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, liquidity and capital resources and contractual obligations. The Company is disclosing segment information for two segments. Composite Products is comprised of sales of golf shafts, hockey sticks and other composite products. The Company discontinued the sale of hockey sticks as of the second quarter ended June 30, 2007, as such; there are no sales of hockey sticks reflected in the Composite Products sales for 2008. Composite Materials is comprised of external sales of prepreg products in the forms of uni-tapes, fabrics and film adhesives along with contributions from its interest in Carbon Fiber Technology LLC ("CFT"). The Company sold its interest in CFT during the fourth quarter ended December 31, 2007 to its joint venture partner. As such, the Composite Materials numbers reported for 2008 do not reflect the benefit from owning CFT.

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 and inventories, which were discussed in the 2007 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, 2008, 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 and, to a lesser extent, hockey sticks, (see discussion below regarding the Company's decision to exit the hockey business). 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. In 2003, the Company re-emerged as an innovator in the branded segment of the business, in which shafts tend to sell at higher prices and have higher gross margins than the customized OEM production shafts sold to club manufacturers. 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†.

†          Has had numerous Tour victories

†          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 ProtoTM and the VS ProtoTM 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 2 LPGA wins
to date in 2008.



†          Voodoo (soon to be released)



†          Introduced on Tour only.

†          Becoming one of the most popular shafts on the PGA Tour.

†          Already used to win 4 events since its introduction.

†          Projected to begin production during the fourth quarter of 2008.

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 have led to tremendous success on Tour over the past several years.

Tour Play

† 2006 Tour Play

† PGA, LPGA and Nationwide Tour professionals using Aldila shafts won a total of 32 Tour events.

†          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.

† 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 Golf Tips Magazine's Technology Award.

†          2008 Tour Play



†          Aldila has enjoyed a great start to the 2008 Tour season.

†          On the PGA Tour, players using Aldila shafts have won 6 events

† Players using Aldila shafts have also won 2 events on the Nationwide Tour and 6 events on the Champions Tour.

† On the LPGA Tour we have won every event but 2 and Paula Creamer, an Aldila advisory staff member, has won twice including last weeks SemGroup Championship.

Our entire high performance line has done well with Tour players winning using our NV®, VS Proto™, DVS™, MOI Proto and Voodoo shafts.

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 2007, net sales to Acushnet Company, Ping and Callaway Golf, represented 21%, 18% and 13% 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 2008.

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.

During the 1990's, the graphite golf shaft industry became increasingly competitive, placing extraordinary pressure on the selling prices of the Company's golf shafts and adversely affecting its gross profit margins and level of profitability. The competition on OEM production stock offerings was very tough, often times price being the most critical factor. This had the effect of reducing the Company's average selling prices during the 1990s. Customers shifted away from branded shafts to customized OEM production shafts. As the Company re-emerged in 2003 in the branded shaft segment, the Company was able to achieve higher average selling prices. In late 2004, the Company began to offer its OEM customers co-branded shafts for their stock offerings. The introduction of co-branded shafts and the continued success in the branded segment had the effect of increasing the Company's net sales and average selling prices over prior years. The competition in the branded segment of the business has increased as there are a lot of good branded shafts in the marketplace, with the Company's considered amongst the best. The Company's average selling price decreased by approximately 13% for March 31, 2008 as compared to March 31, 2007. The majority of this is attributed to less branded shafts in the Company's mix of shafts. As the Company's branded and co-branded shafts typically sell at higher selling prices than OEM production shafts, a significant change in product mix in any one period will have the effect of increasing or decreasing the average selling price of shafts sold. In addition, increases in carbon fiber prices passed on to its customers could also have the effect of increasing average selling prices in the future.

The Company's response to the pricing pressure it faced during the 1990's, and continues to face, has been to vertically integrate, reduce its cost structure and to focus on continued penetration of the branded and co-branded shaft segments. The vertical integration began in 1994 when the Company started manufacturing prepreg, the principal raw material in the manufacture of graphite golf shafts, at its facility in Poway, California. See Composite Materials. In addition to the Company's efforts to reduce its costs through vertical integration, the Company also reduced its cost structure by shifting more of its shaft production to lower cost labor markets, such as Mexico, China and in 2007, Vietnam.

In addition to golf shafts, the Company also manufactured hockey sticks for one customer. The Company began manufacturing and selling hockey sticks in 2002. The Company had not seen a significant increase in sales of hockey sticks and was not satisfied with the status of its hockey business during the current year and discontinued this product line in the second quarter of 2007.

Composite Materials

The Composite Materials segment is comprised of external sales of prepreg, film adhesives, fabrics and other materials and the contribution provided by the Company's 50% owned interest in CFT. The Company sold its 50% interest in CFT to its joint venture partner on November 30, 2007. As such, the Composite Materials segment will not benefit from future contributions from CFT. 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. The Company's external sales of prepreg and other materials have increased over the past several years. Sales of prepreg as a percentage of net sales were 15% for the three month period ended March 31, 2008 ("2008 Period") versus 14% for the three month period ended March 31, 2007 ("2007 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 just 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 will support the Company's wide tape line and provide protection as the Company had previously only one resin filmer. In addition, the wide tape line will allow the Company to enter some markets it has previously not been able to get into.

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.

In addition to vertical integration through prepreg, in 1998 the Company established a manufacturing facility in Evanston, Wyoming for the production of carbon fiber , which is a significant raw material used in the prepreg production process. On October 29, 1999, SGL Carbon Fibers and Composites, Inc. ("SGL") purchased a 50% interest in the Company's carbon fiber manufacturing operation. On November 30, 2007, SGL purchased the remaining 50% of CFT from the Company. As part of the sale, the Company signed a five year supply agreement with CFT, which allows but does not require the Company to purchase up to 900,000 pounds of carbon fiber in year 1 and 996,000 pounds of carbon fiber in years 2-5.

Results of Operations



First Quarter 2008 Compared to First Quarter 2007



Net Sales



                                               As of March 31,
                                      2008       2007       Chg      % Chg
              Composite Products    $ 14,117   $ 17,830   $ (3,713 )   (21 )%
              Composite Materials      2,546      2,832       (286 )   (10 )%
              Total Net Sales       $ 16,663   $ 20,662   $ (3,999 )   (19 )%

Net sales decreased by $4.0 million, or 19%, for the 2008 Period as compared to the 2007 Period. The decrease in sales was attributed to decreases in Composite Product and Composite Materials sales. The decrease in the Composite Product sales of $3.7 million, is mainly attributed to a change in product mix in 2008 as compared to 2007 and to a lesser extent a 6% decrease in shaft unit sales. The Company's average selling price of golf shaft sales decreased by 13% in the 2008 Period as compared to the 2007 Period. There were decreases in sales of branded and co-branded products, which were partially offset by an increase in sales of OEM products. A weak economy and decreased industry retail sales compared to last year impacted our sales. Our customers appear to be taking a cautious approach to 2008. While we are disappointed with our sales we believe we are well positioned for the back half of the year as new programs that we will participate in should begin production during the late third quarter and should be in full production during the fourth quarter. Branded golf and co-branded shaft sales decreased to 32% of Composite Products sales for the 2008 Period as compared to 51% for the 2007 Period. In addition, the 2007 Period benefited from $572,000 of hockey stick sales as compared to zero for the 2008 Period. Composite Materials sales decreased by $286,000, or a 10% decrease. Composite Materials have increased to approximately 15% of the Company's consolidated net revenues. This quarter represents the first negative quarterly comparison since we began focusing on the

expansion in this segment of our business. We believe this to be temporary and our investments made in terms of capacity and personnel will resume their momentum in this segment later in the year if economic factors improve for our customer base. The Company completed the installation of its wide tape line during the 2008 Period. The Company believes the addition of this wide line will help the Company enter markets that it has been unable to participate in.

Gross Profit



                                               As of March 31,
                                      2008      2007       Chg      % Chg
               Composite Products    $ 3,849   $ 5,691   $ (1,842 )   (32 )%
               Composite Materials       710     1,499       (789 )   (53 )%
               Total Gross Profit    $ 4,559   $ 7,190   $ (2,631 )   (37 )%

Total gross profit decreased by approximately $2.6 million, or 37% in 2008 Period as compared to the 2007 Period. The decrease in Composite Products gross profit was mainly attributed to the decrease in branded and co-branded sales in the 2008 Period as compared to 2007 Period. Branded and co-branded shafts typically sell at higher selling prices and contribute more to gross profit. Composite Products gross margin decreased to 27% for the 2008 Period as compared to 32% for the 2007 Period. The Company's Vietnam factory is ramping up and many of the Company's customers have toured this facility and have come away impressed. The Company plans to continue to move more of its manufacturing to Vietnam, which should help to offset the rising costs in China and improve the Company's gross profit in the future. There were no significant changes in inventory reserves during the 2008 or 2007 Period. The Composite Materials gross profit decreased by approximately $789,000, or 53%, in 2008 Period as compared to the 2007 Period. The decrease was mainly attributed to a decrease in contribution provided by the operations of CFT. The Company sold its remaining 50% interest in CFT to its joint venture partner during the fourth quarter of 2007, as such the Composite Materials segment did not benefit from CFT during the 2008 Period.

Operating Income



                                                    As of March 31,
                                    2008           2007            Chg         % Chg
  Gross profit                   $     4,559    $     7,190    $    (2,631 )       (37 )%

  Selling, General &
  Administrative ("SG&A)
  Expense
  Composite Products                   3,709          3,152            557          18 %
  Composite Materials                    324            220            104          47 %
  Total SG&A                           4,033          3,372            661          20 %

  Operating Income
  Composite Products                     140          2,539         (2,399 )       (94 )%
  Composite Materials                    386          1,279           (893 )       (70 )%
  Operating Income               $       526    $     3,818    $    (3,292 )       (86 )%
  Operating Margin                         3 %           18 %          (15 )%

Operating income decreased by approximately $3.3 million, or 86%, in the 2008 Period as compared to the 2007 Period. The decrease was mainly attributed to a decrease in gross profit $2.6 million and an increase in SG&A of $661,000. SG&A increased as a percentage of revenues to 24% in the 2008 Period as compared to 16% for the 2007 Period. SG&A expenses were higher in the current quarter, which was primarily driven by front-loaded marketing programs and increases in selling expenses. The Company anticipates that its marketing expenses will be relatively flat for the year ended December 31, 2008 as compared to the same period in 2007. The increase in sales expenses is attributed to increase in sales efforts to support both the Composite Products and Composite Materials segments. In addition, the Company incurred increased legal costs of approximately $81,000 related to the establishment of a credit facility with KeyBank National Association ("Key Bank"), professional fees of approximately $104,000 in relation to the restatement of the Company's previously issued financial statements, and lastly, increased stock based compensation expense. The Company anticipates that stock-based compensation expense will increase in the future to the extent that the Company's Board of Directors approves additional grants of equity awards to employees and officers of the Company. In addition, each May there is an automatic grant of options to the external directors of the Company.

Other Income



                                                       As of March 31,
                                              2008     2007       Chg      % Chg

        Operating income                      $ 526   $ 3,818   $ (3,292 )   (86 )%

        Interest income                         220       199         21      11 %
        Interest expense                        (39 )       -         39     100 %
        Other, net                               40        43         (3 )    (7 )%
        Equity in earnings of joint venture       -       105       (105 )  (100 )%
        Total other income                      221       347       (126 )   (36 )%
        Income before income taxes            $ 747   $ 4,165   $ (3,418 )   (82 )%

Other Income decreased by approximately $126,000, or 36%, for the 2008 Period as compared to the 2007 Period. The majority of the decrease was attributed to the benefit from CFT. The Company did not benefit from equity in earnings from CFT during the 2008 Period as the Company no longer owns 50% of CFT.

Income Taxes



                                                   As of March 31,
                                         2008     2007       Chg       % Chg
            Income before income taxes   $ 747   $ 4,165   $ (3,418 )    (82 )%
            Provision for income taxes     289     1,470     (1,181 )    (80 )%
            Net income                   $ 458   $ 2,695   $ (2,237 )    (83 )%
            Effective tax rate              39 %      35 %        4 %
            Profit margin                    3 %      13 %      (10 )%

The Company recorded a provision for income taxes in the amount of $289,000 in the 2008 Period as compared to $1.5 million for the 2007 Period. The Company's effective tax rate was 39% for the 2008 Period as compared to 35% for the 2007 Period. The Company records its provision for income taxes in interim periods based upon it estimated annual effective rate. The Company's effective rate for the year ended 2007 was 37% and as such, the Company is utilizing 37% to record its provision for income taxes in the interim periods in the current year. The Company also records interest expense for its unrecognized tax benefits in the provision for income taxes. The amount of expense for the 2008 Period and 2007 Period was approximately $13,000; however it had a larger effect on the Company's effective rate for the 2008 Period as compared to the 2007 Period. The interest expense recorded in the provision represented approximately 2% of the Company's effective rate for the 2008 Period as compared to less than 1% for the 2007 Period. The Company estimates that its effective tax rate going forward will be between 35% and 38%.

Liquidity and Capital Resources

Cash and cash equivalents ("cash") decreased by approximately $21.7 million as of March 31, 2008 as compared to December 31, 2007. The decrease in cash was mainly attributed to dividend payments of $25.8 million, capital spending of approximately $594,000 and income tax payments of $4.4 million, which was partially offset by borrowings of $8.0 million under the Company's credit facility with Key Bank. The Company entered into the credit facility with Key Bank on February 8, 2008. See note 6 to the consolidated financial statements.

The Company used approximately $594,000 for capital expenditures during the 2008 Period as compared to $2.3 million during the 2007 Period. The majority of the capital expenditures in 2008 were attributed to the final installation of the wide tape line. The Company has spent approximately $244,000 in support of Composite Materials, which is attributed to the aforementioned final installation of the wide tape line. In addition, the Company has spent approximately $350,000 in support of Composite Products, mainly attributed to various equipment in support of shaft manufacturing. Management anticipates capital expenditures will approximate between $2.0 million and $3.0 million for 2008.

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'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 . . .