Air Industries Group (AIRI) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Air Industries Group, Inc. earnings conference call. My name is Katina and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

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

Thank you, operator. Good morning. I am Jordan Darrow with Darrow Associates and I welcome you to Air Industries Group's fourth-quarter and full-year 2007 financial results conference call. For those who have not had a chance to review the earnings release, it is posted and can be available -- and it can be viewed on the Internet. Additionally we can fax it to you if you like.

On the call from Air Industries Group are Peter Rettaliata, President and Chief Executive Officer; Louis Giusto, Vice Chairman and Chief Financial Officer; and James Brown, Chairman. 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, capital structure, and other financial matters. Forward-looking statements may differ from actuality and are reliant on and subject to risk.

Factors causing forward-looking statements in this presentation to differ from results are discussed in the Company's Form 10-K 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.

I will now turn the call over to Peter Rettaliata.

Thank you, Jordan. Good morning to all of you and thank you for participating in our fourth-quarter financial results conference call. Today we reported our financial results for the fiscal fourth quarter and full year ended December 31, 2007. My goal on this call is to provide you with an overview of our financial results and to take a look at some of our accomplishments from the quarter. Equally as important, I want to share with you our prospects and strategies for the future growth. Following my remarks, Lou will provide a detailed discussion of our financial results. Afterwards we will provide you with an opportunity to ask questions.

Ladies and gentlemen, I am very pleased to report record financial performance for Air Industries Group across the board. I hope that you are as excited about these results as I am. Let me highlight some of our achievements for fiscal year 2007.

Net sales increased to a record $46.1 million, up 40% from 2006. Gross profit margin increased to a record 27.6%, up from 15.2% in 2006. Gross profit increased to a record $12.7 million, up 15% from prior year. EBITDA growth to a record $4.4 million, an increase of 119% from $2.7 million in 2006. Net income was a record $627,900 for the year, which marks the attainment of a full year of positive net income for the first time as a publicly traded company.

And finally after the end of the year, we reported a firm 18 month backlog at a record level of approximately $55 million in Air Industries Machining Corp. and a total projected backlog of approximately $75 million. These are very impressive improvements and once again, I hope you are as excited as I am about these developments.

We delivered on the financial result targets set for 2006 as well. As I previously announced, the Company met its goal of reaching EBITDA on a run rate basis of $4.8 million in the third quarter which was within the range of $4.5 million to $6 million. And also our third-quarter adjusted net income on an annualized basis was $2.4 million, which met our goal for net income in a range of $2 million to $2.5 million.

Now I am pleased to report that we have met our final milestone with a revenue run rate for the fourth quarter of $59 million, which is at the high end of the guidance range of $57 million to $60 million. The favorable trends that carried us through 2007 are evident as we move through the early part of 2008. And we see no signs for an abatement of this positive momentum in the foreseeable future.

Thus far in 2008, we have made several announcements of sizable new contract awards for our Air Industries Machining Corp. subsidiary and since the beginning of the year, our Welding Metallurgy subsidiary has reported new orders valued at nearly $2.5 million, representing the largest aggregate amount of new contract awards in a quarter since Welding Metallurgy's inception 30 years ago.

New contracts received by Welding Metallurgy reflects our successful acquisition, integration, and implementation of our growth and diversification initiatives. Moreover it proves with certainty that our acquisition strategy, which was the premise for our decision to become a public company and access the capital markets is in fact working. New contracts at Welding Metallurgy were received from new customers such as GKN Aerospace of Alabama for helicopter welded assemblies over a multiyear period and from two prime Aerospace manufacturers. Among these prime customers was Boeing for its helicopter division, which provided us with Welding Met's first production subcontract after historically being considered a supplier of offload welding services for that customer.

The other significant development based on the contracts awarded to Welding Met in the first quarter of 2008 was an order from Sikorsky Aircraft Corporation. Welding Met only recently received a much coveted and expedited quality supplier approval from Sikorsky. This approval ordinarily can take a year or more to receive and may be less likely to be obtained at all in a time when prime contractors are reducing their supplier base. However, the approach to Sikorsky by Welding Met was aided by the existing relationship between AIM subsidiary and Sikorsky.

To accommodate the elevated level of business activity and in anticipation of future growth opportunities, Welding Metallurgy has been relocated to an 80,000 square foot facility in Hauppauge, New York. This facility will also house our Sigma Metals subsidiary, which is a distributor of specialty metals, and the executive offices and our expanded corporate design staff.

In co-location we will achieve significant economies of scale benefits. The engineering design staff is integral to the future of the company as its mission is to provide us with the capability to design and build proprietary products. Proprietary products are advantageous as they traditionally come with much higher margins as compared to build-to-print manufacturing and insulates us for years to come in terms of business generated from replacements and spares.

All of our aircraft business is being focused on building products that are mission critical, difficult to build, and have substantial aftermarket potential. These product lines include flight safety assemblies, landing year, flight controls, and engine mounts. The design staff is responsible for some very important work that may lead to long-term contracts to fuel our growth for years to come. On our last conference call, we discussed a few of the design programs and I would like to provide you with an update.

On prototype engine mounts, we participated as part of a team with Northrop Grumman. These products are currently participating as part of the Pratt & Whitney new geared turbofan engine test program. We have high hopes in the engine mount business as it relates to the geared turbine engine.

On another aircraft, we have completed a preliminary design for the Adams Aircraft A700 landing gear. Adams Aircraft has recently been acquired by AAI Acquisitions Company. We are hopeful to be awarded a contract for this product shortly.

Recently we have submitted a proposal to support the aircraft for the CH-53K throttle quadrant. This proposal includes our design for this light critical control. We have made a number of throttle quadrants in the past for Sikorsky, but this is the first one that would be made if we are successful to our design.

These new programs are part of a potential market value of some $700 million in new business that we are pursuing. This amount does not include aftermarket support and spares, which could add considerably more to the total program value.

In addition, we invested and capitalized in excess of $1.5 million in engineering costs during 2007 through the course of the year in support of new business already secured. Internal growth initiatives are just one of our growth strategies, the other being the strategic acquisition program I mentioned. To date, the Company has made three acquisitions and another major acquisition is underway.

Late in 2007, we announced our intent to acquire the Blair-HSM companies. With a 40-year history, Blair-HSM manufactures fully dressed landing gear and other structural and hydraulic components for commercial and military aircraft. They have facilities located in Medford, Long Island, New York, and in Leland, North Carolina. As part of the purchase agreement, we agreed to pay approximately $16.4 million in a combination of cash, restricted stock and debt. The closing of the acquisition already initially anticipated earlier is expected to close in the near future.

Blair has annual revenues of approximately $16 million at the time of our announcement and will be immediately accretive to earnings and is an exceptional fit with our AIM platform to create a landing gear powerhouse. The addition of Blair would add an incremental 30% to our top line and serve to further diversify our customer base and business mix.

One of our goals has been to continue to diversify and we have been successful in this regard. In 2006, the Company mix of business was approximately 88% military and 12% commercial as compared to approximately 75% military and 25% commercial for all of 2007. Our diversification is further magnified in the Sikorsky -- in that Sikorsky represents 65% of our business in 2006 and in 2007 accounted for less than 50% while in the aggregate we increased our Sikorsky business base.

In the third-quarter results conference call, I discussed with our investors our belief that the third quarter represented somewhat of an inflection point. It marked a period in which our long-term strategies began to take significant form. Our fourth-quarter revenues bear that out. As we look back at 2007, being our year of inflection, we view 2008 as a transformational year. An important step in this transformation met with the approval of you, our shareholders, in overwhelmingly supporting the proposal put forth by the Board of Directors to empower us with the ability to reverse split the stock at an opportune time. This will occur to support the listing of Air Industries Group's stock on a national exchange.

Another proposal that received overwhelming approval from the shareholders was the increase in unauthorized share count which in large part will enable us to have the stock available for use in continuing our acquisition program and for attracting and retaining talented employees.

In summary, we view 2008 as a transformational year. With the achievements announced to date in 2008 and during the balance of the year, we intend to deliver continued growth in our operating performance, attain a national exchange listing, and work diligently toward maximizing value for our shareholders.

I will now pass the call to Lou Giusto, our Vice Chairman and CFO, to provide a detailed review of the financial results for the fourth quarter and full year 2007.

Thank you, Pete. Good morning, ladies and gentlemen. It is my pleasure to share with you the impressive financial results that we reported today. I will began with quarterly followed by annual results and then review our balance sheet and other financial items. Please note the following adjustments in our reporting process.

In the fourth quarter of 2007, the Company was able to quantify the capitalization of preproduction costs in accordance with the emerging issue, task force issue No. 99-5 accounting for preproduction costs related to long-term supply arrangements. Certain expenditures which had had historically expensed including amounts expensed in the first three quarters of 2007 aggregating $1.5 million were ultimately capitalized.

In addition, the company recently completed the allocation of certain prices paid for the acquisitions of Sigma Metals and Welding Metallurgy among their respective assets and determined that portions of the prices that had initially been allocated to goodwill should be allocated to certain intangible assets of these companies. To appropriately reflect these adjustments, the company has shown these adjustments when they occurred in the first three quarters of fiscal 2007 as set forth in its annual report on Form 10-K with the U.S. Securities and Exchange Commission.

In the fourth quarter ended December 31, 2007, net sales increased 110% to $14.7 million as compared to net sales of $7 million in the fourth quarter of 2006. The increase in net sales from prior periods was primarily attributable to an improvement in order releases and new contracts for parts and related defense components from a prime aerospace contractor customers. The higher level of revenue reflects the successful implementation of our internal growth initiatives at all operating subsidiaries as well as the contribution for a complete quarter from Welding Metallurgy and two quarters of Sigma Metals.

The financial results for the fourth quarter of 2006 were negatively impacted primarily due to the delay in order releases for parts and related defense components to one of our company's prime Aerospace contractors. This delay was the result of a strike at the customer's facility in mid 2006.

Gross profit in the fourth quarter of 2007 was $4.2 million, as compared to gross profit of $255,000 for the same period in 2006. As a percentage of sales, gross margin in the fourth quarter 2007 was 28.5% compared to 3.6% for the same period in 2006. Since the gross margin comparison to the prior quarter is not meaningful due to the lower level of revenue in that period, a more meaningful comparison can be seen in the fourth quarter '07 gross margin of 28.5%, which declined by 3 points from the third quarter of 2007.

Gross profit in the fourth quarter was negatively impacted by a lower margin mix of products shipped which include in particular prototype and first article development for parts relating to the Airbus A380 program. For this program, we anticipate better margins as we proceed into the manufacturing and production level quantities.

Selling and general and administrative expenses, SG&A, for the fourth quarter were $3.7 million, as compared to $0.9 million for the same period 2006. The increase in SG&A expenses reflects the increase in the company's operations for the inclusion of Sigma Metals and Welding Metallurgy and a commensurate increase in the parent company level of expanded consolidated operations as well as expenses associated with new business development, our ongoing acquisition program, and other public company costs.

In addition, the Company incurred onetime nonrecurring expenses in the fourth quarter of 2007 including $195,000 in facility maintenance, $100,000 in additional order fees related to Sigma and Welding Met acquisitions, and $93,000 related to the expensing of Adams Landing gear design work.

Breaking out some of the other components of SG&A in the fourth quarter of 2007, costs associated with stock compensation in accordance with FAS 123(R) was $76,500 and rent and related facilities expenses increased by $200,000 from the first quarter of 2007, reflecting the addition of a complete quarter of Welding Metallurgy and Sigma Metals and required facility maintenance at our Bayshore facility.

Earnings before interest, taxes, depreciation, amortization, EBITDA for the fourth quarter of 2007 was $1.1 million as compared to EBITDA of less than $100,000 in the prior year period and about flat with $1.2 million in the third 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 in various components of its 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 loss before provision for income taxes was $125,000 for the three months ended December 31, 2007, as compared to a loss of $300,000 for the same period in 2006. For the three months ended December 31, 2007, our net loss was $17,000 or zero price per share, which includes an income tax benefit of $108,000, the fourth quarter '07 net loss compared to a net loss of $100,000 in the same period of 2006.

As of December 31, 2007, we had outstanding approximately 69.1 million shares of common stock. As of December 31, 2007, on a fully diluted basis after giving effect and assuming the exercise and conversion of all of our outstanding options, warrants, and derivative securities, made outstanding and aggregate of approximately 114 million shares of common stock. This number does not give effect to any dividends or interest which may accrue on outstanding Series B convertible preferred stock and convertible securities.

That concludes supporting results, so I will move to review the financial results for the full year of 2007. Net sales for the 12 months ended December 31, 2007 were a record $46.1 million, as compared to net sales of $33 million for the same period in 2006. Gross profits for all of 2007 was a record $12.7 million as compared to $5 million in 2006. As a percentage of sales, gross margins in 2007 was a record 27.6% as compared to 15.3% for all of 2006.

SG&A expenses for the full year of 2007 were $9.9 million, as compared with $4.4 million for the same period in 2006. Net income for provision for income taxes was $1.2 million for the full year 2007, as compared to a net income before provision for taxes of $200,000 for the same 2006 period. The Company's net income for the 12 months of 2007 was $600,000, as compared to a net loss of $300,000 or $0.02 per share for the same period in '06.

Moving to the balance sheet, at December 31, 2007, Air Industries Group had bank and other funded debt including current portions of $22.9 million and availability of approximately $1 million under the (technical difficulty) facilities with PNC Bank. All cash balances are applied on a daily basis to amounts outstanding on the revolving credit portion of the Company's loan facilities rather than being accounted for on the balance sheet as cash. For this reason, we presently do not show any cash on the balance sheet, but we have cash available that we would source from our banking facilities.

In terms of other assets during 2007, we invested over $1.5 million for engineering costs. So this amount is now present on our balance sheet. These costs are associated with future products and programs and will be run through our income statement as revenue with the appropriate costs recognized when we ship the products. Addressing the projects that we currently involved with as a result of higher production requirements associated with our expanding AIM operations and a record level of long-term contracts with other near-term awards, as well as the inclusion of Sigma Metals and Welding Metallurgy, which have been experiencing an increase in order flow, the Company's total raw materials, finished goods, and work in process inventory at the end of the fourth quarter 2007 was $21.8 million.

The Company provides firm backlog as an indicator of future activity. As of March 15, 2008, Air Industries Group had a firm backlog representing fully authorized orders for products to be delivered during the next 18 months exceeding $55 million. As we have stated, our backlog, which is solely derived from business relating to Air Industries Group's wholly-owned operating subsidiary, Air Industries Machining Corp., are the highest in the Company's history. The firm backlog at March 15 reflects a 10% increase as compared to the prior firm backlog of $50 million in mid-November 2007. Our total projected backlog was $75 million as of March 15, 2006.

The Company's record financial results for the full year 2007 and the record backlog as of March 15, 2008, do not include contributions from the pending acquisitions of Blair-HSM Group Companies. We believe the addition of Blair-HSM would provide an incremental 30% to our top line, be accretive to earnings and cash flow, and contribute an incremental amount of approximately $25 million to our firm backlog.

That concludes my remarks on Air Industries Group's first -- fourth-quarter and full-year 2007 results and will now turn the call back to Pete.

Thanks, Lou. Ladies and gentlemen, I believe that we have shown that Air Industries Group is executing on its plans for growth and diversification in the very fertile aerospace and defense market. The outlook for the industry regardless of presidential election outcomes remains very promising and we are better positioned than ever before to capitalize on the many opportunities to capture marketshare and to otherwise benefit from new avenues of growth.

In 2008, we look forward to improved financial performance and setting new records. As mentioned, we anticipate completing the Blair-HSM acquisition and attaining a national exchange listing for our stock.

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

(OPERATOR INSTRUCTIONS) Jim Schwartz, GunnAllen.

It is actually Steve Lerner. Jim is with me here. Great job, guys. I know there's going to be a few people on here that are going to be asking questions as to why there was a slight delay on the filing. So I figured let's get right to that so we can get it out of the way. Can you give us a reason why it was slightly delayed?

Good morning, Steve. It's Jim Brown. I just have -- let me say the following. Being late on something like a 10-K is never acceptable. The audit committee has met. We have done a good deal of homework in terms of trying to identify the root causes and we're taking action to be sure that this type of thing doesn't happen.

I will say in terms of giving a little bit more clarity to the answer, some of the resources that allow a company to get where we we've gotten may need to be supplemented in order to facilitate future growth. The complexities of compiling a K in this environment and the world of Sarbanes-Oxley, especially given the acquisitions last year were a little bit more than we had necessarily planned for.

I am not going to make excuses. Part of it had to do also with an unforeseen illness in the accounting department. There are no excuses for it. We believe we have supplemented our resources already. We've taken action and I don't believe this will be an ongoing problem. I will underline the fact that there were no issues involved, no accounting issues. It was just a manpower issue.

Okay, great. Listen, I have had a lot of shareholders ask me questions as to Blair as to -- I know that we said we would probably be closing it in January/February. And it has been slightly later than that. But we expect that -- I know you've already said it, but we are expecting relatively in short order a closing of that?

Steve, yes. We are expecting -- what we have said officially is the second quarter. Obviously we were trying to do it as quickly as possible and since I'm sure there are a lot of folks on the line who have followed the company, I just want to give a little bit of texture to the delay. I mean, trying -- doing Blair with the lowest cost of capital is clearly management's, clearly the board's driving mission. So with that said, some of the upset, some of the turmoil in the credit markets, we have had multiple opportunities as it relates to finance Blair. The issue is doing it the most efficient cost-effective way.

We believe we have the types of partners identified who will provide us that type of -- what I really refer to as a transformational opportunity and we're very optimistic about getting it done. We are saying the second quarter. We would like to get it done soon in the second quarter.

Would it be safe to assume that you guys have been working together with Blair in anticipation of this already?

Yes, Steve, you are right. We have been working with Blair as partners on a number of new business opportunities. We have come together as one in a lot of ways including sharing capabilities. And as I said, partnering on new business proposals. In fact, Bill Lehmann of Blair and I are on our way Friday to visit our shared customer at Goodrich for some very exciting possibilities relative to full landing gear licensing in the future.

All right, that sort of helped. Great job, guys. Keep it going. That's it.

Evan Greenberg, Meadow Brook Capital Management.

It was a good quarter. Very happy with the quarter, very happy with the progress. There are a couple of issues I want to address. Number one, on the balance sheet I saw capitalized R&D. Could you talk about that? Was that money spent this year and it is going to be capitalized over a three- or four-year period? Why would you capitalize it as opposed to expense it?

I'm going to let Lou help me a little bit but let's start by saying I don't believe you are seeing capitalized R&D. I think you are seeing capitalized engineering expenses associated (multiple speakers)

Right, that's what I meant.

That's part of (technical difficulty).

That to do with putting us into new business for the long term and clearly they are physical assets that accrued to the company that would be just like buying a new building. And that allows us to grow our business in the future and, as I said, I will let Lou comment on this and add some detail to it.

Yes, I think (multiple speakers)

Because it's an unusual item, Lou. That's why I mentioned it.

It is an interesting item because in our business there's something which is really part of our core business and that is the investment that we make in new products that our customers want us to produce for them. We get their design specs in and we have to provide our engineering talent to do programming to allow our machines to work properly with associated tooling.

There's all sorts of engineering that gets done and we are able now to capture that cost and under what we call EITF 99-5, we are allowed to capitalize those items so that we're not penalized during the year in which the money is spent. Rather, we then recognize the expense as we ship the product going forward. So it is a matching of revenue and expense and we think it is fair and it is something that this company is certainly actively engaged in, but it is pretty typical for the aerospace industry. If you look at other companies, you'll see it is basically done by them as well.

This would be just like Boeing tooling up for the 787 program and the investment that they would make for that program, which would accrue to them as an asset for years to come.

Right. Second question had to do with -- a lot of the questions are really financial. By the way, I'm very happy about the idea of the reverse split. I think it is going to work out really well and you'll be able to pick up increased Wall Street coverage because of it, the reverse split and the eventual listing. Do you qualify for some of those exchanges right now?

Evan, it's Jim Brown. The answer is is we do. As it relates to all the tests based on where our stock closed yesterday, we could move to the AMEX. We could move to the NASDAQ. Again, some of that relates to where we think we're better housed, minimum share price, but as it relates to all the major tests, as of yesterday, we would have qualified for either exchange.

Okay, the final question had to do with the increase in AR and the increase in inventories is totally understandable due to the increase in revenues. Is there any way to improve the turns? Or this is not a business that really relies on turns?

It does rely on turns although in the aerospace industry turns are traditionally slower than other industries. The average turn rate is about 2.3 in the business, which is kind of dismal compared to many commercial businesses.

We work very hard to turn our inventory more quickly. You might know that we were the lean manufacture of the year for United Technologies in 2004. We work very hard with our lean program to do better relative to turns, so it is something we are very conscious of but not as easy to achieve as we'd like. To make things more difficult, we are a manufacturer of many mission critical items made from high heat treat metals that move very slowly through work in process.

So it is something we're very focused on, something that is difficult to move more quickly than in other industries, and is a big concern of ours as well.

Okay, thanks a lot.

Joe LaScala, GunnAllen Financial.

Good morning, gentlemen. Congratulations on what appears to be a very commendable quarter here. I just wanted to follow-up on the last gentlemen's second point. At this time, can you provide a little more detailed update as to the nationalistic plans vis-a-vis the reverse split? I know we've touched on it briefly, but maybe from a timing standpoint and from a company strategic outlook [given] where do we stand at this time?

Sure, it's Jim Brown. We are very sensitive to the timing. It is something we would like to do as quickly as circumstances permit, as quickly as the scenario unfolds. It is really a four-legged stool. You can analyze it as well as we can. What id we say when we started the entire initiative? We wanted -- reverse splits have a reputation for notoriously being weak or trading weaker a year after. We want to be sure we are in the 20% of companies that trade stronger.

With that said, essentially what we -- we sort of view this as a four-legged stool whereby subsequent to the acquisition of Blair in conjunction or with the announcement of the move to the major exchange, in conjunction with finalizing the financing and again, in a background of earnings support with better visibility to our earnings which I think we've achieved, we would then move to the national exchange. I don't want to give you a timeframe, but obviously when you take a look at what we have announced today and what we have said in our prior releases, we have a unanimous support all through the company to get to a major exchange as soon as possible.

As you heard Evan mention earlier, the idea of getting increased coverage, increased support institutional is very attractive to us and we believe that gets accomplished by a quick move or as rapid a move as we can possibly facilitate to a major exchange.

Jim, just a follow-up. We'd all like to see a move to the exchange in conjunction with the split, but operationally is that a possibility? Isn't there going to be a lag time between the split and the listing? If so, how long of a period must that be?

It depends. My guesstimate is anywhere from three to 10 business days. It is all a process of negotiation. Essentially with the AMEX and NASDAQ jointly tell us, it's going to be somewhere between three and 10 working days.

Okay, great. Thank you very much for the clarity.

(OPERATOR INSTRUCTIONS) Glenn Huber, GunnAllen Financial.

Good morning, gentlemen. Congratulations on a solid quarter.

Thank you, Glenn. Good hearing from you.

Actually Joe asked one of the questions I had as far as timing. I wonder if you could comment a little further on the fund-raising efforts. I know you have been out there for some time trying to raise additional capital. If you could just comment a little bit on that. And then I have one other question after that.

Sure, Glenn. Good morning. It's Jim Brown. I am very pleased with the progress that we're making with the fund-raising efforts, and again, what are our goals? Our goals are to facilitate the lowest cost of capital and all the elements and insinuations that that connotes as it relates to minimum dilution. We have reviewed any number of opportunities and again, we are making progress. We certainly look for a combination of debt and equity and that will become a little bit more clear.

I don't really have -- again, based on where we are at, I don't really have any more specifics to give you except to tell you that I am very comfortable saying the parties with whom I believe we will ultimately work have been identified and I believe we are moving expeditiously to come to a final agreement with them.

Okay, could you comment on -- a big part of the strategy for the company right from the get go was to pursue strategic acquisitions and actually position itself as a consolidator in your sector and obviously you have had now, I guess it is -- will be three acquisitions in the last three years. Do you see the pace of acquisitions increasing? Do you see additional acquisitions in the near-term landscape?

Glenn, this is Pete. And as you know, we have talked before in the past. We have no shortage of acquisition opportunities, and good ones at that. I think that we've done a good job to date of consolidating Welding Met, Sigma, our corporate headquarters, creating a design capability, and sharing resources with Air Industries. As we mentioned in developing a 80,000 square foot facility where we have got a number of our operations housed today.

The Blair acquisition is critical. We are already out front working cooperatively with them in terms of some strategic possibilities for the future and we are very happy about that. I suspect that we will close the Blair deal soon, spend a good portion of 2008 in consolidation of the companies to achieve the better financial performance that you all would like to see. But on a daily basis, I am pacing the M&A side of the business and entertaining discussions with a number of very good prospects. But I see the rest of 2008 in consolidation and execution of the companies that we have on our team that you know about.

So, Pete, from what you are saying, does that mean that -- can we expect additional acquisitions in '08 or is it more about integration -- integrating -- completing the Blair acquisition, integrating what you have to date?

My guess is the rest of 2008 will have more to do with execution and consolidation; however, I have got some acquisitions that I am talking to probably charted more for 2009. But we do have two small tuck-in acquisitions that I also believe will take place in 2008 that we have mentioned before in these discussions. But they are small enough to be kind of swept up in the Blair financial raise and execution strategy.

One last question. The valuation of these potential acquisitions, do you see the valuation, the expectations of the sellers being more attractive or less attractive? Obviously we are getting into sort of an economic downturn here and people's expectations across the board are being lowered somewhat. Are you experiencing that in your discussions with these potential targets?

Well I think one thing that happens relative valuations is as we are gathering strength, the companies that we are looking at are more valuable. And so that throws a little bit of a monkey wrench into the whole concept of valuation, but the aerospace business is still very M&A active. I think that it is probably one of the best business segments in the country today and these are very, very valuable companies to acquire and to add to your portfolio.

And, Glenn, let's not forget one thing. This is Lou Giusto. The aerospace industry is in currently in what is termed a super cycle. Everything seems to be going up at once and to some extent, it is the effects of this recession has been somewhat muted on our sector. Not saying what may happen in the future, but it is still a very, very hot sector.

Thank you, gentlemen.

With no further questions in queue, I would now like to turn the call back to management for closing remarks.

Well, thank you all for participating on today's conference call. We appreciate the continued support of our shareholders and the increasing interest from the board and investment community in our plans for aerospace industry expansion. We look forward to keeping you appraised on the developments of our business. Please don't hesitate to call us if you have questions and we would be happy to entertain them. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.