##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[Mark One]

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 1-11775

TIMCO AVIATION SERVICES,
INC.(Exact name of registrant as specified in its charter)

|                                                                                   |  |                                             
|---------------------------------------------------------------------------------- |  | --------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)            |  | 65-0665658
(IRS Employer
Identification No.)
|                                                                                   |  |                                             
|623 Radar Road
Greensboro, North Carolina
(Address of principal executive offices) |  | 27410
(Zip Code)                            

Registrants telephone number, including area code: (336) 668-4410 (x3016)

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

Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes
o   No
x

Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date:31,640,994 shares of common
stock, $.001 par value per share, were outstanding as of November 14, 2003.





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##### 



TIMCO AVIATION SERVICES, INC.
INDEX
 
Part I. Financial Information

|                           |  |                                                                                                                                              |  |     
|-------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                           |  |                                                                                                                                              |  | Page
|                           |  |                                                                                                                                              |  |     
|Item 1.                    |  | FINANCIAL STATEMENTS                                                                                                                         |  |     
|                           |  |                                                                                                                                              |  |     
|                           |  | Condensed Consolidated Balance Sheets at September 30, 2003
and December 31, 2002 (unaudited)                                                |  | 3-4 
|                           |  |                                                                                                                                              |  |     
|                           |  | Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 2003 and
2002 (unaudited)           |  | 5-6 
|                           |  |                                                                                                                                              |  |     
|                           |  | Condensed Consolidated Statements of Stockholders Deficit
and Comprehensive Income for the nine months ended
September 30, 2003 (unaudited) |  | 7   
|                           |  |                                                                                                                                              |  |     
|                           |  | Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2003 and 2002 (unaudited)                            |  | 8-9 
|                           |  |                                                                                                                                              |  |     
|                           |  | Notes to Condensed Consolidated Financial Statements                                                                                         |  | 10  
|                           |  |                                                                                                                                              |  |     
|Item 2.                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS                                                        |  | 22  
|                           |  |                                                                                                                                              |  |     
|Item 3.                    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                                                    |  | 32  
|                           |  |                                                                                                                                              |  |     
|Item 4.                    |  | CONTROLS AND PROCEDURES                                                                                                                      |  | 32  
|                           |  |                                                                                                                                              |  |     
|Part II. Other Information
|                           |  |                                                                                                                                              |  |     
|Item 1.                    |  | LEGAL PROCEEDINGS                                                                                                                            |  | 33  
|                           |  |                                                                                                                                              |  |     
|Item 2.                    |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                                                    |  | 33  
|                           |  |                                                                                                                                              |  |     
|Item 3.                    |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                              |  | 33  
|                           |  |                                                                                                                                              |  |     
|Item 4.                    |  | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                                                                            |  | 33  
|                           |  |                                                                                                                                              |  |     
|Item 5.                    |  | OTHER INFORMATION                                                                                                                            |  | 33  
|                           |  |                                                                                                                                              |  |     
|Item 6.                    |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                             |  | 33  

2



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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)

|                                    |                                                                 |                    |        |               |         |              |        |         |         | 
|----------------------------------- | --------------------------------------------------------------- | ------------------ | ------ | ------------- | ------- | ------------ | ------ | ------- | ------- | 
|                                    |                                                                 |                    |        | September 30, |         | December 31,
|                                    |                                                                 |                    |        | 2003          |         | 2002        
|                                    |                                                                 |                    |        |               |         |             
|ASSETS                              |                                                                 |                    |        |               |         |              |        |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|Current Assets:                     |                                                                 |                    |        |               |         |              |        |        
|                                    | Cash and cash equivalents                                       |                    | $      | 131           |         |              | $      | 339     |        
|                                    | Accounts receivable, net                                        |                    |        | 29,874        |         |              |        | 17,762  |        
|                                    | Inventories                                                     |                    |        | 26,116        |         |              |        | 21,631  |        
|                                    | Other current assets                                            |                    |        | 5,739         |         |              |        | 3,588   |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    | Total current assets                                            |                    |        | 61,860        |         |              |        | 43,320  |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|Fixed assets, net                   |                                                                 |                    |        |               |         |              |        |        
|Capitalized lease asset, net        |                                                                 |                    | 24,365 |               |         |              | 24,794 |        
|Property and equipment, net         |                                                                 |                    | 30,842 |               |         |              | 33,516 |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    |                                                                 |                    | 55,207 |               |         |              | 58,310 |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|Goodwill                            |                                                                 |                    | 26,124 |               |         |              | 26,124 |        
|Deferred financing costs, net       |                                                                 |                    | 2,183  |               |         |              | 2,206  |        
|Other                               |                                                                 |                    | 327    |               |         |              | 1,066  |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    | Total assets                                                    |                    | $      | 145,701       |         |              | $      | 131,026 |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                   
|LIABILITIES & STOCKHOLDERS DEFICIT |                                                                 |                    |        |               |         |              |        |        
|                                   
|Current Liabilities:                |                                                                 |                    |        |               |         |              |        |        
|                                    | Accounts payable                                                |                    | $      | 18,774        |         |              | $      | 14,564  |        
|                                    | Accrued expenses                                                |                    |        | 18,517        |         |              |        | 18,486  |        
|                                    | Customer deposits                                               |                    |        | 15,329        |         |              |        | 12,739  |        
|                                    | Current maturities of notes payable to financial
institutions   |                    |        | 8,500         |         |              |        |        |        
|                                    | Revolving loan                                                  |                    |        | 6,340         |         |              |        | 2,179   |        
|                                    | Current maturities of capital lease obligations                 |                    |        | 1,497         |         |              |        | 1,101   |        
|                                    | Accrued interest                                                |                    |        | 583           |         |              |        | 854     |        
|                                    | Liabilities of discontinued operations                          |                    |        | 237           |         |              |        | 3,574   |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    | Total current liabilities                                       |                    |        | 69,777        |         |              |        | 53,497  |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    | Senior subordinated notes, net:                                 |                    |        |               |         |              |        |         |        
|                                    |                                                                 | New notes due 2006 |        |               | 115,800 |              |        |         | 115,800 | 
|                                    |                                                                 | Old notes due 2008 |        |               | 16,247  |              |        |         | 16,247  | 
|                                    | Capital lease obligations, net of current portion               |                    |        | 26,549        |         |              |        | 27,734  |        
|                                    | Note payable to related party                                   |                    |        | 7,350         |         |              |        | 1,300   |        
|                                    | Junior subordinated notes due 2007, net                         |                    |        | 2,951         |         |              |        | 2,613   |        
|                                    | Deferred income                                                 |                    |        | 1,515         |         |              |        | 1,641   |        
|                                    | Other long-term liabilities                                     |                    |        | 378           |         |              |        | 456     |        
|                                    | Notes payable to financial institutions, net of
current portion |                    |        |              |         |              |        | 8,500   |        
|                                    |                                                                 |                    |        |               |         |              |        |        
|                                    | Total long-term liabilities                                     |                    |        | 170,790       |         |              |        | 174,291 |        

3



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##### 



|                                          |                                                                                                                                        |  |   |               |   |              |   |          |   | 
|----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------------- | - | ------------ | - | -------- | - | 
|                                          |                                                                                                                                        |  |   | September 30, |   | December 31,
|                                          |                                                                                                                                        |  |   | 2003          |   | 2002        
|                                          |                                                                                                                                        |  |   |               |   |             
|Commitments and Contingencies (see notes) |                                                                                                                                        |  |   |               |   |              |   |         
|                                          |                                                                                                                                        |  |   |               |   |              |   |         
|Stockholders 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, 500,000,000 shares
authorized, 31,640,994 shares issued and
outstanding                                 |  |   | 32            |   |              |   | 32       |  
|                                          | Additional paid-in capital                                                                                                             |  |   | 182,088       |   |              |   | 180,830  |  
|                                          | Accumulated deficit                                                                                                                    |  |   | (276,986      | ) |              |   | (277,624 | )
|                                          |                                                                                                                                        |  |   |               |   |              |   |         
|                                          | Total stockholders deficit                                                                                                            |  |   | (94,866       | ) |              |   | (96,762  | )
|                                          |                                                                                                                                        |  |   |               |   |              |   |         
|                                          | Total liabilities and stockholders deficit                                                                                            |  | $ | 145,701       |   |              | $ | 131,026  |  
|                                          |                                                                                                                                        |  |   |               |   |              |   |         

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)

|                                                                        |         |                                                                         |        |                      |        |      |        |            |        |  
|----------------------------------------------------------------------- | ------- | ----------------------------------------------------------------------- | ------ | -------------------- | ------ | ---- | ------ | ---------- | ------ | -
|                                                                        |         |                                                                         |        | For the Three Months
|                                                                        |         |                                                                         |        | Ended September 30, 
|                                                                        |         |                                                                         |        |                     
|                                                                        |         |                                                                         |        | 2003                 |        | 2002
|                                                                        |         |                                                                         |        |                      |        |     
|Operating revenue:                                                      |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Sales, net                                                              |        | $                    | 64,309 |      |        | $          | 33,799 |  
|                                                                        |         | Other                                                                   |        |                      |       |      |        |            | 53     |  
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         |                                                                         | 64,309 |                      |        |      | 33,852 |           
|Cost of sales                                                           |         |                                                                         | 58,883 |                      |        |      | 35,271 |           
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Gross profit (loss)                                                     |         |                                                                         | 5,426  |                      |        |      | (1,419 | )         
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Operating expenses                                                      |         |                                                                         | 3,239  |                      |        |      | 903    |           
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Income (loss) from operations                                           |        |                      | 2,187  |      |        |            | (2,322 | )
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Interest expense                                                        |         |                                                                         | 2,768  |                      |        |      | 2,268  |           
|Gain on revaluation of charge for settlement of class
action litigation |         |                                                                         |       |                      |        |      | (1,715 | )         
|Other income  net                                                      |         |                                                                         | (827   | )                    |        |      | (1,677 | )         
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Income (loss) before income taxes and discontinued
operations           |        |                      | 246    |      |        |            | (1,198 | )
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Income tax benefit                                                      |         |                                                                         |       |                      |        |      |       |           
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Income (loss) from continuing operations before
discontinued operations |        |                      | 246    |      |        |            | (1,198 | )
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Income from discontinued operations, net of income taxes                |         |                                                                         | 99     |                      |        |      | 2,545  |           
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Net income                                                              |        | $                    | 345    |      |        | $          | 1,347  |  
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Basic income per share:                                                 |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Income (loss) from continuing operations                                |        | $                    | 0.01   |      |        | $          | (0.04  | )
|                                                                        |         | Income from discontinued operations                                     |        |                      | 0.00   |      |        |            | 0.08   |  
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Net income                                                              |        | $                    | 0.01   |      |        | $          | 0.04   |  
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|Diluted income per share:                                               |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Income (loss) from continuing operations                                |        | $                    | 0.00   |      |        | $          | (0.04  | )
|                                                                        |         | Income from discontinued operations                                     |        | $                    | 0.00   |      |        | $          | 0.08   |  
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        |         | Net income                                                              |        | $                    | 0.00   |      |        | $          | 0.04   |  
|Weighted average shares outstanding:                                    |         |                                                                         |        |                      |        |      |        |           
|                                                                        | Basic   |                                                                         |        | 31,640,994           |        |      |        | 30,526,864 |       
|                                                                        |         |                                                                         |        |                      |        |      |        |           
|                                                                        | Diluted |                                                                         |        | 324,777,966          |        |      |        | 30,526,864 |       
|                                                                        |         |                                                                         |        |                      |        |      |        |           

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)

|                                                         |         |                                                                         |         |                     |         |      |         |             |         | 
|-------------------------------------------------------- | ------- | ----------------------------------------------------------------------- | ------- | ------------------- | ------- | ---- | ------- | ----------- | ------- | 
|                                                         |         |                                                                         |         | For the Nine Months
|                                                         |         |                                                                         |         | Ended September 30,
|                                                         |         |                                                                         |         |                    
|                                                         |         |                                                                         |         | 2003                |         | 2002
|                                                         |         |                                                                         |         |                     |         |     
|Operating revenue:                                       |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | Sales, net                                                              |         | $                   | 167,617 |      |         | $           | 139,514 | 
|                                                         |         | Other                                                                   |         |                     | 89      |      |         |             | 160     | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         |                                                                         | 167,706 |                     |         |      | 139,674 |            
|Cost of sales                                            |         |                                                                         | 157,186 |                     |         |      | 129,737 |            
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Gross profit                                             |         |                                                                         | 10,520  |                     |         |      | 9,937   |            
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Operating expenses                                       |         |                                                                         | 10,138  |                     |         |      | 8,777   |            
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | Income from operations                                                  |         |                     | 382     |      |         |             | 1,160   | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Interest expense                                         |         |                                                                         | 6,904   |                     |         |      | 11,973  |            
|Charge for settlement of class action litigation         |         |                                                                         |        |                     |         |      | 4,410   |            
|Gain resulting from debt extinguishment                  |         |                                                                         |        |                     |         |      | (27,279 | )          
|Other income  net                                       |         |                                                                         | (3,088  | )                   |         |      | (2,961  | )          
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | (Loss) income before income taxes and discontinued
operations           |         |                     | (3,434  | )    |         |             | 15,017  | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Income tax benefit                                       |         |                                                                         | (884    | )                   |         |      | (3,800  | )          
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | (Loss) income from continuing operations before
discontinued operations |         |                     | (2,550  | )    |         |             | 18,817  | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Income from discontinued operations, net of income taxes |         |                                                                         | 3,188   |                     |         |      | 3,617   |            
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | Net income                                                              |         | $                   | 638     |      |         | $           | 22,434  | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Basic income per share:                                  |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | (Loss) income from continuing operations                                |         | $                   | (0.08   | )    |         | $           | 0.78    | 
|                                                         |         | Income from discontinued operations                                     |         |                     | 0.10    |      |         |             | 0.15    | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | Net income                                                              |         | $                   | 0.02    |      |         | $           | 0.93    | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Diluted income per share:                                |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | (Loss) income from continuing operations                                |         | $                   | (0.08   | )    |         | $           | 0.08    | 
|                                                         |         | Income from discontinued operations                                     |         |                     | 0.10    |      |         |             | 0.01    | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         |         | Net income                                                              |         | $                   | 0.02    |      |         | $           | 0.09    | 
|                                                         |         |                                                                         |         |                     |         |      |         |            
|Weighted average shares outstanding:                     |         |                                                                         |         |                     |         |      |         |            
|                                                         | Basic   |                                                                         |         | 31,640,994          |         |      |         | 24,119,351  |        
|                                                         |         |                                                                         |         |                     |         |      |         |            
|                                                         | Diluted |                                                                         |         | 31,640,994          |         |      |         | 236,649,548 |        
|                                                         |         |                                                                         |         |                     |         |      |         |            

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE INCOME
(In Thousands, Except Share Data)
(Unaudited)

|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |               |       | 
|------------- | ------------------ | ---------------------------------------------------------- |  | ------------ | - | ---------- | - | ----------- | - | ------------- | - | ----------- | ----- |  | - | -------- | --- |  | - | ------------- | ----- | 
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   | Total        
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   | Stockholders'
|              |                    |                                                            |  | Common Stock |   | Additional |   |             |   |               |   | Deficit and
|              |                    |                                                            |  |              |   | Paid-in    |   | Accumulated |   | Comprehensive
|              |                    |                                                            |  | Shares       |   | Amount     |   | Capital     |   | Deficit       |   | Income     
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |            
|Balance as of |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|              | December 31, 2002  |                                                            |  | 31,640,994   |   |            | $ | 32          |   |               | $ | 180,830     |       |  | $ | (277,624 | )   |  | $ | (96,762       | )    
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|              |                    | Net income and comprehensive
income                        |  |              |  |            |   |             |  |               |   |             |      |  |   |          | 638 |  |   |               | 638   | 
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|              |                    | Warrant issued to stockholder
for note payable origination |  |              |  |            |   |             |  |               |   |             | 1,258 |  |   |          |    |  |   |               | 1,258 | 
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|Balance as of |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              
|              | September 30, 2003 |                                                            |  | 31,640,994   |   |            | $ | 32          |   |               | $ | 182,088     |       |  | $ | (276,986 | )   |  | $ | (94,866       | )    
|              |                    |                                                            |  |              |   |            |   |             |   |               |   |             |       |  |   |          |     |  |   |              

The accompanying notes are an integral part of these condensed consolidated financial statements.

7



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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |          |         |         |   | 
|---------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------------- | - | -------- | ------- | ------- | - | 
|                                               |                                                                                         |                                                    |                                                     |          |         | For the Nine 
|                                               |                                                                                         |                                                    |                                                     |          |         | Months Ended 
|                                               |                                                                                         |                                                    |                                                     |          |         | September 30,
|                                               |                                                                                         |                                                    |                                                     |          |         |              
|                                               |                                                                                         |                                                    |                                                     |          |         | 2003          |   | 2002    
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               | Net income                                                                              |                                                    | $                                                   | 638      |         |               | $ | 22,434   |        
|                                               | Adjustments to reconcile net income to cash (used in)
provided by operating activities: |                                                    |                                                     |          |         |               |   |          |        
|                                               |                                                                                         | Income from discontinued operations                |                                                     |          | (3,188  | )             |   |          | (3,617  | )      
|                                               |                                                                                         | Paid-in-kind interest note obligations             |                                                     |          | 716     |               |   |          | 13      |        
|                                               |                                                                                         | Gain on Aerocell settlement, net of cash proceeds  |                                                     |          | (455    | )             |   |          |        |        
|                                               |                                                                                         | Gain on restructuring of debt                      |                                                     |          |        |               |   |          | (27,279 | )      
|                                               |                                                                                         | Gain on Kellstrom settlement, net of cash proceeds |                                                     |          |        |               |   |          | (1,173  | )      
|                                               |                                                                                         | Gain on sale of subsidiary                         |                                                     |          |        |               |   |          | (279    | )      
|                                               |                                                                                         | Charge for class action settlement                 |                                                     |          |        |               |   |          | 4,410   |        
|                                               |                                                                                         | Depreciation and amortization                      |                                                     |          | 4,229   |               |   |          | 4,135   |        
|                                               |                                                                                         | Amortization of deferred financing costs           |                                                     |          | 1,944   |               |   |          | 4,991   |        
|                                               |                                                                                         | Recovery of doubtful accounts                      |                                                     |          | (1,044  | )             |   |          | (1,127  | )      
|                                               |                                                                                         | (Increase) decrease in accounts receivable         |                                                     |          | (11,068 | )             |   |          | 10,478  |        
|                                               |                                                                                         | (Increase) decrease in inventories                 |                                                     |          | (4,485  | )             |   |          | 8,654   |        
|                                               |                                                                                         | (Increase) decrease in other assets                |                                                     |          | (1,411  | )             |   |          | 8,159   |        
|                                               |                                                                                         | Increase (decrease) in accounts payable            |                                                     |          | 4,210   |               |   |          | (14,387 | )      
|                                               |                                                                                         | Increase (decrease) in customer deposits           |                                                     |          | 2,590   |               |   |          | (1,816  | )      
|                                               |                                                                                         | Decrease in other liabilities                      |                                                     |          | (367    | )             |   |          | (8,848  | )      
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               |                                                                                         |                                                    | Net cash (used in) provided by operating activities |          |         | (7,691        | ) |          |         | 4,748   |  
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               | Purchases of fixed assets                                                               |                                                    |                                                     | (1,126   | )       |               |   | (1,513   | )      
|                                               | Proceeds from sale of subsidiary                                                        |                                                    |                                                     |         |         |               |   | 9,062    |        
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               |                                                                                         |                                                    | Net cash (used in) provided by investing activities |          |         | (1,126        | ) |          |         | 7,549   |  
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               | Borrowings under senior debt facilities                                                 |                                                    |                                                     | 170,902  |         |               |   | 155,660  |        
|                                               | Payments under senior debt facilities                                                   |                                                    |                                                     | (166,741 | )       |               |   | (163,964 | )      
|                                               | Proceeds of term loan with related party                                                |                                                    |                                                     | 6,050    |         |               |   |         |        
|                                               | Payments on capital leases                                                              |                                                    |                                                     | (790     | )       |               |   | (289     | )      
|                                               | Payments of deferred financing costs                                                    |                                                    |                                                     | (663     | )       |               |   | (2,988   | )      
|                                               | Issuance of common stock in rights offering                                             |                                                    |                                                     |         |         |               |   | 19,806   |        
|                                               | Payment on term loan                                                                    |                                                    |                                                     |         |         |               |   | (13,500  | )      
|                                               | Payment for old notes in note exchange offer                                            |                                                    |                                                     |         |         |               |   | (5,081   | )      
|                                               | Payment of expenses related to exchange offer                                           |                                                    |                                                     |         |         |               |   | (5,031   | )      
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               |                                                                                         |                                                    | Net cash provided by (used in) financing activities |          |         | 8,758         |   |          |         | (15,387 | )
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|                                               | Net cash (used in) provided by discontinued operations                                  |                                                    |                                                     | (149     | )       |               |   | 3,090    |        
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|Net decrease in cash and cash equivalents      |                                                                                         |                                                    | (208                                                | )        |         |               |  |         
|Cash and cash equivalents, beginning of period |                                                                                         |                                                    | 339                                                 |          |         |               |  |         
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         
|Cash and cash equivalents, end of period       |                                                                                         | $                                                  | 131                                                 |          |         | $             |  |         
|                                               |                                                                                         |                                                    |                                                     |          |         |               |   |         

8



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|                                                        |                       |  |   |                                                                                                       |  |               |       |        |  |   |       | 
|------------------------------------------------------- | --------------------- |  | - | ----------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ------ |  | - | ----- | 
|                                                        |                       |  |   |                                                                                                       |  | For the Nine 
|                                                        |                       |  |   |                                                                                                       |  | Months Ended 
|                                                        |                       |  |   |                                                                                                       |  | September 30,
|                                                        |                       |  |   |                                                                                                       |  |              
|                                                        |                       |  |   |                                                                                                       |  | 2003          |       | 2002  
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:       |                       |  |   |                                                                                                       |  |               |       |       
|                                                        | Interest paid         |  | $ | 4,605                                                                                                 |  |               | $     | 6,057  | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|                                                        | Income taxes refunded |  | $ | 174                                                                                                   |  |               | $     | 11,458 | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITIES: |                       |  |   |                                                                                                       |  |               |       |       
|                                                        |                       |  |   | Value of warrant issued to stockholder in exchange
for note payable origination                       |  | $             | 1,258 |        |  | $ |      | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|                                                        |                       |  |   | Value of common stock and warrants issued in
connection with note exchange offer and loan
origination |  | $             |      |        |  | $ | 4,534 | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|                                                        |                       |  |   | Value of common stock and warrants issued in
connection with settlement of class action
litigation    |  | $             |      |        |  | $ | 1,910 | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|                                                        |                       |  |   | Value of warrants issued to shareholders for
credit support                                           |  | $             |      |        |  | $ | 702   | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       
|                                                        |                       |  |   | Value of common stock issued in exchange
for services                                                 |  | $             |      |        |  | $ | 631   | 
|                                                        |                       |  |   |                                                                                                       |  |               |       |       

The accompanying notes are an integral part of these condensed consolidated financial statements.

9



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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
(Dollar Amounts in Thousands, Except Share and Per Share Data)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION and LIQUIDITY

DESCRIPTION OF BUSINESS

TIMCO Aviation Services, Inc. (the Company) is a Delaware corporation that,
through its subsidiaries, provides aircraft maintenance, repair and overhaul
(MR&O) services to commercial passenger airlines, air cargo carriers,
aircraft leasing companies, maintenance and repair facilities and aircraft
parts redistributors throughout the world.

In July 2002, the Company sold its flight surface repair operation, Aerocell
Structures, Inc., based in Hot Springs, Arkansas. The results of this business
are included in the accompanying condensed consolidated results of operations
through the period of its sale.

On February 28, 2002, the Company completed a significant restructuring of its
capital and equity, including a note exchange and rights offering. See Note 9
for further discussion. Concurrent with the completion of the note exchange and
rights offering, the Company changed its capitalization by increasing the
number of its authorized shares of common stock from 30.0 million shares to
500.0 million shares and by reducing the number of its issued and outstanding
shares of common stock by converting every ten shares of its issued and
outstanding common stock into one share. All share and per share data
contained herein has been restated for the one-share-for-ten-shares reverse
stock split.

BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted. The
accompanying unaudited interim condensed consolidated financial statements
should be read in conjunction with the Companys consolidated financial
statements and the notes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2002, File No. 001- 11775 (the
Form 10-K).

In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements of the Company contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of September 30, 2003, the results of
its operations for the three and nine month periods ended September 30, 2002
and 2003 and its cash flows for the nine month periods ended September 30, 2002
and 2003. The results of operations and cash flows for the nine month period
ended September 30, 2003 are not necessarily indicative of the results of
operations or cash flows which may be reported for the year ending December 31,
2003.

LIQUIDITY

The accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. On several occasions
during fiscal 2002 and for the quarter ended March 31, 2003 the Company was out
of compliance with certain of the covenants contained in its credit agreement
with its senior lenders and under its tax retention operating lease (TROL)
financing arrangement (which facility is recorded as a capitalized lease). The
Companys senior lenders and the TROL financing lender waived all of the events
of default arising from the covenant violations which occurred during fiscal
2002 and the Company was in compliance, as waived and amended, with its credit
agreement and TROL financing arrangement at December 31, 2002. Additionally,
as of March 31, 2003, after receiving a waiver of several covenant violations
and establishing new covenant requirements beginning with the quarter ended
March 31, 2003, the Company

10



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##### 



was in compliance at that date with all financial covenant requirements under these
agreements. As of June 30, 2003 and September 30, 2003, the Company was in
compliance with all financial covenant requirements under its credit
agreements, as amended. See Notes 5 and 7.

For the year ended December 31, 2002, the Company incurred losses from
continuing operations of $24,426. Additionally, as of December 31, 2002 and
September 30, 2003, the Company had net working capital and stockholders
deficits and continued to require additional cash flow above amounts currently
being provided from operations to meet its working capital requirements. Also,
as a result of the state of the domestic economy, the rising price of jet fuel,
a continuing decline in passenger airline travel, the currently on-going war on
terrorism, the continuing impacts of the September 11th terrorist attacks, and
a greater than 15% reduction in airfare prices, the airline industry, and thus
the Companys customer base, has been significantly impacted. The result for
some carriers has been the filing for protection under Chapter 11 of the United
States Bankruptcy Code. These factors have also resulted in some of the
Companys competitors exiting the maintenance, repair, and overhaul business.

The Companys ability to service its debt and note obligations, as they come
due, is dependent upon the Companys future financial and operating
performance. This performance, in turn, is subject to various factors,
including certain factors beyond the Companys control, such as changes in
conditions affecting the airline industry and changes in the overall economy.
Additionally, failure to comply with the covenants and provisions under the
Companys debt and note obligations, unless waived by the lenders and
noteholders, would be an event of default and would permit the lenders and
noteholders to accelerate the maturity of these debts and note obligations. It
would also permit them to terminate their commitments to extend credit under
the financing agreements. The Amended Credit Facility and the TROL financing
agreement also provide for the termination of the financing agreements and
repayment of all obligations in the event of a material adverse change in the
Companys business or a change in control, as defined. These actions would
have an immediate material adverse effect on the Companys liquidity. Further,
although the Company expects to be able to meet its working capital
requirements during 2003 from its available resources and from other sources,
including funds available under its revolving credit facility, from operations,
from sale of assets and further equity and/or debt infusions (including the new
loan from its principal stockholder described below and in Note 5), there can
be no assurance that the Company will have sufficient working capital or that
such other sources of funding will be available to the Company to meet its
obligations.

On May 14, 2003, the Company entered into an agreement with its principal
stockholder pursuant to which the principal stockholder agreed to loan the
Company $6,050, which was used for working capital. The new loan was funded
$3,050 in the second quarter of 2003 and $3,000 during the third quarter of
2003. Further, the $1,300 loan which was obtained from the Companys principal
stockholder in connection with the October 2002 Brice Manufacturing
acquisition, (see Note 3), has been combined with this new $6,050 loan
(aggregate obligation of $7,350). The aggregate obligation of $7,350 will come
due in May 2006. See Note 5.

As of September 30, 2003, the Company had senior indebtedness of $39,115, which
included the $5,000 BofA Term Loan, $3,500 Amended Term Loan, and $6,340 under
the Amended Revolving Credit Facility. In addition, at September 30, 2003
there were $9,235 of letters of credit outstanding under our senior revolving
credit facility and $8,878 was available for borrowing. Both the Amended
Revolving Credit Facility and the BofA Term Loan mature on January 31, 2004.
The Company is in discussions with its senior lenders and other financial
institutions to extend or replace this senior indebtedness.

2. STOCK COMPENSATION PLANS

As permissible under SFAS No. 123, Accounting for Stock-Based Compensation,
the Company accounts for all stock-based compensation arrangements using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, Accounting for Certain Transactions Involving Stock Compensation.
Accordingly, no compensation cost is recognized for stock option awards granted
to employees at or above fair market value.

11



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The following table illustrates the effects on net income and earnings per
share if the Company had applied the fair value recognition of FASB Statement
No. 123 to stock-based employee compensation:

|                                            |  |                      |      |                     |  |      |       |      |  |   |      |   |  |   |        |  
|------------------------------------------- |  | -------------------- | ---- | ------------------- |  | ---- | ----- | ---- |  | - | ---- | - |  | - | ------ | -
|                                            |  | For the Three Months |      | For the Nine Months
|                                            |  | Ended September 30,  |      | Ended September 30,
|                                            |  |                      |      |                    
|                                            |  | 2003                 |      | 2002                |  | 2003 |       | 2002
|                                            |  |                      |      |                     |  |      |       |     
|Net income   as reported                   |  | $                    | 345  |                     |  | $    | 1,347 |      |  | $ | 638  |   |  | $ | 22,434 |  
|Additional expense                          |  |                      | (153 | )                   |  |      | (502  | )    |  |   | (542 | ) |  |   | (1,983 | )
|Net income  pro forma                      |  |                      | 192  |                     |  |      | 845   |      |  |   | 96   |   |  |   | 20,451 |  
|Net income per share, basic  as reported   |  |                      | 0.01 |                     |  |      | 0.04  |      |  |   | 0.02 |   |  |   | 0.93   |  
|Net income per share, diluted  as reported |  |                      | 0.00 |                     |  |      | 0.04  |      |  |   | 0.02 |   |  |   | 0.09   |  
|Net income per share, basic  pro forma     |  |                      | 0.01 |                     |  |      | 0.03  |      |  |   | 0.00 |   |  |   | 0.85   |  
|Net income per share, diluted  pro forma   |  |                      | 0.00 |                     |  |      | 0.03  |      |  |   | 0.00 |   |  |   | 0.09   |  

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure; an amendment of FASB Statement No.
123. This Statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. Additionally, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statement regarding the method of accounting used
for stock-based employee compensation and the effect of the method used on
reported results. The Company has currently decided to continue to use the
intrinsic value method for accounting for stock-based employee compensation,
but has adopted all disclosure requirements for reporting in interim financial
statements.

3. BUSINESS COMBINATIONS

In October 2002, the Company completed the purchase of the outstanding stock of
Brice Manufacturing Company (Brice) for a purchase price of $1,272 and the
assumption of approximately $1,385 of liabilities. The acquisition has been
accounted for under the purchase method of accounting and accordingly, the
purchase price has been fully allocated to the assets purchased and liabilities
assumed based upon the fair values at the date of acquisition. The results of
operations for Brice have been included in the accompanying condensed
consolidated statement of operations from the date of acquisition.

The Company financed its purchase of Brice through a $1,300 loan from the
Companys principal stockholder. The principal stockholder also agreed to loan
the Company additional amounts equal to the Companys costs relating to the
Brice acquisition and amount required to fund any monthly shortfalls of
earnings before interest, taxes, depreciation and amortization (EBITDA) from
Brices operations (the Keepwell agreement). From the date of acquisition
through May 14, 2003, there was approximately $50 of funding requirements. The
Companys note to its principal stockholder was unsecured, bore interest at
LIBOR plus 5.5% and was due on the earlier of January 31, 2004 or the
termination of the revolving credit facility. The terms of this loan were
modified on May 14, 2003 in connection with a new $6,050 loan from the
Companys principal stockholder. See Note 5.

4. SALE OF OPERATING ENTITIES

In July 2002, the Company completed the sale of substantially all of the assets
and business of its Aerocell Structures operation. The net sales price was
$9,600 (subject to the post-closing adjustments described below), of which
$9,062 was received in cash at the closing. The results of operations for Aerocell are
included within income from continuing operations through the date of its sale.

Pursuant to the asset purchase agreement relating to the sale, the Company had
represented to the buyer that the value of the Aerocell assets at the closing
date were at least $11,700. The agreement provided procedures relating to the
determination of the closing date value of the Aerocell assets and required a
post-closing payment to the purchaser (on a dollar-for-dollar basis) if it was
ultimately determined that the closing date value of the Aerocell assets were
lower than the targeted amount. The Agreement also provided that certain funds
held in escrow ($500) were to be held to support certain indemnification rights
provided in the Agreement, and, provided that no claims for indemnity had been
asserted, $250 of the funds being held in escrow were to be released six months
after the Closing Date and the balance of the funds being held in escrow were
to be released one year after the Closing Date. The Agreement also provided
that the Company would receive certain rebates in the future for work which the
Company helped procure for the purchaser. However, before any such amounts
were to be paid under this rebate, the purchaser was to receive a credit to the
extent that certain specified inventory of Aerocell was not sold
within one year

12



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##### 



following the Closing Date. There was also additional inventory of
Aerocell as to which the Company would have to pay up to $200 in cash one year
from the closing if that inventory was not sold or consumed by that date.

For all contingency exposures relating to the sale of Aerocell, which includes
working capital adjustments and inventory repurchases, the Company had recorded
certain accruals as of March 31, 2003, in the aggregate amount of $455. Just
subsequent to the first quarter ended March 31, 2003, however, the Company
entered into an agreement that globally settled all unresolved purchase price
issues and inventory repurchase obligations. As part of this settlement, the
Company has released approximately $350 of the funds held in escrow to the
purchaser. Further, as a result of the settlement, the Company was released
from all contingencies for working capital adjustments and inventory
repurchases. In light of the settlement, the Company had, as of the end of the
first quarter ended March 31, 2003, reversed all accruals for contingency
exposures and had established a receivable for the net amount of the escrow
funds (approximately $115), which funds were received in August 2003. The
total gain resulting for the settlement ($570) has been reflected within other
income  net in the accompanying condensed consolidated statement of operations
for the nine month period ended September 30, 2003.

5. NOTES PAYABLE AND REVOLVING LOAN

On May 14 2003, the Company entered into an agreement with its principal
stockholder pursuant to which the principal stockholder has loaned the Company
$6,050. This new loan has been used for working capital requirements. The new
note has a three-year maturity, is secured debt and bears a 16% PIK interest
coupon. Further, the $1,300 loan received from the principal stockholder in
connection with the acquisition of Brice Manufacturing in October 2002 has been
added to this $6,050 loan (aggregate obligation of $7,350). Further, the
Keepwell agreement, which the Companys principal stockholder had issued to its
senior lenders in connection with the Brice Manufacturing acquisition and
required monthly funding of any EBITDA losses, was eliminated. This new loan
from the Companys principal stockholder contains cross default provisions if
the Companys obligations to its senior lenders are accelerated.

Additionally, during the third quarter of 2003, the Company has agreed to
increase the note relating to this loan by $900 reflecting its purchase from
its principal stockholder of the aircraft parts inventory located at the
Goodyear facility (which inventory was acquired by the Companys principal
stockholder in the AMS bankruptcy proceedings, see Note 7). As of September
30, 2003, the Company was finalizing the particulars of this inventory purchase
and modified loan obligation. As such, for the quarter ended September 30,
2003, the Company has reflected the inventory obligation within accrued
expenses within the accompanying condensed consolidated balance sheet.

In connection with the new loan, the Company issued a warrant to its principal
stockholder to acquire, for nominal consideration, 30% of the Companys
outstanding common stock (on a fully-diluted basis) as of the day the warrant
is exercised. The warrant is exercisable on or before January 31, 2007. The
warrant valuation, as determined by an independent business valuation
specialist through a fair market value assessment of the Company, was recorded
at $1,258 as of May 14, 2003. The Company has recorded the value of this
warrant as deferred financing costs and is amortizing this amount to expense
over the three year term of the new loan.

On July 12, 2002, the Company entered into an agreement amending and restating
its senior credit facilities with a syndicate of four lenders led by Citicorp
USA Inc. and UPS Capital Corporation pursuant to the terms of a Fifth Amended
and Restated Credit Agreement (the Amended Credit Agreement). Under the
Amended Credit Agreement, the Company has obtained a $30,000 senior secured
revolving line of credit (the Amended Revolving Credit Facility) and a $7,000
(currently $3,500) senior secured term loan (the Amended Term Loan and collectively with the
Amended Revolving Credit Facility, the Amended Credit Facility). Borrowings
under the Amended Credit Facility are secured by a lien on substantially all of
the Companys assets and the borrowing base consists primarily of certain of
the Companys account receivables, inventory, and machinery and equipment.

The interest rate on the Amended Revolving Credit Facility is, at the Companys
option, (a) prime plus 3% per annum, or (b) LIBOR plus 4.5% per annum. The
Company has currently elected the LIBOR option. The interest rate on the
Amended Term Loan is 12% per annum. The Amended Revolving Credit Facility is
due on January 31, 2004. The Amended Term Loan was due in quarterly
installments of $500, commencing September 30, 2002, with the principal balance
due in full on January 31, 2004. $3,500 of the Amended Term Loan was repaid
from the proceeds of the Aerocell sale, which has resulted in the full residual
balance of $3,500 being due in full on January 31, 2004. The Company is in
discussions with its senior lenders and other financial institutions to extend
or replace this senior indebtedness.

13



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##### 



The Amended Credit Agreement contains certain financial covenants regarding the
Companys financial performance and certain other covenants, including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provides for the termination of the Amended Credit
Facility and repayment of all debt in the event of a material adverse change in
the Companys business or a change in control, as defined. A default and
acceleration of repayment under the Amended Credit Facility could potentially
result in repayment acceleration under other agreements to which the Company is
a party, including the TROL financing agreement. Generally, the Amended Credit
Agreement requires mandatory repayments and reduction of the commitments
thereunder from proceeds of a sale of assets or an issuance of equity or debt
securities. Mandatory repayments are also required as a result of insufficient
collateral to meet the borrowing base requirements thereunder or in the event
the outstanding obligations under the Amended Credit Facility exceed the
commitments thereunder. At certain times during fiscal 2002 and during the
first quarter of 2003, the Company was not in compliance with certain covenants
contained in the Amended Credit Facility Agreement. The senior lenders,
however, have waived, and in some instances, amended all such events of
non-compliance and as of December 31, 2002 and March 31, 2003, the Company was
in compliance with all covenant requirements, as amended. As of June 30, 2003
and September 30, 2003, the Company was in compliance with all financial
covenant requirements under this agreement, as amended. There was $8,878
available for borrowing under the Amended Credit Facility as of September 30,
2003 and outstanding letters of credit aggregated $9,235.

On July 12, 2002, the Company also restructured its outstanding $10,000 senior
secured term loan with Bank of America with the remaining $5,000 balance of
this loan (the $5,000 BofA Term Loan) now due on January 31, 2004. The
$5,000 BofA Loan continues to bear interest at the rate of LIBOR plus 2% and
continues to be credit supported by two individuals, one of whom is the
Companys principal stockholder. Proceeds of the Aerocell sale were used to
pay $2,500 of the original BofA loan, due August 14, 2002. The $2,500 balance
of the original Bank of America loan was repaid as described below. The
Company is in discussions with its senior lenders and other financial
institutions to extend or replace this senior indebtedness.

At the closing of the senior term debt refinancing, one of the parties, who had
provided credit support for this loan and who is a former director and
executive officer of the Company, paid Bank of America $2,500, reducing the
Companys obligation under its term loan arrangements with Bank of America from
$10,000 to $7,500 (which amount was then restructured as set forth above). The
Company transferred to this party a 100,000 square foot warehouse facility in
Pearland, Texas, which had previously been utilized by the Companys
redistribution operation, in satisfaction of $1,500 of the loan (which is at
least as favorable a price, based on a third party appraisal, for this property
as could have been obtained from an unaffiliated third party). In addition,
the Company agreed to pay the remaining $1,000 balance of this loan, with
interest at the rate of 12% per annum, on the earlier of the Companys sale of
Aerocell or January 31, 2004. As a result of the completed sale of Aerocell on
July 31, 2002, the Company repaid the outstanding $1,000 of this loan.

For providing credit support for the $5,000 BofA Term Loan, the Company issued
five-year warrants to purchase 750,000 shares of its unissued common stock at
an exercise price of $1.05 per share to each of two individuals (warrants to
purchase 1.5 million shares of common stock in the aggregate), one of whom is
the Companys principal stockholder. Additionally, the Company paid
approximately $50 in cash to both of these individuals. The Company has
recorded the value of these warrants (approximately $700) and cash payment as
deferred financing costs and is amortizing this amount to expense over the term
of the $5,000 BofA Term Loan.

The remaining Amended Revolving Credit Facility, as well as the remaining
$8,500 in senior secured term loans (consisting of the remaining $3,500 balance
of the Amended Term Loan and the $5,000 BofA Term Loan), are secured by a lien
on substantially all of the assets of the Company.

6. SUBORDINATED NOTES

NEW SENIOR NOTES

On February 28, 2002, in connection with the note exchange portion of the
restructuring (see Note 9), the Company issued $100,000 face value in aggregate
principal amount of 8.0% senior subordinated convertible paid-in-kind (PIK)
notes (New Notes), which mature on December 31, 2006. The New Notes bear
interest from the date of issuance and are payable at the Companys option
either in cash or paid-in-kind through the issuance of additional New Notes
semiannually on June 30 and December 31 of each year. If the Company does not
pay interest in cash as of an interest payment date, the Company will
automatically be deemed to have paid such interest in-kind and additional New
Notes in the amount of such interest payment will automatically be deemed to be
outstanding from such date forward.

14



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The New Notes are general unsecured obligations and are subordinated in right
of payment to all current and future senior debt, including indebtedness
outstanding under the Amended Credit Facility and the $5,000 BofA Term Loan,
and under facilities that may replace such facilities in the future. The New
Notes are effectively subordinated to all secured obligations to the extent of
the assets securing such obligations, including the Amended Credit Facility,
the $5,000 BofA Term Loan and the new loan from the Companys principal
stockholder.

The New Notes are fully and unconditionally guaranteed by substantially all of
the Companys existing subsidiaries and each subsidiary that will be organized
in the future by the Company, unless such subsidiary is designated as an
unrestricted subsidiary. The indenture provides that under certain
circumstances, the Company may be able to designate current or future
subsidiaries as unrestricted subsidiaries. Unrestricted subsidiaries will not
be subject to many of the restrictive covenants set forth in the indenture.
Subsidiary guarantees are joint and several, full and unconditional, general
unsecured obligations of the subsidiary guarantors. Additionally, there are no
significant restrictions that would preclude the parent company from obtaining
funds, either through loan or dividend, from the subsidiary guarantor.
Subsidiary guaranties are subordinated in right of payment to all existing and
future senior debt of subsidiary guarantors, including the Amended Credit
Facility and the $5,000 BofA Term Loan, and are also effectively subordinated
to all secured obligations or subsidiary guarantors to the extent of the assets
securing their obligations, including the Amended Credit Facility, the $5,000
BofA Term Loan and the new loan from the Companys principal stockholder.

The indenture for the New Notes (i) permits the Company to incur indebtedness
equal to the greater of $95,000 or an amount that satisfies a fixed charge
coverage ratio of 2.25 to 1.00, (ii) requires the Company, upon a change of
control or certain asset sales, to repurchase the New Notes at a price equal to
the redemption price which the Company would be obligated to pay if it redeemed
the New Notes on the date of the change of control or asset sale; and (iii)
does not contain a provision requiring acceleration of any premium due upon
acceleration of the New Notes upon an event of default by reason of any willful
action (or inaction) taken (or not taken) by the Company with the intention of
avoiding the prohibition on the redemption of New Notes.

The New Notes are redeemable for cash at the Companys option at the following
percentages of par plus accrued interest on the par value through the date of
redemption: 2003  72.5%, 2004  73.0%, 2005  75.625% and 2006  77.5%. The
New Notes also provide that the holders will receive an aggregate of 4.5
million shares of common stock if the New Notes are redeemed in 2003 and an
aggregate of 3.0 million shares of common stock if the New Notes are redeemed
in 2004, 2005 or 2006.

If the New Notes have not already been redeemed or repurchased, the New Notes,
including those New Notes previously issued as paid-in-kind interest and all
accrued but unpaid interest, will automatically convert on December 31, 2006
into an aggregate of 270.3 million shares of common stock. Holders of New
Notes will not receive any cash payment representing principal or accrued and
unpaid interest upon conversion; instead, holders will receive a fixed number
of shares of common stock and a cash payment to account for any fractional
shares.

OLD SENIOR NOTES

In 1998, the Company sold $165,000 of senior subordinated notes (Old Notes)
with a coupon rate of 8.125% at a price of 99.395%, which mature on February
15, 2008. On February 28, 2002, $149,000 face value of these notes were
cancelled as part of the note exchange in exchange for cash and securities, and
substantially all of the covenant protection contained in the indenture
relating to the remaining Old Notes was extinguished. As a result of the
exchange offer and consent solicitation,
$16,247 in aggregate principal amount, net of unamortized discount, of Old
Notes remain outstanding at September 30, 2003. See Note 9 for a description
of the note exchange. Interest on the Old Notes is payable on February 15 and
August 15 of each year.

The Old Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior debt, including indebtedness
outstanding under the Amended Credit Facility and the $5,000 BofA Term Loan,
and under facilities that may replace such facilities in the future, and to the
new loan from the Companys principal stockholder and the New Notes. In
addition, the Old Notes are effectively subordinated to all secured obligations
to the extent of the assets securing such obligations, including the Amended
Credit Facility, the $5,000 BofA Term Loan, and the new loan from the Companys
principal stockholder.

The Old Notes are fully and unconditionally guaranteed, on a senior
subordinated basis, by substantially all of the Companys existing subsidiaries
and each subsidiary that will be organized in the future by the Company, unless
such subsidiary is designated as an unrestricted subsidiary. Subsidiary
guarantees are joint and several, full and unconditional, general unsecured
obligations of the subsidiary guarantors. Additionally, there are no
significant restrictions that would preclude the parent company from obtaining
funds, either through loan

15



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or dividend, from the subsidiary guarantors.
Subsidiary guarantees are subordinated in right of payment to all existing and
future senior debt of subsidiary guarantors, including the Amended Credit
Facility and the $5,000 BofA Term Loan, and to the new loan from the Companys
principal stockholder and the New Notes, and are also effectively subordinated
to all secured obligations of subsidiary guarantors to the extent of the assets
securing their obligations, including the Amended Credit Facility, the $5,000
BofA Term Loan and the new loan from the Companys principal stockholder.

The senior subordinated notes are redeemable, at the Companys option, in whole
or in part, at any time after February 15, 2003, at the following redemption
prices, plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date: (i) 2003  104.063%; (ii) 2004  102.708%;
(iii) 2005  101.354%;
and (iv) 2006 and thereafter  100%. Upon the occurrence of a change in control,
the Company will be required to make an offer to repurchase all or any part of
each holders senior subordinated notes at a repurchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the repurchase date. There can be no assurance that
the Company will have the financial resources necessary to purchase the senior
subordinated notes upon a change in control or that such repurchase will then
be permitted under the Amended Credit Facility.

JUNIOR SUBORDINATED NOTES

As discussed in Note 7, the Companys settlement of its outstanding class
action securities litigation became effective on September 20, 2002. As part of
this settlement, the Company has issued $4,000 face value in aggregate
principal amount of the Companys new junior subordinated convertible PIK notes
(Junior Notes). These notes bear interest at 8% and mature on January 2,
2007. The Junior Notes bear interest from September 20, 2002 and are payable
at the Companys option either in cash or paid-in-kind through the issuance of
additional notes semiannually on June 30 and December 31 of each year. If the
Company does not pay interest in cash as of an interest payment date, the
Company will automatically be deemed to have paid such interest in-kind and
additional Junior Notes in the amount of such interest payment will
automatically be deemed to be outstanding from such date forward.
Additionally, the Junior Notes have been recorded as of September 20, 2002 (the
effective date) at the then current redemption value of $2,500. The discount
is being accreted to the maturity redemption value, due in January 2007, of
approximately $4,400. The Junior Notes are general unsecured obligations and
are subordinated in right of payment to all current and future senior debt,
including the Companys Amended Credit Facility and the $5,000 BofA Term Loan,
and to the new loan from the Companys principal stockholder and the New Notes
and Old Notes.

The Junior Notes are redeemable for cash at the Companys option at the
following percentages of par plus accrued interest on the par value through the
date of redemption: 2003  72.5%, 2004  73.0%, 2005 
75.625% and 2006  77.5%. The Junior Notes also provide that the holders will receive an
aggregate of 144,000 shares of common stock if the Junior Notes are redeemed in
2003 and an aggregate of 104,000 shares of common stock if the Junior Notes are
redeemed in 2004, 2005 or 2006.

If the Junior Notes have not already been redeemed or repurchased, the Junior
Notes, including those Junior Notes previously issued as paid-in-kind interest
and all accrued but unpaid interest, will automatically convert on January 2,
2007 into an aggregate of 9.3 million shares of common stock. Holders of
Junior Notes will not receive any cash payment representing principal or
accrued and unpaid interest upon conversion; instead, holders will receive a
fixed number of shares of common stock and a cash payment to account for any
fractional shares.

7. COMMITMENTS AND CONTINGENCIES

LITIGATION AND CLAIMS

Several lawsuits had been filed against the Company and certain of its former
officers and directors, and its former auditors, in the United States District
Court for the Southern District of Florida, which had been consolidated into a
single lawsuit. The consolidated complaint, as amended in March 2000,
September 2000 and September 2001, alleged violations of Sections 11 and 15 of
the Securities Act of 1933 (Securities Act) and Sections 10(b) and 20(a) of,
and Rule 10b-5 under, the Securities Exchange Act of 1934 (Exchange Act).
Among other matters, the complaint alleged that the Companys reported
financial results in 1997, 1998 and 1999 were materially misleading and
violated generally accepted accounting principles. The amended consolidated
complaint sought damages and certification of two classes, one consisting of
purchasers of the Companys common stock in the Companys June 1999 public
offering and one consisting of purchasers of the Companys common stock during
the period between April 30, 1997 and April 14, 2000.

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In May 2002, the Company entered into an agreement to settle these claims with
all allegations against the Company and the other defendants being dismissed
without any admission of liability or wrongdoing. Under the settlement
agreement, the Company has paid $11,500 in cash, all of which has been paid by
the Companys directors and officers liability insurance carrier, and has
issued certain securities, as described, in full settlement of the claims. The
securities issued are: (i) 1.25 million shares of the Companys authorized but
unissued common stock, (ii) $4,000 of the Companys new 8% Junior Subordinated
Convertible PIK Notes due 2007 (with terms similar to, but structurally
subordinated to, the New Notes, and structurally subordinated to the Old
Notes), and (iii) five-year warrants to purchase 4.15 million shares of the
Companys common stock at an exercise price of $5.16 per share, which are
exercisable upon grant. The settlement became effective on September 20, 2002.

For the quarter ended March 31, 2002, the Company recorded the initial
liability of $8,000 related to the value of the securities to be issued in this
settlement. For the quarter ended June 30, 2002, the Company marked-to-market
the securities to be issued in this settlement. As a result of this
revaluation, the Company recorded a gain of $1,875 for the quarter ended June
30, 2002. Upon the settlement becoming effective on September 20, 2002, the
Company performed the final revaluation and recorded a gain of $1,715 for the
quarter ended September 30, 2002. The charge recognized in fiscal 2002
relating to this settlement, adjusted for gains that resulted through the
revaluations, totaled $4,410.

In November 2001, the Company was sued by several former employees of its
Oscoda, Michigan heavy airframe maintenance operation, on behalf of themselves
and purportedly on behalf of a class of similarly situated employees, for
alleged violations of the Worker Adjustment and Retraining Notification Act in
connection with the Companys spring 2001 temporary closure of that operation.
The suit, which was filed in the U.S. District Court for the Eastern District
of Michigan, sought back pay (including salary and accrued vacations) and other
benefits for each of the affected employees for a sixty day period after such
employees were terminated. In November 2002, without admitting liability, the
Company entered into a settlement agreement relating to this suit, for which
the fairness of this settlement was approved by the U.S. District Court and the
former employees. As part of the settlement, the Company agreed to pay these
former employees $1,150. As of September 30, 2003 and December 31, 2002, $130
and $1,150, respectively, is included within accrued expenses within the
accompanying condensed consolidated balance sheets. Subsequent to September
30, 2003, this settlement has been fully funded, and as such, without any
admission of liability or wrongdoing, all outstanding claims against the
Company have been dismissed.

During the first quarter of 2000, the U.S. Securities and Exchange Commission
initiated an inquiry into the Companys accounting for certain transactions
occurring prior to 2000. The Company has cooperated with the SEC in its
inquiry.

The Company is also involved in various other lawsuits and contingencies
arising out of its operations in the normal course of business.

In the opinion of management, the ultimate resolution of these claims and
lawsuits will not have a material adverse effect upon the financial condition
or results of operations of the Company.

ENVIRONMENTAL MATTERS

The Company is taking remedial action pursuant to Environmental Protection
Agency and Florida Department of Environmental Protection (FDEP) regulations
at TIMCO-Lake City. Ongoing testing is being performed and new information is
being gathered to continually assess the impact and magnitude of the required
remediation efforts on the
Company. Based upon the most recent cost estimates provided by environmental
consultants, the Company believes that the total remaining testing, remediation
and compliance costs for this facility will be approximately $800. During the
quarter ended September 30, 2003, the Company secured an insurance policy that
will partially mitigate the Companys environmental exposure and will also
provide the financial assurance required by the FDEP. Additionally, the
Company received a revised cost estimate from its environmental consultants.
As a result of the revised cost estimates, the Company reduced its overall
environmental exposure to approximately $800 and has recorded a $400 benefit by
reversing a portion of this environmental accrual. This reduction is reflected
as an offset to operating expenses for the three and nine month periods ended
September 30, 2003. In addition, because of the newly established insurance
coverage, the Company has eliminated the $300 standby letter of credit that was
previously issued in favor of the FDEP.

Testing and evaluation for all known sites on TIMCO-Lake Citys property is
substantially complete and the Company has commenced a remediation program.
The Company is currently monitoring the remediation, which will extend into the
future. Additionally, there are other areas adjacent to TIMCO-Lake Citys facility that
could also require remediation. The Company does not believe that it is
responsible for these areas; however, it may be asserted that the Company and
other parties are jointly and severally liable and are responsible for the
remediation of those properties.

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Accrued expenses in the accompanying September 30, 2003 and December 31, 2002
condensed consolidated balance sheets includes $800 and $1,474, respectively,
related to obligations to remediate the environmental matters described above.
Future information and developments will require the Company to continually
reassess the expected impact of the environmental matters discussed above.
Actual costs to be incurred in future periods may vary from the estimates,
given the inherent uncertainties in evaluating environmental exposures. These
uncertainties include the extent of required remediation based on testing and
evaluation not yet completed and the varying costs and effectiveness of
remediation methods. In the opinion of management, the ultimate resolution of
these environmental exposures will not have a material adverse effect upon the
financial condition or results of operations of the Company.

LEASE COMMITMENTS AND OTHER MATTERS WITH RELATED PARTIES

During October 2002, the Company sold its real estate and fixtures located at
the Companys Aircraft Interior Design, Inc. (AID) operation in Dallas, Texas,
to the Companys principal stockholder. The gross sale price for these assets
was approximately $2,400, which was the estimated fair market value, based on a
third party appraisal, on the sale date. Simultaneous with this sale, the
Company entered into a lease agreement with the principal stockholder for
substantially all of these assets. The term of this lease is ten years.
Annual rental payments are approximately $300 per year, with the Company being
responsible for, among other things, taxes, insurance and utilities. The sale
and resulting leaseback qualify for sale leaseback accounting pursuant to SFAS
No. 98, Accounting for Leases. The Company has deferred the gain on sale of
approximately $1,700 and is amortizing this gain to income over the term of the
lease agreement as an offset to rent expense. Deferred income within the
accompanying September 30, 2003 and December 31, 2002 condensed consolidated
balance sheets includes $1,515 and $1,641, respectively, related to this sale
leaseback transaction.

During December 2002, an entity controlled by the Companys principal
stockholder acquired the operating assets of Aviation Management Systems, Inc.
(AMS) located in Phoenix, Arizona. Additionally, this entity assumed a lease
with the City of Phoenix for facilities previously leased by AMS at Goodyear
Airport. Subsequent to the end of the first quarter, effective April 1, 2003,
the Company entered into an operating sublease agreement with the principal
stockholder for those facilities. The term of the sublease is for
approximately three years with rental payments of $430 annually. Under the
sublease agreement, the Company is also responsible for insurance, taxes and
charges levied by the City of Phoenix under the new lease. The leased
facilities provide approximately 370,000 square feet in which MR&O services are
being provided.

An entity controlled by the Companys principal stockholder purchases aircraft
for resale and lease, and the Company provides aircraft maintenance service
work to that entity. Services provided to that entity are charged at not less
than the rates that would be charged for such services to an unaffiliated third
party. During the first nine months of 2003, the billings relating to the
services that were provided to such entity was $523. In addition, the Company
acquired $900 of aircraft parts inventory from the Companys principal
stockholder. This inventory purchase encompasses the inventory that was
acquired by the Companys principal stockholder in the AMS bankruptcy
proceedings. The Company has agreed to increase the note to the principal
stockholder (see Note 5) reflecting the purchase of this inventory. As of
September 30, 2003, the Company was finalizing the particulars of this
inventory purchase and modified loan obligation. As such, for the quarter
ended September 30, 2003, the Company has reflected this obligation within
accrued expenses in the accompanying condensed consolidated balance sheet.

TAX RETENTION OPERATING LEASE (TROL) FINANCING

In July 2002, the Company entered into an agreement amending its TROL financing
arrangement (the Amended TROL Financing Agreement) initially established in
December 1998 and, as previously amended, scheduled to mature in July 2002.
Under the terms of the Amended TROL Financing Agreement, the maturity date of
the TROL financing was extended until June 30, 2005 and the base monthly rental
under the TROL was increased to the greater of: (i) the amount being received
by the Company under its sublease for the Companys Miramar facility plus,
commencing July 1, 2003, an additional monthly payment by the Company, or (ii)
$210.

The TROL financing arrangement was utilized to develop two facilities: (i) a
corporate headquarters and warehouse facility, which is currently subleased to
Kellstrom Aerospace, LLC, and (ii) a facility to house the Companys Caribe
operations, which was sold in May 2001. Substantially all of the Companys
subsidiaries have guaranteed the Companys obligations under the lease.
Additionally, the Company has an option to acquire the facility at the end of
the lease for an option price as determined in the lease. Lease payments are
currently at a rate of Prime plus 3.25% to 4.0% and the Company is responsible
for all property taxes, insurance and maintenance of the property.

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The TROL financing contains certain financial covenants regarding the Companys
financial performance and certain other covenants, which overall substantially
mirror the covenant requirements under the Amended Credit Agreement, and
provides for the termination of the TROL financing agreement and repayment of
all debt in the event of a material adverse change in the Companys business.
At certain times during fiscal 2002 and during the first quarter of 2003, the
Company was not in compliance with certain of the covenants contained in the
TROL financing agreement. Additionally, as a result of a cross default
provision (that has been subsequently modified to a cross acceleration
provision within the May 14, 2003 amendment to these agreements) between the
TROL financing agreement and the Amended Credit Agreement, for which the
Company was also in violation of covenant requirements during fiscal 2002 and
the first quarter of 2003, the Company was also in default of the TROL
financing agreement. The lessor under the TROL financing agreement and senior
lenders of the Amended Credit Facility, however, waived, and in certain
instances amended, all such events of non-compliance and as of December 31,
2002 and March 31, 2003, such that the Company was in compliance with all
covenant requirements, as amended. As of June 30, 2003 and September 30, 2003,
the Company was in compliance with all financial covenant requirements under
this agreement, as amended.

The Company and substantially all of its subsidiaries have guaranteed the
repayment of the remaining $24,275 principal balance of the TROL financing.
The TROL financing is secured by a lien on the real property and improvements
comprising the facilities and on the fixtures therein.

SETTLEMENT WITH KELLSTROM

In July 2002, the Company closed on the transactions contemplated by the
Post-Closing Resolution Agreement, dated as of June 10, 2002 between the
Company and Kellstrom Industries, Inc. (Kellstrom). The settlement resolved
and settled globally outstanding disputes between the Company and Kellstrom
relating to matters arising out of the Companys December 2000 sale of
substantially all of the assets of its redistribution operation to Kellstrom.
The closing of the settlement resulted in a net cash payment to the Company of
approximately $400. For the quarter ended September 30, 2002, the Company
recorded a gain of $1,600, which has been included within other income, net
($700) and income from discontinued operations ($900) within the accompanying
condensed consolidated financial statements. See the Form 10-K for a full
discussion of the terms of the settlement.

PURCHASE COMMITMENT

On June 30, 2003, the Company entered into a long-term purchase agreement for
various inventory components to be used in the Companys Oscoda, Michigan
engine center. Contingent upon the achievement of guaranteed sales volume to
the Company by the third party supply vendor, the Company has committed to this
vendor to purchase an aggregate of $2,800 of inventory components over an
approximate two-year period. An initial inventory purchase of $500 took place
on June 30, 2003. The residual inventory purchase obligation of $2,300 will
occur in $100 monthly increments. These monthly purchase commitments will
first be reduced by inventory used in the normal course of business that is
currently on consignment from this third party supplier.

For the quarter ended September 30, 2003, the third party supply vendor did not
achieve the guaranteed sales volume levels and thus was in default of this
purchase agreement. The Company is currently considering its options
with respect to this default.

OTHER MATTERS

During the second quarter of fiscal 2003, the Internal Revenue Service (IRS)
completed examinations of the Companys 1996, 1997, 1998 and 1999 federal
income tax returns. The completion of these examinations resulted in the
elimination of a $422 accrual for tax exposure matters and the establishment of
a $288 income tax receivable. The impact of these adjustments was a combined
benefit of $710, which is included within the income tax benefit for the nine
month period ended September 30, 2003 within the accompanying condensed
consolidated statements of operations.

In connection with a previously outstanding term loan, the Company granted one
of its lenders common stock purchase warrants to purchase 12,900 shares of the
Companys common stock exercisable for par value at any time until December 31,
2005. The warrants entitle the holder to require the Company to repurchase the
warrants or common shares issued upon prior exercise of the warrants at $85.00
per share. As of November 14, 2003, the lender has not required the Company to
repurchase any warrants. The Company recorded the value of these warrants as
additional deferred financing costs and accrued expenses and amortized the
deferred financing cost to interest expense over the original term of the loan
(August 2002). If the repurchase right relating to these warrants were to be
exercised in full, the Company would be obligated to pay its lender an aggregate of $1,097.

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The Company has employment agreements with its executive officers and certain
of its key employees. The employment agreements provide that such officers and
key employees may earn bonuses, based upon a sliding percentage scale of their
base salaries, provided the Company achieves certain financial operating
results, as defined. Further, certain of these employment agreements provide
for severance benefits in the event of a change of control.

8. WEIGHTED AVERAGE SHARES

Basic income per share is computed using the weighted-average number of shares
outstanding during the period. Diluted income per share uses the
weighted-average number of shares outstanding during the period plus the
dilutive effect of stock options calculated using the treasury stock method.
Weighted average shares used in the computation of basic and diluted income per
share is as follows:

|                                                                                                                                                  |                               |  |               |             |               |  |             |            |      |  |             |            |  |  |            |             | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- |  | ------------- | ----------- | ------------- |  | ----------- | ---------- | ---- |  | ----------- | ---------- |  |  | ---------- | ----------- | 
|                                                                                                                                                  |                               |  | For the Three |             | For the Nine 
|                                                                                                                                                  |                               |  | Months Ended  |             | Months Ended 
|                                                                                                                                                  |                               |  | September 30, |             | September 30,
|                                                                                                                                                  |                               |  |               |             |              
|                                                                                                                                                  |                               |  | 2003          |             | 2002          |  | 2003        |            | 2002
|                                                                                                                                                  |                               |  |               |             |               |  |             |            |     
|Weighted average common and common
equivalent shares outstanding:                                                                                 |                               |  |               |             |               |  |             |            |      |  |             |            |  |  |            |            
|                                                                                                                                                  | Basic                         |  |               | 31,640,994  |               |  |             | 30,526,864 |      |  |             | 31,640,994 |  |  |            | 24,119,351  | 
|                                                                                                                                                  | Effect of dilutive securities |  |               | 293,136,972 |               |  |             |           |      |  |             |           |  |  |            | 212,530,197 | 
|                                                                                                                                                  |                               |  |               |             |               |  |             |            |      |  |             |            |  |  |            |            
|                                                                                                                                                  | Diluted                       |  |               | 324,777,966 |               |  |             | 30,526,864 |      |  |             | 31,640,994 |  |  |            | 236,649,548 | 
|                                                                                                                                                  |                               |  |               |             |               |  |             |            |      |  |             |            |  |  |            |            
|Common stock equivalents outstanding
which are not included in the
calculation of diluted earnings
per share because their impact
is antidilutive |                               |  | 14,194,781    |             |               |  | 281,330,970 |            |      |  | 300,693,159 |            |  |  | 10,561,793 |            
|                                                                                                                                                  |                               |  |               |             |               |  |             |            |      |  |             |            |  |  |            |            

9. NOTE EXCHANGE AND RIGHTS OFFERING

In February 2002, the Company completed a significant restructuring of its
capital and equity. The restructuring consisted of four parts. The first part
was a reverse split (on a one-share-for-ten-shares basis) of the Companys
outstanding common stock, reducing its outstanding common shares from 15.0
million shares to 1.5 million shares (5% of the restructured entity) and an
increase in the Companys authorized shares from 30.0 million shares to 500.0
million shares. The second part was an offer to
the holders of the Companys Old Notes to exchange their Old Notes for up to
$10,000 in cash, $100,000 of the New Notes, 4.5 million shares of the Companys
common stock (15% of the restructured entity) and five-year warrants to
purchase an additional 3.0 million shares of common stock at an exercise price
of $5.16 per share, which are exercisable upon grant, (collectively, the Note
Exchange). The third part was a rights offering to the existing stockholders
to raise funds to pay the cash portion of the Note Exchange offer and the
expenses of the restructuring, and to provide the Company with working capital
for ongoing business operations. In the rights offering, the Company offered
24.0 million shares of common stock (80% of the restructured entity) to raise
$20,000. In connection with the rights offering, Lacy J. Harber, the Companys
principal stockholder, agreed to purchase unsold allotments. The last part
consisted of the issuance to the pre-restructuring holders of the Companys
common stock of five-year warrants to purchase an additional 3.0 million shares
of common stock at an exercise price of $5.16 per share, which are exercisable
upon grant.

In the rights offering, the Company sold 12.0 million shares of common stock to
the existing stockholders (including Mr. Harber), and Mr. Harber purchased the
balance of the shares (12.0 million shares) pursuant to his obligation to
purchase unsold allotments. In the Note Exchange, the Company exchanged
approximately $149,000 face value of Old Notes (approximately 90% of the Old
Notes) for $5,100 in cash, and all of the New Notes, shares and warrants
described above. The Company used the net proceeds of the rights offering,
approximating $10,000 after payment of the cash proceeds of the Note Exchange,
accrued interest on the Old Notes not tendered, and expenses of the
restructuring, to reduce trade payables and to provide working capital for the
Companys ongoing business operations.

20



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The restructuring was recorded in accordance with SFAS No. 15, Accounting by
Debtors and Creditors for Troubled Debt Restructurings. As a result of the
restructuring, during fiscal 2002 the Company recognized an extraordinary gain
of $27,279, net of $0 tax expense, in the first quarter of 2002. Additionally,
due to the application of SFAS No. 15, the Company will no longer record
interest expense on the New Notes, as the New Notes are carried at their
maximum potential cash redemption value (including interest) through their
maturity. This maximum potential cash redemption value equates to the present
value, through 2006, of the $100,000 notes plus the value of stock to be issued
upon redemption of these notes in 2006. For a description of the terms of the
New Notes, see Note 6.

Also, effective January 1, 2003, the Company has adopted SFAS No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. As a result of adoption, the Company has
reclassified the fiscal 2002 $27,279 gain on debt extinguishment to be included
within continuing operations.

21



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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO TIMCO, WE, OUR AND
US IN THIS QUARTERLY REPORT ON FORM 10-Q INCLUDES TIMCO AVIATION SERVICES,
INC. AND ITS SUBSIDIARIES. THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS OR MAY
CONTAIN FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS REGARDING OUR STRATEGY
AND ANTICIPATED TRENDS IN THE INDUSTRY IN WHICH WE OPERATE. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS AND ARE
SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO OUR
OPERATIONS AND RESULTS OF OPERATIONS, COMPETITIVE FACTORS, SHIFTS IN MARKET
DEMAND, AND OTHER RISKS AND UNCERTAINTIES, INCLUDING, IN ADDITION TO THOSE
DESCRIBED BELOW AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR
ANNUAL REPORT ON FORM 10-K FOR 2002 (THE FORM 10-K), OUR ABILITY TO CONTINUE
TO GENERATE SUFFICIENT WORKING CAPITAL TO MEET OUR OPERATING REQUIREMENTS AND
SERVICE OUR INDEBTEDNESS, OUR MAINTAINING GOOD WORKING RELATIONSHIPS WITH OUR
VENDORS AND CUSTOMERS, COMPETITIVE PRICING FOR OUR PRODUCTS AND SERVICES, OUR
ABILITY TO ACHIEVE GROSS PROFIT MARGINS AT WHICH WE CAN BE PROFITABLE,
INCLUDING MARGINS ON SERVICES WE PERFORM AT A FIXED PRICE BASIS, COMPETITION IN
THE AIRCRAFT MAINTENANCE, REPAIR AND OVERHAUL MARKET AND THE IMPACT ON THAT
MARKET AND THE COMPANY OF THE TERRORIST ATTACKS ON SEPTEMBER 11, 2001, THE
RESULTING WAR ON TERRORISM AND THE IRAQ WAR, THE STATE OF THE DOMESTIC
PASSENGER AIRLINE INDUSTRY AND THE FINANCIAL CONDITION OF OUR AIRLINE
CUSTOMERS, OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL IN OUR
BUSINESSES, UTILIZATION RATES FOR OUR MR&O FACILITIES, OUR ABILITY TO
EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS, OUR ABILITY TO EFFECTIVELY MANAGE
OUR BUSINESS, ECONOMIC FACTORS WHICH AFFECT THE AIRLINE INDUSTRY, GENERALLY
INCLUDING THE AMOUNT OF AIRCRAFT MAINTENANCE OUTSOURCED BY VARIOUS AIRLINES,
AND CHANGES IN GOVERNMENT REGULATIONS. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM RESULTS EXPRESSED OR
IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY US IN THIS QUARTERLY REPORT
ON FORM 10-Q. WE DO NOT UNDERTAKE ANY OBLIGATION TO REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR CIRCUMSTANCES.

The following discussion and analysis should be read in conjunction with the
information set forth under Managements Discussion and Analysis of Financial
Condition and Results of Operations in the Form 10-K.

GENERAL

We are among the leading providers of aviation maintenance, repair and overhaul
(MR&O) services. Based on industry statistics and industry publications, we
are one of the largest independent providers of heavy maintenance services for
aircraft in the world. We sell and provide aircraft maintenance, repair and
overhaul services to commercial passenger airlines, aircraft leasing companies,
government and military units, and air cargo carriers.

We offer MR&O services to our customers through our seven repair stations
licensed by the Federal Aviation Authority (FAA). These services include
maintenance, repair and modification services for aircraft, and repair and
overhaul services on a wide range of aircraft components, flight control
surfaces, aircraft interiors and Pratt & Whitney JT8D engines. In addition, we
also provide modification services for the conversion of passenger aircraft to
freighter configuration, as well as, aircraft engineering services.

Our strategy is to be the vendor of choice to our customers, providing aircraft
maintenance solutions to meet our customers MR&O requirements. The services
that we offer allow our customers to reduce their costs by outsourcing some of
their MR&O functions.

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RESULTS OF OPERATIONS

General

Operating revenues consist primarily of service revenues and sales of materials
consumed while providing services, net of allowances for any reworks,
discounts, or returns. Cost of sales consists primarily of labor, materials,
overhead and freight charges.

Our operating results have fluctuated in the past and may fluctuate
significantly in the future. Many factors affect our operating results,
including:



| |  |  | decisions made regarding sales of our assets to reduce our debt,                                                                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 MR&O 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 volume and timing for 727 cargo conversions and 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 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.                                                                                                                                                                      

Large portions of our operating expenses are relatively fixed. Since we
typically do not obtain long-term commitments from our customers, we must
anticipate the future volume of business based upon the historic patterns of
our customers and upon discussions with our customers as to their future
requirements. Cancellations, reductions or delays by a customer or group of
customers have in the past and may in the future have a material adverse effect
on our business, financial condition and results of operations.

Three Months and Nine Months Ended September 30, 2003 and 2002

Operating revenue for the nine months ended September 30, 2003 increased
$28,032 or 20.1% to $167,706, from $139,674 for the same period in 2002.
Operating revenue for the first three quarters of 2002 included $3,892 in
revenues from the operation of Aerocell, which was sold in July 2002.
Operating revenue for the first three quarters of 2003, however, included
$18,762 in combined revenues from the operations of two facilities (Brice
Manufacturing acquired in October 2002 and Goodyear, Arizona subleased from our
principal stockholder in April 2003) that were not in operation during the
first three quarters of 2002. Without the revenue from these facilities,
comparative 2002 nine-month revenues would have been $135,782 and comparative
2003 nine-month revenues would have been $148,944. Operating revenue for the
three months ended September 30, 2003 increased $30,457 or 90.0% to $64,309,
from $33,852 for the same period in 2002. Comparative 2002 three-month
revenues without the revenue from the operations of Aerocell would have been
$33,358 and comparative 2003 three-month revenues without the revenues from the
operations of Brice and Goodyear would have been $55,932 (we are providing this
information in order to compare the revenues derived from facilities open in
both the third quarter of 2002 and the third quarter of 2003, as well as for
the nine month revenues reflected above, facilities open in both the first
three quarters of 2002 and the first three quarters of 2003).

The increase in revenues for the nine-month period ended September 30, 2003
compared to the nine-month period ended September 30, 2002 is attributed to
additional revenues in our aircraft heavy maintenance operations (described
below), in our engine center operation due to a strategic relationship that was
entered into during the second quarter of 2003 with one of our vendors (see Note 7 of Notes to Condensed

23



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Consolidated Financial Statements),
in our Goodyear, Arizona facility (which serviced its first aircraft in May
2003), and in our Brice operation, which was acquired in October 2002, somewhat
offset by the loss of sales volume from our Aerocell operation which was sold
in July 2002.

The nine-month period and particularly the three-month period ended September
30, 2003 were favorably impacted by a significant influx of air frame heavy
maintenance work to our MR&O operations. Delayed placement of maintenance
service work by several of our significant customers adversely impacted our
results of operations for the first six months of 2003. Many of these
maintenance programs, however, were awarded and commenced during the third
quarter of 2003. The impact on revenues for the third quarter ended September
30, 2003 was an increase for our MR&O facilities, including Goodyear, over the
prior year third quarter of approximately $25,400. This increase within our
MR&O facilities, coupled with the increased revenues for our engine center
operation, resulted in the $30,457 improvement in revenues in the 2003 third
quarter over the prior year third quarter.

While significantly improved over revenues for the three and nine-month periods
ended September 30, 2002, our revenues for the three and nine-month periods
ended September 30, 2003 continued to be unfavorably impacted by numerous
general economic conditions. These include a reduction in market opportunities
due to adverse market conditions, which have caused many of our customers to
delay maintenance on their aircraft or park older aircraft maintained by us due
to rising fuel prices and reduced passenger levels. Our revenue was also
adversely impacted during the first nine months of 2003 by increased price
competition and downward pricing pressures from airline customers. These
factors forced us during fiscal 2002 and the first three quarters of 2003 to
reduce pricing and take fixed priced work at lower rates, which adversely
impacted revenues and gross margins. Finally, instability in the Middle East,
the currently on-going war on terrorism, the war in Iraq, and the outbreak of
the SARS virus in Asia, have reduced airline passenger levels during the first
three quarters of 2003, which has equated to a further delay by some of our
customers of maintenance service.

Gross profit increased to $10,520 for the nine months ended September 30, 2003
compared with a gross profit of $9,937 for the nine months ended September 30,
2002. The gross profit for the three months ended September 30, 2003 was
$5,426, compared to a gross loss of $1,419 for the 2002 third quarter. The
improvement of the gross margin results for the first three quarters of 2003
compared to the first three quarters of 2002 were spurred by the receipt of
long-term repetitive customer maintenance programs (where greater efficiencies
are generally achieved), particularly during the later half of the second
quarter and all of the third quarter of 2003. The first six months of 2002
were also favorably impacted by these long-term repetitive customer maintenance
programs. However, during the last half of 2002 and the first six months of
2003, because we did not have significant nose-to-tail lines during these
periods, we were forced to take a higher proportion of single-visit customers
(which result in a deterioration of gross
margin results due to lower productivity). At the end of the second quarter and throughout the third
quarter of 2003, however, the commencement of nose-to-tail maintenance programs
resulted in a significant improvement to gross margins for both the three and
nine-month periods ended September 30, 2003. The gross margin results for this
nose-to-tail work was adversely impacted in part by training costs associated
with bringing on these programs and general ramp up costs, particularly at our
Goodyear facility. In addition to these maintenance programs, an overall
increase in sales levels, particularly for our engine center operation,
resulted in an improved gross margin. Also, during the third quarter of 2003
we settled various disputes relating to one of our leased facilities. As part
of this settlement, we were partially alleviated from paying disputed utility
charges. These charges, which were fully accrued, resulted in a benefit of
$463. This benefit is reflected as a reduction to cost of sales for the three
and nine-month periods ended September 30, 2003. Finally, as noted below, the
nine-month period ended September 30, 2002 was unfavorably impacted by an
increase in inventory write-downs of $1,600. Gross profit (loss) as a
percentage of revenues were 6.3% and 8.4% for the nine and three-month periods
ended September 30, 2003, respectively, compared to 7.1% and (4.2%) for the
same respective periods in 2002.

Gross profit levels during any particular period are dependent upon the number
and type of aircraft serviced, the contract terms under which services are
performed and the efficiencies that can be obtained in the performance of such
services. Significant changes in any one of these factors could have a
material impact on the amount and percentage of gross profits. Additionally,
gross profit could be impacted in the future by considerations as to the value
of our inventory. While we believe that we have appropriately valued our
inventory at the lower of cost or market value, additional write-downs may be
required in the future, depending on the market for aircraft parts and the
fleet types of the parts in our inventory compared to the types of aircraft for
which we are performing maintenance procedures. Due to the then current market
conditions for our aircraft parts, during the second quarter of 2002, we
increased the write-downs for our inventory by $1,600. No further write-down
was required during the first three quarters of fiscal 2003.

Operating expenses increased $1,361 or 15.5% to $10,138 for the nine months
ended September 30, 2003, compared with $8,777 for the nine months ended
September 30, 2002. Operating expenses for the three months ended September
30, 2003 increased $2,336 to $3,239 compared with $903 for the same period in
2002. Operating expenses as a percentage of revenues were 6.0% and 5.0% for the nine and three-month

24



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periods ended September 30,
2003, respectively, compared to 6.3% and 2.7% for the same respective periods
in 2002. For the most part, reductions in operating expenses achieved through
the sale of Aerocell in July 2002 were offset by operating expenses recognized
in the operation of Brice Manufacturing Company, that was acquired in October
2002, and expenses incurred in the start-up of operations at the Goodyear
facility. In addition, during the third quarter of 2003, we recognized two
significant offsets to operating expenses. As a result of establishing
insurance coverage and revised environmental estimates, we were able to
partially mitigate our exposure to environmental matters within our Lake City
facility. By establishing this insurance coverage and based on the revised
environmental estimates from our environmental consultants, we were able to
reverse a portion of our environmental accrual. This reversal, for $400, is
reflected as a reduction to operating expenses for the three and nine-month
periods ended September 30, 2003. Additionally, during the third quarter of
2003, we resolved a long standing customer dispute. The result of this
resolution was the collection of $925 accounts receivable that were previously
fully reserved. The reversal of this reserve is reflected as a reduction to
operating expenses for the three and nine-month periods ended September 30,
2003.

In addition to the items discussed above, during the second quarter of fiscal
2003, we terminated a lease agreement with a third party for an abandoned
facility in Burnsville, Minnesota. As a result of this lease termination, we
eliminated an accrual previously established for our operating lease
commitment. The reversal of this accrual resulted in a $300 benefit during the
second quarter and is reflected as a reduction to operating expenses for the
nine-month period ended September 30, 2003. Additionally, during the second
quarter of fiscal 2003, we eliminated an environmental reserve that had been
established for property sold in the prior year. As it was determined that we
no longer had any exposure related to possible environmental matters for this
property, we eliminated an accrual previously established for this exposure.
The reversal of this accrual resulted in a $300 benefit during the second
quarter and is reflected as a reduction to operating expenses for the
nine-month period ended September 30, 2003. At the end of the second quarter
we entered into an operating agreement with a third party vendor. As a result
of this agreement and modifications made to an accounts receivable balance due
from this vendor within the operating agreement, we eliminated the need for a
reserve of $300 against this receivable balance. The reversal of this reserve
is reflected as a reduction to operating expenses for the nine-month period
ended September 30, 2003. In addition, during the first quarter of fiscal 2003
we were able to extend a sublease agreement with a third party for a facility
that we currently leased in Opa Locka, Florida. As a result of this sublease
extension, we eliminated an accrual previously established for the shortfall in
the operating lease commitment and the amount of the original sublease income.
The reversal of this accrual resulted in a $300 benefit during the first
quarter and is reflected as a reduction to operating expenses for the
nine-month period ended September 30, 2003. Finally, as a result of a revised
estimate of workers compensation insurance claims, we reduced our accrual for
workers compensation insurance by $400 during the first quarter of 2003. This
reduction is also reflected as an offset to operating expenses for the
nine-month period ended September 30, 2003.

Operating expenses for the third quarter of 2002 were favorably impacted by
reversals of various accruals, aggregating approximately $2,800. Included
within these reversals was an accrual of anticipated 2002 bonuses to executive
employees which were not expected to be paid based on the current operating
results ($1,500), the collection on various customer accounts for which most of
the outstanding balance was fully reserved ($900), and a gain on the settlement
of certain matters relating to the disposition of certain assets ($200).

As a result of these factors, income from operations was $382 for the first
three quarters of 2003, compared to income from operations of $1,160 for the
first three quarters of 2002, and income from operations for the third quarter
of 2003 was $2,187, compared to a loss of $2,322 for the third quarter of 2002.

Interest expense (excluding amortization of deferred financing fees) for the
nine months ended September 30, 2003 decreased by $2,021 or 29.0% to $4,960,
from $6,981 for the nine months ended September 30, 2002. Interest expense
(excluding amortization of deferred financing fees) for the quarter ended
September 30, 2003 increased $424 or 27.1% to $1,987, from $1,563 for the same
period in 2002. The decrease for the nine-month period ended September 30,
2003 as compared to the nine-month period ended September 30, 2002, is
primarily attributable to completion of the Note Exchange and Rights Offering
which eliminated interest expense on $149,000 of notes since the end of
February 2002 (see Note 9 of the Notes to the Condensed Consolidated Financial
Statements for an explanation as to why interest is not recorded on the New
Notes), on average a lower outstanding debt balances as a result of selling
Aerocell and using a substantial portion of the proceeds to reduce our debt,
completion of our senior debt restructuring and slightly lower interest rates
from period to period. The increase for the three-month period ended September
30, 2003 as compared to the three-month period ended September 30, 2002
primarily results from interest paid on our $7,350 related party loan with our
majority stockholder (which was fully funded on July 3, 2003).

25



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Amortization of deferred financing costs was $1,944 and $781 for the nine and
three months ended September 30, 2003, respectively, compared to $4,992 and
$705 for the same periods of 2002. The decrease for the nine-month period
ended September 30, 2003 as compared to the nine-month period ending September
30, 2002 is primarily attributable to the completion of amortization of
deferred financing costs associated with our previous senior credit facility,
which was refinanced in July 2002. Additionally, deferred financing fees
related to the Amended Credit Facility were significantly less then those of
the previous credit facility. Amortization of deferred financing fees incurred
in conjunction with our May 14, 2003 amendment to our Amended Credit Facility
and TROL financing arrangement, in addition to deferred financing fees incurred
in conjunction with the warrant that was extended to our majority stockholder
in conjunction with our new $6,050 term loan partially offset the reduced fees
from our senior debt refinancing and resulted in the slight increase for the
three-month period ended September 30, 2003 as compared to the three-month
period ended September 30, 2002.

During the first quarter of 2002, we recorded a charge of $8,000 related to an
agreement to settle a then-outstanding class action securities lawsuit. For
the period ended June 30, 2002, the securities to be issued in this settlement
were revalued, resulting in a gain during the 2002 second quarter of $1,875.
Upon the settlement becoming effective on September 20, 2002, we performed the
final revaluation and recorded a gain of $1,715 for the quarter ended September
30, 2002. The ultimate charge recognized in fiscal 2002 related to this
settlement, adjusted for gains that resulted through the revaluations, totaled
$4,410. See Note 7 of Notes to Condensed Consolidated Financial Statements.

During the first quarter of 2002, we recognized a $27,279 extraordinary gain
relating to the Note Exchange. On January 1, 2003, we adopted SFAS No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. As a result of adoption of SFAS No. 145,
we have reclassified the $27,279 gain on debt extinguishment to be included
within continuing operations.

Other income  net was $3,088 for the first three quarters of 2003 and $827 for
the third quarter ended September 30, 2003, compared with $2,961 and $1,677 for
the same periods in 2002. Other income  net for the first three quarters of
fiscal 2003 was primarily comprised of rent from the Companys Miramar facility
(approximately $2,063) and a gain on the settlement of outstanding purchase
price adjustments and other obligations and funds held in escrow related to the
sale of Aerocell (approximately $570). See Note 4 of the Notes to the
Condensed Consolidated Financial Statements. Other income  net for the first
three quarters of fiscal 2002 was primarily comprised of rent from the
Companys Miramar facility and the settlement resolving all issues between the
Company and Kellstrom.

As a result of the above factors, our loss before income taxes and discontinued
operations for the nine months ended September 30, 2003 was $3,434, compared to
income before income taxes and discontinued operations of $15,017 for the nine
months ended September 30, 2002. Without the $27,279 gain on debt
extinguishment relating to the Note Exchange (which as a result of adopting
SFAS No. 145 we have reclassified this gain on debt extinguishment to be
included within continuing operations), comparative 2002 nine month loss before
income taxes and discontinued operations would have been $12,262 (we believe
that comparison of our nine month loss before income taxes and discontinued
operations of 2003 to the comparable period of 2002 loss before income taxes and
discontinued operations without the effect of the above-described item provides
a useful measure for investors to compare our period-to-period results of
operations). Our income before income taxes and discontinued operations for
the quarter ended September 30, 2003 was $246, compared to a loss of $1,198 for
the quarter ended September 30, 2002.

During the second quarter of 2003, we recognized a $710 income tax benefit as a
result of the Internal Revenue Service (IRS) completing audits of our 1996,
1997, 1998 and 1999 federal income tax returns. Based on the findings in the
IRS agents report, we eliminated a $422 accrual for tax exposure matters and
established an income tax receivable for $288. Additionally, during the first
quarter of 2003, we recognized an income tax benefit of $174 for the receipt of
miscellaneous state carryback refunds.

We recorded a $3,800 tax benefit during the first quarter of 2002 as a result
of the passage of legislation which permits businesses to carry net operating
losses back to offset taxable income from the previous five years (compared to
two years under prior law). Prior to the passage of this legislation, these
net operating losses were fully reserved as it was determined to be more likely
than not that we would not generate taxable income in the near future and that
we would not have the opportunity to benefit from these net operating losses.

For the reasons set forth above, loss from continuing operations for the nine
months ended September 30, 2003 was $2,550, or $0.08 per basic share and
diluted share, compared to income of $18,817, or $0.78 per basic share and
$0.08 per diluted share, for the nine months ended September 30, 2002. The
income from continuing operations for the three months ended September 30, 2003
was $246 or $0.01 per basic share and $0.00 per diluted share, compared to a
loss of $1,198 or $0.04 per basic share and diluted share for the three months
ended September 30, 2002.

26



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Income from discontinued operations for the first nine-month and three-month
periods ended September 30, 2003 was $3,188 and $99, respectively, or $0.10 and
$0.00, respectively, per basic share and per
diluted share, compared to income of $3,617 and $2,545, or $0.15 and $0.08,
respectively, per basic share and, $0.01 and $0.08, respectively, per diluted
share for the same periods of 2002. Income from discontinued operations for
the 2003 three and nine-month periods includes approximately $2,700 resulting
from the elimination and settlement of contingency exposures and obligations
relating to our redistribution operations and new parts bearings operations,
based on a current evaluation of those exposures. Additionally, income from
discontinued operations for the first three quarters of 2003 and 2002 contains
collections on receivables retained from the sale of our redistribution
operations that had been fully reserved and the sale of residual inventory that
remains from the sale of our redistribution operation and new parts bearings
operation. Also, income from discontinued operations for the three and
nine-month periods ended September 30, 2002, include a portion ($900) of the
gain on the Kellstrom settlement.

LIQUIDITY AND CAPITAL RESOURCES

Developments Concerning the Aviation Industry and Our Operations

The September 11, 2001 terrorist attacks against the United States of America
and the resulting increase in airline insurance costs, additional government
mandated passenger taxes and fees, and increased airport security costs, have
had a severe impact on the aviation industry. These factors, in conjunction
with an overall slowdown in the U.S. economy, a greater then 9% reduction in
passenger levels from fiscal 2001 to fiscal 2002, and the overall instability
in the Middle East (including the currently on-going war on terrorism and the
war in Iraq) have resulted in operating losses for U.S. airline carriers in
excess of $7.7 billion for 2001 and an estimated $9.5 billion for 2002. In
addition to these adverse factors, the first three quarters of 2003 has been
further impacted by the outbreak of the SARS virus in Asia. As a result of
these factors, many commercial passenger airlines and air cargo carriers
reported significant reductions in their capacity and have taken out of service
upwards of 20% of their aircraft. This reduction in capacity has lessened the
aircraft maintenance required by such airlines (and thereby the amount of
maintenance being outsourced to companies like TIMCO). The impact of these
factors has resulted with the filing for bankruptcy protection under Chapter 11
of the United States Bankruptcy Court by several carriers. The most notable
have been the filings for protection from creditors under Chapter 11 by U.S.
Airways on August 11, 2002 and United Airlines on December 9, 2002 (United was
our largest customer during the last two fiscal years). In addition to U.S.
Airways and United Airlines, other carriers, including American Airlines, have
publicly discussed the potential of seeking protection from creditors through a
voluntary bankruptcy filing. As related to us, current exposures to carriers
that are at risk of filing for protection are being continuously evaluated and
monitored, though we have in the past, and may in the future, experience losses
relating to these credit exposures. Additionally, the Company is positioning
itself for potential favorable implications of these Chapter 11 filings and
resurgence of the airlines as it is anticipated that additional maintenance
outsourcing opportunities could result as these airlines look for cost
reduction alternatives to internal labor sources.

We believe that all of the above factors will continue to have a negative
impact on our business in the foreseeable future. In response, we have taken
steps to reduce our costs. These terrorist attacks and related aftermath events
and the overall slowdown in the U.S. economy have also impacted our
competition, with several of our competitors exiting the MR&O business.

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Contractual Payment Obligations and Other Commercial Commitments

Below is a chart setting forth our contractual payment obligations and other
commercial commitments as of September 30, 2003 which have been aggregated in
order to facilitate a basic understanding of our liquidity (in thousands):

|                                   |  |       |         |          |  |           |        |           |  |                        |         |     |  |   |        |  |  |   |        | 
|---------------------------------- |  | ----- | ------- | -------- |  | --------- | ------ | --------- |  | ---------------------- | ------- | --- |  | - | ------ |  |  | - | ------ | 
|                                   |  |       |         |          |  |           |        |           |  | Payments due by period
|Contractual                        |  |       |         |          |  | Less than |        |          
|Obligations                        |  | Total |         | One Year |  | 1-3 years |        | 4-5 years |  | After 5 years         
|                                   |  |       |         |          |  |           |        |           |  |                       
|Revolving Credit Facility          |  | $     | 6,340   |          |  | $         | 6,340  |           |  | $                      |        |     |  | $ |       |  |  | $ |       | 
|Long-Term Debt                     |  |       | 150,848 |          |  |           | 8,500  |           |  |                        | 126,101 | (a) |  |   | 16,247 |  |  |   |       | 
|Capital Leases                     |  |       | 28,046  |          |  |           | 1,497  |           |  |                        | 23,884  |     |  |   | 350    |  |  |   | 2,315  | 
|Operating Leases                   |  |       | 39,833  |          |  |           | 5,653  |           |  |                        | 10,052  |     |  |   | 9,234  |  |  |   | 14,894 | 
|                                   |  |       |         |          |  |           |        |           |  |                        |         |     |  |   |        |  |  |   |        | 
|Total contractual cash
obligations |  | $     | 225,067 |          |  | $         | 21,990 |           |  | $                      | 160,037 |     |  | $ | 25,831 |  |  | $ | 17,209 | 
|                                   |  |       |         |          |  |           |        |           |  |                        |         |     |  |   |        |  |  |   |        | 
|                                  
|                                   |  |       |         |          |  |           |        |           |  | Payments due by period
|Other Commercial                   |  |       |         |          |  | Less than |        |          
|Commitments                        |  | Total |         | One Year |  | 1-3 years |        | 4-5 years |  | After 5 years         
|                                   |  |       |         |          |  |           |        |           |  |                       
|Purchase Commitments               |  | $     | 2,000   |          |  | $         | 1,200  |           |  | $                      | 800     |     |  | $ |       |  |  | $ |       | 
|Letters of Credit                  |  |       | 9,235   |          |  |           | 9,235  |           |  |                        |        |     |  |   |       |  |  |   |       | 
|                                   |  |       |         |          |  |           |        |           |  |                        |         |     |  |   |        |  |  |   |        | 
|Total Other Commercial
Commitments |  | $     | 11,235  |          |  | $         | 10,435 |           |  | $                      | 800     |     |  | $ |       |  |  | $ |       | 
|                                   |  |       |         |          |  |           |        |           |  |                        |         |     |  |   |        |  |  |   |        | 



|(a) |  | Included within this amount is $115,880 of our New Senior
Subordinated Notes and $2,951 of our Junior Subordinated Notes. If not
redeemed or repurchased by the Company prior to the maturity dates of
these obligations, these notes automatically convert to 270.3 million
shares and 9.3 million shares, respectively, of our authorized but
unissued common stock.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are also committed under employment agreements with all of our executive
officers and several of our key employees.

Liquidity

As of September 30, 2003 we had outstanding indebtedness of $185,234, of which
$39,115 was senior indebtedness, including amounts due under the TROL Financing
of $24,275, which is characterized as a capital lease, $5,000 BofA Term Loan,
$3,500 Amended Term Loan, and $6,340 under our Amended Revolving Credit
Facility. In addition, at September 30, 2003 we had $7,350 in secured debt due
to our principal stockholder, $9,235 of letters of credit outstanding under our
senior revolving credit facility, and $8,878 was available for borrowing under
our Amended Revolving Credit Facility. Our senior credit facilities are
secured by a lien on substantially all of our assets. As of November 4, 2003,
we had outstanding $8,500 of senior term loans with financial institutions,
$24,203 under the TROL Financing Agreement, $11,487 under the

28



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##### 



senior revolving
credit facility, $9,155 of outstanding letters of credit, $7,350 in secured debt due to our
principal stockholder, $16,247 of our Old Notes, $100,000 of our New Notes
(recorded in accordance with GAAP on our financial statements at $115,800), and
$2,989 of our Junior Notes. Additionally, as of November 4, 2003 we had $5,071
available for borrowing under our Amended Revolving Credit Facility. Our
ability to make payments of principal and interest on outstanding debt will
depend upon our future operating performance, which will be subject to
economic, financial, competitive and other factors, some of which are beyond
our control. Additionally, the degree to which we are leveraged could have
important consequences to us, including:



| |  |  | our vulnerability to adverse general economic and industry conditions;                                                                                                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to obtain additional financing for future working capital
expenditures, and general corporate or other purposes;                                                           
|
| |  |  | the requirement to obtain consent from our lenders under our senior
credit facilities and the parties under our TROL
financing arrangement in order to obtain new debt financing; and  
|
| |  |  | the dedication of a significant portion of our cash flow from operations
to the payment of principal and interest on
indebtedness, thereby reducing the funds available for operations.

In addition, subject to the limitations set forth in the indenture for the New
Notes, we and our subsidiaries may incur substantial amounts of additional
indebtedness.

Our senior credit facilities and TROL financing arrangement contain certain
financial covenants regarding the Companys financial performance and certain
other covenants, including limitations on the amount of annual capital
expenditures and the incurrence of additional debt. We did not meet certain
financial covenants at December 31, 2002, and thus, were in violation of the
Amended Credit Agreement and TROL financing arrangement. On May 14, 2003, we
obtained waivers of non-compliance with all financial covenants and cured these
covenant violations. We also entered into agreements that reset financial
covenant requirements for the Amended Credit Agreement and TROL financing
arrangement, including the covenants required to be met at March 31, 2003. As
of March 31, 2003, based on the changes agreed to in May 2003, we were in
compliance with all financial covenants under our senior credit facilities and
TROL financing arrangement. As of June 30, 2003 and September 30, 2003, we
were in compliance with the covenant requirements under our Amended Credit
Facility and TROL financing arrangement, as amended. Going forward, debt
classification will remain contingent upon the continued compliance or waiver
of violations of these covenant requirements, of which there can be no
assurance.

We believe that we will meet our working capital requirements during 2003 from
funds available under our revolving credit agreement, from the funds recently
loaned to us by our principal stockholder, and from our operations. We may
also sell assets or our equity securities, or borrow additional funds, to the
extent required and available. While we expect that required financing will be
available to meet our working capital requirements, there can be no assurance
of this fact.

Cash

Net cash used in continuing operating activities during the nine months ended
September 30, 2003 was $7,691, compared to net cash provided by continuing
operating activities of $4,748 for the same period in 2002. Cash used in
operating activities was primarily the result of earnings, adjusted for
non-cash charges, of approximately $2,840 and increases in accounts receivable,
inventories, and other current assets of $11,068, $4,485, and $1,411,
respectively, and reductions in other liabilities of $367, partially offset by increases in
accounts payable of $4,210 and increases in customer deposits of $2,590.
Cash of $1,126 was used in investing activities during the first three
quarters of 2003 for the purchase of fixed assets. Cash provided by financing
activities during the period was $8,758. Net borrowings under our senior
revolving credit facilities of $4,161 and borrowings from related parties of
$6,050 were used for operations, investments in fixed assets, and payment of
bank and refinancing fees, capital leases, and obligations from discontinued
operations.

Note Exchange Offer and Rights Offering

See discussion of the Note Exchange Offer and Rights Offering in Note 9 to the
Notes to Condensed Consolidated Financial Statements.

Related Party Activities

See discussion of our related party loan and other related party activities in
Notes 3, 5, 7, and 9 to the Notes to Condensed Consolidated Financial
Statements.

29



---



##### 



Senior Credit Facilities

See discussion of our senior credit facilities in Note 5 to the Notes to
Condensed Consolidated Financial Statements.

Subordinated Notes

See discussion of our subordinated note obligations in Note 6 to the Notes to
Condensed Consolidated Financial Statements.

TROL Financing

See discussion of our TROL financing in Note 7 to the Notes to Condensed
Consolidated Financial Statements.

CONTINGENCIES

We are involved in various litigation and environmental matters arising in the
ordinary course of business. These are discussed in Note 7 of Notes to
Condensed Consolidated Financial Statements. We maintain insurance coverage
against certain potential claims in amounts that we believe to be adequate.
Although the final outcome of these legal and environmental matters cannot be
determined, based on the facts presently known, it is managements opinion that
the final resolution of these matters will not have a material adverse effect
on our financial position or future results of operations.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Financial Reporting Release No. 60 encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation
of its financial statements. Our consolidated financial statements include a
summary of the significant accounting policies and methods used in the
preparation of our consolidated financial statements.

Revenue Recognition

Revenues from MR&O services are recognized and unbilled receivables are
recorded based upon the percentage of completion method. Unbilled receivables
are billed on the basis of contract terms (generally upon completion of an
aircraft) and deliveries. Revenues related to engine overhaul services are
recognized upon shipment of the overhauled engine. We regularly review our
progress on percentage-of-completion contracts and review the estimated costs
of fulfilling its obligations. If we do not accurately estimate the scope of
the work to be performed or do not manage these contracts properly within the
planned periods of time or satisfy it obligations under the contracts, then
future revenue and margins may be significantly and negatively affected, or
losses on existing contracts may need to be recognized. Any resulting
reductions in revenues, margins or contract losses could be material to our
results of operations.

Inventory Valuation

Inventories, which consist primarily of new, overhauled, serviceable and
repairable aircraft parts, are stated at the lower of cost or market on
primarily a specific identification basis and aircraft parts usage analysis.
Though we believe that we have adequately provided for any such declines in
inventory value, any unanticipated change in technology or customer aircraft
fleet for which our inventory relates could significantly affect the value of
our inventory and thereby adversely affect gross margins and results of
operations. Customer demand, general economic conditions and industry market
factors may also impact the value of our inventory. In instances where bulk
purchases of inventory items are made, cost is determined based upon an
allocation by management of the bulk purchase price to the individual
components. Expenditures required for the recertification of parts are
capitalized as inventory and are expensed as the parts associated with the
recertification are sold.

Accounts Receivable  Allowance for Doubtful Accounts

Substantially all of our accounts receivable are due primarily from airline and
cargo carriers. During 2002 and 2003 to date, there has been significant
change in the aviation industry, including the filing for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Court by certain carriers.
This in turn has affected service providers within the aviation industry and
has resulted in us experiencing higher credit losses. We continuously perform
credit evaluations of our customers, considering numerous inputs including the
customers financial position, past payment history, cash flows, historical
loss experience and economic conditions. While management believes that
adequate allowances for doubtful accounts have been provided in the
consolidated financial statements, it is possible that we could experience
additional unexpected credit losses.

30



---



##### 



Goodwill Valuation

As of January 1, 2002, we have adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
represents a substantial change in how goodwill is accounted for. SFAS No. 142
requires that goodwill no longer be amortized, but that goodwill be tested for
impairment by comparing the reporting units carrying value to its fair value
as of January 1, 2002 and as of an annual assessment date.

In accordance with SFAS No. 142, we have elected July 31st as our annual
impairment assessment date. We completed our initial impairment assessment as
of January 1, 2002 and our annual impairment as of July 31, 2002, and have
concluded that no impairment charge is required at this time. Additionally, we
have completed our annual impairment assessment for the period ended July 31,
2003 and have concluded that no impairment change is required at this time.
Any resulting impairment charges in the future, based on the evaluation
requirements under SFAS No. 142, could be material to the Companys results of
operations.

Long-Lived Assets

Management reviews long-lived assets, which consists of property, plant and
equipment, for impairment whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recovered. Recoverability of
long-lived assets to be held and used is evaluated by a comparison of the
carrying amount of the asset to future net undiscounted cash flows expected to
be generated by the asset group. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized for the
excess of the carrying amount over the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying value or fair value less
cost to sell when we have committed to a disposal plan and have met the other
criteria of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

Use of Estimates

Managements discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including those related to estimated losses on disposal of
discontinued operations, the provision to reduce inventory to the lower of cost
or market value, the estimated profit or loss to be recognized as aircraft
maintenance, design and construction services are performed, the allowances for
doubtful accounts and notes receivable, the realizability of its investment in
affiliates, the recovery of long lived assets and goodwill, medical benefit
accruals, the estimated fair values of facilities under capital leases and
allowances for litigation and environmental costs. Management bases their
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions and conditions.

31



---



##### 



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risk for changes in interest rates. We have no
exposure to foreign currency exchange rates or to commodity price risk. We do
not hold or issue any financial instruments for trading or other speculative
purposes.

Our obligations under our Amended Revolving Credit Facility and our $5,000 BofA
senior term loan bear interest at floating rates and therefore, we are impacted
by changes in prevailing interest rates. However, our $3,500 Amended Term
Loan, our new loan from our principal stockholder, and our New Notes, Old
Notes, and Junior Notes all bear fixed interest rates and therefore are not
subject to the risk of interest rate fluctuations. A 10% change in market
interest rates that affect our financial instruments would impact earnings
during 2003 by approximately $61 before taxes and would change the fair value
of our financial instruments by approximately $12,055.

ITEM 4: CONTROLS AND PROCEDURES



|(a) |  | Our Chief Financial Officer and Chief Executive 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 September 30, 2003 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Following completion of their audit of our financial statements for 2002,
our independent auditors, KPMG LLP, advised our audit committee that
during the course of their audit, they noted two internal control
deficiencies constituting reportable conditions and material weaknesses as
defined in Statement of Auditing Standards No. 60, as follows:                                                                                                                                                                                                                                          



| |  |  | in connection with their audit procedures to test the adequacy of our
accrual at year-end 2002 for anticipated losses on open contracts in
accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts,they determined
that we had not properly analyzed the costs in assessing whether loss
accruals were required on open contracts. While we had adequate
provisions to cover anticipated losses, KPMG LLP concluded that the lack
of a formalized procedure to properly analyze contract costs could lead
to material misstatements of our financial statements; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | KPMG LLP noted that management was not aware of the retrospective
provisions of an expired workers compensation insurance policy until
notified by the underwriter. After investigating the underwriters
claim, we accrued for the retrospective premium adjustment, which is
reflected in our 2002 year-end financial statements.                                                                                                                                                                                                                                                                                        



| |  | With respect to both issues, management has implemented corrective actions to
ensure that appropriate review of these areas takes place to avoid future
potential misstatements.                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2002, we moved our corporate headquarters, completed an extensive
restructuring of our capital and equity, refinanced all of our senior debt
and resolved a number of significant legacy items. We also experienced a
complete turnover of our key management responsible for financial reporting.
Management believes that the weaknesses described above were primarily caused
by the newness to the business of our current financial management team. The
weaknesses reported on by KPMG LLP and described above did not prevent KPMG
LLP from completing their audit of our 2002 financial statements.
|
| |  | In late 2002, our management, with the oversight of our audit committee,
commenced a comprehensive review of our internal control over financial
reporting. That review is currently ongoing, and management expects to take
further actions as required by such continuing review during future periods.
We have made no significant changes in our internal control over financial
reporting during our last fiscal quarter, except as described above, that
have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.                              
|
| |  | A control system, no matter
how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the controls system are
met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been
detected.                                                                                                                                                                                                                         

32



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##### 



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 7 to the Companys Unaudited Condensed Consolidated Financial
Statements included in this filing.

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

No matters were presented to the Companys stockholders during the third
quarter of 2003.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K

(a)  Exhibits



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | 31.1
  Certification of Chief Executive Officer under
Section 302 of the Sarbanes-Oxley Act of 2002
|
| | 31.2   Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
|
| | 32.1   Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
|
| | 32.2   Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K

During the quarter ended September 30, 2003,
the Company furnished a Current Report
on Form 8-K reporting under Item 12 the Companys financial results for the
three and six month periods ended June 30, 2003.

33



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

TIMCO Aviation Services, Inc.

|                         |  |     |  |                                                     
|------------------------ |  | --- |  | ----------------------------------------------------
|                         |  | By: |  | /s/ C. Robert Campbell                              
|                         |  |     |  |                                                     
|                         |  |     |  | Executive Vice
President and Chief Financial Officer
|                         |  |     |  | (Principal Financial Officer)                       
|                         |  |     |  |                                                     
|Dated: November 14, 2003 |  |     |  |                                                     

34



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##### 



Exhibit Index

|        |  |                                                                                             
|------- |  | --------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                             
|Number  |  | Description                                                                                 
|        |  |                                                                                             
|        |  |                                                                                             
|31.1    |  | Certification of Chief Executive Officer under Section 302 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                             
|31.2    |  | Certification of Chief Financial Officer under Section 302 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                             
|32.1    |  | Certification of Chief Executive Officer under Section 906 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                             
|32.2    |  | Certification of Chief Financial Officer under Section 906 of
the Sarbanes-Oxley Act of 2002

35