The Company's MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of the Company's business conditions, results of operations and liquidity. The Company is disclosing segment information for two segments. Composite Products is comprised of sales of golf shafts and other composite products. Composite Materials is comprised of external sales of prepreg products in the forms of uni-tapes, fabrics and film adhesives.

Significant Accounting Estimates

We prepared the consolidated financial statements of the Company in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

We have several significant accounting estimates, such as; revenue recognition, accounts receivable, inventories and income taxes which were discussed in the 2008 Annual Report filed on Form 10-K, that are both important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments complex and difficult have to do with making estimates about the effect of matters that are inherently uncertain. During the three months ended March 31, 2009, we did not make any new accounting estimates that are considered significant accounting estimates nor were there any significant changes related to our significant accounting estimates previously made that would have a material impact on our consolidated financial position, results of operations, cash flows or our ability to conduct business.

Overview - Business Conditions

The Composite Products segment is mainly comprised of graphite golf shafts. The graphite shaft market consists of customized OEM production shafts, both premium and value and Aldila branded and co-branded shafts. The Company sells customized OEM production and co-branded shafts directly to its OEM customers and sells Aldila branded shafts through the OEM custom stock and custom fit programs and to distributors. The Company's recent branded shaft offerings are as follows:

Branded Shaft Offerings

† Aldila NV® and NV® Line extensions.

† Introduced in 2003, featuring the Company's exclusive Micro Laminate Technology®.

† Enjoyed numerous Tour victories and industry-wide recognition.

† The Company introduced NV® line extensions in 2004, including the NVS™, NV ProtoPype®, Pink NV®, NV® Irons and NV® Hybrid shafts.

† The Aldila NV® can be considered one of the most successful shaft introductions ever.

† VS Proto™ and the VS Proto™ Hybrid

†          Introduced and began shipping in 2006.



†          High performance shaft featuring carbon nanotubes as well as
aerospace carbon fibers and the Company's exclusive high performance resin
systems.

† Used by the winner of the 2006 U.S. Open.

† DVS® and DVS® Hybrid

† Introduced late in the fourth quarter 2007.

† Features carbon nanotubes and an innovative tip design for extra kick at impact-with optimum launch.

† Used by Aldila advisory staff member, Paula Creamer, for 4 LPGA wins in 2008.

† VooDoo®

† Initially introduced on Tour during the first quarter of 2008.

† One of the most popular shafts on the PGA Tour.

† Used to win 8 events in 2008 and 6 events so far in 2009.

Hybrid shafts are included in branded shafts. The Company's branded hybrid shafts have been the most popular hybrid shafts on Tour for the last several years, often times outpacing the nearest competitor at a two to one margin. The Company's success in branded shafts has led to tremendous success on Tour over the past several years.

Tour Play

† 2007 Tour Play

† Tour professionals using Aldila shafts won 19 events on the PGA Tour and nearly fifty percent of all the events on the Nationwide Tour.

† Aldila shafts were also the most popular shafts for woods and hybrid clubs at every major championship on the PGA Tour.

† Aldila shafts were used by the winner of the Masters and the U.S. Open as well as the winner of the World Golf Championship-Accenture Match Play Championship.

† Aldila advisory staff member, Paula Creamer, won the SBS Open and led the U.S. Women's team to victory in the Solheim Cup playing her Pink NV® woods.

† Aldila was also the shaft of choice for the majority of players in both woods and hybrids at the 2007 PGA Club Professional Championship.

† At the 2007 U.S. Men's Amateur, Aldila was the leading shaft choice for hybrids.

† During the U.S. Public Links Championship, Aldila was the most popular wood and hybrid shaft.

† Aldila was also the leading shaft at the NCAA Division 1 Men's Championship in both woods and hybrids and the leading driver shaft at the NCAA Women's Championship.

† Aldila shafts were included on the Golf Digest Hot List and won the Golf Tips Magazine's Technology Award.

† 2008 Tour Play

† Aldila enjoyed a great 2008 Tour season.

† On the PGA Tour, players using Aldila shafts won 13 events, including the World Golf Championship-CA Championship and the Verizon Heritage by Aldila advisory staff member, Boo Weekley.

† Players using Aldila shafts won 13 events on the Nationwide Tour and 15 events on the Champions Tour.

† On the LPGA Tour, players using Aldila shafts won 20 events, and Paula Creamer, an Aldila advisory staff member, won four events.

† 2009 Tour Play

† Aldila has also enjoyed a great start to the 2009 Tour season.

† On the PGA Tour, players using Aldila shafts have won 6 events, including the Mercedes-Benz Championship, WGC-Accenture Match Play Championship and the Masters.

† Players using Aldila shafts have also won 6 of 8 events on the Nationwide Tour.

Competition

The Company tries to maintain a broad customer base in both the OEM production shaft and branded shaft market segments and competes aggressively with foreign-based shaft manufacturers for OEM production shafts and branded shafts. However, the Company's sales have tended to be concentrated among a limited number of major club companies, thus making the Company's results of operations dependent on those customers, their continued willingness to purchase a significant portion of their shafts from the Company, and their success in selling clubs containing the Company's shafts to their customers. In 2008, net sales to Ping, Acushnet Company and Callaway Golf, represented 21%, 16% and 15% of the Company's net sales, respectively, and the Company anticipates that these companies will continue, collectively, to represent the largest portion of its sales in 2009.

Although it is generally difficult to predict in advance the success of any particular club or of any particular manufacturer, the Company believes that it is protected to some extent from normal periodic fluctuations in sales among the various golf club companies by virtue of the broad depth and range of its customer base. Golf club companies regularly introduce new clubs, frequently containing innovations in design. Sometimes these new clubs achieve dramatic success in the marketplace, thus increasing the overall volatility of club sales among the major companies. While the Company seeks to have its shafts represented on as many major product introductions as possible, it can provide no assurance that its shafts will be included in any particular "hot" club or that sales of a "hot" club that does not include the Company's shafts will not have a negative impact on the sales of those clubs that do. The Company's sales could also suffer a significant drop-off from period to period to the extent that they may be dependent in any period on sales of one or more "hot" clubs, which then tail off in subsequent periods and at the same time, new offerings fail to achieve a high level of new sales sufficient to exceed or replace the previous sales levels of "hot" clubs. This is especially true in the premium branded driver programs. If the Company does not participate in these programs, it could have an adverse effect on the Company's revenues and average selling prices. Average selling prices of the Company's shafts have varied greatly over the years based upon programs it participates in, mix of shafts, wood vs. irons, competition, retail inventory situations or a shortage of raw materials available. The Company's average selling price remained relatively flat for the three month period ended March 31, 2009 ("2009 Period") as compared to the three month period ended March 31, 2008 ("2008 Period").

In the midst of this pricing pressure that the Company has faced over the years, the Company has attempted to reduce its cost structure in order to be competitive. In order to do so, the Company continues to look at ways to accomplish this, which in the past has prompted the Company to move its shaft manufacturing operations offshore, first to Mexico, then China and in 2006 to Vietnam. The Company manufactures the majority of its golf shafts in China followed by Vietnam absorbing the second largest production volume.

Composite Materials

The Composite Materials segment is comprised of external sales of prepreg, film adhesives, fabrics and other materials. The Company historically has not tracked inter-segment sales and has always looked at the contribution provided by Composite Materials based upon the external sales of materials. The Company records all shared costs to Composite Products and allocates certain costs for segment reporting, such as shipping, purchasing and other administrative costs based upon the net revenues of each segment. Costs that are specific to one segment are charged directly to the respective segment.

The Company began to manufacture composite materials in 1994. Initially, the prepreg produced was mainly consumed by the Composite Products segment. Until recently, the Company's external sales of prepreg and other materials had increased over the past several years. Sales of prepreg, as a percentage of net sales, were 11% for the 2009 Period as compared to 15% for the 2008 Period. The Company has spent a significant amount of money over the past several years to increase the capacity of its prepreg operations in support of its external sales of prepreg and Composite Products operations. Over the last several years, the Company has put in place two prepreg production lines, a second resin filmer and completed the installation of a wide prepreg tape line during the first quarter of 2008. The prepreg lines add to the Company's capacity of prepreg to support both the Composite Materials and Composite Products segments. The additional resin filmer supports the Company's wide tape line and provide backup film capacity as the Company had previously only one resin filmer. In addition, the wide tape line allows the Company to enter some markets it has previously not been able to access.

The Company continues to look for opportunities to sell its prepreg and film adhesive products to other fabricators of products manufactured from composite materials. The Company has achieved some success in these areas and management believes that growth opportunities in these areas will continue to exist. In addition, management believes that vertical integration through its prepreg operation has been successful, to date, and is allowing the Company to maintain, or in some cases enhance, its competitive position with respect to the major United States golf club companies that are its principal customers.

Results of Operations



First Quarter 2009 Compared to First Quarter 2008



Net Sales



                                   As of March 31,
                          2009       2008       Chg      % Chg
Composite Products      $ 12,317   $ 14,117   $ (1,800 )   (13 )%
Composite Materials        1,486      2,546     (1,060 )   (42 )%
Total Net Sales         $ 13,803   $ 16,663   $ (2,860 )   (17 )%

Net sales decreased by $2.9 million, or 17%, for the 2009 Period as compared to the 2008 Period. The decrease in sales was attributed to decreases in Composite Product and Composite Materials sales. The decrease in the Composite Product sales of $1.8 million is mainly attributed to a decrease in OEM production shafts, which was partially offset by an increase in the sales of co-branded shafts. The golf industry continues to be impacted by the worldwide recession. The National Golf Foundation club build report, which is comprised of information provided by golf club manufactures, showed a 22% decline in metal woods and a 18% decline in irons produced through March 31, 2009 as compared to the same period last year. The Company anticipates that this trend will continue through the second quarter as club companies aggressively manage their inventories and begin to shift their focus to their 2010 product lines scheduled to ramp up in the second half of the year. The Company's average selling price of golf shaft sales remained relatively flat on a 13% decrease in the units shipped in the 2009 Period as compared to the 2008 Period. Composite Materials sales decreased by $1.1 million, or a 42% decrease. Composite Materials have decreased to approximately 11% of the Company's consolidated net revenues. The Composite Materials segment also continues to be impacted by the worldwide recession. The majority of our Composite Materials business is to customers in the recreational products industry. Our customers' businesses have been impacted by the weak economy similar to what is impacting the Composite Products segment. The Company continues to attempt to diversify its customer base in this segment so as not to be highly concentrated in the recreational products industry.

Gross Profit



                                As of March 31,
                       2009      2008       Chg      % Chg
Composite Products    $ 2,450   $ 3,849   $ (1,399 )   (36 )%
Composite Materials       412       710       (298 )   (42 )%
Total Gross Profit    $ 2,862   $ 4,559   $ (1,697 )   (37 )%

Total gross profit decreased by approximately $1.7 million, or 37%, in the 2009 Period as compared to the 2008 Period. The decrease in Composite Products gross profit was mainly attributed to the decrease in net sales in the 2009 Period as compared to 2008 Period. The Company has attempted to mitigate this decrease by actively managing its expenses and shifting more of manufacturing to Asia from Mexico. The Company continues to analyze its operations in Mexico for further potential cost cutting efforts. Composite Products gross margin decreased to 20% for the 2009 Period as compared to 27% for the 2008 Period, which is mainly attributed to lower volumes to spread our manufacturing costs. The Composite Materials gross profit decreased by approximately $298,000, or 42%, in the 2009 Period as compared to the 2008 Period. The decrease was mainly attributed to a decrease in the quantity of Composite Materials shipped in the 2009 Period as compared to the 2008 Period. Composite Materials gross margin was 28% for the 2009 Period and 2008 Period.

Operating (Loss) Income



                                                     As of March 31,
                                      2009          2008          Chg          % Chg
Gross profit                       $    2,862    $    4,559    $   (1,697 )        (37 )%
Selling, General &
Administrative ("SG&A) Expense
Composite Products                      2,609         3,709        (1,100 )        (30 )%
Composite Materials                       221           324          (103 )        (32 )%
Total SG&A                              2,830         4,033        (1,203 )        (30 )%

Operating (Loss) Income
Composite Products                       (159 )         140          (299 )       (214 )%
Composite Materials                       191           386          (195 )        (51 )%
Operating Income                   $       32    $      526    $     (494 )        (94 )%
Operating Margin                            0 %           3 %          (3 )%

Operating income decreased by $494,000, or 94%, in the 2009 Period as compared to the 2008 Period. The decrease was attributed to a decrease in gross profit of $1.7 million, which was partially offset by a decrease in SG&A expenses of $1.2 million. The Company is aggressively managing its expenses, which resulted in the decreases in SG&A expenses. SG&A expenses decreased as a percentage of revenues to 21% in the 2009 Period as compared to 24% for the 2008 Period. The majority of the decrease in SG&A expenses was attributed to a decrease in advertising and promotional expenses of approximately $900,000 in the 2009 Period as compared to the 2008 Period. In addition, the 2008 Period was negatively impacted by increased legal costs of approximately $81,000 related to the establishment of a credit facility with KeyBank National Association ("Key Bank") and professional fees of approximately $104,000 in relation to the restatement of the Company's previously issued financial statements.

Other Income (Expense)



                                           As of March 31,
                                    2009    2008     Chg     % Chg

Operating income                    $  32   $ 526   $ (494 )   (94 )%

Interest income                         2     220     (218 )   (99 )%
Interest expense                      (58 )   (39 )     19      49 %
Other, net                            (16 )    40      (56 )  (140 )%
Total other income (expense)          (72 )   221     (293 )  (133 )%
(Loss) income before income taxes   $ (40 ) $ 747   $ (787 )  (105 )%

Other Income decreased by approximately $293,000, or 133%, for the 2009 Period as compared to the 2008 Period. The majority of the decrease was attributed to a decrease in interest income of $218,000 and an increase in interest expense of $19,000.

Income Taxes



                                            As of March 31,
                                    2009     2008     Chg      % Chg
(Loss) income before income taxes   $ (40 )  $ 747   $ (787 )   (105 )%
Provision for income taxes              8      289     (281 )    (97 )%
Net (loss) income                   $ (48 )  $ 458   $ (506 )   (110 )%
Effective tax rate                    (20 )%    39 %    (59 )%
Profit margin                          (0 )%     3 %     (3 )%

The Company recorded a provision for income taxes in the amount of $8,000 in the 2009 Period as compared to $289,000 for the 2008 Period. The Company's effective tax rate was 20% for the 2009 Period as compared to 39% for the 2008 Period. The Company records its provision for income taxes in interim periods based upon its estimated annual effective rate. The Company also records interest expense for its unrecognized tax benefits in the provision for income taxes. The amount of expense for the 2009 Period and 2008 Period was approximately $17,000 and $13,000, respectively.

Liquidity and Capital Resources

Cash and cash equivalents ("cash") decreased by approximately $67,000 as of March 31, 2009 as compared to December 31, 2008. The decrease in cash was mainly attributed to payments against its credit facility, which was partially offset by cash provided by working capital. Cash provided by operations was $2.9 million for the 2009 Period as compared to cash used of $3.2 million for the 2008 Period. The Company is actively managing its working capital and placing continued emphasis on its inventory and accounts receivable. The Company was able to reduce its inventory by approximately $1.5 million during the 2009 Period.

The Company used approximately $165,000 for capital expenditures during the 2009 Period as compared to $594,000 during the 2008 Period. The Company has spent approximately $162,000 in support of its Composite Product segment and approximately $3,000 in support of its Composite Materials segment. Management anticipates capital expenditures will approximate between $0.5 and $1.0 million for the year ended December 31, 2009.

The Company did not pay any dividends during the 2009 Period. The Company declared and paid a special $5.00 cash dividend to shareholders during the 2008 Period. The dividend payments to shareholders in support of the special dividend totaled $25.8 million. In addition to the special dividend, the Company declared a $0.15 per share quarterly dividend during the 2008 Period and subsequently paid the dividend in April of 2008. The Company terminated its quarterly dividend in August of 2008. The Company's dividend policy is reviewed quarterly during the Company's Board of Directors meetings and subject to Board approval.

The Company borrowed $8.0 million from Key Bank during the 2008 Period to help support the payment of the special dividend. The borrowing is comprised of a term loan and a revolving line of credit. The Company borrowed $5.0 million against the term loan, which is payable over a five year period. The Company makes monthly principal payments of $83,333 plus interest to Key Bank against the term loan. The Company paid $250,000 against the term loan in the 2009 Period as compared to $167,000 for the 2008 Period. The Company borrowed $1.4 million against the revolving line of credit and made payments against it of $4.0 million during the 2009 Period as compared to borrowings of $3.0 million during the 2008 Period. The Company was able to reduce its total debt by $2.9 million during the quarter ended March 31, 2009.

We believe that our cash from operating activities will be adequate to meet our anticipated requirements for working capital, capital expenditures and debt service for the next twelve months. There can be no assurance, however, that our business will continue to generate cash flows at current levels. If we are unable to generate sufficient cash flow from operations, we may be required to sell assets, reduce capital expenditures or obtain additional financing and there is no assurance we will be able to do so on a timely basis or on satisfactory terms.

Recent Accounting Pronouncements

Effective January 1, 2008, we adopted Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements," ("SFAS No. 157"), for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. Effective January 1, 2009, all other nonfinancial assets and liabilities measured at fair values in the financial statements on a nonrecurring basis were subject to SFAS No. 157. Nonfinancial nonrecurring assets and liabilities included on our consolidated balance sheets include long lived assets that are measured at fair value to test for and measure an impairment charge, when necessary. No such nonfinancial assets or liabilities were subject to SFAS No. 157 for the three months ended March 31, 2009.

On April 1, 2009, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies." The FSP amends the guidance in FASB Statement No. 141 (Revised 2007), "Business Combinations," ("SFAS No. 141R") to: (i) require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with FASB Statement No. 5, "Accounting for Contingencies," and FASB Interpretation No. 14, "Reasonable Estimation of the Amount of a Loss;" (ii) eliminate the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB decided to require that entities include only the disclosures required by Statement No. 5 and that those disclosures be included in the business combination footnote; and
(iii) require that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS No. 141R. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of this FSP will have on its financial statements.

On April 9, 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, "Fair Value Measurements." FSP FAS 157-4 must be applied prospectively and retrospective application is not permitted. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2. The Company is currently evaluating the impact, if any, that the adoption of this FSP will have on its financial statements.

On April 9, 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on debt securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4. The Company is currently evaluating the impact that the adoption of this FSP will have on its financial statements.

On April 9, 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP . . .