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 six months ended June 30, 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

Composite Products

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 in 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 9 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 is having one of the best years ever on Tour in 2009.

† On the PGA Tour, players using Aldila shafts have won 10 events, including the Mercedes-Benz Championship, WGC-Accenture Match Play Championship and The Masters.

† Players using Aldila shafts have also won 10 events on the Nationwide Tour.

† Aldila was the most popular wood and hybrid shaft at The Masters, U.S. Open, The Open Championship and every World Golf Championship to date.

† Aldila has also been the most popular wood and hybrid shaft at the majority of all other PGA and Nationwide Tour events.

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 decreased by approximately 6% for the three month period ended June 30, 2009 ("2009 Quarter") as compared to the three month period ended June 30, 2008 ("2008 Quarter") and has decreased 3% for the six month period ended June 30, 2009 ("2009 Period") as compared to the six month period ended June 30, 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. The Company has continued to shift its production from North America to Asia and is currently reviewing its Mexico operations for potential further reductions.

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 approximately 12% for the 2009 Period as compared to approximately 16% 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 provides 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



Second Quarter 2009 Compared to Second Quarter 2008



Net Sales



                           For the three month periods ended June 30,
                          2009            2008            Chg        % Chg
Composite Products    $      9,030    $     11,368    $     (2,338 )   (21 )%
Composite Materials          1,544           2,276            (732 )   (32 )%
Total Net Sales       $     10,574    $     13,644    $     (3,070 )   (23 )%

Net sales decreased by $3.1 million, or 23%, for the 2009 Quarter as compared to the 2008 Quarter. The decrease in sales was attributed to decreases in Composite Product and Composite Materials sales. The decrease in the Composite Product sales of $2.3 million is mainly attributed to a decrease in OEM production shafts and branded 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 with an estimated contraction of the golf market between twenty and thirty percent. Club companies continue to actively manage their inventories as they prepare to launch their 2010 product lines. We believe our market share remains

strong based upon our share of the upcoming 2010 product lines, which will begin to get under way in the third quarter. The Company's average selling price of golf shafts decreased by approximately 6% for the 2009 Quarter as compared to the 2008 Quarter. Composite Materials sales decreased by $732,000, or a 32% decrease. Composite Materials have decreased to approximately 15% of the Company's consolidated net revenues for the 2009 Quarter as compared to 17% for the 2008 Quarter. 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. We have made two key hires to strengthen our sales and factory operations.

Gross Profit



                          For the three month periods ended June 30,
                         2009           2008             Chg        % Chg
Composite Products    $       948    $     1,994    $      (1,046 )   (52 )%
Composite Materials           435            623             (188 )   (30 )%
Total Gross Profit    $     1,383    $     2,617    $      (1,234 )   (47 )%

Total gross profit decreased by approximately $1.2 million, or 47%, in the 2009 Quarter as compared to the 2008 Quarter. The decrease in Composite Products gross profit was mainly attributed to the decrease in net sales in the 2009 Quarter as compared to 2008 Quarter. 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 10% for the 2009 Quarter as compared to 18% for the 2008 Quarter, which is mainly attributed to lower volumes for the Company to spread its manufacturing costs across. The Composite Materials gross profit decreased by approximately $188,000, or 30%, in the 2009 Quarter as compared to the 2008 Quarter. The decrease was mainly attributed to a decrease in the quantity of Composite Materials shipped in the 2009 Quarter as compared to the 2008 Quarter. Composite Materials gross margin was 28% for the 2009 Quarter as compared to 27% for the 2008 Quarter.

Operating (Loss) Income



                                           For the three month periods ended June 30,
                                       2009            2008             Chg           % Chg
Gross profit                       $      1,383     $     2,617     $     (1,234 )        (47 )%
Selling, General &
Administrative ("SG&A) Expense
Composite Products                        2,348           2,989             (641 )        (21 )%
Composite Materials                         210             403             (193 )        (48 )%
Total SG&A                                2,558           3,392             (834 )        (25 )%

Operating (Loss) Income
Composite Products                       (1,400 )          (995 )           (405 )        (41 )%
Composite Materials                         225             220                5            2 %
Operating Loss                     $     (1,175 )   $      (775 )   $       (400 )        (52 )%
Operating Margin                            (11 )%           (6 )%            (5 )%

Operating loss increased by $400,000, or 52%, in the 2009 Quarter as compared to the 2008 Quarter. The increase in operating loss was attributed to a decrease in gross profit of $1.2 million, which was partially offset by a decrease in SG&A expenses of $834,000. 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 24% in the 2009 Quarter as compared to 25% for the 2008 Quarter. 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 Quarter as compared to the 2008 Quarter.

Other Income (Expense)



                               For the three month periods ended June 30,
                                2009            2008          Chg        % Chg

Operating loss             $       (1,175 )  $     (775 )  $     (400 )    (52 )%

Interest income                         7            42           (35 )    (83 )%
Interest expense                      (44 )         (91 )          47       52 %
Other, net                            (64 )          18           (82 )   (456 )%
Total other expense                  (101 )         (31 )         (70 )   (226 )%
Loss before income taxes   $       (1,276 )  $     (806 )  $     (470 )    (58 )%

Other income (expense) decreased by approximately $70,000, or 226%, for the 2009 Quarter as compared to the 2008 Quarter. The majority of the decrease was attributed to a loss on scrapped machinery and a reduction in interest income, which was partially offset by a decrease in interest expense associated with the Company's credit facility.

Income Taxes



                               For the three month periods ended June 30,
                                2009            2008          Chg        % Chg
Loss before income taxes   $       (1,276 )  $     (806 )  $     (470 )    (58 )%
Benefit for income taxes             (649 )        (283 )        (366 )    129 %
Net loss                   $         (627 )  $     (523 )  $     (104 )    (20 )%
Effective tax rate                     51 %          35 %

The Company recorded a benefit for income taxes in the amount of $649,000 in the 2009 Quarter as compared to $283,000 for the 2008 Quarter. The Company's effective tax rate was 51% for the 2009 Quarter as compared to 35% for the 2008 Quarter. The Company's 51% effective rate is driven by foreign taxable income at statutory rates which are less than the statutory rates in the United States. The foreign taxable income created a larger taxable loss in the United States. The current effective tax rate may not be indicative of the Company's effective rate in the future.

Six Month Period Ended June 30, 2009 Compared to the Six Month Period Ended June 30, 2008

Net Sales



                          For the six month periods ended June 30,
                          2009            2008           Chg      % Chg
Composite Products    $     21,347    $     25,485    $  (4,138 )   (16 )%
Composite Materials          3,030           4,822       (1,792 )   (37 )%
Total Net Sales       $     24,377    $     30,307    $  (5,930 )   (20 )%

Net sales decreased by $5.9 million, or 20%, 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 $4.1 million is mainly attributed to a decrease in OEM production shafts and branded 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 with an estimated contraction of the golf market between twenty and thirty percent. Club companies continue to actively manage their inventories as they prepare to launch their 2010 product lines. We believe our market share remains strong based upon our share of the upcoming 2010 product lines, which will begin to get under way in the third quarter. The Company's average selling price of golf shafts decreased by approximately 3% for the 2009 Period as compared to the 2008 Period. Composite Materials sales decreased by $1.8 million, or a 37% decrease. Composite Materials have decreased to

approximately 12% of the Company's consolidated net revenues for the 2009 Period as compared to 16% for the 2008 Period. 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. We have made two key hires to strengthen our sales and factory operations.

Gross Profit



                           For the six month periods ended June 30,
                         2009           2008            Chg        % Chg
Composite Products    $     3,398    $     5,843    $     (2,445 )   (42 )%
Composite Materials           847          1,333            (486 )   (36 )%
Total Gross Profit    $     4,245    $     7,176    $     (2,931 )   (41 )%

Total gross profit decreased by approximately $2.9 million, or 41%, 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 16% for the 2009 Period as compared to 23% for the 2008 Period, which is mainly attributed to lower volumes to spread our manufacturing costs. The Composite Materials gross profit decreased by approximately $486,000, or 36%, 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 as compared to 28% for the 2008 Period.

Operating (Loss) Income



                                           For the six month periods ended June 30,
                                      2009            2008             Chg          % Chg
Gross profit                       $     4,245     $     7,176     $    (2,931 )        (41 )%
Selling, General &
Administrative ("SG&A) Expense
Composite Products                       4,957           6,698          (1,741 )        (26 )%
Composite Materials                        431             727            (296 )        (41 )%
Total SG&A                               5,388           7,425          (2,037 )        (27 )%

Operating (Loss) Income
Composite Products                      (1,559 )          (855 )          (704 )        (82 )%
Composite Materials                        416             606            (190 )        (31 )%
Operating Loss                     $    (1,143 )   $      (249 )   $      (894 )       (359 )%
Operating Margin                            (5 )%           (1 )%           (4 )%

Operating loss increased by $894,000, or 359%, in the 2009 Period as compared to the 2008 Period. The increase in operating loss was attributed to a decrease in gross profit of $2.9 million, which was partially offset by a decrease in SG&A expenses of $2.0 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 22% in the 2009 Periods 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 $1.8 million in the 2009 Period as compared to the 2008 Period.

Other Income (Expense)



                                    For the six month periods ended June 30,
                                   2009          2008           Chg        % Chg

Operating loss                 $     (1,143 )  $    (249 )  $       (894 )   (359 )%

Interest income                           9          262            (253 )    (97 )%
Interest expense                       (102 )       (130 )            28      (22 )%
Other, net                              (80 )         58            (138 )   (238 )%
Total other income (expense)           (173 )        190            (363 )   (191 )%
Lossi before income taxes      $     (1,316 )  $     (59 )  $     (1,257 ) (2,131 )%

. . .