LIMC Limco -Piedmont Inc. (MM)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008

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

Commission file number: 001-33604

LIMCO-PIEDMONT INC.

(Exact Name of Registrant as Specified in Its Charter)

 

5304 S. 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        No   

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 definition of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one):

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

As of May 12, 2008 the Registrant had 13,205,000 shares outstanding.

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LIMCO-PIEDMONT INC. AND SUBSIDIARIES

INDEX

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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 .

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LIMCO-PIEDMONT INC. AND SUBSIDIARIES

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

See notes to unaudited condensed consolidated financial statements.

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LIMCO-PIEDMONT INC. AND SUBSIDIARIES

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

See notes to unaudited condensed consolidated financial statements.

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LIMCO-PIEDMONT INC. AND SUBSIDIARIES

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

See notes to unaudited condensed consolidated financial statements.

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LIMCO-PIEDMONT INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

See notes to unaudited condensed consolidated financial statements.

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Note 1 — General

a.    Limco-Piedmont Inc. (‘‘the Company’’), a Delaware corporation, is a majority-owned subsidiary 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 Latin America. 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 month periods ended March 31, 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 December 31, 2007, 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 shareholder’s equity. Realized gains and losses and declines in market value judged to be other than temporary, of which there were none for the period ended March 31, 2008, are included in other income. 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

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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% if its auction rate tax-exempt securities portfolio and reinvested the proceeds in high-grade corporate debt, governmental debt instruments and money market funds. The remaining 10% will be liquidated as the market allows. Subsequent to quarter end approximately $475,000 of auction rate securities were liquidated and $3,000,000 remains invested in these securities.

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 is currently evaluating the impact of SFAS 157 on its financial position and results of operations.

Note 3 — Inventories

Inventories are composed of the following:

Inventories are shown net of allowances for obsolescence of $431,933 and $299,059 at March 31, 2008 and December 31, 2007, respectively.

Note 4 — Related Parties

a.    Transactions with related parties:

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 March 31, 2008 and December 31, 2007 were $2,009,356 and $1,762,000 respectively. Purchases with the parent company include inventory, insurance costs and certain board of director fees. Parent company payables are unsecured and provide for no interest payments.

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 were 383,000 stock options that were excluded from this calculation, as their inclusion would have been anti-dilutive.

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

Note 6 — Employee Share Based Compensation

The Company entered into a share based compensation agreement with its CEO during August 2005. The compensation agreement is made up of 45,000 Phantom Stock options and 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 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 March 31, 2007, the Company recorded compensation expense of $320,511, related to phantom stock. The Company recorded a liability related to the Phantom Stock Options of $265,987 as of March 31, 2007. At December 31, 2007 all of the Phantom Stock Options had been exercised.

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. All options expire five years from date of grant.

Compensation expense attributable to outstanding stock options was $201,417 or $.01 per share on both a basic and diluted basis, for the three months ended March 31, 2008. As of March 31, 2008, the total unrecognized compensation cost related to non-vested stock awards was $1.5 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 March 31, 2008, is presented below:

(1)	The intrinsic value of a stock option is the amount by which the market value of the underlying stock on March 31, 2008, exceeds the strike price of the option.

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The weighted average grant date fair value of the stock options granted during the three months ended March 31, 2008 was $2.16.

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:

The expected term for stock options and awards is calculated based on the simplified method as defined by SAB No. 107.

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 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.

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

c.    The following presents long-lived assets as of:

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

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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. We are currently evaluating the impact of this standard 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.

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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, it 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 has 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 certain insurance coverages that the Company reimburses TAT for. 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 their 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 their 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.

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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 10 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 months ended March 31, 2008 and 2007 were as follows:

The following table reflects the geographic breakdown of our revenues for each of the three month period ended March 31, 2008 and March 31, 2007:

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. Our revenues from MRO services generally have higher gross margins than our 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 for facilities and equipment.

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.

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Results of Operations

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

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 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 March 31, 2008 Compared to the Three Months Ended March 31, 2007

Revenues.     Total revenues decreased by $3.1 million, to $17.1 million for the three months ended March 31, 2008 from $20.2 million for the three months ended March 31, 2007. The decrease in revenues was primarily attributable to slower than anticipated parts sales offset by growth in MRO revenues. During the first quarter of 2007 there was a one-time sale to Viva Aerobus for $2.7 million.

Revenues from MRO services, including OEM sales, increased by $600,000, to $13.0 million for the three months ended March 31, 2008 from $12.4 million for the three months ended March 31, 2007. The organic growth in MRO services revenues for the three months ended March 31, 2008, is a result of increased sales to historical customers and, to a lesser degree, sales to new customers. OEM product sales decreased by $100,000 to $1.5 million for the three months ended March 31, 2008 from $1.6 million for the three months ended March 31, 2007, primarily as a result of a large order during 2007 by Boeing.

Parts services revenues decreased by $3.6 million, to $4.1 million for the three months ended March 31, 2008 from $7.8 million for the three months ended March 31, 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.

Cost of revenues.     Cost of revenues decreased by $2.5 million, to $12.9 million for the three months ended March 31, 2008 from $15.4 million for the three months ended March 31, 2007. Contributing to the decrease in cost of revenues for MRO services was a decrease in the sales of parts

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offset by an increase in the costs of parts used for this activity, higher wages paid to our plant workers in an effort to reduce turnover and to attract new employees, and the mix of MRO services during the quarter. Cost of revenues for parts services decreased by $3.7 million, to $3.3 million for the three months ended March 31, 2008 from $7.0 million for the three months ended March 31, 2007, principally as a result of our decreased parts revenues.

Selling and marketing expenses.     Selling and marketing expenses increased by $26,000 to $666,000 for the three months ended March 31, 2008 from $640,000 for the three months ended March 31, 2007. Our selling and marketing expenses as a percentage of revenues increased to 3.9% for the three months ended March 31, 2008, from 3.2% for the three months ended March 31, 2007 . The increase in selling and marketing expenses is primarily attributable commissions paid and heightened sales and marketing efforts.

General and administrative expenses.     General and administrative expenses increased by $303,000, to $2.0 million for the three months ended March 31, 2008 from $1.7 million for the three months ended March 31, 2007. The increase in general and administrative expenses is primarily attributable our increased fees we incurred being a public company for audit fees, legal fees and consulting related to Sarbanes-Oxley costs. There was $201,000 of non-cash stock based compensation expense included in general and administrative expenses during the first quarter of 2008 compared to none in the first quarter of 2007.

Operating income.     Our operating income decreased by $960,000, to $1.4 million for the three months ended March 31, 2008 from $2.4 million for the three months ended March 31, 2007. The decrease is attributable primarily to an increase in general and administrative expenses and lower sales revenues from parts due to a one-time sale during the first quarter of 2007. The operating income of our MRO services segment decreased by $920,000, to $2.3 million for the three months ended March 31, 2008 from $3.2 million for the three months ended March 31, 2007. The decrease is attributable primarily to decreased revenues. The operating income of our parts services segment increased by approximately $24,000, to $459,000 for the three months ended March 31, 2008 from $435,000 for the three months ended March 31, 2007 as a result of decreased parts revenues related to a one-time sale to Viva Aerobus and a slight increase by other customers.

Interest income.     Interest income increased by $239,000 to $293,000 for the three months ended March 31, 2008 from $54,000 for the three months ended March 31, 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 increase as a result of the investment of a significant portion of the proceeds of our initial public offering in short term investments.

Interest and financing expense.     Interest expense was zero for the three months ended March 31, 2008 compared to 155,000 for the three months ended March 31, 2007. The decrease in interest expense reflects our repayment of our outstanding indebtedness with a portion of the proceeds of our initial public offering. We had other financing expenses of $118,000 related to the sale of corporate bonds during the first quarter of 2008.

Income taxes.     Income taxes decreased by $278,000 to $577,000 for the three months ended March 31, 2008 from $855,000 for the three months ended March 31, 2007. The decrease in income tax expense is primarily attributable to our short-term tax free investments and our determination that our overall effective tax rate is lower because of these investments. Our effective tax rate was 36.5% for the three months ended March 31, 2008 compared to 37.8% for the three months ended March 31, 2007. We expect that our effective annual tax rate will be approximately 36.5 %.

Liquidity and Capital Resources

As of March 31, 2008, we had cash of $8.4 million, and short-term investments of $22.9 million, consisting primarily of government and corporate bonds and auction rate tax exempt securities. Our total working capital was approximately $53.4 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.

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Cash Flows

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

Net cash used in operating activities was $2.5 million for the three months ended March 31, 2008. This amount was primarily attributable to a $1.7 million increase in accounts receivable, a $3.5 million increase in inventories required to support the increase in MRO revenues and the ramp up for a new parts contracts, a $46,000 decrease in accounts payable, and a $247,000 increase in amounts payable to TAT Technologies for the purchase of heat transfer components, offset in part by $1.0 million in net income and $339,000 of depreciation and amortization expenses.

Net cash provided by investing activities was $5.0 million for the three months ended March 31, 2008. We sold approximately $5.7 million in auction rate securities that were reinvested in money markets. We invested $715,000 for the purchase of property and equipment, including a brazier oven and other production machinery.

Net cash provided by financing activities was $893,000 for the three months ended March 31, 2008. This amount was attributable to increase in checks issued in excess of bank balance.

The following table summarizes our minimum contractual obligations and commercial commitments as of March 31, 2008 and the effect we expect them to have on our liquidity and cash flow in future periods:

As of March 31, 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 intend to increase our expenditures in the future consistent with our anticipated growth. We anticipate that our cash resources will be used primarily to fund our operating activities, as well as for capital expenditures and acquisitions.

We expect that we will have additional capital expenditures during 2008 primarily for expanded capabilities and capacity for our MRO services. We expect that our cash flow from operations will be sufficient to fund these capital expenditures.

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.

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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 March 31, 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.

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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 June 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 4T.      Controls and Procedures

Our management, including our chief executive officer 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 chief executive officer 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. (do we need to add anything about my joining?)

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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 March 31, 2008, we had $7.8 million in cash and cash equivalents and $22.3 million in short term investments.

During the quarter ended March 31, 2008 TAT Technologies (which may be deemed an ‘‘affiliated purchaser’’) acquired an aggregate of 19,286 shares of our common stock as follows:

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 6.      Exhibits

(a)     Exhibits

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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: May 15, 2008

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