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: March 31, 2008
|_| 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 Identification No.)
incorporation or organization)
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 |_| Smaller reporting company |X|
(do not check if smaller reporting company)
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 May 13, 2008, the Registrant had outstanding 69,262,227 shares of common
stock.
AIR INDUSTRIES GROUP, INC.
EXPLANATORY NOTE
The Quarterly Report on Form 10-QSB for the three months ended March 31, 2007
was initially filed with the Securities and Exchange Commission ("SEC") on May
15, 2007 (the "Originally Filed 10-QSB"). During the fourth quarter of the year
ended December 31, 2007 we made certain restatements to the condensed
consolidated balance sheet as of March 31, 2007 and the condensed consolidated
statements of operations and cash flows for the three months then ended. This
restatement was as a result of the Company's determination to capitalize certain
amounts related to development expenditures made in the first three quarters of
2007 previously expensed. Accordingly, the development expenditures previously
expensed are now capitalized and amortized in the condensed consolidated
financial statements for the three months ended March 31, 2007, as restated. For
a description of this restatement, see Note 2 to the accompanying Condensed
Consolidated Financial Statements.
Also restated is Item 2 of Part I, Managements Discussion and Analysis of
Financial Condition and Results of Operations, of the Originally Filed 10-QSB
with respect to amounts that relate the items that have been restated. Except as
expressly stated by reference to a later date, no other information in the
Originally Filed 10-QSB has been restated to reflect events that have occurred
at a later date.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of March 31, 2008 (unaudited)
and December 31, 2007 1
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2008 and 2007 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2008 and 2007 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4 - 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 15
ITEM 4T. Controls and Procedures 16
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors 17
ITEM 4. Submission of Matters to Vote of Security Holders 17
ITEM 6 Exhibits 17
SIGNATURES 19
All other items called for by the instructions to Form 10-Q have been omitted
because the items are not applicable or the relevant information is not
material.
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
AIR INDUSTRIES GROUP, INC.
Condensed Consolidated Balance Sheet
March 31 December 31
2008 2007
------------ ------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents -- --
Accounts receivable, net of allowance for doubtful
accounts of approximately $440,000 and $302,000 $ 8,006,000 $ 7,675,000
Inventory 24,334,000 21,820,000
Prepaid expenses and other current assets 112,000 230,000
Deposits 834,000 905,000
------------ ------------
Total current assets 33,286,000 30,630,000
Property and equipment, net 4,898,000 4,786,000
Intangible assets, net 5,755,000 5,877,000
Goodwill 6,373,000 6,373,000
Capitalized engineering costs, net 1,671,000 1,522,000
Deferred financing costs, net, deposits and other assets 1,541,000 1,102,000
------------ ------------
TOTAL ASSETS $ 53,524,000 $ 50,290,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of notes payable and capital lease obligations $ 18,841,000 $ 17,687,000
Accounts payable and accrued expenses 8,919,000 6,586,000
Dividends payable 120,000 267,000
Income taxes payable 371,000 391,000
------------ ------------
Total current liabilities 28,251,000 24,931,000
Long term liabilities
Notes payable and capital lease obligations - net of current portion 3,867,000 4,219,000
Deferred tax liability 1,884,000 1,879,000
Deferred gain on sale of real estate 665,000 675,000
Deferred rent 277,000 230,000
------------ ------------
Total liabilities 34,944,000 $ 31,934,000
Commitments and contingencies
Stockholders' equity
Preferred stock - par value, $0.001, 8,003,716 shares authorized -- --
Series A convertible preferred - $0.001 par value, 1,000 shares authorized
no shares issued and outstanding at March 31, 2008 and December 31, 2007,
respectively -- --
Series B convertible preferred - $0.001 par value 2,000,000 shares authorized,
845,554 and 829,098 shares issued and outstanding at March 31, 2008 and
December 31, 2007; Liquidation value, $18,060,000 1,000 1,000
Common stock - $0.001 par, 250,000,000 shares authorized, 69,262,227 shares
69,122,227 shares issued and outstanding at March 31, 2008 and
December 31, 2007, respectively 69,000 69,000
Additional paid-in capital 18,981,000 18,744,000
Accumulated deficit (471,000) (458,000)
------------ ------------
Total stockholders' equity 18,580,000 18,356,000
------------ ------------
Total liabilities and stockholders' equity $ 53,524,000 $ 50,290,000
============ ============
See notes to condensed consolidated financial statements
1
AIR INDUSTRIES GROUP INC.
Condensed Consolidated Statement of Operations
(unaudited)
Three Months Ended
March 31
-----------------------------
2008 2007
------------ ------------
(as restated)
Net sales $ 13,288,000 $ 7,488,000
Cost of sales 9,704,000 5,821,000
------------ ------------
Gross profit 3,584,000 1,667,000
Operating costs and expenses:
Selling and marketing 465,000 95,000
General and administrative 2,756,000 1,032,000
------------ ------------
Total operating costs 3,221,000 1,127,000
Income from operations 363,000 540,000
Interest and financing costs 392,000 131,000
Other income, net (2,000) (2,000)
------------ ------------
(Loss) income before income taxes (27,000) 411,000
Benefit (provision) for income taxes 14,000 (259,000)
------------ ------------
Net (loss) income (13,000) 152,000
Less: Dividend attributable to preferred stockholders 148,000 --
------------ ------------
Net (loss) income attributable to common stockholders $ (161,000) $ 152,000
============ ============
(Loss) income per share (basic and diluted) $ (0.00) $ 0.00
============ ============
Weighted average shares outstanding (basic) 69,250,000 58,334,000
============ ============
Weighted average shares outstanding (diluted) 69,250,000 60,203,000
============ ============
See notes to condensed consolidated financial statements
2
AIR INDUSTRIES GROUP INC.
Condensed Consolidated Statement of Cash Flows
(unaudited)
Three months ended
March 31,
-------------------------
2008 2007
---------- ----------
(as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (13,000) $152,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Non-cash compensation expense 90,000 240,000
Depreciation and amortization 611,000 197,000
Deferred taxes 5,000 (51,000)
All other, net (2,000) 35,000
Effect on cash of changes in operating assets and liabilities
Accounts receivable (331,000) 808,000
Inventory (2,514,000) (609,000)
Prepaid expenses and other current assets 118,000 (225,000)
Deposits 71,000 (596,000)
Increase in deposits and other assets (493,000) --
Accounts payable and accrued expenses 2,333,000 (66,000)
Income taxes payable (20,000) 310,000
Deferred rent 48,000 47,000
---------- ----------
Net cash provided by (used in) operating activities (98,000) 242,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized engineering costs (234,000) (418,000)
Purchase of property and equipment (296,000) --
Cash paid for deposit on leasehold improvements -- (47,000)
---------- ----------
Net cash used in investing activities (530,000) (465,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and capital lease obligations, net (335,000) (102,000)
Proceeds from notes payable-revolver 962,000 325,000
---------- ----------
Net cash provided by financing activities 627,000 223,000
---------- ----------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents at the beginning of period -- --
Cash and cash equivalents at the end of period -- --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 388,000 $ 127,000
========== ==========
Cash paid during the period for taxes $ -- $ --
========== ==========
Dividend paid in stock $ 147,000 $ --
========== ==========
Property and equipment acquired under capital leases $ 159,000 $ --
========== ==========
Notes payable and accrued interest converted to common stock $ -- $ 720,000
========== ==========
See notes to condensed consolidated 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"), (collectively, the
"Company") as of March 31, 2008. 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, 2007. Operating results for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for any future
interim period or for the entire fiscal year.
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.
Note 2. RESTATEMENT
In the fourth quarter of 2007, the Company determined to capitalize
certain amounts related to development expenditures made in the first three
quarters of 2007 that were previously expensed. The table set forth below shows
adjustments to the results previously reported by the Company on Form 10-QSB for
the three months ended March 31, 2007. The effect of this changes a net loss of
($72,000) to net income of $152,000 as follows:
Q1 2007 Q1 2007
as filed Adjustment As Adjusted
------------ ------------ ------------
Net sales $ 7,488,000 $ -- $ 7,488,000
Cost of sales 6,239,000 (418,000) 5,821,000
------------ ------------ ------------
Gross profit 1,249,000 418,000 1,667,000
Cost and expenses 1,127,000 -- 1,127,000
------------ ------------ ------------
Operating income (loss) 122,000 418,000 540,000
Interest and financing costs 131,000 -- 131,000
Other (income) expenses (2,000) -- (2,000)
------------ ------------ ------------
Income before income taxes (7,000) 418,000 411,000
Income tax provision 65,000 194,000 259,000
------------ ------------ ------------
Net income (loss) (72,000) 224,000 152,000
Less: Dividend attributable to preferred stockholders -- -- --
------------ ------------ ------------
Net income (loss) attributable to common stockholders $ (72,000) $ 224,000 $ 152,000
============ ============ ============
Net income (loss) per common share:
Net income (loss) per common share (Basic and Diluted) $ (0.00) $ 0.00
============ ============
Weighted average shares outstanding (Basic) 58,834,000 58,834,000
============ ============
Weighted average shares outstanding (Diluted) 58,834,000 60,203,000
============ ============
Additionally, this change resulted in a restatement of the Condensed
Consolidated Statement of Cash Flows in that cash flows from operations and from
investing activities changed as follows:
4
Cash flow from
------------------------
Operations Investing
---------- ---------
As reported $(176,000) $ (47,000)
Capitalized engineering costs 418,000 (418,000)
------------------------
As restated $ 242,000 $(465,000)
------------------------
Note 3. ACQUISITIONS
On April 16, 2007, we acquired all of the issued and outstanding capital
stock of Sigma, pursuant to a Stock Purchase Agreement, dated January 2, 2007,
in exchange for approximately $4,061,000 in cash, promissory notes in the
aggregate principal amount of approximately $1,497,000, and 7,416,082 shares of
our Common Stock which were valued at an aggregate of approximately $1,957,000.
Costs associated with this acquisition amounted to approximately $281,000. Sigma
is a specialty distributor of strategic metals, primarily aluminum, stainless
steels of various grades, titanium and other exotic end user specified metals.
Sigma's products are sold to both aerospace/defense contractors as well as
commercial accounts throughout the U.S. and numerous international markets.
Customers include the world's largest aircraft manufacturers, subcontractors,
original equipment manufacturers and various government agencies.
On August 24, 2007, we acquired all of the issued and outstanding capital
stock of Welding pursuant to a Stock Purchase Agreement, dated as of March 9,
2007, as amended, in exchange for $3,500,000 in cash, a promissory note in the
principal amount of $2,000,000 (this note was originally recorded at $1,860,000
to reflect the fact that no interest accrues for the first year, see Note 5) and
2,035,529 shares of our Common Stock which were valued at an aggregate of
approximately $567,000. One-half of these shares are held in escrow as secondary
collateral for representations and warranties pursuant to the Stock Purchase
Agreement. In addition, the Company is obligated to pay an additional $190,000
representing an adjustment to reflect additional working capital acquired in
excess of targeted working capital pursuant to the Stock Purchase Agreement.
This amount, $190,000, is to be paid monthly commencing in March 2008 together
with interest at 7% from November 1, 2007. Costs associated with this
acquisition amounted to approximately $206,000. Welding is a specialty welding
and products provider whose significant relationships include the world's
largest aircraft manufacturers, subcontractors, and original equipment
manufacturers.
In accordance with Statement of Financial Accounting Standards ("SFAS")
141, Business Combinations, the acquisitions of Sigma and Welding were accounted
for using the purchase method of accounting. Accordingly, the purchase price was
allocated to assets acquired and liabilities assumed based on SFAS No. 141 based
on studies and appraisals of their relative fair values. Results of operations
include the results of Sigma beginning on April 17, 2007 and of Welding
beginning on August 27, 2007. As such, the operations of Sigma and Welding are
included in operations for the entire three month period ended March 31, 2008,
but not for any portion of the three month period ended March 31, 2007.
The following summary shows the unaudited pro-forma results of operations
for the three months ended March 31, 2007 assuming that the Company had
purchased both Sigma and Welding as of January 1, 2007. This information gives
effect to the increased interest and financing costs and the amortization of
fair value adjustments (principally for amortization of identified intangibles)
and a provision for income taxes. This summary may not be indicative of what the
actual results of operations would have been had the purchase occurred at the
beginning of the period shown.
Three months
ended
March 31,
2007
------------
Net sales $ 14,172,000
Income from operations $ 1,050,000
Net income $ 250,000
Net income per share $ (0.00)
5
Note 4. INVENTORY
The components of inventory consisted of the following:
March 31, December 31,
2008 2007
----------- -----------
(unaudited)
Raw materials $ 9,745,000 $ 9,051,000
Work in progress 9,794,000 7,755,000
Finished goods 4,795,000 5,014,000
----------- -----------
total $24,334,000 $21,820,000
=========== ===========
Inventories for Sigma and Welding are computed based on a "gross profit"
method in the first and third quarters and are adjusted to physical inventories
in June and December. As such, the table of raw materials, work in progress and
finished goods is estimated with respect to the approximately $5,300,000 of
inventory at these two subsidiaries.
Note 5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The Company's notes payable and capital lease obligations consist of the
following:
March 31,
2008 December 31,
(unaudited) 2007
------------ ------------
Revolving credit notes payable to PNC Bank N.A. ("PNC") and secured by
substantially all assets $ 12,295,000 $ 11,333,000
Term loan, subject to acceleration, secured 4,500,000 4,500,000
Notes payable to sellers of acquired businesses 3,746,000 3,939,000
Capital lease obligations 1,553,000 1,479,000
Other notes payable to PNC, secured 614,000 656,000
------------ ------------
Subtotal 22,708,000 21,907,000
Less: Current portion of notes and capital lease obligations (18,841,000) (17,687,000)
------------ ------------
Notes payable and capital lease obligations, net of current portion $ 3,867,000 $ 4,219,000
============ ============
Revolving credit and other notes payable to PNC -
In November 2005, the Company executed a credit facility with PNC calling
for, as amended, maximum borrowings consisting of (i) $14,000,000 in revolving
loans pursuant to a borrowing base formula, (ii) $3,500,000 in term loans and
(iii) $1,500,000 in equipment financing loans. Borrowings under the credit
facility are secured by all of the assets of the Company and its subsidiaries.
At March 31, 2008 and December 31, 2007, borrowings under the term loans were
approximately $203,000 and $245,000, respectively, and borrowings under the
equipment loans were approximately $411,000 and $411,000, respectively. The
revolving loans and equipment loans mature on November 30, 2009 and the term
loan matures in October 2009. Each day, our 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, we generally have negative
cash representing checks written but not yet cleared, which is included with
accounts payable in the accompanying condensed consolidated financial
statements. Because the revolving notes contain a subjective acceleration clause
which could permit PNC to require repayment prior to maturity, they are
classified with current portion of notes and capital lease obligations payable.
The revolving loans bear interest, at the option of the Company, at a rate
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%. As of March 31, 2008 and December 31, 2007 the revolving
loans had an interest rate of 5.5% and 7.75%, respectively.
6
The term loan and the equipment loan bear 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 %.
Term loan, subject to acceleration, secured -
In connection with the acquisition of Welding, Steel City Capital Funding
LLC ("SCCF") provided a Term Loan to the Company of $4,500,000. The Term Loan,
although payable on August 24, 2010, is classified as current because it
contains a subjective acceleration clause that permits SCCF to demand immediate
repayment. Borrowings under the SCCF Loan Agreement bear interest, payable
monthly, generally at a rate of 6% over the base commercial lending rate of PNC
Bank as publicly announced from time to time. In addition, to secure the
obligations due SCCF, we pledged to SCCF the capital stock of AIM, Sigma, and
Welding and each of such entities granted to SCCF a security interest in all of
their assets. The interest rate on the outstanding indebtedness under the Term
Loan was approximately 11.25% during the three months ended March 31, 2008.
Notes payable, sellers -
Notes payable, sellers includes the following:
March 31,
2008 December 31,
(unaudited) 2007
----------- -----------
Note payable to former AIM shareholder $ 577,000 $ 625,000
Note payable to former Sigma shareholders 1,086,000 1,216,000
Note payable to former Welding shareholders 2,000,000 2,000,000
Additional purchase price payable to Welding shareholders 141,000 190,000
----------- -----------
Total 3,804,000 4,031,000
Less: discount for imputed interest on Welding notes (58,000) (92,000)
----------- -----------
Notes payable to former shareholders $ 3,746,000 $ 3,939,000
=========== ===========
Notes payable to former AIM shareholder - The remaining $577,000 principal
amount of the note, originally issued in November 2005, matures on September 30,
2010, is subordinated to all of the debt payable to PNC and SCCF and is payable
in twenty consecutive calendar quarters of equal installments of $48,100 of
principal plus accrued interest commencing on December 31, 2005. The interest
rate on this note is equal to Prime Rate plus 0.5% per annum (5.75% and 7.75% at
March 31, 2008 and December 31, 2007, respectively). 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 as of December 31, 2007.
Notes payable to former Sigma shareholders - In connection with the
acquisition of Sigma, the Company incurred notes payable obligations to the
former shareholders of Sigma in the aggregate principal amount of approximately
$1,497,000. The remaining principal balance, at March 31, 2008 and December 31,
2007, of approximately $1,086,000 and $1,216,000, is payable in equal monthly
installments, after the prepayment described below, of $33,563 of principal plus
interest at 7% per annum through 2010. In April 2008, approximately $247,000 was
prepaid on the notes due the former shareholders. These notes are subordinated
to all of the Company's debt to PNC and SCCF.
Notes payable to former Welding shareholders - In connection with the
acquisition of Welding, the Company incurred a note payable to the former
shareholders of Welding in the aggregate principal amount of $2,000,000, which
bears no interest until August 24, 2008, and bears interest thereafter at 7% per
annum.
To reflect the fact that this note does not bear interest for the first
year, the Company has reflected the value of the note in its balance sheet at
its estimated fair value of approximately $1,942,000 and $1,907,000 at March 31,
2008 and December 31, 2007, respectively. The Company expenses the imputed
interest on a monthly basis and increases the value of the note, ultimately, to
its face value of $2,000,000. This note was originally recorded at the
7
discounted value of $1,860,000 and resulted in a non cash interest charge. The
indebtedness evidenced by this note is subordinated to the Company's
indebtedness to PNC and SCCF and is payable in one installment in the principal
amount of $500,000 due on August 24, 2008 and twelve consecutive quarterly
installments of principal in the amount of $125,000, plus accrued interest
commencing on November 30, 2008 and continuing through August 31, 2011.
Additional purchase price payable to former Welding shareholders - As a
result of a post-closing working capital adjustment calculation required under
the stock purchase agreement with the former Welding shareholders, the Company
is obligated pay an additional purchase price of approximately $190,000 to the
former owners. This is to be paid in four monthly installments of $47,494, plus
accrued interest at 7% per annum, which commenced in March 2008.
Capital lease obligations -
The Company is committed under several capital leases for manufacturing
and computer equipment calling for payments through 2012. All leases have
bargain purchase options exercisable at the termination of each lease. Capital
lease obligations totaled approximately $1,553,000 and $1,479,000 as of March
31, 2008 and December 31, 2007, respectively.
Note 6. STOCKHOLDERS EQUITY
Increase to authorized common stock and approval of reverse stock split
At a Special Meeting of Stockholders on April 3, 2008, the stockholders
approved an amendment to the certificate of incorporation increasing to
250,000,000 the number of shares of common stock the Company is authorized to
issue. In addition, the stockholders authorized the Board of Directors to
effect, at its discretion at any time not later than December 31, 2008, if at
all, a reverse stock split of common stock at a ratio within the range from
one-for-ten to one-for-thirty, with the ratio and timing to be selected and
implemented by the Board. The reverse stock split is part of a plan intended to
enable the Company to obtain a listing for common stock on a national securities
exchange. If the reverse stock split is effected, the number of authorized
shares of common stock would be reduced to 125,000,000 shares.
The effect of the increase in the authorized common stock to 250,000,000
has been given retroactive effect in the accompanying consolidated condensed
balance sheet at March 31, 2008.
Issuance of Series B Preferred Stock
To finance the acquisition of Sigma and provide us with additional working
capital, in April and May of 2007 we completed a private placement of our Series
B Convertible Preferred Stock, par value $0.001 per share ("Series B Preferred
Stock") in which we raised gross proceeds of $8,023,000.
The Company issued to Taglich Brothers, Inc. placement agent for the
private offering of the Company's Series B Convertible Preferred Stock: (i) a
sales commission of approximately $642,000 or 8% of the gross proceeds of the
offering, (ii) $25,000 as reimbursement of its out-of-pocket expenses incurred
in connection with offering and (iii) warrants to purchase 2,900,578 shares of
Common Stock at a per share exercise price of $0.305. These warrants have a term
of five-years and a "cashless exercise" feature. These warrants were valued at
$32,000 using the Black-Scholes model and the value of such warrants was
deducted from the additional paid in capital resulting from the offering. The
preferred stock contains a 7% cumulative dividend which amounted to
approximately $148,000 for the three months ended March 31, 2008.
In January 2008, the Company issued 16,456 shares of its Series B
preferred stock in payment of $146,500 of dividends that had been declared at
December 31, 2007. Series B preferred stock outstanding at March 31, 2008 is
convertible into 30,439,944 shares of common stock.
On April 1, 2008, the Company declared a dividend on its series B
convertible preferred stock, payable in 19,825 shares of series B convertible
preferred stock.
8
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) (revised
2004), 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 March 31, 2008 and 2007, options to purchase
25,000 and 2,280,000, shares, respectively 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.
At March 31, 2008 and 2007, options to purchase 3,147,998 and 2,463,333
common shares are vested and exercisable, respectively. The weighted average
exercise price of exercisable options at March 31, 2008 was $0.32 per share.
During the three months ended March 31, 2008, the Company issued 140,000
shares of its common stock to key employees under the 2005 Stock Incentive Plan.
The compensation expense, measured at the closing price on the date of grant,
approximately $34,000, was charged to expense in the three months ended March
31, 2008 as there is no future service period or vesting required.
On April 11, 2008, the Company granted each of its four non-management
directors an option to purchase 100,000 shares of common stock at an exercise
price per share of $0.225 exercisable immediately for five years. In addition,
the terms of the options previously granted to Messrs. Rettaliata, Giusto and
Peragallo were modified to provide that the options scheduled to vest from 2008
through 2012, 1,440,000 options in the aggregate, will be exercisable at a per
share price of $0.225. Any compensation effects from these transactions will be
recorded in the three months ending June 30, 2008
Warrants to acquire 125,000 shares with a grant date of March 16, 2007
were issued to a consulting firm. These warrants are exercisable at a per share
price of $0.28 the average closing price of the Company's common stock for the
20 days preceding the date of grant, and have a cashless exercise feature and
vested on the grant date. The warrants were valued using the Black-Scholes model
and the Company recorded a one time expense of approximately $26,000 in its
consolidated statement of operations for the quarter ended March 31, 2007.
Note 8. CONVERSION OF NOTES PAYABLE
On January 26, 2007, two executive officers exercised their right to
convert approximately $665,000 principal amount of the Company's notes plus
accrued interest of approximately $55,000 into an aggregate of 1,799,432 shares
of common stock at a conversion price of $0.40 per share.
Note 9. SIGNIFICANT CUSTOMERS AND BUSINESS SEGMENTS
One customer accounted for approximately 40% and 65% of net sales for the
three months ended March 31, 2008 and 2007, respectively. Amounts receivable
from this customer at March 31, 2008 are approximately $992,000.
For the three months ended March 31, 2007, the Company operated in one
business segment. As a result of the acquisitions made in April 2007 of Sigma
and in August 2007 of Welding, the Company now operates in three segments.
Financial information about the Company's operating segments for the three
months ended March 31, 2008 and 2007 as required under Statement of Financial
Accounting Standard 131 is as follows:
9
Three months ended March 31, (unaudited)
----------------------------------------
2008 2007
---- ----
(as restated)
AIM:
Net sales 8,604,000 7,488,000
Gross profit 2,394,000 1,667,000
Pre tax income 1,185,000 411,000
Assets 31,954,000 25,180,000
Sigma:
Net sales 4,039,000 --
Gross profit 907,000 --
Pre tax income (5,000) --
Assets 12,832,000 --
Welding:
Net sales 645,000 --
Gross profit 283,000 --
Pre tax income (127,000) --
Assets 8,348,000 --
Corporate:
Net sales -- --
Gross profit -- --
Pre tax income (1,080,000) (593,000)
Assets 21,777,000 7,976,000
Consolidated:
Net sales 13,288,000 7,488,000
Gross profit 3,584,000 1,667,000
Pre tax (loss) income (27,000) 411,000
Benefit (provision) for taxes 14,000 (259,000)
Net (loss) income (13,000) 152,000
Elimination of assets (21,387,000) (7,402,000)
Assets 53,524,000 25,754,000
10
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion of our results of operations, liquidity and
capital resources should be read in conjunction with the condensed consolidated
financial statements and notes thereto contained elsewhere in this report and in
our Form 10-K for the year ended December 31, 2007.
Cautionary Note Regarding Forward-Looking Statements
Our disclosure and analysis in this report contains forward-looking
statements. Certain of the matters discussed concerning our operations, cash
flows, financial position, economic performance and financial condition,
including, in particular, future sales, product demand, competition and the
effect of economic conditions include forward-looking statements within the
meaning of section 27A of the Securities Act and Section 21E of the Securities
Exchange Act.
Statements that are predictive in nature, that depend upon or refer to
future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including projections of
orders, sales, operating margins, earnings, cash flow, research and development
costs, working capital, capital expenditures, distribution channels,
profitability, new products, adequacy of funds from operations, these statements
and other projections and statements contained herein expressing general
optimism about future operating results and non-historical information, are
subject to several risks and uncertainties, and therefore, we can give no
assurance that these statements will be achieved.
Investors are cautioned that our forward-looking statements are not
guarantees of future performance and actual results or developments may differ
materially from the expectations expressed in the forward-looking statements.
As for the forward-looking statements that relate to future financial
results and other projections, actual results will be different due to the
inherent uncertainty of estimates, forecasts and projections and may be better
or worse than projected. Given these uncertainties, you should not place any
reliance on these forward-looking statements. These forward-looking statements
also represent our estimates and assumptions only as of the date that they were
made. We expressly disclaim a duty to provide updates to these forward-looking
statements, and the estimates and assumptions associated with them, after the
date of this filing to reflect new information or events or changes in
circumstances or changes in expectations or the occurrence of anticipated events
or otherwise.
You are advised, however, to consult any additional disclosures we make in
our Forms 10-K, Forms 10-Q and Forms 8-K reports to the SEC. Also note that we
provide a cautionary discussion of risk and uncertainties under Part II, Item
1A. Risk Factors in this report. These are some of the known factors that we
think could cause our actual results to differ materially from expected results.
Other factors besides those listed here, including unknown factors, could also
adversely affect us. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
Restatement of March 31, 2007 Condensed Statements of Operations and Cash Flows
As discussed in the Explanatory Note at the beginning of this report the
Company's Quarterly Report on Form 10-QSB for the three months ended March 31,
2007 was initially filed with the Securities and Exchange Commission ("SEC") on
May 15, 2007 (the "Originally Filed 10-QSB"). During the fourth quarter of the
year ended December 31, 2007 we made certain restatements to the condensed
consolidated balance sheet as of March 31, 2007 and the condensed consolidated
statements of operations and cash flows for the three months then ended. This
restatement was as a result of the Company's determination to capitalize certain
amounts related to development expenditures made in the first three quarters of
2007 previously expensed. Accordingly, the development expenditures previously
expensed are now capitalized and amortized in the condensed consolidated
financial statements for the three months ended March 31, 2007, as restated. For
a description of this restatement, see Note 2 to the accompanying Condensed
Consolidated Financial Statements.
General
We manufacture aircraft structural parts and assemblies principally for
prime defense contractors in the aerospace industry. During 2007, approximately
85% of our revenues were principally derived from sales of parts and assemblies
11
directed toward military applications, although direct sales to the military
(U.S. and NATO) constituted a minor portion of our revenues. We have evolved
from being an individual parts manufacturer to being a manufacturer of
subassemblies (i.e. being an assembly constructor) and being an engineering
integrator. We currently produce over 2,400 individual products (SKU's) that are
assembled by a skilled labor force into electromechanical devices, mixer
assemblies, rotor-hub components, rocket launching systems, arresting gear,
vibration absorbing assemblies, landing gear components and many other
subassembly packages.
We are engaged in an ongoing effort to position ourselves to win several
large, long-term higher margin contracts. During 2007, and continuing in the
first quarter of 2008, we devoted substantial funds (approximately $1.5 million
in 2007 and $250 thousand in 2008) to engineering costs and manpower in an
effort to participate in several significant projects, including the production
of subassemblies for the Joint Strike Fighter ("JSF") landing gear and the A380
drag strut assemblies.
As a result of acquisitions we completed in the second and third quarters
of fiscal 2007 as part of our plan to capitalize on our relationships in the
aerospace industry, we have also become a specialty distributor of strategic
metals, primarily aluminum, stainless steels of various grades, titanium and
other exotic end user specified materials sourced from suppliers throughout the
world, and a provider of specialty welding services and metal products. 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.
We became a public company in 2005 in a transaction in which Ashlin
Development Corp., an existing publicly traded company, merged with Gales
Industries, Incorporated ("Gales") and Gales acquired all of the outstanding
shares of Air Industries Machining Corp. ("AIM"). The result of this reverse
merger transaction is that AIM's business became the principal business of the
surviving public company. In connection with the acquisition of AIM in this
transaction, we incurred notes payable obligations to three AIM shareholders in
the aggregate principal amount of approximately $1.6 million. In January 2007,
approximately $665 thousand of such debt that was in the form of convertible
promissory notes, payable to executive officers of the Company, together with
accrued interest thereon, was converted by the holders into 1,799,432 shares of
common stock at a conversion price of $0.40 per share. The remaining principal
amount, $673,400, is payable in equal quarterly installments of $48,100
principal, plus interest as discussed in Note 5 to the condensed consolidated
financial statements.
Results of Operations
We completed the acquisition of our metals distribution operations (Sigma)
on April 16, 2007, and the acquisition of our welding operations (Welding) on
August 26, 2007, consequently, the results of operations of such acquired
businesses have been included with our operations since April 17, 2007 (Sigma)
and August 27, 2007 (Welding). Neither of these businesses was owned by the
Company in the three months ended March 31, 2007.
At our core AIM business, our 18 month backlog of orders ("backlog")
increased by approximately $6.7 million (14%) to approximately $55.3 million at
March 31, 2008 from backlog of approximately $48.6 million at December 31, 2007.
Backlog at March 31, 2008 reflects an approximately $21.7 million (65%) increase
from backlog of approximately $33.6 million at March 31, 2007. These amounts
only reflect our core AIM business.
We began delivering the first articles for the JSF program during December
2006, and we expect to finish with deliveries for the CV version in October
2008. The first article for A380 assemblies will commence in June of 2008. While
our backlog grew significantly during the first quarter, the growth did not
include potential sales from several new business opportunities. These include
the CH53K program, where we have submitted proposals for gear housing assemblies
and throttle quadrants. Firm orders have not yet been awarded.
We are continuing our efforts to acquire the Blair companies. This
includes the performance of due diligence and seeking to secure appropriate
financing to consummate the acquisition. In addition, it is likely that we will
seek additional capital so as to either retire or refinance certain debt
obligations that come due in 2008.
12
Three months ended March 31, 2008 compared with three months ended March
31, 2007 (as restated)
Net sales for the three months ended March 31, 2008 increased by
approximately $5.8 million (77%) over the three months ended March 31, 2007 as a
result of a $1.1 million (15%) increase in our core AIM business plus the
addition of approximately $4.7 million from the acquired Sigma and Welding
businesses as shown below:
Three months ended March 31,
Net sales 2008 2007 Increase %
------------ ----------- ----------- -----------------
AIM $ 8,604,000 $ 7,488,000 $ 1,116,000 15%
Sigma 4,039,000 0 4,039,000 na
Welding 645,000 0 645,000 na
----------- ----------- -----------------
Consolidated $13,288,000 $ 7,488,000 $ 5,800,000 77%
----------- ----------- -----------------
The increase in our AIM business reflects increased shipments compared to
the three months ended March 31, 2007. We continue to see growth in customer
demand as our 18 month backlog at our AIM business grew to approximately $55.3
million at March 31, 2008 compared to approximately $33.6 million at March 31,
2007. Net sales at Sigma and Welding contributed $4.0 million and $0.6 million
in net sales in the three months ended March 31, 2008.
One customer accounted for approximately 40% and 65% of net sales for the
three months ended March 31, 2008 and 2007, respectively. Sales to that customer
are subject to General Ordering Agreements which extend through 2013. Amounts
receivable from this customer at March 31, 2008 are approximately $992,000.
Gross profit for the three months ended March 31, 2008 increased by
approximately $1.9 million (115%) over the three months ended March 31, 2007 as
a result of a $0.7 million (44%) increase in our core AIM business plus the
addition of approximately $1.2 million of gross profit contribution from the
acquired Sigma and Welding businesses as shown below:
Gross profit 2008 2007 Increase %
------------ ---------- ---------- ---------------
AIM $2,394,000 $1,667,000 $ 727,000 44%
Sigma 907,000 0 907,000 na
Welding 283,000 0 283,000 na
---------- ---------- ---------------
Consolidated $3,584,000 $1,667,000 $1,917,000 115%
---------- ---------- ---------------
The principal reason for the increase in the gross profit in our core Aim
business was the improvement in capturing costs which resulted in approximately
$0.6 million of certain payroll costs being reclassified to general and
administrative expense in the three months ended March 31, 2008. Gross profit
also increased at AIM due to higher volume.
At the acquired Sigma and Welding operations, gross profit percentages
were approximately 23% and 46%, respectively in the three months ended March 31,
2008.
As a result of the factors discussed above, consolidated gross margin rose
to 28% in the three months ended March 31, 2008 compared to 22% in the three
months ended March 31, 2007.
Operating costs increased by $2.1 million (186%) to $3.2 million in the
three months ended March 31, 2008 compared to $1.1 million in the three months
ended March 31, 2007. The principal components of the $2.1 million increase
include the following:
- Approximately $1.1 million of operating costs at Sigma and Welding,
including non-cash charges of approximately $0.2 million; we did not
own Sigma and Welding in the three months ended March 31, 2007
- Approximately $0.6 million of costs at our core AIM operation which
were reclassified as general and administrative in the three months
ended March 31, 2008 but had been classified in cost of goods sold
in the three months ended March 31, 2007 and
- Approximately $0.3 in higher accounting, legal and consulting fees
associated with the additional complexities associated with
integrating our newly acquired Sigma and Welding operations into our
reporting and accounting.
13
During the three months ended March 31, 2008 our Sigma and Welding
operations moved to a common facility which move had a slight negative effect on
their operations during the period.
As a result of the above factors, income from operations decreased by
approximately $177 thousand (33%) to approximately $363 thousand in the three
months ended March 31, 2008 compared to the three months ended March 31, 2007.
Interest and financing costs consist of interest paid and accrued as well
as amortization of debt discount resulting from recording debt obligations at
fair value. Interest and financing costs increased by approximately $261
thousand (200%) to approximately $392 thousand in the three months ended March
31, 2008 compared to the three months ended March 31, 2007. The principal reason
for the increase is the higher debt levels (approximately $13 million, see
Liquidity) associated with our acquisitions of Sigma and Welding in the second
and third quarters of 2007. This increase was partially offset by lower interest
rates on our bank and term debt where the interest rate declined to
approximately 5.5% at March 31, 2008 compared to approximately 7.5% at March 31,
2007. Should the trend of lower interest rates continue, it would have a
positive impact our interest expense as compared to 2007.
The benefit from income taxes was approximately 48% of the loss before
taxes in the three months ended March 31, 2008 compared to a provision of
approximately 63% of income before taxes in the three months ended March 31,
2007.
As a result of the factors described above, net income changed by $165
thousand to a net loss of approximately $13,000 in the three months ended March
31, 2008 compared to net income of approximately $152,000 in the three months
ended March 31, 2007.
In April and May of 2007, we issued shares of our Series B Preferred
Stock. The dividend attributable to our Series B Preferred Stock during the
three months ended March 31, 2008 increased our net loss attributable to common
stockholders for the quarter by approximately $148,000 to a loss of $161,000.
Impact of Inflation
Inflation has not had a material effect on our results of operations.
Liquidity and Capital Resources
Our measures of liquidity include the following:
March 31, December 31,
2008 2007 Change
----------- ----------- -----------
(unaudited)
Cash $ -- $ -- $ --
Working capital $ 5,035,000 $ 5,699,000 $ (664,000)
Revolving loan balance $12,295,000 $11,333,000 $ 962,000
The credit facility with PNC requires that all of our cash (except at
Welding) be swept on a daily basis to our loan accounts. Therefore, at any point
in time our book cash balances are negative (and included in accounts payable in
the accompanying condensed consolidated financial statements) representing zero
cash at PNC bank less outstanding un-cleared checks. The revolving loan portion
of the credit facility with PNC is for a maximum of $14,000,000 subject to
periodic calculations of availability under a borrowing base calculation.
Because of the nature of the revolving loan, it is classified with current
liabilities in determining working capital.
The increase in borrowings under the revolving loan (approximately $0.96
million), as well as an approximately $2.3 million increase in accounts payable
and accrued expenses, was utilized to increase inventories by approximately $2.5
million, increase accounts receivable by approximately $0.5 million and increase
property and equipment and capitalized engineering costs by a combined
approximately $0.5 million. The increase in inventories (11.5%) results from the
increased volume of business in the quarter compared to the prior year as well
as a 14% increase in our backlog since December 31, 2007.
14
During 2007, and continuing in the first quarter of 2008, we devoted
substantial funds (approximately $1.5 million in 2007 and $250 thousand in 2008)
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.
During the year ended December 31, 2007, we added the following financing
to the Company in order to support our acquisitions of Sigma and Welding
Dividend or
Interest Rate
At March 31,
Amount 2008
----------- -------------
Sigma, seller notes $ 1,497,000 7%
Welding, seller notes net of discount 1,860,000 7%
Welding, working capital adjustment 190,000 7%
Welding, Term notes to SCCF 4,500,000 11.25%
Increases to the PNC revolving line of credit 5,000,000 5.5%
-----------
subtotal, debt financings $13,047,000
Series B Convertible Preferred Stock 8,023,000 8%
-----------
Total, financings for acquisitions $21,070,000
===========
In April 2008, we prepaid approximately $0.25 million of the Sigma seller
notes. As a result of the increased debt, interest expense has risen to
approximately $0.4 million in the three months ended March 31, 2008 compared to
approximately $0.13 million in the three months ended March 31, 2007.
A summary of our contractual obligations as of March 31, 2008 is included
in the table below:
Payments Due By Period
-----------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 Year* 1-3 Years 3-5 Years 5 Years
--------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Long-term debt and capitalized lease obligations ........ $22,708,000 $18,841,000 $ 3,867,000 $ -- $ --
Operating lease obligations ............................. 18,500,000 1,060,000 3,300,000 3,500,000 10,640,000
----------- ----------- ----------- ----------- -----------
TOTAL ................................................... $41,208,000 $19,901,000 $ 7,167,000 $ 3,500,000 $10,640,000
=========== =========== =========== =========== ===========
* Includes revolving and term loans that are due in 2010 but the instrument has
a "subjective acceleration clause" that permits the lender to demand payment at
any time (see Note 5 to condensed consolidated financial statements).
The Company raised approximately $8 million in preferred equity in April
2007. The security carries an 8% interest rate, payable in cash or in kind. The
Company has, to date, elected to pay the dividend in kind in consideration of
its overall liquidity position and needs.
We are continuing our efforts to acquire the Blair companies. This
includes the performance of due diligence and seeking to secure appropriate
financing to consummate the acquisition. In addition, it is likely that we will
seek additional capital so as to either retire or refinance certain debt
obligations that come due in 2008.
Item 4T. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's 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)
under the Securities Exchange Act of 1934 (the "Exchange Act") designed to
ensure that the information required to be disclosed by the Company in the
reports it files or submits 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
15
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.
The Company has evaluated the effectiveness of the design and operation of
its disclosure controls and procedures under the supervision of and with the
participation of management, including the Chief Executive Officer and our Chief
Financial Officer as of the end of the period covered by this report. Based on
that evaluation, our Chief Executive Officer has concluded that our disclosure
controls and procedures are effective.
(b) Changes in Internal Control Over Financial Reporting. We determined
that we had material weaknesses in our internal controls over financial
reporting as of December 31, 2007, in that we had not yet sufficiently
integrated and upgraded the reporting systems at our operating subsidiaries and
that we had insufficient staffing in our accounting department. To remediate
these weaknesses, subsequent to March 31, 2008 we (a) increased the attention to
the reporting of our operating subsidiaries (b) recruited an additional member
of the Controller's group and (c) retained a financial reporting consultant to
assist us in the timely preparation of our filings under the Exchange Act. There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-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.
There are inherent limitations in any system of internal control. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that its objectives are met. Further, the
design of a control system must consider that resources are not unlimited and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgment in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls.
16
PART II
OTHER INFORMATION
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 31,2007
(the "2007 Form 10-K"), under the caption "Risk Factors," 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 2007 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.
In the three months ended March 31, 2008, there were no material changes
from the risk factors previously disclosed in our 2007 Form 10-K, except that we
are continuing in our efforts to acquire the Blair Companies, including the
performance of due diligence and seeking to obtain the financing necessary to
complete the acquisition of these companies. In addition, it is likely that we
will need to refinance or satisfy with the proceeds from the sale of equity
certain debt obligations coming due in 2008, including $500,000 payable to the
former shareholders of Welding in August 2008. There can be no assurance that we
will be successful in our efforts to obtain the financing necessary to acquire
the Blair Companies or to refinance our debt obligations as they mature or, if
such financing can be obtained, that the terms will be favorable to the Company.
If any of the events described in the portions of this report or our 2007
Form 10-K referred to above 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. This means you could lose all or a part of your investment.
Item 4. Submission of Matters to Security Holders
At the Company's Special Meeting of Stockholders on April 3, 2008, our
stockholders approved the following proposals:
1. To grant to our Board of Directors discretionary authority to amend
our certificate of incorporation, as amended, to effect a reverse
split of our common stock at a ratio within the range from
one-for-ten to one-for-thirty at any time prior to December 31,
2008, with the ratio and timing to be selected and implemented by
the Board in its sole discretion, if at all.
FOR: 60,482,180 60.75%
AGAINST: 4,829,652 4.85%
ABSTAIN: 2,286,945 2.30%
2. To approve an amendment to our certificate of incorporation, as
amended, that would increase the number of our authorized shares of
common stock, $0.001 par value, from 120,055,746 shares to
250,000,000 shares.
FOR: 59,210,453 9.47%
AGAINST: 5,790,192 5.82%
ABSTAIN: 2,598,132 2.61%
Item 6. Exhibits
The following exhibits are filed as part of this report:
17
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).
18
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: May 16, 2008
AIR INDUSTRIES GROUP INC.
By: /s/ Peter D. Rettaliata
--------------------------------------
Peter D. Rettaliata
President and Chief Executive Officer
/s/ Louis A. Giusto
--------------------------------------
Louis A. Giusto
Vice Chairman, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)
19