2,301,000 Pre Tax Income 500,000 1,189,000 Assets 29,525,000 34,254,000 Sigma Metals Net Loss From Discontinued Operations (163,000) (322,000) Assets Held for Sale 683,000 11,772,000 Welding Metallurgy Net Sales 1,308,000 1,372,000 Gross Profit 458,000 645,000 Pre Tax Income 38,000 203,000 Assets 6,556,000 9,027,000 Corporate Net Sales Gross Profit Pre Tax Loss (1,231,000) (1,084,000) Assets 13,558,000 23,105,000 16
Consolidated Net Sales 11,096,000 9,223,000 Gross Profit 2,059,000 2,946,000 Net Loss from Discontinued Ops (162,000) (321,000) Pre Tax (Loss) Income (693,000) 309,000 Provision (Benefit) for Taxes (80,000) (7,000) Net (Loss) Income (1,092,000) 171,000) Elimination of Assets (12,789,000) (15,169,000) Assets $ 37,533,000 $ 39,349,000 For Six Months Ended June 30 ---------------------------- 2009 2008 ------------ ------------ Air Industries Machining Net Sales $ 19,708,000 $ 16,455,000 Gross Profit 3,660,000 4,695,000 Pre Tax Income 1,288,000 2,375,000 Assets 29,525,000 34,254,000 Sigma Metals Net (Loss) Income From Discontinued Operations (130,000) (327,000) Assets Held for Sale 683,000 11,772,000 Welding Metallurgy Net Sales 2,571,000 2,017,000 Gross Profit 900,000 928,000 Pre Tax Income 108,000 75,000 Assets 6,556,000 9,027,000 Corporate Net Sales Gross Profit Pre Tax Loss (2,581,000) (2,164,000) Assets 13,558,000 23,105,000 Consolidated Net Sales 22,279,000 18,472,000 Gross Profit 4,560,000 5,623,000 Net (Loss) Income from Discontinued Ops (130,000) (327,000) Pre Tax (Loss) Income (1,185,000) 287,000 (Benefit) Provision for Taxes (166,000) 299,000 Net (Loss) Income (1,753,000) (322,000) Elimination of Assets (12,789,000) (15,169,000) Assets $ 37,533,000 $ 39,349,000 17
Note 10. DISCONTINUED OPERATIONS During the quarter ended September 30, 2008, the Company's Board of Directors decided to discontinue the operations at Sigma. Operations were discontinued on October 31, 2008. Accordingly, Sigma's results of operations have been reported as discontinued operations for all periods presented. Sigma's assets and liabilities have been classified as held for sale on the Company's consolidated balance sheet for all periods presented. The table below indicates the results of operations for Sigma for the three and six months ended June 30, 2009 and 2008. Three Months Ending June 30, June 30, 2009 2008 Revenue $ 39,000 $ 3,515,000 Cost of Goods Sold 328,000 2,972,000 ------------------------------ Gross (Loss) Profit (289,000) 543,000 Operating Expenses (138,000) 841,000 Interest 12,000 24,000 Provision for Taxes -- -- ------------------------------ Net Income Before Taxes $ (163,000) $ (322,000) ============================== Six Months Ending June 30, June 30, 2009 2008 Revenue $ 202,000 $ 7,555,000 Cost of Goods Sold 747,000 6,104,000 ------------------------------ Gross (Loss) Profit (545,000) 1,451,000 Operating Expenses (436,000) 1,736,000 Interest 21,000 42,000 Provision for Taxes (4,000) -- ------------------------------ Net Loss $ (126,000) $ (327,000) ============================== Note 11. RELATED PARTY TRANSACTIONS In connection with the 2009 offerings, the Company issued to Taglich 3,560 shares of Series B Preferred and will pay Taglich a commission of $44,500. Such commission has been accrued and included in accounts payable and accrued expenses on the consolidated balance sheet. See Note 5 Notes Payable and Capital Lease Obligations. 18
Note 12. LITIGATION Blair - HSM Companies: During the first half of 2008, and continuing into the third quarter of 2008, the Company attempted to acquire Blair Industries, Inc. and certain of its affiliated companies ("Blair-HSM"). During the third quarter of 2008, management determined to cease its efforts to acquire Blair-HSM. On November 3, 2008, we were served with an Information Request and Restraining Notice by the Blair-HSM as part of their efforts to collect on the $350,000 Confession of Judgment issued by us to secure our agreement to reimburse the stockholders of Blair-HSM for certain expenses incurred in connection with the acquisition. On November 28, 2008, we entered into a settlement agreement with the former stockholders of Blair-HSM under which we agreed to pay Blair-HSM $350,000 in full and complete satisfaction of amounts payable under the stock purchase agreement as follows: $50,000 on each of February 12, 2009, March 12, 2009 and April 12, 2009, $100,000 on May 12, 2009, with the balance payable by delivery of 10,000 shares of our Series B Preferred having a face value of $100,000. Such amount has been accrued and included as part of Accounts Payable and Accrued Expenses on the Consolidated Balance Sheet. These payments have been made and we have issued the shares in June 2009. See Note 6 Stockholders' Equity. In connection with the settlement, the former shareholders of Blair-HSM and Blair-HSM agreed to file a Satisfaction of Judgment with the Supreme Court of the State of New York, Suffolk County. Sigma Metals, Inc: Several former vendors to Sigma have commenced legal action against Sigma seeking to recover amounts owed to them totaling approximately $400,000. While Sigma has no significant assets remaining, we have been attempting to negotiate settlements of these claims. One former vendor has been awarded a judgment against Sigma in the amount of approximately $107,000. Another former vendor has commenced litigation under various legal theories against AIRI and others in addition to Sigma, attempting to establish liability. In March 2009, the Company signed settlement agreements with two vendors for payables totaling approximately $75,000. The Company will pay cash and issued 173,693 shares of its Common Stock in June 2009. See Note 9 Stockholders' Equity. Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has estimated the fair value of financial instruments using available market information and other valuation methodologies in accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." Management of the Company believes that the fair value of financial instruments, consisting of cash, accounts receivable, accounts payable and accrued liabilities, approximates carrying value due to the immediate or short-term maturity associated with these instruments and that the notes payable approximate fair value in that they carry market-based interest rates. 19
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General Air Industries Machining Corp. ("AIM") manufactures aircraft structural parts and assemblies principally for prime defense contractors in the aerospace industry. During the first six months of 2009, approximately 85% of our revenues were derived from sales of parts and assemblies for military applications, but the majority of our sales are to other military contractors and not directly to the military (U.S. and NATO). We currently produce over 2,400 individual products (SKU's). These products are produced and assembled by a skilled labor force into electromechanical devices, mixer assemblies, rotor-hub components, flight controls, arresting gears, vibration absorbing assemblies, landing gear components and many other subassembly packages. In fiscal 2007 we completed two acquisitions as part of our plan to capitalize on our relationships in the aerospace industry. Through our Sigma Metals subsidiary we became a specialty distributor of strategic metals, primarily aluminum, stainless steel, titanium and other exotic end user specified materials sourced from suppliers throughout the world, and through Welding a provider of specialty welding services. Our metals products are sold throughout the world to prime contractors in the defense and commercial aerospace industries, aerospace engine manufacturers and various subcontractors to aerospace manufacturers. Our welding services and products are provided to similar customers in the United States. During 2008 Sigma's results began to deteriorate and we concluded that to revive the business would require a significant investment. As discussed in more detail below, our working capital and liquidity were constrained during fiscal 2007 and remain constrained during the first half of fiscal 2009 and beyond. During the third quarter of 2008 we made the decision to discontinue the operations of Sigma. We are engaged in an ongoing effort to position ourselves to win large, long-term and higher margin contracts, and we have devoted substantial funds and efforts to engineering costs and manpower as part of an ongoing effort to participate in several significant long-term, higher margin projects, including the production of subassemblies for the Joint Strike Fighter ("JSF") landing gear and the A380 drag strut assemblies in the future. Liquidity Concerns. The Company continues to experience liquidity difficulties. The Company is highly leveraged and will need to generate substantial cash flow from operations to satisfy its debt service obligations. 20
To supplement our working capital, in June 2008 we sold $2,950,000 principal amount of our junior subordinated notes (the "Old Notes"), together with 983,324 shares of our common stock, to accredited investors for total cash consideration of $2,950,000 in a private placement. When the junior subordinated notes were issued, Steel City Capital Funding LLC ("SCCF") requested and PNC acquiesced to block our ability to utilize certain collateral in the amount of $900,000. Because of the nature of the line of credit, it is classified with current liabilities. This blocking had the effect of reducing the availability of cash resulting from the issuance of the junior subordinated notes. Beginning in September and continuing through December 2008, to further address our liquidity concerns and to provide additional working capital, we sold an additional $ 2,595,000 of principal amount of junior subordinated notes, (the "New Notes") together with 156,400 shares of our Series B Preferred, in a private placement for a total purchase price of $ 2,595,000. The New Notes, which are payable on May 31, 2010, or earlier upon completion of one or a series of financings resulting in aggregate gross proceeds of at least $10 million, bear interest at the rate of 1% per month (or 12% per annum). Subsequent to December 31, 2008, we sold an additional $445,000 principal amount of New Notes, together with 35,600 shares of Series B Preferred for a total purchase price of $445,000. In addition, in October 2008, holders of an aggregate of $2,950,000 principal amount of our outstanding Old Notes exchanged their Old Notes for an equal principal amount of New Notes, plus 236,000 shares of Series B Preferred. The terms of the New Notes and the Old Notes are identical, except that the rate of interest on the Old Notes was adjusted to 1% per month (12% per year). As of June 30, 2009 there was a total of $5,990,000 in New Notes outstanding. As of September 30, 2009, the Company had issued 601,248 shares of Series B Preferred dividends in lieu of cash payments. As of October 21, 2009, there were outstanding 2,101,124 shares of Series B Preferred. The shares of Series B Preferred outstanding at October 21, 2009 are convertible into 76,376,751 shares of common stock. Nevertheless, we remain highly leveraged and dependent on our bank lenders for additional financing and are continuing to experience liquidity constraints. Discontinued Operations: During the quarter ended September 30, 2008, the Company's Board of Directors approved the discontinuance of operations at Sigma Metals Inc., a wholly-owned subsidiary. (See note 10 to the condensed consolidated financial statements included elsewhere in this report). During the fourth fiscal quarter of 2008 the Company reached an agreement to sell certain assets of Sigma to the former owners, and this sale was completed in January 2009. Accordingly, Sigma's 21
results of operations have been reported as discontinued operations for all periods presented. Sigma's assets and liabilities have been classified as held for sale on the Company's consolidated balance sheet for all periods presented. Three and six months ended June 30, 2009 compared with three and six months ended June 30, 2008 For the Three Months Ending June 30, June 30, 2009 2008 Change Revenue $ 39,000 $ 3,515,000 $(3,476,000) Cost of Goods Sold 328,000 2,972,000 (2,644,000) ------------------------------------------- Gross (Loss) Profit (289,000) 543,000 (832,000) Operating Expenses (138,000) 922,000 (1,060,000) Interest 12,000 (55,000) 67,000 Provision for Taxes -- -- -- ------------------------------------------- Net (Loss) Income $ (163,000) $ (322,000) $ 161,000 =========================================== For the Six Months Ending Revenue $ 202,000 $ 7,555,000 $(7,353,000) Cost of Goods Sold 747,000 6,104,000 (5,357,000) ------------------------------------------- Gross (Loss) Profit (545,000) 1,451,000 (1,996,000) Operating Expenses (436,000) 1,736,000 (2,172,000) Interest 21,000 42,000 (21,000) Provision for Taxes (4,000) -- (4,000) ------------------------------------------- Net (Loss) Income $ (126,000) $ (327,000) $ 201,000 =========================================== Sigma operations were discontinued on October 31, 2008. Net sales at Sigma decreased by $3,476,000 to $39,000 for the three months ended June 30, 2009 compared to the same period in 2008. Net sales at Sigma decreased by $7,353,000 to $202,000 for the six months ended June 30, 2009 compared to the same period in 2008. Net loss at Sigma decreased by $161,000 to $(162,000) for the three months ending June 30, 2009 compared to the same period in 2008. Net loss at Sigma decreased by $201,000 to $(126,000) for the six months ended June 30, 2009 compared to the same period in 2008. Continuing Operations Three and six months ended June 30, 2009 compared with three and six months ended June 30, 2008 22
Consolidated net sales for the three months ended June 30, 2009 increased by $1,873,000 or 20% to $11,096,000 as compared to $9,223,000, for the three months ended June 30, 2008. Net Sales 2009 2008 Change % AIM $ 9,788,000 $ 7,851,000 $ 1,937,000 24.67% Welding 1,308,000 1,372,000 (64,000) (4.66%) --------------------------------------------------------- Consolidated $11,096,000 $ 9,223,000 $ 1,873,000 20.31% ========================================================= Consolidated net sales for the six months ended June 30, 2009 increased by $3,807,000 or 22% to $ 22,279,000 as compared to $ 18,472,000, for the six months ended June 30, 2008. Net Sales 2009 2008 Change % AIM $19,708,000 $16,455,000 $ 3,253,000 19.77% Welding 2,571,000 2,017,000 554,000 27.47% --------------------------------------------------------- Consolidated $22,279,000 $18,472,000 $ 3,807,000 20.61% ========================================================= As of June 15, 2009, AIM's 18-month "firm backlog" was approximately $49 million as compared to $54.3 million at June 30, 2008. Our "projected backlog" as of June 30, 2009 for the same 18-month period which includes both the firm backlog as well as anticipated order releases against long term agreements with our prime aerospace contractors is approximately $60 million. Because of the nature of the products and services provided, Welding Metallurgy does not have a significant backlog and its backlog is not included in the numbers reported herein. Three customers accounted for approximately 77% and 71% of net sales for the three months ended June 30, 2009 and 2008, respectively. These three customers accounted for approximately 75% and 73% for the six months ending June 30, 2009 and 2008, respectively. Accounts receivable from these three customer at June 30, 2009 and 2008 were approximately $3,437,000 or 65% of net receivables and $2,824,000 or 60% of net receivables, respectively. Amounts receivable from the largest of these three customers (a different customer in each year) at June 30, 2009 and 2008 were approximately $1,713,000 or 34% of net receivables and $1,270,000 or 26% of net receivables, respectively. Consolidated gross profit for the three months ended June 30, 2009 declined by $887,000 or 30% to $2,059,000 from $2,946,000 for the three months ended June 30, 2008. Gross profit as a percentage of revenue totaled 19% of sales for the three months ended June 2009 as compared with 32% for the prior year. Consolidated gross profit for the six months ended June 30, 2009 decreased 23
by $1,064,000 or (19%) to $4,559,000 from $5,623,000. Gross profit as a percentage of revenue totaled 20.46% of sales for the three months ended June 2009 as compared with 30.44% for the prior year. For the Three Months Ended June 30, Gross profit 2009 2008 Change % AIM $1,601,000 $2,301,000 $ (700,000) (30)% Welding 458,000 645,000 (187,000) (29)% -------------------------------------------------- Consolidated $2,059,000 $2,946,000 $ (887,000) (30)% ================================================== For the Six Months Ended June 30, Gross profit 2009 2008 Change % AIM $ 3,659,000 $ 4,695,000 $(1,036,000) (22%) Welding 900,000 928,000 (28,000) (3%) -------------------------------------------------- Consolidated $ 4,559,000 $ 5,623,000 $(1,064,000) (19%) ================================================== As a result of the above factors, income from operations decreased by $247,000 to $634,000 in the three months ended June 30, 2009 as compared to income of approximately $881,000 for the three months ended June 30, 2008. Income from operations increased by $306,000 to $1,457,000 in the six months ended June 30, 2009 as compared to income of approximately $1,151,000 for the six months ended June 30, 2008. Operating costs decreased by $640,000, or (31%) to $1,425,000 in the three months ended June 30, 2009 compared to $2,065,000 in the three months ended June 30, 2008. The principal components of the decrease include: For the Three Months Ended June 30, Operating Cost 2009 2008 Change % AIRI $ 251,000 $ 857,000 $ (606,000) (71%) AIM 903,000 915,000 (12,000) (1%) Welding 271,000 293,000 (22,000) (8%) ------------------------------------------------- Consolidated $1,425,000 $2,065,000 $ (640,000) (31%) ================================================= Operating costs at Welding Metallurgy were relatively constant and decreased by just $22,000 or 8% to $271,000 for the three months ended June 30, 2009 and 2008, respectively. 24
o Operating costs at AIM decreased by $12,000, or 1% to $903,000 from $915,000 for the three months ended June 30, 2009 and 2008, respectively. o Operating costs at AIRI decreased by $606,000 or 71% to $251,000 from $857,000 for the three months ended June 30, 2009 and 2008, respectively. Operating costs decreased by $1,370,000 or 31% to $3,102,000 for the six months ended June 30, 2009 compared to $4,472,000 in the six months ended June 30, 2008. The principal components of the decrease include: For the Six Months Ended June 30, Operating Cost 2009 2008 Change % AIRI $ 712,000 $ 1,922,000 $(1,210,000) (63%) AIM 1,850,000 1,984,000 (134,000) (7%) Welding 540,000 566,000 (26,000) (5%) ------------------------------------------------- Consolidated $ 3,102,000 $ 4,472,000 $(1,370,000) (31%) ================================================= o Operating costs at Welding Metallurgy were reduced by $26,000 or 5% to $540,000 from $566,000 for the six months ended June 30, 2009 and 2008, respectively. o Operating costs at AIM decreased by $134,000 or 7% to $1,850,000 from $1,984,000 for the six months ended June 30, 2009 and 2008, respectively. o Operating costs at AIRI decreased by $1,210,000 or 63% to $712,000 from $1,922,000 for the six months ended June 30, 2009 and 2008, respectively. This reduction was primarily related to reduction in consulting and legal costs. Interest and financing costs consist of interest paid and accrued as well as the accretion to face value resulting from recording of debt obligations at fair value which is less than face value. Interest and financing costs increased by approximately $669,000 to $1,251,000 in the three months ended June 30, 2009 compared to $582,000 for the three months ended June 30, 2008. Interest and financing costs increased by approximately $1,688,000 to $2,564,000 in the six months ended June 30, 2009 compared to $876,000 for the six months ended June 30, 2008. Accretion of debt discount and amortization of other non-cash finance charges accounted for approximately $708,000 or 101% of the increase for the three months ending June 30, 2009. Accretion of debt discount and amortization of other non-cash finance charges accounted for approximately $1,331,000 or 79% of the increase for the six months ending June 30, 2009. The loss from continuing operations for the three months ended June 30, 2009 was $(560,000) an increase of $862,000 compared to income of $302,000 for the three months ended June 30, 2008. The loss from continuing operations for the six months ended June 30, 2009 was $(1,019,000) an increase of $1,413,000 compared to income of $294,000 for the six months ended June 30, 2008. 25
The benefit for income taxes was approximately $80,000 in the three months ended June 30, 2009 compared to a provision of approximately $7,000 in the three months ended June 30, 2008. The benefit for income taxes was approximately $166,000 in the six months ended June 30, 2009 compared to an provision of approximately $7,000 in the six months ended June 30, 2008.The Company computes its income tax provision or benefit according to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income taxes" which uses the asset and liability approach to financial reporting for income taxes. The substantial difference from income taxes expected at the statutory rate and actual income tax provisions results primarily from expenses which will never be deductable due to basis differences at the acquired companies and stock compensation and other charges that are not deductable. Liquidity and Capital Resources The Company continues to suffer from a lack of liquidity. The Company is highly leveraged and will need to generate substantial cash flow from operations to satisfy its debt service obligations. As of June 30, 2009 the Company had negative working capital in the amount of approximately $40,000. As of June 30, 2009, the Company's indebtedness was approximately $32.0 million, including approximately $15.1 million payable to its bank lenders and secured by substantially all its assets. The Company was in default of certain covenants in the agreements with its bank lenders as of the end of June 2009, and these defaults continued through September 30, 2009. In September 2009, the Company successfully negotiated amendments to the loan agreements with its bank lenders, in which the bank lenders waived prior events of covenant defaults. These amendments also modified the bank covenants for the period beginning September 30, 2009. However, the loan agreements include clauses that permit the lenders to demand payment at any time, and as the Company is required to maintain a "lock box" account with PNC Bank into which substantially all of the Company's cash receipts are paid, if its bank lenders were to demand repayment and cease lending, the Company would lack the funds to continue its operations. The Company received gross proceeds from the sale of its junior subordinated notes and equity securities of $5,545,000 during 2008 and an additional $445,000 during the three months ended March 31, 2009. The receipt of these gross proceeds did ameliorate, to some degree, the Company's liquidity constraints but this was partially offset by the Company's bank lenders imposing a reduction in availability of $900,000 in June 2008. The Company's senior bank debt matures in May 2010, and its subordinated bank debt in August 2010. There can be no assurance that the Company's lenders will agree to extend their loans. Absent significant improvement in results of operations; it is not likely that the Company will be able to refinance its bank indebtedness with another lender. 26
To alleviate its liquidity difficulties, during 2008, the Company agreed to sell certain assets of its Sigma business, which sale was completed in January 2009, renegotiated and extended the payment terms of its indebtedness to the former owners of Welding, and also has ceased its efforts to acquire Blair-HSM. To further address liquidity difficulties, the Company has issued, and will likely continue to issue, additional shares of its Series B Preferred in lieu of payment of cash dividends on its Series B Preferred. This will dilute the equity ownership and voting power of holders of its Common Stock. The ability of the Company to maintain its current level of operations is subject to the cooperation of its bank lenders and other parties which hold its notes. If the Company's bank lenders were to reduce the amounts loaned to the Company, the Company would have no choice other than to reduce it operations and perhaps seek to liquidate certain assets. Any forced liquidation of assets would likely yield less than the amounts at which such assets are valued by the Company. Our credit facility with PNC requires that all cash receipts (except those at Welding) be swept on a daily basis to our loan accounts reducing the loan balance. Therefore, at any point in time our book cash balances are negligible. The revolving loan portion of the credit facility with PNC Bank N.A. ("PNC") is for a maximum of $14,000,000 subject to periodic, usually monthly, calculations of borrowing availability under a borrowing base calculation. Daily cash collections of accounts receivable reduce the loan balance by 15% of the amount collected - the difference between the cash actually collected and the 85% previously billed and against which the bank advanced funds - and daily shipments to customers increase availability by 85% of the amount billed. We have incurred debt financing and issued the preferred stock in part to support our acquisitions of Sigma and Welding. 27
Inventories were as follows: June 30, December 31, 2009 2008 Change % Raw Materials $ 5,850,000 $ 6,809,000 $ (959,000) (14%) Work In Progress 9,971,000 9,633,000 338,000 4% Finished Goods 6,212,000 5,224,000 988,000 19% Inventory Reserve (287,000) (567,000) 280,000 49% ------------------------------------------------------- Total Inventory $ 21,746,000 $ 21,099,000 $ 647,000 3% ======================================================= Inventory owned by Sigma is classified in assets held for sale on the accompanying condensed consolidated balance sheet. At June 30, 2009 and December 31, 2008 the value of the inventory owned by Sigma was $288,000 and $954,000, respectively. The increase in our inventory levels, coupled with our decision to fund engineering and other costs to secure future higher margin projects have strained our working capital negatively impacting our liquidity and consequently our ability to work on all of the projects in-house. The debt service associated with the junior subordinated notes and our other debt obligations is substantial and will impair our ability to operate our business. Further, until our liquidity improves significantly we will continue to pay the 7% dividend on the outstanding shares of Series B Preferred Stock in additional shares of Series B Preferred Stock rather than cash. Issuing additional shares of Series B Preferred Stock will dilute the equity and voting interests of holders of our common stock. In order to enhance our liquidity we are undertaking several initiatives. In an effort to reduce our inventory levels at AIM we are focusing on projects with immediate and confirmed delivery dates, and we have implemented a cost reduction programs related to general and administrative expenses. We have concluded the disposition of the majority of the Sigma assets, and reached agreements to satisfy the notes payable and employment contract obligations without cash payments, and we have concluded an agreement with the former shareholders of Welding to restructure and extend the payments on the notes payable to them. Steel City Capital Funding has continued to block the payments on the notes payable to these former shareholders. This has eliminated the immediate cash obligation, but these notes are now in default and accruing interest at 11% per annum. Item 4T. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e). 28
Under the Securities Exchange Act of 1934 (the "Exchange Act") designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our then Chief Financial Officer's employment was terminated in September 2008. We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and our Chief Accounting Officer who have been performing the functions of a chief financial officer until a successor is named. Based on that evaluation, our Chief Executive Officer and our Chief Accounting Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective. Certain of the deficiencies that exist in our disclosure controls and procedures as of June 30, 2009, are those that were initially noted in our Annual Report on Form 10-K for the year ended December 31, 2007. Specifically, as of June 30, 2009, there remained certain weaknesses in our staffing and our internal controls over financial reporting that have prevented us from accurately processing our accounts so as to be able to report our results on a timely basis. Moreover, management believes that as a result of our weaknesses, there exist deficiencies at AIM in measuring labor costs and properly allocating such costs between work-in-progress (inventory) and current cost of sales. Management is in the process of developing and implementing a plan to resolve these issues in the most expedient manner possible. These improvements are intended to ensure that information required to be disclosed in our periodic filings under the Exchange Act is accumulated and communicated to our management, to allow timely decisions regarding required disclosure and that all transactions are recorded, accumulated and processed to permit the preparation of financial statements in accordance with generally accepted accounting principles on a timely basis to allow compliance with our reporting obligations under the Exchange Act. (b) 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. 29
PART II OTHER INFORMATION Item 1. Legal Proceedings Blair - HSM Companies: During the first half of 2008, and continuing into the third quarter of 2008, the Company attempted to acquire Blair Industries, Inc. and certain of its affiliated companies ("Blair-HSM"). During the third quarter of 2008, management determined to cease its efforts to acquire Blair-HSM. On November 3, 2008, we were served with an Information Request and Restraining Notice by the Blair-HSM as part of their efforts to collect on the $350,000 Confession of Judgment issued by us to secure our agreement to reimburse the stockholders of Blair-HSM for certain expenses incurred in connection with the acquisition. On November 28, 2008, we entered into a settlement agreement with the former stockholders of Blair-HSM under which we agreed to pay Blair-HSM $350,000 in full and complete satisfaction of amounts payable under the stock purchase agreement as follows: $50,000 on each of February 12, 2009, March 12, 2009 and April 12, 2009, $100,000 on May 12, 2009, with the balance payable by delivery of 10,000 shares of our Series B Preferred having a face value of $100,000. Such amount has been accrued and included as part of Accounts Payable and Accrued Expenses on the Consolidated Balance Sheet. These payments have been made and we have issued the shares in June 2009. In connection with the settlement, the former shareholders of Blair-HSM and Blair-HSM agreed to file a Satisfaction of Judgment with the Supreme Court of the State of New York, Suffolk County. Sigma Metals, Inc: Several former vendors to Sigma have commenced legal action against Sigma seeking to recover amounts owed to them totaling approximately $400,000. While Sigma has no significant assets remaining, we have been attempting to negotiate settlements of these claims. One former vendor has been awarded a judgment against Sigma in the amount of approximately $107,000. Another former vendor has commenced litigation under various legal theories against AIRI and others in addition to Sigma, attempting to establish liability. In March 2009, the Company signed settlement agreements with two vendors for payables totaling approximately $75,000. The Company will pay cash and issued 173,693 shares of its Common Stock in June 2009. See Note 9 Stockholders' Equity. 30
Item 1A. Risk Factors The purchase of our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31,2008 (the "2008 Form 10-K"), our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, our condensed consolidated financial statements and related notes included in Item 1 of Part I of this report and our consolidated financial statements and related notes, our Management's Discussion and Analysis of Financial Condition and Results of Operations and the other information in our 2008 Form 10-K. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission. If any of the events described in the portions of this report, or our 2008 Form 10-K, actually occurs, our financial condition or operating results may be materially and adversely affected, our business may be severely impaired, and the price of our common stock may decline, perhaps significantly. Item 6. Exhibits The following exhibits are filed as part of this report: Exhibit No. Description 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 21, 2009 AIR INDUSTRIES GROUP INC. By: /s/ Peter D. Rettaliata ------------------------------------- Peter D. Rettaliata President and Chief Executive Officer
EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Peter D. Rettaliata, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Air Industries Group, Inc. (the "Company"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 21, 2009 /s/ Peter D. Rettaliata -------------------------------------------- Name: Peter D. Rettaliata Title: Principal Executive Officer
EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Scott Glassman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Air Industries Group, Inc. (the "Company"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 21, 2009 /s/ Scott Glassman -------------------------------------------- Name: Scott Glassman Title: Chief Financial Officer
EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, the President and Chief Executive Officer of Air Industries Group, Inc. (the "Company"), does hereby certify under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 21, 2009 /s/ Peter D. Rettaliata ------------------------------------- Peter D. Rettaliata President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, the chief financial officer of Air Industries Group, Inc. (the "Company"), does hereby certify under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 21, 2009 /s/ Scott Glassman ------------------------------------- Scott Glassman Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.