##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 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.
  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)
  þ o
 o þ
 o þ
 :




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##### 



TIMCO AVIATION SERVICES, INC.
 INDEX
 PagePart I. Financial InformationItem 1.
    
    FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets at September 30, 2005 and December
31, 2004 (unaudited)
    
    
    3-4Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 2005 and 2004 (unaudited)
    
    
    5-6Condensed Consolidated Statements of Stockholders Deficit for the nine
months ended September 30, 2005 (unaudited)
    
    
    7Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004 (unaudited)
    
    
    8-9Notes to Condensed Consolidated Financial Statements
    
    
    10Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    24Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    37Item 4.
    
    CONTROLS AND PROCEDURES
    
    
    37Part II. Other InformationItem 1.
    
    LEGAL PROCEEDINGS
    
    
    38Item 2.
    
    CHANGES IN SECURITIES AND USE OF
PROCEEDS
    
    
    38Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    38Item 4.
    
    SUBMISSION OF MATTERS TO VOTE OF
SECURITY HOLDERS
    
    
    38Item 5.
    
    OTHER INFORMATION
    
    
    38Item 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
    
    
    38
 2




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    393
    
    
    $
    293Marketable securities
    
    
    1,432
    
    
    
    Accounts receivable, net of allowances of $5,360 at
September 30, 2005 and $5,190 at December 31, 2004
    
    
    48,715
    
    
    
    49,721Inventories
    
    
    31,216
    
    
    
    22,244Other current assets
    
    
    8,223
    
    
    
    4,553Total current assets
    
    
    89,979
    
    
    
    76,811Fixed assets:Fixed assets at cost
    
    
    82,639
    
    
    
    79,293Less accumulated depreciation
    
    
    52,698
    
    
    
    48,756Fixed assets, net
    
    
    29,941
    
    
    
    30,537Goodwill, net
    
    
    26,124
    
    
    
    26,124Deferred financing costs, net
    
    
    3,299
    
    
    
    3,263Other
    
    
    1,172
    
    
    
    633Total assets
    
    $
    150,515
    
    
    $
    137,368LIABILITIES & STOCKHOLDERS DEFICITCurrent Liabilities:Accounts payable
    
    $
    22,410
    
    
    $
    18,000Customer deposits
    
    
    19,867
    
    
    
    9,254Accrued expenses
    
    
    17,251
    
    
    
    19,667Revolving loan
    
    
    7,520
    
    
    
    11,692Current maturities of notes payable to financial
institutions
    
    
    1,416
    
    
    
    1,164Current maturities of capital lease obligations
    
    
    1,012
    
    
    
    1,327Accrued interest
    
    
    851
    
    
    
    1,812Total current liabilities
    
    
    70,327
    
    
    
    62,916Senior subordinated convertible notes, net:New notes due 2006
    
    
    61,437
    
    
    
    115,800Old notes due 2008
    
    
    16,247
    
    
    
    16,247Notes payable to financial institutions, net of
current portion
    
    
    21,602
    
    
    
    12,945Term loan with a related party
    
    
    18,321
    
    
    
    14,412Capital lease obligations, net of current portion
    
    
    3,228
    
    
    
    3,593Junior subordinated convertible notes due 2007, net
    
    
    947
    
    
    
    3,514Deferred income
    
    
    
    
    
    
    1,305Other long-term liabilities
    
    
    180
    
    
    
    1,488Total long-term liabilities
    
    
    121,962
    
    
    
    169,304
 3




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##### 



September 30,
    
    
    December 31,2005
    
    
    2004Commitments 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, 256,559,172 and 31,640,615 shares
issued and outstanding at September 30, 2005 and
December 31, 2004, respectively
    
    
    257
    
    
    
    32Additional paid-in capital
    
    
    239,099
    
    
    
    182,088Accumulated other comprehensive loss, net of tax
    
    
    (341
    )
    
    
    Accumulated deficit
    
    
    (280,789
    )
    
    
    (276,972
    )Total stockholders deficit
    
    
    (41,774
    )
    
    
    (94,852
    )Total liabilities and stockholders deficit
    
    $
    150,515
    
    
    $
    137,368
  4




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three MonthsEnded September 30,2005
    
    
    2004Revenues, net
    
    $
    78,192
    
    
    $
    74,152Cost of sales
    
    
    77,594
    
    
    
    67,030Gross profit
    
    
    598
    
    
    
    7,122Operating expenses
    
    
    5,973
    
    
    
    5,164Gain on sale of fixed assets
    
    
    (1,178
    )
    
    
    (Loss) income from operations
    
    
    (4,197
    )
    
    
    1,958Interest expense
    
    
    2,579
    
    
    
    2,093Other income  net
    
    
    (388
    )
    
    
    (303
    )(Loss) income before income taxes and discontinued
operations
    
    
    (6,388
    )
    
    
    168Income tax benefit (provision)
    
    
    
    
    
    
    (Loss) income from continuing operations before discontinued
operations
    
    
    (6,388
    )
    
    
    168Income from discontinued operations, net of income taxes
    
    
    42
    
    
    
    93Net (loss) income
    
    $
    (6,346
    )
    
    $
    261Basic (loss) income per share:(Loss) income from continuing operations
    
    $
    (0.02
    )
    
    $
    0.01Income from discontinued operations
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.02
    )
    
    $
    0.01Diluted (loss) income per share:(Loss) income from continuing operations
    
    $
    (0.02
    )
    
    $
    Income from discontinued operations
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.02
    )
    
    $
    Weighted average shares outstanding:Basic
    
    
    256,559,172
    
    
    
    31,640,615Diluted
    
    
    256,559,172
    
    
    
    324,773,881
  5




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Nine MonthsEnded September 30,2005
    
    
    2004Revenues, net
    
    $
    249,989
    
    
    $
    235,654Cost of sales
    
    
    232,435
    
    
    
    215,433Gross profit
    
    
    17,554
    
    
    
    20,221Operating expenses
    
    
    18,310
    
    
    
    15,987Gain on sale of fixed assets
    
    
    (1,178
    )
    
    
    Income from operations
    
    
    422
    
    
    
    4,234Interest expense
    
    
    6,860
    
    
    
    6,047Gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    Charge for early conversion of notes
    
    
    400
    
    
    
    Other income  net
    
    
    (740
    )
    
    
    (736
    )Loss before income taxes and discontinued operations
    
    
    (4,325
    )
    
    
    (1,077
    )Income tax benefit
    
    
    368
    
    
    
    Loss from continuing operations before discontinued
operations
    
    
    (3,957
    )
    
    
    (1,077
    )Income from discontinued operations, net of income taxes
    
    
    140
    
    
    
    1,207Net (loss) income
    
    $
    (3,817
    )
    
    $
    130Basic and diluted (loss) income per share:Loss from continuing operations
    
    $
    (0.02
    )
    
    $
    (0.03
    )Income from discontinued operations
    
    
    
    
    
    
    0.03Net (loss) income
    
    $
    (0.02
    )
    
    $
    Weighted average shares outstanding:Basic and diluted
    
    
    191,472,959
    
    
    
    31,640,615
  6




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 Common Stock
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalPaid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    DeficitBalance as of
December 31, 2004
    
    
    31,640,615
    
    
    $
    32
    
    
    $
    182,088
    
    
    $
    
    
    
    $
    (276,972
    )
    
    $
    (94,852
    )Conversion of New Senior
Notes
    
    
    126,883,592
    
    
    
    127
    
    
    
    54,236
    
    
    
    
    
    
    
    
    
    
    
    54,363Conversion of Junior
Notes
    
    
    7,009,078
    
    
    
    7
    
    
    
    2,635
    
    
    
    
    
    
    
    
    
    
    
    2,642Inducement for early
conversion of Notes
    
    
    20,083,667
    
    
    
    20
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    160Partial exercise of the
LJH Warrant
    
    
    70,942,220
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71Net unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (341
    )
    
    
    
    
    
    
    (341
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,817
    )
    
    
    (3,817
    )Balance as of
September 30, 2005
    
    
    256,559,172
    
    
    $
    257
    
    
    $
    239,099
    
    
    $
    (341
    )
    
    $
    (280,789
    )
    
    $
    (41,774
    )
  7




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the NineMonths EndedSeptember 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (3,817
    )
    
    $
    130Adjustments to reconcile net (loss) income to cash
provided by(used in) operating activities:Income from discontinued operations
    
    
    (140
    )
    
    
    (1,207
    )Non-cash gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    Paid-in-kind interest note obligations
    
    
    2,452
    
    
    
    1,734Non-cash inducement charge for conversion of notes
    
    
    160
    
    
    
    Write-off of deferred financing fees
    
    
    
    
    
    
    145Depreciation and amortization
    
    
    4,031
    
    
    
    3,958Amortization of deferred financing costs
    
    
    1,059
    
    
    
    856Recovery of doubtful accounts
    
    
    (5
    )
    
    
    (405
    )Change in working capital:Accounts receivable
    
    
    1,011
    
    
    
    (8,956
    )Inventories
    
    
    (8,972
    )
    
    
    492Other assets
    
    
    (4,211
    )
    
    
    (506
    )Accounts payable
    
    
    4,410
    
    
    
    (3,993
    )Customer deposits
    
    
    10,613
    
    
    
    1,931Other liabilities
    
    
    (4,331
    )
    
    
    498Net cash provided by (used in) operating activities
    
    
    487
    
    
    
    (5,323
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assets
    
    
    (3,435
    )
    
    
    (2,180
    )Proceeds from sale of fixed assets, net of transaction
expenses
    
    
    
    
    
    
    24,861Net cash (used in) provided by investing activities
    
    
    (3,435
    )
    
    
    22,681CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under senior debt facilities
    
    
    265,605
    
    
    
    245,675Payments under senior debt facilities
    
    
    (269,777
    )
    
    
    (249,516
    )Proceeds of term loan with financial institutions, net
    
    
    9,656
    
    
    
    5,900Payments of deferred financing costs
    
    
    (1,095
    )
    
    
    (2,989
    )Payments on term loan with financial institution
    
    
    (872
    )
    
    
    Payments on capital leases
    
    
    (680
    )
    
    
    (24,762
    )Partial exercise of LJH Warrant
    
    
    71
    
    
    
    Proceeds of term
loan with related party
    
    
    
    
    
    
    6,162Net cash provided by (used in) financing activities
    
    
    2,908
    
    
    
    (19,530
    )Net cash provided by discontinued operations
    
    
    140
    
    
    
    812Net increase (decrease) in cash and cash equivalents
    
    
    100
    
    
    
    (1,360
    )Cash and cash equivalents, beginning of period
    
    
    293
    
    
    
    1,603Cash and cash equivalents, end of period
    
    $
    393
    
    
    $
    243SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    (3,180
    )
    
    $
    (3,615
    )Income taxes refunded
    
    $
    368
    
    
    $
    242
 8




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
 
 For the NineMonths EndedSeptember 30,2005
    
    
    2004SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:Common stock issued in connection with
conversion of New Senior Notes
    
    $
    54,363
    
    
    $
    Common stock issued in connection with
conversion of Junior Notes
    
    $
    2,642
    
    
    $
    Available for sale investment equity change
    
    $
    (341
    )
    
    $
    Acquisition of property through capital lease
    
    $
    
    
    
    $
    2,224
  9




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##### 



TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     DESCRIPTION OF BUSINESS
     10




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##### 



BASIS OF PRESENTATION
   LIQUIDITY
    11
           For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2005
    
    2004
    
    2005
    
    2004Net (loss) income  as reported
    
    $
    (6,346
    )
    
    $
    261
    
    
    $
    (3,817
    )
    
    $
    130Additional expense
    
    
    (19
    )
    
    
    (22
    )
    
    
    (58
    )
    
    
    (230
    )Net (loss) income  pro forma
    
    $
    (6,365
    )
    
    $
    239
    
    
    $
    (3,875
    )
    
    $
    (100
    )Net (loss) income per share, basic  as reported
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    Net (loss) income per share, diluted  as reported
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net (loss) income per share, basic  pro forma
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    (0.02
    )
    
    
    Net (loss) income per share, diluted  pro forma
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    
    September 30,
    
    
    December 31,2005
    
    
    2004Finished goods
    
    $
    16,474
    
    
    $
    14,274Work in progress
    
    
    13,115
    
    
    
    6,455Raw materials
    
    
    1,627
    
    
    
    1,515$
    31,216
    
    
    $
    22,244
 12




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##### 



September 30,
    
    
    December 31,2005
    
    
    2004Original basis
    
    $
    8,542
    
    
    $
    7,447Accumulated amortization
    
    
    (5,243
    )
    
    
    (4,184
    )$
    3,299
    
    
    $
    3,263
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net (loss) income
    
    $
    (6,346
    )
    
    $
    261
    
    
    $
    (3,817
    )
    
    $
    130Unrealized loss on
marketable
securities, net of
tax
    
    
    (55
    )
    
    
    
    
    
    
    (341
    )
    
    
    Comprehensive
(loss) income, net
of tax
    
    $
    (6,401
    )
    
    $
    261
    
    
    $
    (4,158
    )
    
    $
    130
     13




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##### 



14




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##### 



OFFERING AND CONSENT SOLICITATION  January 2005 Tender Offer
   15




---



##### 



OFFERING AND CONSENT SOLICITATION  August 2005 Tender Offer
   8% SENIOR SUBORDINATED PIK NOTES DUE 2006
   16




---



##### 



8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
   8% JUNIOR SUBORDINATED PIK NOTES DUE 2007
     17




---



##### 



ENVIRONMENTAL MATTERS
    LEASE COMMITMENTS WITH RELATED PARTIES
    18




---



##### 



LITIGATION AND CLAIMS
  OTHER MATTERS
         19




---



##### 



For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average common and common
equivalent shares outstanding:Basic
    
    
    256,559,172
    
    
    
    31,640,615
    
    
    
    191,472,959
    
    
    
    31,640,615Effect of dilutive securitiesConvertible debt
    
    
    
    
    
    
    279,595,558
    
    
    
    
    
    
    
    Stock warrants and options
    
    
    
    
    
    
    13,537,708
    
    
    
    
    
    
    
    Diluted
    
    
    256,559,172
    
    
    
    324,773,881
    
    
    
    191,472,959
    
    
    
    31,640,615Common stock equivalents outstanding
which are not included in the
calculation of diluted earnings
per share because their impact
is antidilutive
    
    
    223,372,441
    
    
    
    15,421,031
    
    
    
    223,320,736
    
    
    
    308,533,727
       20




---



##### 




    
    The Company has granted rights to stockholders who own shares, as of a October 19, 2005
(record date), the right to purchase additional shares of the Companys post-reverse
split common stock for a subscription price of $4.80 per share ($0.12 per pre-reverse split
share). For every 40 pre-reverse split shares (one post-reverse split share) of common
stock held on the record date, stockholders have been granted 1.50 subscription rights.
    
    The Company will allow its principal stockholder to use amounts due to him under the LJH
Term Loan (including interest previously paid in kind and accrued but unpaid cash and PIK
interest to the closing date of the rights offering) as consideration (on a
dollar-for-dollar basis) to exercise rights that he has received to purchase shares of
common stock in the rights offering. The Companys principal stockholder has agreed to use
the balance of the LJH Term Loan to the full extent of amounts due as of the closing date
of the rights offering.
    
    Based on his current ownership, the Companys principal stockholder will have the right
to purchase 7,744 post-reverse split shares in the rights offering for a total purchase
price of $37,170. The related party term loan had a balance due (including interest
previously paid in kind and accrued but unpaid cash and PIK interest) as of October 31,
2005 of $18,872. As such, if the rights offering had closed on October 31, 2005, the
Company would have issued to its principal stockholder 3,932 post-reverse split shares of
common stock based on his use of the LJH Term Loan to pay the purchase price for such
 shares. Further, the Companys principal stockholder would have the right at that date, but
not the obligation, to purchase up to an additional 3,812 post-reverse split shares of
common stock in the rights offering for an aggregate cash purchase price of $18,298.
    
    If the Companys principal stockholder is the only participant in the rights offering
and if the level of his participation is only to the extent of using the LJH Term Loan as
full payment to purchase shares, and no other stockholders exercise their right to purchase
 shares in the rights offering, the Companys principal stockholder will own approximately
57% of the Companys outstanding common stock.
    
    In addition to the rights offered to the Companys stockholders under a basic
subscription privilege, the Company also granted its stockholders an oversubscription
privilege. The oversubscription privilege entitled stockholders to purchase additional
 shares of the Companys common stock, to the extent available, at the same $4.80 per share
subscription price. The Company will satisfy the oversubscription privilege only if other
stockholders do not elect to purchase all of the shares offered under their basic
subscription privilege. If the oversubscription requests exceed shares available, the
Company will allocate the available shares pro rata among those who oversubscribed based on
the number of shares each subscriber for additional shares has purchased under the basic
subscription privilege.
 21




---



##### 




    
    In addition to the basic and oversubscription privileges that the Company is offering,
it will have the right to sell shares not otherwise purchased in the rights offering to one
or more brokerage firms that will sell such shares to investors in the public market. The
Company does not currently have any arrangements in place with brokerage firms to sell
these shares.
    
    If stockholders purchase all of the shares available for purchase in the rights
offering, the Company will have 29,976 post-reverse split shares outstanding after the
completion of the rights offering and will have raised gross proceeds of approximately
$67,460 (excluding the amount of the LJH Note). There can be no assurance that any shares
(other than shares issued to the Companys principal stockholder based on the use of the
LJH Note to purchase shares) will be purchased in the rights offering.
    
    The Company plans to effect, simultaneously with the closing of the rights offering, a
reverse split of its common stock on a one-new-share-for-40-old-shares basis. In
conjunction with the reverse split, the Company will amend its certificate of incorporation
to reduce its authorized common stock, $0.001 par value, from 500,000 (on a pre-reverse
split basis) to 100,000 (on a post-reverse split basis) shares.
  22




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##### 



September 30, 2005(1)
    
    
    
    
    
    
    (2)
    
    
    
    
    
    
    (3)Actual
    
    
    Adjustments
    
    
    Pro Forma
    
    
    Adjustments
    
    
    Pro FormaUnaudited
    
    
    Unaudited
    
    
    Unaudited
    
    
    Unaudited
    
    
    UnauditedRevolving loan
    
    $
    7,520
    
    
    $
    
    
    
    $
    7,520
    
    
    $
    
    
    
    $
    7,520Notes payable to
financial institutions
    
    
    23,018
    
    
    
    
    
    
    
    23,018
    
    
    
    
    
    
    
    23,018Capital lease obligation
    
    
    4,240
    
    
    
    
    
    
    
    4,240
    
    
    
    
    
    
    
    4,240Related party term loan
    
    
    18,321
    
    
    
    
    
    
    
    18,321
    
    
    
    (18,321
    )(C)
    
    
    Old senior subordinated
notes due 2008
    
    
    16,247
    
    
    
    
    
    
    
    16,247
    
    
    
    
    
    
    
    16,247New senior subordinated
convertible PIK notes due
2006
    
    
    61,437
    
    
    
    (60,216
    )(A)
    
    
    1,221
    
    
    
    
    
    
    
    1,221Junior subordinated
convertible PIK notes due
2007
    
    
    947
    
    
    
    (312
    )(A)
    
    
    635
    
    
    
    
    
    
    
    635Total debt
    
    $
    131,730
    
    
    $
    (60,528
    )
    
    $
    71,202
    
    
    $
    (18,321
    )
    
    $
    52,881Stockholders equity
(deficit):Preferred
stock, $0.01 par value,
1,000 shares authorized,
none outstanding, 15
shares designated series
A junior participating
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Common Stock, $0.001 par
value, 500,000 shares
authorized, 256,559
shares issued and
outstanding on September
30, 2005, 479,619 shares
issued and outstanding
pro forma, and 636,883
shares issued and
outstanding pro forma
    
    
    257
    
    
    
    223
    (B)
    
    
    480
    
    
    
    157
    (C)
    
    
    637Additional paid in capital
    
    
    239,099
    
    
    
    60,366
    (B)
    
    
    299,465
    
    
    
    18,164
    (C)
    
    
    317,629Accumulated other
comprehensive loss, net
of tax
    
    
    (341
    )
    
    
    
    
    
    
    (341
    )
    
    
    
    
    
    
    (341
    )Accumulated deficit
    
    
    (280,789
    )
    
    
    (155
    )(B)
    
    
    (280,944
    )
    
    
    (736
    ) (C)
    
    
    (281,680
    )Total stockholders
(deficit) equity
    
    $
    (41,774
    )
    
    $
    60,434
    
    
    $
    18,660
    
    
    $
    17,585
    
    
    $
    36,245Total capitalization
    
    $
    89,956
    
    
    $
    (94
    )
    
    $
    89,862
    
    
    $
    (736
    )
    
    $
    89,126
 
 (A)
    
    Represents the results of the August 2005 tender offer, which closed on
October 12, 2005.(B)
    
    Reflects: (i) the issuance of 162,500 shares to the holders of the New
Senior Notes and Junior Notes upon the tendering of such Notes; and (ii) the
issuance of 60,560 shares to the Companys principal stockholder upon the
partial exercise of the LJH Warrant. After the closure of the August 2005
tender offer and the partial exercise of the LJH Warrant, the Company has
479,619 shares of common stock outstanding.(C)
    
    Represents the use of the LJH Note to purchase shares in the rights
offering in the manner described above (including a charge that will be
recognized during the fourth quarter for the write-off of unamortized deferred
financing costs). After the closure of the August 2005 tender offer described
above and upon the use of the LJH Note to purchase shares in the rights
offering, the Company will have 636,883 shares of common stock outstanding. 23




---



##### 



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   GENERAL
 www.timco.aero.
    24




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##### 



RESULTS OF OPERATIONS
 General
   
    
    the timing of repair orders and payments from large customers,
    
    the state of the economy generally, the state of the airline industry generally, and
the financial condition of our airline customers specifically,
    
    competition from other third-party MRO service providers,
    
    the number of airline customers seeking repair services at any time,
    
    the impact of fixed pricing on gross margins and our ability to accurately project our
costs in a dynamic environment,
    
    our ability to fully utilize our hangar space dedicated to maintenance and repair
services,
    
    the impact during future periods on airline use of out-of-production aircraft (such as
727, DC 8, DC 9 and DC 10) and JT8D engines as a result of increased fuel costs and other
factors,
    
    our ability to retain the services of our executive officers
    
    our ability to attract and retain a sufficient number of mechanics to perform the
maintenance, repair and overhaul services requested by our customers, and
    
    the timeliness of customer aircraft arriving for scheduled maintenance.
  Three and Nine Months Ended September 30, 2005 and 2004
    25




---



##### 



26




---



##### 



27




---



##### 



28




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
 Developments Concerning the Aviation Industry and Our Operations
    29




---



##### 



Contractual Payment Obligation and Other Commercial Commitments
  Contractual
    
    
    
    
    
    Less than
    
    
    Payments due by periodObligations
    
    Total
    
    
    One Year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsRevolving
Credit
Facility
    
    $
    7,520
    
    
    $
    7,520
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term
Debt
    
    
    119,969
    
    
    
    1,416
    
    
    
    118,553
    *
    
    
    
    
    
    
    Capital
Leases
    
    
    4,240
    
    
    
    1,012
    
    
    
    285
    
    
    
    336
    
    
    
    2,607Operating
Leases
    
    
    22,701
    
    
    
    3,975
    
    
    
    7,674
    
    
    
    3,644
    
    
    
    7,408Total
contractual
cash
obligations
    
    $
    154,430
    
    
    $
    13,923
    
    
    $
    126,512
    
    
    $
    3,980
    
    
    $
    10,015
 OtherCommercial
    
    
    
    
    
    Less than
    
    
    Payments due by periodCommitments
    
    Total
    
    
    One Year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsLetters of
Credit +
    
    
    11,434
    
    
    
    11,434
    
    
    
    
    
    
    
    
    
    
    
    Total Other
Commercial
Commitments
    
    $
    11,434
    
    
    $
    11,434
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 *
    
    Included within this amount is $61,437 of our New Senior Subordinated Notes and $947 of our
Junior Subordinated Notes. As a result of our August 2005 tender offer, which closed on October
12, 2005, we currently have $1,221 of our New Senior Subordinated Notes and $635 of our Junior
Subordinated Notes outstanding. If not redeemed or repurchased by the Company prior to the
maturity dates of these obligations, these remaining notes ($1,856 in aggregate) automatically
convert to 2,849 and 1,550 shares, respectively, of our authorized but unissued common stock.+
    
    Outstanding letters of credit primarily relate to security for our obligation to make payments on
an operating lease requiring future aggregate payments of approximately $8,200. This amount is
removed from the operating lease and total contractual cash obligations line because it is included
within the letters of credit.  Liquidity
  30




---



##### 



-
    
    our vulnerability to adverse general economic and industry conditions;-
    
    our ability to obtain additional financing for future working capital expenditures, general
corporate or other purposes, particularly where our current lenders have a lien on all of our assets;-
    
    the requirement that we obtain the consent from our lenders if we wish to borrow additional
amounts; 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.
   31




---



##### 



Source and Use of Cash
  Senior Credit Facilities
  Subordinated Notes
      32




---



##### 



Rights Offering
  
    
    We have granted rights to stockholders owning our shares, as of a October 19, 2005
(record date), the right to purchase additional shares of our post-reverse split common
stock for a subscription price of $4.80 per share ($0.12 per pre-reverse split share). For
every 40 pre-reverse split shares (one post-reverse split share) of common stock held on
the record date, stockholders have been granted 1.50 subscription rights. If, for example,
a stockholder owned 400 shares of pre-reverse split common stock on the record date, the
stockholder would own 10 post-reverse split shares after the reverse split (see below) and
would have the right to purchase an additional 15 post-reverse split shares of our common
stock for $4.80 per share.
    
    We will allow our principal stockholder the use of amounts due to him under the LJH Term
Loan (including interest previously paid in kind and accrued but unpaid cash and PIK
interest to the closing date of the rights offering) as consideration (on a
dollar-for-dollar basis) to exercise rights that he has received to purchase shares of
common stock in the rights offering. Our principal stockholder has agreed to use the
balance of the LJH Term Loan to the full extent of amounts due as of the closing date of
the rights offering.
    
    Based on his current ownership, our principal stockholder will have the right to
purchase 7,744 post-reverse split shares in the rights offering for a total purchase price
of $37,170. The related party term loan had a balance due (including interest previously
paid in kind and accrued but unpaid cash and PIK interest) as of October 31, 2005 of
$18,872. As such, if the rights offering had closed on October 31, 2005, we would have
issued to our principal stockholder 3,932 post-reverse split shares of common stock based
on his use of the LJH Term Loan to pay the purchase price for such shares. Further, our
principal stockholder would have the right at that date, but not the obligation, to
purchase up to an additional 3,812 post-reverse split shares of common stock in the rights
offering for an aggregate cash purchase price of $18,298.
    
    If our principal stockholder is the only participant in the rights offering and if the
level of his participation is only to the extent of using the LJH Term Loan as full payment
to purchase shares, and no other stockholders exercise their right to purchase shares in
the rights offering, our principal stockholder will own approximately 57% of our
outstanding common stock.
    
    In addition to the rights offered to our stockholders under a basic subscription
privilege, we also granted our stockholders an oversubscription privilege. The
oversubscription privilege entitled stockholders to purchase additional shares of our
common stock, to the extent available, at the same $4.80 per share subscription price. We
will satisfy the oversubscription privilege only if other stockholders do not elect to
purchase all of the shares offered under their basic subscription privilege. If the
oversubscription requests exceed shares available, we will allocate the available shares
pro rata among those who oversubscribed based on the number of shares each subscriber for
additional shares has purchased under the basic subscription privilege.
    
    In addition to the basic and oversubscription privileges that we are offering, we will
have the right to sell shares not otherwise purchased in the rights offering to one or more
brokerage firms that will sell such shares to investors in the public market. We do not
currently have any arrangements in place with brokerage firms to sell these shares.
 33




---



##### 




    
    If stockholders purchase all of the shares available for purchase in the rights
offering, we will have 29,976 post-reverse split shares outstanding after the completion of
the rights offering and will have raised gross proceeds of approximately $67,460 (excluding
the amount of the LJH Note). There can be no assurance that any shares (other than shares
issued to our principal stockholder based on the use of the LJH Note to purchase shares)
will be purchased in the rights offering.
    
    We plan to effect, simultaneously with the closing of the rights offering, a reverse
split of our common stock on a one-new-share-for-40-old-shares basis. In conjunction with
the reverse split, we will amend our certificate of incorporation to reduce our authorized
common stock, $0.001 par value, from 500,000 (on a pre-reverse split basis) to 100,000 (on
a post-reverse split basis) shares.
  34




---



##### 



September 30, 2005(1)
    
    
    
    
    
    
    (2)
    
    
    
    
    
    
    (3)Actual
    
    
    Adjustments
    
    
    Pro Forma
    
    
    Adjustments
    
    
    Pro FormaUnaudited
    
    
    Unaudited
    
    
    Unaudited
    
    
    Unaudited
    
    
    UnauditedRevolving loan
    
    $
    7,520
    
    
    $
    
    
    
    $
    7,520
    
    
    $
    
    
    
    $
    7,520Notes payable to financial
institutions
    
    
    23,018
    
    
    
    
    
    
    
    23,018
    
    
    
    
    
    
    
    23,018Capital lease obligation
    
    
    4,240
    
    
    
    
    
    
    
    4,240
    
    
    
    
    
    
    
    4,240Related party term loan
    
    
    18,321
    
    
    
    
    
    
    
    18,321
    
    
    
    (18,321
    )(C)
    
    
    Old senior subordinated notes
due 2008
    
    
    16,247
    
    
    
    
    
    
    
    16,247
    
    
    
    
    
    
    
    16,247New senior subordinated
convertible PIK notes due 2006
    
    
    61,437
    
    
    
    (60,216
    )(A)
    
    
    1,221
    
    
    
    
    
    
    
    1,221Junior subordinated
convertible PIK notes due 2007
    
    
    947
    
    
    
    (312
    )(A)
    
    
    635
    
    
    
    
    
    
    
    635Total debt
    
    $
    131,730
    
    
    $
    (60,528
    )
    
    $
    71,202
    
    
    $
    (18,321
    )
    
    $
    52,881Stockholders equity (deficit):Preferred stock, $0.01 par
value, 1,000 shares
authorized, none outstanding,
15 shares designated series A
junior participating
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Common Stock, $0.001 par
value, 500,000 shares
authorized, 256,559 shares
issued and outstanding on
September 30, 2005, 479,619
shares issued and outstanding
pro forma, and 636,883 shares
issued and outstanding pro
forma
    
    
    257
    
    
    
    223
    (B)
    
    
    480
    
    
    
    157
    (C)
    
    
    637Additional paid in capital
    
    
    239,099
    
    
    
    60,366
    (B)
    
    
    299,465
    
    
    
    18,164
    (C)
    
    
    318,629Accumulated other
comprehensive loss, net of tax
    
    
    (341
    )
    
    
    
    
    
    
    (341
    )
    
    
    
    
    
    
    (341
    )Accumulated deficit
    
    
    (280,789
    )
    
    
    (155
    )(B)
    
    
    (280,944
    )
    
    
    (736
    ) (C)
    
    
    (281,680
    )Total stockholders (deficit)
equity
    
    $
    (41,774
    )
    
    $
    60,434
    
    
    $
    18,660
    
    
    $
    17,585
    
    
    $
    36,245Total capitalization
    
    $
    89,956
    
    
    $
    (94
    )
    
    $
    89,862
    
    
    $
    (736
    )
    
    $
    89,126
 
 (A)
    
    Represents the results of the August 2005 tender offer, which
closed on October 12, 2005.(B)
    
    Reflects: (i) the issuance of 162,500 shares to the holders of the New
Senior Notes and Junior Notes upon the tendering of
such Notes; and (ii) the issuance of 60,560 shares to our principal
stockholder upon the partial exercise of the LJH Warrant. After the closure
of the August 2005 tender offer and the partial exercise of the LJH Warrant, we
have 479,619 shares of common stock outstanding.(C)
    
    Represents the use of the LJH Note to purchase shares in the rights
offering in the manner described above (including a charge
that will be recognized during the fourth quarter for the write-off of
unamortized deferred financing costs). After the closure of the August 2005
tender offer described above and upon the use of the LJH Note to purchase
shares in the rights offering, we will have 636,883 shares of common stock
outstanding. 35




---



##### 



CONTINGENCIES
  CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
   36




---



##### 



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   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, 2005 our disclosure controls and procedures were effective in
timely alerting them to material information relating to our company (including our consolidated
subsidiaries) required to be included in our reports filed or submitted by us under the Exchange
Act.As of September 30, 2005, we have carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on such evaluation, our principal executive officer and principal financial
officer concluded that the Companys disclosure controls and procedures are effective.(b)
    
    There have been no significant changes in our internal controls or in other factors that
could significantly affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this quarterly report on Form 10-Q.
 37




---



##### 



PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 2. CHANGES IN SECURITIES
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  ITEM 5. OTHER INFORMATION
  ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K
  10.1
    
    First Amendment to lease, dated September 1, 2005, between LJH, Ltd. and Aircraft
Interior Design, Inc.31.1
    
    Certification of CEO and CFO under Section 302 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002
    38




---



##### 



SIGNATURES
  TIMCO Aviation Services, Inc.
 By
    
    : /s/ Roy T. Rimmer, Jr.Chief Executive Officer(Principal Executive Officer)
  39




---



##### 



ExhibitNumber
    
    Description10.1
    
    First Amendment to lease, dated September 1, 2005, between LJH, Ltd. and Aircraft
Interior Design, Inc.31.1
    
    Certification of CEO and CFO under Section 302 the Sarbanes-Oxley Act of 200231.2
    
    Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002
 40