##### Table of Contents



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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-14275
 EDAC Technologies Corporation
  Wisconsin
    
    39-1515599(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    Identification No.)
 1806 New Britain Avenue, Farmington, CT 06032
 (860) 677-2603
 þ o
  o o þ
 o þ




---



TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONITEM 1 FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1A. RISK FACTORSITEM 6. EXHIBITSSIGNATURESEXHIBIT INDEXCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of CEO and CFO    Table of Contents  
  
  
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash
    
    $
    1,786,930
    
    
    $
    2,468,964Trade accounts receivable, (net
of allowance for doubtful accounts
of $184,000 as of September 30, 2006
and December 31, 2005)
    
    
    5,714,351
    
    
    
    5,587,305Inventories, net
    
    
    7,043,119
    
    
    
    4,296,839Prepaid expenses and other
    
    
    184,151
    
    
    
    81,210Refundable income taxes
    
    
    
    
    
    
    54,984Deferred income taxes
    
    
    677,864
    
    
    
    769,864TOTAL CURRENT ASSETS
    
    
    15,406,415
    
    
    
    13,259,166PROPERTY, PLANT, AND EQUIPMENT
    
    
    30,662,509
    
    
    
    27,829,014less-accumulated depreciation
    
    
    20,114,674
    
    
    
    18,861,15610,547,835
    
    
    
    8,967,858DEFERRED INCOME TAXES
    
    
    1,440,989
    
    
    
    1,440,989OTHER ASSETS
    
    
    93,456
    
    
    
    108,833TOTAL ASSETS
    
    $
    27,488,695
    
    
    $
    23,776,846
  2




---



##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    1,679,018
    
    
    $
    1,404,053Trade accounts payable
    
    
    5,695,222
    
    
    
    2,427,866Accrued employee compensation
and amounts withheld
    
    
    1,408,935
    
    
    
    1,397,897Other accrued expenses
    
    
    308,802
    
    
    
    706,861Customer advances
    
    
    63,337
    
    
    
    284,671TOTAL CURRENT LIABILITIES
    
    
    9,155,314
    
    
    
    6,221,348LONG-TERM DEBT,less current portion
    
    
    7,653,813
    
    
    
    7,791,530OTHER LONG-TERM LIABILITIES
    
    
    965,823
    
    
    
    965,823SHAREHOLDERS EQUITY:Common stock, par value $.0025 per
share; 10,000,000 shares authorized;
issued  4,518,437 on September
30, 2006 and 4,504,270 on
December 31, 2005
    
    
    11,296
    
    
    
    11,261Additional paid-in capital
    
    
    9,490,235
    
    
    
    9,452,525Retained earnings
    
    
    1,894,639
    
    
    
    1,016,78411,396,170
    
    
    
    10,480,570Less: accumulated other
comprehensive loss
    
    
    1,682,425
    
    
    
    1,682,425TOTAL SHAREHOLDERS EQUITY
    
    
    9,713,745
    
    
    
    8,798,145TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    27,488,695
    
    
    $
    23,776,846
  3




---



##### Table of Contents



For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Sales
    
    $
    8,178,356
    
    
    $
    8,687,688
    
    
    $
    27,354,709
    
    
    $
    25,603,200Cost of sales
    
    
    7,071,446
    
    
    
    7,213,060
    
    
    
    22,858,403
    
    
    
    21,245,563Gross profit
    
    
    1,106,910
    
    
    
    1,474,628
    
    
    
    4,496,306
    
    
    
    4,357,637Selling, general and
administrative expenses
    
    
    681,405
    
    
    
    825,480
    
    
    
    2,665,548
    
    
    
    2,398,262Income from operations
    
    
    425,505
    
    
    
    649,148
    
    
    
    1,830,758
    
    
    
    1,959,375Non-operating income
(expense):Interest expense
    
    
    (167,069
    )
    
    
    (156,082
    )
    
    
    (485,544
    )
    
    
    (477,473
    )Gain on debt
forgiveness
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750,000Other income
    
    
    17,619
    
    
    
    2,739
    
    
    
    73,641
    
    
    
    16,385Income before
income taxes
    
    
    276,055
    
    
    
    495,805
    
    
    
    1,418,855
    
    
    
    2,248,287Provision for (benefit
from) income taxes
    
    
    105,000
    
    
    
    106,000
    
    
    
    541,000
    
    
    
    (420,000
    )Net income
    
    $
    171,055
    
    
    $
    389,805
    
    
    $
    877,855
    
    
    $
    2,668,287Income per share data (Note A):Basic
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.19
    
    
    $
    0.60Diluted
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.56
  4




---



##### Table of Contents



For the nine months endedSeptember 30,
    
    
    October 1,2006
    
    
    2005Operating Activities:Net income
    
    $
    877,855
    
    
    $
    2,668,287Adjustments to reconcile net income
to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,514,127
    
    
    
    1,480,973Gain on debt forgiveness
    
    
    
    
    
    
    (750,000
    )Deferred income taxes
    
    
    92,000
    
    
    
    (900,000
    )Gain on sale of property,
plant & equipment
    
    
    (25,540
    )
    
    
    (10,000
    )Stock compensation cost
    
    
    27,587
    
    
    
    Excess tax benefit from
share-based compensation
    
    
    (4,000
    )
    
    
    Changes in working capital items
    
    
    (262,282
    )
    
    
    1,053,827Net cash provided by
operating activities
    
    
    2,219,747
    
    
    
    3,543,087Investing Activities:Additions to property, plant
and equipment
    
    
    (3,101,837
    )
    
    
    (959,235
    )Proceeds from sale of property,
plant and equipment
    
    
    50,400
    
    
    
    10,000Net cash used in investing
activities
    
    
    (3,051,437
    )
    
    
    (949,235
    )Financing Activities:Increase in revolving
line of credit
    
    
    
    
    
    
    (580,555
    )Repayments of long-term debt
    
    
    (1,133,141
    )
    
    
    (865,884
    )Borrowing on long-term debt
    
    
    1,270,389
    
    
    
    Deferred loan fees
    
    
    (1,750
    )
    
    
    (69,167
    )Proceeds from exercise of options
and issuance of common stock
    
    
    10,158
    
    
    
    38,156Excess tax benefit from
share-based compensation
    
    
    4,000
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    149,656
    
    
    
    (1,477,450
    )(Decrease)/increase in cash
    
    
    (682,034
    )
    
    
    1,116,402Cash at beginning of period
    
    
    2,468,964
    
    
    
    549,198Cash at end of period
    
    $
    1,786,930
    
    
    $
    1,665,600Supplemental Disclosure of
Cash Flow Information:Interest paid
    
    $
    485,544
    
    
    $
    502,816Income taxes paid net of refunds
    
    
    446,025
    
    
    
    91,138Non-Cash Transaction:Capital lease obligation and
equipment financing
    
    
    
    
    
    
    812,736
  5




---



##### Table of Contents



NOTE A  BASIS OF PRESENTATION
   September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    1,952,683
    
    
    $
    998,300Work-in-progress
    
    
    4,241,015
    
    
    
    2,880,942Finished goods
    
    
    1,529,537
    
    
    
    1,098,3397,723,235
    
    
    
    4,977,581Reserve for excess
and obsolete
    
    
    (680,116
    )
    
    
    (680,742
    )Inventories, net
    
    $
    7,043,119
    
    
    $
    4,296,839
  For the three months ended
    
    For the nine months endedSeptember 30,
    
    October 1,
    
    September 30,
    
    October 1,2006
    
    2005
    
    2006
    
    2005Basic:Average common
shares outstanding
    
    
    4,518,437
    
    
    
    4,503,920
    
    
    
    4,513,354
    
    
    
    4,481,923Diluted:Dilutive effect of
stock options
    
    
    266,020
    
    
    
    318,367
    
    
    
    277,851
    
    
    
    291,083Average common
shares diluted
    
    
    4,784,457
    
    
    
    4,822,287
    
    
    
    4,791,205
    
    
    
    4,773,006Options excluded
since anti-dilutive
    
    
    92,000
    
    
    
    32,000
    
    
    
    92,000
    
    
    
    32,000
 6




---



##### Table of Contents



7




---



##### Table of Contents



NOTE B  STOCK BASED COMPENSATION
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2006Selling, general and administrative:Share-based compensation expense before tax
    
    $
    9,186
    
    
    $
    27,587Income tax benefit
    
    
    3,491
    
    
    
    10,482Net share-based compensation expense
    
    $
    5,695
    
    
    $
    17,105
 8




---



##### Table of Contents



Three and NineMonths EndedSeptember 30, 2006Expected option term (1)
    
    6 yearsExpected volatility factor (2)
    
    
    37
    %Risk-free interest rate (3)
    
    
    4.3
    %Expected annual dividend yield
    
    
    0
    %
 
 (1)
    
    The option term was determined using the simplified method for
estimating expected option life, which qualify as plain-vanilla
options.(2)
    
    The stock volatility for each grant is measured using the weighted
average of historical monthly price changes of the Companys common
stock over the most recent period equal to the expected option life of
the grant, adjusted for activity which is not expected to occur in the
future.(3)
    
    The risk-free interest rate for periods equal to the expected term of
the share option is based on the U.S. Treasury yield curve in effect
at the time of grant.  9




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedOctober1, 2005
    
    October 1, 2005Net income as reported:
    
    $
    389,805
    
    
    $
    2,668,287Stock-based compensation expense included in reported net income under APB 25
    
    
    
    
    
    
    Stock-based compensation expense that would have been included in reported
net income if the fair value provisions of FAS 123 had been applied to all
awards
    
    
    6,592
    
    
    
    26,369Pro forma net income
    
    $
    383,213
    
    
    $
    2,641,918Income per share:Basic  as reported
    
    $
    0.09
    
    
    $
    0.60  pro forma
    
    
    0.09
    
    
    
    0.59Diluted  as reported
    
    $
    0.08
    
    
    $
    0.56 pro forma
    
    
    0.08
    
    
    
    0.55
  Three Months Ended
    
    Nine Months EndedOctober 1, 2005
    
    October 1, 2005Expected option term
    
    3 years
    
    3 yearsExpected volatility factor
    
    
    54.7
    %
    
    
    87.7
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    3.9
    %Expected annual dividend yield
    
    
    0
    %
    
    
    0
    %
 Stock Incentive Plans
   10




---



##### Table of Contents



Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    489,700
    
    
    $
    1.62Options granted
    
    
    5,000
    
    
    
    3.92Options exercised
    
    
    (2,500
    )
    
    
    1.29Options canceled
    
    
    
    
    
    
    Outstanding at April 1, 2006
    
    
    492,200
    
    
    
    1.65Options granted
    
    
    
    
    
    
    Options exercised
    
    
    (11,667
    )
    
    
    0.59Options canceled
    
    
    
    
    
    
    Outstanding at July 1, 2006
    
    
    480,533
    
    
    
    1.67Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options canceled
    
    
    (833
    )
    
    
    1.10Outstanding at September 30, 2006
    
    
    479,700
    
    
    $
    1.67
  Options Outstanding
    
    
    Vested OptionsWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Shares
    
    
    Contract
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.51$1.00
    
    
    230,200
    
    
    
    5.12
    
    
    $
    0.70
    
    
    
    230,200
    
    
    $
    0.70$1.01$2.00
    
    
    102,500
    
    
    
    5.06
    
    
    
    1.34
    
    
    
    90,833
    
    
    
    1.32$2.01$5.91
    
    
    147,000
    
    
    
    4.30
    
    
    
    3.42
    
    
    
    102,000
    
    
    
    3.48$0.51$5.91
    
    
    479,700
    
    
    
    4.86
    
    
    $
    1.67
    
    
    
    423,033
    
    
    $
    1.50
   11




---



##### Table of Contents



Non-Vested OptionsWeightedNumber of
    
    
    AverageShares
    
    
    Fair ValueNon-vested at December 31, 2005
    
    
    58,333
    
    
    $
    1.36Granted
    
    
    5,000
    
    
    
    1.68Vested
    
    
    (833
    )
    
    
    0.42Forfeited
    
    
    
    
    
    
    Non-vested at April 1, 2006
    
    
    62,500
    
    
    
    1.40Granted
    
    
    
    
    
    
    Vested
    
    
    (5,000
    )
    
    
    1.68Forfeited
    
    
    
    
    
    
    Non-vested at July 1, 2006
    
    
    57,500
    
    
    
    1.37Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (833
    )
    
    
    1.10Non-vested at September 30, 2006
    
    
    56,667
    
    
    $
    1.39
   NOTE C  FINANCING ARRANGEMENTS
  September 30,
    
    
    December 31,2006
    
    
    2005Term loans payable to TD Banknorth N.A.(1)
    
    $
    5,243,282
    
    
    $
    4,843,765Mortgage loan payable to TD Banknorth N.A.
    
    
    1,550,023
    
    
    
    1,584,876Mortgage loan payable to bank (2)
    
    
    1,735,653
    
    
    
    1,783,642Equipment notes payable
    
    
    11,425
    
    
    
    16,099Capital lease obligations
    
    
    792,448
    
    
    
    967,2019,332,831
    
    
    
    9,195,583Less  current portion of long-term debt
    
    
    1,679,018
    
    
    
    1,404,053$
    7,653,813
    
    
    $
    7,791,530
 
 (1)
    
    On March 30, 2006, the Company borrowed $818,877 under its equipment line of credit
with TD Banknorth N.A. to finance the purchase price of previously acquired equipment. On
April 6, 2006, the Company converted the borrowing into a term note which 12




---



##### Table of Contents



is payable in 60
payments of $16,338 including interest at 7.21%.On July 11, 2006, the Company borrowed $451,512 under its equipment line of credit with
TD Banknorth N.A. to finance the purchase price of previously acquired equipment. On
August 22, 2006, the Company converted the borrowing into a term note which is payable in
60 payments of $9,054 including interest at 7.42%.(2)
    
    The mortgage provides that the payment will be adjusted by the bank every 5 years
commencing on March 1, 2006 to reflect interest at the Five year Federal Home Loan Bank
Classic Credit Rate plus 2.75%. On March 1, 2006, the interest rate was adjusted by the
bank to 7.625%.  NOTE D  DEFINED BENEFIT PENSION PLAN
  For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Components of net periodic benefit cost:Interest cost
    
    $
    85
    
    
    $
    89
    
    
    $
    255
    
    
    $
    267Expected return on plan assets
    
    
    (81
    )
    
    
    (74
    )
    
    
    (243
    )
    
    
    (222
    )Amortization of actuarial loss
    
    
    28
    
    
    
    35
    
    
    
    84
    
    
    
    105Net periodic pension expense
    
    $
    32
    
    
    $
    50
    
    
    $
    96
    
    
    $
    150
  13




---



##### Table of Contents



NOTE E  INCOME TAXES
  For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Current provision
    
    $
    87
    
    
    $
    106
    
    
    $
    449
    
    
    $
    480Deferred provision (benefit)
    
    
    18
    
    
    
    
    
    
    
    92
    
    
    
    (900
    )Total provision (benefit)
    
    $
    105
    
    
    $
    106
    
    
    $
    541
    
    
    
    ($420
    )
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Sales.
  For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Aerospace customers
    
    $
    4,716
    
    
    $
    3,597
    
    
    $
    16,734
    
    
    $
    11,026Non-aerospace customers
    
    
    3,462
    
    
    
    5,091
    
    
    
    10,621
    
    
    
    14,577$
    8,178
    
    
    $
    8,688
    
    
    $
    27,355
    
    
    $
    25,603
  14




---



##### Table of Contents



For the Three Months EndedSep. 30,
    
    
    Oct. 1,Product Line
    
    2006
    
    
    2005
    
    
    ChangeApex Machine Tool
    
    $
    3,565
    
    
    $
    5,480
    
    
    $
    (1,915
    )Precision Aerospace
    
    
    3,617
    
    
    
    2,255
    
    
    
    1,362Gros-Ite Spindles
    
    
    996
    
    
    
    953
    
    
    
    43Total
    
    $
    8,178
    
    
    $
    8,688
    
    
    $
    (510
    )
 For the Nine Months EndedSep. 30,
    
    
    Oct. 1,Product Line
    
    2006
    
    
    2005
    
    
    ChangeApex Machine Tool
    
    $
    13,132
    
    
    $
    15,936
    
    
    $
    (2,804
    )Precision Aerospace
    
    
    10,941
    
    
    
    6,659
    
    
    
    4,282Gros-Ite Spindles
    
    
    3,282
    
    
    
    3,008
    
    
    
    274Total
    
    $
    27,355
    
    
    $
    25,603
    
    
    $
    1,752
   15




---



##### Table of Contents



nd rd
   Cost of Sales.
 Selling, General & Administrative Expenses.
 st nd
 Nine monthsendedSept. 30,2006Plant reconditioning & moving
    
    $
    115Professional fees
    
    
    112Bonuses
    
    
    115$
    342
 16




---



##### Table of Contents



Interest Expense.
 Income Taxes.
 Liquidity and Capital Resources.
      17




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
     18




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   19




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
  Change in internal controls
  
  
 ITEM 1A. RISK FACTORS
  
  3.1*
    
    EDACs Amended and Restated Articles of Incorporation3.2*
    
    EDACs Amended and Restated By-laws31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
 20




---



##### Table of Contents



31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.
 
 *
    
    Incorporated by reference 21




---



##### Table of Contents



EDAC TECHNOLOGIES CORPORATIONNovember 1, 2006
    By /s/Glenn L. PurpleGlenn L. Purple, Chief FinancialOfficer and duly authorized officer 22




---



##### Table of Contents



NUMBER
    
    DESCRIPTION3.1
    
    EDACs Amended and Restated Articles of Incorporation (1)3.2
    
    EDACs Amended and Restated By-laws (2)31.1*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.
 (1)
    
    Exhibit incorporated by reference to the Companys registration
statement on Form S-1 dated August 6, 1985, commission file
No. 2-99491, Amendment No.1.(2)
    
    Exhibit incorporated by reference to the Companys Report
on Form 8-K dated February 19, 2002.
 
 *
    
    Filed herewith. 23