Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.04pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.39pp
Lean +
Net-tone change vs last year's 10-K.
MD&A
-0.31pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+9
adversely+6
decline+6
difficult+5
unable+3
Positive rising
attractive+3
able+2
improve+2
efficiencies+2
improved+2
Risk Factors (Item 1A)
11,603 words
ITEM 1A. RISK FACTORS
The purchase of our common stock involves a very high degree of risk.
In evaluating our common stock and our business, you should carefully consider the risks and uncertainties described below and the other information and our consolidated financial statements and related notes included herein. If any of the events described in the risks below actually occurs, our financial condition or operating results may be materially and adversely affected, the price of our common stock may decline, perhaps significantly, and you could lose all or a part of your investment.
The risks below can be characterized into four groups:
Risks related to our business, including risks specific to the defense and aerospace industry;
Risks related to our indebtedness;
Risks related to the proposed Merger with Tenax Aerospace Acquisition, LLC; and
Risks related to our status as a public company and our common stock.
Risks Related to Our Business
We have a history of net losses, have recently increased our debt to support ongoing business operations, need to refinance our debt and the opinion of our auditor contains an explanatory paragraph as to our ability to continue as a going .
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
doubt+1
concern+1
Positive rising
benefit+2
satisfied+1
MD&A (Item 7)
3,920 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2025 and 2024 and the notes to those statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this report that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Business Overview
We believe we are one of the leading manufacturers of precision components and assemblies for large aerospace and defense contractors. Our rich history dates to 1941, producing parts for World War II fighter aircraft. Since then, we have maintained an impeccable record with no known incidents of part failureleading to a fatal mission. We became a public company in 2005.
Our products include landing gear, flight controls, engine mounts and components for aircraft jet engines and ground turbines and other complex machines. The ultimate end-user for most of our products is the U.S. government, international governments, and commercial global airlines. Whether it is a small individual component for assembly by others or complete assemblies we manufacture ourselves, our high quality and extremely reliable products are used in mission critical operations that are essential for safety of military personnel and civilians.
Although our net sales are concentrated amongst a number of defense and aerospace prime contractors, we have cultivated long-standing relationships with a number of their subsidiaries and/or business units. Additionally, our net sales are generated across several high-profile platforms and programs including: the F-18 Hornet, the E-2 Hawkeye, the UH-60 Black Hawk Helicopters, Geared Turbo Engines (used on smaller aircraft such as the Airbus A220 and Embraer E2), the CH-53 Helicopter, the F-35 Lighting II and the F-15 Eagle Tactical Fighter. In many cases, we are the sole or single supplier of certain parts and components and receive LTAs from our customers, both demonstrating their commitment to us.
Winning a new contract award is highly competitive. Our ability to win new contract awards generally requires us to deliver superior quality products, more quickly and with lower pricing than our competitors. Accordingly, we must continually invest in process improvements and capital equipment. Recent investments in new equipment have improved the productive capacity of our employees, increased our efficiency and speed, and expanded the size of products we can manufacture. We strategically operate two state-of-the-art manufacturing centers in the U.S. This allows for rigorous oversight of production and the adherence to stringent quality standards. Although there is currently a shortage of skilled workers, we maintain a highly trained and close- knit team of over 160 professionals committed to driving excellence and precision in every aspect of our operations.
Our period-to-period net sales and operating results are significantly impacted by timing. In addition, our gross profit is affected by a variety of factors, including the mix and complexity of products, production efficiencies, price competition and general business operating environments. In some cases, our gross profit is impacted by our ability to deliver replacement parts on short notice. Our operations have a large percentage of fixed factory overhead. As a result, our profit margins are highly variable with sales volumes.
For the past several years, despite facing significant financial and operational challenges, we have strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster our competitive position. Additionally, we expanded our sales and marketing efforts, with a sharp focus on expanding relationships with existing customers and cultivating new ones. Looking forward to fiscal 2026, we are focused on securing new contract awards, improving operations and successful completion of the Merger Agreement (as discussed elsewhere in this filing).
As of December 31, 2025, we have total unfilled contract values amounting to $270.1 million (including our $136.8 million in backlog and all potential orders against LTA agreements previously awarded to us).
RESULTS OF OPERATIONS
Years ended December 31, 2025 and 2024:
Selected Financial Information:
Percentage of
Net Sales
Percentage of
Net Sales
Change 2025
Percent
Change 2025
Net sales
Cost of sales
Gross profit
Operating expenses
Interest expense
Other income, net
Benefit from income taxes
Net loss
Balance Sheet Data:
December 31,
December 31,
Percent
Change
Change
Cash
Working capital
Total assets
Total stockholders’ equity
Comparison of Fiscal 2025 to 2024
Net Sales: Net sales in 2025 were $47,921,000, a decrease of $7,187,000 or 13.0%, compared with $55,108,000 that we achieved in 2024. The year-over-year decrease in net sales was primarily due to timing and overall changes in the mix of products requested and delivered in response to customer orders.
The composition of customers that exceeded 10% of our net sales in either 2025 or 2024 are shown below:
Percentage of Net Sales
Customer
RTX (A)
Lockheed Martin
Northrop
(A) RTX includes Collins Landing Systems and Collins Aerostructures
The composition of our net sales by platform or program profiles for the years ended December 31, 2025 and 2024 are shown below:
Percentage of Net Sales
Platform or Program
GTF
UH-60 Black Hawk Helicopter
CH-53 Helicopter
E2-D Hawkeye
F-35 Lightning II
F-18 Hornet
All other platforms
Total
Period-to-period changes in customer mix and related platforms and programs are largely attributable to customer requirements, availability of parts, production capacity and timing.
Gross Profit: Gross profit for the year ended December 31, 2025, amounted to $8,187,000, a decrease from the $8,932,000 achieved in 2024. Our gross profit percentage in fiscal 2025 increased to 17.1% from the 16.2% we achieved in 2024. This improvement can be attributed to changes in sales across our major platforms, shifts in product mix, and cost reductions implemented during the period.
Operating Expenses : In fiscal 2025, operating expenses totaled $8,525,000, an increase of $52,000, from $8,473,000 recorded in 2024. As a percentage of consolidated net sales, operating expenses rose to 17.8%, compared to 15.4% in fiscal 2024. The dollar increase was due primarily to stock compensation expense and information technology expenses offset by lower personnel costs. We continue to look for ways to reduce our operating expenses.
Interest Expense: Interest expense (which includes amortization of deferred financing costs) was $1,841,000 in fiscal 2025, a decrease of $52,000 or 2.8% from $1,893,000 in 2024. The decrease is primarily attributable to lower levels of subordinated debt during a portion of the year and a decrease in the average interest rate on debt outstanding pursuant to our Current Credit Facility which decreased to 6.72% in 2025 as compared to 7.66% in 2024.
Net Loss: Net loss for the year ended December 31, 2025 was $1,305,000, compared to a net loss of $1,366,000 for the year ended December 31, 2024, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2025, we have debt service requirements related to:
Outstanding indebtedness under our Current Credit Facility of $23,473,000 (consisting of a Revolving Loan of $17,618,000 and a Term Loan in the amount of $5,855,000). This debt matures on September 30, 2026, and requires us to make monthly payments of approximately $87,000 in 2026.
Related Party Notes of approximately $4,871,000. This debt matures on October 1, 2026.
Various equipment leases and contractual obligations related to our business, including advances under our Solar Facility for the installation of solar energy systems including the replacement of the existing roof at our Sterling Facility.
The Current Credit Facility and Related Party Subordinated are classified as current liabilities on the consolidated balance sheet as of December 31, 2025. As a result of the due dates of this debt, there is substantial doubt about our ability to continue as a going concern for the twelve months following the date of filing of these consolidated financial statements. Webster Bank has advised us that it will not renew our Current Credit Facility. In addition to discussions with our lenders, as discussed in our Current Report on Form 8-K filed February 17, 2026, we entered into a Merger Agreement with Tenax.
To support current operations and strategic initiatives, beginning in December 2024 we raised capital through public market sales of our common stock and believe we can continue to access equity markets in future periods, though there is no assurance as to our ability to do so or as to the price and terms under which we could issue equity securities. During the year ended December 31, 2025, the Company sold 1,213,593 shares of common stock in the public market and generated gross proceeds of $4,869,000, of which approximately $3,930,000 is restricted for the benefit of the Current Credit Facility lender. Since initiating the sales in December 2024, we have sold a total of 1,330,444 shares for gross proceeds of $5,375,000. In light of ongoing negotiations with our lenders and in accordance with the Merger Agreement with Tenax, we have temporarily paused all equity raising activity while evaluating the most effective capital structure going forward.
Under the terms of the Current Credit Facility, as amended, we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal quarter. This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation and amortization. We are also required to meet other business and financial covenants.
As of December 31, 2025, we were in compliance with all financial and business covenants contained in the Current Credit Facility.
The Current Credit Facility expires on September 30, 2026. In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are remitted. If we were to default under the Current Credit Facility, our lender could choose to increase the rate of interest or refuse to make loans under the revolving portion of the Current Credit Facility and keep the funds remitted to the collection account. If the lender were to raise the rate of interest, it would adversely impact our operating results. If the lender were to cease making new loans under the revolving facility, we would lack the funds to continue operations. The Current Credit Facility expiration date and the rights granted to the lender, combined with the reasonable possibility that we might fail to meet covenants in the future, raise substantial doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report.
The following is a brief discussion of recent amendments to the Current Credit Facility (all of which have been filed with the SEC):
On May 31, 2024, we entered into a Seventh Amendment that waived the default caused by our failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment. This amendment further revised our Financial Covenants. For the six months ending June 30, 2025 our EBITDA shall not be less than $740,000; for the nine months ending September 30, 2025 our EBITDA shall not be less than $1,500,000; for the twelve months ending December 31, 2025 our EBITDA shall not be less than $2,800,000. For the rolling twelve-month period ending March 31, 2025, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x. Beginning with the rolling twelve-month period ending June 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x. All other covenants remain unchanged. Additionally, this amendment increased the Term Loan by approximately $1,000,000 to $5,700,000, with monthly principal installments in the amount of $68,000. In connection with these changes, the Company paid an amendment fee of $20,000.
On January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $1,640,000 for the acquisition of additional equipment. The monthly principal installments on this additional Term Loan are $19,524 This amendment further revised our Financial Covenants. For the rolling twelve-month period ending March 31, 2025 and June 30, 2035, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x. Beginning with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x. All other covenants remain unchanged. In connection with these changes, the Company paid an amendment fee of $20,000.
On September 10, 2025, we entered into a Ninth Amendment where it agreed that the $3,930,000 of the proceeds from its ATM Offering would be maintained in an interest bearing account. The funds in this account serve as additional security for its obligations under the Current Credit Facility.
On December 15, 2025, we entered into a Tenth Amendment which waived the defaults caused by the failure to achieve the required fixed charge coverage ratio for the fiscal quarter ended June 30, 2025, and for exceeding the permitted amount of capital expenditures for the fiscal year ending December 31, 2025. Additionally, the maturity date of the revolving credit and term loans were extended to March 31, 2026, and amended the capital expenditure covenant. We paid an amendment fee of $40,000.
On February 26, 2026, we entered into an Eleventh Amendment which extended the maturity date of the revolving credit and term loans to September 30, 2026. In connection with this Amendment, we paid an amendment fee of $25,000 and agreed to pay $150,000 when the loans are satisfied.
If we are unable to close the merger with Tenax contemplated by the Merger Agreement or obtain a new lender to replace the Current Credit Facility we may not be able meet our financial obligations. As of December 31, 2025, we have borrowing capacity of approximately $2,382,000 under the Revolving Loan.
In addition to required Term Loan payments we may have to make additional payments under the Current Credit Facility. For so long as the Term Loan under the Current Credit Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan. Such payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such fiscal year. For the fiscal year ended December 31, 2025, based on the calculation there is no Excess Cash Flow payment required.
In addition to the outstanding indebtedness under the Current Credit Facility and Related Party Notes, we have various equipment leases and contractual obligations of an ongoing nature which we service in the ordinary course out of our cash flow from operations.
Our material cash requirements are for debt service, capital expenditures and funding working capital. We have historically met these requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility, strength of our backlog, and availability under our Current Credit Facility, we believe that we have sufficient liquidity to meet our day-to-day cash requirements for our operations. However, we must pay or refinance large portions of our indebtedness prior to September 30, 2026, and October 1, 2026. Further, as a condition to refinancing our Current Credit Facility prior to September 30, 2026, our lender or a new lender may require that the holders of our Related Party Notes extend or otherwise modify the subordination agreements they have given in favor of the lender.
If we do not close the contemplated Merger, it is unlikely we will be able to pay existing debt and will need to refinance our Current Credit Facility and Related Party Notes. We have engaged in discussions with Webster Bank and the holders of our Related Party Notes to explore potential extensions or refinancings of our obligations. Webster Bank has advised us that it will not extend our Current Credit Facility. Refinancing our indebtedness with other parties may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition.
Cash Flow
The following table summarizes our net cash flow from operating, investing and financing activities for the periods indicated (in thousands):
Year Ended
December 31,
Cash provided by (used in)
Operating activities
Investing activities
Financing activities
Net increase in cash
Cash (Used in) Provided By Operating Activities
For the year ended December 31, 2025, our operations absorbed $1,352,000 of cash as compared to generating $324,000 of cash in fiscal 2024. The use of cash was due to an increase in inventory of $5,450,000, reflecting material and production costs incurred for product to be delivered in 2026. This was partially offset by non-cash expenses of depreciation and stock-based compensation in the amounts of $2,499,000 and $1,047,000, respectively, and by a reduction in accounts receivable of $1,761,000.
For the year ended December 31, 2024, we generated cash flows from operations of $324,000 as compared to $4,862,000 for fiscal 2023. The decrease in cash flows was primarily due to the use of a portion, $2,442,000, of customer deposits which had been advanced prior to 2024 for the procurement of long lead time raw materials expected to be utilized in 2024.
Cash Used In Investing Activities
During 2025 we continued to make significant investments to enhance our competitiveness and market position. Cash used in investing activities of $3,122,000 and $2,285,000, in 2025 and 2024, respectively, was for new property and equipment.
The investments in 2025 and 2024 increased production efficiency and speed, while maintaining closer tolerances. They also expanded the size of products we can manufacture. Any investment in 2026 will be at a much lower level.
Cash Provided by Financing Activities
For the year ended December 31, 2025, cash provided by financing activities was $8,331,000. During fiscal 2025, we increased borrowings under our Current Credit Facility by $5,343,000 (consisting of a net increase in Revolving Loan borrowings of $4,713,000 and a net increase of $630,000 against the Term Loan). We also sold an aggregate of 1,213,593 shares of common stock to the public for net proceeds of $4,638,000. We used cash by paying $1,291,000 of the Related Party Notes. We also made payments of $223,000 pursuant to financing lease obligations and $8,000 on a loan payable.
For the year ended December 31, 2024, cash provided by financing activities was $2,368,000. During fiscal 2024, we increased borrowings under our Current Credit Facility by $2,238,000 (consisting of a net increase in Revolving Loan borrowings of $2,101,000 and a net increase of $137,000 against the Term Loan) and received advances of $8,000 against the Solar Facility. We also sold an aggregate of 116,851 shares of common stock to the public for net proceeds of $327,000. Additionally, we made payments of $196,000 pursuant to financing lease obligations and $9,000 on a loan payable.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have any off-balance sheet arrangements as of December 31, 2025 and 2024.
Critical Accounting Estimates
A critical accounting estimate is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements in this Report include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include, inventory valuation and income tax provision. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.
Below is a description of our critical accounting estimates:
Inventory Valuation, which includes the estimates and methodology used in accounting for the transition of production costs to inventory costs. In our consolidated financial statements, inventory is reflected at the lower of cost or net realizable value. We periodically evaluate inventory items not secured by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods (defined as goods which do not have an open order and have not had movement for two years), obsolescence and for other impairments of value.
Income Taxes. We account for income taxes under the asset and liability method, based on the income tax laws in the United States. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using expected rates in effect for the tax year in which the differences are expected to reverse. Developing the provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. The Company has recorded a valuation allowance in the current and prior years to reduce deferred tax assets to zero. If we were to subsequently determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination was made. We will continue to assess the adequacy of the valuation allowance on a quarterly basis. Our judgments and tax strategies are subject to audit by various taxing authorities.
We incurred net losses for the years ended December 31, 2025 and 2024 of $1,305,000 and $1,366,000, respectively. During the year ended December 31, 2025, we used $1,352,000 to support our operations and our total indebtedness grew from $20,121,000 as of December 31, 2024, to $25,233,000 as of December 31, 2025. As of December 31, 2025, we had approximately $23,473,000 of indebtedness outstanding pursuant to our Current Credit Facility that matures on September 30, 2026 with Webster Bank (“Current Credit Facility”) and approximately $4,871,000 of subordinated notes (“Related Party Notes”) that mature on October 1, 2026, which are held by two directors Michael N. Taglich and Robert F. Taglich. We must pay or refinance this indebtedness on or prior to its respective due dates. Further, Webster has indicated that it does not want to renew the Current Credit Facility. Since it is not likely that we will be able to pay this debt, we have initiated steps to satisfy portions and refinance the balance. These steps included the sale of shares of our common stock pursuant to our Registration Statement that was declared effective on December 19, 2024, and the entry into a Merger Agreement with Tenax with respect to a proposed merger that would cause Tenax to become our wholly-owned subsidiary. Our financial statements included in this Report have been prepared on the assumption that we will continue as a going concern. Because of the uncertainty regarding our ability to refinance our indebtedness our auditors have included an explanatory paragraph in their opinion as to our ability to continue as a going concern. Our financial statements included in this Report do not include any adjustments that might result if we were not to continue as a going concern. If we were not to consummate the Merger Agreement with Tenax, refinancing our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity or new securities convertible into or exercisable or exchangeable for our common stock. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition.
We may need additional financing to fund operations and to invest in new or upgraded property or equipment .
During fiscal 2025 we used $1,352,000 to fund ongoing business operations and used in excess of $3,000,000 to purchase new equipment to improve our operating efficiencies. As a result, the amount of our indebtedness grew from $20,121,000 as of December 31, 2024, to $25,233,000 as of December 31, 2025. We will require additional financing to fund operations and investments in new or upgraded property or equipment in order to remain competitive and will need to obtain the agreement of holders of portions of our debt to incur new debt or otherwise refinance our existing debt. In order to gain their consent, we may need to offer these holders increases in the rates of interest they receive or otherwise compensate them through payments of cash or issuances of our equity securities. Such additional financing or refinancing may involve the issuance of debt, equity or securities convertible into or exercisable or exchangeable for our equity securities and may not be available to us on reasonable terms, if at all. If we are unable to obtain additional financing or refinance our existing debt, the trading price of our common stock could be adversely affected. If we are able to obtain additional financing or refinance our existing debt, the terms of such financing may adversely affect the interests of our existing stockholders. Any failure to fund working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Additionally, we may need to consider other types of restructuring including seeking protection under U.S. bankruptcy law. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
A reduction in budgeted or actual U.S. government spending for defense or changes in the mix of defense products could materially adversely impact our business strategy, revenues, operating results and financial condition.
The ultimate end-user for a significant portion of our products is the U.S. Government, with significant emphasis on military aircraft. In certain instances, our products may be exported to allied foreign governments by the U.S. Government. Although we expect to generate sales from all of our key aerospace and defense platforms and programs for many years, they are subject to significant risk. Congressional appropriation and presidential approval are required for funding, leaving our platforms and programs vulnerable to potential budget reductions at any point. For instance, a decrease in U.S. government defense spending or a strategy shift to rocket and drone platforms instead of helicopters and large military aircraft platforms, could curtail demand for landing gear parts and other components we provide which would likely have a materially adverse effect on our business strategy, revenues, operating results and financial condition.
Our operations have historically been subject to the fluctuations in government procurement cycles and spending patterns by our customers. There can be no assurance that our financial condition and future results of operations will not be materially adversely impacted by volatility in defense spending or changes in the mix of product favored by the U.S. Government or other nations, or the perception among our customers regarding the likelihood of such shifts.
Although we have cultivated long-standing relationships with many of our customers, the aerospace and defense industry is characterized by a small number of large and well-known prime customers. A majority of our revenue is derived from sales to a limited number of customers and any loss, cancellation, reduction, or interruption in these relationships could harm our business.
Our products are purchased by a relatively small number of large aerospace and defense customers who incorporate them into larger products for ultimate end-use by the U.S. Government, international governments, and commercial global airlines. A majority of our revenue is derived from sales to a limited number of customers. Consequently, we have a high degree of sales concentration among specific customers making it challenging to diversify our customer base. In fiscal years 2025 and 2024, four customers, two of which were part of the same corporate group, accounted for approximately 75.2% and 73.4% of net sales, respectively.
Our future success relies heavily on nurturing, expanding and effectively managing these relationships. Nevertheless, we cannot assure retention of these customers or their continuing to purchase at previous levels. The loss of any key customer, a decline or interruption in sales to them, or our inability to establish relationships with new customers, could significantly impact our business.
We depend on revenues from components for a few aircraft programs and platforms and the cancellation or reduction of funding of them will harm our business.
We derive a significant portion of our net sales from supplying components for select aircraft programs and platforms, such as the F-18 Hornet, the E-2D Hawkeye, the UH-60 Black Hawk Helicopter, Pratt & Whitney Geared Turbo-Fan Engine, the CH-53 Helicopter, the F-35 Lightning II (also known as the Joint Strike Fighter) and the F-15 Eagle Tactical Fighter. A decrease in demand for our products, stemming from reduced aircraft production or diminished aircraft utilization, would adversely affect our future operating results and financial condition.
Changes in outsourcing strategies and intense competition in our markets may lead to a reduction in our revenues and market share.
The defense and aerospace component manufacturing market is highly competitive. Competition has been increasing and is expected to intensify further. Our large aerospace and defense prime customers, Tier One suppliers and many of our competitors have significantly greater technical, manufacturing, financial and marketing resources than we do. In the future, our defense and aerospace customers could make changes in their supply chain strategies that could adversely impact us. For instance, they could decide to in-source manufacturing, stop purchasing pursuant to existing LTA agreements or seek other sources at any time. If they seek other suppliers, we may not be able to compete successfullyagainst either current or future competitors. including commercial manufacturers that wish to diversify their revenues and expand into the defense supply chain. Increased competition could result in reduced revenue, lower margins or loss of market share, any of which could significantly harm our business, our operating results and financial condition.
We may lose sales if we fail to timely meet the specifications and requirements of our customers.
Most of our customers incorporate our products into larger products such as aircraft assemblies or completed aircraft. They rely upon us to deliver products pursuant to existing LTA agreements that include detailed specifications and requirements. If a customer were to conclude that it could not rely upon us for any reason, it could look to dual source a product or rely upon another party altogether. We could be informed of a change in sourcing decisions with limited notice or not at all. Any decision by a customer to rely upon an alternate supplier for some or all of its needs could significantly harm our business, our operating results and our financial condition.
We may lose sales if our suppliers fail to meet our needs or ship raw materials to us on schedule.
We must deliver our products timely with high quality to ensure smooth operation of our customers’ production lines. In order to do so, we attempt to procure our raw materials, parts and components as well as subcontracted services from various sources and utilize multiple subcontractors. However, certain materials, components and services are exclusively available from a sole or limited number of suppliers and we are reliant upon them. Additionally, materials sourced from overseas are susceptible to supply chain disruptions stemming from global events and political decisions. While we believe that, in many cases, alternative supplies, components, assemblies, or subcontractors could be secured, sourcing substitutes may necessitate the development of new suppliers or require product re-engineering and qualification, potentially leading to shipment delays. Any interruptions in raw material shipments or subcontracted service performance could significantly harm our business, our operating results and our financial condition.
We may not be able to improve our gross margin and a reduction in future sales levels could have a disproportionate effect on our gross profit as a percentage of our net sales.
Our state-of-the-art manufacturing facilities currently have a large percentage of fixed factory overhead relative to our overall expenses. Consequently, our gross profit as a percentage of sales is highly linked with sales volume. If we do not increase our sales volume, it will be difficult to materially improve our gross profit margin. Although we have plans to improve operating efficiencies at our current sales levels, we may not be able to do so. Further, any reduction in sales volume would likely cause us to absorb the fixed overhead costs over a smaller base of sales, causing our gross profit as a percentage of sales to decline from current levels. Any reduction in our profit margin adversely impacts our reported performance and would have a material adverse impact on results of operation and our financial position.
There are risks associated with the bidding processes in which we compete.
We obtain many LTA and other contracts through a competitive bidding process. We must devote substantial time and resources to prepare bids and proposals which may not result in contract awards to us. Even if we win contracts, there can be no assurance that the prices that we bid will be sufficient to allow us to generate a profit from any particular contract. On occasion, we may submit a bid for an initial contract award that will generate negative or minimal gross margin in anticipation of price increases or operational efficiencies which lead to improved gross margins on subsequent orders. There are significant costs involved with producing a small number of initial units of any new product and it may not be possible to recoup such costs on later production runs.
Due to fixed contract pricing, increasing contract costs expose us to reduced profitability and the potential loss of business.
The cost estimation process requires significant judgment and expertise. Reasons for cost growth include unavailability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the ability of subcontractors to meet their commitments, the effect of delays in performance, availability and timing of funding from the customer, natural disasters, supply chain disruptions and the inability to recover any claims for added services necessary to complete production. A significant change in costs from those on which we based our estimates on one or more programs could have a material effect on our consolidated financial position or results of operations.
The prices of raw materials we use are volatile.
The prices of raw materials used in our manufacturing processes are volatile. Some LTA agreements with customers allow us to increase our prices due to increases in the price of raw materials. However, these LTA agreements generally require that we first absorb all or a portion of the price increases before being able to pass on the increase to the customer. For some LTA agreements, we are at full risk for future price agreements. If the prices of raw materials rise, we may not be able to pass along all of such increases to our customers and this could have an adverse impact on our financial position and results of operations. It is possible that some of the raw materials we use might become subject to new or increased tariffs. Significant increases in the prices of raw materials could adversely impact our customers’ demand for certain products which could lead to a reduction in our revenues and have a material adverse impact on our revenues and on our financial position and results of operations.
Some of the products we produce have long lead times.
Some of the products we produce require months to produce and we sometimes produce products in excess of the number ordered intending to sell the excess as spares when orders arise. As a result, our inventory turns slowly and ties up our working capital. Our inventory represented approximately 58.7% of our assets as of December 31, 2025. Any requirement to write down the value of our inventory due to obsolescence, excess and slow moving quantities or a drop in the price of materials could have a material adverse effect on our consolidated financial position and results of operations.
We do not own the intellectual property rights to products we produce.
Although we develop internal production processes, nearly all the parts and subassemblies we produce are built to customer specifications and the customer owns the intellectual property, if any, related to the product. Consequently, if a customer desires to use another manufacturer to fabricate its part or subassembly, it is free to do so, which could have a material adverse effect on our business, our operating results and financial condition.
There are risks associated with new programs.
New programs typically carry risks associated with design changes, acquisition of new production tools, funding commitments, imprecise or changing specifications, timing delays and the accuracy of cost estimates associated with such programs. In addition, any new program may experience delays for a variety of reasons after significant expenditures are made. If we were unable to perform under new programs to the customers’ satisfaction or if a new program in which we made a significant investment was terminated or experienced weak demand, delays or other problems, then our business, financial condition and results of operations could be materially adversely affected. This could result in low margin or forward loss contracts, and the risk of having to write-off costs and estimated earnings in excess of billings on uncompleted contracts if it were deemed to be unrecoverable over the life of the program.
To perform on new programs, we may be required to incur material up-front costs which may not have been separately negotiated and may not be recoverable. Such charges and the loss of up-front costs could have a material impact on our liquidity.
The need to control our expenses places a significant strain on our management and operational resources. If we are unable to control our expenses effectively, our business, results of operations and financial condition may be adversely affected.
There are risks associated with offering new services to our customers.
From time-to-time, to reduce our dependence on subcontractors, increase our customers’ reliance upon us or increase our gross margins we offer new services to our customers, such as painting and finishing products we manufacture. There are risks associated with offering new products and services and even if performed timely and correctly, it is likely that our margins for these new services will be relatively low, or even negative, in the initial phases when volume is low. We may not be successful in achievingpositive gross margins for new services or be able to ultimately meet our customer requirements. If we are unsuccessful, it could hurt our relationship with our customers.
Attracting and retaining executive talent and other key personnel is an essential element of our future success.
Our future success depends to a significant extent upon our ability to attract executive talent, as well as the continued service of our existing executive officers and other key management and technical personnel. We are a relatively small company and experienced management and technical, marketing and support personnel in the defense and aerospace industries are in demand and competition for their talents is intense. Our failure to attract or retain executive, key management and technical personnel could have a material adverse effect on our business, financial condition and results of operations.
We are subject to intense competition for the skilled machinists necessary to manufacture our products.
We are subject to intense competition for the services of skilled machinists necessary to manufacture our products and those of other companies in the aerospace and defense industry. In recent years, the competition for skilled employees has intensified and we have experienced wage inflation. We have strategically located our operations in the U.S. and many companies are expanding their domestic production. As such, there is currently a shortage of skilled workers in the U.S. In order to increase production levels, we must hire new employees and machinists for our two state-of-the art manufacturing facilities and we may not be able to do so or the costs to hire and/or train them may significantly exceed our budget. If the U.S. economy continues to experience inflation, our labor costs may further increase which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to strict governmental regulations relating to the environment, which could result in fines and remediation expense in the event of non-compliance.
We are required to comply with extensive and frequently changing environmental regulations at the federal, state and local levels. Among other things, these regulatory bodies impose restrictions to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous substances into the environment. This extensive regulatory framework imposes significant compliance burdens and risks on us. In addition, these regulations may impose liability for the cost of removal or remediation of certain hazardous substances released on or in our facilities without regard to whether we knew of, or caused, the release of such substances.
We are also required to provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees, provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances. Our operations require the use of chemicals and other materials for painting and cleaning that are classified under applicable laws as hazardous chemicals and substances. If we are found to be in violation of any of these rules, regulations or permits, we may be subject to fines, remediation expenses and the obligation to change our business practice, any of which could result in substantial costs that would adversely impact our business operations and financial condition.
We may be subject to fines and disqualification for non-compliance with Federal Aviation Administration regulations.
We are subject to regulation by the FAA under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations. We have never been subject to such fines or disqualification.
Cyber security attacks, internal system or service failures, and any unauthorized access to our customer data will have an adverse effect on our business and reputation.
Most of our products are used by large aerospace and prime contractors who ultimately provide them to the U.S. Government, foreign governments and commercial airlines. As such, in most cases, we are required to maintain confidential and proprietary information on our information systems. Hackers, whether they be individuals, entities or hostile enemies, may attempt to penetrate our network or those of our third-party hosting and storage providers, to gain access to confidential and proprietary data. If any of this data is hacked or leaked, obtained by others or destroyed without authorization, it could harm our reputation, we could be exposed to civil and criminal liability, which will materially impact our financial results and financial condition. Any system or service disruptions caused by hackers or those caused by projects to improve our information technology capabilities, if not mitigated, could significantly disrupt our production and assembly and could have an immediate material adverse effect on our business. We could also be subject to systems failures, including network, software or hardware failures, whether caused by us or third-party service providers, computer viruses, natural disasters or power shortages.
If hackers gain access to sensitive, confidential or otherwise protected information, they may attempt to force us to pay a ransom before stopping their attack. Any hacker penetration could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs or subject us to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats and have increased recent investment to improve our cyber-security posture, there can be no assurance that these procedures and controls or new investments will be sufficient. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption which would adversely affect our business, results of operations and financial condition. Moreover, expenditures incurred in implementing cyber security and other procedures and controls could adversely affect our results of operations and financial condition.
We are subject to an extensive and evolving regulatory landscape and requirements imposed by our customers to secure our communications, and any adverse changes to, or our failure to comply with, any laws and regulations or requirements of our clients could adversely affect our brand, reputation, business, operating results, and financial condition.
We are subject to extensive laws, rules and regulations directed to those who conduct business over the internet, in addition to security requirements imposed by our clients, including those governing privacy, data governance, data protection and cybersecurity. Many LTAs that we sign with our customers require us to comply with strict vendor clauses including replications of specific sections of the FAR. These legal and regulatory regimes, including the laws, rules, and regulations thereunder, may be modified, interpreted, and applied in an inconsistent manner. To the extent we have not complied with such laws, rules, and regulations, or requirements imposed by our LTAs, we could be subject to significant fines, limitations on the products and services we provide, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect our business, operating results, and financial condition.
Complying with the requirements imposed by the U.S. Government and our customers with respect to privacy, data governance, data protection and cybersecurity is costly and requires a significant amount of attention from management.
Any disruptive national or international events, such as potential future public health crises, ongoing or new conflicts, domestic or foreign terrorist activities, banking crises, the imposition of tariffs, shifts in government alliances, and responses from the U.S. Government, other nations, and the public to such occurrences, could significantly disrupt the operations of us or our suppliers and impede our ability to procure, receive, or replenish inventory (including raw materials). These disruptions may also present challenges in communication and lead to sudden and unexpected shifts in product demand by our customers. Furthermore, global financial markets could experience disruptions, affecting our business and our ability to secure future financing, including accessing debt or equity. The occurrence of any of these events could result in lost sales and otherwise adversely affect our business, operating results, and financial condition.
Conflicts between nations (such as the ongoing Russia-Ukraine conflict or the conflict with Iran), or between nations and terrorist organizations (such as the ongoing conflict between terrorist groups and Israel), as well as terrorist attacks, natural disasters (such as hurricanes, fires, floods and earthquakes), unusually adverse weather conditions, pandemic outbreaks or a banking crisis, the imposition of tariffs, or shifts in government alliances, could adversely affect our operations and financial performance. If any of these events impact us or our suppliers, it could result in an inability on our part to manufacture products and/or result in lost sales, materially affecting our operations and financial performance.
Additionally, such events could disrupt travel, making it a challenge to communicate with our customers, as evidenced during the coronavirus pandemic. Moreover, they could lead to increases in fuel or other energy prices, fuel shortages, temporary labor shortages, temporary or long-term disruptions in delivery of products from our suppliers and disruption to our information systems, any of which could have an adverse impact on our business, operating results and financial condition. Disruptive events could make it difficult for us to access debt and equity capital on attractive terms, or at all, and impact our ability to service or refinance our debt, fund business activities, and repay debt on a timely basis.
Russia’s ongoing war with Ukraine, the conflict in the Middle East (including the ongoing U.S. military operations in Iran), continued tensions between the US and the European Union with China and Russia, and tension between the US and the European Union with respect to funding Ukraine’s war effort, tariffs and other issues, may alter countries’ willingness to rely on others as the source of certain products and material.
Historically, prime contractors and the entire U.S. aerospace and defense supply chain have relied upon parts, components, and raw materials from foreign suppliers including those located in Russia and China. Conversely, many nations chose to rely upon U.S. manufacturers as their primary source for defense products, such as helicopters and fighter aircraft. Geo-political tensions have increased during the past several years and we expect them to continue. Supply chain disruptions resulting from escalating political tensions and the economic disruption resulting from retaliatory measures between countries could result in production delays and cancellations of programs.
Additionally, any material changes to the current aerospace and defense supplier structure resulting from geo-political tensions or otherwise could disrupt the markets for raw materials and supplies and our ability and the ability of our suppliers to obtain raw materials, may be significantly impacted. We cannot forecast with any certainty whether such disruptions, restrictions imposed by various governments in response thereto and resulting changes in business practices, may materially impact our ability and the ability of our suppliers to obtain necessary raw material, our business and our consolidated financial position, results of operations, and cash flows.
Risks Related to Our Indebtedness
As of December 31, 2025, we have total indebtedness of approximately $30.1million, large portions of which must be paid or refinanced prior to September 30, 2026. We have been advised by Webster Bank, our principal lender, that it will not renew our Current Credit Facility. Although Tenax has agreed in the Merger Agreement that it or an affiliate, will pay or cause us to pay our indebtedness, if the Merger with Tenax is not consummated, we may not be able to refinance our existing loans prior to their respective maturity dates. Failure to do so would materially impact our business and our stock price, and we could be forced to cease or suspend our operations or become insolvent.
As of December 31, 2025, we had approximately $23,473,000 of indebtedness outstanding pursuant to the Current Credit Facility with Webster Bank, as amended (“Current Credit Facility”), that matures September 30, 2026. This indebtedness is secured by a lien on substantially all our assets. Additionally, as of December 31, 2025, we had approximately $4,871,000 of Related Party Notes that mature October 1, 2026, which are held by two directors, Michael N. Taglich and Robert F. Taglich. In addition to approximately $784,000 of finance lease obligations, at December 31, 2025, we also had $971,000 of borrowings for the solar energy systems installed at our Barkhamsted facility pursuant to a 20-year level payment term loan with CT Green Bank (“Solar Facility”).
If we are unable to pay or refinance our indebtedness when due, our operations may be materially and adversely affected. We must pay or refinance large portions of our indebtedness prior to September 30, 2026. Since it is unlikely that we will be able to pay this debt, we have initiated steps to satisfy portions and refinance the balance, including entering into a Merger Agreement with Tenax. If we were not to consummate the Merger Agreement, refinancing our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or involve the issuance of debt, equity or new securities convertible into or exercisable or exchangeable for our common stock which may adversely affect the trading price of our common stock and the interests of our existing stockholders. Any failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
Our current or future leverage may adversely affect our ability to finance future operations and capital needs, may limit our ability to pursue business opportunities and may make our results of operations more susceptible to adverse economic conditions. Ultimately, we may not be able to successfully refinance our indebtedness and if we cannot, we would become insolvent.
The weighted average interest rate we paid in 2025 on borrowings outstanding on the Current Credit Facility was 6.72% and this interest rate may increase in the future. Further, we agreed to pay Webster $40,000 as a condition to its agreement to extend the due date of the Current Credit Facility from December 31, 2025, to March 31, 2026, and an additional $175,000 for its agreement to extend the due date to September 30, 2026.
The weighted average interest rate paid during the year-ended December 31, 2025 and 2024, on borrowings outstanding on the Current Credit Facility was 6.72% and 7.66%, respectively. Under the terms of our Current Credit Facility, amounts due bear interest at a per annum rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. Consequently, we may be susceptible to future rate increases if the Federal Reserve chooses to increase its target rate of interest. Further, Webster Bank has indicated that it will not refinance the Current Credit Facility and advised us to seek a new lender. If we were not to consummate the Merger Agreement with Tenax and seek to refinance our debt, it is likely that the interest rate and other consideration we would have to pay would exceed the rates and amounts payable pursuant to the Current Credit Agreement. In addition, in consideration for its agreement to extend the due date of the Current Credit Facility first from December 31, 2025, to March 31, 2026, and subsequently, to September 30, 2026, we agreed to pay Webster Bank fees of $40,000 and $175,000 respectively. If we are unable to refinance the Current Credit Facility and Webster Bank was to continue to fund us pursuant to the Current Credit Facility, it is likely that the rate of interest and other consideration we pay to Webster Bank would increase.
We may not be able to comply with the covenants of the Current Credit Facility and our debt could be called.
As a result of our Merger Agreement (see additional risks below), the Current Credit Facility has been amended to extend the Maturity Date of the loans to September 30, 2026. Under the terms of the Current Credit Facility, we are required to maintain certain business and financial covenants. If we fail to maintain compliance with the covenants of the Current Credit Facility, we would have to seek a waiver from our lender, which may not be given. If we fail to maintain compliance with the covenants of the Current Credit Facility and are unable to obtain a waiver, we may have to pay increased interest rates or other compensation to Webster, may be required to immediately pay any outstanding debt or Webster could retain amounts deposited in the Collection Account and refuse to make advances under the revolving portion of the credit facility. An increase in the interest rate would likely have a material adverse impact on our consolidated financial position and results of operations. If we were required to make immediate repayment or Webster were to refuse to make advances under the revolving portion of the credit facility, we may not be able to obtain financing to repay the amounts due or maintain our operations and would become insolvent.
T he terms of our Current Credit Facility limit our ability to pay dividends.
The terms and covenants of our Current Credit Facility do not allow us to pay dividends. In the future, should we decide to pay dividends, we would need covenant changes or a waiver under our Current Credit Facility. There can be no assurance our lender would agree to covenant changes or grant a waiver. In addition, we may in the future incur additional indebtedness or otherwise become subject to agreements whose terms restrict our ability to pay dividends in the future.
Risks Related to the Merger
Consummation of the Merger Agreement with Tenax is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all.
Unless waived by the parties to the Merger Agreement, and subject to applicable law, the consummation of the Merger Agreement is subject to a number of conditions set forth in the Merger Agreement.
Stockholder approval of the proposal to increase our authorized common stock;
Stockholder approval of the proposal to permit action in lieu of a stockholders meeting by consent only if Majority Ownership (as defined in the Merger Agreement) exists;
Stockholder approval of the proposal, in compliance with Section 713(b) of the NYSE American Guide, authorizing the issuance of the Merger Consideration to the Tenax members resulting in a “change in control;”
The absence of any AIR Material Adverse Effect or Tenax Material Adverse Effect (each as defined in the Merger Agreement);
No litigation or regulatory issue threatening to affect the Merger;
The expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act;
The listing of the shares of our common stock to be issued to the Tenax Members on the NYSE American.
If any of the conditions to the obligation of Tenax to consummate the Merger is not satisfied, Tenax could elect to decline to consummate the Merger or seek to adjust the merger consideration to be received by the Tenax Members.
We have incurred and we will continue to incur significant transaction and transition costs in connection with the Merger.
We have incurred and expect to incur significant, non-recurring costs in connection with our efforts to consummate the Merger. Certain transaction costs incurred in connection with the Merger Agreement will only be paid if the Merger is consummated. Nevertheless, there are significant costs, including legal, accounting, consulting, and other fees, expenses and costs, and under certain conditions, breakup fees, that will be paid by the Company even if the Merger is not consummated and which, in the aggregate, may have a material adverse impact on our business, operating results, and financial condition.
Management has devoted significant time and effort to the negotiation of the Merger Agreement, responding to due diligence requests and seeking to consummate the Merger and will continue to do so until the Merger is consummated or abandoned .
Our management and other personnel have devoted a substantial amount of time and resources to negotiation and execution of the Merger Agreement and will devote significant time and efforts seeking to consummate the Merger diverting time and attention from revenue generating business activities which could have an adverse impact on our business, operating results, and financial condition.
Consummation of the Merger requires the consent of our shareholders to certain actions prior to the Merger and t he Merger Agreement may be amended without shareholder approval.
While our shareholders will not be asked to approve the merger agreement, approval of our shareholders is required for certain actions which must be taken in order to consummate the Merger, including a proposal to increase our authorized stock, a proposal to permit action in lieu of a stockholders meeting by consent only if Majority Ownership (as defined in the Merger Agreement) exists and of the proposal, in compliance with Section 713(b) of the NYSE American Guide, authorizing the issuance of the Merger Consideration to the Tenax members resulting in a “change in control. ”The Merger Agreement contains provisions relating to the issuance of the Company’s shares, the payment of certain obligations of the Company, including the Related Party Notes, a tender offer for a portion of the shares of the Company currently outstanding, and the redemption on the first anniversary of the date on which the Merger is consummated (the “Closing Date”) of all of the shares of the Company outstanding prior to consummation of the Merger. The Merger Agreement may be amended by the parties thereto, without approval of the shareholders of the Company. While the Company does not expect the Company’s Board of Directors to approve any amendment to the Merger Agreement prior to the Merger, it may be possible that the Company’s Board, in exercising its business judgment and subject to its fiduciary duties and any restrictions under the Merger Agreement, chooses to approve one or more amendments to such agreement. Any such amendment may have an adverse effect on the trading price of the Company’s common stock or the prices at which the tender offer is to be conducted and to be paid upon redemption of the shares of the Company outstanding prior to consummation of the Merger or the likelihood that the Merger will be consummated.
The Directors and Officers of the Company have entered into an agreement with Tenax to vote in favor of the Merger, regardless of how the Company’s other shareholders vote.
The Directors and Officers of the Company have agreed, among other things, to vote in favor of all proposals to be presented to our shareholders at the meeting which must be held to approve certain actions which must be taken to consummate the Merger (the “Shareholders Meeting”), including proposals to increase the number of shares of common stock we are authorized to issue from 20 million to 200 million, authorize stockholder action by written consent in lieu of a shareholders meeting at any time while Majority Ownership (as defined in the proposed Charter Amendment) exists and in order to comply with Section 713(b) of the NYSE American Company Guide, to approve the issuance of the shares of common stock pursuant to the Merger Agreement to the Tenax Members resulting in a change of control. Accordingly, such proposals, which are a condition to consummation of the Merger, could be approved even if the majority of the votes cast by the public shareholders are against it. Further, the directors and officers have agreed to vote against any Competing Proposal, as defined, and any other action, agreement or transaction involving the Company that is intended, or would reasonably be expected, to impede, interfere with, delay, postpone, adversely affect or prevent the consummation of the Merger.
The exercise of the Company’s directors’ and executive officers’ discretion in agreeing to the Merger Agreement or changes or waivers in the terms of the Merger Agreement may be impacted by conflicts of interest.
In the period leading up to the Closing of the Merger, events may occur that, pursuant to the Merger Agreement, would require the Company to agree to amend the Merger Agreement, to consent to certain actions taken by Tenax, or to waive rights to which the Company is entitled to under the Merger Agreement. Such events could arise because of changes in the Company’s business, a request by the Company to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement, or the occurrence of other events that would have a material adverse effect on the Company’s business and which would entitle Tenax to terminate the Merger Agreement. In any of such circumstances, it would be at the Company’s discretion, acting through the Company’s Board, to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors in the consummation of the Merger may result in a conflict of interest on the part of such director(s) between what he or they may believe is best for the Company and the Company’s shareholders and what he or they may believe is best for himself or themselves in determining whether or not to take the requested action.
The announcement of the proposed Merger could disrupt our relationships with our customers, suppliers, business partners and others, as well as our operating results and business generally.
Whether or not the Merger is ultimately consummated, as a result of uncertainty related to the proposed transaction, risks relating to the impact of the announcement of the Merger on our business include the following:
our employees may experience uncertainty about their future roles, which might adversely affect their performance and the Company’s ability to retain and hire key personnel and other employees; and
customers, suppliers, business partners and other parties with which we maintain business relationships may experience uncertainty about our future and seek alternative relationships with third parties, seek to alter their business relationships with us or fail to extend an existing relationship with us; and
If any of the aforementioned risks were to materialize, they could lead to significant costs or impacts on our business which may impact us and could have an adverse impact on our business, operating results, and financial condition.
Our issuance of shares of common stock in the Merger will dilute your ownership and could adversely affect our stock price.
Pursuant to the Merger Agreement, based upon our Indebtedness as of December 31, 2025, we will issue approximately 112.5 million shares of our common stock to the Members of Tenax and entities holding warrants to acquire membership interests in Tenax. As a result, the interests of current holders of our common stock will be substantially diluted and they will own in the aggregate, less than 5% of the number of shares of common stock outstanding immediately after consummation of the Merger.
The number of shares of our common stock to be issued in the Merger is subject to adjustment and likely to increase.
The number of shares of our common stock to be issued to the members of Tenax is subject to adjustment based upon our operating performance between the date hereof and the end of the month preceding the month in which the Merger is consummated. Specifically, the number of shares to be issued will increase pursuant to the formula set forth in the Merger Agreement if our indebtedness, as defined in the Merger Agreement, increases (“Indebtedness”). Our Indebtedness increased during the year ended December 31, 2025, and likely will increase during the period commencing January 1, 2026, until the Merger is consummated or abandoned.
There is currently no meaningful information regarding the business, operations and historical financial operating results of Tenax available to prospective purchasers of our common stock in the public markets.
Tenax is a privately held company and is not obligated to and does not make information regarding its business and financial results available to the public. Although information including historical financial results of Tenax will be made available in the proxy statement (“Proxy”) to be distributed to our shareholders prior to the Shareholders Meeting, the historical financial results of Tenax do not reflect the financial condition, results of operations or cash flows it would have achieved as a public company during the periods presented or those we will achieve in the future. Our financial condition and future results of operations could be materially different from amounts reflected in the historical financial statements of Tenax included in the Proxy. Such information as is currently publicly available regarding Tenax and as may become available, will be limited and may not be sufficient for an investor to make an informed decision regarding the future prospects of our Company if the Merger is consummated.
Risks of Being a Public Company
There is only a limited public market for our common stock.
Although our common stock is listed on the NYSE American, there is only a limited number of our common shares available in the public float and the related market capitalization of our float is relatively small. Further, the proportion of our shares in the float will represent a very minor portion of our outstanding shares immediately following consummation of the Merger. The trading volume for our common stock has been limited and a more active public market for our common stock may not develop or be sustained over time. The lack of a robust market may impair a stockholder’s ability to sell shares of our common stock. In the absence of a more active trading market, any attempt to sell our shares could result in a decrease in the price of our stock. Specifically, our shareholders may not be able to resell their shares of common stock at or above the price paid for such shares or at all.
The ownership of our common stock is highly concentrated amongst related parties, and their interests may conflict with the interests of other stockholders.
Two of our directors, Michael N. Taglich and Robert F. Taglich, and their affiliates own a significant portion of our outstanding shares of common stock. They also held $4,871,000 of Related Party Notes as of December 31, 2025, some of which are convertible into our common stock. Although the Related Party Notes are subordinate to our debt pursuant to the Current Credit Facility, we may require additional concessions from the holders of the Related Party Notes and Tenax if we seek to refinance the Current Credit Facility or issue new debt. These related parties have significant influence over the outcome of corporate actions, including those actions requiring stockholder approval to permit the Merger to be consummated. The interests of these related parties may be different from the interests of other stockholders on these and other matters. Additionally, this concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.
Future sales, or the perception of future sales, of our common stock by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
The sale of substantial amounts of shares of our common stock in the public market or the perception that such sales could occur, could negatively impact the market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us or our shareholders to sell equity securities in the future at a time and at a price that we or they deem appropriate.
In connection with the Merger, our directors and officers agreed that they will not, during the period beginning upon execution of the Merger Agreement and terminating on the date on which the Merger is consummated or the Merger Agreement is terminated, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, or otherwise dispose of any shares of our common stock, or any options or warrants to purchase any shares of our common stock, or any securities convertible into, exchangeable for, or that represent the right to receive shares of our common stock, or any interest in any of the foregoing.
Upon consummation of the Merger or termination of the Merger Agreement, shares held by our directors and officers will be eligible for resale, subject to, in the case of stockholders who are our affiliates, volume, manner of sale, and other limitations under Rule 144 promulgated under the Securities Act. In addition, shares of our common stock issuable upon exercise or vesting of incentive awards under our incentive plans are, once issued, eligible for sale in the public market, subject, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144. Furthermore, shares of our common stock reserved for future issuance under our Equity Incentive Plans may become available for sale in future.
The market price of our common stock could drop significantly if the holders of the shares described above sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of shares of our common stock or other securities.
The market price of our common stock is highly volatile, which could result in substantial losses to investors.
The market price of our common stock has historically been volatile and is likely to continue to be volatile. The market price of our common stock could fluctuate widely due to factors relating to our operations, the terms of our Merger Agreement with Tenax, as well as those beyond our control, including public perception of the business prospects of Tenax and the likelihood of consummation of the Merger with Tenax. Because our common stock is thinly traded, the trading price may be volatile due to factors concerning our operations, such as variations in our operating results, failure to meet the covenants under the Current Credit Facility, news regarding the loss of a major customer or termination or a reduction in funding for a program we are on, the loss of management personnel, the outcome or perception of the potential outcome of any litigation, public perception of the business prospects of Tenax and the likelihood of consummation of the Merger with Tenax, general industry conditions and significant industry developments. In addition, the market price of our common stock may be affected by factors unrelated to our operations, such as general economic factors, government budgeting decisions affecting our industry and developments in the financial markets and availability of credit.
Our operating results and financial condition may fluctuate on a quarterly and annual basis.
Our operating results and financial condition fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which will not be within our control. Fluctuations in our operating results and financial condition may be due to a number of factors, including those set forth in these Risk Factors and in our discussion of our results of operations. Due to the risks discussed in these Risk factors and elsewhere this Report, you should not rely on quarter-over-quarter and year-over-year comparisons of our operating results as an indicator of our future performance.
Disruptive national and international events and the response of the United States, other countries and the public to such events, and the resulting macroeconomic disruption to the financial markets could lead to increased volume and price volatility for publicly traded securities which could adversely impact the price of our common stock.
Disruptive national and international events, such as the outbreak of a public health crisis, conflicts between nations or between nations and terrorist organizations, terrorists acts, natural disasters, a banking crisis, the imposition of tariffs, shifts in international alliances, the possibility of default by the U.S. Government on its obligations due to its debt ceiling or the actuality of such an event, and the response of the U.S. Government, other countries and the public to such events, and the resulting macroeconomic disruption to the financial markets could lead to increased volume and price volatility for publicly traded securities which could adversely impact the price of our common stock.
We are a “smaller reporting company” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are a “smaller reporting company.” As a smaller reporting company, we may follow reduced disclosure requirements and do not have to make all of the disclosures that are made by public companies that are not smaller reporting companies. For so long as we remain a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
We can provide no assurance that our common stock will continue to be listed on the NYSE American. If we fail to meet the continued listing standards of the NYSE American, our common stock could be delisted. The delisting of our common stock could impair your ability to purchase shares of our common stock or sell your common stock when you wish to do so which could have a negative effect on the price of our common stock.
If we fail to satisfy the continued listing requirements of the NYSE American, it may take steps to delist our common stock. There are measures that can be taken to remain in compliance with certain of the listing requirements of NYSE American which often require the undertaking of a reverse stock split, selling common stock at prices below what the Board of Directors may believe is its true value or completing a merger to acquire a new business. There are other exchanges and trading platforms on which we could choose to list our common stock. Our Board periodically examines the costs and benefits of listing our common stock on the NYSE American with the costs and benefits that would result from an alternative trading platform. If our Board were to choose to seek another platform for the trading of our common stock, this could entail suspending our obligation to file periodic reports with the SEC and using other means to make information publicly available to shareholders and potential buyers of our common stock. There can be no assurance that any cost savings and other benefits we might achieve from trading on another platform would outweigh any negative impact to the trading market and price of our common stock that would result from delisting from the NYSE American.
If the NYSE delists the Company’s securities from trading on its exchange and the Company is not able to list its securities on another national securities exchange, the Company’s securities could be quoted on an over-the-counter market. If this were to occur, the Company could face significant material adverse consequences, including:
a limited availability of market quotations for its securities;
reduced liquidity for its securities;
a determination that the Company’s common stock is a “penny stock” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities;
a decreased ability to issue additional securities or obtain additional financing in the future.
The NYSE American may require us to meet the requirements for an initial listing if we consummate the Merger with Tenax
If we consummate the Merger with Tenax the NYSE American may require us to meet the requirements for an initial listing. The NYSE American has announced it intends to amend its initial listing rules to require, among other criteria, a per share price of at least $4.00 per share and a market capitalization of at least $15,000,000. If we are unable to satisfy such requirements, it may take steps to delist our common stock. There are measures that can be taken to comply with certain of the listing requirements of NYSE American, such as effecting a reverse stock split or selling shares of our common stock. We cannot assure you that the Company will be able to meet those initial listing requirements after the Merger.
If we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly.
Our quarterly and annual operating results fluctuate significantly due to a variety of factors, some of which are outside our control. Accordingly, we believe period-to-period comparisons should not be relied upon as indications of future performance. Some of the factors that could cause quarterly or annual operating results to fluctuate include conditions inherent in government contracting and our business such as the timing of cost and expense recognition for contracts, the U.S. Government contracting and budget cycles, introduction of new government regulations and standards, contract closeouts, variations in manufacturing efficiencies, our ability to obtain components and subassemblies from contract manufacturers and suppliers, general economic conditions and economic conditions specific to the defense market and disruptions caused by global events. Because we base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed in the short term, any delay in generating or recognizing forecasted revenues could significantly harm our business.
Fluctuations in quarterly results may cause earnings to fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock could significantly decline. These fluctuations, as well as general economic and market conditions, may adversely affect the future market price of our common stock, as well as our overall operating results. Consequently, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance.
If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that third-party securities analysts publish about us and the industries in which we operate. Currently, there is limited analyst coverage of our Company. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of us, the price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst that may cover us ceases covering us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline. Moreover, if one or more of the analysts who cover us downgrades our common stock, or if our reporting results do not meet their expectations, the market price of our common stock could decline.
Future financings or acquisitions may adversely affect the market price of our common stock.
Future sales or issuances of our common stock, including upon conversion of our outstanding convertible notes, upon exercise of our outstanding warrants and options, or as part of the Merger and other future financings or acquisitions, would be substantially dilutive to the outstanding shares of common stock. Any dilution or potential dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the price of common stock.
Issuing additional shares of our capital stock, other equity securities, or securities convertible into equity may dilute the economic and voting rights of our existing stockholders, reduce the market price of our common stock, or both. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. As a result, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their percentage ownership.
We incur significant costs as a result of operating as a public company, and our management is required to devote substantial effort to compliance requirements, including establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are unable to comply with these requirements. Costs to comply may increase in the future. The requirements of being a public company affect our ability to attract and retain qualified board members.
We are and after completion of the Merger intend to continue to be, subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and any rules promulgated thereunder, as well as the rules of NYSE American. The requirements of these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required, and, as a result, management’s attention may be diverted from other business concerns. These rules and regulations can also make it more difficult for us to attract and retain qualified independent members of our board of directors. Additionally, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements can have a material adverse effect on our operations, business, financial condition, or results of operations.
The Sarbanes-Oxley Act, among other things, requires that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.
If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.
Our management determined that as of December 31, 2025, our disclosure controls and procedures and internal control over financial reporting were not effective due to a material weakness regarding appropriate segregation of duties with respect to and validation of data produced by certain modules of our financial IT systems. We first determined this weakness in fiscal 2022 and have not been able to address these weaknesses without incurring significant costs and/or process changes. Although improved controls have been implemented during fiscal 2023, 2024, and 2025, we will need to enhance and further formalize these controls during fiscal 2026. We expect to conclude our testing of effectiveness in fiscal 2026 but we may find that the remediations implemented were not effective and have to incur additional costs to adopt new controls. A significant increase in costs in 2026 or any failure to maintain our controls or operation of these controls, could harm our operations, decrease the reliability of our financial reporting, and cause us to fail to meet our financial reporting obligations, which could adversely affect our business and reduce our stock price.
We do not expect to pay any cash dividends for the foreseeable future.
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, certain restrictions related to our indebtedness, industry trends, and other factors that our board of directors may deem relevant. In addition, we may incur additional indebtedness, the terms of which may further restrict or prevent us from paying dividends on our common stock. As a result, you may have to sell some or all of your common stock after price appreciation in order to generate cash flow from your investment, which you may not be able to do. Our inability or decision not to pay dividends, particularly when others in our industry have elected to do so, could also adversely affect the market price of our common stock.
