AIRI

Business Context and Reporting Period

Company: Air Industries Group
Filing Type: Form 8-K (Current Report)
Date of Report: January 2, 2019
Event: Entry into a Material Definitive Agreement (Seventeenth Amendment to Loan Agreement with PNC Bank, National Association).

Key Financial Metrics and Debt Structure

Debt and Liquidity:

• Interest Rate: Revolving and term loans now bear interest at Alternate Base Rate plus 4%.
• Out-of-Formula Loan: PNC permitted revolving advances to exceed the formula amount by $1,000,000 as of December 31, 2018.
• Repayment Schedule: The $1,000,000 excess must be reduced by $25,000 per week commencing April 1, 2019, with full repayment due December 31, 2019.
• Maturity Date: Both revolving and term loans mature on December 31, 2019.

Extension Fees (Total Potential Cost):

• $250,000 due on the earlier of full repayment or June 30, 2019.
• $125,000 due on the earlier of full repayment or December 31, 2019 (deemed earned if not satisfied by July 1, 2019).
• $125,000 due on the earlier of full repayment or December 31, 2019 (deemed earned if not satisfied by October 1, 2019).
• $500,000 due on December 31, 2019 (deemed earned if not satisfied by that date).

Capital Infusion and Related Party Loan:

• Michael Taglich loaned $2,000,000 to the Company.
• Mr. Taglich is required to make a capital infusion of not less than $800,000 by January 15, 2019.
• The Taglich loan is subordinated in full to the PNC obligations.

Other Metrics:

The filing text does not provide clear values for revenue, profit, cash flow, or margins.

Material Changes Versus Prior Period

The primary material change is the amendment of the credit facility terms effective January 2, 2019. Key changes include:

• Extension of the loan maturity date to December 31, 2019.
• Adjustment of the interest rate to Alternate Base Rate plus 4%.
• Authorization of a temporary $1,000,000 over-advance against the borrowing formula.
• Imposition of significant extension fees totaling up to $1,000,000 contingent on repayment timing.
• Requirement for a $2,000,000 related-party loan and $800,000 capital infusion as conditions for the extension.

Guidance, Outlook, and Risks

Management Commentary: The filing indicates the Company secured an extension of its credit facility to maintain liquidity, contingent on significant fees and additional capital from a related party.

Risks and Contingencies:

• Repayment Risk: The Company must reduce the out-of-formula loan balance weekly starting April 2019; failure to do so could trigger default.
• Cost of Capital: The extension fees represent a substantial additional cost of debt if the obligations are not paid early.
• Capital Infusion Timing: The $800,000 capital infusion from Michael Taglich is required by January 15, 2019. The specific terms of this infusion and the related loan were not yet agreed upon at the time of filing.

Unusual Items: The filing does not disclose unusual items outside of the loan amendment and related-party financing.

Investor Verification Checklist

• Verify the execution of the $800,000 capital infusion by Michael Taglich by the January 15, 2019 deadline.
• Confirm the specific terms (interest rate, maturity) of the $2,000,000 loan from Michael Taglich.
• Monitor the weekly reduction of the $1,000,000 out-of-formula loan balance commencing April 1, 2019.
• Assess the Company's ability to service the increased interest rate (Base Rate + 4%) and potential extension fees.
• Review subsequent filings for any default notices or further amendments to the PNC Loan Agreement.