LIMC Limco -Piedmont Inc. (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2008

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____to ___

Commission file number: 001-33604

LIMCO-PIEDMONT INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		73-1160278
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

5304 South Lawton Ave.
Tulsa, Oklahoma, 74107
(Address of Principal Executive Offices)
(918) 445-4300
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ      No  o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o      No  þ

As of November 3, 2008 the Registrant had 13,205,000 shares outstanding.

 

 

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

INDEX

		Page
PART I — FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets September 30, 2008 and December 31, 2007			4
Unaudited Condensed Consolidated Statements of Income Three and Nine month periods ended September 30, 2008 and 2007			5
Unaudited Statements of Changes in Shareholders’ Equity			6
Unaudited Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2008 and 2007			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4T. Controls and Procedures			25
PART II — OTHER INFORMATION:
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 6. Exhibits			27
SIGNATURES			28
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Forward-Looking Statements

     The following discussion of our financial condition and results of operations reflects our current views with respect to future events and financial results and should be read in conjunction with the financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this Quarterly Report on Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), and are subject to the “safe harbor” created by those sections. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate” as well as similar words and phrases signify forward-looking statements. Our forward-looking statements are not guarantees of future results and conditions and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” set forth in Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission (“SEC”), and those detailed from time to time in our other filings with the SEC. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

		September 30,				December 31,
		2008				2007
ASSETS
Current Assets:
Cash and cash equivalents		$	9,459			$	5,039
Short-term investments			21,110				28,806
Accounts receivable (net of allowance for doubtful accounts of $170 and $140 at September 30, 2008 and December 31, 2007, respectively)			12,275				9,328
Inventories			18,926				16,391
Other accounts receivable and prepaid expenses			1,346				1,481
Total current assets			63,116				61,045
Property, plant and equipment, net			6,030				5,169
Intangible assets, net			1,437				1,709
Goodwill			4,780				4,780
Total assets		$	75,363			$	72,703
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payables		$	4,994			$	5,084
Parent company payables			1,468				1,762
Other accounts payable and accrued expenses			2,287				1,568
Total current liabilities			8,749				8,414
Long-Term Liabilities:
Deferred income taxes			415				404
Total liabilities			9,164				8,818
Shareholders’ Equity:
Common stock, $0.01 par value; 25,000 shares authorized, 13,205 shares issued and outstanding at September 30, 2008 and December 31, 2007			132				132
Additional paid-in capital			49,206				49,004
Retained earnings			17,314				14,749
Accumulated other comprehensive loss			(453	)			—
Total shareholders’ equity			66,199				63,885
Total liabilities and shareholders’ equity		$	75,363			$	72,703

See notes to unaudited condensed consolidated financial statements.

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue
MRO services		$	14,054			$	12,831			$	40,264			$	37,877
Parts services			4,773				3,813				13,360				17,022
Total revenue			18,827				16,644				53,624				54,899
Cost and operating expenses
MRO services			11,099				9,342				31,877				26,219
Parts services			3,676				3,083				10,570				13,897
Selling and marketing			715				673				2,141				1,975
General and administrative			1,909				1,552				5,264				5,391
Amortization of intangibles			54				119				272				355
Operating income			1,374				1,875				3,500				7,062
Other income (expense)
Interest income			298				271				756				542
Interest and other expense			(40	)			(178	)			(101	)			(719	)
Total other income (expense)			258				93				655				(177	)
Income before taxes			1,632				1,968				4,155				6,885
Provision for income taxes			675				538				1,590				2,480
Net income		$	957			$	1,430			$	2,565			$	4,405
Basic net income per share		$	0.07			$	0.12			$	0.19			$	0.46
Diluted net income per share		$	0.07			$	0.12			$	0.19			$	0.46
Basic shares outstanding			13,205				12,406				13,205				9,673
Diluted shares outstanding			13,205				12,437				13,205				9,678

See notes to unaudited condensed consolidated financial statements.

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except per share data)

																		Accumulated
										Additional								Other				Total				Total
		Common Stock								Paid-in				Retained				Comprehensive				Comprehensive				Shareholders’
		Shares				Amount				Capital				Earnings				Loss				Income				Equity
Balance at January 1, 2008			13,205			$	132			$	49,004			$	14,749			$	—			$	—			$	63,885
Net income for the period			—				—				—				2,565								2,565				2,565
Other comprehensive loss, net of tax			—				—				—				—				(453	)			(453	)			(453	)
Share based compensation			—				—				202				—				—				—				202
Balance at September 30, 2008			13,205			$	132			$	49,206			$	17,314			$	(453	)		$	2,112			$	66,199

See notes to unaudited condensed consolidated financial statements.
.

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Nine months ended September 30,
		2008				2007
Cash flow from operating activities:
Net income		$	2,565			$	4,405
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			935				796
Share based compensation expenses			202				170
Changes in allowance for doubtful accounts			30				(142	)
Changes in certain operating assets and liabilities:
Increase in accounts receivable			(2,977	)			(2,122	)
Decrease in other accounts receivable and prepaid expenses			409				13
Increase in inventories			(2,535	)			(1,769	)
Accounts payable and other accrued expenses			629				(2,328	)
Decrease in Parent company account			(294	)			(1,219	)
Net cash used in operating activities			(1,036	)			(2,196	)
Cash flows from investing activities:
Net sales of investments and other assets			6,980				—
Purchase of investments and other assets			—				(30,928	)
Purchases of property and equipment			(1,524	)			(1,381	)
Net cash provided by investing activities			5,456				(32,309	)
Cash flows from financing activities:
Proceeds from issuance of common stock, initial public offering, net of $294,000 capitalized IPO costs			—				41,502
Repayment of short-term bank credit			—				(4,000	)
Repayment of long-term loan			—				(4,000	)
Net cash provided by financing activities			—				33,502
Increase in cash and cash equivalents			4,420				(1,003	)
Cash and cash equivalents at the beginning of period			5,039				4,309
Cash and cash equivalents at the end of the period		$	9,459			$	3,306
Cash paid during the year for :
Income Taxes		$	1,784				719
Interest Expense		$	—				2,480

See notes to unaudited condensed consolidated financial statements.

LIMCO-PIEDMONT INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLDIATED FINANCIAL SATEMENTS

Note 1 — General

a. Limco-Piedmont Inc. (“the Company”), a Delaware corporation, is a majority-owned subsidiary, 62%, of TAT Technologies Ltd. (the “Parent”). The Company is principally engaged in:

	•		The repair and overhaul of heat transfer components, auxiliary power units (“APUs”), propellers, landing gear and pneumatic ducting.
	•		Inventory management and parts services for commercial, regional and charter airlines and business aircraft owners.

     The Company’s primary operations are located in Tulsa, Oklahoma and Kernersville, North Carolina. The principal markets of the Company are Europe, the United States and Asia. The Company sells its products mainly to the aircraft industry.

b. Unaudited Interim Results:

     The accompanying condensed consolidated financial statements of Limco-Piedmont Inc. and subsidiaries (the “Company”) presented herein have been prepared by the Company and are unaudited. They do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report 10K filed with the Securities and Exchange Commission dated March 21, 2008, In the opinion of the Company’s management, the accompanying unaudited condensed financial statements reflect all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the Company’s financial position, results of operations and cash flows for all periods presented. The results of operations for the three and nine month periods ended September 30, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008 or any other interim period or for any other future year.

     Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 2 — Short-Term Investments

     Short-term investments are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investment in Debt and Equity Securities”. Management determines the classification of its investments in marketable debt and equity securities at the time of purchase and reevaluates such determinations as of each balance sheet date. As of September 30, 2008, all marketable securities covered by SFAS No. 115, were designated as available-for-sale. Securities available-for-sale are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a separate component of shareholders’ equity classified as other comprehensive income. Realized gains and losses and declines in market value judged to be other than temporary, of which there were none for the period ended September 30, 2008 or September 30, 2007, are included in other income. The unrealized loss of $453,000 relates to short-term investments. Interest and dividends are also included in other income. Our short-term investments consist of auction rate tax-exempt securities and corporate and government bonds

with maturities with one to four years. The Company’s investments in corporate and government bonds, have maturities past one year, however, the Company classifies these investments as available-for-sale and therefore has classified them as short-term securities. Should management determine that these securities were to be held longer than one year then they would be classified as long-term securities.

     Auction rate securities are variable rate debt securities. While the underlying security has a long-term nominal maturity, the interest rate is reset through auctions that are typically held every 7, 28, or 35 days. The securities trade at par and are callable at par on any interest payment date at the option of the issuer. Interest is paid at the end of each auction period. We classify these securities as short-term because we intend to liquidate them as the need for working capital arises in the ordinary course of business and we are able to liquidate them or roll them over to the next reset period. During the first three months of the year the Company determined to liquidate its holdings of variable rate debt securities and in January and February 2008 it sold approximately 90% of its auction rate tax-exempt securities portfolio at par and reinvested the proceeds in high-grade corporate debt, governmental debt instruments and money market funds. The remaining balance of $2.96 million will be sold as the market allows.

     In September 2007, the FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS 157. Among other requirements, SFAS 157 defines fair value and establishes a framework for measuring fair value and also expands disclosure about the use of fair value to measure assets and liabilities. SFAS 157 is effective beginning the first fiscal year that begins after November 15, 2007. The Company adopted SFAS 157 during the first quarter of 2008. Although the adoption of SFAS 157 did not materially impact our financial condition, results of operations, or cash flows, we are now required to provide additional disclosures as part of our financial statements.

     SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

     As of September 30, 2008, the Company held certain assets that are required to be measured at fair value on a recurring basis, including money market funds and available-for-sale securities. The Company’s available-for-sale securities include auction-rate securities which consist of municipal bonds with an auction reset feature whose underlying assets are state municipal bonds which are substantially backed by the federal government. As a result of failed auctions, these securities are currently illiquid through the normal auction process and quoted market prices and other observable market data are not available or diminished. Accordingly, these investments were valued using pricing models based on the net present value of estimated future cash flows as of September 30, 2008. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

     The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at September 30, 2008, were as follows (in thousands):

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in Active
		Markets for Identical				Significant Other				Significant Unobservable
		Assets (Level 1)				Observable Inputs (Level 2)				Inputs (Level 3)				Total
Assets:
Money Market funds		$	8,627			$	—		$		—			$	8,627
Auction-rate securities			—				2,855				—				2,855
Municipal bonds			18,255				—				—				18,255
Total		$	26,882			$	2,855		$		—			$	29,737

Note 3 — Inventories

Inventories are composed of the following:

		September 30, 2008				December 31, 2007
		(in thousands)
Raw material		$	5,841			$	4,733
Work in process			5,583				4,796
Spare parts assemblies			7,502				6,862
		$	18,926			$	16,391

Inventories are shown net of allowances for obsolescence of $548,000 and $299,059 at September 30, 2008, and December 31, 2007, respectively.

Note 4 — Related Parties

      a. Transactions with related parties:

		Three months ended								Nine months ended
		September								September 30,
		2008				2007				2008				2007
										(in thousands)
Purchases		$	972			$	1,380			$	3,950			$	3,815

Historically, the Company has purchased a majority of its cores for heat exchangers from its Parent. In January 2007, the Company entered into a manufacturing agreement in which it is required to purchase all cores required for its heat exchangers from its Parent through January 31, 2017. Heat exchangers not manufactured by the Parent may be purchased from other vendors, including Hamilton Sundstrand.

Parent company payables as of September 30, 2008 and December 31, 2007 were $1,468,000 and $1,762,000 respectively. Purchases from the Parent include cores and related products and insurance costs. Parent company payables are unsecured and provide for no interest payments and are generally paid within 60 days.

Note 5- Net Income Per Share

The consolidated statements of income present basic and diluted net income per share. Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earning per share considers the potential effect of dilution on basic earning per share assuming potentially dilutive securities that meet certain criteria, such as stock options, were outstanding since issuance. The treasury stock method is used to determine the dilutive effect of potentially dilutive securities. There are 327,750 options outstanding that were anti-dilutive at September 30, 2008 and there are no warrants outstanding as of September 30, 2008.

     The following table reconciles basic shares outstanding to diluted shares outstanding:

		Three months ended								Nine months ended
		September 30,								September 30,
		(in thousands)								(in thousands)
		2008				2007				2008				2007
Weighted average number of basic shares outstanding			13,205				12,406				13,205				9,673
Dilutive effect of stock options			—				31				—				6
Weighted average number of diluted shares outstanding			13,205				12,437				13,205				9,679

Note 6 — Employee Share Based Compensation

The Company entered into a share based compensation agreement with its former CEO during August 2005. The compensation agreement is made up of 45,000 Phantom Stock options and other stock options to be issued upon the completion of an IPO by the Company.

The Phantom Stock options had an exercise price of $6.37. At the date of exercise, the former CEO received a cash payment for the difference between the exercise price and the average price of the Parent’s stock price for the 60 days preceding the exercise date. At September 30, 2007, the Company recorded compensation expense of $320,511 related to the Phantom Stock Options. All of the Phantom Stock Options were exercised by December 31, 2007.

Effective as of July 19, 2007, the date of our initial public offering, the Company established an incentive compensation plan, or “the 2007 plan”, under which it may issue options to purchase up to 600,000 shares of its common stock. The options vest in three equal annual installments, except for 66,000 options that vest in four equal semi-annual installments. Options generally expire five to ten years from date of grant.

Compensation expense attributable to outstanding stock options was $72,000 and $202,000 for the three and nine months ended September 30, 2008, respectively. As of September 30, 2008, the total unrecognized compensation cost related to non-vested stock awards was $1.1 million and the weighted average period over which the cost is expected to be recognized is approximately 2.8 years.

     A summary of our stock option plan as of September 30, 2008, is presented below:

						Weighted
						average								Weighted average
						Exercise				Aggregate intrinsic				contractual life
		Options				price				values				remaining in years
		(in thousands)								(in thousands)
Outstanding at January 1, 2008			404			$	11.00
Granted			60			$	5.88
Cancelled			136			$	11.00
Outstanding at September 30, 2008			328			$	10.06			$	—				4.37
Exercisable at September 30, 2008			165			$	11.00			$	—				4.25
Options expected to vest at September 30, 2008			163

The weighted average grant date fair value of the stock options granted during the nine months ended September 30, 2008 was $2.63. There were 15,000 stock options granted during the three months ended September 30, 2008. These options had a weighted average grant date fair value of $1.90.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

		Nine months ended
		September 30, 2008
Weighted average expected stock price volatility			56  %
Weighted average expected option life (in years)			3.50
Average risk free interest rate			2.87 %

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations. The current forfeiture rate is based on a reasonable estimate by management. Expected dividend yield is based upon the Company’s historical and projected dividend activity and the risk free interest rate is based upon US Treasury rates appropriate for the expected term of the options. The expected term is based on estimates regarding projected employee stock option exercise behavior.

Note 7 — Segment Reporting

a.

The Company manages its business on a basis of two reportable segments since the acquisition of Piedmont on July 6, 2005. The Company’s reportable segments are as follows:

	•		The maintenance, repair and overhaul (MRO) segment focuses on remanufacture, overhaul and repair of heat transfer equipment and other aircraft components and of repair of APUs, propellers and landing gears.
	•		Parts segment (part of Piedmont’s business) focuses on sales of parts of APUs, propellers and landing gears.

     The Company evaluates segment performance based on revenue and operating income. The operating income reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include executive level expenses and expenses related to our accounting and finance, human resources and information technology departments.

b. Operational segments :

The following financial information is the information that management uses for analyzing the results. The figures are presented in consolidated method as presented to management.

     The following financial information is a summary of the operating income of each operational segment:

		Nine months ended September 30, 2008
		MRO				Parts				Corporate				Consolidated
						(in thousands)
Revenue		$	40,264			$	13,360			$	—			$	53,624
MRO services cost			31,877				—				—				31,877
Part services cost			—				10,570				—				10,570
Selling and marketing			1,368				773				—				2,141
General and administrative			2,530				483				2,251				5,264
Amortization of intangibles			272				—				—				272
Operating income (loss)		$	4,217			$	1,534				($2,251	)		$	3,500

		Nine months ended September 30, 2007
		MRO				Parts				Corporate				Consolidated
						(in thousands)
Revenue		$	37,877			$	17,022			$	—			$	54,899
MRO services cost			26,219				—				—				26,219
Part services cost			—				13,897				—				13,897
Selling and marketing			1,575				400				—				1,975
General and administrative			801				273				4,317				5,391
Amortization of intangibles			355				—				—				355
Operating income (loss)		$	8,927			$	2,452			$	(4,317	)		$	7,062

		Three months ended September 30, 2008
		MRO				Parts				Corporate				Consolidated
						(in thousands)
Revenue		$	14,054			$	4,773			$	—			$	18,827
MRO services cost			11,099				—				—				11,099
Part services cost			—				3,676				—				3,676
Selling and marketing			489				226				—				715
General and administrative			1,014				85				810				1,909
Amortization of intangibles			54				—				—				54
Operating income (loss)		$	1,398			$	786			$	(810	)		$	1,374

		Three months ended September 30, 2007
		MRO				Parts				Corporate				Consolidated
						(in thousands)
Revenue		$	12,831			$	3,813			$	—			$	16,644
MRO services cost			9,342				—				—				9,342
Part services cost			—				3,083				—				3,083
Selling and marketing			558				115				—				673
General and administrative			198				102				1,252				1,552
Amortization of intangibles			119				—				—				119
Operating income (loss)		$	2,614			$	513			$	(1,252	)		$	1,875

      The following presents long-lived assets as of:

		September 30, 2008
		MRO				Parts				Corporate				Consolidated
		(in thousands)
Total assets		$	34,046			$	11,349			$	29,968			$	75,363
Property, plant and equipment, net			6,030				—				—				6,030
Goodwill			4,780				—				—				4,780
Intangibles, net			1,437				—				—				1,437

		December 31, 2007
		MRO				Parts				Corporate				Consolidated
		(in thousands)
Total assets		$	33,299			$	3,522			$	35,882			$	72,703
Property, plant and equipment			5,169				—				—				5,169
Goodwill			4,780				—				—				4,780
Intangibles, net			1,709				—				—				1,709

      The following presents cashflows of long-lived assets as of:

		September 30, 2008
		MRO				Parts				Corporate				Consolidated
		(in thousands)
Capital investments			1,524				—				—				1,524
Depreciation and amortization			935				—				—				935

		December 31, 2007
		MRO				Parts				Corporate				Consolidated
		(in thousands)
Capital investments			2,884				15				—				2,899
Depreciation and amortization			1,123				2				—				1,125

Note 8 — Recently Issued Accounting Standards

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 establishes a fair value option permitting entities to elect the option to measure eligible financial instruments and certain other items at fair value on specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The fair value option may be applied on an instrument-by-instrument basis, with a few exceptions, is irrevocable and is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective for annual periods beginning after November 15, 2007 and for certain provisions for annual periods beginning after November 15, 2008, and should not be applied retrospectively to fiscal years beginning prior to the effective date. On the adoption date, an entity may elect the fair value option for eligible items existing at that date and the adjustment for the initial remeasurement of those items to fair value should be reported as a cumulative effect adjustment to the opening balance of retained earnings. This statement became applicable to the Company as of the year beginning January 1, 2008, and the Company did not elect to apply SFAS 159 to its financial assets and liabilities. Therefore the adoption of SFAS 159 has had no impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)). SFAS 141(R) expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is required for annual periods beginning after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted. The adoption of SFAS 141(R) is not expected to have a material impact on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (SFAS 160). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. The effective date for SFAS 160 is for annual periods beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS 160 to fiscal years preceding the effective date are not permitted. The adoption of SFAS 160 is not expected to have a material impact on our Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities”, as an amendment to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The fair value of derivative instruments and their gains and

losses will need to be presented in tabular format in order to present a more complete picture of the effects of using derivative instruments. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 is not expected to have a material impact on our Consolidated Financial Statements.

Note 9 — Impairment of Long Lived Assets

The Company reviews long-lived assets, including intangible assets and goodwill, for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest the remaining value may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of September 30, 2008 the Company has experienced a significant drop in market capitalization. The Company has evaluated this change and feels at the current time that the entire MRO market is down due to the general decline of the stock market and the economic pressures related to fuel costs in the aerospace market place and that this is not a significant drop of real value to the Company since MRO sales continue to increase for the Company. Management reviews its goodwill and intangibles each year for impairment.

Note 10 — Income Tax

     On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances by each tax jurisdiction. The effective tax rates for the quarters ended September 30, 2008 and 2007 were 41% and 27%, respectively. The year to date effective tax rates for the three quarters ended September 30, 2008 and September 30, 2007 were 38% and 36%, respectively. The increase in the tax rate from 2007 is primarily due to the timing/realization of federal research and experimentation credits. The Company does not believe that it will be eligible for these credits in 2008.

     As of December 31, 2007 the Company had $248,000 of unrecognized tax benefits. At September 30, 2008 we had $143,000 of net uncertain tax benefit positions that would reduce our effective income tax rate if recognized. The reduction in the reserve related to the results of a federal tax audit for our 2005 and 2006 tax years. The remaining reserve relates to our 2007 and 2008 tax years and any interest and penalties that may result from these tax years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Background

     Prior to our initial public offering on July 18, 2007, we operated as a wholly-owned subsidiary of TAT Technologies. We were incorporated in Delaware on February 28, 2007 as a successor to Limco-Airepair, Inc., which was incorporated as an Oklahoma corporation in 1995 upon the merger of three aerospace companies that had been acquired by TAT Technologies from 1992 through 1995. Prior to the consolidation of Limco-Airepair, Inc. into our company, the Company transferred all of its assets and liabilities associated with its Oklahoma operations to our wholly-owned subsidiary, Limco-Airepair Inc., a newly formed Delaware corporation.

     Prior to our acquisition of Piedmont in July 2005, our business was focused on providing MRO services for heat transfer components. With the acquisition of Piedmont, we expanded the scope of our MRO services to also include APUs, propellers and landing gear and added our parts services business.

     Our consolidated financial statements have been prepared on the historical cost basis and present our financial position, results of operations and cash flows as derived from TAT Technologies’ historical financial statements. TAT Technologies had historically provided us with certain services including general and administrative services for employee benefit programs, insurance, legal, treasury and tax compliance. Currently, TAT Technologies provides only certain insurance coverages that are then reimbursed by the Company. The financial information included in our financial statements does not necessarily reflect what our financial position and results of operations would have been had we operated as a stand-alone entity during the periods covered, and may not be indicative of our future operations or financial position.

Overview

     We provide maintenance, repair and overhaul, or MRO, services and parts supply services to the aerospace industry. Our four FAA certified repair stations provide aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military. We specialize in MRO services for components of aircraft, such as heat transfer components, auxiliary power units, or APUs, propellers, landing

gear and pneumatic ducting. In conjunction with our MRO services we are also an original equipment manufacturer, or OEM, of heat transfer equipment for airplane manufacturers and other selected related products. Our parts services division offers inventory management and parts services for commercial, regional and charter airlines and business aircraft owners.

      MRO Services

     We provide services for the components segment of the MRO services market. Our MRO services segment includes the repair and overhaul of heat transfer components, APUs, propellers, landing gear and pneumatic ducting, among other components. Generally, manufacturer specifications, government regulations and military maintenance regimens require that aircraft components undergo MRO servicing at regular intervals or as necessary. Aircraft components typically require MRO services, including repairs and installation of replacement units, after three to five years of service or sooner if required. Aircraft manufacturers typically provide warranties on new aircraft and their components and subsystems, which may range from one to five years depending on the bargaining power of the purchaser. Warranty claims are generally the responsibility of the OEM during the warranty period. Our business opportunity usually begins upon the conclusion of the warranty period for these components and subsystems.

     We are licensed by Hamilton Sundstrand, a leading provider of aerospace products, to provide MRO services for all of its air-to-air heat transfer products and by Honeywell Aerospace, or Honeywell, a leading manufacturer of aerospace products and an aerospace services provider, to provide MRO services for three of its APU models. Our repair stations are certified by the FAA and the European Aviation Safety Agency, or EASA. In conjunction with our MRO services, we also manufacture heat transfer equipment used in commercial, regional, business and military aircraft, complete environmental control systems and cooling systems for electronics.

      Parts Services

     Our parts services division provides a number of services for commercial, regional and charter airlines and business aircraft owners, including inventory management and parts services. We presently assist several of these customers with their parts procurement needs by using our knowledge of the aircraft component industry to quickly acquire necessary aircraft components in a cost-effective manner. We have a knowledgeable and experienced staff of customer service representatives and offer our customers 24 hour service and same day shipping. We currently supply parts to approximately 500 commercial, regional and charter airlines and business aircraft owners.

     Our management believes that our revenues and sources of revenues are among the key performance indicators for our business. Our revenues from our two principal lines of business for the three and nine months ended September 30, 2008 and 2007 were as follows:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2008								2007								2008								2007
														% of								% of								% of
						% of Total								Total								Total								Total
		Revenues				Revenues				Revenues				Revenues				Revenues				Revenues				Revenues				Revenues
		(Revenues in thousands)
Revenues:
MRO Services		$	14,054				74.6	%		$	12,831				77.1	%		$	40,264				75.1	%		$	37,877				69.0	%
Parts services			4,773				25.4	%			3,813				22.9	%			13,360				24.9	%			17,022				31.0	%
Total revenues		$	18,827				100.0	%		$	16,644				100.0	%		$	53,624				100.0	%		$	54,899				100.0	%

     The following table reflects the geographic breakdown of our revenues for each of the three month and nine month periods ended September 30, 2008 and 2007:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2008								2007								2008								2007
						% of Total								% of Total								% of Total								% of Total
		Revenues				Revenues				Revenues				Revenues				Revenues				Revenues				Revenues				Revenues
		(Revenues in thousands)
North America		$	13,179				70.0	%		$	10,290				61.8	%		$	37,464				69.9	%		$	38,580				70.3	%
Europe			3,845				20.4	%			4,608				27.7	%			10,524				19.6	%			11,540				21.0	%
Asia			650				3.5	%			694				4.2	%			2,428				4.5	%			1,636				3.0	%
Other			1,153				6.1	%			1,052				6.3	%			3,208				6.0	%			3,143				5.7	%
		$	18,827				100.0	%		$	16,644				100.0	%		$	53,624				100.0	%		$	54,899				100.0	%

     Our cost of revenues for MRO services consists of component and material costs, direct labor costs, shipping expenses, overhead related to manufacturing and depreciation of manufacturing equipment. Our cost of revenues for parts services consists primarily of the cost of the parts and shipping expenses. Our gross margin is affected by the proportion of our revenues generated from MRO services (including the sale of OEM products) and parts services.

     Selling and marketing expenses consist primarily of commission payments, compensation and related expenses of our sales teams, attendance at trade shows and advertising expenses and related costs.

     General and administrative expenses consist of compensation and related expenses for executive, finance, legal and administrative personnel, professional fees and other general corporate expenses and related costs for facilities and equipment.

Critical Accounting Policies

     The preparation of the financial statements in accordance with generally accepted accounting principles in the United States, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, costs and expenses and related disclosures. Though we evaluate our estimates and assumptions on an ongoing basis, our actual results may differ from these estimates. For a more detailed discussion of our critical accounting policies we refer you to our 10K for the year ended December 31, 2007 and filed with the Securities and Exchange Commission.

Results of Operations

     The following table sets forth our statements of operations as a percentage of revenues for the periods indicated:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
		(Unaudited)
Revenue:
MRO services			74.6	%			77.1	%			75.1	%			69.0	%
Parts services			25.4	%			22.9	%			24.9	%			31.0	%
Total revenue			100.0	%			100.0	%			100.0	%			100.0	%
Costs and operating expenses:
MRO services			59.0	%			56.1	%			59.4	%			47.8	%
Parts services			19.5	%			18.5	%			19.7	%			25.3	%
Selling and marketing			3.8	%			4.0	%			4.0	%			3.6	%
General and administrative			10.1	%			9.4	%			9.8	%			9.8	%
Amortization of intangibles			0.3	%			0.7	%			0.5	%			0.6	%
Operating income			7.3	%			11.3	%			6.6	%			12.9	%
Other income (expense), net			1.4	%			0.5	%			1.2	%			-0.3	%
Income taxes			3.6	%			2.8	%			3.0	%			4.6	%
Net income			5.1	%			9.0	%			4.8	%			8.0	%

     In addition to revenues and the sources of our revenues, our management team views our gross profit margin and the level of inventory compared to revenues as the key performance indicators in assessing our company’s financial condition and results of operations. Our management team believes that the upward trend in our MRO revenues is reflective of an industry-wide increase in demand for MRO services, and we currently expect that this trend will continue for the foreseeable future. While our management team believes that demand for parts services will also continue to grow, this segment is subject to a high degree of volatility because of the potential impact of large one time parts purchases.

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

Revenues		September 30, 2008				September 30, 2007
		(in thousands)
MRO services		$	14,054			$	12,831
Parts services			4,773				3,813
Total revenue		$	18,827			$	16,644

      Revenues. Total revenues increased by $2.2 million, to $18.8 million for the three months ended September 30, 2008 from $16.6 million for the three months ended September 30, 2007. The increase in revenues was primarily attributable to steady MRO growth and moderate parts sales for the quarter.

     MRO Revenues. Revenues from MRO services increased by $1.3 million, to $14.1 million for the three months ended September 30, 2008 from $12.8 million for the three months ended September 30, 2007. The organic growth in MRO services revenues for the three months ended September 30, 2008, is a result of increased sales to historical customers and, to a lesser degree, sales to new customers.

     Parts Services. Parts services revenues increased by $960,000, to $4.8 million for the three months ended September 30, 2008 from $3.8 million for the three months ended September 30, 2007. This increase in sales is attributable to the sporadic sales environment for parts, as well as the parts contracts that are in place.

Costs of revenues and operating expenses		September 30, 2008				September 30, 2007
		(in thousands)
MRO services		$	11,099			$	9,342
Parts services			3,676				3,083
Total cost of revenues			14,775				12,425
Selling and marketing			715				673
General and Administrative			1,909				1,552
Amortization of intangibles			54				119
Total operating costs		$	17,453			$	14,769
Operating income		$	1,374			$	1,875

      Cost of revenues. Cost of revenues increased by $2.4 million, to $14.8 million for the three months ended September 30, 2008 from $12.4 million for the three months ended September 30, 2007. Contributing to the increase in cost of revenues for MRO services was an increase in sales volume, raw material costs, labor costs and a $250,000 increase in the company’s reserve for inventory. This reserve is related to the current economic climate and certain slow moving inventory. Cost of revenues for parts services increased by $593,000 to $3.7 million for the three months ended September 30, 2008 from $3.1 million for the three months ended September 30, 2007, principally as a result of higher volumes during the three months ended September, 30, 2008.

      Selling and marketing expenses . Selling and marketing expenses increased by $42,000 to $715,000 for the three months ended September 30, 2008 from $673,000 for the three months ended September 30, 2007. The increase in selling and marketing expenses is primarily attributable to commissions paid on increased MRO revenues.

      General and administrative expenses. General and administrative expenses increased by $357,000 to $1.9 million for the three months ended September 30, 2008 from $1.6 million for the three months ended September 30, 2007. The increase in general and administrative expenses is primarily attributable to tax audit expenses of $60,000 and merger and acquisition pursuit expenses of $313,000 offset by the lack of phantom stock expense during this period as compared to last year. Non-cash compensation expense was $72,000 and included in general and administrative expenses during the third quarter of 2008 compared to $170,000 in the third quarter of 2007.

      Operating income . Our operating income decreased by $501,000 thousand, to $1.4 million for the three months ended September 30, 2008 from $1.9 million for the three months ended September 30, 2007. The decrease is attributable primarily to higher cost of sales and increased general and administrative costs for the quarter.

Other income and expense		September 30, 2008				September 30, 2007
		(in thousands)
Interest income		$	298			$	271
Interest and other expense			(40	)			(178	)
Provision for income taxes			675				538
Net Income		$	957			$	1,430

      Interest income. Interest income increased by $27,000 to $298,000 for the three months ended September 30, 2008 from $271,000 for the three months ended September 30, 2007, principally as a result of an increase in the amount of funds held in interest bearing accounts and short term investments following our initial public offering. We expect that our interest income for the remainder of 2008 will remain that same as a result of the investment of a significant portion of the proceeds of our initial public offering in short term investments.

      Interest and other expense. Interest and other expense was $40,000 for the three months ended September 30, 2008 compared to $178,000 for the three months ended September 30, 2007. The decrease in interest expense reflects our repayment of our outstanding indebtedness with a portion of the proceeds of our initial public offering during 2007, offset by bank fees during 2008.

      Income taxes. Income taxes increased by $137,000, to $675,000 for the three months ended September 30, 2008 from $538,000 for the three months ended September 30, 2007. The increase in income tax expense is primarily attributable to additional permanent tax differences and no tax research and development credit during the three months ended September 30, 2008. The law allowing such credits for 2008 and 2009 was enacted on October 2, 2008, and the impact of the 2008 credits will be recognized in our fourth quarter of 2008.

Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

Revenues		September 30, 2008				September 30, 2007
		(in thousands)
MRO services		$	40,264			$	37,877
Parts services			13,360				17,022
Total revenue		$	53,624			$	54,899

      Revenues. Total revenues decreased by $1.3 million, to $53.6 million for the nine months ended September 30, 2008 from $54.9 million for the nine months ended September 30, 2007. The decrease in revenues was primarily attributable to a one-time parts sale to Viva Aerobus for $2.7 million offset by growth in our MRO revenues and slower than anticipated parts sales.

     Revenues from MRO services increased by $2.4 million, to $40.3 million for the nine months ended September 30, 2008 from $37.9 million for the nine months ended September 30, 2007. The organic growth in MRO services revenues for the nine months ended September 30, 2008, is a result of increased sales to historical customers and, to a lesser degree, sales to new customers.

     Parts services revenues decreased by $3.7 million, to $13.3 million for the nine months ended September 30, 2008 from $17.0 million for the nine months ended September 30, 2007. The decrease in parts sales is primarily attributable to a one-time purchase of $2.7 million during the first three months of 2007 by Viva Aerobus, a Mexican airline and decreased purchases by existing customers.

Costs of Revenues and operating expenses		September 30, 2008				September 30, 2007
		(in thousands)
MRO services		$	31,877			$	26,219
Parts services			10,570				13,897
Total cost of revenues			42,447				40,116
Selling and marketing			2,141				1,975
General and Administrative			5,264				5,391
Amortization of intangibles			272				355
Total operating costs		$	50,124			$	47,837
Operating income		$	3,500			$	7,062

      Cost of revenues. Cost of revenues for MRO and Parts Services increased by $2.3 million, to $42.4 million for the nine months ended September 30, 2008 from $40.1 million for the nine months ended September 30, 2007. Contributing to the increase in cost of revenues for MRO services was the increase in MRO sales, higher wages paid to our plant workers, an increase in our inventory reserve of $250,000 related to the current economic climate and slow moving inventory. Cost of revenues for parts services decreased by $3.3 million, to $10.6 million for the nine months ended September 30, 2008 from $13.9 million for the nine months ended September 30, 2007, principally as a result of our decreased parts revenues and the one time sale to Viva Mexico during the first nine months of 2007.

      Selling and marketing expenses . Selling and marketing expenses increased by $166,000 to $2.1 million for the nine months ended September 30, 2008 from $2.0 million for the nine months ended September 30, 2007. The increase in selling and marketing expenses is primarily attributable to increased commissions paid on MRO revenues.

      General and administrative expenses. General and administrative expenses decreased by $127,000, to $5.3 million for the nine months ended September 30, 2008 from $5.4 million for the nine months ended September 30, 2007. The decrease in general and administrative expenses is primarily attributable to a phantom stock expense for the Company’s former CEO, that was recorded during the nine months ended September 30, 2007 offset by tax audit expenses of $60,000 and merger and acquisition pursuit expenses of $313,000 during the period ended September 30, 2008. Non-cash stock based compensation expense of $202,000 was included in general and administrative expenses compared to $170,000 in the first nine months of 2007.

      Operating income . Our operating income decreased by $3.6 million, to $3.5 million for the nine months ended September 30, 2008 from $7.1 million for the nine months ended September 30, 2007. The decrease is attributable primarily to lower sales revenues from parts due to a one-time sale during the first quarter of 2007 and the other factors described above.

Other income and expense		September 30, 2008				September 30, 2007
		(in thousands)
Interest income		$	756			$	542
Interest and other expense		$	(101	)		$	(719	)
Provision for income taxes		$	1,590			$	2,480
Net Income		$	2,565			$	4,405

      Interest income. Interest income increased by $214,000 to $756,000 for the nine months ended September 30, 2008 from $542,000 for the nine months ended September 30, 2007, principally as a result of these funds being held in investment accounts for the full nine months compared to a relatively short period of time for the period ended September 30, 2007. We expect that our interest income for the remainder of 2008 will remain the same as a result of the investment of a significant portion of the proceeds of our initial public offering in short term investments.

      Interest and other expense. Interest and other expense was $101,000 for the nine months ended September 30, 2008 compared to $719,000 for the nine months ended September 30, 2007. The decrease in interest expense reflects our repayment of our outstanding indebtedness with a portion of the proceeds of our initial public offering during 2007, offset by out bank processing fees during both 2007 and 2008.

      Income taxes. Income taxes decreased by $890,000 thousand to $1.6 million for the nine months ended September 30, 2008 from $2.5 million for the nine months ended September 30, 2007. The decrease in income tax expense is primarily attributable to our lowered operating income and our short-term tax free investments during this time, offset by a higher effective tax rate in 2008.

Liquidity and Capital Resources

     As of September 30, 2008, we had cash and cash equivalents of $9.5 million, and short-term investments of $21.1 million, consisting primarily of government and corporate bonds and auction rate tax exempt securities. Our total working capital was approximately $54.3 million. Our liquidity position resulted from the July 23, 2007, sale of 4,205,000 shares of common stock in our initial public offering from which we received net proceeds of approximately $42 million.

Cash Flows

     The following table summarizes our cash flows for the periods presented:

		Nine months ended
		September 30,
		2008				2007
		(in thousands)
Net cash provided by (used in) operating activities		$	(1,036	)		$	(2,196	)
Net cash provided by (used in) investing activities			5,456				(32,309	)
Net cash provided by (used in) financing activities			—				33,502
Net increase (decrease) in cash and cash equivalents			4,420				(1,003	)
Cash and cash equivalents at beginning of period			5,039				4,309
Cash at end of period		$	9,459			$	3,306

     Net cash used in operating activities was $1.0 million for the nine months ended September 30, 2008. This amount was primarily attributable to a $2.5 million increase in inventories required to support the increase in MRO revenues and the ramp up for a new parts contract, a $3 million increase in accounts receivable, a $294,000 decrease in amounts payable to TAT Technologies for the purchase of heat transfer components offset in part by $2.6 million in net income, a $628,000 increase in accounts payable and $935,000 of depreciation and amortization expense.

     Net cash provided by investing activities was $5.5 million for the nine months ended September 30, 2008. We sold approximately $7.0 million in corporate and municipal bonds and auction rate securities that were reinvested in money markets. We invested $1.5 million for the purchase of property and equipment, including test facilities for our APU’s.

     Net cash provided by financing activities was zero for the nine months ended September 30, 2008.

     The following table summarizes our minimum contractual obligations and commercial commitments as of September 30, 2008 and the effect we expect them to have on our liquidity and cash flow in future periods:

		Payments Due by Period
						Less												More
						than				1-3				3-5				than 5
		Total				Year				Years				Years				Years
		(in thousands)
Operating lease obligations		$	713			$	173			$	354			$	186			$	—
Deferred tax liability			415				—				—				—				415
Total		$	1,128			$	173			$	354			$	186			$	415

     As of September 30, 2008, our principal commitments consisted of obligations outstanding under operating leases and our deferred tax liability. All of our long-term debt was repaid during 2007 with a portion of the proceeds of our initial public offering. We currently do not have significant capital spending or purchase commitments. In the last three years, we have experienced substantial increases in our expenditures as a result of the growth in our operations and personnel. We anticipate that our cash resources will be used primarily to fund our operating activities, as well as for capital expenditures and acquisitions.

     Over the next 12 months, we expect cash flows from our operating activities, along with our existing cash and cash equivalents and marketable securities, to be sufficient to fund our operations. We intend to assess the need for a long-term line of credit, but do not believe that the current lack of an external source of long-term liquidity will have a material adverse effect on our business or results of operations.

     Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our selling and marketing activities, costs associated with expansion into new markets, and the timing of the introduction of new products and services.

Seasonality

     We believe that the growth of our business over the last two years has masked a historical seasonal trend in the MRO services sector. Historically, we have seen many airlines decrease their maintenance requirements in the peak air travel summer months and increase their maintenance requirements in the winter months when air travel is not as great.

Off-balance sheet arrangements

     As of September 30, 2008, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

Recent Accounting Pronouncements

     For a discussion of applicable new accounting pronouncements see Note 8 to our Unaudited Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risks

     Our exposure to foreign exchange risk primarily relates to our sales to offshore clients. We do not believe that we currently have any significant direct foreign exchange risk since such sales are denominated in dollars.

Investment Risk

     We repaid our outstanding debt of $8 million as of September 30, 2007 that was due to our bank and parent company with a portion of the proceeds of our initial public offering. We invested the remaining net proceeds of the offering in corporate and government bonds and auction rate securities that are tax exempt. Our results of operations and cash flows will be subject to fluctuations due to changes in the interest rates applicable to our investments. We do not presently intend to use interest rate derivative instruments to manage our exposure to interest rate changes.

Item 4. Controls and Procedures

     Our management, including our co-chief executive officers and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon that evaluation, our co-chief executive officers and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by our company in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information was made known to them by others within the company, as appropriate to allow timely decisions regarding required disclosure.

     All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls over Financial Reporting

     There were no changes to our internal controls over financial reporting that occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments to the legal proceedings disclosed under Part I, Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     We sold 4,205,000 of our shares of common stock in our initial public offering on July 19, 2007. The aggregate offering price of the shares sold was $46.3 million. The total expenses of the offering were approximately $4.8 million. None of such expenses were paid directly or indirectly to directors, officers, or persons owning 10% or more of any class of equity securities of our company or to our affiliates. The net public offering proceeds to us, after deducting the total expenses were approximately $41.5 million. Such proceeds have been used to repay approximately $4.0 million in debt owed to TAT Technologies and $4.0 million in debt owed to Bank Leumi USA, and $2.2 million was used for the purchase of capital equipment and inventory. The remaining proceeds have been invested in cash, cash equivalents and short- term investments. As of September 30, 2008, we had $9.5 million in cash and cash equivalents and $21.1 million in short-term investments.

     For more information on the use of proceeds from our initial public offering, see “Liquidity and Capital Resources” and notes to our financial statements included in this report on Form 10-Q.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 6. Exhibits

(a) Exhibits

31.1		Certification by Co-Chief Executive Officers Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification by Co-Chief Executive Officers Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 7, 2008

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