Air Industries Group (AIRI) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Air Industries Group's third-quarter financial results conference call. My name is Grace and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's conference, Mr. Jordan Darrow. Please proceed, sir.

Thank you, operator. Good morning. I'm Jordan Darrow of Darrow Associates and I welcome you to Air Industries Group's third-quarter 2007 financial results conference call.

For those who have not had a chance to review the earnings release, it is posted and available online.

On the call from Air Industries Group are Peter Rettaliata, President and Chief Executive Officer, and Louis Giusto, Vice Chairman and Chief Financial Officer. Management will review the financial results and other recent developments in their formal remarks. The formal portion of the presentation will be followed by a question and answer session.

Before we proceed with formal remarks, please be advised that statements made during this presentation that are not historical facts are forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements may include but are not limited to revenue and earnings projections, statements of business plans and objectives, product development and time to market issues, and capital structure and other financial matters. Forward-looking statements may differ from actuality and relying on them is subject to risk. Factors causing forward-looking statements in this presentation to differ from results are discussed in the Company's Form 10-K and 10-Q filings with the Securities and Exchange Commission. The Company is not necessarily obligated to update forward-looking statements whether as a result of new information, future events, or otherwise.

Now, I will turn the call over to Peter Rettaliata.

Thank you, Jordan. Good morning to all of you and thank you for participating in our third-quarter financial results conference call. Today, we recorded our financial results for the fiscal third quarter ended September 30, 2007.

My goal on this call is to provide you with an overview of our financial results and take a look at some of our third-quarter accomplishments. Equally as important, I want to share with you our prospects and strategies for our future growth. Following my remarks, Lou will provide a detailed discussion of our financial results. Afterward, we will provide you with an opportunity to ask questions.

First of all, I am very pleased to report record financial performance for Air Industries Group across the board. Let me highlight some of our achievements -- number one, record quarterly revenue, which marked the Company's highest level of quarterly net sales in its history; number two, record gross profit; number three, record gross profit margin; number four, record operating profit; number five, record EBITDA; and six, record net income, which has reversed our net loss from the first half of 2007.

We continue to see an acceleration of growth trends in all of our businesses, and I see those trends continuing.

I have two notes. Number one, in the third quarter, we finished slightly ahead of our internal profit forecast. Number two, I expect that we will achieve another record in sales performance for the fourth quarter. We are on track to meet all our previously stated financial guidance for that period.

Our story continues to get better. We have seen improved financial performance in the third quarter and our 18-month outlook for Air Industries Machining Corporation, AIM, our platform company, is stronger than ever. After the end of the third quarter and as previously announced, AIM received a $15 million contract from Sikorsky Aircraft. This award is in the form of a long-term general purchase order agreement spanning five years for Blackhawk parts. Its significance, over and above its size, is that it marks the continued confidence Sikorsky places in AIM as a long-term partner. This award is over and above a $%50 million long-term general purchase agreement that was announced in March of 2007 as well as other announcements made subsequently. These orders combine to bring the total value of all contracts with Sikorsky announced this year to over $75 million. This is a significant development in a time when many contracts are moving away from the traditional contracting format.

Although we value our strong relationship with Sikorsky, We have an ongoing initiative to expand our customer base for both AIM and our other Air Industries Group companies. You should know that, in addition to Sikorsky, AIM received new orders from an expanding list of domestic and international customers. As a result, our firm orders and backlog were at record levels at the end of the third quarter. This provides a record business base for the next 18 months and beyond for a strong foundation of the growth. AIM alone has an 18-month firm backlog of over $50 million.

Both Sigma Metals and Welding Metallurgy, who do not traditionally carry large long-term backlogs, are starting to experience elevated monthly sales with Welding Metallurgy pursuing some important long-term contracts for the first time.

Currently, the health of our industry is robust. In my opinion and as forecast by nearly all aerospace analysts, the aerospace industry is in the early stages of a powerful growth trend. The world continues to be a dangerous place. There is bi-partisan support and consensus that the current levels of defense spending will continue. Additionally, there is an increasing appetite for American defense product worldwide and the export business is booming. The continuously increasing share of American defense contractors' revenues are coming from export products. Simply put, American weapons work and there is a vast technology gap with everyone else.

Defense, however, is only one component of our outlook. Air Industries Group is building a stronger base on the commercial side. As economies around the globe are expanding, so is commercial passenger traffic and the demand for new fuel-efficient and green passenger and cargo aircraft. Oddly enough, even the U.S. Air Force is moving to biofuels. The United States is the world's leading export of commercial aircraft and the opportunity is bigger than ever for Air Industries. Our growing engineering and design capabilities, coupled with our manufacturing platform, makes us an important provider of structural, life safety, light controls and landing gear components and assemblies. These trends underscore the investment theses for Air Industries Group and it is magnified by our plans to play and increasingly and progressive role in the supply chain for our customers.

Our business is all about customer alignment and proving the benefits our customers need to achieve from subcontracting. In view of these trends, we have been investing in our infrastructure and targeted acquisitions to enhance our access to these opportunities. As you know, we reported losses in the first two quarters of the year as we invested in our business. The third-quarter results occurred specifically because of those investments. I believe the third quarter represented somewhat of an inflection point. It will be marked as the period in which our long-term strategies began to take meaningful form.

In the third quarter, we completed our third acquisition, Welding Metallurgy. This added a key welding tube-bending and fabrication component to our vertically integrated corporate build-out. I believe that we will build assemblies in the corporation in the future that will be supported with parts from both AIM and Welding Met.

You may recall, in the second quarter, we added Sigma Metals to provide a materials distribution component. Sigma provides many strategic benefits, including a hedge against inflation for critical procured materials. You may remember and you may know that Air Industries supplies a lot of raw material as a big portion of its cost of sales. Having Sigma in the family helps us do a much better job in procuring those raw materials at a competitive rate.

Our growth strategy in the near and intermediate time frame are focused on diversification of revenues, targeted acquisitions and internally generated growth initiatives. During the third quarter, milestones were realized on all fronts. Among internal growth initiatives, we count the aforementioned Sikorksy contract and the continuing strengthening of that relationship as a major achievement.

We also cemented a relationship with Groupe Latecoere. This international customer is contracting with us make parts that are assembled into cargo doors that they provide for the new Boeing 777 freighter. In the future, we hope to supply fully-assembled door mechanisms to Latecoere for the 777 and the 787 program. Latecoere makes all the doors for the glamorous 787 aircraft. As recently as yesterday, we had some strong partnership discussions in this regard.

On another initiative, during the third quarter, AIM delivered prototype engine mounts as part of a team with Northrop Grumman to Pratt & Whitney for the geared turbo fan engine test program. Pratt & Whitney and Air Industries have invested considerable funds in this program because of the promise it holds for the future. The geared turbo fan engine was designed to reduce fuel consumption by 12% and to abate both CO2 emissions and noise pollution substantially. These improvements are critical when you consider that airlines are now spending approximately 60% of their cost of sales on fuel. Airlines are under incredible pressure from the consuming public to be green and responsible corporate citizens. These engines are aimed at the high quantity aircraft such as the Boeing 737 replacement and the A-320, as well as the new Bombardier Air and Mitsubishi regional jets. Pratt & Whitney has bet the ranch on this program and like Boeing's investment on the 787, it looks like they were smart. I'm sure GE will follow but they are way far behind.

Our work on the Pratt & Whitney engine mount program and on a recent small landing gear design and build proposal has reinforced our need to develop a comprehensive engineering design capability. We are now building that capability and locating it on our corporate infrastructure as a shared resource for all of our companies within our corporate group. We have learned that our customers are interested in placing long-term contracts with manufacturers who can also design the product they build. This capability increases the opportunities that are available to us. More importantly, it reduces the competition and provides access to the more profitable after-market segment. I hope that all of the engine mounts for the geared turbo fan engine, as they are installed and customized in several different aircraft, are designed and built by Air Industries in the future.

A final development that I would like to discuss is our work on the JSF landing gear; that's the Joint Strike Fighter. The Joint Strike Fighter is the replacement or will be the replacement for the X-16 aircraft. During the third quarter, we delivered the prototype landing gear drag struts for the JSF (inaudible) AF aircraft to (inaudible). This was an important accomplishment and represented a substantial investment for the future. The JSF aircraft is planned for service in the U.S. Air Force with the STOVL or Short Take Off and Landing version, the Navy with the CV version, which is the Carrier Version.

The JSF will also be acquired by various foreign nations for their military needs. I believe there are 11 nations participating in the program to date.

The anticipated program size is over 1300 aircraft. To date, AIM has delivered prototype drag strut assemblies for the STOVL version, the CTOL version and the CTOL AF version. We anticipate a contract shortly, I think this month, for the CV version. By mid 2010, these programs will all be heading to production. We believe this program will represent a substantial percentage of AIM's revenues for many years in the future. At approximately $50,000 per ship set, this program brings the total estimated value of these potential contracts to $65 million. This amount does not include after-market support and spares, which could add considerably more to the total program value. Traditionally, that increase would be about doubling the program value, and this could be as much as a $130 million program to us.

In the first half of the year, we've completed the initial investments needed to enable our growth through integrating new acquisitions. These investments include management information systems and the cost of public accounting. Thus, we have enhanced our ability to expand our platforms and in turn realize a great share of the business opportunities from our large prime contractor customer.

With Sigma and Welding Metallurgy online in terms of back-office and administrative functions, we have been focusing on leveraging our capabilities and customer base. As an example, AIM executives introduced Welding Metallurgy to Sikorsky. As a result, I'm pleased to announce that Welding Metallurgy received an expedited quality (inaudible) approval from Sikorsky. These types of approvals can take a long time obtain and in a time when prime contractors are reducing their supplier base, they can almost be impossible to obtain.

Additionally, Welding Met responded to some important invitations for quotations, including the oil tank for the Boeing H-46 helicopter, an antenna tripod assembly for [ITO] Corporation, and torque tubes for Liberty Aircraft, all of which we are hopeful for in the future.

In terms of our intent to make other accretive acquisitions, we have a number of activities underway. We are pursuing several other opportunities for synergistic consolidation. Many have extensive operations on Long Island. That is good for ease of execution and in many cases, these are people that we know and businesses that we have been aware of for some time. In the near-term, we're currently focusing on four of these which would bring the combined Air Industries Group annualized revenues within the $100 million range. In about a week, I hope to announce the signing of a contract to purchase one of these four companies.

We are diversifying our operations to mitigate risks associated with concentrated revenues. Our intent is to increase revenues from all of our target markets. With that said, we plan to go the contributions from the commercial segment to market to enable us to achieve a more evenly distributed customer base.

In 2006, the Company's mix of business was approximately 88% military and 12% commercial, as compared to 74% military and 26% commercial projected for year-end 2007. We expect this trend to continue as we pursue a 50%/50% mix, which is more in line with the industry makeup today. In 2008, we have concentrated production deliveries on the A-380 (inaudible) program, and we will benefit from our relationship with Latecoere on the relationship side, which will bring our mix closer to 60%/40% at the end of 2008.

Reflecting on our execution of diversification strategies, we have a new customer potential with Messier Dowty, the world's largest or second-largest landing gear manufacturer, based in France. Messier Dowty would expand international business and provide us with the exposure to additional aircraft platforms, all in the commercial sector. We have received and responded to a production quote from Messier Dowty for the Boeing 787 program. They are the designers and builders of that landing gear for that very exciting program. We should learn whether we will be awarded this contract later in the quarter.

We are positioning the necessary infrastructure to move up the aerospace supply chain. Our corporate goal has been and continues to be improve gross margins. Obviously, we have made progress in this quarter. Our goal of transitioning from basic contract manufacturing to become an engineered product integrator to the industry titans will further drive margin improvement. We will have a particular focus on flight safety and other critical components, including landing gear, arresting gear, flight controls, now engine mounts and other critical safety and high-performance assemblies. These are the items that are more difficult to make than others, that require the high concentration of talent we have here at Air Industries, and they are also the kinds of parts that wear out and need to be replaced often in the future.

As you know, our leadership change -- the leadership team has changed somewhat and has been expanded to further our growth strategy. We recently added David Buonanno as the seventh member of our Board of Directors. Dave is an industry veteran who, prior to this, was the Vice President for Supply Chain Management with Sikorsky Aircraft. Prior to that, he held similar positions at several units at the General Electric Company. Dave has significant expertise in supply chain management and tactical and strategic leadership issues. He knows the supply base well, and he understands what customers need from subcontractors. He has been very instrumental in advancing our strategic plans for industry consolidation towards an organic growth initiative. I've known Dave for many years, and he truly is an exceptional find for Air Industries.

We have also added Kevin Dembinsky to our senior management team to further advance the Company's growth initiatives. Kevin provides us with significant marketing expertise. As many of you have told me, the Company is at a stage where we need to expand our industry visibility. Kevin is a Northrop Grumman veteran as the Director of Business Development at the Aerostructures division. He will be helpful to fuel our global expansion. His focus will be to expand our commercial aircraft marketing capabilities, to spearhead international sales, and our proprietary design programs. I worked with Kevin for many years at Grumman, and Kevin was considered the consummate marketeer. He is well respected throughout the global aerospace industry and is well known to many people domestically as well.

Our strategies and corporate platform are beginning to deliver their intended results, which include increased market share, economies of scale, improved negotiating positions with our customers, a more fortified alliance with prime contractors and government customers, and a strengthened enterprise with more significant revenues and profits. We can now report definitive results and progress from our execution on these fronts in the third quarter. We believe that ultimately this'll drive substantial returns for stakeholders.

Let me summarize and recap a couple of points. We have a record backlog, an outlook for accelerating revenues, profitability and cash flow in the fourth quarter and beyond. Today, I'm confident that we are on the course to accomplish our long-term goal of becoming a formidable middle-market aerospace and defense player.

We are reiterating our commitment to meeting our fourth-quarter guidance and believe, based on our results in the third quarter, that Air Industries group has reversed its course from being unprofitable in the first half of 2007 to remaining profitable for the foreseeable future. Our target markets remain ripe with opportunity, benefiting from worldwide volume increases in both commercial and military aircraft. Air Industries Group's position strengthens every day, and we're very excited about our prospects.

On a much more personal note, I believe that we're building an aerospace company that we can be proud of and that will have staying power for several generations in the future.

I will now pass the call to Lou Giusto, our Vice Chairman and CFO, to provide a detailed review of the financial results.

Thank you, Pete, and good morning, ladies and gentlemen. In the third quarter ended September 30, 2007, net sales increased by 63% to $12.846 million as compared to net sales of $7.883 million in the third quarter of 2006, an increase of 17% as compared to the $10.990 million in the second quarter of 2007. The increase in net sales from prior period was primarily attributable to an improvement in order releases for parts and related defense components to Sikorsky and other prime contractor customers, as well as the contributions for a complete quarter from Sigma Metals and the contributions from Welding Metallurgy from the date of acquisition in late August 2007.

Gross profit in the third quarter of 2007 was a record $3.591 million, an increase of 136% as compared to gross profit of $1.521 million for the same period in 2006, and an increase of 51% from $2.370 million in the second quarter of 2007.

As a percentage of sales, gross margin in the third quarter of 2007 was 28% as compared to 19.3% for the same period of 2006 and 21.6% in the second quarter of 2007. The increase in profit as a dollar value, as well as gross profit as a percentage of sales for the second quarter of 2007, primarily reflects the higher level of revenue and improvement in manufacturing efficiencies for our Air Industries Machining Corp. subsidiary and the shift in revenue mix towards higher-margin sales associated with the acquisition of Sigma Metals and Welding Metallurgy.

Selling, general and administrative, SG&A, expenses for the third quarter were $2.617 million as compared to $1.284 million for the same period in 2006 and $2.330 million in the second quarter of 2007. The increase in SG&A reflects the increase in the Company's operations for the inclusion of acquisitions of Sigma Metals and Welding Metallurgy.

Breaking out some of the other components of our SG&A expense in the third quarter of 2007, costs associated with stock-based compensation in accordance with the FAS 123R was $63,000, and rent increased by $24,000 from the second quarter in 2007, reflecting the addition for a complete quarter of Sigma Metals and a partial-quarter contribution from Welding Metallurgy, both of which occupy additional space on Long Island from our AIM and corporate headquarters.

Earnings before interest, taxes and depreciation, amortization -- EBITDA -- for the third quarter of 2007 was a record $1.2 million, an increase of 221% as compared to $366,000 for the same period in 2006 and an increase of 437% from the $219,000 for the second quarter of 2007. We consider EBITDA to be an important financial indicator of the Company's operational strength and performance, and use this indicator when making decisions regarding investments and the various components of the business and acquisition valuations. Because EBITDA is not a measurement determined in accordance with Generally Accepted Accounting Principles, GAAP, and is thus susceptible to varying calculations, EBITDA as discussed may not be directly comparable to other similarly titled measures reported by other companies.

The Company's profit before provision for income taxes was a record $469,000 for the three months ended September 30, 2007, as compared to a loss of $53,600 for the same period in 2006 and a loss of $237,000 in the second quarter of 2007.

We reported a record level of net income for the current period. For the three months ended September 30, 2007, net income was $423,000 or $0.01 per share, a reversal of a net loss of $32,000 or $0.00 a share in the same quarter in 2006 and as compared to a net loss of $315,000 or $0.00 per share for the second quarter of 2007.

As of September 30, 2007, we had an outstanding 69,122,227 shares of common stock. As of September 30, 2007, on a fully diluted basis, after giving effect and assuming the exercising and conversion of all of our outstanding options, warrants and derivative securities, we had outstanding an aggregate of 113,633,125 shares of common stock. This number does not give effect to any dividends or interest which may accrue on the outstanding Series B convertible preferred stock or convertible notes.

For the nine months of fiscal year 2007 ended September 30, 2007, net sales was a record $31.323 million as compared to net sales of $26.002 million for the same period in 2006. SG&A expenses for the first nine months of 2007 were $6.074 million as compared to $3.456 million for the same period in 2006.

Net income before provision for income taxes was $225,000 for the first nine months of 2007, compared to net income before provision for income taxes of $406,000 for the same 2006 period. The Company's net income for the first three months of 2007 was -- for the first three quarters of 2007 was $35,663 as compared to net income of $243,777 in the same period in 2006.

Moving to the balance sheet, September 30, 2007, Air Industries had bank and other funded debt, including current portions, of $16,247,882 and availability of approximately $2.928 million under the Company's loan facilities with PNC Bank. All-cash balances, with the exception of money received for a capital raise, are applied on a daily basis to amounts outstanding under the revolving portion of the Company's loan facilities rather than being accounted for on the balance sheet as cash.

In terms of other assets, as a result of the higher production requirement associated with our expanded AIM operation and the record level of long-term contracts and other near-term awards, as well as the inclusion of Sigma Metals, which has been experiencing an increase in its order flow, the Company's total raw materials, finished goods and work-in-process inventory at the end of the third quarter 2007 was $21.457 million. This inventory level is expected to increase in relative lock-step as we benefit from the ongoing resurgence of our commercial and military aviation markets.

The Company provides firm backlog as an indicator of future activity. As of November 15, 2007, Air Industries Group had a firm backlog representing fully authorized orders for products to be delivered during the next 18 months exceeding $50 million. As we have stated, these backlog levels, which are solely derived from business relating to Air Industries Group's wholly-owned operating subsidiary, Air Industries Machining Corporation, are the largest in the Company's history. The firm backlog at September 30 reflects a 4.2% increase, as compared to the prior firm backlog of $48 million as of June 30, 2007.

Our financial outlook -- for our financial outlook, we are reiterating our guidance for financial results which includes the consolidation of operations from Air Industries Machining Corp., Sigma Metals, and Welding Metallurgy. This guidance was for quarterly run rates by the end of 2007 of the following -- revenue within the range of $57 million to $60 million, which indicates a sequential increase in revenues from the fourth quarter of a minimum of 11%, as compared to the 17% sequential increase from second quarter 2007 to third quarter 2007; EBITDA within a range of $4.5 million to $6 million, which has already been achieved in the third quarter of 2007, so we therefore anticipate increasing fourth-quarter EBITDA and a net income within a range of $2 million to $2.5 million, which indicates a sequential increase in net income for the fourth quarter of a minimum of 14%.

That concludes my remarks on Air Industries Group's third quarter, nine months 2007 financial results. I would now like to turn the call back to Peter.

Thanks, Lou. Once again, I believe that, in the third quarter, we have delivered on our operational objectives and are on track to achieve our financial guidance. The first half of 2007 certainly presented some challenges and included substantial investments for the future. We have benefited from those investments and overcome those challenges. Now, I look forward to continued momentum. In short, our growth strategies have become defined and we are now executed with increased precision. With the three acquisitions completed to-date and other synergistic opportunities for internally generated growth and consolidations in late stages of negotiation, our platform businesses are well positioned to benefit from overall market expansion and our own ambitions to increase our market share with prime customers. We reiterate that there continues to be ample room for our company to expand as we emerge as a formidable middle market aerospace manufacturer and integrator.

I would now like to turn the call back to the operator, so that we may begin the questions and answer session.

(OPERATOR INSTRUCTIONS). Michael Taglich, Taglich Brothers.

I just want to congratulate you on a good, solid quarter. Thank you very much. Keep up the good work.

Mike, we want to thank you very much. We know you are a friend of the Firm, and we appreciate that comment.

Thanks, Lou.

Thanks, Mike. I appreciate your comments and I remember you and I having some discussions about investing in the business in the right way and that we would have the right results. In fact, that's what is starting to happen.

Do you want to talk about any moves towards improving the marketability of the stock?

Well, I think the first moves that we've made is these improved results, and I think that we have been pursuing a national exchange, and that is well within our plan in the short term.

Wonderful. I look forward to it.

[Steve Lerner], Gunn Allen.

Good job. A question on the profit margins of 28% -- do you expect to see that continue? Is that something that's one-time or are you really continuing that upward trend?

I think that they will continue. I think that we're seeing growth in gross margin. I think that you are seeing a better ratio between our G&A expense and our revenue growth in the future. I will let Lou comment in more detail, but I do think you are going to see growth in that area. It has everything to do with the nature of the structure of the company that we're putting together and the distribution of our expenses.

Yes, I think of course Air Industries Machining Corp., which is the platform company for this group, has experienced some growth in margins, which is a move we intend on keeping to the forefront as we move through this year and into next. But please don't forget that we are buying subsidiaries that have enhanced margins. They have generally higher margins than are experienced in normal segments of the aerospace industry. As we bring those subsidiaries online, you'll see the margins continue to strengthen.

All right. What was I going to say? I think the last caller made a perfect point about the marketability of the stock. Would you say that the people that are selling the stock, are they selling at the exact wrong time?

I think so.

Right. To reiterate, back in '06, Sikorsky had its own issues, but now that Sikorsky's back contract, we could certainly continue to see this type of growth that you have. Anybody that is looking to sell is not looking at the big picture. Is that basically what you would say yourself?

I think that what's happening with Sikorsky -- and they are a very valued, very good customer, and the Blackhawk program, which is where most of our concentration is with them, is a strong program for years to come.

I think what you are seeing is happening in our new mix of customers and our growth and our acquisition selections is that Sikorsky used to be our majority customer. In the future, they will be an important customer playing an important role for sustained business base, but they will no longer be 60% of our sales going into the future. They will be more like 20% of our sales. So good customer, good product, great people, always going to be a strong part of the Air Industries story, but not so much a total part of that story.

All right, very good then. I did hear you say that, within a week, you're expecting another acquisition announcement. Is that what you said?

Yes, I can't talk much about it but to me, personally, it's very exciting, because, from a capability standpoint, customer distribution standpoint and as Lou mentioned, a profit standpoint, our next announcement should be a very glamorous one.

All right, great quarter. Thanks a lot, guys.

Barry Yerger, Jesup & Lamont Capital.

Congratulations, gentlemen. A real quick question -- I don't know if you're at the point but sans the anticipated acquisition next week, are you comfortable giving full-year '08 guidance on the top and bottom line yet?

Not yet, no.

Okay, thank you.

[Joe LaScala], Gunn Allen Financial.

Good morning, gentlemen. Congratulations on what appears to be a great quarter.

I have three quick questions for you. First off, you mentioned the opportunity with the landing gear contracts with the Joint Strike Fighter and the potential initial $65 million market could double with some add-ons. Can you comment on what's specific about the equipment? What are the replacements timetables for that type of product? Are they turned over often, or is that more of a one-time installation?

No, they are turned over often. What we like about that landing gear is, you know, they wear out. Landing gear is timed on an aircraft for cycles, a cycle being a landing and a takeoff. By design envelope, they are only allowed to be cycled so many times before they must be replaced. Now, that's a total landing gear replacement, which happens, you can imagine, several years out into the operation of an airplane. But they also take a beating, so components of that landing gear need to be replaced on a regular basis because of damage and stress and those kinds of things. Then finally, landing gear include hydraulics that are mechanical assemblies with fluids and seals, and again take a beating and need to be overhauled on a regular basis because it's a tough environment.

You can imagine landing on a carrier, for instance, what that does to a landing gear at 120 miles an hour coming in at a pretty stiff angle of descent. So the landing gear business is a great business because of its replacement and spare part and aftermarket business. Our plan is to try and get closer and closer to the design part of that or certainly the license part of that where more of that aftermarket comes back to us at a higher margin situation.

So landing gear is a good business. Not many people can participate in it because it's difficult and it does have an aftermarket which is continuous. So, even after the airplane is out of production, the business base for those structures go on for a long time.

In the case of the JSF, for us what's nice is that there are three different landing gear configurations to contend with, not just one configuration.

So it's safe to say that, should you get that contract, the potential size of it could be significantly higher than just the initial guidance?

I think so, but I did mention that the production contract is something like $65 million. International sales could grow even more. We will probably see double that in terms of the support size, so that gets you to 130. That's a lot of money; I don't want to project anything more than that. It has something to do with how long they fly. I mean, it just could go on for a long time.

Okay. Second question, maybe more for Lou -- I'm noticing a sharp drop-off for the comparison of nine months on your net income. Is that directly attributable to the slow start with Sikorsky in the first half of '07?

Well, I think that certainly played a major part in it. There's no two ways about it; Sikorsky is our primary, most important customer.

Okay, and comparing the three months, it appears as if that's back on track.

Well, what's happened, of course, is that Sikorsky has come back on track and we proceeded to diversify our customer base a little more.

Okay. The final question is just building off Mr. Taglich's question. You mentioned about the national exchange strategy. Are you in a position to comment any more detail than that?

Well, we have a strategy going forward that we firmly believe will lead us, in a relatively short period of time, to a major exchange. We are certainly focused on doing just that sort of thing for this company.

We believe, as you do, I'm sure, that should be a priority for us.

Agreed. Okay, thank you, gentlemen.

Tom Mullen, TWM Capital.

Good morning, gentlemen. Thank you for taking my question. I must say, from an investor's point of view, that it is comforting to have a management team that able to deliver on its promises of higher sales and earnings, so congratulations.

I hate to beat this to death, and it seems four out of the last five questions have touched on it and Peter, I guess you and I have spoken about it off-line, but I think the listing of these shares has really got to be a priority. At the last conference call, you said it would be a short period of time before these things would be listed. We're kind in a situation where it's virtually impossible to either buy more shares if you believe in your story, which I certainly do, or even turnaround and sell shares if for whatever reason that is the direction you'd like to take. I don't want to pin you down, or I hate to pin you down but at the last conference call, you said it would be a short period of time when this would happened. You're saying it's a short period of time that we can expect something to happen.

You know, who is going to be the one that's leading the charge on this? If it's not a priority, you know, maybe it's better to just say it's not and we can get onto a different -- discussing something different.

Tom, because you and I have talked about this a couple of times and in fact I feel little bit like Hillary Clinton here; the truth is, in the past, we both agreed that this was an important thing to do, and that we were aimed at making this kind of correction and we had a consensus about that. Today, I can, with some confidence, say that we have a kind of carefully executed plan of events that include moving onto a national market in a series of events that will be coming up shortly. So, that's different than agreeing that it is a priority and we're going to try to do that. I can't talk too much about the series of events, but we do have a series of events outlined for this winter, this year, actually.

This is all within a strategy of trying to incorporate a broader investor base in this security I mean? After these great earnings that you just came out with, you know, you looked at -- you know basically as being an investor the got involved at the very first step, we've earned money market returns on this investment. I think that's the one thing that you should realize as you're telling us how great the Company is doing, and in fact the shareholders are not making any money.

Yes, I agree, and I think that the first event in the series of events that I'm sort of painting for you is this quarter's results, so now we are moving into a series of events that will move us to a national exchange.

Right. Well, there's no criticism as far as the operational results. I guess, from that standpoint, continue doing that and I appreciate you taking my question.

Yes, and thank you for your loyalty. You've been with us from the beginning and you've been a good friend. Thank you.

Operator, we have time for one more question. Operator?

[Mark Lasarro], Master Logic Research.

Nice quarter, guys. Good job. It looks like you finally stretched the canvas and now you can start on maybe painting a little bit on the canvas.

If you could just briefly talk about your acquisition strategy, I know you brought up that you had four that were looking at. Can you at least tell us if the one that you said you're currently plan on bringing into contract soon is going to be accretive to earnings immediately, and how about the three others as well? Thank you.

I believe that all of them will be accretive to earnings; that's a big part of our strategy. But more importantly, in consolidation, I think they bring great benefit to the combined enterprise from a profitability standpoint. There's great synergy in each of these, and the next group of acquisitions will all be consolidation companies, where we will receive those kind of economy-of-scale benefits, reduced overhead rate expenses as a result of combination. They are all companies that we know well, operations that we understand well. These are not companies that we think are interesting and maybe we ought to add them to our portfolio. They are companies that will be well integrated into our company and have been chosen for that reason.

Excellent, guys. Like I said, I think this final report here today is a sign that you guys have stretched the canvas and now you guys could actually start painting on the canvas and really moving forward. That's our belief here, and we're going to keep an eye on you guys. Good luck, both Pete and Lou, and I hope to hear you on the next conference call. Thank you.

Thanks for your good words.

I would now like to turn the call back over to management for closing remarks.

Well, thank you very much for participating on today's conference call. We appreciate the continued support of our shareholders and the increased interest from the broader investor community in our plans for aerospace industry expansion. We look forward to keeping you apprised on the developments of our businesses, and I look forward to our next conference call where I hope that we have even better results to report.

Please feel free to call me should you have any questions about the Company. Thank you again for your participation today.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.