##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2005
 Commission File No. 1-11775
 TIMCO AVIATION SERVICES, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    65-0665658
(I.R.S. Employer Identification No.)623 Radar RoadGreensboro, NC
    
    27410(Address of principal executive offices)
    
    (Zip Code)
 
 Securities registered pursuant to Section 12(b) of the Exchange Act:
 TITLE OF EACH CLASS
    
    NAME OF EACH EXCHANGEON WHICH REGISTEREDNone
    
    N/A
 Securities registered pursuant to section 12(g) of the Exchange Act:
  o þ
 15(d) o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 FORWARD LOOKING STATEMENTS
    
    
    1BUSINESS
    
    
    2PROPERTIES
    
    
    14LEGAL PROCEEDINGS
    
    
    15SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    15MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    16SELECTED FINANCIAL DATA
    
    
    17MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    19QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
    
    36FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    36CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    36CONTROLS
AND PROCEDURES
    
    
    37DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    38EXECUTIVE COMPENSATION
    
    
    41SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    43CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    45PRINCIPAL ACCOUNTING FEES AND PROCEDURES
    
    
    47EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
    
    
    48
 ii




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##### 



PART I
 FORWARD LOOKING STATEMENTS
   
    
    our business strategy and our future plans for our business,
    
    anticipated trends and our competitive position in the industry in which we operate, and
    
    our anticipated performance in future periods.
  
    
    the financial health of the U.S. passenger and freight airline industry, and the impact
of the financial health of that industry on the maintenance, repair, and overhaul (MRO)
industry generally and our business specifically,
    
    the amount of MRO business being outsourced by the airline industry in general and our
airline customers in particular,
    
    factors that affect the financial health and well-being of our airline customers, such
as the September 11, 2001 terrorist attacks, the global war on terrorism, and fluctuations
in the price of jet fuel,
    
    the effect of competition on our business, including the effects of competition on the
pricing of the services and goods that we provide,
    
    our ability to achieve gross profit margins at which we can be profitable, including
margins on services that we perform on a fixed price basis and our ability to accurately
project our costs in a dynamic environment,
    
    our ability to generate sufficient working capital from our operations and from our
available credit facilities to meet our operating requirements, capital expenditure
requirements and service our indebtedness,
    
    our maintaining good relations with our customers and vendors,
    
    our ability to fully utilize our hangar space dedicated to maintenance and repair services,
    
    our ability to manage our business efficiently and achieve both positive income and cash flow from our operations,
    
    our ability to attract and retain the services of our executive officers and key employees,
    
    our ability to attract and retain a sufficient number of mechanics to perform the
maintenance, overhaul and repair services requested by our customers,
    
    our ability to integrate future acquisitions, and
    
    future changes in government regulations.
   1




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ITEM 1. BUSINESS
 General
 www.timco.aero.
    Recent Developments
     2




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##### 



Industry Overview
  
    
    It is estimated that worldwide MRO demand will reach $60 billion in 2013, an annual
growth rate of 5.3%. Underlying this growth rate are a few primary driving factors.
 §
    
    Air travel will grow at an average annual rate of 4.7% over the next decade.
This growth rate will fuel the increase in the active air transport fleet from
approximately 16,000 aircraft currently to approximately 23,400 aircraft in 2013.§
    
    New aircraft deliveries between 1998 and 2002, which was unprecedented at more
then 5,000 in the aggregate, will generate their first heavy maintenance event in
the next few years.§
    
    More then 600 of the greater then 2,000 inactive aircraft fleet will return to
service during the next 5 years.
  
    
    Currently, the largest segment of the commercial MRO market relates to engine repair and
overhaul. Valued at $12.4 billion, three engine types (CF6-80C2, CFM56-3, and
PW4000-94) each generate more then $1.0 billion in overhaul services at the present time.
It is projected that by 2013, six engine types (CF6-80C2, CFM56-3, CFM56-5B, CFM56-7,
PW4000-94, and V2500-A5/D5) will each generate more than $1.0 billion per year in MRO
demand. Additionally, as a result of the level of aircraft deliveries during the late
1990s, it is anticipated that the number of annual engine shop visits will increase from
approximately 8,400 in 2003 to approximately 10,300 in 2006 (an increase of more then 20%).
 3




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##### 




    
    Currently, the worldwide airframe heavy maintenance market generates approximately $5.2
billion annually and represents nearly 70 million labor hours. It is anticipated that this
market will grow at a rate of 5.5% annually, reaching $8.9 billion by 2013. It is also
currently estimated that approximately 64% of all heavy maintenance requirements are
performed in-house with approximately 36% being outsourced. Three primary drivers are
anticipated to facilitate a greater level of outsourcing over the next few years. These
drivers include continued cost pressures on the airlines, revised labor union agreements,
and a high-quality global supplier base for outsourced maintenance.
    
    Currently, the aircraft modifications segment is valued at $2.8 billion and includes
passenger-to-freighter conversions, in-flight entertainment, avionics upgrades and major
structural modification programs. It is anticipated that this market segment will grow at
a rate of 5.5% annually and represent $4.8 billion in 2013.
    
    Line maintenance is now valued at $7.8 billion and is forecasted to grow at a rate of
3.9% annually to represent nearly $11.4 billion by 2013. The scope of line maintenance
continues to evolve as some airlines adopt maintenance programs with more phased checks,
thus being more dependent upon line maintenance requirements. Currently, line maintenance
is outsourced less than any other MRO activity as most airlines still consider it a core
element of their operations.
    
    Currently, the component maintenance segment, which includes wheels and brakes,
auxiliary power units, and avionics, generates approximately $7.5 billion in demand. It is
anticipated that this market will grow at a rate of 4.2% annually and represent
approximately $11.3 billion by 2013. Most significant within this segment is the emergence
of broad component support services that bundle component maintenance with airframe and
engine maintenance for an entire aircraft.
 Risk Factors Relating to Our Business
 
    
    the pace of worldwide economic growth,
    
    fleet growth (net of aircraft retirements), which according to the most recent annual
report by the Boeing Company on the state of the aircraft industry is expected to range in
the near term (2006-2007) between 4.8% and 7.1% and in the intermediate-term (2007-2012)
between 2.7% and 3.7%,
    
    the growth of airline passenger and cargo traffic (or reductions in such traffic),
    
    financial pressure on airlines to improve asset utilization,
    
    decisions by airlines to bring parked aircraft back into service or to convert such aircraft to freighters,
    
    the impact of conversions of passenger aircraft to freighters, which extends the useful life of particular aircraft,
    
    the continued development and utilization by airlines of newer aviation technologies,
which are more reliable but also more costly and complex to maintain,
    
    industry consolidation, which may reduce competition in the long term,
    
    the globalization of the MRO market,
    
    the expiration of aircraft maintenance warranties and the induction for maintenance
servicing programs by newer generation aircraft,
    
    changes in maintenance schedules on particular aircraft fleet types driven by decisions
of OEMs to bring new aircraft into service at prices that airlines will take and
consequential decisions by the airlines to park older aircraft (which require more
maintenance),
    
    pressure by airline unions placed on airlines to retain MRO services in-house instead of moving them to outsourcing,
    
    fuel prices and other factors that increase airline costs, forcing airlines to consider outsourcing to reduce their costs, and
    
    increased regulation on the maintenance of aircraft and, more particularly on the outsourced maintenance industry.
   4




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Operations
 Airframe Heavy Maintenance Services
  Facilities
 
    
    TIMCOGreensboro (GSO)  GSO is our largest airframe maintenance and modification
facility. GSO primarily supports major customers including United Air Lines (B757, B767 and
B777), Delta Air Lines (B777 modifications plus engineering and maintenance services), and
Federal Express (DC-10, MD-80, A300 and B727) with multi-lines of business. GSO has grown and
adapted to the changing aviation environment by maintaining its market share of existing older
generation aircraft product lines and by developing new capabilities to support the needs of
todays newer generation aircraft.We have 765,000 square feet of space in GSO including four
hangars, three of which are wide-body hangars and one of which is a multi-bay hangar. We also have a structures center in GSO,
in which we repair flight controls and other components in conjunction with repairs being
handled by our heavy maintenance operations, and a composite center, where we repair and
overhaul advanced composite and bonded aluminum honeycomb assemblies.
    
    TIMCO-Lake City (LCQ)  LCQ has historically competed as a lower-cost facility. We
currently perform maintenance for various customers in LCQ, including United Air Lines (B737,
A318, A319, and A320), Delta Air Lines (B757), and Q Aviation (B737). LCQ has the capacity
and experience to support commercial and government contracts, and we hope to ultimately make
LCQ our primary center for military MRO services. In that regard, during 2002, we were awarded
SAE AS 9100 Certification at LCQ and we became part of a FAST team (both prerequisites of
government contract work) and during the fourth quarter of 2005, we commenced servicing of our
first US Coast Guard aircraft (C-130). We currently have several bids pending, which if they
were awarded to us (of which there can be no assurance) would substantially increase the size
of and, we believe, the profitability of our airframe maintenance business.The LCQ facility has 650,000 square feet of space including six maintenance hangars, as well
as a dedicated two-bay strip and paint hangar which is capable of supporting both narrow body
and select wide body aircraft. The LCQ facility also has over 1.3 million square feet of
ramp space. Our facility is located at the Lake City airport. We control and maintain the
taxiways, parking areas and engine run up areas located at this airport, as well as an FAA
approved control tower.
    
    TIMCOMacon (MCN)  MCN has over 140,000 square feet of space
in two hangers and we currently operate three service lines at this
facility. MCN has been customized specifically for the America
West A319/A320 and B737 heavy airframe maintenance operations and
starting in 2006, we will service B757 aircraft for America West.
MCN has been the dedicated facility for America West since 2000 and
has often been cited as a model for effective MRO/airline
partnerships.
    
    TIMCO-Goodyear (GYR)  GYR is located near the city of
Phoenix, AZ. This facility, which we opened in 2003, provides
heavy airframe maintenance support for airlines such as Allegiant
Air and America West and leasing customers such as GE Capital and
Finova Capital.
 5




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Our GYR operation has over 318,000 square feet of space in two hangars. We also have 1.5
million square feet of ramp and runway access storage providing space to park up to 200
aircraft.Our sublease for this facility expires on April 30, 2006. We expect to continue that lease
on a month-to-month basis thereafter as we consider our future plans for this facility.
    
    TIMCO-Winston Salem  This one-hangar facility, which was formerly the home base for
Piedmont Airlines and a major repair and line station for U.S. Airways, is currently closed
and has been substantially subleased to an unaffiliated third party. We do not intend to open
this facility unless we develop a customer base for this facility.
 Types of heavy-airframe maintenance services provided
   Aircraft modification services
  Engineering services
  Interiors and Seat Manufacturing Services
  6




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Engine Repair and Overhaul Services
   Line Maintenance Services
  Customer base
  Management information systems
  Competition
  7




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##### 



Government regulation
     Product liability
  Employees
  Risk Factors Relating to Our Business
  We incurred losses from continuing operations in 2005 and our liquidity remains tight.
   8




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##### 



Risks associated with the aviation services industry.
    The loss or a significant downturn in the operations of one or two of our major customers could
materially affect our business.
  9




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##### 



We have incurred losses in the past and we may incur losses in the future. If we incur losses in
the future, our ability to obtain sufficient working capital for our operations and our ability to
service our indebtedness may be impaired.
   We are leveraged.
  
    
    our vulnerability to adverse general economic and industry conditions;
    
    our ability to obtain additional financing for future working capital expenditures,
general corporate or other purposes, particularly where our current lenders have a lien on
all of our assets; and
    
    the requirement that we obtain the consent of our lenders if we wish to borrow
additional amounts.
 We depend on financing transactions.
  
    
    During 2003, we relied on borrowings under our senior revolving credit facility and
proceeds from our related party term loan to fund our working capital requirements.
    
    During 2004, we continued to rely on borrowings under our senior revolving credit
facility, proceeds from our refinanced senior secured term loan and proceeds from the sale
of our office and warehouse facility located in Miramar, FL.
    
    During 2005, we continued to rely on borrowings under our senior revolving credit
facility, proceeds from the issuance of common stock in our rights offering, and proceeds
from the establishment of the Monroe Capital Term Loans.
  Our lenders impose significant restrictions on us.
  Our
business is subject to significant government regulation.
   10




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Our business is highly competitive.
  Our business is susceptible to liability claims.
  We depend on our executive officers and our employees.
   Control is vested in our principal stockholder.
   Our existing stockholders have experienced substantial dilution as a result of our completed tender
offers and they will experience additional dilution upon maturity of the remaining untendered New
Senior Notes and Junior Notes and upon the full exercise of the LJH Warrant.
  11




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If our common stock is deemed a penny stock, its liquidity will be adversely affected.
  Our common stock is thinly traded. Our stock price may fluctuate more than the stock market as a
whole.
  The market price of our common stock could be depressed by future sales.
  Adjustments to common stock purchase warrant exercise prices and exercise dates.
  12




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Impact of warrant exercise on market.
  We are subject to significant anti-takeover provisions.
  13




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##### 



ITEM 2. PROPERTIES.
  SQUARE
    
    OWNED ORFACILITY DESCRIPTION
    
    LOCATION
    
    FOOTAGE
    
    LEASEDOffice, Engineering and Aircraft Maintenance
    
    Greensboro, NC
    
    
    765,000
    
    
    Leased
    
    (1
    )Office and Aircraft Maintenance
    
    Lake City, FL
    
    
    650,000
    
    
    LeasedOffice and Engine Maintenance
    
    Oscoda, MI
    
    
    396,000
    
    
    LeasedOffice and Aircraft Maintenance
    
    Phoenix, AZ
    
    
    370,000
    
    
    Leased
    
    (2
    )Office and Aircraft Maintenance
    
    Winston-Salem, NC
    
    
    115,000
    
    
    Leased
    
    (3
    )Office and Aircraft Maintenance
    
    Macon, GA
    
    
    140,000
    
    
    LeasedOffice and
Interiors Maintenance; Seat Manufacturing
    
    Pacoima, CA
    
    
    70,000
    
    
    LeasedOffice and Maintenance
    
    Opa Locka, FL
    
    
    55,000
    
    
    Leased
    
    (4
    )Office and Maintenance
    
    Dallas, TX
    
    
    80,000
    
    
    Leased
    
    (5
    )Office and Engine Maintenance
    
    Pittsburgh, PA
    
    
    75,000
    
    
    Leased
    
    (6
    )Engineering Office
    
    Atlanta, GA
    
    
    2,300
    
    
    LeasedEngineering Office
    
    Kent, WA
    
    
    2,800
    
    
    Leased
 
 (1)
    
    Our corporate headquarters is located at this facility.(2)
    
    We sublease this facility from LJH. Our sublease for this
facility expires in April 2006 and we expect
to continue this lease thereafter on a month-to-month basis.(3)
    
    This facility has been closed until we develop customers for this
facility. Substantially all of this facility has been subleased to an
unaffiliated third party.(4)
    
    This facility is leased from a former director and executive officer
and subleased to an unaffiliated third party. We currently have no
customer activities at this facility.(5)
    
    This facility is leased to us on a month-to-month arrangement by LJH.
We currently have no customer activities at this facility.(6)
    
    In October 2005, we entered into a lease arrangement with the
Allegheny County Airport Authority (Pittsburgh, PA). We anticipate
the commencement of engine repair services at this facility during
fiscal 2006. 14




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ITEM 3. LEGAL PROCEEDINGS.
         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
    
    the declassification of the board of directors;
    
    the election of six persons to our board of directors;
    
    the reduction of the number of authorized shares of our common stock from 500,000 shares to 100,000 shares;
    
    a reverse split of our issued and outstanding common stock on a
one-new-share-for-40-old-shares basis, with our authorized common stock remaining at
100,000 shares;
    
    a rights offering granting our shareholders the right to purchase 1.5 shares of our
common stock for each post-reverse split share they owned;
    
    an amendment to our 2003 stock incentive plan to increase the shares authorized for
issuance under the plan to 2,500 shares; and
    
    the ratification of Grant Thornton LLP as our registered independent public accountants
for the fiscal year ended December 31, 2005.
 15




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PART II
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 Trading Market for our Common Stock
  HIGH
    
    
    LOW2004First Quarter
    
    $
    34.80
    
    
    $
    24.00Second Quarter
    
    $
    32.00
    
    
    $
    14.40Third Quarter
    
    $
    20.00
    
    
    $
    12.00Fourth Quarter
    
    $
    20.00
    
    
    $
    6.402005First Quarter
    
    $
    11.60
    
    
    $
    4.80Second Quarter
    
    $
    7.20
    
    
    $
    5.20Third Quarter
    
    $
    9.80
    
    
    $
    5.60Fourth Quarter
    
    $
    6.05
    
    
    $
    4.472006First Quarter
    
    $
    4.70
    
    
    $
    3.70Second
Quarter (through April 20, 2006)
    
    $
    4.35
    
    
    $
    3.45
  No Cash Dividends
  16




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005STATEMENT OF OPERATIONS DATA:Operating revenues
    
    $
    264,140
    
    
    $
    181,973
    
    
    $
    242,514
    
    
    $
    323,488
    
    
    $
    329,552Cost of sales
    
    
    259,647
    
    
    
    179,705
    
    
    
    226,331
    
    
    
    294,199
    
    
    
    316,268Gross profit
    
    
    4,493
    
    
    
    2,268
    
    
    
    16,183
    
    
    
    29,289
    
    
    
    13,284Operating expenses
    
    
    56,457
    
    
    
    15,574
    
    
    
    14,593
    
    
    
    22,468
    
    
    
    28,700Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,178
    )(Loss) income from operations
    
    
    (51,964
    )
    
    
    (13,306
    )
    
    
    1,590
    
    
    
    6,821
    
    
    
    (14,238
    )Interest expense and other
    
    
    70,264
    
    
    
    (12,779
    ) (1)
    
    
    6,880
    
    
    
    7,488
    
    
    
    8,502
    (3)(Loss) before income taxes and
discontinued operations
    
    
    (122,228
    )
    
    
    (527
    )
    
    
    (5,290
    )
    
    
    (667
    )
    
    
    (22,740
    )Income tax expense (benefit)
    
    
    621
    
    
    
    (3,800
    ) (2)
    
    
    (986
    )
    
    
    
    
    
    
    (390
    )(Loss) income from continuing operations
before discontinued operations
    
    
    (122,849
    )
    
    
    3,273
    
    
    
    (4,304
    )
    
    
    (667
    )
    
    
    (22,350
    )Discontinued operations:Operations, net of income taxes
    
    
    (9,000
    )
    
    
    3,749
    
    
    
    4,043
    
    
    
    1,580
    
    
    
    634Loss on disposal, net of income tax
    
    
    (9,386
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (141,235
    )
    
    $
    7,022
    
    
    $
    (261
    )
    
    $
    913
    
    
    $
    (21,716
    )Basic Earnings (Loss) Per Share:(Loss) income from continuing operations
    
    $
    (3,272.65
    )
    
    $
    5.03
    
    
    $
    (5.44
    )
    
    $
    (0.84
    )
    
    $
    (3.01
    )(Loss) income from discontinued operations
    
    
    (489.80
    )
    
    
    5.76
    
    
    
    5.11
    
    
    
    1.99
    
    
    
    0.09Net (loss) income
    
    $
    (3,762.45
    )
    
    $
    10.79
    
    
    $
    (0.33
    )
    
    $
    1.15
    
    
    $
    (2.92
    )Diluted Earnings (Loss) Per Share:(Loss) income from continuing operations
    
    $
    (3,272.65
    )
    
    $
    0.51
    
    
    $
    (5.44
    )
    
    $
    (0.84
    )
    
    $
    (3.01
    )(Loss) income from discontinued operations
    
    
    (489.80
    )
    
    
    0.59
    
    
    
    5.11
    
    
    
    1.99
    
    
    
    0.09Net (loss) income
    
    $
    (3,762.45
    )
    
    $
    1.10
    
    
    $
    (0.33
    )
    
    $
    1.15
    
    
    $
    (2.92
    )
 
 (1)
    
    Includes a $27,279 extraordinary gain relating to debt extinguishment. See the 2004 Form
10-K.(2)
    
    Represents a tax benefit from the carryback of net operating losses. See Note 8 of Notes to
Consolidated Financial Statements.(3)
    
    Includes a gain on settlement of bankruptcy claims, loss on sale of available-for-sale
securities, and charges related to the Companys tender offers. See Notes 3 and 6 of Notes
to Consolidated Financial Statements. 17




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##### 



As of December, 312001
    
    2002
    
    2003
    
    2004
    
    2005BALANCE SHEET DATA:Accounts receivable
    
    $
    26,936
    
    
    $
    17,762
    
    
    $
    36,950
    
    
    $
    49,721
    
    
    $
    48,643Inventories
    
    
    41,544
    
    
    
    21,631
    
    
    
    25,724
    
    
    
    22,244
    
    
    
    28,681Working capital (deficiency)
    
    
    (62,747
    )
    
    
    (10,177
    )
    
    
    1,060
    
    
    
    13,895
    
    
    
    27,503Total assets
    
    
    179,285
    
    
    
    131,026
    
    
    
    152,891
    
    
    
    137,368
    
    
    
    160,128Total debt and capitalized lease
obligations
    
    
    227,851
    
    
    
    175,474
    
    
    
    194,263
    
    
    
    180,694
    
    
    
    53,159Stockholders (deficit) equity
    
    
    (131,367
    )
    
    
    (96,762
    )
    
    
    (95,765
    )
    
    
    (94,852
    )
    
    
    46,197
 18




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##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
        19




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##### 



20




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##### 



Results of Operations
   
    
    the timing of repair orders and payments from large customers,
    
    the state of the economy generally, the state of the airline industry generally, and
the financial condition of our airline customers specifically,
    
    competition from other third-party MRO service providers,
    
    the number of airline customers seeking repair services at any time,
    
    the impact of fixed pricing on gross margins and our ability to accurately project our costs in a dynamic environment,
    
    our ability to fully utilize our hangar space dedicated to maintenance and repair services,
    
    the impact during future periods on airline use of out-of-production aircraft (such as
727, DC 8, DC 9 and DC 10) and JT8D engines as a result of increased fuel costs and other
factors,
    
    our ability to retain the services of our executive officers and key employees,
    
    our ability to attract and retain a sufficient number of mechanics to perform the
maintenance, overhaul and repair services requested by our customers, and
    
    the timeliness of customer aircraft arriving for scheduled maintenance.
  Operating Segments
   21




---



##### 



Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
  Year Ended December 31,2005
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %Operating revenues
    
    $
    329,552
    
    
    
    100.0
    %
    
    $
    323,488
    
    
    
    100.0
    %Cost of sales
    
    
    316,268
    
    
    
    96.0
    %
    
    
    294,199
    
    
    
    90.9
    %Gross profit
    
    
    13,284
    
    
    
    4.0
    %
    
    
    29,289
    
    
    
    9.1
    %Operating expenses
    
    
    28,700
    
    
    
    8.7
    %
    
    
    22,468
    
    
    
    6.9
    %Gain on sale of fixed assets
    
    
    (1,178
    )
    
    
    (0.4
    %)
    
    
    
    
    
    
    
    %(Loss) income from operations
    
    
    (14,238
    )
    
    
    (4.3
    %)
    
    
    6,821
    
    
    
    2.1
    %Interest expense
    
    
    9,719
    
    
    
    2.9
    %
    
    
    8,402
    
    
    
    2.6
    %Gain on settlement of bankruptcy claims
    
    
    (1,773
    )
    
    
    (0.5
    %)
    
    
    
    
    
    
    
    %Loss on sale of available for sale securities
    
    
    816
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    %Charge for early conversion of notes
    
    
    619
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    %Other income  net
    
    
    (879
    )
    
    
    (0.3
    %)
    
    
    (914
    )
    
    
    (0.3
    %)Loss before income taxes and discontinued
operations
    
    
    (22,740
    )
    
    
    (6.9
    %)
    
    
    (667
    )
    
    
    (0.2
    %)Income tax benefit
    
    
    (390
    )
    
    
    (0.1
    %)
    
    
    
    
    
    
    
    %Loss from continuing operations before
discontinued operations
    
    
    (22,350
    )
    
    
    (6.8
    %)
    
    
    (667
    )
    
    
    (0.2
    %)Discontinued operations, net of income taxes
    
    
    634
    
    
    
    0.2
    %
    
    
    1,580
    
    
    
    0.5
    %Net (loss) income
    
    $
    (21,716
    )
    
    
    (6.6
    %)
    
    $
    913
    
    
    
    0.3
    %
     22




---



##### 



23




---



##### 



24




---



##### 



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
  Year Ended December 31,2004
    
    
    2003$
    
    
    %
    
    
    $
    
    
    %Operating revenues:Sales
    
    $
    323,488
    
    
    
    100.0
    %
    
    $
    242,425
    
    
    
    100.0
    %Other
    
    
    
    
    
    
    
    %
    
    
    89
    
    
    
    0.0
    %Total operating revenues
    
    
    323,488
    
    
    
    100.0
    %
    
    
    242,514
    
    
    
    100.0
    %Cost of sales
    
    
    294,199
    
    
    
    90.9
    %
    
    
    226,331
    
    
    
    93.3
    %Gross profit
    
    
    29,289
    
    
    
    9.1
    %
    
    
    16,183
    
    
    
    6.7
    %Operating expenses
    
    
    22,468
    
    
    
    6.9
    %
    
    
    14,593
    
    
    
    6.0
    %Income from operations
    
    
    6,821
    
    
    
    2.1
    %
    
    
    1,590
    
    
    
    0.7
    %Interest expense
    
    
    8,402
    
    
    
    2.6
    %
    
    
    7,773
    
    
    
    3.2
    %Other income
    
    
    (914
    )
    
    
    (0.3
    %)
    
    
    (893
    )
    
    
    (0.4
    %)Loss before income taxes and discontinued
operations
    
    
    (667
    )
    
    
    (0.2
    %)
    
    
    (5,290
    )
    
    
    (2.2
    %)Income tax benefit
    
    
    
    
    
    
    
    %
    
    
    (986
    )
    
    
    (0.4
    %)Loss from continuing operations before
discontinued operations
    
    
    (667
    )
    
    
    (0.2
    %)
    
    
    (4,304
    )
    
    
    (1.8
    %)Discontinued operations, net of income taxes
    
    
    1,580
    
    
    
    0.5
    %
    
    
    4,043
    
    
    
    1.7
    %Net income (loss)
    
    $
    913
    
    
    
    0.3
    %
    
    $
    (261
    )
    
    
    (0.1
    %)
     25




---



##### 



26




---



##### 



27




---



##### 



Liquidity and capital resources
 Liquidity
  Contractual
    
    
    
    
    
    Less than
    
    
    Payments due by periodObligations
    
    Total
    
    
    One Year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsRevolving
Credit
Facility
    
    $
    8,320
    
    
    $
    8,320
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term
Debt
    
    
    40,866
    
    
    
    2,783
    (a)
    
    
    38,083
    (a)
    
    
    
    
    
    
    Capital
Leases
    
    
    3,973
    
    
    
    786
    
    
    
    365
    
    
    
    431
    
    
    
    2,391Operating
Leases (b)
    
    
    21,567
    
    
    
    4,736
    
    
    
    7,422
    
    
    
    3,284
    
    
    
    6,125Estimated
Interest
Obligation (c)
    
    
    8,380
    
    
    
    4,520
    
    
    
    3,860
    
    
    
    
    
    
    
    Total
contractual
cash
obligations
    
    $
    83,106
    
    
    $
    21,145
    
    
    $
    49,730
    
    
    $
    3,715
    
    
    $
    8,516Other
    
    
    
    
    
    Less than
    
    
    Payments due by periodCommercial Commitments
    
    Total
    
    
    One Year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsLetters of
Credit (b)
    
    
    12,934
    
    
    
    12,934
    
    
    
    
    
    
    
    
    
    
    
    Total Other
Commercial
Commitments
    
    $
    12,934
    
    
    $
    12,934
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (a)
    
    Included within these amounts are $1,221 of our New Senior Notes due 2006 and $639
of our Junior Notes due 2007. If not redeemed or repurchased by us prior to the
maturity dates of these obligations, these notes automatically convert to 71 shares and
39 shares, respectively, of our authorized but unissued common stock. See Note 3 to
Notes to Consolidated Financial Statements for discussion regarding our tender offer and
consent solicitation relating to both the New Senior Notes and Junior Notes.(b)
    
    Outstanding letters of credit primarily relate to security for our obligations to
make payments on an operating lease requiring future aggregate principal payments of
approximately $8,400. This amount is removed from the operating lease and total
contractual cash obligations line because it is included within the letters of credit.(c)
    
    The estimated interest obligations were calculated using the actual balance of
the revolving credit facility at December 31, 2005 and the expected outstanding balances
on the short-term and long-term debt obligations, in accordance with payment obligations
as detailed in the schedule above. For each debt obligation, we used the individual
interest rate that was applicable as of December 31, 2005, which ranged from 7.25% to
12.30%.  28




---



##### 



Source and Use of Cash
   Offering and Consent Solicitations
     29




---



##### 



Senior Credit Facilities
   30




---



##### 



31




---



##### 



Related Party Term Loan
   Senior Subordinated Notes
 New Senior Notes
    32




---



##### 



Old Senior Notes
   Junior Subordinated Notes
    33




---



##### 



Critical Accounting Policies and Estimates
  Use of Estimates
  Revenue Recognition
  Inventory Valuation
  Accounts Receivable  Allowance for Doubtful Accounts
  34




---



##### 



Goodwill Valuation
 st
 Long-Lived Assets
  Income Taxes and Valuation Allowances
  Recently Issued Accounting Standards
    35




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
    Fair ValueDecember 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    2005Long term debt:Fixed rate debt
    
    $
    1,221
    
    
    $
    639
    
    
    $
    16,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,107
    
    
    $
    23,639Average
interest rate
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.125
    %Variable rate
debt
    
    $
    9,882
    
    
    $
    21,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,079
    
    
    $
    31,079Average
interest rates
    
    
    7.48
    %
    
    
    11.38
    %
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
  ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
   36




---



##### 



ITEM 9A.
    CONTROLS AND PROCEDURES
 (a)
    
    Our Chief Executive Officer and Chief Financial Officer evaluated our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act)). Based on that evaluation, these
officers have concluded that as of December 31, 2005 our disclosure
controls and procedures were effective in timely alerting them to
material information relating to our company (including our
consolidated subsidiaries) required to be included in our reports
filed or submitted by us under the Exchange Act.As of December 31, 2005, we have carried out an evaluation, under the
supervision and with the participation of our management, including
our principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures. Based on such evaluation, our principal
executive officer and principal financial officer have concluded that
our disclosure controls and procedures are effective.(b)
    
    There have been no changes in our internal controls or in other
factors that could significantly affect the internal controls
subsequent to the date of their evaluation in connection with the
preparation of this Annual Report on Form 10-K.
 37




---



##### 



PART III
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 Board of Directors
  Name
    
    Age
    
    Position
    
    Term ExpiresRoy T. Rimmer, Jr.
    
    
    64
    
    
    Chairman of the Board and Chief Executive Officer
    
    
    2006John R. Cawthron
    
    
    62
    
    
    Director
    
    
    2006Steven L. Gerard
    
    
    60
    
    
    Director
    
    
    2006Jack J. Hersch
    
    
    47
    
    
    Director
    
    
    2006Philip B. Schwartz
    
    
    52
    
    
    Director and Corporate Secretary
    
    
    2006Leonard Singer
    
    
    58
    
    
    Director
    
    
    2006Clyde Kizer
    
    
    65
    
    
    Director
    
    
    2006
 Business Experience
       38




---



##### 



Compensation of Directors
  Executive Officers
  Name
    
    Age
    
    Position
    
    Executive Officer SinceRoy T. Rimmer, Jr.
    
    
    64
    
    
    Chairman and Chief Executive Officer
    
    June 2001Ron Utecht
    
    
    62
    
    
    President and Chief Operating Officer
    
    December 2005James H. Tate
    
    
    58
    
    
    Executive Vice President, Chief Administrative
Officer and Chief Financial Officer
    

    October 2005Rick Salanitri
    
    
    43
    
    
    Senior Vice President of Engineering and Interiors
    
    April 2004Kevin Carter
    
    
    33
    
    
    Senior Vice President, Finance
    
    November 2004Fritz Baumgartner
    
    
    44
    
    
    Vice President, Controller and Chief Accounting Officer
    
    November 2004
 Business Experience
     39




---



##### 



Recent
Developments
   Family Relationships
  Section 16(A) Beneficial Ownership Reporting Compliance
  40




---



##### 



ITEM 11. EXECUTIVE COMPENSATION.
  Annual Compensation
    
    
    Long Term CompensationAwards
    
    
    PayoutsName and
    
    Fiscal Year
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    
    Restricted Stock
    
    
    Securities Underlying
    
    
    LTIPPrincipal Position
    
    Ending
    
    
    Salary
    
    
    Bonus
    
    
    Compensation
    
    
    Awards
    
    
    Options/SARs
    
    
    Payouts
    
    
    OtherRoy T. Rimmer, Jr. (1)
    
    
    2005
    
    
    
    521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman and CEO
    
    
    2004
    
    
    
    428
    
    
    
    238
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    490
    
    
    
    106
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gil West (3)
    
    
    2005
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former President
    
    
    2004
    
    
    
    327
    
    
    
    275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and COO
    
    
    2003
    
    
    
    304
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jack M. Arehart (4)
    
    
    2005
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former Sr. VP of
    
    
    2004
    
    
    
    304
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bus. Development
    
    
    2003
    
    
    
    300
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Don Mitacek (5)
    
    
    2005
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former Sr. VP of
    
    
    2004
    
    
    
    224
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operations
    
    
    2003
    
    
    
    205
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rick Salanitri (6)
    
    
    2005
    
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sr. VP of Engineering
    
    
    2004
    
    
    
    205
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and Interiors
    
    
    2003
    
    
    
    150
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. Rimmer became our Chairman and Chief Executive Officer in June 2001. Mr. Rimmer has
an employment agreement with us that expires in December 2007. See Employment Agreements
below.(2)
    
    Bonus was paid to Mr. Rimmer in April 2004 for 2003 services and in April 2005 for 2004
services.(3)
    
    Mr. West joined us in August 2001. We terminated Mr. Wests employment with us in
December 2005. Mr. West was paid a bonus in April 2004 for 2003 services and in April 2005
for 2004 services. Also includes a retention bonus paid in conjunction with Mr. West
agreeing to an extension on his employment agreement in June 2004.(4)
    
    Mr. Arehart joined us in February 2002. We terminated Mr. Areharts employment with us
in December 2005. Mr. Arehart received a bonus in April 2004 for 2003 services and in
April 2005 for 2004 services, and Mr. Arehart received a retention bonus in conjunction
with his agreement to extend his employment agreement in November 2004.(5)
    
    Mr. Mitacek joined us in 2001. We terminated Mr. Mitaceks employment with us in
December 2005. Mr. Mitacek received a bonus in April 2004 and in April 2005 for 2003 and
2004 services, respectively.(6)
    
    Mr. Salanitri joined us in 1994 and became an executive officer in 2004. Mr. Salanitri
has an employment agreement with us that expires in March 2007. See Employment
Agreements below. Mr. Salanitri was paid a retention bonus in conjunction with his
employment agreement. Additionally, Mr. Salanitri was paid a bonus in April 2004 and in
April 2005 for 2003 and 2004 services, respectively. Option Grants During Last Fiscal Year
  41




---



##### 



Aggregate Option Exercises During Fiscal 2005 and Fiscal Year End Option Values
  Number of Shares
    
    
    Value of UnexercisedNumber of
    
    
    Value
    
    
    Underlying Unexercised
    
    
    In-The-Money OptionsShares
    
    
    Realized
    
    
    Options at Year-End
    
    
    At Fiscal Year-End ($)Name
    
    Acquired on Exercise
    
    
    ($)
    
    
    Vested/Unvested
    
    
    Exercisable/Unexercisable*Roy T. Rimmer, Jr.
    
    
    
    
    
    
    
    
    
    
    20/
    
    
    
    0
    
    
    
    0 / 0Gil West
    
    
    
    
    
    
    
    
    
    
    15/
    
    
    
    0
    
    
    
    0 / 0Jack M. Arehart
    
    
    
    
    
    
    
    
    
    
    13/
    
    
    
    0
    
    
    
    0 / 0Don Mitacek
    
    
    
    
    
    
    
    
    
    
    8/
    
    
    
    0
    
    
    
    0 / 0Rick Salanitri
    
    
    
    
    
    
    
    
    
    
    3/
    
    
    
    0
    
    
    
    0 / 0
 
 *
    
    Computed based upon the difference between the closing price of common stock at December 31, 2005
and the exercise price. All options were out-of-the-money on December 31, 2005, and no value has
been assigned to options that are out-of-the-money. Employment Agreements
  Stock Option Plans
     Compensation Committee Interlocks and Insider Participation
  42




---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  Shares Beneficially Owned (1)Name
    

Number
(in 000s)
    
    
    PercentageLJH, Ltd. (2)
    
    
    15,435
    
    
    
    71.8
    %John R. Cawthron (2)
    
    
    15,435
    
    
    
    71.8
    %Owl Creek
Entities (3)
    
    
    3,722
    
    
    
    17.4
    %Roy T. Rimmer, Jr. (4)
    
    
    26
    
    
    
    *Steven L. Gerard (5)
    
    
    3
    
    
    
    *Jack Hersch (6)
    
    
    3
    
    
    
    *Philip B. Schwartz (7)
    
    
    3
    
    
    
    *Clyde Kizer (8)
    
    
    1
    
    
    
    *Leonard Singer (8)
    
    
    1
    
    
    
    *James H. Tate (8)
    
    
    1
    
    
    
    *Ron Utecht
    
    
    0
    
    
    
    *Rick Salanitri (9)
    
    
    3
    
    
    
    *All directors and executive officers as a group -
11 persons (10)
    
    
    15,481
    
    
    
    71.9
    %
 
 *
    
    Less than one percent(1)
    
    Unless otherwise indicated, each person named in the table has the sole voting and
investment power with respect to the shares beneficially owned. Further, unless otherwise noted, the address for each person
named in this table is c/o TIMCO Aviation Services, Inc.(2)
    
    LJH Ltd. is wholly-owned by Lacy Harber. LJH currently owns 15,386 shares of our
outstanding common stock, constituting 71.8% of our currently outstanding common stock. LJH
has granted a revocable proxy with respect to the voting of these shares to John R. Cawthron, and as a
result Mr. Cawthron is also deemed to beneficially own these shares for U.S. securities law
purposes. Also includes warrants to purchase: (i) 30 shares at exercise prices ranging from
$206.40 per share to $1,600 per share, and (ii) 19 shares at an exercise price of $42 per
share. Excludes the LJH Warrant, which grants LJH the right to acquire an additional 47
shares at such time as the untendered New Senior and Junior Notes convert into common stock.(3)
    
    Based on reported on the Schedule 13d, as amended, filed by Owl Creek Asset Management,
L.P., Owl Creek II, L.P., Owl Creek Advisors, LLC, and Jeffrey A.
Altman (Owl Creek). The address for Owl Creek is 640 Fifth Avenue, 20th Floor, New
York, NY, 10019, Attn: Daniel Sapadin.(4)
    
    Mr. Rimmer shares includes 3 shares owned by an entity controlled by Mr. Rimmer and
vested warrants and options to
purchase an aggregate of 23 shares (20 shares at an exercise price of $40.80 per share, 1 at
exercise prices ranging
from $206.40 per share to $6,125 per share, and 2 shares at exercise prices ranging from $6.00
per share to $73.20 per share.(5)
    
    Mr. Gerard holds vested options to purchase 3 shares at exercise prices ranging from
$6.00 per share to $73.20 per share.(6)
    
    Mr. Hersch owns 0.1 shares individually and holds options to purchase an additional 3
shares at an exercise price ranging from $6.00 per share to $73.20 per share.(7)
    
    Mr. Schwartz owns 0.3 shares and holds options to purchase an additional 3 shares at
exercise prices ranging from $6.00 per share to $15,800 per share.(8)
    
    Includes options to purchase 1 shares at exercise prices ranging from $6.00 per share to
$14.00 per share.(9)
    
    Vested options to purchase 3 shares at an exercise price of $33.30 per share.(10)
    
    Includes vested options to purchase an aggregate of 40 shares. 43




---



##### 



Equity Compensation Plans
  Number of securitiesNumber of securities


    
    

    


    
    

    remaining available forto be issued upon


    
    

    Weighted-average


    
    

    future issuance underexercise of


    
    

    exercise price of


    
    

    equity compensationoutstanding options,


    
    

    outstanding options,


    
    

    plans (excluding securitieswarrants and rights


    
    

    warrants and rights



    

    reflected in column (a))Plan category
    



    (a)



    

    (b)



    

    (c)Equity compensation
plans approved by
security holders
    



    56


    
    

    $938.44


    
    

    2,461Equity compensation
plans not approved
by security holders
    






    
    

    


    
    

    Total
    



    56


    
    

    $938.44


    
    

    2,461
 44




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##### 



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
      45




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##### 



46




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##### 



ITEM 14. PRINCIPAL ACCOUNTING FEES AND PROCEDURES.
  2005
    
    
    2005
    
    
    2004Grant Thornton
    
    
    KPMG
    
    
    KPMGAudit fees
    
    $
    274
    
    
    $
    40
    
    
    $
    380Audit related fees
    
    
    
    
    
    
    
    
    
    
    6Audit and audit related fees
    
    
    274
    
    
    
    40
    
    
    
    386Tax fees
    
    
    66
    
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    71
    
    
    
    Total fees
    
    $
    340
    
    
    $
    111
    
    
    $
    386
  47




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##### 



PART IV
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
  PAGE(1) Financial StatementsReports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets at December 31, 2005 and 2004
    
    
    F-4Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005
    
    
    F-5Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss) for each of
the three years in the period ended December 31, 2005
    
    
    F-6Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9(2) Consolidated Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts for the three years ended December 31, 2005
    
    
    F-32
 (3)
    
    Exhibits3.1
    
    Certificate of Incorporation of Aviation Sales and amendment thereto (2)3.2
    
    Second Amendment to Certificate of Incorporation (4)3.3
    
    Third Amendment to Certificate of Incorporation (25)3.4
    
    Fourth Amendment to Certificate of Incorporation (41)3.5
    
    Bylaws (2)4.1
    
    Indenture, dated as of February 17, 1998, among Aviation Sales, the Subsidiary Guarantors named therein
and SunTrust Bank, Central Florida, National Association, Trustee (3)4.2
    
    Form of Supplemental Indenture, dated as of February 28, 2002, among Aviation Sales, the Subsidiary
Guarantors named therein and the Trustee (24)4.3
    
    Common Stock Purchase Warrant Certificate issued on February 18, 2000 to Citicorp USA, Inc.(10)4.4
    
    Amendment to Warrant between Citicorp USA, Inc. and the Company (26)4.5
    
    Form of Common Stock Purchase Warrants issued in February 2001 (16)4.6
    
    Indenture, dated as of February 28, 2002 among TIMCO Aviation Services, Inc., the Subsidiary Guarantors
named therein and Trustee with respect to the 8% Senior Subordinated Convertible PIK Notes due 2006 (22)4.7
    
    Warrant Agreement (22)4.8
    
    Common Stock Purchase Warrant issued in the Companys 2002 restructuring and in connection with the
settlement of certain litigation (22)4.9
    
    Form of Warrants issued to LJH Ltd. and Don A. Sanders in September 2002 (31)4.10
    
    Warrant issued to LJH Ltd. on May 14, 2003 (31)
 48




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##### 



4.11
    
    Indenture, dated as of September 20, 2002, among TIMCO, the Subsidiary Guarantors named therein and the
Trustee with respect to the 8% Junior Subordinated Convertible PIK Notes due 2007, as amended (35)10.1
    
    Fourth Amended and Restated Credit Agreement dated May 31, 2000 by and among Aviation Sales, certain of
our Subsidiaries and Citicorp USA, Inc., as Agent (11)10.2
    
    Lease dated July 22, 1998 by and between Ben Quevedo, Ltd. and Caribe (7)10.3
    
    1996 Director Stock Option Plan (4)10.4
    
    1996 Stock Option Plan (4)10.5
    
    TIMCO Aviation Services, Inc. 2001 Stock Option Plan (30)10.6
    
    Reserved10.7
    
    Credit Agreement dated as of December 17, 1998 among First Security Bank, National Association, as Owner
Trustee for the Aviation Sales Trust 1998- 1, as Lessor, NationsBank, National Association, as
Administrative Agent, and the several Lenders thereto (6)10.8
    
    Lease Agreement dated as of December 17, 1998 between First Security Bank, National Association, as
Owner Trustee under Aviation Sales Trust 1998-1, as Lessor, and Aviation Sales, as Lessee (6)10.9
    
    Guaranty Agreement (Series A Obligations) between Aviation Sales, substantially all of our subsidiaries
and NationsBank, National Association, as Agent for the Series A Lenders, dated as of December 17,
1998(6)10.10
    
    Guaranty Agreement (Lease Obligations) between substantially all of the subsidiaries of Aviation Sales
and First Security Bank, National Association, as Owner Trustee for the Aviation Sales Trust 1998-1,
dated as of December 17, 1998 (6 )10.11
    
    Participation Agreement between Aviation Sales as Construction Agent and Leases, First Security Bank,
National Association, as Owner Trustee, the Various Banks and other lending institutions as the Holders
and Lenders, and NationsBank, National Association, as Administrative Agent, dated as of December 17,
1998 (6)10.12
    
    Amendment No. 1 to Participation Agreement between Aviation Sales as Construction Agent and Leases,
First Security Bank, National Association, as Owner Trustee, the Various Banks and other lending
institutions as the Holders and Lenders, and NationsBank, National Association, as Administrative Agent,
dated as of February 18, 2000 (10)10.13
    
    Amendment Agreement No. 2 for Lease Agreement and Certain Other Operative Agreements, dated May 31, 2000
(11)10.14
    
    Amendment No. 1, dated as of August 14, 2000, to the Fourth Amended and Restated Credit Agreement (12)10.15
    
    Amendment Agreement No. 3 for Lease Agreement and Certain Other Operative Agreements (12)10.16
    
    Asset Purchase Agreement by and among Barnes Group Inc., Aviation Sales, Aviation Sales Manufacturing
Company, AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. dated as of August 3, 2000 (13)10.17
    
    Amendment No. 1 dated September 7, 2000 to the Asset Purchase Agreement by and among Barnes Group Inc.,
Aviation Sales, Aviation Sales Manufacturing Company, AVS/Kratz-Wilde Machine Company and Apex
Manufacturing, Inc. dated as of August 3, 2000 (13)10.18
    
    Amendment No. 2 dated as of November 14, 2000 to Fourth Amended and Restated Credit Agreement (14)10.19
    
    Amendment Agreement No. 4 for Lease Agreement and Certain Other Operative Agreements (14)
 49




---



##### 



10.20
    
    Asset Purchase Agreement among Aviation Sales, Aviation Sales Distribution Services Company (ASDC) and
Kellstrom, dated September 20, 2000 (15)10.21
    
    Letter Agreement to Asset Purchase Agreement, dated November 28, 2000(15)10.22
    
    Inventory Purchase Agreement among KAV, Aviation Sales and ASDC, dated September 30, 2000(15)10.23
    
    Letter Amendment to Inventory Purchase Agreement, dated November 28, 2000(15)10.24
    
    Form of KAV Senior Subordinated Note (15)10.25
    
    Form of KAV Junior Subordinated Note (15)10.26
    
    Operating Agreement of KAV, dated September 20, 2000, between Aviation Sales and Kellstrom (15)10.27
    
    Letter Agreement between Kellstrom, KAV and Aviation Sales, dated December 1, 2000, with respect to the
payment of KAV Operating Expenses (15)10.28
    
    Consignment Agreement between KAV and Kellstrom, dated December 1, 2000(15)10.29
    
    Equipment Lease Agreement, dated December 1, 2000, among Aviation Sales, ASDC and Kellstrom (15)10.30
    
    Lease Agreement, dated December 1, 2000, among ASDC and Kellstrom (Pearland) (15)10.31
    
    Lease Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Miramar)(15)10.32
    
    Non-Competition Agreement, dated December 1, 2000, among ASDC, Aviation Sales and Kellstrom(15)10.33
    
    License Agreement, dated December 1, 2000, among Aviation Sales, ASDC and Kellstrom (15)10.34
    
    Cooperation Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (15)10.35
    
    Letter Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Equipment)(15)10.36
    
    Letter Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Pearland)(15)10.37
    
    Consent and Amendment No. 3, dated November 28, 2000, to the Fourth Amended and Restated Credit
Agreement dated as of May 31, 2000, as amended(15)10.38
    
    Amendment and Consent Agreement No. 5 for Participation Agreement and Certain Other Operative
Agreements, dated as of December 1, 2000(15)10.39
    
    Agreement, dated February 14, 2001, between various subsidiaries of Aviation Sales and Bank of America,
N.A.(16)10.40
    
    $10.0 million Term Loan Note, dated February 14, 2001(16)10.41
    
    Form of Limited Guaranty in favor of Bank of America, N.A.(16)10.42
    
    Amendment No. 4, Consent and Waiver, dated February 14, 2001, to the Fourth Amended and Restated Credit
Agreement dated as of May 31, 2000, as amended(16)10.43
    
    Amendment and Consent Agreement No. 7 for Lease Agreement and Certain Other Operative Agreements, dated
as of February 14, 2001(16)
 50




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##### 



10.44
    
    Stock Purchase Agreement, dated December 15, 2000, among Wencor West, Inc. Aviation Sales and ASDC (15)10.45
    
    Amendment No. 5 and Waiver, dated as of April 17, 2001 to Fourth Amended and Restated Credit Agreement
dated as of May 31, 2000, amended (17)10.46
    
    Amendment and Consent Agreement No. 8 for Lease Agreement and Certain Other Operative Agreements (17)10.47
    
    Asset Purchase Agreement dated May 25, 2001 among Aviation Sales, Caribe Aviation, Inc. and Hamilton
Sundstrand Service Corporation(18)10.48
    
    $13 million Replacement Term Loan Note, dated May 24, 2001(18)10.49
    
    Amendment No. 6 and Consent, dated May 21, 2001, to the Fourth Amended and Restated Credit Agreement
dated as of May 31, 2000, as amended(18)10.50
    
    Amendment No. 7, Consent and Waiver, dated May 23, 2001, to the Fourth Amended and Restated Credit
Agreement dated as of May 31, 2000, as amended (18)10.51
    
    Amendment and Consent Agreement No. 9 for Lease Agreement and Certain Other Operative Agreements, dated
as of May 21, 2001 (18)10.52
    
    Amendment and Consent Agreement No. 10 for Lease Agreement and Certain Other Operative Agreements, dated
as of May 24, 2001 (18)10.53
    
    Amendment No. 8, Consent and Waiver, dated August 30, 2001 to Fourth Amended and Restated Credit
Agreement (19)10.54
    
    Consent, Waiver and Forbearance Agreement No. 11 for Lease Agreement and Certain Operative Agreements,
dated as of September 11, 2001 (19)10.55
    
    Amendment No. 8, Consent and Waiver, dated as of November 27, 2001, to Fourth Amended and Restated
Credit Agreement (21)10.56
    
    Consent, Waiver and Forbearance Agreement No. 12 for Lease Agreement and certain other Operation
Agreements dated as of November 27, 2001 (21)10.57
    
    Employment Agreement between Aviation Sales and Gil West (22)10.58
    
    Form of Waiver and Consent, dated April 18, 2002, to Fourth Amended and Restated Credit Agreement (25)10.59
    
    Form of Amendment and Waiver Agreement No. 13 for Lease Agreement and certain other Operative Agreements
(25)10.60
    
    Stipulation of Settlement, dated as of May 6, 2002, with respect to the class action lawsuit (27)10.61
    
    Description of Securities to be issued in connection with class action settlement (27)10.62
    
    Fifth Amended and Restated Credit Agreement dated as of July 12, 2002 (26)10.63
    
    Amendment and Consent Agreement No. 14 for Lease Agreement and Certain Other Operative Agreements (26)10.64
    
    Replacement Term Loan Note in the principal amount of $5.0 million in favor of Bank of America, N.A. (26)10.65
    
    Second Amendment to Limited Guaranty of LJH Ltd. (26)
 51




---



##### 



10.66
    
    Second Amendment to Limited Guaranty of Don A. Sanders (26)10.67
    
    Replacement Term Loan Note in the principal amount of $2.5 million in favor of Bank of America, N.A. (26)10.68
    
    Second Amendment to Limited Guaranty of James Investments, Inc. (26)10.70
    
    Guaranty by the Company and subsidiaries of the $5.0 million and the $2.5 million term loans due to Bank
of America, N.A. (26)10.71
    
    Term Loan Note in principal amount of $1.0 million in favor of Benito and Martha Quevedo (26)10.72
    
    Loan Parties Agreement, dated as of July 12, 2002, relating to the $1.0 million in favor of Benito and
Martha Quevedo (26)10.73
    
    Guaranty by the Company and subsidiaries of the $1.0 million in favor of Benito and Martha Quevedo (26)10.74
    
    Memorandum of Purchase and Sale between ASDC, the Company and Quevedo Family Limited Partnership, dated
as of July 12, 2002 (26)10.75
    
    Security Agreement, dated as of July 12, 2002, among the Company, its subsidiaries, Benito and Martha
Quevedo, James Investments, Inc., LJH Ltd. and Don A. Sanders (26)10.76
    
    Agreement, dated as of July 12, 2002, among Benito and Martha Quevedo, James Investments, Inc., LJH Ltd.
and Don A. Sanders (26)10.77
    
    Amended and Restated Intercreditor Agreement between Citicorp USA, Inc., as Agent, and Bank of America,
N.A. (26)10.78
    
    Intercreditor Agreement among Citicorp USA, Inc., as Agent, Benito and Martha Quevedo, James
Investments, Inc., LJH Ltd. and Don A. Sanders (26)10.79
    
    Post-Closing Resolution Agreement among the Company, ASDC and Kellstrom, dated as of June 10, 2002 (26)10.80
    
    First Amendment to Non-Competition Agreement (26)10.81
    
    First Amendment to Miramar Lease between the Company and Kellstrom (26)10.82
    
    Assignment of Amended Miramar Lease from Kellstrom to KIAC, Inc. (26)10.83
    
    Assignment of Amended Miramar Lease from KIAC, Inc. to Kellstrom Aerospace, LLC (26)10.84
    
    Consignment Agreement between KAV, Kellstrom Commercial Aerospace, Inc. and Bank of America, N.A. (26)10.85
    
    Amended and Restated Loan and Security Agreement between Bank of America, N.A. and KAV (26)10.86
    
    Proceeds Sharing Agreement (26)10.87
    
    AVS Investor Mutual Release (26)10.88
    
    KAV Mutual Release (26)10.89
    
    AVS/ASDC Mutual Release (26)10.90
    
    Asset Purchase Agreement, dated as of July 31, 2002, by and among Airborne Nacelle Services, Inc.,
Aerocell Structures, Inc. and TIMCO Aviation Services, Inc. (28)
 52




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##### 



10.91
    
    Amendment No. 1 and Waiver, dated as of September 27, 2002, to Fifth Amended and Restated Credit
Agreement, dated as of July 12, 2002 (29)10.92
    
    Amendment No. 2, Consent and Waiver, dated as of October 11, 2002, to Fifth Amended and Restated Credit
Agreement, dated as of July 12, 2002 (29)10.93
    
    Stock Purchase Agreement between Ducommun Incorporated and TIMCO Aviation Services, Inc., dated as of
October 2, 2002 (29)10.94
    
    Purchase and Sale Agreement, dated October 4, 2002, between LJH, Ltd. and AVSRE, L.P. relating to the
purchase of the Companys Dallas, Texas facilities (29)10.95
    
    Lease between LJH, Ltd., as landlord, and Aircraft Interior Design, Inc., as tenant, dated October 4,
2002, for the property located at 2659 Nova Drive, Dallas, Dallas County, Texas (29)10.96
    
    Subordinated Term Promissory Note, dated October 11, 2002, made in favor of LJH, Ltd. in the original
amount of $1.3 million (29)10.97
    
    Keepwell Agreement, dated as of October 11, 2002, by LJH, Ltd. in favor of the Companys senior
revolving credit lenders (29)10.98
    
    Amendment No. 4, Consent and Limited Waiver to Fifth Amended and Restated Credit Agreement (31)10.99
    
    Amendment, Consent and Waiver Agreement No. 16 for Lease Agreement and Certain Other Operative
Agreements (31)10.100
    
    Term Promissory Note in the face amount of $7,350,000 in favor of LJH, Ltd. (31)10.101
    
    Sublease Agreement between LJH, Ltd. and the Company for the Goodyear facility (31)10.102
    
    Employment Agreement between the Company and Roy T. Rimmer, Jr. (31)10.103
    
    Stock Option Agreement between the Company and Roy T. Rimmer, Jr. (31)10.104
    
    Employment Agreement between the Company and C. Robert Campbell (31)10.105
    
    Employment Agreement between the Company and Jack Arehart (31)10.106
    
    Amendment to Employment Agreement between the Company and Roy T. Rimmer, Jr. (33)10.107
    
    Employment Agreement between the Company and Don Mitacek (33)10.108
    
    2003 Stock Incentive Plan (32)10.109
    
    Purchase and Sale Agreement, dated as of February 5, 2004, between the Company and Keystone Operating
Partnership, L.P. relating to the sale of the Miramar property (33)10.110
    
    Amendment No. 5 to Fifth Amended and Restated Credit Agreement (33)10.111
    
    Amendment No. 6 to Fifth Amended and Restated Credit Agreement (33)10.112
    
    Term Note to LJH, Ltd., dated as of January 31, 2004, in the amount of $5.0 million (33)10.113
    
    Financing Agreement dated as of April 5, 2004 between the Company, The CIT Group/Business Credit, Inc.
and the Lenders (33)
 53




---



##### 



10.114
    
    Financing Agreement between the Company and Hilco Capital LP (33)10.115
    
    Intercreditor Agreement between The CIT Group/Business Credit, Inc., Hilco Capital LP and the Company
(33)10.116
    
    Amended and Restated Consolidated Term Promissory Note in favor of LJH, Ltd. (33)10.117
    
    Amended and Restated Security Agreement between the Company and LJH, Ltd. (33)10.118
    
    Amended and Restated Guaranty Agreement in favor of LJH, Ltd. (33)10.119
    
    Intercreditor Agreement between the Company, The CIT Group/Business Credit, Inc., Hilco Capital LP and
LJH, Ltd. (33)10.120
    
    Equipment Lease Agreement between the Company and LJH, Ltd. (33)10.121
    
    Amendment No. 2 to Employment Agreement between the Company and Roy T. Rimmer, Jr. (34)10.122
    
    Amended and Restated Employment Agreement between the Company and Gil West (34)10.123
    
    Amended and Restated Employment Agreement between the Company and Jack Arehart (34)10.124
    
    Amended and Restated Employment Agreement between the Company and Rick Salanitri (34)10.125
    
    Employment Agreement, as amended, between the Company and Fritz Baumgartner (35)10.126
    
    Employment Agreement, as amended, between the Company and Kevin Carter (35)10.127
    
    Supplemental Indenture in favor of HSBC Bank USA, NA relating to the Junior Subordinated Convertible PIK
Notes due 2007 (36)10.128
    
    Amended and Restated Financing Agreement between the Company and Monroe Capital Advisors LLC (37)10.129
    
    Sublease Agreement Amendment for Dallas property (38)10.130
    
    Employment Agreement between the Company and James H. Tate (39)10.131
    
    Amendment to 2003 Stock Incentive Plan (40)10.132
    
    Employment Agreement between the Company and Ron Utecht (42)10.133
    
    Supplement Indenture in favor of HSBC Bank USA NA relating to the Senior Subordinated Convertible PIK
Notes due 2006 (1)10.134
    
    Amendment No. 2 to Employment Agreement between the Company and Kevin Carter (1)10.135
    
    Assignment and Acceptance among
Monroe, as assignor, LJH, as assignee, and the Company (43)10.136
    
    Amendment No. 4 to Financing
Agreement dated as of April 20, 2006, between the Company and CIT (1)10.137
    
    Second Amended and Restated
Financing Agreement dated as of April 10, 2006, between the Company and LJH (1)10.138
    
    Intercreditor Agreement between CIT
and LJH, dated April 20, 2006 (1)10.139
    
    Ratification Agreement and Release,
dated April 20, 2006 (1)14.1
    
    Code of Ethics (33)21.1
    
    Subsidiaries of the Company (33)
 54




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##### 



23.1
    
    Consent of Grant Thornton LLP (1)25.1
    
    Statement of Eligibility of Trustee on Form T-1 (22)31.1
    
    Certifications by CEO and CFO under Section 302 of Sarbanes-Oxley Act of 2002 (1)32.2
    
    Certifications of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (1)99.1
    
    Press release issued April 21, 2006
announcing completion of senior debt financing and appointment of a
new CEO
 
 Notes to Exhibits
 (1)
    
    Filed herewith(2)
    
    Incorporated by reference to Aviation Sales Registration Statement on Form S-1 dated April
15, 1996 (File No. 333-3650)(3)
    
    Incorporated by referenced to Aviation Sales Registration Statement on Form S-4 dated March
26, 1998 (File No. 333-48669)(4)
    
    Incorporated by reference to Amendment No. 1 to Aviation Sales Registration Statement on Form
S-1 dated June 6, 1996 (File No. 333-3650)(5)
    
    Incorporated by reference to Aviation Sales Annual Report on Form 10-K for the year ended
December 31, 1996(6)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K dated December 17,
1998(7)
    
    Incorporated by reference to Aviation Sales Annual Report on Form 10-K for the year ended
December 31, 1998(8)
    
    Incorporated by reference to Aviation Sales Quarterly Report on Form 10-Q for the quarter
and six months ended June 30, 1999(9)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-A filed November 15,
1999(10)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed on March 27,
2000(11)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed on June 13,
2000(12)
    
    Incorporated by reference to Aviation Sales Quarterly Report on Form 10-Q for the quarter
and six months ended June 30, 2000(13)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed on September
22, 2000(14)
    
    Incorporated by reference to Aviation Sales Quarterly Report on Form 10-Q for the quarter
and nine months dated September 30, 2000(15)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed on December 18,
2000(16)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed on March 1,
2001(17)
    
    Incorporated by reference to Aviation Sales Annual Report on Form 10-K for the year ended
December 31, 2000(18)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed May 25, 2001(19)
    
    Incorporated by reference to Aviation Sales Quarterly Report on Form 10-Q for the quarter
and six months ended June 30, 2001.(20)
    
    Previously filed with Aviation Sales Registration Statement on Form S-4 filed September 14,
2001. 55




---



##### 



(21)
    
    Incorporated by reference from Aviation Sales Quarterly Report on Form 10-Q for the quarter
and nine months ended September 30, 2001.(22)
    
    Previously filed with Aviation Sales Amendment No. 2 to Registration Statement on Form S-4
filed December 13, 2001.(23)
    
    Incorporated by reference to Aviation Sales Current Report on Form 8-K filed March 5, 2002(24)
    
    Previously filed with Aviation Sales Amendment No. 3 to Registration Statement on Form S-4
filed January 9, 2002.(25)
    
    Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December
31, 2001(26)
    
    Incorporated by reference to Form 8-K dated July 12, 2002(27)
    
    Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31,
2002(28)
    
    Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended June 30,
2002(29)
    
    Incorporated by reference to Quarterly Report of Form 10-Q for the quarter ended September
30, 2002(30)
    
    Incorporated by reference to Aviation Sales proxy statement dated January 9, 2002(31)
    
    Incorporated by reference from the Companys 2002 Annual Report on Form 10-K(32)
    
    Incorporated by reference to the Companys proxy statement dated December 1, 2003(33)
    
    Incorporated by reference from the Companys 2003 Annual Report on Form 10-K(34)
    
    Incorporated by reference from the Companys Form 8-K filed on December 7, 2004(35)
    
    Incorporated by reference from the Companys 2004 Annual Report on Form 10-K(36)
    
    Incorporated by reference from the Companys Form 8-K filed on March 21, 2005(37)
    
    Incorporated by reference from the Companys Form 8-K filed on April 18, 2005(38)
    
    Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September
30, 2005(39)
    
    Incorporated by reference from the Companys Form 8-K filed on October 4, 2005(40)
    
    Incorporated by reference to the Companys proxy statement dated October 25, 2005(41)
    
    Incorporated by reference from the Companys Form 8-K filed on November 22, 2005(42)
    
    Incorporated by reference from the Companys Form 8-K filed on December 27, 2005(43)
    
    Incorporated by reference from the Companys Form 8-K
filed on April 18, 2006   56




---



##### 



57




---



##### 



SIGNATURES
  TIMCO AVIATION SERVICES, INC.
 BY: /s/ Roy T. Rimmer, Jr.
    
    April 21, 2006Roy T. Rimmer, Jr., Chairman and ChiefExecutive Officer
  SIGNATURE AND TITLE:
    
    DATE:/s/ Roy T. Rimmer, Jr.
    
    April 21, 2006Roy T. Rimmer, Jr.Chairman, Chief Executive Officer(Principal Executive Officer)/s/ James H. Tate
    
    April 21, 2006James H. TateExecutive Vice President, Chief Administrative Officerand Chief Financial Officer(Principal Financial Officer)/s/ Ron Utecht
    
    April 21, 2006Ron UtechtPresident (Principal Operating Officer)/s/ Fritz Baumgartner
    
    April 21, 2006Fritz BaumgartnerVice President, Controller and Chief Accounting Officer/s/ Kevin Carter
    
    April 21, 2006Kevin CarterSenior Vice President, Finance
 58




---



##### 



SIGNATURE AND TITLE:
    
    DATE:/s/ Jack Hersch
    
    April 21, 2006Jack HerschDirector/s/ Philip B. Schwartz
    
    April 21, 2006Philip B. SchwartzDirector/s/ Steven L. Gerard
    
    April 21, 2006Steven L. GerardDirector/s/ John R. Cawthron
    
    April 21, 2006John R. CawthronDirector/s/ Leonard Singer
    
    April 21, 2006Leonard SingerDirector/s/ Clyde Kizer
    
    April 21, 2006Clyde KizerDirector
 59




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##### 



CONSOLIDATED FINANCIAL STATEMENTS OF TIMCO AVIATION SERVICES, INC.
AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2004 and 2005
 REPORT TITLE
    
    PAGE NO.Reports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Operations
    
    
    F-5Consolidated Statements of Stockholders Equity (Deficit) and
Comprehensive (Loss) Income
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Schedule II  Valuation and Qualifying Accounts
    
    
    F-32
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ GRANT THORNTON LLPGreensboro,
North Carolina
April 21, 2006
 F-2




---



##### 



KPMG LLP
 
 F-3




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands, except share data)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,318
    
    
    $
    293Marketable securities
    
    
    13,978
    
    
    
    Accounts receivable, net of allowances of $7,446 and $5,190 in 2005
and 2004, respectively
    
    
    48,643
    
    
    
    49,721Inventories
    
    
    28,681
    
    
    
    22,244Other current assets
    
    
    7,082
    
    
    
    4,541Net assets of discontinued operations
    
    
    462
    
    
    
    12Total current assets
    
    
    100,164
    
    
    
    76,811Fixed assets, net
    
    
    30,091
    
    
    
    30,537Other Assets:Goodwill
    
    
    26,124
    
    
    
    26,124Deferred financing costs, net
    
    
    2,251
    
    
    
    3,263Other
    
    
    1,498
    
    
    
    633Total other assets
    
    
    29,873
    
    
    
    30,020Total assets
    
    $
    160,128
    
    
    $
    137,368LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    21,696
    
    
    $
    18,000Accrued expenses
    
    
    13,087
    
    
    
    16,214Accrued interest
    
    
    1,127
    
    
    
    1,812Customer deposits
    
    
    21,446
    
    
    
    9,254Revolving loan
    
    
    8,320
    
    
    
    11,692Current maturities of notes payable to financial institutions
    
    
    1,562
    
    
    
    1,164New Senior Notes due 2006
    
    
    1,221
    
    
    
    Current maturities of capital lease obligations
    
    
    786
    
    
    
    1,327Other
    
    
    3,416
    
    
    
    3,453Total current liabilities
    
    
    72,661
    
    
    
    62,916Long-term Liabilities:Old Senior Notes due 2008
    
    
    16,247
    
    
    
    16,247New Senior Notes due 2006
    
    
    
    
    
    
    115,800Notes payable to financial institutions, net of current portion
    
    
    21,197
    
    
    
    12,945Capital lease obligations, net of current portion
    
    
    3,187
    
    
    
    3,593Junior subordinated notes due 2007, net
    
    
    639
    
    
    
    3,514Term loan with a related party
    
    
    
    
    
    
    14,412Deferred income
    
    
    
    
    
    
    1,305Other long-term liabilities
    
    
    
    
    
    
    1,488Total long-term liabilities
    
    
    41,270
    
    
    
    169,304Commitments and Contingencies (See notes)Stockholders Equity (Deficit):Preferred stock, $.01 par value, 1,000,000 shares authorized, none
outstanding, 15,000 shares designated Series A Junior participating
    
    
    
    
    
    
    Common stock, $.001 par value, 100,000,000 shares authorized, 21,441,040 voting
shares issued and outstanding at December 31, 2005 and 791,015 issued and
outstanding at December 31, 2004
    
    
    21
    
    
    
    1Additional paid-in capital
    
    
    344,864
    
    
    
    182,119Accumulated deficit
    
    
    (298,688
    )
    
    
    (276,972
    )Total stockholders equity (deficit)
    
    
    46,197
    
    
    
    (94,852
    )Total liabilities and stockholders equity (deficit)
    
    $
    160,128
    
    
    $
    137,368
  F-4




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share and share data)Operating revenues:Sales, net
    
    $
    329,552
    
    
    $
    323,488
    
    
    $
    242,425Other
    
    
    
    
    
    
    
    
    
    
    89Total operating revenues
    
    
    329,552
    
    
    
    323,488
    
    
    
    242,514Cost of sales
    
    
    316,268
    
    
    
    294,199
    
    
    
    226,331Gross profit
    
    
    13,284
    
    
    
    29,289
    
    
    
    16,183Operating expenses
    
    
    28,700
    
    
    
    22,468
    
    
    
    14,593Gain on sale of fixed assets
    
    
    (1,178
    )
    
    
    
    
    
    
    (Loss) income from operations
    
    
    (14,238
    )
    
    
    6,821
    
    
    
    1,590Interest expense
    
    
    9,719
    
    
    
    8,402
    
    
    
    7,773Gain on settlement of bankruptcy claims
    
    
    (1,773
    )
    
    
    
    
    
    
    Loss on sale of available for sale securities
    
    
    816
    
    
    
    
    
    
    
    Charge for early conversion of notes
    
    
    619
    
    
    
    
    
    
    
    Other income  net
    
    
    (879
    )
    
    
    (914
    )
    
    
    (893
    )Loss before income taxes and discontinued operations
    
    
    (22,740
    )
    
    
    (667
    )
    
    
    (5,290
    )Income tax benefit
    
    
    (390
    )
    
    
    
    
    
    
    (986
    )Loss from continuing operations before discontinued operations
    
    
    (22,350
    )
    
    
    (667
    )
    
    
    (4,304
    )Income from discontinued operations, net of income taxes
    
    
    634
    
    
    
    1,580
    
    
    
    4,043Net (loss) income
    
    $
    (21,716
    )
    
    $
    913
    
    
    $
    (261
    )Basic and diluted (loss) income per share:(Loss) from continuing operations
    
    $
    (3.01
    )
    
    $
    (0.84
    )
    
    $
    (5.44
    )Income from discontinued operations
    
    
    0.09
    
    
    
    1.99
    
    
    
    5.11Net (loss) income
    
    $
    (2.92
    )
    
    $
    1.15
    
    
    $
    (0.33
    )Weighted average shares outstanding:Basic and Diluted
    
    
    7,429,037
    
    
    
    791,015
    
    
    
    791,015
  F-5




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) and
COMPREHENSIVE (LOSS) INCOME
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity (Deficit)(In thousands, except share data)Balance as of December 31, 2002
    
    
    791,015
    
    
    $
    1
    
    
    $
    180,861
    
    
    $
    (277,624
    )
    
    $
    (96,762
    )Net loss and comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261
    )
    
    
    (261
    )Warrant issued to stockholder
for note payable origination
    
    
    
    
    
    
    
    
    
    
    1,258
    
    
    
    
    
    
    
    1,258Balance as of December 31, 2003
    
    
    791,015
    
    
    
    1
    
    
    
    182,119
    
    
    
    (277,885
    )
    
    
    (95,765
    )Net income and comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    913
    
    
    
    913Balance as of December 31, 2004
    
    
    791,015
    
    
    
    1
    
    
    
    182,119
    
    
    
    (276,972
    )
    
    
    (94,852
    )Conversion of New Senior Notes
    
    
    6,685,674
    
    
    
    7
    
    
    
    114,572
    
    
    
    
    
    
    
    114,579Conversion of Junior Notes
    
    
    194,258
    
    
    
    
    
    
    
    2,954
    
    
    
    
    
    
    
    2,954Inducement for early
conversion of Notes
    
    
    1,031,984
    
    
    
    1
    
    
    
    314
    
    
    
    
    
    
    
    315Exercise of LJH Warrant
    
    
    3,287,552
    
    
    
    3
    
    
    
    129
    
    
    
    
    
    
    
    132Rights Offering, net of
transaction expenses of $580
    
    
    9,450,557
    
    
    
    9
    
    
    
    44,776
    
    
    
    
    
    
    
    44,785Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,716
    )
    
    
    (21,716
    )Balance as of December 31, 2005
    
    
    21,441,040
    
    
    $
    21
    
    
    $
    344,864
    
    
    $
    (298,688
    )
    
    $
    46,197
  F-6




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2004
    
    
    2003(Revised)
    
    
    (Revised)2005
    
    
    See Note 1
    
    
    See Note 1(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (21,716
    )
    
    $
    913
    
    
    $
    (261
    )Adjustments to reconcile net (loss) income to net cash used in operating
activities:Paid-in-kind interest note obligations
    
    
    3,003
    
    
    
    2,324
    
    
    
    1,214Non-cash gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    
    
    
    
    Gain on disposition of fixed assets
    
    
    (1,178
    )
    
    
    
    
    
    
    Loss on sale of available for sale securities
    
    
    816
    
    
    
    
    
    
    
    Write-off of deferred financing fees
    
    
    710
    
    
    
    145
    
    
    
    Non-cash inducement charge for conversion of notes
    
    
    315
    
    
    
    
    
    
    
    Unrealized gains on trading securities
    
    
    (51
    )
    
    
    
    
    
    
    Gain on Aerocell settlement, net of cash proceeds
    
    
    
    
    
    
    
    
    
    
    (455
    )Depreciation and amortization
    
    
    5,256
    
    
    
    5,229
    
    
    
    5,058Amortization of deferred financing costs
    
    
    1,398
    
    
    
    1,172
    
    
    
    2,867Provision for (recovery of) doubtful accounts
    
    
    2,567
    
    
    
    (375
    )
    
    
    (838
    )Provision for inventory obsolescence
    
    
    1,200
    
    
    
    1,936
    
    
    
    265Purchase of trading securities
    
    
    (13,927
    )
    
    
    
    
    
    
    Change in working capital:Accounts receivable
    
    
    (1,489
    )
    
    
    (12,396
    )
    
    
    (18,350
    )Inventories
    
    
    (7,637
    )
    
    
    1,544
    
    
    
    (4,358
    )Other current assets
    
    
    (2,541
    )
    
    
    257
    
    
    
    (1,397
    )Other non-current assets
    
    
    (865
    )
    
    
    (230
    )
    
    
    712Accounts payable
    
    
    3,696
    
    
    
    (3,445
    )
    
    
    6,881Accrued expenses
    
    
    (3,375
    )
    
    
    2,802
    
    
    
    (1,313
    )Customer deposits
    
    
    12,192
    
    
    
    (3,332
    )
    
    
    1,026Deferred income
    
    
    (127
    )
    
    
    (168
    )
    
    
    (168
    )Other liabilities
    
    
    (38
    )
    
    
    (29
    )
    
    
    (1,361
    )Cash used in operating activities from continuing operations
    
    
    (23,564
    )
    
    
    (3,653
    )
    
    
    (10,478
    )Cash used in operating activities from discontinued operations
    
    
    (450
    )
    
    
    (591
    )
    
    
    (3,299
    )Net cash used in operating activities
    
    
    (24,014
    )
    
    
    (4,244
    )
    
    
    (13,777
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assets
    
    
    (4,810
    )
    
    
    (2,693
    )
    
    
    (2,304
    )Proceeds from sale of available for sale securities
    
    
    957
    
    
    
    
    
    
    
    Proceeds from sale of fixed assets, net of transaction expenses
    
    
    
    
    
    
    24,861
    
    
    
    Net cash (used in) provided by investing activities from continuing
operations
    
    
    (3,853
    )
    
    
    22,168
    
    
    
    (2,304
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of amounts under senior debt facility
    
    
    348,151
    
    
    
    327,939
    
    
    
    244,464Repayments of amounts under senior debt facility
    
    
    (351,523
    )
    
    
    (330,952
    )
    
    
    (231,938
    )Proceeds from issuance of common stock in rights offering
    
    
    26,358
    
    
    
    
    
    
    
    Stock issuance costs from rights offering
    
    
    (580
    )
    
    
    
    
    
    
    Proceeds of term loans with financial institutions
    
    
    9,611
    
    
    
    14,400
    
    
    
    Payments of term loan with financial institutions
    
    
    (1,214
    )
    
    
    (8,791
    )
    
    
    Payments of deferred financing costs
    
    
    (1,096
    )
    
    
    (2,990
    )
    
    
    (993
    )Payments on capital leases
    
    
    (947
    )
    
    
    (25,002
    )
    
    
    (1,138
    )Partial exercise of LJH Warrant
    
    
    132
    
    
    
    
    
    
    
    Proceeds of term loan with related party
    
    
    
    
    
    
    6,162
    
    
    
    6,950Net cash provided by (used in) financing activities from continuing
operations
    
    
    28,892
    
    
    
    (19,234
    )
    
    
    17,345NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,025
    
    
    
    (1,310
    )
    
    
    1,264CASH AND CASH EQUIVALENTS, beginning of year
    
    
    293
    
    
    
    1,603
    
    
    
    339CASH AND CASH EQUIVALENTS, end of year
    
    $
    1,318
    
    
    $
    293
    
    
    $
    1,603
  F-7




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
 For the Years Ended December 31,2004
    
    
    2003(Revised)
    
    
    (Revised)2005
    
    
    See Note 1
    
    
    See Note 1(In thousands)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    4,031
    
    
    $
    3,986
    
    
    $
    5,105Income taxes refunded
    
    $
    (390
    )
    
    $
    (242
    )
    
    $
    (167
    )SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Common stock issued in connection with conversion of New Senior Notes
    
    $
    114,579
    
    
    $
    
    
    
    $
    Common stock issued in connection with conversion of Junior Notes
    
    $
    2,954
    
    
    $
    
    
    
    $
    Common stock issued in rights offering for proceeds of the LJH Term Loan
    
    $
    19,007
    
    
    $
    
    
    
    $
    Acquisition of property through capital lease
    
    $
    
    
    
    $
    2,224
    
    
    $
    Value of warrant issued to stockholder in exchange for note payable origination
    
    $
    
    
    
    $
    
    
    
    $
    1,258
  F-8




---



##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  DESCRIPTION OF BUSINESS, LIQUIDITY, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 DESCRIPTION OF BUSINESS
   LIQUIDITY
    F-9




---



##### 



F-10




---



##### 







PRINCIPLES OF CONSOLIDATION




ACCOUNTING ESTIMATES




RECLASSIFICATIONS AND REVISIONS




CASH AND CASH EQUIVALENTS




MARKETABLE SECURITIES






December 31,2005
    
    
    2004Fair Value
    
    
    Cost
    
    
    Fair Value
    
    
    CostTrading securities
    
    $
    13,978
    
    
    $
    13,927
    
    
    $
    
    
    
    $
    


REVENUE RECOGNITION  F-11




---



##### 



ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
    INVENTORIES
   2005
    
    
    2004Finished goods
    
    $
    16,374
    
    
    $
    14,274Work in progress
    
    
    10,778
    
    
    
    6,455Raw materials
    
    
    1,529
    
    
    
    1,515$
    28,681
    
    
    $
    22,244
  F-12




---



##### 



FIXED ASSETS, NET
  Depreciable Life
    
    
    2005
    
    
    2004Capitalized lease assets
    
    25 & 40 years
    
    $
    6,215
    
    
    $
    6,215Machinery and equipment
    

    3 to 7 years

    
    
    
    43,820
    
    
    
    39,869Furniture and fixtures
    

    3 to 5 years
    
    
    
    2,256
    
    
    
    2,484Leasehold improvements
    
    Shorter of leaseterm or useful life
    
    
    30,385
    
    
    
    30,72582,676
    
    
    
    79,293Accumulated depreciation  capitalized lease assets
    
    
    
    
    
    
    (2,190
    )
    
    
    (1,626
    )Accumulated depreciation  other
    
    
    
    
    
    
    (50,395
    )
    
    
    (47,130
    )$
    30,091
    
    
    $
    30,537
   INTANGIBLE ASSETS
   2005
    
    
    2004Original basis
    
    $
    8,543
    
    
    $
    7,447Accumulated amortization
    
    
    (6,292
    )
    
    
    (4,184
    )$
    2,251
    
    
    $
    3,263
 F-13




---



##### 



st
 CUSTOMER DEPOSITS
  ENVIRONMENTAL COSTS
  STOCK COMPENSATION PLANS
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Net (loss) income  as reported
    
    $
    (21,716
    )
    
    $
    913
    
    
    $
    (261
    )Additional expense
    
    
    (76
    )
    
    
    (247
    )
    
    
    (703
    )Net (loss) income  pro forma
    
    $
    (21,792
    )
    
    $
    666
    
    
    $
    (964
    )Net (loss) income per share, basic  as reported
    
    $
    (2.92
    )
    
    $
    1.15
    
    
    $
    (0.33
    )Net (loss) income per share, diluted  as reported
    
    
    (2.92
    )
    
    
    1.15
    
    
    
    (0.33
    )Net (loss) income per share, basic  pro forma
    
    
    (2.93
    )
    
    
    0.84
    
    
    
    (1.22
    )Net (loss) income per share, diluted  pro forma
    
    
    (2.93
    )
    
    
    0.84
    
    
    
    (1.22
    )
 INCOME TAXES
  FINANCIAL INSTRUMENTS
  F-14




---



##### 



RECENTLY ISSUED ACCOUNTING STANDARDS
    NOTE 2SALE OF ASSETS AND OPERATING ENTITIES
      F-15




---



##### 



2005
    
    
    2004Accounts receivable, net
    
    $
    462
    
    
    $
    12Inventories, net
    
    
    
    
    
    
    Fixed assets at net realizable value
    
    
    
    
    
    
    Assets of discontinued operations
    
    $
    462
    
    
    $
    12Accounts payable and accrued expenses
    
    $
    
    
    
    $
    Notes payable
    
    
    
    
    
    
    Liabilities of discontinued operations
    
    $
    
    
    
    $
    
  NOTE 3 OFFERING AND CONSENT SOLICITATION
 January 2005 Tender Offer
      F-16




---



##### 



August 2005 Tender Offer
       F-17




---



##### 



NOTE 4LONG-TERM DEBT
  2005
    
    
    2004Old Senior Subordinated Notes, unsecured, due in 2008
interest at 8.125% (Old Senior Notes)
    
    $
    16,247
    
    
    $
    16,247New Senior Subordinated Notes, unsecured, due in 2006
interest (paid-in-kind) at 8.000% (New Senior Notes)
    
    
    1,221
    
    
    
    115,800Junior Subordinated Notes, unsecured, due in 2007
interest (paid-in-kind) at 8.000% (Junior Notes)
    
    
    639
    
    
    
    3,514Monroe Capital Term Loans, due in 2007
interest at LIBOR plus an advance rate plus
PIK interest (12.300%)
    
    
    15,195
    
    
    
    The CIT Group Revolving Line of Credit, due in 2007
interest at Prime and/or Libor plus an
advance rate (7.250%)
    
    
    8,320
    
    
    
    11,692The CIT Group Term Loan, due in 2007
interest at the prevailing rate of the CIT Group
Revolving Line of Credit plus 1.000% (8.250%)
    
    
    4,945
    
    
    
    6,109Monroe Capital Line of Credit, due in 2007
interest at LIBOR plus an advance rate plus
PIK interest (11.300%)
    
    
    2,619
    
    
    
    Term loan with a related party, due in 2008
interest paid-in-kind at 12.000% and cash at 6.000%
    
    
    
    
    
    
    14,412Hilco Term Loan, due in 2007
interest at Prime plus an advance rate (10.250%)
    
    
    
    
    
    
    8,000Total debt
    
    
    49,186
    
    
    
    175,774Less  Current maturities
    
    
    11,103
    
    
    
    12,856Total long-term debt
    
    $
    38,083
    
    
    $
    162,918
  8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
  8% SENIOR SUBORDINATED CONVERTIBLE PIK NOTES DUE 2006
  F-18




---



##### 



8% JUNIOR SUBORDINATED CONVERTIBLE PIK NOTES DUE 2007
    SENIOR CREDIT FACILITIES
   F-19




---



##### 



NOTE PAYABLE TO RELATED PARTY
  F-20




---



##### 



NOTE 5RELATED PARTY TRANSACTIONS
     F-21




---



##### 



F-22




---



##### 



NOTE 6COMMITMENTS AND CONTINGENCIES
 LITIGATION AND CLAIMS
    ENVIRONMENTAL MATTERS
     OTHER MATTERS
  F-23




---



##### 



Operating Leases
    
    
    Capital LeasesYears Ending December 31,2006
    
    $
    5,729
    
    
    $
    1,0592007
    
    
    4,914
    
    
    
    4322008
    
    
    4,493
    
    
    
    4322009
    
    
    2,815
    
    
    
    4322010
    
    
    2,455
    
    
    
    432Thereafter
    
    
    15,061
    
    
    
    3,202Interest
    
    
    
    
    
    
    (2,016
    )$
    35,467
    
    
    $
    3,973
 F-24




---



##### 



NOTE 7RESTRUCTURING ACTIVITIES
   NOTE 8INCOME TAXES
  2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    (1,339
    )State
    
    
    (390
    )
    
    
    
    
    
    
    353(390
    )
    
    
    
    
    
    
    (986
    )DeferredFederal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax benefit related to continuing operations
    
    $
    (390
    )
    
    $
    
    
    
    $
    (986
    )
   December 31,2005
    
    
    2004Deferred tax assets, net:Allowance for doubtful accounts
    
    $
    10,987
    
    
    $
    10,083Accruals
    
    
    1,657
    
    
    
    2,381Write down of investment
    
    
    4,748
    
    
    
    4,748Inventories
    
    
    5,196
    
    
    
    6,698Property and equipment
    
    
    4,471
    
    
    
    5,546Net operating loss/credit carry forwards
    
    
    33,393
    
    
    
    20,717Other
    
    
    (2,102
    )
    
    
    (1,249
    )58,350
    
    
    
    48,924Less valuation allowance
    
    
    (58,350
    )
    
    
    (48,924
    )Net deferred tax assets
    
    $
    -0-
    
    
    $
    -0-
  F-25




---



##### 



2005
    
    
    2004
    
    
    2003Federal income tax (benefit) at the statutory rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%Increase in tax rate resulting from:Losses not currently utilized
    
    
    35.0
    
    
    
    35.0
    
    
    
    35.0Completion of IRS examinations
    
    
    
    
    
    
    
    
    
    
    (23.8
    )State income taxes, net of federal tax benefit
    
    
    (1.7
    )
    
    
    
    
    
    
    7.8Temporary change in tax legislation
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (3.9
    )Effective income tax rate
    
    
    (1.7
    )%
    
    
    
    %
    
    
    (19.9
    )%
  NOTE 9WEIGHTED AVERAGE SHARES
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Weighted average shares outstanding used in calculating basic
earnings per share
    
    
    7,429
    
    
    
    791
    
    
    
    791Effect of dilutive options, warrants and convertible debt
    
    
    
    
    
    
    
    
    
    
    Weighted average common and common equivalent shares
    
    
    7,429
    
    
    
    791
    
    
    
    791Options and warrants outstanding which are not included in the
calculation of diluted earnings per share because their impact
is antidilutive
    
    
    499
    
    
    
    7,711
    
    
    
    7,560
 NOTE 10 RIGHTS OFFERING
  F-26




---



##### 



NOTE 11STOCK OPTION PLANS
    F-27




---



##### 



WeightedAverageTotal
    
    
    Exercise PriceOutstanding at December 31, 2002
    
    
    86
    
    
    
    621.60Granted
    
    
    3
    
    
    
    18.80Cancelled
    
    
    
    
    
    
    Outstanding at December 31, 2003
    
    
    89
    
    
    
    600.80Granted
    
    
    13
    
    
    
    24.80Cancelled
    
    
    (3
    )
    
    
    (5.60
    )Outstanding at December 31, 2004
    
    
    99
    
    
    
    544.40Granted
    
    
    4
    
    
    
    6.83Cancelled
    
    
    (47
    )
    
    
    (33.98
    )Outstanding at December 31, 2005
    
    
    56
    
    
    $
    938.44Options exercisableAt December 31, 2005
    
    
    48
    
    
    $
    833.48At December 31, 2004
    
    
    89
    
    
    $
    470.00At December 31, 2003
    
    
    61
    
    
    $
    874.40Available to grant under Plans at December 31, 2005
    
    
    2,461
  Outstanding Weighted Average
    
    
    Exercisable Weighted AverageRemainingContractualRange of Exercise
    
    
    
    
    
    
    Life
    
    
    ExercisePrices
    
    
    Shares
    
    
    (in years)
    
    
    Price
    
    
    Shares
    
    
    Exercise Price$
    6.00
    
    
    
    
    
    
    $
    50.00
    
    
    
    51
    
    
    
    2.1
    
    
    $
    32.92
    
    
    
    44
    
    
    $
    35.3450.01
    
    
    
    
    
    
    
    2,500.00
    
    
    
    2
    
    
    
    4.9
    
    
    
    1,651.43
    
    
    
    2
    
    
    
    1,651.432,500.01
    
    
    
    
    
    
    
    16,250.00
    
    
    
    3
    
    
    
    2.8
    
    
    
    14,416.55
    
    
    
    3
    
    
    
    14,416.55$
    6.00
    
    
    
    
    
    
    $
    16,250.00
    
    
    
    56
    
    
    
    2.2
    
    
    $
    938.44
    
    
    
    49
    
    
    $
    833.48
   Years Ended December 31,2005
    
    2004
    
    2003Pro forma net (loss) income
    
    $
    (21,792
    )
    
    $
    666
    
    
    $
    (964
    )Pro forma basic (loss) earnings per share
    
    
    (2.93
    )
    
    
    0.84
    
    
    
    (1.22
    )Pro forma diluted (loss) earnings per share
    
    
    (2.93
    )
    
    
    0.84
    
    
    
    (1.22
    )Risk free interest rates
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %Expected lives
    
    4-10 years
    
    
    4-10 years
    
    
    4-10 yearsExpected volatility
    
    
    70
    %
    
    
    70
    %
    
    
    70
    %Weighted average grant date fair value
    
    $
    6.83
    
    
    $
    14.80
    
    
    $
    11.20Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 F-28




---



##### 



NOTE 12401(K) SAVINGS PLAN
  NOTE 13SEGMENT INFORMATION
   2005
    
    MRO
    
    Interiors
    
    Other
    
    ConsolidatedNet sales
    
    $
    287,013
    
    
    $
    42,539
    
    
    $
    
    
    
    $
    329,552Operating income (loss)
    
    
    472
    
    
    
    534
    
    
    
    (15,244
    )
    
    
    (14,238
    )Identifiable assets
    
    
    103,378
    
    
    
    24,204
    
    
    
    32,546
    
    
    
    160,128Depreciation and amortization
    
    
    4,890
    
    
    
    312
    
    
    
    54
    
    
    
    5,256Capital expenditures
    
    
    4,495
    
    
    
    315
    
    
    
    
    
    
    
    4,810Interest expense, net
    
    
    275
    
    
    
    
    
    
    
    9,444
    
    
    
    9,719
 2004
    
    MRO
    
    Interiors
    
    Other
    
    ConsolidatedNet sales
    
    $
    267,143
    
    
    $
    56,345
    
    
    $
    
    
    
    $
    323,488Operating income (loss)
    
    
    14,028
    
    
    
    6,825
    
    
    
    (14,032
    )
    
    
    6,821Identifiable assets
    
    
    112,544
    
    
    
    12,926
    
    
    
    11,898
    
    
    
    137,368Depreciation and amortization
    
    
    4,886
    
    
    
    235
    
    
    
    108
    
    
    
    5,229Capital expenditures
    
    
    2,497
    
    
    
    189
    
    
    
    7
    
    
    
    2,693Interest expense, net
    
    
    392
    
    
    
    
    
    
    
    8,010
    
    
    
    8,402
 2003
    
    MRO
    
    Interiors
    
    Other
    
    ConsolidatedNet sales
    
    $
    203,225
    
    
    $
    39,289
    
    
    $
    
    
    
    $
    242,514Operating income (loss)
    
    
    2,894
    
    
    
    5,461
    
    
    
    (6,765
    )
    
    
    1,590Identifiable assets
    
    
    108,980
    
    
    
    16,569
    
    
    
    27,342
    
    
    
    152,891Depreciation and amortization
    
    
    4,753
    
    
    
    180
    
    
    
    125
    
    
    
    5,058Capital expenditures
    
    
    2,102
    
    
    
    156
    
    
    
    46
    
    
    
    2,304Interest expense, net
    
    
    413
    
    
    
    
    
    
    
    7,360
    
    
    
    7,773
 F-29




---



##### 



NOTE 14QUARTERLY FINANCIAL DATA (UNAUDITED)
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands, except earnings (loss) per share)2005Operating revenues
    
    $
    90,682
    
    
    $
    81,114
    
    
    $
    78,192
    
    
    $
    79,564Gross profit (loss)
    
    
    9,418
    
    
    
    7,527
    
    
    
    598
    
    
    
    (4,259
    )Income (loss) from continuing operations
    
    
    1,151
    
    
    
    1,280
    
    
    
    (6,388
    )
    
    
    (18,393
    )Income from discontinued operations
    
    
    55
    
    
    
    44
    
    
    
    42
    
    
    
    493Net income (loss)
    
    
    1,206
    
    
    
    1,324
    
    
    
    (6,346
    )
    
    
    (17,900
    )Basic income (loss) per share from continuing
operations
    
    
    0.78
    
    
    
    0.20
    
    
    
    (0.99
    )
    
    
    (1.20
    )Diluted income (loss) per share from continuing
operations
    
    
    0.17
    
    
    
    0.11
    
    
    
    (0.99
    )
    
    
    (1.20
    )Basic income per share from discontinued
operations
    
    
    0.04
    
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.03Diluted income per share from discontinued operations
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.03Basic net income (loss) per share
    
    
    0.82
    
    
    
    0.21
    
    
    
    (0.99
    )
    
    
    (1.17
    )Diluted net income (loss) per share
    
    
    0.18
    
    
    
    0.11
    
    
    
    (0.99
    )
    
    
    (1.17
    )
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands, except earnings (loss) per share)2004Operating revenues
    
    $
    83,532
    
    
    $
    78,172
    
    
    $
    74,152
    
    
    $
    87,632Gross profit
    
    
    6,293
    
    
    
    7,008
    
    
    
    7,122
    
    
    
    8,866(Loss) income from continuing operations
    
    
    (852
    )
    
    
    (392
    )
    
    
    168
    
    
    
    409Income from discontinued operations
    
    
    970
    
    
    
    144
    
    
    
    93
    
    
    
    373Net income (loss)
    
    
    118
    
    
    
    (248
    )
    
    
    261
    
    
    
    782Basic (loss) income per share from continuing
operations
    
    
    (1.08
    )
    
    
    (0.50
    )
    
    
    0.21
    
    
    
    0.52Diluted (loss) income per share from continuing
operations
    
    
    (1.08
    )
    
    
    (0.50
    )
    
    
    0.02
    
    
    
    0.05Basic income per share from discontinued operations
    
    
    1.23
    
    
    
    0.18
    
    
    
    0.12
    
    
    
    0.47Diluted income per share from discontinued operations
    
    
    1.23
    
    
    
    0.18
    
    
    
    0.01
    
    
    
    0.05Basic net income (loss) per share
    
    
    0.15
    
    
    
    (0.31
    )
    
    
    0.33
    
    
    
    0.99Diluted net income (loss) per share
    
    
    0.15
    
    
    
    (0.31
    )
    
    
    0.03
    
    
    
    0.10
 NOTE 15SUBSEQUENT EVENTS
    F-30




---



##### 



F-31




---



##### 



SCHEDULE II
 VALUATION AND QUALIFYING ACCOUNTS
 Three Years Ended December 31, 2005
 AdditionsBalance at
    
    Charged to
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    Cost and
    
    
    
    
    
    
    
    
    
    End ofDescription
    
    of Year
    
    Expenses
    
    Other
    
    Deductions
    
    YearAllowances for doubtful accounts
receivable:Year ended December 31,2003
    
    $
    9,704
    
    
    
    
    
    
    
    838
    (C)
    
    
    3,254
    (A)
    
    $
    5,6122004
    
    
    5,612
    
    
    
    
    
    
    
    375
    (C)
    
    
    47
    (A)
    
    
    5,1902005
    
    
    5,190
    
    
    
    2,567
    
    
    
    
    (C)
    
    
    311
    (A)
    
    
    7,446Accruals relating to discontinued operations:2003
    
    
    9,466
    
    
    
    
    
    
    
    
    
    
    
    4,451
    (B)
    
    
    5,0152004
    
    
    5,015
    
    
    
    
    
    
    
    
    
    
    
    44
    (B)
    
    
    4,9712005
    
    
    4,971
    
    
    
    
    
    
    
    
    
    
    
    670
    (B)
    
    
    4,301
 
 (A)
    
    Represents accounts receivable written-off.(B)
    
    Utilization of accruals upon disposition of business.(C)
    
    Represents collection on accounts previously fully reserved. F-32