A&B Aerospace acquisition adds machining revenue to PMGC (ELAB)
PMGC Holdings Inc. completed the acquisition of 100% of A&B Aerospace, Inc. for $4.5 million in cash, paying $4.275 million at closing and retaining $225,000 as an indemnification holdback tied to specific litigation. The price is subject to cash and net working capital adjustments after closing.
A&B Aerospace is a precision CNC machining contractor serving aerospace, defense, and industrial markets. It generated $4.28 million of revenue and a $0.11 million net loss in the year ended May 31 2025, and $3.61 million of revenue with $0.34 million net income for the nine months ended February 28 2026. As of February 28 2026, it reported total assets of $2.41 million, cash of $0.68 million, investments of $0.34 million, and net working capital of about $1.45 million, indicating a solid liquidity position.
Positive
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Insights
PMGC adds a profitable aerospace machining business with a modest $4.5M cash deal.
PMGC acquired all shares of A&B Aerospace for $4.5M in cash, including a $225,000 indemnification holdback tied to litigation. The deal includes post-closing adjustments based on cash and net working capital versus a $855,669 target.
A&B focuses on precision CNC machining for aerospace, defense, and industrial customers and operates under an AS9100D-certified quality system. Revenue reached $4.28M in the year to May 31 2025 and $3.61M for the nine months to Feb 28 2026, with net income of $343,903 in the latter period.
The business shows improving profitability, positive operating cash flow of $349,252 over nine months, and net working capital of about $1.45M. Subsequent filings with combined pro forma financials for the year ended Dec 31 2025 may clarify the acquisition’s impact on PMGC’s overall scale and margins.
8-K Event Classification
Key Figures
Key Terms
Net Working Capital Adjustment Amount financial
vendor-managed inventory financial
AS9100D-certified quality management system technical
current expected credit loss financial
valuation allowance financial
vendor-managed inventory (VMI) consignment programs financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Item 1.01 Entry into a Material Definitive Agreement.
The information set forth under Item 2.01 of this Current Report on Form 8-K (“Form 8-K) is incorporated herein by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On May 12, 2026, PMGC Holdings Inc. (the “Company”) completed the acquisition (the “Acquisition”) of 100% of the issued and outstanding shares (the “Shares”) of A&B Aerospace, Inc., a California corporation (the “Target”), pursuant to a Stock Purchase Agreement dated as of May 11, 2026 (the “Purchase Agreement”), by and between the Company, the Target, and stockholders of the Target owning the Shares (such stockholders, collectively, the “Sellers,” and, together with the Company and the Target, the “Parties”).
The Acquisition closed on May 12, 2026 (consummation of the Acquisition, “Closing” and such date, “Closing Date”). The purchase consideration for the Shares consisted of: (i) $4,500,000 in cash, of which $4,275,000 was paid to the Sellers at Closing (the “Closing Purchase Price”) and $225,000 was retained by the Company at Closing as an indemnification holdback (the “Indemnification Holdback”) as to the Litigation (as defined below); plus (ii) the Estimated Closing Cash Balance (as defined below), which the Sellers are required under Purchase Agreement to use commercially best efforts to cause to be at least $300,000 at the Closing; plus (iii) the amount, if any, by which the Estimated Net Working Capital (as defined below) is greater than the Net Working Capital Target (as defined below), less (iv) the amount, if any, by which the Estimated Net Working Capital is less than the Net Working Capital Target (as defined below). The Purchase Agreement provides for a post-Closing true-up consisting of: (1) a Closing Cash Balance Adjustment equal to the Final Cash Balance (as defined below) minus the Estimated Closing Cash Balance (as defined below), and (B) a Net Working Capital Adjustment Amount equal to the Final Net Working Capital minus the Estimated Net Working Capital, with the sum of such two amounts (the “Final Adjustment Amount”) settled in cash between the Company and the Sellers within five Business Days after final determination.
After Closing, the Target will continue operating its business at the Target’s existing facility, pursuant to a commercial lease agreement entered into at Closing between the Target and certain lessors (the “Lease Agreement”). The President of the Target prior to Closing will continue to serve as President of the Target following the Closing, pursuant to an employment agreement entered into at Closing between such individual and the Target. Under the Purchase Agreement, the Sellers agreed to remain available to the Company for a period of six (6) months after the Closing Date to provide reasonable transition services, including assistance with required financial audits, operational knowledge transfer, and other reasonable matters for post-Closing transition. The Sellers also agreed to a three (3)-year non-competition provision in the Purchase Agreement as to the information technology packaging business the State of California and commencing on the Closing Date. The Sellers also agreed to a customary non-solicitation provision.
The Parties agreed to certain customary closing conditions and representations and warranties. The Parties agreed to certain customary indemnification provisions, and the Sellers agreed to indemnify the Company for, among other things: (i) all Taxes of the Target attributable to Pre-Closing Tax Periods (as defined below), (ii) Losses related to any employee being ineligible or unauthorized to work in the United States as of the Closing Date, and (iii) any claim with respect to a certain pending litigation of the Target.
“Balance Sheet” means the balance sheet of the Target as of December 31, 2025.
“Closing Cash Balance Adjustment” means the Final Cash Balance minus the Estimated Closing Cash Balance.
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“Closing Net Working Capital” means the calculation of the Target’s Net Working Capital as of the Closing, as set forth in the Closing Statement.
“Closing Statement” means a closing statement prepared by the Company and delivered to the Sellers within 90 days after the Closing, setting forth the Closing Net Working Capital and the Final Cash Balance.
“Estimated Closing Balance Sheet” means the balance sheet of the Target as of the Closing, prepared on a basis consistent with the preparation of the Balance Sheet.
“Estimated Closing Cash Balance” means the calculated cash and cash equivalents of the Target as of the Closing.
“Estimated Net Working Capital” means the calculated net working capital of the Target based on the Estimated Closing Balance Sheet.
“Final Cash Balance” means the Closing Cash Balance as set forth in the Closing Statement, as finally determined in accordance with Section 1.04(c) of the Purchase Agreement.
“Net Working Capital Target” means an amount equal to $855,669.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.
Capitalized terms used but not otherwise defined in this Form 8-K shall have the respective meanings ascribed thereto by the Purchase Agreement, filed in this Form 8-K as Exhibit 10.1. The foregoing summary of the transactions contemplated by the Purchase Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Purchase Agreement filed herein as Exhibit 10.1.
Item 7.01 Regulation FD Disclosure.
On May 13, 2026, the Company issued a press release, a copy of which is furnished as Exhibit 99.4 to this Form 8-K.
The information furnished pursuant to this Item 7.01, including Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The unaudited financial statements of A&B Aerospace, Inc. as of the nine months ended February 28, 2026 and February 28, 2025 are filed herein as Exhibit 99.1 and incorporated herein by reference into this Item 9.01(a). The audited financial statements of A&B Aerospace, Inc. as of the fiscal year ended May 31, 2025 and May 31, 2024 are filed herein as Exhibit 99.2 and incorporated herein by reference into this Item 9.01(a).
(b) Pro Forma Financial Information.
The Unaudited Pro Forma Condensed Combined Balance Sheet of PMGC Holdings Inc. as of December 31, 2025 and the Unaudited Pro Forma Condensed Combined Statements of Operations of PMGC Holdings Inc. for the year ended December 31, 2025 are filed herein as Exhibit 99.3 and incorporated herein by reference into this Item 9.01(b).
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(d) Exhibits.
The following exhibits are being filed herewith:
| Exhibit No. | Description | |
| 10.1*+ | Stock Purchase Agreement dated as of May 11, 2026, by and between PMGC Holdings Inc., A&B Aerospace, Inc., and the stockholders of A&B Aerospace, Inc. | |
| 99.1 | Unaudited financial statements of A&B Aerospace, Inc. as of the nine months ended February 28, 2026 and February 28, 2025. | |
| 99.2 | Audited financial statements of A&B Aerospace, Inc. as of the fiscal year ended May 31, 2025 and May 31, 2024 | |
| 99.3 | Unaudited Pro Forma Condensed Combined Balance Sheet of PMGC Holdings Inc. for the year ended December 31, 2025 and Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2025. | |
| 99.4 | Press release dated May 13, 2026. | |
| 104 | Cover Page Interactive Data File (embedded with the Inline XBRL document). |
| * | The schedules, exhibits or similar attachments have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of any schedules, exhibits or similar attachments to the Securities and Exchange Commission upon request. |
| + | Portions of this exhibit have been redacted. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 13, 2026
| PMGC Holdings, Inc. | ||
| By: | /s/ Graydon Bensler | |
| Name: | Graydon Bensler | |
| Title: | Chief Executive Officer, President and Director | |
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Exhibit 99.1
Financial Statements of
A&B AEROSPACE, INC.
For the three and nine months ended February 28, 2026 and 2025 (Unaudited)
A&B AEROSPACE, INC.
Balance Sheet (unaudited)
| As of: | Note | Feb 28, 2026 | May 31, 2025 | ||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 681,509 | $ | 558,081 | |||||||
| Accounts receivable, net | 5 | 388,048 | 327,788 | ||||||||
| Other receivables | 4,000 | 2,982 | |||||||||
| Investments, at fair value | 9 | 344,336 | 178,657 | ||||||||
| Inventories, net | 6 | 502,717 | 469,220 | ||||||||
| Prepaid expenses and other current assets | 24,231 | 7,187 | |||||||||
| Total Current Assets | $ | 1,944,841 | $ | 1,543,915 | |||||||
| Non-current Assets | |||||||||||
| Property and equipment, net | 7 | $ | 463,772 | $ | 543,627 | ||||||
| TOTAL ASSETS | $ | 2,408,613 | $ | 2,087,542 | |||||||
| LIABILITIES | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 158,645 | $ | 127,201 | |||||||
| Credit card payable | 5,818 | 301 | |||||||||
| Notes payable | 8 | 108,034 | 161,692 | ||||||||
| Customer deposits | - | 6,135 | |||||||||
| Accrued settlement liability | 225,000 | 225,000 | |||||||||
| Total Current Liabilities | $ | 497,497 | $ | 520,329 | |||||||
| TOTAL LIABILITIES | $ | 497,497 | $ | 520,329 | |||||||
| COMMITMENT AND CONTINGENCIES | 11 | ||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
| Capital stock (no par value, 100,000 shares authorized; 10,000 shares issued and outstanding at February 28, 2026 and May 31, 2025) | 10 | $ | - | $ | - | ||||||
| Paid-in Capital | 10 | 10,000 | 10,000 | ||||||||
| Retained Earnings | 10 | 1,901,116 | 1,557,213 | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | $ | 1,911,116 | $ | 1,567,213 | |||||||
| TOTAL LIABILITIES AND EQUITY | $ | 2,408,613 | $ | 2,087,542 | |||||||
The accompanying notes are an integral part of these statements.
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A&B AEROSPACE, INC.
Statement of Operations (unaudited)
| Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||||
| Note | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||
| Revenue | 3 | $ | 1,274,503 | $ | 1,015,933 | $ | 3,607,404 | $ | 3,197,393 | |||||||||||
| Cost of goods sold | (1,003,914 | ) | (945,867 | ) | (2,139,952 | ) | (2,568,491 | ) | ||||||||||||
| Inventory impairments and write-offs | 6 | - | - | (695,763 | ) | - | ||||||||||||||
| Total cost of goods sold | (1,003,914 | ) | (945,867 | ) | (2,835,715 | ) | (2,568,491 | ) | ||||||||||||
| Gross profit | $ | 270,589 | $ | 70,066 | $ | 771,689 | $ | 628,902 | ||||||||||||
| Other income, net | 2,694 | 2,082 | 16,167 | 3,922 | ||||||||||||||||
| Litigation settlement expense | 11 | - | (225,000 | ) | - | (225,000 | ) | |||||||||||||
| Other operating expenses | (146,129 | ) | (157,068 | ) | (432,968 | ) | (504,900 | ) | ||||||||||||
| Income (loss) before income taxes | $ | 127,154 | $ | (309,920 | ) | $ | 354,888 | $ | (97,076 | ) | ||||||||||
| Income tax expense | 13 | (3,662 | ) | (3,662 | ) | (10,985 | ) | (10,985 | ) | |||||||||||
| Net income (loss) | $ | 123,492 | $ | (313,582 | ) | $ | 343,903 | $ | (108,061 | ) | ||||||||||
| Earnings (loss) per share - basic and diluted | $ | 12.35 | $ | (31.36 | ) | $ | 34.39 | $ | (10.81 | ) | ||||||||||
| Weighted-average shares outstanding - basic and diluted | 10,000 | 10,000 | 10,000 | 10,000 | ||||||||||||||||
The accompanying notes are an integral part of these statements.
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A&B AEROSPACE, INC.
Statement of Changes in Stockholders’ Equity (unaudited)
| Three Months Ended February 28, | Nine
Months Ended | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Paid-in Capital | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | ||||||||
| Retained Earnings | ||||||||||||||||
| Beginning Balance | $ | 1,777,624 | $ | 1,874,512 | $ | 1,557,213 | $ | 1,668,991 | ||||||||
| Net Income (loss) | 123,492 | (313,582 | ) | 343,903 | (108,061 | ) | ||||||||||
| Ending Balance | $ | 1,901,116 | $ | 1,560,930 | $ | 1,901,116 | $ | 1,560,930 | ||||||||
| Total Equity | $ | 1,911,116 | $ | 1,570,930 | $ | 1,911,116 | $ | 1,570,930 | ||||||||
The accompanying notes are an integral part of these statements.
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A&B AEROSPACE, INC.
Statement of Cash Flows (unaudited)
| Nine Months Ended February 28, | ||||||||
| 2026 | 2025 | |||||||
| Operating activities | ||||||||
| Net Income (Loss) | $ | 343,903 | $ | (108,061 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 86,342 | 76,540 | ||||||
| Provision for doubtful accounts | - | (198,042 | ) | |||||
| Inventory reserves and write-downs | - | 80,182 | ||||||
| Non-cash adjustments to PP&E and inventory, net | - | (130,722 | ) | |||||
| Reversal of non-cash accrual | - | 225,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | (60,260 | ) | 172,533 | |||||
| Decrease (increase) in Inventories | (33,497 | ) | - | |||||
| Increase in prepaid expenses and taxes | (17,044 | ) | (7,500 | ) | ||||
| Decrease (Increase) in other receivables | (1,018 | ) | 4,549 | |||||
| Increase in accounts payable and credit cards | 36,961 | 42,001 | ||||||
| Decrease in accrued expenses | - | (2,747 | ) | |||||
| Decrease in customer deposits | (6,135 | ) | (19,498 | ) | ||||
| Net cash (used in) provided by operating activities | $ | 349,252 | $ | 134,235 | ||||
| Investing activities | ||||||||
| Purchases of office equipment | (6,487 | ) | (7,891 | ) | ||||
| Purchases of investments | (165,679 | ) | - | |||||
| Net cash provided by (used in) investing activities | $ | (172,166 | ) | $ | (7,891 | ) | ||
| Financing activities | ||||||||
| (Repayments) of Newlane Finance note payable | - | (16,013 | ) | |||||
| (Repayments) of INTECH note payable | (25,893 | ) | (25,003 | ) | ||||
| (Repayments) of US Bank Equipment loan | (15,179 | ) | (14,262 | ) | ||||
| (Repayments) of SBA PPP loan | (12,586 | ) | (12,490 | ) | ||||
| Net cash provided by (used in) financing activities | $ | (53,658 | ) | $ | (67,768 | ) | ||
| Net increase in cash | $ | 123,428 | $ | 58,576 | ||||
| Cash, beginning of period | $ | 558,081 | $ | 595,813 | ||||
| Cash, end of period | $ | 681,509 | $ | 654,389 | ||||
The accompanying notes are an integral part of these statements.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Notes to the Financial Statements
As of February 28, 2026 and May 31, 2025, and for the three and nine months ended February 28, 2026 and 2025 (Unaudited)
NOTE 1: Nature of Operations
A&B Aerospace, Inc. (the “Company”) is a California corporation incorporated in 1992, operating as a precision CNC machining contractor serving the aerospace, defense, and industrial end-markets. The Company manufactures close-tolerance machined components from customer-supplied and Company-procured raw materials, principally aluminum, stainless steel, titanium, and high-temperature alloys, using CNC turning centers, Swiss-type automatic lathes, and vertical machining centers at its facility in Southern California. The Company operates under an AS9100D-certified quality management system and supplies both production and aftermarket components. The Company’s fiscal year ends on May 31. These interim financial statements cover the three and nine months ended February 28, 2026 and the comparable prior-period three and nine months ended February 28, 2025. The nine-month stub period extends from June 1, 2025 through February 28, 2026. The stub period financial statements have been prepared in connection with a potential sale transaction.
NOTE 2: Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in U.S. dollars.
In accordance with Accounting Standards Codification (ASC) 205-40, Presentation of Financial Statements, Going Concern, management has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are available to be issued. The Company generated net income of $123,492 for the three months ended February 28, 2026, compared to a net loss of $313,582 for the three months ended February 28, 2025. For the nine months ended February 28, 2026, the Company generated net income of $343,903, compared to a net loss of $108,061 for the nine months ended February 28, 2025. The Company generated positive cash flow from operations of $349,252 for the nine months ended February 28, 2026, compared to $134,235 for the nine months ended February 28, 2025, demonstrating an ability to fund its day-to-day operations from recurring revenue.
At February 28, 2026, the Company had net working capital (current assets less current liabilities) of approximately $1,447,000, comprising total current assets of approximately $1,945,000 and total current liabilities of approximately $497,000, resulting in a current ratio of approximately 3.9 to 1. Cash and cash equivalents totaled $681,509 and the Company held an additional $344,000 in marketable equity securities, providing aggregate liquid resources of approximately $1,026,000 against total current obligations of approximately $497,000.
Management has assessed the Company’s available cash and cash equivalents, its investment portfolio, and projected operating cash requirements for the twelve months following the date the financial statements are available to be issued. Based on this assessment (including the Company’s positive operating cash-flow trend and its net working capital position) management believes the Company has sufficient liquidity to meet its obligations as they become due, and accordingly the financial statements have been prepared on a going-concern basis.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Areas requiring significant management judgment include the allowance for credit losses on accounts receivable, the net realizable value of inventories (including the capitalized manufacturing-overhead component), the useful lives and recoverability of property and equipment, the valuation of investments, and the assessment of revenue recognition for consignment arrangements under ASC 606. Actual results could differ from those estimates.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash held in demand deposit accounts at federally-insured financial institutions, and highly-liquid investments with original maturities of three months or less at the date of acquisition. Money market funds held at Morgan Stanley are classified as cash equivalents as they are redeemable on demand at net asset value and are invested in short-term, high-credit-quality instruments.
Concentrations of credit risk
The Company is exposed to concentrations of credit risk on cash deposits and trade accounts receivable. The Company’s accounting policy and the quantitative disclosures regarding these concentrations are presented in Note 4.
Investments
Investments consist of marketable equity securities and money market instruments held in a brokerage account at Morgan Stanley. Equity securities are measured at fair value with changes in fair value recognized in the Statement of Operations as a component of Other Income, Net, in accordance with ASC 321, Investments - Equity Securities. Fair values are determined based on quoted market prices in active markets (Level 1 inputs, see Note 9). Dividend income is recognized when the Company’s right to receive payment is established.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses. The Company applies the current expected credit loss (“CECL”) model under ASC 326, Financial Instruments - Credit Losses. Under CECL, the Company estimates lifetime expected credit losses at the reporting date based on a combination of (i) a specific-reserve analysis for invoices aged greater than 90 days or where other indicators of collectability risk exist, and (ii) a pooled historical-loss assessment for the remainder of the portfolio. Forward-looking economic indicators (including aerospace end-market demand, customer-specific financial condition, and general macroeconomic conditions) are incorporated where they would materially affect the expected loss estimate. Invoices are charged off against the allowance when management determines, after exhausting commercially reasonable collection efforts, that recovery is not probable.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined using a first-in, first-out (FIFO) method. Inventory cost includes direct materials, direct labor, and an allocation of manufacturing overhead under a full-absorption costing model consistent with ASC 330, Inventory. Manufacturing overhead allocated to inventory includes, among other items, indirect production labor, manufacturing utilities, plant rent, plant insurance, tooling, plant supplies, and depreciation on manufacturing equipment. The Company periodically reviews inventory for excess and obsolete items and records an inventory reserve when necessary.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
The Company evaluates its inventories for excess, slow-moving, and obsolete quantities at each reporting date. A reserve is recorded against inventories where the estimated net realizable value is less than carrying cost based on management’s analysis of (i) ageing of finished goods, (ii) historical and forecast usage by part number, (iii) customer-specific demand visibility (including consumption against open vendor-managed inventory (“VMI”) replenishment commitments), and (iv) the salvage or scrap value of components for which no further demand is anticipated. Write-downs are recognized in the period in which the reduction in net realizable value is identified and are presented within Inventory impairments and write-offs in the Statements of Operations.
Raw material, work-in-process and finished goods are held on the Company’s premises and measured using year-end physical counts. The Company applies a standard-cost system for routine operational measurement; standard costs are reviewed at least annually and are designed to approximate actual cost. At each reporting date, total purchase-price, labor, and overhead variances are analyzed and any portion attributable to inventory remaining on hand is capitalized into inventory, with the remainder recognized in Cost of Goods Sold. Through this process, inventory is presented at amounts that approximate actual cost in accordance with ASC 330. Consigned inventory (goods held at Honeywell and MOOG VMI bin locations but over which the Company retains control per ASC 606-10-55-2) is reported as an asset until control transfers to the customer upon the customer’s consumption of the inventory.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: machinery and equipment, seven years; computer software (numerical control programming), three years; vehicles, five years; office equipment and furniture and fixtures, five years; and leasehold improvements, the lesser of the estimated useful life of the improvement or the remaining lease term. Maintenance and repairs are expensed as incurred; expenditures that extend an asset’s useful life or increase its capacity are capitalized. Upon disposal, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the Statement of Operations.
The Company evaluates property and equipment for impairment in accordance with ASC 360, Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability is assessed by comparing the carrying amount of the asset (or asset group) to the future undiscounted net cash flows expected to be generated by the asset. If the carrying amount is not recoverable, an impairment loss is measured as the excess of the carrying amount over the asset’s fair value.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods transfers to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. See Note 3 for a detailed description of the Company’s revenue policies.
Segment reporting
The Company operates as a single reportable segment under ASC 280, Segment Reporting. The Company’s chief operating decision-maker, who is its president, reviews financial information on a consolidated basis for purposes of allocating resources and assessing performance. All of the Company’s long-lived assets are located in the United States and substantially all of its revenue is generated from customers located in the United States.
Income taxes
The Company is a C corporation and accounts for income taxes under ASC 740, Income Taxes, using the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. A valuation allowance is established against any deferred tax asset to the extent that, on a more-likely-than-not basis, the asset will not be realized.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
The Company assesses its income tax positions in accordance with ASC 740-10 and recognizes the financial-statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by the relevant taxing authority. Management has evaluated the Company’s tax positions taken or expected to be taken in its tax returns and has concluded that no liability for unrecognized tax benefits is required to be recorded at February 28, 2026 or May 31, 2025. The Company recognizes interest and penalties related to unrecognized tax benefits, if any, within income tax expense. The Company’s federal income tax returns for fiscal years 2022 and forward, and California franchise tax returns for fiscal years 2021 and forward, remain subject to examination by the applicable taxing authorities.
Leases
The Company evaluates its arrangements at inception to determine whether a lease exists under ASC 842, Leases. An arrangement is a lease, or contains a lease, if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Operating-lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of fixed lease payments over the lease term, using the Company’s incremental borrowing rate when the rate implicit in the lease is not readily determinable. The Company occupies its principal manufacturing facility under a related-party arrangement with an entity wholly owned by the Company’s two officer-shareholders. The arrangement is not documented by an enforceable written contract and is terminable at will by either party; accordingly, the Company has accounted for the arrangement as a month-to-month tenancy and has not recognized a right-of-use asset or lease liability under ASC 842. Rent expense is recognized on a straight-line basis as incurred. See Note 11 for further detail on the related-party arrangement.
Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, investments, accounts payable, and notes payable. The carrying values of cash, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying value of notes payable approximates fair value based on their stated interest rates relative to current market rates for comparable instruments. Fair-value measurements of investments are disclosed in Note 9.
Recent accounting pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands segment disclosure requirements to include incremental information about significant segment expenses. The Company adopted ASU 2023-07 on June 1, 2024 and applied the standard retrospectively to the comparative period. Because the Company operates as a single reportable segment, the adoption did not have a material effect on the Company’s financial position, results of operations, or cash flows other than enhanced footnote disclosure.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax-rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning June 1, 2025. The Company is currently evaluating the effect of adoption on its income-tax footnote disclosures and does not expect the adoption to have a material effect on its financial position or results of operations.
Management has reviewed other recently issued accounting pronouncements and does not believe any other pronouncement issued but not yet effective will have a material effect on the Company’s financial statements upon adoption.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
NOTE 3: Revenue from Contracts with Customers
Contracts and performance obligations
The Company enters into contracts with customers pursuant to master supply agreements and individual purchase orders for the sale of machined components. Each purchase order is treated as a separate contract for financial reporting purposes.
Principal versus agent considerations
The Company has assessed whether it acts as a principal or as an agent in its arrangements with customers under ASC 606-10-55-36 through 55-40. The Company has concluded that it is the principal in all of its revenue arrangements because it (i) is primarily responsible for fulfilling the promised goods, (ii) has inventory risk before the goods are transferred to the customer, including with respect to consigned and VMI-held inventory over which the Company retains control until customer consumption, and (iii) has discretion in establishing the price for its components. Accordingly, revenue is recognized on a gross basis at the amount the Company expects to be entitled to in exchange for the components delivered. The Company has determined that each identified part number within a purchase order represents a distinct performance obligation, as the customer can benefit from each part separately and the parts are separately identifiable within the contract.
Transaction prices are fixed per the unit prices stated in each purchase order. The Company’s contracts do not contain material variable consideration, significant financing components, non-cash consideration, or consideration payable to the customer. Sales-related taxes collected from customers on behalf of governmental authorities are excluded from revenue.
Standard shipments
For standard (non-consignment) purchase-order shipments, the Company recognizes revenue at the point in time when control of the goods transfers to the customer. The Company’s customary terms are F.O.B. shipping point, and control transfers, and revenue is recognized, upon shipment from the Company’s facility. Revenue from standard shipments was $886,646 and $632,582 for the three months ended February 28, 2026 and 2025, respectively, and $2,567,153 and $2,194,460 for the nine months ended February 28, 2026 and 2025, respectively.
Vendor-managed inventory (VMI) consignment
The Company sells certain part numbers to Honeywell International Inc. and MOOG, Inc. through vendor-managed inventory (“VMI”) consignment programs. Under these programs, the Company ships goods to customer-operated stocking locations but does not recognize a sale upon shipment. The Company has analyzed the VMI arrangements against the indicators in ASC 606-10-55-2 and has concluded that control of the goods does not transfer to the customer upon shipment to the stocking location because:
| (i) | the Company retains legal title to the goods until the customer’s consumption event; |
| (ii) | the Company retains the right to recall or substitute inventory held at the stocking location at any time prior to customer consumption; |
| (iii) | the customer has no unconditional obligation to pay for goods until it withdraws inventory for its own production use; and |
| (iv) | risk of physical loss and obsolescence at the stocking location is contractually borne by the Company until consumption. |
Revenue on VMI shipments is therefore recognized at the point in time when the customer draws goods from the stocking location for its own production (the “pull event”), at which point the customer accepts the quantity and unit price reflected in an auto-generated consumption invoice. Revenue from VMI consignment was $387,857 and $382,111 for the three months ended February 28, 2026 and 2025, respectively, and $1,040,251 and $1,001,693 for the nine months ended February 28, 2026 and 2025, respectively.
9
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
The inventory held at customer stocking locations but over which the Company retains control is reported within Inventories on the Balance Sheet as “Consigned (Honeywell + MOOG).” Consigned inventory was $168,855 and $203,236 at February 28, 2026 and May 31, 2025, respectively (see Note 6).
MOOG Philippines consignment
During fiscal year 2025, the Company commenced a separate consignment arrangement with MOOG Philippines. Revenue is recognized on the same pull-event basis described above. Revenue from this program was $0 and $1,240 for the three months ended February 28, 2026 and 2025, respectively, and $0 and $1,240 for the nine months ended February 28, 2026 and 2025, respectively.
Contract balances
The Company does not have material contract assets or contract liabilities. Customer deposits reported on the Balance Sheet ($0 at February 28, 2026; $6,135 at May 31, 2025) represent advance payments received on specific purchase orders for which the related performance obligation had not yet been satisfied at the respective balance sheet date. Customer deposits are recognized as revenue when control of the related goods transfers to the customer.
Disaggregation of revenue
Revenue disaggregated by revenue stream for the three and nine months ended February 28 is as follows:
| 3-mo Feb 28, 2026 | 3-mo Feb 28, 2025 | 9-mo Feb 28, 2026 | 9-mo Feb 28, 2025 | |||||||||||||
| Sales - standard | $ | 886,646 | $ | 632,582 | $ | 2,567,153 | $ | 2,194,460 | ||||||||
| Sales - VMI consignment (Honeywell + MOOG) | 387,857 | 382,111 | 1,040,251 | 1,001,693 | ||||||||||||
| Sales - consignment (MOOG Philippines) | - | 1,240 | - | 1,240 | ||||||||||||
| Total Revenue | $ | 1,274,503 | $ | 1,015,933 | $ | 3,607,404 | $ | 3,197,393 | ||||||||
NOTE 4: Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash on deposit and accounts receivable. The Company maintains its cash balances with high-credit-quality U.S. financial institutions. Deposits at each institution may at times exceed federally insured limits ($250,000 per depositor, per institution under the Federal Deposit Insurance Corporation); the Company has not experienced any losses on such accounts and does not believe it is exposed to significant credit risk with respect to its cash balances.
The Company sells primarily to large aerospace original equipment manufacturers and their tier-one suppliers. As a result, accounts receivable are concentrated among a limited number of customers. The Company performs ongoing credit evaluations of its customers, maintains specific reserves for receivables deemed uncollectible (see Note 5), and has not historically required collateral from its customers.
Customer and accounts receivable concentrations. During the nine months ended February 28, 2026 and 2025, customers each individually exceeding 10% of revenue accounted for the following approximate percentages of total revenue: Honeywell International Inc. (including authorized distributor and VMI consignment programs), approximately 34% and 48%; The Boeing Company (through Boeing Distribution Services), approximately 23% and 12%; and MOOG, Inc. (including its consignment program), approximately 16% and 15%. No other customer accounted for more than 10% of revenue in either period. At February 28, 2026 and May 31, 2025, balances due from these same customers represented the following percentages of trade accounts receivable: Honeywell International Inc., approximately 58% and 67%; The Boeing Company, approximately 14% and 8%; and MOOG, Inc., approximately 10% and 10%, respectively. Collectively, the three customers represented approximately 83% of trade accounts receivable at February 28, 2026 and approximately 84% at May 31, 2025. Substantially all trade accounts receivable at each balance sheet date is due from customers engaged in the aerospace and defense industry.
10
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Supplier and accounts payable concentrations. The Company purchases raw materials (principally aluminum, stainless steel, titanium, and high-temperature alloys) and outside-process services (heat treatment, surface finishing) from a limited number of qualified vendors. During the year ended May 31, 2025, the largest single vendor balance represented approximately 12% of total accounts payable at May 31, 2025, and no other vendor exceeded 10% of total accounts payable. At February 28, 2026, two vendors each represented approximately 19% and 18% of total accounts payable, respectively, and no other vendor exceeded 10% of total accounts payable. The Company believes that, while the loss of any one of these suppliers could temporarily disrupt operations, equivalent materials and services are available from alternate qualified sources and the impact of any such disruption would not be material to its financial position or results of operations.
NOTE 5: Accounts Receivable
Accounts receivable, net consists of the following:
| Feb 28, 2026 | May 31, 2025 | |||||||
| Trade accounts receivable, gross | $ | 399,565 | $ | 346,574 | ||||
| Less: allowance for credit losses | (11,517 | ) | (18,786 | ) | ||||
| Trade accounts receivable, net | $ | 388,048 | $ | 327,788 | ||||
The Company applies ASC 326 (Financial Instruments - Credit Losses) to trade receivables. The allowance for credit losses is estimated using a specific-identification approach supplemented by historical loss experience on aged balances. At each reporting date, management reviews the aging of customer balances, known customer-specific credit issues, and reasonable-and-supportable forecasts of economic conditions affecting the aerospace industry. Account balances are written off against the allowance when management determines the receivable is not collectible.
NOTE 6: Inventories
Inventories are stated at the lower of cost (first-in, first-out basis, applied on a full-absorption standard) or net realizable value. Cost includes direct materials, direct labor, and an allocation of manufacturing overhead, including indirect labor, factory occupancy costs (rent, utilities, repairs), production-employee benefits, production insurance, shop supplies, and perishable tooling. Manufacturing overhead allocated to inventory totaled approximately $178,626 and $169,374 for the three months ended February 28, 2026 and 2025, respectively, and $535,879 and $508,123 for the nine months ended February 28, 2026 and 2025, respectively.
Consigned inventory represents goods physically located at customer-operated stocking locations but over which the Company retains control under the VMI arrangements described in Note 3.
The Company does not maintain a separate inventory valuation reserve; items identified as excess, slow-moving, obsolete, or otherwise unrecoverable are written down directly against the related inventory accounts. Such charges, recognized within Inventory impairments and write-offs in the Statements of Operations, totaled $0 and $0 for the three months ended February 28, 2026 and 2025, respectively, and $695,763 and $0 for the nine months ended February 28, 2026 and 2025, respectively.
11
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Inventories consist of the following:
| Feb 28, 2026 | May 31, 2025 | |||||||
| Work in process | $ | 140,089 | $ | 88,086 | ||||
| Finished goods | 193,773 | 177,898 | ||||||
| Consigned (Honeywell + MOOG) | 168,855 | 203,236 | ||||||
| Total inventories | $ | 502,717 | $ | 469,220 | ||||
NOTE 7: Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally seven years for machinery and equipment, five years for office equipment and vehicles, and three years for computer software. Expenditures for major additions and improvements are capitalized; expenditures for routine repairs and maintenance are charged to operations as incurred. Upon retirement or disposal of an asset, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statement of operations.
Property and equipment consists of the following:
| Feb 28, 2026 | May 31, 2025 | |||||||
| Machinery and equipment | $ | 2,523,587 | $ | 2,523,587 | ||||
| Computer software (NC) | 6,484 | 6,484 | ||||||
| Vehicles | 29,722 | 29,722 | ||||||
| Office equipment & furniture | 65,545 | 59,058 | ||||||
| Total property and equipment, at cost | $ | 2,625,338 | $ | 2,618,851 | ||||
| Less: Accumulated depreciation | (2,161,566 | ) | (2,075,224 | ) | ||||
| Total property and equipment, net | $ | 463,772 | $ | 543,627 | ||||
Depreciation expense was $28,781 and $25,513 for the three months ended February 28, 2026 and 2025, respectively, and $86,342 and $76,540 for the nine months ended February 28, 2026 and 2025, respectively, substantially all of which was included in cost of goods sold as manufacturing overhead.
NOTE 8: Notes Payable and SBA Loan
The Company maintains financing arrangements related to the acquisition of manufacturing equipment. These arrangements consist of term loans with INTECH Funding and U.S. Bank Equipment Finance, and a residual U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan balance. All borrowings are classified as current based on management’s expectation that the outstanding balances will be settled within twelve months of the balance sheet date.
12
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
| Feb 28, 2026 | May 31, 2025 | |||||||
| INTECH Funding Corp - equipment note, 5.87% fixed, matures Oct 2027 | $ | 52,884 | $ | 78,777 | ||||
| U.S. Bank Equipment Finance - equipment note, 7.50% fixed, matures Aug 2028 | 55,150 | 70,329 | ||||||
| California Bank & Trust - SBA PPP loan, 1.00% fixed, matures Feb 2026 | — | 12,586 | ||||||
| Total notes payable, current portion | $ | 108,034 | $ | 161,692 | ||||
| Non-current portion: | ||||||||
| INTECH Funding Corp | — | — | ||||||
| U.S. Bank Equipment Finance | — | — | ||||||
| California Bank & Trust - SBA PPP | — | — | ||||||
| Total notes payable, non-current portion | $ | — | $ | — | ||||
| Total notes payable | $ | 108,034 | $ | 161,692 | ||||
The INTECH Funding note was entered into on October 31, 2022 in the original principal amount of $151,338 to finance the acquisition of a Star Swiss automatic lathe. The note bears interest at a fixed annual rate of 5.87%, requires sixty monthly payments of $2,924, and is collateralized by the financed equipment.
The U.S. Bank Equipment Finance note was entered into on July 24, 2023 in the original principal amount of $100,000 to finance the acquisition of a Hyundai WIA HD2200 CNC lathe and ATS bar feeder. The note bears interest at a fixed annual rate of 7.50%, requires fifty-eight monthly payments of $2,086.64, and is collateralized by the financed equipment.
The Company also previously held an equipment note with Newlane Finance Company that financed the acquisition of manufacturing equipment in a prior fiscal year. Scheduled monthly principal and interest payments of $16,013 in aggregate were made during the nine months ended February 28, 2025, fully extinguishing the outstanding balance prior to May 31, 2025. No balance remained outstanding at May 31, 2025 or February 28, 2026, and accordingly the note is not reflected in the table above.
The California Bank & Trust note represents the remaining balance of a Small Business Administration Paycheck Protection Program loan obtained during fiscal year 2021. The loan bears interest at 1.00% per annum and requires monthly payments of $1,408 through final maturity in February 2026.
Interest expense on the notes payable described above totaled $1,949 and $2,372 for the three months ended February 28, 2026 and 2025, respectively, and $7,041 and $9,009 for the nine months ended February 28, 2026 and 2025, respectively, and is included within Other operating expenses on the Statements of Operations. All interest was expensed as incurred (no interest was capitalized into property and equipment), and no accrued but unpaid interest was outstanding at either balance sheet date.
13
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
NOTE 9: Fair Value Measurements
The Company applies ASC 820 (Fair Value Measurement) to financial assets and liabilities measured at fair value on a recurring basis and to non-financial assets subject to non-recurring fair-value measurement (e.g., long-lived asset impairment). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level fair-value hierarchy:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - observable inputs other than Level 1 quoted prices, including quoted prices for similar assets in active markets, quoted prices in markets that are not active, or other directly observable inputs; and
Level 3 - unobservable inputs reflecting the Company’s own assumptions about the assumptions market participants would use.
Financial assets measured at fair value on a recurring basis consist of the Company’s investments in marketable securities held in a managed brokerage account with Morgan Stanley. The Company’s investments are classified within Level 1 of the hierarchy as fair value is determined by reference to quoted market prices on active exchanges at each reporting date. The Company had no financial liabilities measured at fair value on a recurring basis and no Level 2 or Level 3 recurring measurements at either balance sheet date.
Financial assets measured at fair value on a recurring basis consist of the following:
| Feb 28, 2026 | May 31, 2025 | |||||||
| Investments - marketable securities (Level 1) | $ | 344,336 | $ | 178,657 | ||||
| Total recurring fair value measurements | $ | 344,336 | $ | 178,657 | ||||
The amounts presented on the Balance Sheet represent the period-end fair value of the Company’s marketable equity securities as reported on the Morgan Stanley brokerage statements at each measurement date. The Company marks its investment portfolio to market at each reporting date with the resulting unrealized gains and losses recognized in the Statements of Operations within other income, net. For the nine months ended February 28, 2026, the Company recognized a net realized gain of $26,378 on investment sales and reversed the prior-period cumulative unrealized loss of $15,252 through the Statements of Operations. The net increase in the carrying value of the investment portfolio of $165,679 between May 31, 2025 ($178,657) and February 28, 2026 ($344,336) reflects net purchases and reinvested earnings, net realized gains of $26,378, the reversal of the prior-period cumulative unrealized loss of $15,252, and the mark-to-market adjustment recognized during the period.
NOTE 10: Stockholders’ Equity
Capital stock
The Company is authorized to issue 100,000 shares of capital stock, no par value. At February 28, 2026 and May 31, 2025, there were 10,000 shares issued and outstanding. Because the shares have no par value, no amount is allocated to capital stock; the aggregate consideration of $10,000 received on issuance is reported in paid-in capital.
14
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Distributions
No distributions to shareholders were declared or paid during the nine months ended February 28, 2026 and 2025.
Changes in retained earnings
Retained earnings increased by $123,492 during the three months ended February 28, 2026 (reflecting net income of $123,492 for the quarter) and increased by $343,903 during the nine months ended February 28, 2026 (reflecting net income of $343,903 for the nine-month period). Retained earnings decreased by $313,582 during the three months ended February 28, 2025 (reflecting the net loss for the quarter) and decreased by $108,061 during the nine months ended February 28, 2025 (reflecting the net loss for the nine-month period). See the Statement of Changes in Stockholders’ Equity for a complete roll forward.
NOTE 11: Commitments and Contingencies
Operating lease - manufacturing facility
The Company occupies its principal manufacturing facility under a related-party arrangement with an entity wholly owned by the Company’s two officer-shareholders (the “Lessor Entity”). The arrangement provides for monthly rental payments of $12,000, or $144,000 per annum, payable in arrears. Rent expense under this arrangement was $36,000 for each of the three months ended February 28, 2026 and 2025 and $108,000 for each of the nine months ended February 28, 2026 and 2025, and is classified within cost of goods sold as manufacturing overhead. The Company has determined that, in substance, the arrangement is a lease under ASC 842 because it conveys the right to control the use of an identified facility for consideration over a period of time, notwithstanding the absence of an enforceable written contract. The arrangement is terminable at will by either party and operates as a month-to-month tenancy. The Company has elected the short-term lease recognition exemption available under ASC 842-20-25-2 for leases with a term of twelve months or less, and accordingly does not recognize a right-of-use asset or lease liability for this arrangement. Rent expense is recognized on a straight-line basis as incurred.
Legal proceedings
During fiscal year 2025, the Company agreed to settle a wage-and-hour class action. The Company accrued $225,000, management’s best estimate of the probable loss, recognized as litigation settlement expense and recorded within accrued settlement liability in current liabilities, with payment expected within twelve months.
Other than the matter described above, the Company is not a party to any material legal proceedings. From time to time the Company may become involved in routine litigation incidental to the conduct of its business; management does not believe any such matters currently pending are likely to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Customer warranties and product-liability claims
The Company’s machined components are subject to product-acceptance inspection by its aerospace customers and, in certain cases, source inspection by the customer’s representative prior to shipment. Rejected parts are reworked or replaced at the Company’s cost; historical rework and rejection costs are not material (approximately $0 and $2,100 for the three months ended February 28, 2026 and 2025, respectively, and a net recovery of approximately $12,500 and costs of approximately $36,900 for the nine months ended February 28, 2026 and 2025, respectively, representing less than 1% of net revenue in each period) and are expensed as incurred. The Company does not provide extended warranties beyond those implied by industry custom and has not recorded a warranty accrual at either balance sheet date.
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A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
NOTE 12: Related Party Transactions
The Company has the following related parties: (i) the Lessor Entity, an entity wholly owned by the Company’s two officer-shareholders that owns the manufacturing facility leased to the Company, and (ii) the two officer-shareholders themselves, who serve as the Company’s sole directors and officers and provide payroll services to the Company.
Facility lease. The Company occupies its principal manufacturing facility under a month-to-month arrangement with the Lessor Entity. Total related-party rent expense recognized was $36,000 for each of the three months ended February 28, 2026 and 2025 and $108,000 for each of the nine months ended February 28, 2026 and 2025. No amounts were payable to, or receivable from, the Lessor Entity at either balance sheet date. The rental rate is believed by management to approximate market terms for comparable light-industrial space in the Company’s geographic area; however, the arrangement was not negotiated at arm’s length and could be modified at the discretion of the parties. See Note 11 for the lease accounting conclusion.
Officer-shareholder compensation. Officer-shareholder compensation, including salary and employer payroll taxes, totaled $67,650 for the three months ended February 28, 2026 and 2025, respectively, and $202,950 for the nine months ended February 28, 2026 and 2025, respectively, and is included within operating expenses.
NOTE 13: Income Taxes
The Company is taxed as a C corporation in the United States and is subject to United States federal income tax and California franchise and income tax. The Company files separate United States federal and California corporate income tax returns on a fiscal-year basis ending May 31.
Current income tax expense totaled $3,662 for each of the three months ended February 28, 2026 and 2025, comprising United States federal income tax of $3,454 and California franchise tax of $208 in each quarter. Current income tax expense for the nine months ended February 28, 2026 and 2025 totaled $10,985 and $10,985, respectively, comprising United States federal income tax of $10,363 and $10,363 and California franchise tax of $622 and $622. The Company has recognized deferred tax assets attributable to its net operating loss carryforwards, against which a full valuation allowance has been recorded (see “Deferred tax assets and valuation allowance” below). The Company has not yet quantified deferred tax assets or liabilities for other temporary differences between the financial-reporting and income-tax bases of its assets and liabilities, principally inventory write-offs, accumulated depreciation, and the allowance for credit losses. Such amounts will be quantified once the Company’s tax provider has prepared a tax-basis balance sheet that reconciles the book-basis adjustments reflected in these financial statements to the corresponding amounts reported on the United States federal income tax return.
Effective income tax rate
The Company’s effective income tax rate differs from the United States federal statutory rate of 21 per cent principally because of the following: (a) significant book-to-tax adjustments arising from inventory write-offs and other items that are recognized in the financial statements but treated differently for income-tax purposes; (b) a full valuation allowance maintained against the Company’s deferred tax assets, which eliminates any income tax benefit that would otherwise arise from the net operating loss carryforwards; (c) state income taxes; and (d) non-deductible permanent differences, including officer life-insurance premiums and the disallowed portion of meals expense. As a result, the Company recorded income tax expense of $10,985 for each of the nine months ended February 28, 2026 and February 28, 2025, an effective rate below the statutory rate when measured against pre-tax income for financial-reporting purposes.
16
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Components of income tax expense
Income tax expense for the three and nine months ended February 28, 2026 and 2025 consists entirely of current income tax, as follows:
| Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Current United States federal | $ | 3,454 | $ | 3,454 | $ | 10,363 | $ | 10,363 | ||||||||
| California franchise tax | 208 | 208 | 622 | 622 | ||||||||||||
| Total current income tax expense | 3,662 | 3,662 | 10,985 | 10,985 | ||||||||||||
There were no income taxes paid in cash during the nine months ended February 28, 2026 and 2025.
Net operating loss carryforwards
United States federal net operating loss carryforwards available to the Company at the beginning of the nine months ended February 28, 2026 totaled approximately $1,000. The Company does not expect material utilization of the remaining carryforward during the stub period, leaving a remaining federal net operating loss carryforward of approximately $1,000 at February 28, 2026. These carryforwards arose in tax years beginning after December 31, 2017 and accordingly carry forward indefinitely; however, their utilization in any given year is limited to 80 per cent of taxable income under Section 172(a) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act.
No California net operating loss carryforward remained at May 31, 2025, the carryforwards available at the beginning of fiscal year 2025 having been fully utilized in prior periods. During the nine months ended February 28, 2026, the Company generated a California net operating loss of approximately $4,815, leaving a California net operating loss carryforward of approximately $4,815 at February 28, 2026.
California net operating losses generated in tax years beginning on or after January 1, 2020 are available for a twenty-year carryforward period and accordingly will expire on or about December 31, 2046 if not utilized.
Deferred tax assets and valuation allowance
The Company’s only identified deferred tax asset arises from the net operating loss carry forwards described above. At February 28, 2026, the gross deferred tax asset totaled $1,632, comprising a federal deferred tax asset of $1,206 on a federal net operating loss carry forward of $5,745 measured at the statutory rate of 21 per cent and a California deferred tax asset of $426 on a California net operating loss carry forward of $4,815 measured at the statutory rate of 8.84 per cent. At May 31, 2025, the gross deferred tax asset totaled $195, comprising a federal deferred tax asset of $195 on a federal net operating loss carry forward of $930 measured at the statutory rate of 21 per cent. No other material temporary differences between the financial-reporting and income-tax bases of the Company’s assets and liabilities were identified at either balance-sheet date.
17
A&B AEROSPACE, INC.
Notes to the Financial Statements (unaudited)
Management assessed the realizability of these deferred tax assets in accordance with ASC 740-10-30-5. Although the Company generated net income for financial-reporting purposes during the nine months ended February 28, 2026, management concluded that, in light of the limited magnitude of the underlying net operating loss carry forwards, the absence of a sustained history of taxable income at the federal level, and the inherent uncertainty in projecting future taxable income against which the carry forwards would be utilized, a full valuation allowance was warranted. Accordingly, a valuation allowance equal to the gross deferred tax asset was recorded at each balance-sheet date, reducing the net deferred tax asset to zero. The valuation allowance increased by $1,437 during the nine months ended February 28, 2026, from $195 to $1,632 (with no material change during the three months ended February 28, 2026), as the Company generated a federal net operating loss of approximately $4,815 and a California net operating loss of approximately $4,815 during the nine-month period. The valuation allowance decreased by $91,481 during the year ended May 31, 2025, from $91,676 to $195, as the underlying net operating loss carry forwards were utilized against taxable income.
No deferred tax liabilities were identified at February 28, 2026 or May 31, 2025.
The utilization of the Company’s remaining net operating loss carryforwards may be subject to annual limitation under Sections 382 and 383 of the Internal Revenue Code if the Company experiences an ownership change, generally defined as a cumulative change of more than 50 percentage points by certain stockholders during a rolling three-year period. The Company has not completed a formal Section 382 and 383 study; however, the Company is not aware of any ownership change events that would limit the utilization of these carryforwards.
Uncertain tax positions
The Company recognizes the financial statement benefit of a tax position only when the position is more likely than not to be sustained on examination by the relevant taxing authority. As of February 28, 2026 and May 31, 2025, the Company had no unrecognized tax benefits, and no tax positions are reported on Schedule UTP of the Company’s federal income tax return. The Company records interest related to uncertain tax positions within interest expense and any related penalties within general and administrative expenses; no such amounts were recognized during the nine months ended February 28, 2026 and 2025.
Open tax years
The Company is subject to taxation in the United States federal jurisdiction and in California. The Company’s federal tax returns for fiscal years ended May 31, 2022 through May 31, 2025 and California tax returns for fiscal years ended May 31, 2021 through May 31, 2025 remain open to examination by the United States Internal Revenue Service and the California Franchise Tax Board, respectively. There were no examinations in progress at February 28, 2026.
NOTE 14: Subsequent Events
The Company has evaluated subsequent events through May 12, 2026, the date these financial statements were available to be issued. No events have occurred subsequent to February 28, 2026 that require recognition or disclosure in these financial statements.
18
Exhibit 99.2
Financial Statements of
A&B AEROSPACE, INC.
For the years ended May 31, 2025 and May 31, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
Members and Stockholders of
A&B Aerospace, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of A&B Aerospace, Inc. (the Company) as of May 31, 2025 and 2024, and the related statements of operations, equity, and cash flows for the years ended May 31, 2025 and 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2025 and 2024, and the results of its operations and its cash flows for the years ended May 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
A critical audit matter is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee or the Company’s governance and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating a critical audit, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there are no critical audit matters communicated or required to be communicated to the audit committee.
/s/ HTL International, LLC
HTL International, LLC
We have served as the Company’s auditor since 2025.
Houston, TX
May 12, 2026
PCAOB ID: 7000
1
Balance Sheet
As of May 31, 2025 and May 31, 2024
(Expressed in U.S. dollars)
| Note | May 31, 2025 | May
31, 2024 | ||||||||||
| ASSETS | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 558,081 | $ | 595,813 | ||||||||
| Accounts receivable, net | 5 | 327,788 | 424,854 | |||||||||
| Other receivables | 2,982 | 4,550 | ||||||||||
| Investments, at fair value | 9 | 178,657 | 148,682 | |||||||||
| Inventories, net | 6 | 469,220 | 456,886 | |||||||||
| Prepaid expenses and other current assets | 7,187 | 27,710 | ||||||||||
| Total Current Assets | $ | 1,543,915 | $ | 1,658,495 | ||||||||
| Non-current Assets | ||||||||||||
| Property and equipment, net | 7 | $ | 543,627 | $ | 507,049 | |||||||
| TOTAL ASSETS | $ | 2,087,542 | $ | 2,165,544 | ||||||||
| LIABILITIES | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 127,201 | $ | 234,858 | ||||||||
| Credit card payable | 301 | 1,706 | ||||||||||
| Notes payable | 8 | 161,692 | 81,214 | |||||||||
| Customer deposits | 6,135 | 7,083 | ||||||||||
| Accrued settlement liability | 11 | 225,000 | - | |||||||||
| Total Current Liabilities | $ | 520,329 | $ | 324,861 | ||||||||
| Long-term Liabilities | ||||||||||||
| Notes payable | 8 | $ | - | 161,692 | ||||||||
| Total Long-term Liabilities | $ | - | $ | 161,692 | ||||||||
| TOTAL LIABILITIES | $ | 520,329 | $ | 486,553 | ||||||||
| COMMITMENTS AND CONTINGENCIES | 11 | |||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||
| Capital stock (no par value, 100,000 shares authorized; 10,000 shares issued and outstanding at May 31, 2025 and 2024) | 10 | $ | - | $ | - | |||||||
| Paid-in capital | 10 | 10,000 | 10,000 | |||||||||
| Retained earnings | 10 | 1,557,213 | 1,668,991 | |||||||||
| Total Stockholders’ Equity | $ | 1,567,213 | $ | 1,678,991 | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,087,542 | $ | 2,165,544 | ||||||||
The accompanying notes are an integral part of these statements
2
Statement of Operations
For the years ended May 31, 2025 and May 31, 2024
(Expressed in U.S. dollars)
| Note | May
31, 2025 | May
31, 2024 | |||||||||
| Revenue | 3 | $ | 4,284,780 | $ | 4,188,062 | ||||||
| Cost of products sold | 3,338,795 | 3,161,942 | |||||||||
| Inventory impairments and write-offs | 6 | 650,284 | 752,953 | ||||||||
| Gross profit | $ | 295,701 | $ | 273,167 | |||||||
| Other income, net | 9 | 21,097 | 7,004 | ||||||||
| Litigation settlement expense | (225,000 | ) | - | ||||||||
| Other operating expenses | (188,929 | ) | (198,311 | ) | |||||||
| Income (loss) before income taxes | $ | (97,131 | ) | $ | 81,860 | ||||||
| Income tax expense | 13 | (14,647 | ) | (11,526 | ) | ||||||
| Net income (loss) | $ | (111,778 | ) | $ | 70,334 | ||||||
| Earnings (loss) per share - basic and diluted | $ | (11.18 | ) | $ | 7.03 | ||||||
| Weighted-average shares outstanding - basic and diluted | 10,000 | 10,000 | |||||||||
The accompanying notes are an integral part of these statements
3
Statement of Changes in Stockholders’ Equity
For the years ended May 31, 2025 and May 31, 2024
(Expressed in U.S. dollars)
| Paid-in
Capital | Retained
Earnings | Total Equity | ||||||||||
| Balance - May 31, 2023 | $ | 10,000 | $ | 1,598,657 | $ | 1,608,657 | ||||||
| Net income | 70,334 | 70,334 | ||||||||||
| Distributions to shareholders | - | - | ||||||||||
| Balance - May 31, 2024 | $ | 10,000 | $ | 1,668,991 | $ | 1,678,991 | ||||||
| Net loss | (111,778 | ) | (111,778 | ) | ||||||||
| Distributions to shareholders | - | - | ||||||||||
| Balance - May 31, 2025 | $ | 10,000 | $ | 1,557,213 | $ | 1,567,213 | ||||||
The accompanying notes are an integral part of these statements
4
Statement of Cash Flows
For the years ended May 31, 2025 and May 31, 2024
(Expressed in U.S. dollars)
| May
31, 2025 | May
31, 2024 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | (111,778 | ) | $ | 70,334 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 102,054 | 75,737 | ||||||
| Inventory impairments and write-offs (non-cash) | 650,284 | 752,953 | ||||||
| Non-cash adjustments | ||||||||
| Inventory roll-forward | (115,013 | ) | (129,691 | ) | ||||
| AR consignment & opening true-ups | (264,056 | ) | (327,232 | ) | ||||
| PP&E reconciliation | 106,909 | 77,289 | ||||||
| Leasehold cleanup & full-absorption COGS reclass | (137,872 | ) | 69,258 | |||||
| Unrealized (gain) / loss on investments (non-cash) | (15,252 | ) | (3,365 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | 97,066 | 352,012 | ||||||
| Decrease (increase) in inventory | (12,334 | ) | (300,080 | ) | ||||
| Decrease in prepaid expenses and deposits | 20,523 | 8,779 | ||||||
| Decrease (increase) in other receivables | 1,568 | (4,550 | ) | |||||
| (Decrease) increase in accounts payable and credit card payable | (109,062 | ) | 110,706 | |||||
| Increase (decrease) in accrued expenses | - | - | ||||||
| Decrease in customer deposits | (948 | ) | (7,917 | ) | ||||
| Net cash (used in) provided by operating activities | $ | 212,089 | $ | 744,233 | ||||
| Investing activities | ||||||||
| Purchases of machinery and equipment | (130,741 | ) | (292,222 | ) | ||||
| Purchases of office equipment | (7,891 | ) | (1,869 | ) | ||||
| Purchases of investments | (29,975 | ) | (148,682 | ) | ||||
| Net cash provided by (used in) investing activities | $ | (168,607 | ) | $ | (442,773 | ) | ||
| Financing activities | ||||||||
| Repayments of Newlane Finance note payable | (16,013 | ) | (24,020 | ) | ||||
| Repayments of INTECH note payable | (29,421 | ) | (25,471 | ) | ||||
| Proceeds (repayments) of US Bank Equipment loan | (19,105 | ) | 89,434 | |||||
| Repayments of SBA PPP loan | (16,675 | ) | (16,510 | ) | ||||
| Net cash (used in) provided by financing activities | $ | (81,214 | ) | $ | 23,433 | |||
| Net (decrease) increase in cash | $ | (37,732 | ) | $ | 324,893 | |||
| Cash, beginning of period | 595,813 | 270,920 | ||||||
| Cash, end of period | $ | 558,081 | $ | 595,813 | ||||
The accompanying notes are an integral part of these statements
5
Notes to the Financial Statements
For the Years ended May 31, 2025 and 2024
NOTE 1: Nature of Operations
A&B Aerospace, Inc. (the “Company”) is a California corporation incorporated in 1992, operating as a precision CNC machining contractor serving the aerospace, defense, and industrial end-markets. The Company manufactures close-tolerance machined components from customer-supplied and Company-procured raw materials, principally aluminum, stainless steel, titanium, and high-temperature alloys, using CNC turning centers, Swiss-type automatic lathes, and vertical machining centers at its facility in Southern California. The Company operates under an AS9100D-certified quality management system and supplies both production and aftermarket components. The Company’s fiscal year ends on May 31.
NOTE 2: Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in U.S. dollars.
Going concern
In accordance with Accounting Standards Codification (ASC) 205-40, Presentation of Financial Statements, Going Concern, management has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are available to be issued. The Company incurred a net loss of $111,778 for the year ended May 31, 2025 and recognized net income of $70,334 for the year ended May 31, 2024. The Company generated positive cash flow from operations of $212,089 and $744,233 in fiscal year 2025 and fiscal year 2024, respectively, demonstrating an ability to fund its day-to-day operations from recurring revenue.
At May 31, 2025, the Company had net working capital (current assets less current liabilities) of approximately $1,024,000, comprising total current assets of approximately $1,544,000 and total current liabilities of approximately $520,000, resulting in a current ratio of approximately 2.9 to 1. Cash and cash equivalents totaled $558,081 and the Company held an additional $179,000 in marketable equity securities, providing aggregate liquid resources of approximately $737,000 against total current obligations of approximately $520,000.
Management has assessed the Company’s available cash and cash equivalents, its investment portfolio, and projected operating cash requirements for the twelve months following the date the financial statements are available to be issued. Based on this assessment (including the Company’s positive operating cash-flow trend and its net working capital position) management believes the Company has sufficient liquidity to meet its obligations as they become due, and accordingly the financial statements have been prepared on a going-concern basis.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Areas requiring significant management judgment include the allowance for credit losses on accounts receivable, the net realizable value of inventories (including the capitalized manufacturing-overhead component), the useful lives and recoverability of property and equipment, the valuation of investments, and the assessment of revenue recognition for consignment arrangements under ASC 606. Actual results could differ from those estimates.
6
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash held in demand deposit accounts at federally-insured financial institutions, and highly-liquid investments with original maturities of three months or less at the date of acquisition. Money market funds held at Morgan Stanley are classified as cash equivalents as they are redeemable on demand at net asset value and are invested in short-term, high-credit-quality instruments.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits and accounts receivable. The Company maintains cash balances in excess of federally-insured limits ($250,000 per depositor, per institution under the Federal Deposit Insurance Corporation) at a commercial bank. The Company has not experienced losses on its cash balances and management considers the credit risk to be minimal based on the financial strength of the institutions.
Accounts receivable credit risk is concentrated among a limited number of aerospace OEMs and authorized distributors. For the years ended May 31, 2025 and 2024, three customers collectively accounted for a substantial portion of the Company’s revenue: Honeywell International Inc. and its authorized distributor, The Boeing Company (through Boeing Distribution Services), and MOOG, Inc. Management performs ongoing credit evaluations of its customers and generally does not require collateral.
Investments
Investments consist of marketable equity securities and money market instruments held in a brokerage account at Morgan Stanley. Equity securities with readily determinable fair values are measured at fair value at each balance sheet date in accordance with ASC 321, Investments — Equity Securities, with all changes in fair value — both realized gains and losses on sale and unrealized gains and losses arising from changes in market prices during the period — recognized in the Statement of Operations within Other income as they occur. The carrying amount of the portfolio at each balance sheet date therefore represents its period-end fair value. Fair values are determined by reference to quoted market prices on active exchanges (Level 1 inputs; see Note 9). Dividend income is recognized when the Company’s right to receive payment is established.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses. The Company applies the current expected credit loss (“CECL”) model under ASC 326, Financial Instruments - Credit Losses. Under CECL, the Company estimates lifetime expected credit losses at the reporting date based on a combination of (i) a specific-reserve analysis for invoices aged greater than 90 days or where other indicators of collectability risk exist, and (ii) a pooled historical-loss assessment for the remainder of the portfolio. Forward-looking economic indicators (including aerospace end-market demand, customer-specific financial condition, and general macroeconomic conditions) are incorporated where they would materially affect the expected loss estimate. Invoices are charged off against the allowance when management determines, after exhausting commercially reasonable collection efforts, that recovery is not probable.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined using a first-in, first-out (FIFO) method. Inventory cost includes direct materials, direct labor, and an allocation of manufacturing overhead under a full-absorption costing model consistent with ASC 330, Inventory. Manufacturing overhead allocated to inventory includes, among other items, indirect production labor, manufacturing utilities, plant rent, plant insurance, tooling, plant supplies, and depreciation on manufacturing equipment. The Company periodically reviews inventory for excess, slow-moving, and obsolete items and writes such items down directly against the related inventory accounts, with the charge recognized in cost of goods sold.
7
The Company evaluates its inventories for excess, slow-moving, and obsolete quantities at each reporting date. A write-down is recorded directly against the carrying amount of the affected inventory where the estimated net realizable value is less than carrying cost based on management’s analysis of (i) ageing of finished goods, (ii) historical and forecast usage by part number, (iii) customer-specific demand visibility (including consumption against open vendor-managed inventory (“VMI”) replenishment commitments), and (iv) the salvage or scrap value of components for which no further demand is anticipated. Write-downs are recognized in the period in which the reduction in net realizable value is identified and are included within Cost of goods sold in the Statement of Operations, presented separately on the face of the Statement of Operations as Inventory impairments and write-offs in accordance with ASC 330.
Work-in-process and finished goods held on the Company’s premises are measured using year-end physical counts. The Company applies a standard-cost system for routine operational measurement; standard costs are reviewed at least annually and are designed to approximate actual cost. At each reporting date, total purchase-price, labor, and overhead variances are analyzed and any portion attributable to inventory remaining on hand is capitalized into inventory, with the remainder recognized in cost of goods sold. Through this process, inventory is presented at amounts that approximate actual cost in accordance with ASC 330. Consigned inventory (goods held at Honeywell and MOOG VMI bin locations but over which the Company retains control per ASC 606-10-55-2) is reported as an asset until control transfers to the customer upon the customer’s consumption of the inventory.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: machinery and equipment, seven years; computer software (numerical control programming), three years; vehicles, five years; office equipment and furniture and fixtures, five years; and leasehold improvements, the lesser of the estimated useful life of the improvement or the remaining lease term. Maintenance and repairs are expensed as incurred; expenditures that extend an asset’s useful life or increase its capacity are capitalized. Upon disposal, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the Statement of Operations.
The Company evaluates property and equipment for impairment in accordance with ASC 360, Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability is assessed by comparing the carrying amount of the asset (or asset group) to the future undiscounted net cash flows expected to be generated by the asset. If the carrying amount is not recoverable, an impairment loss is measured as the excess of the carrying amount over the asset’s fair value.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods transfers to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. See Note 3 for a detailed description of the Company’s revenue policies.
Segment reporting
The Company operates as a single reportable segment under ASC 280, Segment Reporting. The Company’s chief operating decision-maker, who is its president, reviews financial information on a consolidated basis for purposes of allocating resources and assessing performance. All of the Company’s long-lived assets are located in the United States and substantially all of its revenue is generated from customers located in the United States.
Income taxes
The Company is a C corporation and accounts for income taxes under ASC 740, Income Taxes, using the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards.
8
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. A valuation allowance is established against any deferred tax asset to the extent that, on a more-likely-than-not basis, the asset will not be realized.
The Company assesses its income tax positions in accordance with ASC 740-10 and recognizes the financial-statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by the relevant taxing authority. Management has evaluated the Company’s tax positions taken or expected to be taken in its tax returns and has concluded that no liability for unrecognized tax benefits is required to be recorded at May 31, 2025 or May 31, 2024. The Company recognizes interest and penalties related to unrecognized tax benefits, if any, within income tax expense. The Company’s federal income tax returns for fiscal years 2021 and forward, and California franchise tax returns for fiscal years 2020 and forward, remain subject to examination by the applicable taxing authorities.
Leases
The Company evaluates its arrangements at inception to determine whether a lease exists under ASC 842, Leases. An arrangement is a lease, or contains a lease, if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Operating-lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of fixed lease payments over the lease term, using the Company’s incremental borrowing rate when the rate implicit in the lease is not readily determinable. The Company occupies its principal manufacturing facility under a related-party arrangement with an entity wholly owned by the Company’s two officer-shareholders. The arrangement is not documented by an enforceable written contract and is terminable at will by either party; accordingly, the Company has accounted for the arrangement as a month-to-month tenancy and has not recognized a right-of-use asset or lease liability under ASC 842. Rent expense is recognized on a straight-line basis as incurred. See Note 11 for further detail on the related-party arrangement.
Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, investments, accounts payable, and notes payable. The carrying values of cash, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying value of notes payable approximates fair value based on their stated interest rates relative to current market rates for comparable instruments. Fair-value measurements of investments are disclosed in Note 9.
Recent accounting pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands segment disclosure requirements to include incremental information about significant segment expenses. The Company adopted the new guidance effective June 1, 2024 and applied it retrospectively to the comparative period presented. As the Company operates as a single reportable segment, management does not expect the adoption of ASU 2023-07 to have a material effect on the Company’s recognition or measurement of segment results, and the adoption did not have a material effect on the Company’s financial position, results of operations, or cash flows. The impact of adoption was limited to enhanced footnote disclosure of significant segment expenses (see Segment reporting above).
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax-rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning June 1, 2025. As ASU 2023-09 affects only income-tax footnote disclosures and does not change the recognition or measurement of income taxes, the adoption will not have a material effect on the Company’s financial position, results of operations, or cash flows. The impact is expected to be limited to expanded disclosure of the effective tax-rate reconciliation and income taxes paid.
9
Management has reviewed other recently issued accounting pronouncements and does not believe any other pronouncement issued but not yet effective will have a material effect on the Company’s financial statements upon adoption.
NOTE 3: Revenue from Contracts with Customers
Contracts and performance obligations
The Company enters into contracts with customers pursuant to master supply agreements and individual purchase orders for the sale of machined components. Each purchase order is treated as a separate contract for financial reporting purposes.
Principal versus agent considerations
The Company has assessed whether it acts as a principal or as an agent in its arrangements with customers under ASC 606-10-55-36 through 55-40. The Company has concluded that it is the principal in all of its revenue arrangements because it (i) is primarily responsible for fulfilling the promised goods, (ii) has inventory risk before the goods are transferred to the customer, including with respect to consigned and VMI-held inventory over which the Company retains control until customer consumption, and (iii) has discretion in establishing the price for its components. Accordingly, revenue is recognized on a gross basis at the amount the Company expects to be entitled to in exchange for the components delivered. The Company has determined that each identified part number within a purchase order represents a distinct performance obligation, as the customer can benefit from each part separately and the parts are separately identifiable within the contract.
Transaction prices are fixed per the unit prices stated in each purchase order. The Company’s contracts do not contain material variable consideration, significant financing components, non-cash consideration, or consideration payable to the customer. Sales-related taxes collected from customers on behalf of governmental authorities are excluded from revenue.
Standard shipments
For standard (non-consignment) purchase-order shipments, the Company recognizes revenue at the point in time when control of the goods transfers to the customer. The Company’s customary terms are F.O.B. shipping point, and control transfers, and revenue is recognized, upon shipment from the Company’s facility. Revenue from standard shipments was $3,022,207 and $3,393,013 for the years ended May 31, 2025 and 2024, respectively.
Vendor-managed inventory (VMI) consignment
The Company sells certain part numbers to Honeywell International Inc. and MOOG, Inc. through vendor-managed inventory (“VMI”) consignment programs. Under these programs, the Company ships goods to customer-operated stocking locations but does not recognize a sale upon shipment. The Company has analyzed the VMI arrangements against the indicators in ASC 606-10-55-2 and has concluded that control of the goods does not transfer to the customer upon shipment to the stocking location because:
| (i) | the Company retains legal title to the goods until the customer’s consumption event; |
| (ii) | the Company retains the right to recall or substitute inventory held at the stocking location at any time prior to customer consumption; |
| (iii) | the customer has no unconditional obligation to pay for goods until it withdraws inventory for its own production use; and |
| (iv) | risk of physical loss and obsolescence at the stocking location is contractually borne by the Company until consumption. |
Revenue on VMI shipments is therefore recognized at the point in time when the customer draws goods from the stocking location for its own production (the “pull event”), at which point the customer accepts the quantity and unit price reflected in an auto-generated consumption invoice. Revenue from VMI consignment was $1,261,333 and $795,049 for the years ended May 31, 2025 and 2024, respectively. The year-over-year increase reflects the ramp of a new Honeywell program that began recurring consumption during fiscal year 2025.
10
The inventory held at customer stocking locations but over which the Company retains control is reported within Inventories on the Balance Sheet as “Consigned (Honeywell + MOOG).” Consigned inventory was $203,237 and $205,581 at May 31, 2025 and 2024, respectively (see Note 6).
MOOG Philippines consignment
During fiscal year 2025, the Company commenced a separate consignment arrangement with MOOG Philippines. Revenue is recognized on the same pull-event basis described above. Revenue from this program was $1,240 for the year ended May 31, 2025 (no comparable activity in fiscal year 2024).
Contract balances
The Company does not have material contract assets or contract liabilities. Customer deposits reported on the Balance Sheet ($6,135 at May 31, 2025; $7,083 at May 31, 2024) represent advance payments received on specific purchase orders for which the related performance obligation had not yet been satisfied at the respective balance sheet date. Customer deposits are recognized as revenue when control of the related goods transfers to the customer.
Disaggregation of revenue
Revenue disaggregated by revenue stream for the years ended May 31 is as follows:
| May
31, 2025 | May
31, 2024 | |||||||
| Sales - standard | $ | 3,022,207 | $ | 3,393,013 | ||||
| Sales - VMI consignment (Honeywell + MOOG) | 1,261,333 | 795,049 | ||||||
| Sales - consignment (MOOG Philippines) | 1,240 | - | ||||||
| Total revenue | $ | 4,284,780 | $ | 4,188,062 | ||||
NOTE 4: Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash on deposit and accounts receivable. The Company maintains its cash balances with high-credit-quality U.S. financial institutions. Deposits at each institution may at times exceed federally insured limits; the Company has not experienced any losses on such accounts and does not believe it is exposed to significant credit risk with respect to its cash balances.
The Company sells primarily to large aerospace original equipment manufacturers and their tier-one suppliers. As a result, accounts receivable are concentrated among a limited number of customers. The Company performs ongoing credit evaluations of its customers, maintains specific reserves for receivables deemed uncollectible (see Note 5), and has not historically required collateral from its customers.
Customer and accounts receivable concentrations. During the years ended May 31, 2025 and 2024, customers each individually exceeding 10% of revenue accounted for the following percentages of total revenue: Honeywell International Inc. (including authorized distributor and VMI consignment programs), approximately 33% and 22%; The Boeing Company (through Boeing Distribution Services), approximately 27% and 19%; and MOOG, Inc. (including its consignment program), approximately 13% and 22%. No other customer accounted for more than 10% of revenue in either fiscal year. At May 31, 2025 and May 31, 2024, balances due from these same customers represented the following percentages of trade accounts receivable: Honeywell International Inc., approximately 67% and 64%; The Boeing Company, approximately 8% and 6%; and MOOG, Inc., approximately 10% and 16%, respectively. Collectively, the three customers represented approximately 84% of trade accounts receivable at May 31, 2025 and approximately 86% at May 31, 2024. Substantially all trade accounts receivable at each balance sheet date is due from customers engaged in the aerospace and defense industry.
11
Supplier and accounts payable concentrations. The Company purchases raw materials (principally aluminum, stainless steel, titanium, and high-temperature alloys) and outside-process services (heat treatment, surface finishing) from a limited number of qualified vendors. During the year ended May 31, 2024, one vendor (Star CNC Machine Tool Corp.) represented approximately 67% of total accounts payable at May 31, 2024. During the year ended May 31, 2025, the largest single vendor balance represented approximately 12% of total accounts payable at May 31, 2025, and no other vendor exceeded 10% of total accounts payable. The Company believes that, while the loss of any one of these suppliers could temporarily disrupt operations, equivalent materials and services are available from alternate qualified sources and the impact of any such disruption would not be material to its financial position or results of operations.
NOTE 5: Accounts Receivable
Accounts receivable, net consists of the following at May 31:
| May
31, 2025 | May
31, 2024 | |||||||
| Trade accounts receivable, gross | $ | 346,574 | $ | 480,726 | ||||
| Less: allowance for credit losses | (18,786 | ) | (55,872 | ) | ||||
| Trade accounts receivable, net | 327,788 | 424,854 | ||||||
The Company applies ASC 326 (Financial Instruments - Credit Losses) to trade receivables. The allowance for credit losses is estimated using a specific-identification approach supplemented by historical loss experience on aged balances. At each reporting date, management reviews the aging of customer balances, known customer-specific credit issues, and reasonable-and-supportable forecasts of economic conditions affecting the aerospace industry. Account balances are written off against the allowance when management determines the receivable is not collectible. Write-offs against the allowance totaled $56,192 and $69,930 for the years ended May 31, 2025 and May 31, 2024, respectively, principally representing previously-reserved invoices from a small number of customers that were ultimately determined to be uncollectible.
NOTE 6: Inventories
Inventories are stated at the lower of cost (first-in, first-out basis, applied on a full-absorption standard) or net realizable value. Cost includes direct materials, direct labor, and an allocation of manufacturing overhead, including indirect labor, factory occupancy costs (rent, utilities, repairs), production-employee benefits, production insurance, shop supplies, and perishable tooling. Manufacturing overhead allocated to inventory totaled $677,497 and $646,588 for the years ended May 31, 2025 and 2024, respectively.
Consigned inventory represents goods physically located at customer-operated stocking locations but over which the Company retains control under the VMI arrangements described in Note 3.
The Company does not maintain a separate inventory valuation reserve; items identified as excess, slow-moving, obsolete, or otherwise unrecoverable are written down directly against the related inventory accounts. Such charges, recognized within Cost of goods sold in the Statement of Operations as Inventory impairments and write-offs (a component of cost in accordance with ASC 330), totaled $650,284 and $752,953 for the years ended May 31, 2025 and May 31, 2024, respectively.
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Inventories consist of the following at May 31:
| May
31, 2025 | May
31, 2024 | |||||||
| Work in process | $ | 88,086 | $ | 114,954 | ||||
| Finished goods | 177,897 | 136,351 | ||||||
| Consigned (Honeywell + MOOG) | 203,237 | 205,581 | ||||||
| Total inventories | $ | 469,220 | $ | 456,886 | ||||
NOTE 7: Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally seven years for machinery and equipment, five years for office equipment and vehicles, and three years for computer software. Expenditures for major additions and improvements are capitalized; expenditures for routine repairs and maintenance are charged to operations as incurred. Upon retirement or disposal of an asset, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statement of operations.
Property and equipment consists of the following at May 31:
| May
31, 2025 | May
31, 2024 | |||||||
| Machinery and equipment | $ | 2,523,587 | $ | 2,595,374 | ||||
| Computer software (NC) | 6,484 | 6,484 | ||||||
| Vehicles | 29,722 | 29,722 | ||||||
| Office equipment | 59,058 | 51,166 | ||||||
| Total property and equipment, at cost | $ | 2,618,851 | $ | 2,682,746 | ||||
| Less: Accumulated depreciation | (2,075,224 | ) | (2,175,697 | ) | ||||
| Property and equipment, net | $ | 543,627 | $ | 507,049 | ||||
Depreciation expense was $102,054 and $75,737 for the years ended May 31, 2025 and 2024, respectively, substantially all of which was included in cost of goods sold as manufacturing overhead.
Disposal of Miyano CNC lathe
In May 2025, the Company disposed of a fully depreciated Miyano CNC lathe with a historical cost of $202,528 and accumulated depreciation of an equal amount. No gain or loss was recognized on the disposal, and the asset and related accumulated depreciation were removed from property and equipment during fiscal year 2025.
NOTE 8: Notes Payable
Notes payable consist of equipment-financing obligations and a Small Business Administration Paycheck Protection Program (“PPP”) loan, each collateralized as described below.
13
Notes payable balances at May 31, segregated between current maturities (principal amounts contractually due within twelve months of the balance sheet date) and non-current portions, are as follows:
| May
31, 2025 | May
31, 2024 | |||||||
| Current portion: | ||||||||
| INTECH Funding Corp - equipment note, 5.87% fixed, matures Oct 2027 | $ | 78,777 | $ | 29,421 | ||||
| U.S. Bank Equipment Finance - equipment note, 7.50% fixed, matures Aug 2028 | 70,329 | 19,105 | ||||||
| California Bank & Trust - SBA PPP loan, 1.00% fixed, matures Feb 2026 | 12,586 | 16,675 | ||||||
| Newlane Finance - equipment note (paid in full during fiscal year 2025) | - | 16,013 | ||||||
| Total notes payable, current portion | $ | 161,692 | $ | 81,214 | ||||
| Non-current portion: | ||||||||
| INTECH Funding Corp | - | $ | 78,777 | |||||
| U.S. Bank Equipment Finance | - | 70,329 | ||||||
| California Bank & Trust - SBA PPP | - | 12,586 | ||||||
| Newlane Finance | - | - | ||||||
| Total notes payable, non-current portion | $ | - | $ | 161,692 | ||||
| Total notes payable | $ | 161,692 | $ | 242,906 | ||||
The INTECH Funding note was entered into on October 31, 2022 in the original principal amount of $151,338 to finance the acquisition of a Star Swiss automatic lathe. The note bears interest at a fixed annual rate of 5.87%, requires sixty monthly payments of $2,924, and is collateralized by the financed equipment.
The U.S. Bank Equipment Finance note was entered into on July 24, 2023 in the original principal amount of $100,000 to finance the acquisition of a Hyundai WIA HD2200 CNC lathe and ATS bar feeder. The note bears interest at a fixed annual rate of 7.50%, requires fifty-eight monthly payments of $2,086.64, and is collateralized by the financed equipment.
The California Bank & Trust note represents the remaining balance of a Small Business Administration Paycheck Protection Program loan obtained during fiscal year 2021. The loan bears interest at 1.00% per annum and requires monthly payments of $1,408 through final maturity in February 2026.
Interest expense on the notes payable described above totaled $11,894 and $15,197 for the fiscal years ended May 31, 2025, and May 31, 2024, respectively, and is included within Other operating expenses on the Statement of Operations. All interest was expensed as incurred (no interest was capitalized into property and equipment), and no accrued but unpaid interest was outstanding at either balance sheet date.
14
NOTE 9: Fair Value Measurements
The Company applies ASC 820 (Fair Value Measurement) to financial assets and liabilities measured at fair value on a recurring basis and to non-financial assets subject to non-recurring fair-value measurement (e.g., long-lived asset impairment). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level fair-value hierarchy:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - observable inputs other than Level 1 quoted prices, including quoted prices for similar assets in active markets, quoted prices in markets that are not active, or other directly observable inputs; and
Level 3 - unobservable inputs reflecting the Company’s own assumptions about the assumptions market participants would use.
Financial assets measured at fair value on a recurring basis consist of the Company’s investments in marketable securities held in a managed brokerage account with Morgan Stanley. The Company’s investments are classified within Level 1 of the hierarchy as fair value is determined by reference to quoted market prices on active exchanges at each reporting date. The Company had no financial liabilities measured at fair value on a recurring basis and no Level 2 or Level 3 recurring measurements at either balance sheet date.
Financial assets measured at fair value on a recurring basis consist of the following at May 31:
| May
31, 2025 | May
31, 2024 | |||||||
| Marketable equity securities, at fair value (Level 1) | $ | 178,657 | $ | 148,682 | ||||
| Total recurring fair value measurements | $ | 178,657 | $ | 148,682 | ||||
The Company’s marketable equity investments are measured at fair value, with all changes in fair value recognized in the Statement of Operations in the period of change in accordance with ASC 321, Investments - Equity Securities. The portfolio is presented on the Balance Sheet at its period-end fair value: $178,657 at May 31, 2025 and $148,682 at May 31, 2024. The carrying amount of the portfolio increased by $29,975 during the year ended May 31, 2025, comprising net cash invested in the portfolio of $29,975 as reflected in investing activities on the Statement of Cash Flows. For the year ended May 31, 2025, the Company recognized within “Gain/(Loss) on Investments” a $15,252 unrealized gain on securities still held at year-end and $1,939 of realized gains on securities sold during the year; together with dividend and interest income of $3,906, these amounts contributed to total other income of $21,097 for the year. The unrealized component is reversed as a non-cash adjustment in the reconciliation of net income (loss) to cash provided by operating activities.
NOTE 10: Stockholders’ Equity
Capital stock
The Company is authorized to issue 100,000 shares of capital stock, no par value. At May 31, 2025 and 2024, there were 10,000 shares issued and outstanding. Because the shares have no par value and no stated value has been assigned, no amount is allocated to capital stock; the aggregate consideration of $10,000 received on issuance is reported in paid-in capital.
Distributions
No distributions to shareholders were declared or paid during the years ended May 31, 2025 and 2024.
15
Changes in retained earnings
Retained earnings decreased by $111,778 during the year ended May 31, 2025, reflecting the net loss for the year. Retained earnings increased by $70,334 during the year ended May 31, 2024, reflecting net income for the year.
NOTE 11: Commitments and Contingencies
Operating lease - manufacturing facility
The Company occupies its principal manufacturing facility under a related-party arrangement with an entity wholly owned by the Company’s two officer-shareholders (the “Lessor Entity”). The arrangement provides for monthly rental payments of $12,000, or $144,000 per annum, payable in arrears. Rent expense under this arrangement was $144,000 for each of the years ended May 31, 2025 and 2024 and is classified within cost of goods sold as manufacturing overhead. Although the arrangement is not documented by a written contract, the absence of a written agreement does not mean the arrangement does not meet the definition of a lease under ASC 842; ASC 842 evaluates leases on the substance of the arrangement rather than the form of documentation, and management has concluded that the arrangement conveys the right to control the use of an identified facility for a period of time in exchange for consideration. Either party may terminate the arrangement at any time without substantive penalty (i.e., a month-to-month tenancy), and accordingly the enforceable lease term is one month. The Company has elected the short-term lease practical expedient under ASC 842-20-25-2 for this class of underlying asset and recognizes the related rental payments as expense on a straight-line basis over the lease term. Accordingly, no right-of-use asset or lease liability has been recognized at either balance sheet date.
Legal proceedings
During fiscal year 2025, the Company agreed to settle a wage-and-hour class action. The Company accrued $225,000, management’s best estimate of the probable loss, recognized as litigation settlement expense and recorded within accrued settlement liability in current liabilities. Although the final timing of payment remains uncertain pending completion of the administrative settlement process, the obligation is classified as current as the Company expects to settle the liability within the twelve months following the balance sheet date.
Other than the matter described above, the Company is not a party to any material legal proceedings. From time to time the Company may become involved in routine litigation incidental to the conduct of its business; management does not believe any such matters currently pending are likely to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Customer warranties and product-liability claims
The Company’s machined components are subject to product-acceptance inspection by its aerospace customers and, in certain cases, source inspection by the customer’s representative prior to shipment. Rejected parts are reworked or replaced at the Company’s cost; historical rework and rejection costs are not material (totaling approximately $38,700 and $12,900 for the years ended May 31, 2025 and 2024, respectively, representing less than 1% of net revenue in each period) and are expensed as incurred. The Company does not provide extended warranties beyond those implied by industry custom and has not recorded a warranty accrual at either balance sheet date.
NOTE 12: Related-Party Transactions
The Company has the following related parties: (i) the Lessor Entity, an entity wholly owned by the Company’s two officer-shareholders that owns the manufacturing facility leased to the Company, and (ii) the two officer-shareholders themselves, who serve as the Company’s sole directors and officers and provide payroll services to the Company.
Facility lease. The Company occupies its principal manufacturing facility under a month-to-month arrangement with the Lessor Entity. Total related-party rent expense recognized was $144,000 for each of the years ended May 31, 2025 and May 31, 2024. No amounts were payable to, or receivable from, the Lessor Entity at either balance sheet date. The rental rate is believed by management to approximate market terms for comparable light-industrial space in the Company’s geographic area; however, the arrangement was not negotiated at arm’s length and could be modified at the discretion of the parties. See Note 11 for the Company’s application of the short-term lease practical expedient to this arrangement.
16
Officer-shareholder compensation. Officer-shareholder compensation, including salary and employer payroll taxes, totaled $270,600 and $265,396 for the years ended May 31, 2025 and 2024 and is included within Other operating expenses on the Statement of Operations.
NOTE 13: Income Taxes
The Company is taxed as a C corporation in the United States and is subject to United States federal income tax and California franchise and income tax. The Company files separate United States federal and California corporate income tax returns on a fiscal year basis ending May 31.
Current income tax expense for the years ended May 31, 2025 and May 31, 2024 totaled $14,647 and $11,526, respectively, comprising United States federal income tax of $13,817 and $10,726 and California franchise tax of $830 and $800. The Company’s income tax expense for the years ended May 31, 2025 and May 31, 2024 is entirely current; no deferred income tax expense or benefit was recognized in either period.
Components of income tax expense
Income tax expense for the years ended May 31, 2025 and May 31, 2024 consists entirely of current income tax, as follows:
| Year
ended May 31, | Year
ended May 31, | |||||||
| 2025 | 2024 | |||||||
| Current | ||||||||
| United States federal | $ | 13,817 | $ | 10,726 | ||||
| California franchise tax | 830 | 800 | ||||||
| Total current income tax expense | $ | 14,647 | $ | 11,526 | ||||
Income taxes paid in cash (including amounts applied from prior-year overpayments) totaled $16,884 and $20,560 during the years ended May 31, 2025 and May 31, 2024, respectively.
Effective income tax rate
The Company’s effective income tax rate differs from the United States federal statutory rate of 21 per cent principally because of the following: (a) significant inventory impairments and write-offs that are recognized as expenses for financial-reporting purposes but are not currently deductible for income-tax purposes, resulting in taxable income for income-tax purposes despite a pre-tax loss for financial-reporting purposes in fiscal year 2025; (b) a full valuation allowance maintained against the Company’s deferred tax assets, which eliminates any income tax benefit that would otherwise arise from the net operating loss carryforwards; (c) state income taxes; and (d) non-deductible permanent differences, including officer life-insurance premiums and the disallowed portion of meals expense. As a result, the Company recorded income tax expense of $14,647 and $11,526 for the years ended May 31, 2025 and May 31, 2024, respectively, notwithstanding a pre-tax loss for financial-reporting purposes in the year ended May 31, 2025 and a modest pre-tax income for financial-reporting purposes in the year ended May 31, 2024.
17
Net operating loss carryforwards
United States federal net operating loss carryforwards available to the Company at the beginning of the year ended May 31, 2025 totaled approximately $264,104. During the year, approximately $263,174 of these carryforwards was utilized against current-year taxable income, leaving a remaining federal net operating loss carryforward of approximately $930 at May 31, 2025. These carryforwards arose in tax years beginning after December 31, 2017 and accordingly carry forward indefinitely; however, their utilization in any given year is limited to 80 per cent of taxable income under Section 172(a) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act.
California net operating loss carryforwards available to the Company at the beginning of the year ended May 31, 2025 totaled approximately $409,661 (originating in tax years 2021 and 2022). These carryforwards were fully utilized against California-source taxable income during the year ended May 31, 2025, and no California net operating loss carryforward remained at May 31, 2025.
Deferred tax assets and valuation allowance
The Company’s only identified deferred tax asset arises from the net operating loss carryforwards described above. At May 31, 2025, the gross deferred tax asset totaled $195, comprising a federal deferred tax asset of $195 on the remaining federal net operating loss carryforward of $930 measured at the statutory rate of 21 per cent. At May 31, 2024, the gross deferred tax asset totaled $91,676, comprising a federal deferred tax asset of $55,462 (on a federal net operating loss carryforward of $264,104 at 21 per cent) and a California deferred tax asset of $36,214 (on a California net operating loss carryforward of approximately $410,000 at 8.84 per cent). No other material temporary differences between the financial-reporting and income-tax bases of the Company’s assets and liabilities were identified at either balance-sheet date.
Management assessed the realizability of these deferred tax assets in accordance with ASC 740-10-30-5 and concluded that, in light of the Company’s cumulative book losses and the variability of recent operating results, a full valuation allowance was warranted. Accordingly, a valuation allowance equal to the gross deferred tax asset was recorded at each balance-sheet date, reducing the net deferred tax asset to zero. The valuation allowance decreased by $91,481 during the year ended May 31, 2025, from $91,676 to $195, and decreased by $43,839 during the year ended May 31, 2024, from $135,515 to $91,676, in each case as the underlying net operating loss carryforwards were utilized against taxable income.
18
No deferred tax liabilities were identified at May 31, 2025 or May 31, 2024.
The utilization of the Company’s remaining net operating loss carryforwards may be subject to annual limitation under Sections 382 and 383 of the Internal Revenue Code if the Company experiences an ownership change, generally defined as a cumulative change of more than 50 percentage points by certain stockholders during a rolling three-year period. The Company has not completed a formal Section 382 and 383 study; however, the Company is not aware of any ownership change events that would limit the utilization of these carryforwards.
Uncertain tax positions
The Company recognizes the financial statement benefit of a tax position only when the position is more likely than not to be sustained on examination by the relevant taxing authority. As of May 31, 2025 and May 31, 2024, the Company had no unrecognized tax benefits, and no tax positions are reported on Schedule UTP of the Company’s federal income tax return. The Company’s policy is to record interest and penalties related to uncertain tax positions within Other operating expenses on the Statement of Operations; no such amounts were recognized during the years ended May 31, 2025 and May 31, 2024.
Open tax years
The Company is subject to taxation in the United States federal jurisdiction and in California. The Company’s federal tax returns for fiscal years ended May 31, 2022 through May 31, 2025 and California tax returns for fiscal years ended May 31, 2021 through May 31, 2025 remain open to examination by the United States Internal Revenue Service and the California Franchise Tax Board, respectively. There were no examinations in progress at May 31, 2025.
NOTE 14: Subsequent Events
The Company has evaluated subsequent events through May 12, 2026, the date these financial statements were available to be issued. No events have occurred subsequent to May 31, 2025 that require recognition or disclosure in these financial statements.
19
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 11, 2026, PMGC Holdings Inc., a Nevada corporation (the “Buyer” or the “Company”), entered into a Stock Purchase Agreement (the “Stock Purchase Agreement” or the “SPA”) to acquire 100% of the issued and outstanding shares (the “Shares”) of A&B Aerospace, Inc., a California corporation (the “Target” or “A&B”). The SPA was entered into by and among the Buyer, the Target, and Kennith Edward Smith and Jack Joseph Badeau, constituting all of the stockholders of the Target (collectively, the “Sellers”). The Buyer’s acquisition of the Target is referred to as the “Transaction,” and the Buyer, the Target, and the Sellers are referred to collectively as the “Parties.”
Upon the closing of the Transaction (the “Closing”), the aggregate purchase price for the Shares (the “Purchase Price”) consists of: (i) $4,275,000 in cash payable to the Sellers at Closing (the “Closing Purchase Price”); plus (ii) $225,000 retained by the Buyer at Closing as an indemnification holdback (the “Indemnification Holdback”); plus (iii) the Estimated Closing Cash Balance, defined in the SPA as the cash and cash equivalents of the Target as of the Closing, which the Sellers are required under the SPA to use commercially best efforts to cause to be at least $300,000 at Closing, and which for purposes of the unaudited pro forma condensed combined financial statements is presented at such $300,000 floor; plus or minus (iv) the amount, if any, by which Estimated Closing Net Working Capital is greater than, or less than, the Net Working Capital Target of $855,669, in each case as defined in the SPA. The SPA additionally provides for a post-closing true-up under Section 1.04(d) consisting of (A) a Closing Cash Balance Adjustment equal to the Final Cash Balance minus the Estimated Closing Cash Balance, and (B) a Net Working Capital Adjustment Amount equal to the Final Net Working Capital minus the Estimated Net Working Capital, with the aggregate of such two amounts (the “Final Adjustment Amount”) settled in cash between the Parties within five Business Days after final determination.
Following the Closing, the Target will continue operating its business at the Target’s existing facility pursuant to a duly executed commercial Lease Agreement to be entered into at Closing between the Target and Malcolm E Smith and Mary B Smith; Malcolm and Mary Smith Trust (the “Lease Agreement”), as required by the SPA. Mr. Badeau will continue to serve as President of the Target following the Closing pursuant to an Employment Agreement to be entered into at Closing in substantially the form attached as Exhibit B to the SPA (the “Badeau Employment Agreement”). Under the SPA, the Sellers have agreed to remain available to the Buyer for a period of six (6) months after the Closing Date to provide reasonable transition services, including assistance with required financial audits, operational knowledge transfer, and other reasonable post-Closing transition matters, and have agreed to a three-year non-competition restriction within the State of California commencing on the Closing Date. In addition to the Indemnification Holdback, the Sellers have agreed to indemnify the Buyer under the SPA for, among other matters, (i) all Taxes of the Target attributable to Pre-Closing Tax Periods under ARTICLE VI of the SPA, (ii) Losses related to any employee being ineligible or unauthorized to work in the United States as of the Closing Date under Section 7.01(c) of the SPA, and (iii) the Salvador Rivera litigation matter under Section 7.01(d) of the SPA, the Indemnification Holdback being earmarked as collateral for clause (iii).
The foregoing description of the SPA and the Transaction does not purport to be complete and is qualified in its entirety by reference to the full text of the SPA, which is filed as an exhibit to the Buyer’s Current Report on Form 8-K originally filed with the SEC reporting the entry into the Transaction, and is incorporated herein by reference.
The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Transaction and has been derived by applying pro forma adjustments to the historical consolidated financial statements and other financial information of the Buyer and the Target. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma adjustments that are (1) directly attributable to the Transaction, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results of the Buyer.
The unaudited pro forma condensed combined balance sheet combines the historical audited consolidated balance sheet of the Buyer as of December 31, 2025 with the historical reviewed balance sheet of the Target as of February 28, 2026, and has been prepared to reflect the Transaction as if it occurred on December 31, 2025. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025 combines the historical audited consolidated results of operations of the Buyer for the year ended December 31, 2025 with the historical results of operations of the Target for the trailing twelve months ended February 28, 2026, in each case giving effect to the Transaction as if it occurred on January 1, 2025. The Target’s fiscal year ends May 31, which differs from the Buyer’s December 31 fiscal year end. The Target’s trailing twelve months ended February 28, 2026 has been constructed by taking the Target’s audited results of operations for the fiscal year ended May 31, 2025, subtracting the Target’s reviewed results of operations for the nine months ended February 28, 2025, and adding the Target’s reviewed results of operations for the nine months ended February 28, 2026. This presentation aligns the Target’s historical period in length with the Buyer’s twelve-month reporting period and brings the Target’s period end to within ninety-three days of the Buyer’s fiscal year end, as permitted by Rule 11-02(c)(3) of Regulation S-X. Because the Buyer’s and Target’s respective periods nonetheless have different period-ends, with an approximately two-month period of overlap (December 31, 2025 to February 28, 2026), the unaudited pro forma condensed combined statement of operations is presented for illustrative purposes only; the basis of presentation, including the residual period mismatch between the Buyer’s and Target’s reporting periods, is described further in the accompanying notes.
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are based on the estimates and assumptions set forth in the accompanying notes. They do not purport to indicate the results that would actually have been obtained had the Transaction been completed on the assumed dates or for the periods presented, nor do they purport to project the future operating results or financial position of the Buyer following the consummation of the Transaction.
The unaudited pro forma condensed combined financial statements should be read in conjunction with:
| ● | the accompanying notes to the unaudited pro forma condensed combined financial statements; |
| ● | the historical audited consolidated financial statements of the Buyer as of and for the year ended December 31, 2025 (with comparative information as of and for the year ended December 31, 2024), and the related notes, included in the Buyer’s Annual Report on Form 10-K filed with the SEC on March 30, 2026; |
| ● | the historical reviewed financial statements of the Target as of and for the nine months ended February 28, 2026 (with comparative information for the nine months ended February 28, 2025), and the related notes, included as Exhibit 99.1 to this Current Report; |
| ● | the historical audited financial statements of the Target as of and for the fiscal year ended May 31, 2025 (with comparative information as of and for the fiscal year ended May 31, 2024), and the related notes, included as Exhibit 99.2 to this Current Report; and |
| ● | the Acquisition Agreement filed as Exhibit 10.1 to this Current Report. |
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2025
| Buyer Historical | Target Historical | Acquisition Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Bank | $ | 5,402,333 | $ | 681,509 | $ | (4,956,509 | ) | 1 | $ | 1,127,333 | |||||||||
| Account Receivables, net | 245,423 | 388,048 | - | 633,471 | |||||||||||||||
| Other receivables | 95,108 | 4,000 | - | 99,108 | |||||||||||||||
| Prepaids and deposits | 461,239 | 24,232 | - | 485,471 | |||||||||||||||
| Inventory | 95,098 | 502,717 | 50,272 | 2 | 648,087 | ||||||||||||||
| Investments in securities | 572,054 | 344,336 | - | 916,390 | |||||||||||||||
| Total current assets | 6,871,255 | 1,944,841 | (4,906,238 | ) | 3,909,859 | ||||||||||||||
| Fixed Assets, net | 885,520 | 463,772 | 250,000 | 2 | 1,599,292 | ||||||||||||||
| Right-of-use-asset | 1,241,527 | - | - | 1,241,527 | |||||||||||||||
| Intangibles, net | 2,892,397 | - | 1,500,000 | 2 | 4,392,397 | ||||||||||||||
| Goodwill | 977,774 | - | 1,362,087 | 2 | 2,339,861 | ||||||||||||||
| Total assets | $ | 12,868,473 | $ | 2,408,613 | $ | (1,794,150 | ) | $ | 13,482,936 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 782,633 | $ | 164,463 | $ | - | $ | 947,096 | |||||||||||
| Due to related parties - current | 1,032,895 | - | - | 1,032,895 | |||||||||||||||
| Consideration Payable | 206,250 | - | 225,000 | 1 | 431,250 | ||||||||||||||
| Notes payable – current | - | 108,034 | (108,034 | ) | 1 | - | |||||||||||||
| Lease liability - short term | 247,627 | - | - | 247,627 | |||||||||||||||
| Accrued settlement liability | - | 225,000 | - | 225,000 | |||||||||||||||
| Derivative liabilities and convertible debt | 1,672,891 | - | - | 1,672,891 | |||||||||||||||
| Total current liabilities | 3,942,296 | 497,497 | 116,966 | 4,556,759 | |||||||||||||||
| Lease liability - long term | 972,843 | - | - | 972,843 | |||||||||||||||
| Notes payable – non-current | 85,000 | - | - | 85,000 | |||||||||||||||
| Deferred tax liabilities | 30,972 | - | - | 30,972 | |||||||||||||||
| Total liabilities | 5,031,111 | 497,497 | 116,966 | 5,645,574 | |||||||||||||||
| Common stock | 645 | - | - | 645 | |||||||||||||||
| Retained earnings | - | 1,901,116 | (1,901,116 | ) | 2 | - | |||||||||||||
| Additional paid-in capital | 28,856,496 | 10,000 | (10,000 | ) | 2 | 28,856,496 | |||||||||||||
| Accumulated other comprehensive income | (2,339 | ) | - | - | (2,339 | ) | |||||||||||||
| Accumulated deficit | (21,017,440 | ) | - | - | (21,017,440 | ) | |||||||||||||
| Total stockholders’ (deficit) equity | 7,837,362 | 1,911,116 | (1,911,116 | ) | 7,837,362 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 12,868,473 | $ | 2,408,613 | $ | (1,794,150 | ) | $ | 13,482,936 | ||||||||||
The accompanying notes are an integral part of these financial statements
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2025
Buyer Historical Year Ended December 31, 2025 | Target Historical Twelve Months Ended February 28, 2026 | Acquisition Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||||
| Revenue | $ | 590,084 | $ | 4,694,791 | $ | - | $ | 5,284,875 | ||||||||||||
| Cost of Goods Sold (1) | 404,770 | 4,256,303 | - | 4,661,073 | ||||||||||||||||
| Gross Profit | 185,314 | 438,488 | - | 623,802 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 6,253,463 | 116,998 | (330,999 | ) | (a) | 6,039,462 | ||||||||||||||
| Depreciation and amortization | 96,145 | - | - | 96,145 | ||||||||||||||||
| Repairs and maintenance | 717,654 | - | - | 717,654 | ||||||||||||||||
| Total operating expenses | 7,067,262 | 116,998 | (330,999 | ) | 6,853,261 | |||||||||||||||
| Loss from operations | (6,881,948 | ) | 321,490 | 330,999 | (6,229,459 | ) | ||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Total other income (expense), net | (867,820 | ) | 33,342 | 9,926 | (b) | (824,552 | ) | |||||||||||||
| Loss from continuing operations before income taxes | (7,749,768 | ) | 354,832 | 340,925 | (7,054,011 | ) | ||||||||||||||
| Income tax expense | (30,972 | ) | (14,647 | ) | - | (45,619 | ) | |||||||||||||
| Loss from continuing operations | (7,780,740 | ) | 340,185 | 340,925 | (7,099,630 | ) | ||||||||||||||
| Income from discontinued operations, net of tax | 32,927 | - | - | 32,927 | ||||||||||||||||
| Net profit / (loss) | (7,747,813 | ) | 340,185 | 340,925 | (7,066,703 | ) | ||||||||||||||
| Foreign currency translation adjustment | (2,002 | ) | - | - | (2,002 | ) | ||||||||||||||
| Total comprehensive loss | $ | (7,749,815 | ) | 340,185 | 340,925 | (7,068,705 | ) | |||||||||||||
| Net loss per share - basic and diluted: | ||||||||||||||||||||
| Continuing operations | $ | (382.32 | ) | $ | (348.84 | ) | ||||||||||||||
| Discontinued operations | 1.62 | 1.62 | ||||||||||||||||||
| Weighted average of common shares outstanding - basic and diluted | 20,352 | 20,352 | ||||||||||||||||||
| (1) | Includes a non-recurring inventory write-down of approximately $750,588 within the Target’s historical Cost of Goods Sold. See Note 4(c) to the unaudited pro forma condensed combined financial statements. |
The accompanying notes are an integral part of these financial statements
4
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1 - Accounting for the Acquisition
The unaudited pro forma condensed combined financial statements give effect to the acquisition of A&B Aerospace, Inc. (the “Target” or “A&B”) by PMGC Holdings Inc. (the “Buyer” or the “Company”) under the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations, with the Buyer treated as the accounting acquirer. Under the acquisition method, the total purchase consideration is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values as of the Closing Date. The excess of the total purchase consideration over the estimated fair value of the net identifiable assets acquired, if any, is recorded as goodwill.
For purposes of estimating fair value, where applicable, of the assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial information, the Company has applied the guidance in ASC 820, Fair Value Measurement, which establishes a framework for measuring fair value. Fair value represents an exit price and is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
As of the date of this Current Report on Form 8-K/A (this “Current Report”), the Company has not finalized the valuation work necessary to determine the final fair values of the assets acquired and liabilities assumed. Accordingly, the preliminary purchase price allocation included in these unaudited pro forma condensed combined financial statements is based on management’s preliminary estimates. The preliminary purchase price allocation is subject to adjustment as additional information becomes available and as additional analyses are completed during the measurement period (not to exceed one year from the Closing Date). There can be no assurance that the finalization of the valuation work will not result in material changes from the preliminary purchase price allocation.
As of the Closing Date, the total consideration for the Acquisition included the following:
| Cash consideration at Closing | $ | 4,275,000 | ||
| Indemnification Holdback | 225,000 | |||
| Cash paid to Sellers in respect of Estimated Closing Cash Balance | 300,000 | |||
| Total consideration | $ | 4,800,000 |
The Indemnification Holdback of $225,000 is retained by the Buyer at Closing and constitutes part of the total purchase consideration under ASC 805. The Holdback Amount is held by the Buyer specifically to satisfy the Sellers’ indemnification obligations under Section 7.01(d) of the SPA in respect of the litigation matter described in Section 3.14 of the Disclosure Schedules to the SPA, and is recognized at the Closing Date as a liability of the Buyer to the Sellers, included within Consideration Payable on the unaudited pro forma condensed combined balance sheet. Pursuant to the SPA, in the event that the indemnification claim resolves for an amount less than the Holdback Amount, the Buyer shall pay over to the Sellers any remaining portion of the Indemnification Holdback within ten days of the final adjudication of such claim. The Target is being acquired on a cash-free, debt-free basis. Accordingly, the unaudited pro forma condensed combined balance sheet reflects the Buyer’s assumption of the $225,000 accrued litigation liability (Salvador Rivera), which is recoverable by the Buyer from the Indemnification Holdback under Section 7.01(d) of the SPA, the pre-Closing payoff of the Target’s outstanding equipment notes payable totaling $108,034, and the Sellers’ pre-Closing sweep of the Target’s cash balances down to the $300,000 minimum cash threshold required under the SPA. The Estimated Closing Cash Balance and the at-Closing Net Working Capital adjustment are determined based on the Target’s actual cash and net working capital balances as of the Closing Date as set forth on the Estimated Closing Statement delivered by the Sellers prior to Closing pursuant to Section 1.04 of the SPA, with the Net Working Capital component compared to the Net Working Capital Target of $855,669. The SPA additionally contemplates a post-closing true-up under Section 1.04(d) consisting of (i) a Closing Cash Balance Adjustment equal to the Final Cash Balance minus the Estimated Closing Cash Balance, and (ii) a Net Working Capital Adjustment Amount equal to the Final Net Working Capital minus the Estimated Net Working Capital. Because the Closing has not yet occurred and the foregoing amounts cannot be determined as of the date of these unaudited pro forma condensed combined financial statements, no post-closing true-up amount is reflected and the Estimated Closing Cash Balance is presented at the $300,000 minimum cash floor specified in the SPA.
5
The preliminary allocation of the purchase consideration to the estimated fair values of assets acquired and liabilities assumed is as follows:
| Assets acquired: | ||||
| Cash and cash equivalents | $ | 300,000 | ||
| Accounts receivable, net | 388,048 | |||
| Inventory (at fair value) | 552,988 | |||
| Investments and other current assets | 372,567 | |||
| Property and equipment (at fair value) | 713,772 | |||
| Identifiable intangible assets | 1,500,000 | |||
| Liabilities assumed: | ||||
| Accounts payable and accrued liabilities | (164,463 | ) | ||
| Accrued settlement liability assumed (Salvador Rivera) | (225,000 | ) | ||
| Goodwill (preliminary, residual) | 1,362,087 | |||
| Total consideration | $ | 4,800,000 | ||
Note 2 - Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and has been derived from the historical financial statements of PMGC Holdings Inc. (the “Buyer”) and A&B Aerospace, Inc. (the “Target”). The Buyer’s fiscal year ends December 31. The Target’s fiscal year ends May 31. The Target’s reviewed balance sheet as of February 28, 2026 has been combined with the Buyer’s audited consolidated balance sheet as of December 31, 2025, with an endpoint difference of fifty-nine days, within the ninety-three day tolerance permitted by Rule 11-02(c)(3) of Regulation S-X. The Target’s historical results of operations for the trailing twelve months ended February 28, 2026 have been combined with the Buyer’s audited consolidated results of operations for the year ended December 31, 2025. The Target’s trailing twelve-month period has been constructed by taking the Target’s audited results of operations for the fiscal year ended May 31, 2025, subtracting the Target’s reviewed results of operations for the nine months ended February 28, 2025, and adding the Target’s reviewed results of operations for the nine months ended February 28, 2026. Although the Target’s constructed twelve-month period is equal in length to the Buyer’s twelve-month period, the period-ends differ, with an approximately two-month period of overlap (December 31, 2025 to February 28, 2026); the unaudited pro forma condensed combined statement of operations is therefore presented for illustrative purposes only and is not necessarily indicative of the results that would have been reported had the Target’s historical results of operations been presented over a period coterminous with the Buyer’s. The pro forma adjustments have been identified and presented to provide relevant information necessary for an illustrative understanding of the Buyer upon consummation of the acquisition of the Target pursuant to the Stock Purchase Agreement (the “SPA”), in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited pro forma condensed combined financial statements are presented at the major caption level for the Target as permitted by Rule 11-02(c)(3) of Regulation S-X.
The assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have been achieved had the acquisition occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information does not purport to project future operating results or financial position following the consummation of the acquisition. The pro forma adjustments represent management’s estimates based on information available as of the date of this unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed.
The Buyer and the Target had no historical relationship prior to the Transaction; accordingly, no adjustments were required to eliminate activities between the Buyer and the Target.
6
Note 3 - Reclassification Adjustments
The unaudited pro forma condensed combined balance sheet and condensed combined statements of operations have been adjusted to reflect certain reclassifications of the Target’s historical financial statements to conform to the Buyer’s financial statement presentation.
Note 4 - Pro Forma Adjustments
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
| 1. | Reflects the cash and consideration entries arising from the Transaction. The Buyer pays $4,275,000 in cash to the Sellers at Closing (the Closing Purchase Price) and an additional $300,000 to the Sellers in respect of the Estimated Closing Cash Balance, and retains the $225,000 Indemnification Holdback as a liability of the Buyer to the Sellers, recorded within Consideration Payable. Pursuant to the SPA, the Sellers, prior to Closing, (i) sweep $381,509 of the Target’s cash on hand in excess of the $300,000 minimum cash threshold and (ii) cause the Target’s outstanding equipment notes payable, totaling $108,034, to be paid off in full out of the swept proceeds, with the result that the Target enters Closing on a cash-free, debt-free basis with $300,000 of cash and no equipment notes payable. The Buyer assumes the $225,000 accrued litigation liability (Salvador Rivera) included in the Target’s historical balance sheet; that liability remains on the unaudited pro forma condensed combined balance sheet and is recoverable by the Buyer from the Indemnification Holdback under Section 7.01(d) of the SPA. The aggregate cash adjustment of $4,956,509 reflected in the unaudited pro forma condensed combined balance sheet equals the $4,275,000 Closing Purchase Price plus the $300,000 paid by the Buyer in respect of the Estimated Closing Cash Balance plus the $381,509 cash swept by the Sellers. |
| 2. | Reflects the preliminary allocation of the total purchase consideration of $4,800,000 to the estimated fair values of the assets acquired and liabilities assumed under ASC 805, and the elimination of the Target’s pre-merger equity remaining after the Sellers’ pre-Closing cash sweep described in Adjustment 1 (Additional Paid-In Capital of $10,000 and Retained Earnings of $1,519,607, aggregating $1,529,607, the latter representing the Target’s historical Retained Earnings of $1,901,116 less the $381,509 cash swept by the Sellers and charged to Retained Earnings). The preliminary fair value adjustments to the Target’s historical balances are: (i) an inventory step-up of $50,272 to reflect estimated selling price less cost to complete and reasonable margin in accordance with ASC 805-20-30-1; (ii) a property and equipment fair value increase of $250,000 to reflect estimated fair value based on management’s preliminary assessment pending an independent appraisal; (iii) recognition of $1,500,000 of identifiable intangible assets, expected to comprise customer relationships, trade name, and backlog, with useful lives to be determined upon completion of an independent valuation; and (iv) recognition of $1,362,087 of goodwill as the residual of consideration over the fair value of the net identifiable assets acquired. The Company has not yet completed the valuation work necessary to finalize the fair values of the assets acquired and liabilities assumed or to determine the useful lives of the identifiable intangible assets. The preliminary purchase price allocation is subject to change as additional information becomes available, and the final allocation may differ materially from the preliminary amounts presented herein, including reallocations between identifiable intangibles and goodwill and changes in inventory and property and equipment fair values. |
| 3. | Reflects the period differences between the Buyer’s and Target’s respective reporting periods. The Target’s reviewed balance sheet as of February 28, 2026 has been combined with the Buyer’s audited consolidated balance sheet as of December 31, 2025, an endpoint difference of fifty-nine days, within the ninety-three day tolerance permitted by Rule 11-02(c)(3) of Regulation S-X. The Target’s results of operations for the trailing twelve months ended February 28, 2026, constructed as described in Note 2, have been combined with the Buyer’s audited consolidated results of operations for the year ended December 31, 2025. The Target’s trailing twelve month period and the Buyer’s fiscal year overlap by approximately ten months and differ in their respective endpoints by fifty-nine days; accordingly, the unaudited pro forma condensed combined statement of operations is presented for illustrative purposes only, and the combined results are not indicative of the results that would have been reported had the Target’s results of operations been presented over a period coterminous with the Buyer’s. |
7
Pro Forma Condensed Combined Statements of Operations
The following transaction accounting adjustments have been reflected in the Acquisition Pro Forma Adjustments column of the unaudited pro forma condensed combined statement of operations:
| (a) | Owner compensation reduction and elimination of factoring fees. Reflects a net reduction of $330,999 to Selling, general and administrative expense, comprising (i) a net reduction of $290,934 in owner compensation expense, reflecting the elimination of the historical fully-loaded compensation of both Mr. Smith and Mr. Badeau as the Target’s owner-employees less Mr. Badeau’s continuing compensation as President pursuant to the Badeau Employment Agreement at his historical annual rate of $171,546, and (ii) the elimination of $40,066 of third-party invoice factoring fees incurred by the Target during the trailing twelve months ended February 28, 2026, which the Buyer expects to discontinue post-Closing by funding the Target’s working capital from cash on hand. With respect to clause (i), the historical combined fully-loaded owner compensation of the Sellers (Mr. Smith and Mr. Badeau) for the Target’s fiscal year ended May 31, 2025 was approximately $463,826, comprising base wages and employer payroll taxes derived from the Target’s ADP payroll records. The Sellers’ historical owner compensation applicable to the trailing twelve months ended February 28, 2026 has been derived using the same build-up methodology described in Note 2 (i.e., the Target’s fiscal year ended May 31, 2025 of $463,826, less an estimate of the comparable nine months ended February 28, 2025 of $347,870 derived as nine-twelfths of fiscal 2025 (owner compensation having been substantially flat year-over-year), plus actual owner compensation for the nine months ended February 28, 2026 of $346,524), resulting in trailing twelve month historical owner compensation of approximately $462,480. The $290,934 owner compensation adjustment represents the difference between such trailing twelve month historical owner compensation and Mr. Badeau’s continuing compensation under the Badeau Employment Agreement at his historical annual rate of $171,546. Both components of the adjustment are directly attributable to the Transaction, factually supportable, and expected to have a continuing impact on the combined results. |
| (b) | Interest expense reversal. Reflects the elimination of $9,926 of interest expense recognized during the Target’s trailing twelve months ended February 28, 2026 on the Target’s INTECH Funding and US Bank Equipment Financing notes payable, which the Sellers are required under the SPA to pay off in full prior to Closing on a cash-free, debt-free basis. The adjustment is directly attributable to the Transaction, factually supportable, and expected to have a continuing impact on the combined results. |
| (c) | Non-recurring inventory write-down within Target historical Cost of Goods Sold. The Target’s historical Cost of Goods Sold for the trailing twelve months ended February 28, 2026 includes a non-recurring inventory write-down of approximately $750,588, comprising the write-off of scrap inventory and the reclassification and write-off of orphan inventory items identified during a comprehensive physical inventory review performed by the Target during the period. Management considers this charge to be non-recurring in nature and does not expect it to recur in future periods. The $750,588 charge is reflected within the Target Historical column of the unaudited pro forma condensed combined statement of operations and is not separately captioned on the face of the statement. No pro forma adjustment has been made to remove this charge from the Target’s historical results, as the write-down does not meet the definition of a Transaction Accounting Adjustment under Rule 11-02(a)(6) of Regulation S-X (i.e., it does not reflect the accounting for the Transaction and would otherwise constitute a normalization of the Target’s historical operating results). Had the $750,588 charge been excluded from the Target’s historical Cost of Goods Sold, the Target’s historical Gross Profit and Loss from operations for the trailing twelve months ended February 28, 2026 would each have been higher by $750,588 on a pre-tax basis, and the pro forma combined Loss from continuing operations before income taxes for the year ended December 31, 2025 would have been reduced accordingly. This disclosure is provided for transparency with respect to the comparability of the Target’s historical results of operations and is not, and should not be construed as, a pro forma adjustment under Article 11 of Regulation S-X. |
| (d) | Other items not reflected. The unaudited pro forma condensed combined statement of operations does not reflect adjustments for amortization of identifiable intangible assets, depreciation of the property and equipment fair value step-up, or recognition of inventory fair value step-up in cost of goods sold, in each case because the Company has not yet completed the valuation work necessary to determine the useful lives of the identifiable intangible assets, the remaining useful life of the stepped-up property and equipment, or the timing of inventory turnover. These adjustments will be reflected upon finalization of the purchase price allocation and may have a material impact on future periods. |
8
Exhibit 99.4
PMGC Holdings (NASDAQ: ELAB) Acquires A&B Aerospace, Inc.
| ● | Precision machining and aerospace, defense manufacturing company contracted by long standing Tier 1 customers that include Boeing, Honeywell International Inc., and Moog Inc.* |
| ● | AS9100D and ISO 9001:2015 certified |
NEWPORT BEACH, CA, May 13, 2026 (GLOBE NEWSWIRE) – PMGC Holdings Inc. (Nasdaq: ELAB) (“PMGC” or the “Company”), a diversified holding company currently executing a targeted roll-up strategy in U.S.-based precision manufacturing companies, has acquired A&B Aerospace, Inc. (“A&B Aerospace” or “A&B”),
Founded in 1948, A&B Aerospace is a precision machining and aerospace manufacturing company specializing in high-tolerance parts and assemblies for the aerospace industry. Headquartered in Azusa, California, the company provides advanced CNC machining, honing, grinding, and precision deburring services, supporting a wide range of aerospace and defense applications. A&B Aerospace operates more than twenty modern CNC machines with full 5-axis machining capabilities and maintains AS9100 and ISO 9001 certifications. Known for its long-standing reputation for quality, reliability, and on-time delivery, the company serves leading aerospace customers with both metal and non-metal machining solutions while maintaining tolerances as tight as ±0.0001”.
The acquisition of A&B Aerospace marks PMGC’s fifth acquisition in the past twelve months and advances the Company’s previously announced roll-up strategy focused on assembling a U.S. precision manufacturing platform of AS9100D-certified CNC machining businesses serving the aerospace, defense, and industrial end markets.
A&B Summary Financial Information
For the trailing twelve-month period ended February 28, 2026, A&B Aerospace recorded approximately $5.0M in revenue and approximately $610K in management-adjusted EBITDA**.
** Management-adjusted EBITDA is a non-GAAP financial measure. The figures above are unaudited and have not been audited or reviewed by an independent registered public accounting firm. See “Non-GAAP Financial Measures and Unaudited Financial Information” below.
Summary of Transaction
PMGC acquired 100% of the issued and outstanding shares of A&B Aerospace from its selling shareholders, on a cash-free, debt-free basis. The base purchase price is $4,500,000 in cash, consisting of $4,275,000 paid at closing and a $225,000 indemnification holdback retained by PMGC at closing. The purchase price is subject to a customary post-closing adjustment based on a final cash balance and a net working capital adjustment relative to a net working capital target, as set forth in the acquisition agreement. In connection with the closing, Jack Badeau, the current President and long-tenured leader of A&B Aerospace, will continue serving in his role pursuant to an employment agreement. A&B Aerospace will also continue operating from its existing facility in Azusa, California under a lease entered into at closing.
Strategic Rationale: A&B Aerospace Fits PMGC’s Platform Thesis
PMGC’s acquisition strategy targets businesses positioned within durable, high-value industrial verticals. PMGC believes A&B Aerospace exemplifies the core attributes the Company seeks in its precision manufacturing platform: high technical barriers to entry, mission-critical applications, an established blue-chip customer base, and direct exposure to U.S. industrial and defense supply chain demand. As prime defense contractors and Tier 1 aerospace customers increasingly prioritize onshoring and supply chain security, demand for certified, U.S.-based precision shops continues to grow. The Company believes that once a precision machining supplier is qualified on a customer program, customer retention is materially reinforced by the rigorous requalification processes and first article inspection requirements associated with changing manufacturers, creating durable, hard-to-displace customer relationships. PMGC believes A&B Aerospace, with 76 years of continuous operating history, AS9100D and ISO 9001:2015 certifications, and entrenched relationships with Tier 1 customers including Boeing, Honeywell, and Moog, reflects exactly this profile.
Aerospace and Defense Market Tailwinds
Commercial aerospace is in the midst of a multi-year production ramp. Boeing’s 2025 Commercial Market Outlook forecasts global demand for approximately 43,600 new commercial aircraft over the 20-year period from 2025 through 2044, with the global commercial fleet projected to nearly double to approximately 49,600 aircraft.¹ Sustained backlog growth at the major airframers is translating into higher build rates and a corresponding step-up in demand across the aerospace component supply chain.
On the defense side, U.S. budget authority continues to expand. Congress enacted approximately $839 billion in discretionary FY2026 appropriations for the U.S. Department of Defense under the Department of Defense Appropriations Act, 2026.² PMGC believes federal reshoring and onshoring initiatives, supply chain security priorities, and continued procurement and sustainment funding for legacy and next-generation programs are driving a structural increase in demand for certified, U.S.-based precision manufacturers.
On the supply side, qualified domestic manufacturers holding AS9100D certification represent a narrow segment of the broader U.S. machining industry. OEMs and Tier 1 aerospace and defense customers are increasingly consolidating onto a smaller number of reliable, scalable, qualified suppliers, and the rigorous requalification and first article inspection requirements associated with changing manufacturers create durable, hard-to-displace customer relationships. PMGC believes the combination of expanding aerospace and defense demand and a structurally constrained supply of qualified domestic precision manufacturers creates a favorable long-term backdrop for the Company’s precision manufacturing platform.
About A&B Aerospace, Inc.
Founded in 1948, A&B Aerospace is a precision aerospace manufacturing company specializing in high-tolerance machining, complex assemblies, and engineered components for the aerospace and defense industries. Headquartered in Azusa, California, the company provides advanced CNC machining, grinding, honing, and precision deburring services for mission-critical applications. With decades of manufacturing expertise, A&B Aerospace supports leading aerospace customers through a commitment to quality, reliability, and on-time delivery. The company operates a modern manufacturing platform with advanced multi-axis machining capabilities and maintains AS9100 and ISO 9001 certifications to meet the rigorous standards of the global aerospace industry.
For more information, visit https://www.abaerospace.com.
About PMGC Holdings Inc.
PMGC Holdings Inc. is a diversified holding company that manages and grows its portfolio through strategic acquisitions, investments, and development across various industries. We are committed to exploring opportunities in multiple sectors to maximize growth and value. For more information, please visit https://www.pmgcholdings.com.
2
Non-GAAP Financial Measures and Unaudited Financial Information
This press release contains certain financial information that has not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), including a reference to “management-adjusted EBITDA.” Management-adjusted EBITDA is a non-GAAP financial measure that reflects customary adjustments, including normalizations for non-recurring items, owner-related compensation and benefits, and other adjustments customary in private company transactions. The financial figures presented in this press release are preliminary, unaudited, and have not been audited or reviewed by an independent registered public accounting firm. The trailing twelve-month period presented does not necessarily correspond to A&B Aerospace’s fiscal year. Non-GAAP financial measures are not intended as a substitute for, or superior to, financial measures prepared in accordance with GAAP, may differ from similarly titled measures used by other companies, and are subject to inherent limitations. Actual results, including those that will be reflected in PMGC’s subsequent SEC filings under purchase accounting and on a GAAP basis, may differ materially from the figures presented above. Investors should not place undue reliance on the preliminary, unaudited figures contained in this press release and should refer to PMGC’s filings with the U.S. Securities and Exchange Commission for financial information prepared in accordance with GAAP.
Forward-Looking Statements
Statements contained in this press release regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Words such as “believes,” “expects,” “plans,” “potential,” “would” and “future” or similar expressions such as “look forward” are intended to identify forward-looking statements. Forward-looking statements are made as of the date of this press release and are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, activities of regulators and future regulations and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results. Therefore, you should not rely on any of these forward-looking statements. These and other risks are described more fully in PMGC’s filings with the United States Securities and Exchange Commission (“SEC”), including the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 30, 2026, and its other documents subsequently filed with or furnished to the SEC. Investors and security holders are urged to read these documents free of charge on the SEC’s web site at www.sec.gov. All forward-looking statements contained in this press release speak only as of the date on which they were made. Except to the extent required by law, the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
IR Contact: IR@pmgcholdings.com
Sources
| ¹ | Boeing, 2025 Commercial Market Outlook, June 2025. Available at https://www.boeing.com/commercial/market/commercial-market-outlook.
|
| ² | U.S. Senate Committee on Appropriations, “Congress Approves FY 2026 Defense Appropriations Bill,” February 3, 2026; Department of Defense Appropriations Act, 2026 (Division A of P.L. 119-75).
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| * | As referenced in the company’s financial statements and company website, www.abaerospace.com, A&B is contracted by Tier 1 customers that include Boeing, Honeywell, and Moog. |
The acquisition was previously announced in the Company’s press release dated June 24, 2025, regarding the signing of a non-binding letter of intent to acquire the target company.
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FAQ
What did PMGC Holdings (ELAB) pay to acquire A&B Aerospace?
PMGC Holdings paid $4.5 million in cash to acquire 100% of A&B Aerospace’s shares. Of this, $4.275 million was paid at closing and $225,000 was held back as an indemnification reserve related to specific litigation.
How profitable is A&B Aerospace in the latest reported period?
A&B Aerospace earned $343,903 of net income for the nine months ended February 28, 2026. This came on revenue of $3.61 million, reflecting an improvement from a net loss of $108,061 in the comparable prior-year nine-month period.
What were A&B Aerospace’s full-year 2025 financial results before PMGC’s acquisition?
For the year ended May 31, 2025, A&B Aerospace generated $4.28 million in revenue and recorded a net loss of $111,778. Despite the loss, it produced positive operating cash flow of $212,089 and maintained total assets of $2.09 million.
What is A&B Aerospace’s liquidity position as of February 28, 2026?
As of February 28, 2026, A&B Aerospace held $681,509 in cash and $344,336 in marketable securities. Current assets were about $1.94 million versus current liabilities of about $497,000, giving net working capital near $1.45 million.
What industry does A&B Aerospace operate in after its acquisition by PMGC (ELAB)?
A&B Aerospace operates as a precision CNC machining contractor serving aerospace, defense, and industrial end-markets. It manufactures close-tolerance metal components from materials like aluminum, stainless steel, titanium, and high-temperature alloys at a Southern California facility.
What key customer arrangements drive A&B Aerospace’s revenue?
A&B Aerospace supplies large aerospace OEMs, including Honeywell, Boeing Distribution, and MOOG. It uses vendor-managed inventory consignment programs with Honeywell and MOOG, recognizing revenue when customers pull parts from stocking locations rather than on initial shipment.
Filing Exhibits & Attachments
8 documentsPress Releases
- EX-99.1 UNAUDITED FINANCIAL STATEMENTS OF A&B AEROSPACE, INC. AS OF THE NINE MONTHS ENDE 201.2 KB
- EX-99.2 AUDITED FINANCIAL STATEMENTS OF A&B AEROSPACE, INC. AS OF THE FISCAL YEAR ENDED 321.1 KB
- EX-99.3 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF PMGC HOLDINGS INC. FOR T 116.7 KB
- EX-99.4 PRESS RELEASE DATED MAY 13, 2026 21.9 KB