<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>form20ffy2004.txt
<DESCRIPTION>FISCAL YEAR ENDED DECEMBER 31, 2004
<TEXT>



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------
                                    FORM 20-F
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2004
                               -------------------
                           Commission File No. 0-17253

                            T.A.T. TECHNOLOGIES LTD.
              (Exact name of Registrant as specified in its charter
               and translation of Registrant's name into English)
                               -------------------
                                     Israel
                 (Jurisdiction of incorporation or organization)

                        P.O. Box 80, Gedera 70750, Israel
                    (Address of principal executive offices)
                               -------------------

 Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      None

 Securities registered or to be registered pursuant to Section 12(g) of the Act:

                       Ordinary Shares, NIS 0.90 Par Value
                                (Title of Class)


                    Securities for which there is a reporting
                obligation pursuant to Section 15(d) of the Act:

                                      None

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 6,042,671 Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
                                                 Yes   X        No ___

Indicate by check mark which financial statement item the Registrant
has elected to follow:
                                                 Item 17. ___ Item  18. X



<PAGE>


                                  INTRODUCTION
                                  ------------

         TAT Technologies Ltd. is engaged in the manufacture and sale of a broad
range of heat transfer equipment used in mechanical and electronic systems on
board commercial and military aircraft and in a variety of other electronic
equipment. We are also engaged in the remanufacture, overhaul and repair of heat
transfer equipment and other aircraft components manufactured by us, and other
companies. In addition, we manufacture, sell and service certain related
products for use in aircraft and electronic systems. We were incorporated under
the laws of the State of Israel in April 1985, to develop the computerized
systems business of our parent company, TAT Industries Ltd., or TAT Industries,
a publicly held Israeli corporation engaged in the manufacture and sale of
aeronautical equipment. In December 1991, we acquired the heat exchanger
operations of TAT Industries and in February 2000, we entered into an agreement
with TAT Industries to purchase its operations, relating to the manufacture of
aviation accessories and the lease of certain real estate and buildings. From
our public offering in March 1987 until July 1998, our ordinary shares were
listed on the NASDAQ National Market (symbol: TATTF). In July 1998, the listing
of our ordinary shares was transferred to the NASDAQ SmallCap Market. As used in
this annual report, the terms "we," "us" and "our" mean TAT Technologies Ltd.
and its subsidiaries, unless otherwise indicated.

         Except for the historical information contained in this annual report,
the statements contained in this annual report are "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, as amended, with respect to our
business, financial condition and results of operations. Such forward-looking
statements reflect our current view with respect to future events and financial
results.

         Statements which use the terms "anticipate," "believe," "do not
believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions are intended to identify forward-looking statements. We remind
readers that forward-looking statements are merely predictions and therefore
inherently subject to uncertainties and other factors and involve known and
unknown risks that could cause the actual results, performance, levels of
activity, or our achievements, or industry results, to be materially different
from any future results, performance, levels of activity, or our achievements
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Except as required by applicable law, including the
securities laws of the United States, we undertake no obligation to publicly
release any update or revision to any forward looking statements to reflect new
information, future events or circumstances, or otherwise after the date hereof.
We have attempted to identify significant uncertainties and other factors
affecting forward-looking statements in the Risk Factors section that appears in
Item 3. "Key Information - Risk Factors.

         Our consolidated financial statements appearing in this annual report
are prepared in dollars and in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP. All references in this annual
report to "dollars" or "$" are to dollars and all references in this annual
report to "NIS" are to New Israeli Shekels.

         Statements made in this annual report concerning the contents of any
contract, agreement or other document are summaries of such contracts,
agreements or documents and are not complete descriptions of all of their terms.
If we filed any of these documents as an exhibit to this annual report or to any
registration statement or annual report that we previously filed, you may read
the document itself for a complete description of its terms.


<PAGE>



PART I.........................................................................5
         Item 1.      Identity of Directors, Senior Management and Advisers....5
         Item 2.      Offer Statistics and Expected Timetable..................5
         Item 3.      Key Information..........................................5
               A.    Selected Financial Data...................................5
               B.    Capitalization and Indebtedness...........................6
               C.    Reasons for the Offer and Use of Proceeds.................6
               D.    Risk Factors..............................................6
         Item 4.      Information on the Company..............................15
               A.    History and Development of the Company...................15
               B.    Business Overview........................................16
               C.    Organizational Structure.................................24
               D.    Property, Plants and Equipment...........................24
         Item 5.      Operating and Financial Review and Prospects............24
               A.    Operating Results........................................24
               B.    Liquidity and Capital Resources..........................33
               C.    Research and Development, Patents and Licenses...........34
               D.    Trend Information........................................34
               E.    Off-balance Sheet Arrangements...........................34
               F.    Tabular Disclosure of Contractual Obligations............35
          Item 6.      Directors, Senior Management and Employees.............35
               A.    Directors and Senior Management..........................35
               B.    Compensation.............................................38
               C.    Board Practices..........................................39
               D.    Employees................................................46
               E.    Share Ownership..........................................47
         Item 7.      Major Shareholders and Related Party Transactions.......48
               A.    Major Shareholders.......................................48
               B.    Related Party Transactions...............................50
               C.    Interests of Experts and Counsel.........................51
         Item 8.      Financial Information...................................51
               A.    Consolidated Statements and Other Financial Information..51
               B.    Significant Changes......................................51
         Item 9.      The Offer and Listing...................................52

<PAGE>


               A.    Offer and Listing Details................................52
               B.    Plan of Distribution.....................................53
               C.    Markets..................................................53
               D.    Selling Shareholders.....................................53
               E.    Dilution.................................................53
               F.    Expense of the Issue.....................................53
         Item 10.     Additional Information..................................53
               A.    Share Capital............................................53
               B.    Memorandum and Articles of Association...................53
               C.    Material Contracts.......................................56
               D.    Exchange Controls........................................57
               E.    Taxation.................................................57
               F.    Dividend and Paying Agents...............................66
               G.    Statement by Experts.....................................66
               H.    Documents on Display.....................................66
               I.    Subsidiary Information...................................67
         Item 11.     Quantitative and Qualitative Disclosures about Market
                      Risk....................................................67
         Item 12.     Description of Securities Other than Equity Securities..67
PART II.......................................................................67
         Item 13.     Defaults, Dividend Arrearages and Delinquencies.........67
         Item 14.     Material Modifications to the Rights of Security
                      Holders.................................................67
         Item 15.     Controls and Procedures.................................67
         Item 16.     [Reserved]..............................................68
         Item 16A.    Audit Committee Financial Expert........................68
         Item 16B.    Code of Ethics..........................................68
         Item 16C.    Principal Accounting Fees and Services..................68
         Item 16D.    Exemptions from the Listing Requirements and
                      Standards for Audit Committee...........................69
PART III......................................................................69
         Item 17.     Financial Statements....................................69
         Item 18.     Financial Statements....................................69
         Item 19.     Exhibits................................................69


<PAGE>




                                     PART I



     Item 1. Identity of Directors, Senior Management and Advisers

         Not applicable

     Item 2. Offer Statistics and Expected Timetable

         Not applicable

     Item 3. Key Information

     A. Selected Financial Data

         The following selected consolidated financial data for and as of the
five years ended December 31, 2004 are derived from our audited consolidated
financial statements which have been prepared in accordance with U.S. GAAP. The
selected consolidated financial data as of December 31, 2004 and 2003 and for
the years ended December 31, 2004, 2003 and 2002 have been derived from our
audited consolidated financial statements and notes included elsewhere in this
annual report. The selected consolidated financial data as of December 31, 2002,
2001 and 2000 and for the years ended December 31, 2001 and 2000 have been
derived from audited consolidated financial statements not included in this
annual report. The selected consolidated financial data set forth below should
be read in conjunction with and are qualified by reference to Item 5. "Operating
and Financial Review and Prospects" and our consolidated financial statements
and notes thereto included elsewhere in this annual report.

Statement of Operations Data:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                           -----------------------------------------------------------------
                                                             2000           2001          2002          2003          2004
                                                           -------        -------       -------       -------       --------
                                                                   (figures in thousands, except per share data)
<S>                                                        <C>            <C>           <C>           <C>           <C>
Revenues...........................................        $28,424        $25,051       $26,280       $30,682       $33,243
Cost of revenues...................................         18,602         17,237        17,750        20,068        22,166
                                                           -------        -------       -------       -------       -------
Gross profit.......................................          9,822          7,814         8,530        10,614        11,077
                                                           -------        -------       -------       -------       -------
Research and development costs, net................            334            257           204           120           125
Selling and marketing expenses.....................          1,509          1,510         1,483         1,958         1,894
General and administrative expenses................          3,472          3,235         2,994         3,476         3,793
                                                           -------        -------       -------       -------       -------
                                                             5,315          5,002         4,681         5,554         5,812
                                                           -------        -------       -------       -------       -------
Operating income ..................................          4,507          2,812         3,849         5,060         5,265
Financial income (expenses), net...................            211            (78)           99           (25)           87
Other income (loss), net...........................            752             (1)            8            24            54
                                                           -------        -------       -------       -------       -------
Income from continuing  operations before taxes on
   income..........................................          5,470          2,733         3,956         5,059         5,406
Taxes on income....................................             23             75           367         1,225         1,667
Equity in net loss of affiliates...................             --             --            --            --            --
Net income ........................................         $5,447         $2,658        $3,589        $3,834        $3,739
                                                           =======        =======       =======       =======       =======
Basic net earnings per share ......................          $1.22          $0.59         $0.80         $0.85         $0.72
Diluted net income per share.......................          $1.13          $0.57        $$0.77         $0.78         $0.67
</TABLE>


<PAGE>

<TABLE>
<S>                                                          <C>            <C>           <C>           <C>          <C>
Weighted average number of shares used in computing
   basic and diluted net income per  share.........          4,483          4,483         4,483         4,510         5,166
Weighted average number of shares used in computing
   diluted net income per share....................          4,651          4,671         4,483         4,907         5,564
Cash dividend per share............................             --             --            --         $0.70         $1.18
</TABLE>

<TABLE>
<CAPTION>
Balance Sheet Data:                                                        As of December 31,
                                             --------------------------------------------------------------------------------
                                                  2000            2001            2002            2003             2004
                                             ---------------- -------------- --------------- ---------------- ---------------
<S>                                             <C>               <C>            <C>             <C>             <C>
Working capital.............................    $17,256           $18,510        $19,685         $22,336         $26,680
Total assets................................     31,819            30,426         35,318          39,392          41,264
Long-term debt, excluding current
   maturities...............................      5,417             3,316          3,362           3,793           4,111
Shareholder's equity........................    $21,190           $23,848        $25,419         $28,684         $32,526
</TABLE>


     B. Capitalization and Indebtedness

         Not applicable.

     C. Reasons for the Offer and Use of Proceeds

         Not applicable.

     D. Risk Factors

         Investing in our ordinary shares involves a high degree of risk and
uncertainty. You should carefully consider the risks and uncertainties described
below before investing in our ordinary shares. Our business, prospects,
financial condition and results of operations could be adversely affected due to
any of the following risks. In that case, the value of our ordinary shares could
decline, and you could lose all or part of your investment.

Risks Related to Our Business and Our Industry

We rely on the aerospace industry and the continued financial crisis in this
industry may adversely affect our sales in the future.

         We sell our products and services primarily to the commercial and
military aerospace industry. Sales to customers in these markets generally
fluctuate with changes in military expenditure budgets and the rate of new
aircraft construction, levels of which have been declining over the past few
years. Moreover, since 2001, and especially following the tragic events of
September 11, 2001, the commercial airline industry has suffered from economic
decline that caused the bankruptcy of several airlines and imposed financial
constraints on the entire industry. As a result of these conditions, the sales
of our products may decrease in the future. The continuance of the crisis in the
commercial aviation industry will adversely affect our business, financial
condition and results of operations.

We derive a large part of our revenues from several major customers. If we lose
any of these customers or they reduce the amount of business they do with us,
our revenues may be seriously affected.

         One of our non-governmental customers accounted for approximately 15.4%
of our revenues in 2004. Four customers accounted for a total of approximately
43.1% of our revenues in 2004, three customers accounted for approximately 40.3%
of our revenues for the year ended December 31, 2003 and

                                       6

<PAGE>


four customers accounted for a total of approximately 46.1% of our revenues in
2002. We can't be sure that any of these customers will maintain the same volume
of business with us in the future. If we lose any of these customers or they
reduce the amount of business they do with us, our revenues may be seriously
affected.

We derive a large part of our revenues from government business. A loss of all,
or a major portion, of our revenues from government contracts could have a
material adverse effect on our operations.

         A portion of our revenues are from contracts with the U.S. and Israeli
Governments, acting through their various departments and agencies. Sales to the
U.S. and Israeli governments, accounted for approximately 10.6% and 2.6% of our
revenues for 2004, respectively, approximately 15.3% and 3.3% of our revenues
for the year ended December 31, 2003, respectively, and approximately 17.3% and
3.2% of our revenues for 2002, respectively.

         Business with the U.S. and Israeli governments, as well as with the
governments of other countries, is subject to risks which are not as relevant in
business with private parties. For example:

          o    legislative or administrative  requirements may delay payment for
               performance of contracts;

          o    our sales to government  agencies,  authorities and companies are
               directly affected by these customers'  budgetary  constraints and
               the priority  given in their  budgets to the  procurement  of our
               products;

          o    since  these  contracts  are  generally   terminable-at-will,   a
               government may terminate  contracts for its convenience,  because
               of  a  change  in  its   requirements,   policies  or   budgetary
               constraints,  or as a result of a change  in the  administration;
               and

          o    our  costs may be  adjusted  as a result of audits or we may have
               increased or unexpected  costs causing losses or reduced  profits
               under fixed-price contracts.

         While 58.66% of our revenues is derived from the sale of products for
the non-military markets in the United States, Israel and abroad, we believe
that the success and development of our business depends upon our ability to
participate in the defense programs of the United States, Israel and other
governments and the continued commitment by these governments of substantial
resources to such programs. A loss of all, or a major portion, of our revenues
from government contracts could have a material adverse effect on our
operations.

We depend on a limited number of suppliers of components for our products and if
we are unable to obtain these components when needed, we would experience delays
in manufacturing our products and our financial results could be adversely
affected.

         We acquire most of the components for the manufacturing of our products
from a limited number of suppliers, most of whom are located in Israel and the
United States. Certain of these suppliers are currently the sole source of one
or more components upon which we are dependent. Suppliers of some of the
components for manufacturing require us to place orders with significant
lead-time to assure supply in accordance with our manufacturing requirements.
Inadequacy of operating funds may cause us to delay placement of such orders and
may result in delays in supply. Delays in supply may significantly hurt our
ability to fulfill our contractual obligations and may significantly hurt our
business and result of operations. We cannot assure you that we will be able to
continue to obtain such components from these suppliers on satisfactory
commercial terms.

                                       7

<PAGE>


We may face increased costs and reduced supply of raw materials. There can be no
assurance that we will be able to recoup any future increases in the cost of raw
materials or in electric power costs through price increases for our products.

         Since 2003, the cost of raw materials used in our production, has
fluctuated significantly due to market and industry conditions. The cost of
electric power has also increased in the last several years. There can be no
assurance that we will be able to recoup any future increases in the cost of raw
materials or electric power costs through price increases for our products.

Reduction in military budgets worldwide may cause a reduction in our revenues,
which would adversely affect our business, operating results and financial
condition.

         A significant portion of our revenues is derived from the sale of
products for military applications. These revenues, on a consolidated basis,
totaled approximately $13.7 million, or 41.34 % of revenues in 2004, $15.2
million, or 49.7% of revenues, in 2003 and $13.1 million, or 49.7% of revenues,
in 2002. The military budgets of a number of countries have been reduced and may
be further reduced in the future. Declines in military budgets may result in
reduced demand for our products and manufacturing services. This would result in
reduction in our core business' revenues and adversely affect our business,
results of operations and financial condition.

We operate in a highly competitive field. We may not be able to offer our
products as part of integrated systems to the same extent as our competitors or
successfully develop or introduce new products that are more cost effective or
offer better performance than those of our competitors. Failure to do so could
adversely affect our business, financial condition and results of operations.

         The market for heat exchangers and other heat transfer products is
highly competitive, and we may not be able to compete effectively in our market.
Our principal competitors are Honeywell Corporation, or Honeywell, Hamilton
Sunstrand, or Hamilton, and Lori Inc., or Lori. Some of our competitors are far
larger, have substantially greater resources, including technical, financial,
research and development and marketing and distribution capabilities than we
have, and enjoy greater market recognition than we have. These competitors may
be able to achieve greater economies of scale and may be less vulnerable to
price competition than us. We may not be able to offer our products as part of
integrated systems to the same extent as our competitors or successfully develop
or introduce new products that are more cost effective or offer better
performance than those of our competitors. Failure to do so could adversely
affect our business, financial condition and results of operations.

In May 2005, we entered into an agreement for the purchase of Piedmont Aviation
Component Services, LLC, subject to certain closing conditions. No assurance can
be given that we will be able to successfully operate this company in the
future. If this company is unsuccessful, our future results of operations will
be adversely affected.

         On May 24, 2005, our subsidiary, Limco-Airepair, Inc., entered into an
agreement, subject to certain closing conditions, for the purchase of Piedmont
Aviation Component Services, LLC, or Piedmont, a private company based in
Kernersville, North Carolina, engaged in the repair and overhaul of various
aircraft accessories. Under the terms of the acquisition, we agreed to pay $5.5
million for Piedmont and to repay $9.5 million of its outstanding indebtedness.
In 2004, Piedmont had a net lost of $168,000. No assurance can be given that
Piedmont will be profitable in the future. If Piedmont is not profitable in the
future, we may lose our investment in this company and our future results of
operations will be adversely affected.

                                       8

<PAGE>


We may engage in future acquisitions that could dilute our stockholders' equity
and harm our business, results of operations and financial condition.

         We have pursued, and will continue to pursue, growth opportunities
through internal development and acquisition of complementary businesses,
products and technologies. We are unable to predict whether or when any other
prospective acquisition will be completed. The process of integrating an
acquired business may be prolonged due to unforeseen difficulties and may
require a disproportionate amount of our resources and management's attention.
We cannot assure you that we will be able to successfully identify suitable
acquisition candidates, complete acquisitions, integrate acquired businesses
into our operations, or expand into new markets. Further, once integrated,
acquisitions may not achieve comparable levels of revenues, profitability or
productivity as our existing business or otherwise perform as expected. The
occurrence of any of these events could harm our business, financial condition
or results of operations. Future acquisitions may require substantial capital
resources, which may require us to seek additional debt or equity financing.

         Future acquisitions by us could result in the following, any of which
could seriously harm our results of operations or the price of our stock:

          o    issuance  of equity  securities  that would  dilute  our  current
               stockholders' percentages of ownership;

          o    large one-time write-offs;

          o    the incurrence of debt and contingent liabilities;

          o    difficulties in the  assimilation  and integration of operations,
               personnel, technologies,  products and information systems of the
               acquired companies;

          o    diversion of management's attention from other business concerns;

          o    contractual disputes;

          o    risks of entering  geographic  and  business  markets in which we
               have no or only limited prior experience; and

          o    potential loss of key employees of acquired organizations.

Rapid technological changes may adversely affect the market acceptance of our
products.

         The aerospace market in which we compete is subject to technological
changes, introduction of new products, change in customer demands and evolving
industry standards. Our future success will depend upon our ability to keep pace
with technological developments and to timely address the increasingly
sophisticated needs of our customers by supporting existing and new technologies
and by developing and introducing enhancements to our current products and new
products. We cannot assure you that we will be successful in developing and
marketing enhancements to our products that will respond to technological
change, evolving industry standards or customer requirements; that we will not
experience difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements; or that such enhancements will
adequately meet the requirements of the market and achieve any significant
degrees of market acceptance. If release dates of our new products or
enhancements are delayed or, if when released, they fail to achieve market
acceptance, our business, operating results and financial condition would be
materially adversely affected.

                                        9

<PAGE>


We may encounter difficulties with our international operations and sales. We
cannot assure you that we will be able to sustain or increase revenues from
international operations or that we will not encounter significant difficulties
in connection with the sale of our products in international markets or that one
or more of these factors will not have a material adverse effect on our future
revenues and, as a result, our business, operating results and financial
condition.

         While our principal executive offices are located in Israel, 84.7% of
our sales in 2004, 84.4% of our sales in 2003 and 83.7% of our sales in 2002
were exports. This subjects us to many risks inherent in international business,
including:

          o    limitations  and  disruptions  resulting  from the  imposition of
               government controls;

          o    changes in regulatory requirements;

          o    export license requirements;

          o    economic or political instability;

          o    trade restrictions;

          o    changes in tariffs;

          o    currency fluctuations;

          o    longer receivable  collection  periods and greater  difficulty in
               accounts receivable collection;

          o    difficulties in managing overseas  subsidiaries and international
               operations; and

          o    potential adverse tax consequences.

         We cannot assure you that we will be able to sustain or increase
revenues from international operations or that we will not encounter significant
difficulties in connection with the sale of our products in international
markets or that one or more of these factors will not have a material adverse
effect on our future revenues and, as a result, our business, operating results
and financial condition.

We face special risks from international sales and currency exchange
fluctuations. Since our financial statements are stated in dollars, but not all
our expenses are incurred in dollars or incurred in currencies linked to the
dollar, our operations have been, and may continue to be, affected by
fluctuations in currency exchange rates.

         Export sales represented approximately 42.4% of our revenues in 2004,
approximately 43.8% of our revenues in 2003 and 43.3% of our revenues in 2002.
We expect exports will continue to be a significant part of our business. This
business is subject to various risks common to international activities, such as
the need to comply with complex and varied export laws, tariff regulations and
regulatory requirements, and political and economic instability in certain
regions.

         Since our financial statements are stated in dollars, but not all our
expenses are incurred in dollars or incurred in currencies linked to the dollar,
our operations have been, and may continue to be, affected by fluctuations in
currency exchange rates.

                                       10



<PAGE>




If we do not receive the governmental approvals necessary for the export of our
products, our revenues may decrease. Similarly if our suppliers and partners do
not receive their government approvals necessary to export their products or
designs to us, our revenues might decrease and we may fail to implement our
growth strategy.

         Under Israeli law, the export of certain of our products and know-how
is subject to approval by the Israeli Ministry of Defense. To initiate sales
proposals with regard to exports of our products and know-how and to export such
products or know-how, we must obtain permits from the Ministry of Defense. We
cannot assure you that we will receive in a timely manner all the required
permits for which we may apply in the future.

         Similarly, under foreign laws the export of certain military products,
technical designs and spare parts require the prior approval of, or export
license from, such foreign governments. In order to maintain our third party
production, certain co-development activities and procurements required for the
performance of certain contracts, we must receive detailed technical designs,
products or products' parts samples from our strategic partners or suppliers. We
cannot assure you that we will be able to receive all the required permits
and/or licenses in a timely manner. Consequently, our revenues may decrease and
we may fail to implement our growth strategy.

We have not registered our intellectual property rights. There is no way to be
sure that others will not independently develop such trade secrets and know-how
or obtain access thereto, which could adversely affect our business.

         We rely primarily on unpatented proprietary know-how and trade secrets,
and employ various methods including confidentiality agreements with employees,
to protect our trade secrets and intellectual property. However, such methods
may not afford complete protection and there is no way to be sure that others
will not independently develop such trade secrets and know-how or obtain access
thereto, which could adversely affect our business.

Our products may infringe on the intellectual property rights of others.

         Third parties may assert infringement claims against us or claims that
we have violated a patent or infringed on a copyright, trademark or other
proprietary right belonging to them. In addition, any infringement claim, even
one without merit, could result in the expenditure of significant financial and
managerial resources to defend.

We are dependent on our senior management and key personnel, whose loss could
adversely affect our business.

         Our future success depends in large part on the continued services of
our senior management and key personnel. We do not carry key-person life
insurance on our senior management or key personnel. Any loss of the services
members of senior management or other key personnel could negatively and
materially affect our business.

Compliance with the changing corporate governance regulations and public
disclosure requirements may result in additional expenses.

         Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new
Securities and Exchange Commission regulations and NASDAQ Stock Market rules,
are creating uncertainty for companies such as ours. We are committed to
maintaining high standards of corporate governance and public disclosure. As a
result, we intend to

                                       11



<PAGE>


invest reasonably necessary resources to comply with evolving standards, and
this investment may result in increased general and administrative expenses and
a diversion of management time and attention from revenue-generating activities
to compliance activities, which could harm our operating results and business
prospects.

The results of legal proceedings are difficult to predict and an unfavorable
resolution of a lawsuit or proceeding could have a material adverse effect on
our business.

         We are, and have been in the past, a party to various lawsuits,
including employment claims, and other legal proceedings in the normal course of
our business. See "Item 8 - Financial Information." Legal proceedings can be
expensive, lengthy and disruptive to normal business operations, regardless of
their merit. Moreover, the results of complex legal proceedings are difficult to
predict and an unfavorable resolution of a lawsuit or proceeding could have a
material adverse effect on our business, results of operations or financial
condition.

Risk Factors Related to Our Ordinary Shares

Our share price has been volatile in the past and may decline in the future.

         Our ordinary shares have experienced significant market price and
volume fluctuations in the past and may experience significant market price and
volume fluctuations in the future in response to factors such as the following,
some of which are beyond our control:

          o    quarterly variations in our operating results;

          o    operating  results that vary from the  expectations of securities
               analysts and investors;

          o    changes in expectations as to our future  financial  performance,
               including   financial   estimates  by  securities   analysts  and
               investors;

          o    announcements of technological  innovations or new products by us
               or our competitors;

          o    announcements by us or our competitors of significant  contracts,
               acquisitions,  strategic partnerships,  joint ventures or capital
               commitments;

          o    changes in the status of our intellectual property rights;

          o    announcements   by  third  parties  of   significant   claims  or
               proceedings against us;

          o    additions or departures of key personnel;

          o    future sales of our ordinary shares;

          o    de-listing of our shares from the NASDAQ SmallCap Market; and

          o    stock market price and volume fluctuations.

         Domestic and international stock markets often experience extreme price
and volume fluctuations. Market fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations or political events or hostilities in or surrounding Israel, could
adversely affect the market price of our ordinary shares.

                                       12



<PAGE>


         In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources both of which could have a material adverse effect on our business
and results of operations.

Substantial future sales of our ordinary shares by our principal shareholders
may depress our share price.

         If our principal shareholders sell substantial amounts of our ordinary
shares, including shares issued upon the exercise of outstanding warrants, or
convertible notes, or if the perception exists that our principal shareholders
may sell a substantial number of our ordinary shares, the market price of our
ordinary shares may fall. Any substantial sales of our shares in the public
market also might make it more difficult for us to sell equity or equity-related
securities in the future at a time, in a place and on terms we deem appropriate.

Risks Relating to Our Location in Israel

Because we have significant operations in Israel, we may be subject to
political, economic and other conditions affecting Israel that could increase
our operating expenses and disrupt our business.

         We are incorporated under the laws of, and our executive offices,
manufacturing plant and research and development facilities are located in, the
State of Israel. Although most of our sales are made to customers outside
Israel, we are nonetheless directly affected by the political, economic and
military conditions affecting Israel. Specifically, we could be adversely
affected by any major hostilities involving Israel, a full or partial
mobilization of the reserve forces of the Israeli army, the interruption or
curtailment of trade between Israel and its present trading partners, or a
significant downturn in the economic or financial condition of Israel.

         Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and a
state of hostility, varying from time to time in intensity and degree, has led
to security and economic problems for Israel. Since September 2000, there has
been a marked increase in violence, civil unrest and hostility, including armed
clashes, between the State of Israel and the Palestinians, and acts of terror
have been committed inside Israel and against Israeli targets in the West Bank
and Gaza. There is no indication as to how long the current hostilities will
last or whether there will be any further escalation. Any continuation of, or
further escalation in, these hostilities or any future armed conflict, political
instability or violence in the region may have a negative effect on our business
condition, harm our results of operations and adversely affect our share price.

         Furthermore, there are a number of countries that restrict business
with Israel or Israeli companies. Restrictive laws or policies of those
countries directed towards Israel or Israeli businesses had, and may in the
future continue to have, an adverse impact on our operations, our financial
results or the expansion of our business. No predictions can be made as to
whether or when a final resolution of the area's problems will be achieved or
the nature thereof and to what extent the situation will impact Israel's
economic development or our operations.

Our results of operations may be negatively affected by the obligation of our
personnel to perform military service.

         Many of our executive officers and employees in Israel are obligated to
perform annual military reserve duty and are subject to being called for active
duty under emergency circumstances. If a military conflict or war arises, these
individuals could be required to serve in the military for extended periods of

                                       13



<PAGE>


time. Our operations could be disrupted by the absence for a significant period
of one or more of our executive officers or key employees or a significant
number of other employees due to military service. Any disruption in our
operations could adversely affect our business.

The economic conditions in Israel have not been stable in recent years. Our
operations could be adversely affected if the economic conditions in Israel
deteriorate.

         In recent years Israel has been going through a period of recession in
economic activity, resulting in low growth rates and growing unemployment. Our
operations could be adversely affected if the economic conditions in Israel
deteriorate.

We may be adversely affected by a change in the exchange rate of the NIS against
the dollar. Because exchange rates between the NIS and the dollar fluctuate
continuously, exchange rate fluctuations, particularly larger periodic
devaluations, may have an impact on our profitability and period to period
comparisons of our results.

         Because exchange rates between the NIS and the dollar fluctuate
continuously, exchange rate fluctuations, particularly larger periodic
devaluations, may have an impact on our profitability and period to period
comparisons of our results. In 2001 and 2002, the rate of devaluation of the NIS
against the dollar was 9.3% and 7.3%, respectively, while in 2003 and 2004 the
NIS appreciated in value in relation to the dollar by 7.6% and 1.6%,
respectively. A portion of our expenses, primarily labor expenses, is incurred
in NIS and a part of our revenues are quoted in NIS. Additionally, certain
assets, as well as a portion of our liabilities, are denominated in NIS. Our
results may be adversely affected by the devaluation of the NIS in relation to
the dollar (or if such devaluation is on lagging basis), if our revenues in NIS
are higher than our expenses in NIS and/or the amount of our assets in NIS are
higher than our liabilities in NIS. Alternatively, our results may be adversely
affected by an appreciation of the NIS in relation to the dollar (or if such
appreciation is on a lagging basis), if the amount of our expenses in NIS are
higher than the amount of our revenues in NIS and/or the amount of our
liabilities in NIS are higher than our assets in NIS.

Service and enforcement of legal process on us and our directors and officers
may be difficult to obtain.

         Service of process upon our directors and officers and the Israeli
experts named herein, all of whom reside outside the United States, may be
difficult to obtain within the United States. Furthermore, substantially all of
our assets, all of our directors and officers and the Israeli experts named in
this annual report are located outside the United States, any judgment obtained
in the United States against us or these individuals or entities may not be
collectible within the United States.

         There is doubt as to the enforceability of civil liabilities under the
Securities Act and the Securities Exchange Act in original actions instituted in
Israel. However, subject to certain time limitations and other conditions,
Israeli courts may enforce final judgments of United States courts for
liquidated amounts in civil matters, including judgments based upon the civil
liability provisions of those Acts.

Provisions of Israeli law may delay, prevent or make the acquisition of our
company difficult, which could prevent a change of control and therefore depress
the price of our shares.

         Provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or making more difficult a merger with, or other
acquisition of, us. This could cause our ordinary shares to trade at prices
below the price for which third parties might be willing to pay to gain control
of us. Third parties

                                       14

<PAGE>

who are otherwise willing to pay a premium over prevailing market prices to gain
control of us may be unable or unwilling to do so because of these provisions of
Israeli law.

Your rights and responsibilities as a shareholder will be governed by Israeli
law and differ in some respects from the rights and responsibilities of
shareholders under U.S. law.

         We are incorporated under Israeli law. The rights and responsibilities
of holders of our ordinary shares are governed by our memorandum of association,
articles of association and by Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in
typical U.S. corporations. In particular, a shareholder of an Israeli company
has a duty to act in good faith in exercising his or her rights and fulfilling
his or her obligations toward the company and other shareholders and to refrain
from abusing his power in the company, including, among other things, in voting
at the general meeting of shareholders on certain matters. Israeli law provides
that these duties are applicable in shareholder votes on, among other things,
amendments to a company's articles of association, increases in a company's
authorized share capital, mergers and interested party transactions requiring
shareholder approval. In addition, a controlling shareholder of an Israeli
company or a shareholder who knows that it possesses the power to determine the
outcome of a shareholder vote or who has the power to appoint or prevent the
appointment of a director or executive officer in the company has a duty of
fairness toward the company. However, Israeli law does not define the substance
of this duty of fairness. Because Israeli corporate law has undergone extensive
revision in recent years, there is little case law available to assist in
understanding the implications of these provisions that govern shareholder
behavior.

     Item 4. Information on the Company

     A. History and Development of the Company

         We were incorporated under the laws of the State of Israel in April
1985 under the name Galaxy Graphics Ltd., or Cresta Ltd. In August 1986 we
changed our name to Galagraph Ltd. In May 1992 we changed our name to TAT
Technologies Ltd. We are a public limited liability company under the Israeli
Companies Law 1999-5759, or the Israeli Companies Law, and operate under this
law and associated legislation. Our registered offices and principal place of
business are located at Re'em Industrial Park Neta, Boulevard Bnei Ayish,
Gedera, Israel 70750 and our telephone number is 972-8-859-5411. Our mail
address is P.O. Box 80, Gedera, Israel 70750. Our address on the Internet is
www.tat.co.il. The information on our website is not incorporated by reference
into this annual report.

         We are principally engaged in the manufacture and sale of a broad range
of heat transfer equipment used in mechanical and electronic systems on-board
commercial and military aircraft and in a variety of other electronic equipment.
These systems, which include environmental control, avionics cooling and other
mechanical and electronic systems, generate heat during operation that must be
removed and dissipated in order to function properly. We are also engaged in the
remanufacture, overhaul and repair of heat transfer equipment and other aircraft
components manufactured by us, and other companies. In addition, we manufacture,
sell and service certain related products for use in aircraft and electronic
systems.

         We were founded in 1985 to develop the computerized systems business of
our parent company, TAT Industries, a publicly held Israeli corporation engaged
in the manufacture and sale of aeronautical equipment. In December 1991, we
acquired the heat exchanger operations of TAT Industries. In February 2000, we
entered into an agreement with TAT Industries to purchase its operations
relating to the manufacture of aviation accessories and the lease of certain
real estate and buildings.

                                       15

<PAGE>


         We conduct business in the United States through our wholly owned
subsidiary Limco-Airepair International Inc. ("Limco-Airepair"), which is
certified by the Federal Aviation Administration, or FAA, to engage in the
remanufacture, overhaul and repair of heat transfer equipment for the aviation
industry.

         In March 1987, we completed an initial public offering of our
securities in the United States. We were listed on NASDAQ National Market under
the symbol "TATTF" from our initial public offering until July 1998 when the
listing of our ordinary shares was transferred to the NASDAQ SmallCap Market.

         On June 15, 2004, we entered into a share purchase agreement with
T.O.P, Limited Partnership, or T.O.P., a wholly-owned subsidiary of Ta-Tek Ltd.,
an Israeli private company wholly-owned by FIMI Opportunity Fund. Under the
agreement we sold 857,143 of our shares to T.O.P for $6,000,001. T.O.P was given
certain demand and piggy-back registration rights with respect to these shares.
As part of the transaction, our parent company, TAT Indusries, and T.O.P entered
into a shareholders' agreement, which provides among other things that T.O.P
will have the right to designate three members to serve on our Board of
Directors. The shareholders' agreement also provides for: (i) certain standard
bring-along and tag-along rights; (ii) a right of first refusal with respect to
any shares proposed to be sold by any of the parties; (iii) a lock-up whereby
no party may sell more than 150,000 shares prior to June 2006, and (iv) a
standstill restriction, which provides that T.O.P will not purchase (in the open
market or otherwise) such number of shares that would increase its holdings of
our shares to more than 35%.

         As part of the transaction, T.O.P received warrants to purchase an
aggregate of 500,000 of our ordinary shares at $8.50 per share, which price was
adjusted to $7.32 per share because of our 2004 dividend payment. The warrants
are exercisable for 66 months. In addition, we entered into a credit line
agreement with FIMI, which provides for a line of credit in an amount of up to
$2,000,000. Loans made pursuant to the credit line bear interest at 5% per annum
and are repayable on or before December 15, 2009. We will pay an annual
commitment fee equal to 0.5% of the amount of the credit line. We also entered
into a management agreement which provides that we will engage FIMI to provide
certain management services to us in exchange for annual payments equal to 3% of
our operating profit exceeding $500,000; provided, however, that in no event
will the total management fees in any given year exceed $250,000. The agreements
were approved by our shareholders on August 10, 2004.

         On May 24, 2005, our subsidiary, Limco-Airepair, Inc., entered into an
agreement, subject to certain closing conditions, for the purchase of Piedmont,
a private company based in Kernersville, North Carolina, engaged in the repair
and overhaul of various aircraft accessories. Under the terms of the
acquisition, we agreed to pay $5.5 million for Piedmont and to repay $9.5
million of its outstanding indebtedness. Piedmont is a recognized leader in the
overhaul, repair, maintenance, service and supply of propellers, landing gear
and APU/LRU units. In addition, we agreed to pay Piedmont former shareholders
$200,000 per year, for a term of three years, in consideration for their
obligation not to compete with Piedmont during this period.

     B. Business Overview

Industry Overview
-----------------

         We manufacture a complete line of heat transfer equipment both in the
United States and Israel, including heat exchangers, precoolers, oil coolers and
cold plates, or Heat Transfer Equipment. Heat Transfer Equipment facilitates the
necessary removal and dissipation of heat generated during the operation of
mechanical and electronic systems. Our Heat Transfer Equipment is generally
integrated into a complete cooling system. Using our technological expertise, we
design each of our heat transfer



                                       16



<PAGE>


products to meet the specific space, power, performance and other needs of our
customers. Heat Transfer Equipment is marketed worldwide for applications in
commercial and military aircraft and electronic systems, the primary users of
such equipment. Our customers include Liebherr-Aerospace Toulouse S.A, or
Liebherr, Boeing Mcdonnell Douglas Aerospace, or Boeing, Israel Aircraft
Industries, or IAI, and Cessna Aircraft Company, or Cessna, as well as the
United States Air Force and Navy. Such customers typically enter into supply
contracts with us pursuant to which we manufacture specified Heat Transfer
Equipment in connection with the customers' production or retrofitting of
particular aircraft equipment. Such supply contracts are generally for a period
of between one to four years.

         We are also engaged in the remanufacture, overhaul and repair of heat
transfer and other aviation equipment, or Overhaul Services. Heat transfer
products typically require Overhaul Services or replacement after three to five
years of service. Remanufactured units are generally given the same warranties
as are provided by the original manufacturers of new units of the same type. We
primarily market our Overhaul Services to major commercial airlines, such as,
KLM Royal Dutch Airlines, or KLM, Lufthansa Technic, or Lufthansa, S.R Technic,
Fedex Corp., or Fedex, and Sabena Technic, or Sabena.

         In addition, we design, develop and manufacture aviation accessories.
These accessories include fuel components, such as valves and pumps, secondary
power systems, various instrumentation and electronic assemblies. Customers for
our design, development and manufacture of aviation accessories include
Lockheed-Martin Corp, or Lockheed-Martin, Teledyne Continental Motors, or
Teledyne, Israeli Air Force, IAI, as well as the United States Air Force and
Navy. We currently overhaul secondary and emergency power systems and jet fuel
starters for F-16s, fuel injection governors, power and cooling turbines and
valves. Customers for our systems overhaul services include the Israeli Air
Force, IAI, NATO air forces, as well as the United States Air Force and Navy.

         We also design, develop, manufacture and market military air
conditioning systems, or AC Systems, and market nuclear, biological, and
chemical systems, or NBC Systems, produced by other manufacturers, used in
military shelters, tents and armored vehicles. These systems are marketed
worldwide to government agencies and to shelter manufacturers. We market our
products and services both through our internal marketing staff and through a
worldwide network of independent representatives. These efforts are coordinated
and directed by our internal marketing personnel. We implemented our current
marketing network following the acquisitions of Airepair International Inc., or
Airepair, and Limco Manufacturing Corporation, or Limco, in order to capitalize
on the complementary products and services of those businesses.

Market and Business Strategy

         Our principal growth strategy both in the United States and Israel is
to: (i) expand our heat transfer business in existing and new markets; (ii)
provide overhaul and repair services for additional aircraft components; (iii)
expand our marketing of overhaul and repair services to additional segments of
the aerospace industry; and (iv) use our technological expertise to expand into
related businesses.

         Capitalizing on the continuing trend in the aerospace industry to
reduce costs by prolonging the useful life of existing equipment, we have
initiated a concentrated marketing effort for our Overhaul Services, which was
previously provided only to widebody commercial aircraft. This marketing
strategy has enabled us to penetrate the regional, helicopter, general aviation
and military aircraft markets. In addition, we have targeted the after sale
market for certain of our products other than Heat Transfer Equipment.

                                       17

<PAGE>




         We have identified the electronics industry as a market with
significant growth potential for our Heat Transfer Equipment. For the past
several years we have been engaged in the design, development and manufacture of
electronic heat dissipation equipment such as cold plates, heat sinks, cold
walls and other components which remove and dissipate heat from electronic
systems. Our Heat Transfer Equipment is currently used primarily in airborne
radar systems, electronic warfare packages, avionics, electronic pods and other
airborne electronic systems. Our customers for these products include Elta
Electronics Industries Ltd. (a subsidiary of I.A.I. Ltd.), or Elta, Rafael
Armament Development Authority Ltd, Elisra Electronics Systems Ltd. and El-Op
Electronics Industries Ltd. (a division of Elbit).

         We have also identified the need to use new materials and brazing
technologies to reduce and optimize the volume and weight of the heat transfer
equipment.

         We believe that our technical expertise in the field of heat transfer
will facilitate our entry into related businesses.

         In April 1999, we entered into a license and technical assistance
agreement with a subsidiary of Liebherr, a large international corporation,
Liebherr-Aerospace Toulouse S.A France, or Liebherr France. Pursuant to this
agreement, we have supplied intellectual property, technology and technical
assistance for the development and manufacturing of certain types of advanced
aeronautical equipment for a total of $4,250,000 payable over the next three to
five years. As of June 16, 2005, we have received $4,188,750 in payments. In
addition, pursuant to the agreement, beginning on the date Liebherr France
starts producing any of the products for which we supplied intellectual
property, technology and technical assistance, and for a period of ten years
thereafter, any order that Liebherr France receives for the production of such
products will be divided between them and us 50% each, and in addition, Liebherr
France will pay us royalties of 7.5% on the income from its 50% of portion of
such order.

         In May 1999, we entered into an agreement with ENERCO, an Israeli
company, to acquire the know-how and production rights of its line of military
air conditioning systems which are used in military communication shelters,
mobile shelters and armored vehicles for $274,500 and royalty payments ranging
from 1.5% to 5% of sales from 1999 through 2006.

Products and Services

         The table below sets forth, for the periods indicated, the revenues
derived from sales, and the percentage of total revenues, of our products and
services:

<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                         December 31, 2003                         December 31, 2004
                                               --------------------------------------    --------------------------------------
                                                                           (amounts in thousands)
                                               --------------------------------------------------------------------------------
                                                    Amount             Percent                Amount             Percent
                                                    ------             -------                ------             -------
   <S>                                             <C>                  <C>                   <C>                 <C>
   Revenues derived
    from sale of
    Heat Transfer Equipment and
    aeronautical accessories
    manufacturing.                                  $19,255              62.8%                $20,724              62.3%
   Overhaul services......................           10,589              34.5%                 11,398              34.3%
   Other products.........................              838               2.7%                  1,121               3.4%
                                                    -------             ------                -------             ------
   Total ..................................         $30,682             100.0%                $33,243             100.0%
                                                    =======             ======                =======             ======
</TABLE>



                                       18



<PAGE>


         Heat Transfer Equipment
         -----------------------

         We manufacture wide range of Heat Transfer Equipment both in the United
States and Israel. Heat Transfer Equipment, such as heat exchangers, precoolers,
evaporators, oil coolers and cold plates, are integral components used in a wide
variety of environmental control systems and mechanical and engine systems, as
well as a wide range of electronic systems. These systems generate heat during
operation that must be removed and dissipated. Heat transfer equipment
components facilitate the exchange of the heat created through the operation of
these systems by transmitting the heat from a hot medium (air, oil or other
fluids) to a cold medium for disposal.

         As a component in a larger operating system, heat transfer equipment
must be efficient, compact, lightweight and reliable. In the aerospace industry
in particular, there is a constant need for improvements in performance, weight,
cost and reliability. In addition, as electronic systems become smaller and more
densely packed, the need for sophisticated and efficient heat transfer equipment
to serve the cooling functions becomes more critical. Using our technological
expertise, we believe we are well positioned to respond to these industry
demands through continued new product development and product improvements.

         Our principal Heat Transfer Equipment includes air-to-air heat
exchangers and precoolers and liquid-to-air heat exchangers. Typically, the
air-to-air heat exchangers and precoolers cool a jet engine's hot "bleed air"
which, when cooled, is then used in the aircraft's air conditioning,
pressurization and pneumatic systems. The liquid-to-air heat exchangers cool
liquids such as engine oil, hydraulic oil and other liquid coolants used in
other systems.

         We provide anywhere from one to all of the different types of heat
transfer equipment in certain aircraft. Widebody planes require approximately
seven different types of heat transfer equipment, while regional aircraft and
helicopters contain approximately three types. Our heat exchangers and
precoolers, which are types of heat transfer equipment found in most aircraft,
are generally sold for between $1,000 and $20,000 per unit.

         A substantial portion of our Heat Transfer Equipment is sold to
customers in connection with the original manufacture or retrofitting of
particular aircraft equipment. We generally enter into long-term supply
contracts with our customers, which require us to supply Heat Transfer Equipment
as part of a larger project.

         We also manufacture heat dissipation equipment, such as evaporators,
cold plates, cooling chests, heat sinks and cold walls (which may be air-to-air,
liquid-to-air or liquid-to-liquid), which control and dispose of heat emitted by
the operation of various electronic systems. These heat dissipation products are
currently utilized mainly in radar systems, avionics, electronic warfare systems
and various pods for targeting, navigation and night vision.

         Our Heat Transfer Equipment has been marketed worldwide for
applications in commercial and military aircraft and electronics systems, the
primary users of such equipment. Our customers for Heat Transfer Equipment
include: Liebherr France, Boeing, IAI and Cessna, as well as the United States
Air Force and Navy. As a result of the specialized nature of the systems in
which our parts are included, spare and replacement parts for the original heat
transfer systems are usually provided by us.

         Remanufacture, Overhaul and Repair Services
         -------------------------------------------

         We remanufacture, overhaul and repair heat transfer equipment through
our subsidiary's FAA certified repair station. We primarily market Overhaul
Services to major commercial airlines, such as,

                                       19



<PAGE>


KLM and Lufthansa. We are also engaged with the United States Government and
Navy in overhaul and repair of military heat transfer products.

         Heat transfer products typically require Overhaul Services or
replacement after three to five years of service. We offer our customers repair
services on three levels. If the damage is significant, we will remanufacture
the unit, which generally entails replacing the core matrix of the damaged or
old heat transfer product in lieu of replacing the entire unit with a new one.
We design and develop these customized remanufacture programs as cost effective
alternatives to new part replacement. In cases of less severe damage, we will
either overhaul or repair the unit as necessary. Remanufactured units carry
warranties identical to those provided with new units.

         We currently overhaul secondary and emergency power systems and jet
fuel starters for F-16s, fuel injection governors, power and cooling turbines
and valves. Our customers for our systems overhaul services include the Israeli
Air Force, IAI, NATO air forces, as well as the U.S. Air Force and Navy.

         System Design, Development and Manufacture
         ------------------------------------------

         We are engaged in the design, development and manufacture of aviation
accessories. These accessories include fuel component systems, such as valves
and pumps, secondary power systems, various instrumentation and electronic
assemblies. Our customers for the design, development and manufacture of
aviation accessories include Lockheed-Martin, Boeing, Teledyne, Israeli Air
Force, IAI, as well as the U.S. Air Force and Navy.

         Conventional Air Conditioning Systems
         -------------------------------------

         We offer a wide range of highly reliable and affordable military AC
systems, featuring high performance and simplicity. We manufacture a
comprehensive line of versatile AC systems, which provide a complete solution
for application where heat removal is essential. Simple installation,
maintenance and easy integration make the systems user-friendly. The units meet
the MIL-STD-810 and MIL-STD-461 requirements and are designed for operation in
difficult climatic conditions. Our AC systems have been installed on military
communications shelters, mobile shelters, and armored vehicles and used in many
other military applications. Beside our standard units, we may propose
custom-made systems as per customer specification. The know-how on military AC
Systems has been transferred to our U.S. subsidiary, Limco-Airepair, and they
have initiated partial production on their premises. Our revenues from sales of
AC systems from 2002 through 2004 were not material.

         Nuclear, Biological, and Chemical Systems
         -----------------------------------------

         We market NBC systems manufactured by Bet-El Industries Ltd. as a
complementary solution for our AC systems. These systems are usually offered by
us to customers who ask for complete solution. Our revenues from sales of NBC
systems from 2002 through 2004 were not material.

Sales and Marketing

         We derive our revenues mainly from sales to customers in the United
States, Israel and Europe. The geographic distribution of such sales is as
follows:

                                       20

<PAGE>



<TABLE>
<CAPTION>
Geographic Region
-----------------                                                   Years Ended
                                  ---------------------------------------------------------------------------------
                                           December 31, 2003                           December 31, 2004
                                  -------------------------------------       -------------------------------------
                                                               (Amounts in thousands)
                                       Amount             Percent                  Amount             Percent
                                       ------             -------                  ------             -------
<S>                                    <C>               <C>                       <C>               <C>
Israel..........................        $4,796            15.63%                    $5,095            15.33%
Other Asian countries...........         1,845             6.02%                     1,430             4.30%
United States...................        15,441            50.32%                    17,569            52.85%
Europe..........................         8,340            27.18%                     8,736            26.28%
Other...........................           260             0.85%                       413             1.24%
                                       -------           -------                   -------            ------
    Total ......................       $30,682           100.00%                   $33,243            100.00%
</TABLE>

         We market our products and services through our internal marketing
staff and a worldwide network which consists of independent representatives.
These efforts are coordinated and directed by our internal marketing personnel.
Our representatives are strategically located near key customer sites in certain
offices throughout the United States, in addition to offices in Europe, Asia,
the Middle East and South America. We implemented our current marketing network
following the acquisitions of Airepair and Limco in order to capitalize on the
complementary products and services of these businesses and the increased
customer base. Representatives are in regular contact with engineering and
procurement personnel and program managers of existing and target customers to
identify new programs and needs for our products, obtain requests for quotations
and identify new product opportunities. Our marketing activities also include
advertising in technical publications which target heat transfer equipment and
related markets, attending exhibitions, trade shows and professional
conferences, organizing seminars and direct mailing of advertisements and
technical brochures to current and potential customers.

Major Customers

         Our products and services are provided worldwide to original equipment
manufacturers, or OEMs, and end-user customers in the commercial, military and
industrial markets. Our major customers include OEMs such as Liebherr,
Lockheed-Martin, Hamilton, Cessna, IAI and Boeing and end-users such as, KLM,
Lufthansa, S.R Technic, Fedex, Sabena and the U.S. Air Force and Navy. During
the fiscal years ended December 31, 2002, 2003 and 2004, Elta accounted for
approximately 11.9%, 15.3% and 10.1%, respectively, of our revenues. For the
fiscal years ended December 31, 2002, 2003 and 2004, Liebherr accounted for
12.8%, 12.9%, and 15.41%, respectively, of our revenues.

         Sales to the U.S. and Israeli governments, acting through their various
departments and agencies, accounted for approximately 17.3%, 3.2% of our
revenues in 2002, respectively, approximately 15.3% and 3.3% of our revenues in
2003, respectively, and approximately 10.6%, 2.6% of our revenues in 2004,
respectively. Government contracts are generally terminable by the government at
will.

Product and Service Warranties

         We provide warranties for our products and services ranging from one to
five years, which vary with respect to each contract and in accordance with the
nature of each specific product. To date, our warranty costs have not been
substantial.

Engineering and Manufacturing

         We maintain a staff of 226 employees in engineering and manufacturing
to design, manufacture, remanufacture, repair and test products. Our engineering
department is responsible for the design and development of all heat exchangers
and other products as well as the methods, tooling, test instructions and test
equipment. Our engineering staff has extensive knowledge and experience related
to our Heat

                                       21



<PAGE>


Transfer Equipment. Most of our product lines have a designated project manager
who is an experienced engineer and is in charge of all the activities in his
area. The product manager interfaces with the customer, engineering department,
manufacturing department and vendors, and is responsible for all aspects of the
program including scheduling, adherence to specifications, customer support and
reporting.

         In general, we have manufacturing capabilities for most of the parts
and accessories of our Heat Transfer Equipment. We also manufacture the
necessary tools, fixtures, test equipment and special jigs required to
manufacture, assemble and test these products. We have developed proprietary
design techniques and computer-aided design software which assists in the
mechanical design and manufacturing of our products. All products are inspected
and tested by trained inspectors using highly sophisticated test equipment in
accordance with customer requirements.

         We are dependent upon single sources of supply for certain components,
and seek to maintain an adequate inventory of all imported components. Our
Israeli operations employ the services of a purchasing agent, a corporation
which is wholly-owned by certain of our officers and directors. See Item 13.
"Interest of Management in Certain Transactions."

Source and Availability of Raw Materials

         We acquire most of the components for the manufacturing of our products
from a limited number of suppliers and subcontractors, most of whom are located
in Israel and the United States. Certain of these suppliers are currently the
sole source of one or more components upon which we are dependent. Since many of
our purchases require long lead-times, a delay in supply of an item can
significantly delay the delivery of a product. To date, we have not experienced
any particular difficulty in obtaining timely deliveries of necessary
components. We depend on a limited number of suppliers of components for our
products and if we are unable to obtain these components when needed, we would
experience delays in manufacturing our products and our financial results could
be adversely affected. See Item 3.D. Risk Factors."

Regulation

         Our operations in the United States are regulated by the FAA and the
U.S. Department of Defense. We are required to comply with FAA regulations,
which generally requires us to obtain FAA approval prior to the sale of new
products for aircraft applications. We currently hold all necessary FAA
authorizations required for the production of our products. In addition, we hold
an FAA repair station certificate which permits us to provide our Overhaul
Services. We are also required to comply with the U.S. Department of Defense
federal acquisition regulations, which governs all of our work for military
applications.

          Our operations in Israel are subject to supervision by the Ministry of
Defense and Civil Aviation Administration. We are certified by the Israeli Air
Force for the Ministry of Defense for both manufacturing and maintenance. We are
also licensed as a repair station for certain components by the Israeli Civil
Aviation Administration. In addition, our export of certain products and/or
know-how is subject to approval by The Foreign Defense Assistance and Defense
Export Organization of the Israeli Ministry of Defense, or SIBAT. Permits from
SIBAT must be obtained for the initiation of sales proposals with regard to such
exports, as well as for the actual exports of such products.

Backlog

         On June 20, 2005, we had a backlog of approximately $19 million for
products to be delivered through December 31, 2007. On June 15, 2004, we had a
backlog of approximately $28.0 million for

                                       22



<PAGE>


products to be delivered through December 31, 2005. We anticipate that
approximately $8 million of our backlog at June 20, 2005 will be delivered by
December 31, 2005, approximately $9, million by December 31, 2006 and
approximately $2 million by December 31, 2007.

Markets

         We sell our products to various air forces and companies. Our main
market is in United States with 52.85% of our sales in 2004, 50.32% in 2003 and
51.48% in 2002. The second largest market is Europe with 26.28% of our sales in
2004, 27.18% in 2003 and 26.18% in 2002. Israel is our third largest market with
15.33% of our sales in 2004, 15.63% in 2003 and 16.27% in 2002. Sales to the
rest of the world accounted for 5.54%, 6.87% and 6.06% of our sales in 2004,
2003 and 2002, respectively.

Competition

         The heat transfer field requires specialized technology, equipment and
facilities, an experienced technical and engineering staff, as well as highly
sophisticated and trained technicians.  Although these factors have tended to
limit the number of manufacturers who enter this field, it nonetheless remains
very competitive.  The major manufacturers in the field are Honeywell and
Hamilton.  Other manufacturers in the United States are Hughes-Treitler
Manufacturing Corp., Stewart Warner South Wind Corp., United Aircraft
Products, Lytron Inc. and Lockhart Industries Inc., and manufacturers based in
Europe include I.M.I. Marston Ltd., Normalair Garrett Ltd. ,or NGL, Secan and
Behr.

         Our major competitor in the Overhaul Services business is Lori, a
subsidiary of Honeywell, a U.S. company. Other competitors include Secan and
NGL, which are based in Europe.

Export Policy

         Exports of military related products are subject to the military export
policy of the State of Israel. Current Israeli Government policy encourages
export to approved customers of military products similar to those manufactured
by us, provided that such export does not run counter to Israeli policy or
national security considerations. We must obtain a permit to initiate a sales
proposal and ultimately an export license for the transaction is required. We
cannot assure you that we will obtain export permits or licenses in the future
or that governmental policy with respect to military exports will not be
altered. However, to date we have not encountered any significant difficulties
in obtaining necessary permits or licenses for sale of our products.

Fixed Price Contracts

         Our contracts with the government of Israel, its agencies and other
foreign governments, are generally fixed price contracts. Under fixed price
contracts, the price is not subject to adjustment by reason of the costs
incurred in the performance of the contracts, as long as the costs incurred and
work performed fall within governmental guidelines. Under our fixed price
contracts, we assume the risk that increased or unexpected costs may reduce our
profits or generate a loss. This risk can be particularly significant under a
fixed price contract for research and development involving a new technology.
Our books and records may be subject to audits by the Israeli Ministry of
Defense and other governmental agencies including the U.S. Department of
Defense. These audits may result in adjustments to contract costs and profits.

                                       23



<PAGE>


Proprietary Rights

         At the present time we do not own any patents. We rely on laws
protecting trade secrets, and consider such items proprietary, but believe that
our success depends less on the ownership of such proprietary rights than on our
innovative skills, technical competence marketing and engineering abilities. We
have no existing material registered trademarks.

     C. Organizational Structure

         We are 51.52% owned by TAT Industries, an Israeli publicly held
corporation, engaged in the manufacture and sale of aeronautical equipment.

         Our wholly-owned subsidiary, Limco-Airepair is incorporated under the
laws of Oklahoma and located in Tulsa, Oklahoma.

     D. Property, Plants and Equipment

         Our executive offices, research and development and manufacturing
facilities in Israel are located in a 31,679 square feet facility located in
Park Re'em near Gedera. The land of this facility is leased from the Israeli
government pursuant to a lease that expires in 2020, which was assigned, but not
registered, to us by TAT Industries in connection with our acquisition of TAT
Industries' heat exchanger operations. See Item 7 "Major Shareholders and
Related Party Transactions."

         In connection with the purchase of the operations of TAT Industries in
February 2000, we and TAT Industries entered into a lease agreement, pursuant to
which we are leasing from TAT Industries an area of approximately 329,000 square
feet, including 90,000 square feet of buildings, for a period of 24 years and 11
months. We pay TAT Industries annual rental fees of approximately $300,000, with
an additional incremental payment of 2% per year. For the year ended December
31, 2004, we paid $324,000. The rental fees are subject to revaluation every
fifth year.

         Our subsidiary, Limco-Airepair Inc. owns its Tulsa, Oklahoma facility,
which consists of approximately 55,000 square feet.

         Management believes that our present facilities are well maintained, in
good condition and are sufficient for us to continue to operate and meet our
production needs. Our utilization of our production capacity varies from time to
time based on fluctuations in our business and other factors.

     Item 5. Operating and Financial Review and Prospects

     A. Operating Results

         The following discussion and analysis should be read in conjunction
with our consolidated audited financial statements and the notes thereto,
included elsewhere in this annual report.

Certain Critical Accounting Policies

         Our consolidated financial statements are prepared in accordance with
U.S. GAAP. These accounting principles require management to make certain
estimates, judgments and assumptions based upon information available at the
time that they are made, historical experience and various other factors that
are believed to be reasonable under the circumstances. These estimates,
judgments and assumptions can affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of revenues and expenses during the periods presented. While all the
accounting

                                       24



<PAGE>


policies impact the financial statements, certain policies may be viewed to be
critical. These policies are those that are both most important to the portrayal
of our financial condition and results of operations and require our
management's most difficult, subjective and complex judgments and estimates.
Actual results could differ from those estimates.

         In many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles in the United
States and does not require management's judgment in its application. There are
also areas in which management's judgment in selecting among available
alternatives would not produce a materially different result. Our management has
reviewed these critical accounting policies and related disclosures with the
Audit Committee.

         Our management believes the significant accounting policies which
affect management's more significant judgments and estimates used in the
preparation of our consolidated financial statements and which are the most
critical to aid in fully understanding and evaluating the our reported financial
results include revenue recognition and inventory valuation.

Revenue Recognition

         We derive our revenue primarily from two sources: product revenues and
service revenues. Revenue related to sales of our products is generally
recognized when persuasive evidence of an arrangement exists; the product has
been delivered and title and risk of loss have passed to the buyer; the sales
price is fixed and determinable, no further obligations exist, and
collectibility is probable. Revenues from remanufacture repair and overhaul
services are recognized as services are performed.

Inventory Valuation

         Our policy for valuation of inventory and commitments to purchase
inventory, including the determination of obsolete or excess inventory, requires
us to perform a detailed assessment of inventory at each balance sheet date
which includes a review of, among other factors, an estimate of future demand
for products within specific time frames, valuation of existing inventory, as
well as product lifecycle and product development plans. The business
environment in which we operate, the wide range of products that we offer and
the relatively short sales-cycles we experience all contribute to the exercise
of judgment relating to maintaining and writing-off of inventory levels. The
estimates of future demand that we use in the valuation of inventory are the
basis for our revenue forecast, which is also consistent with our short-term
manufacturing plan. Inventory reserves are also provided to cover risks arising
from non-moving items. Inventory management remains an area of management focus
as we balance the need to maintain strategic inventory levels to ensure
competitive lead times against the risk of inventory obsolescence because of
rapidly changing technology and customer requirements.

Finished Good Policy

         We manufacture the majority of our goods based on purchase orders
received in advance. Accordingly, we do not manufacture any goods for stock.
However, we do maintain a small quantity of finished goods for supporting urgent
orders.

Warranty Period Policy

         We provide warranties for our products and services ranging from one to
five years, which vary with respect to each contract and in accordance with the
nature of each specific product. Based on our experience, warranty expenses have
been immaterial and, therefore, we did not record any warranty provision.

                                       25

<PAGE>




Credit Policy

         According to our credit policy, the credit period provided to our local
customers is usually "Net plus 60 Days" and occasionally "Net plus 90 days." The
credit period provided to our foreign customers varies from "Net plus 60 Days"
to "Net plus 180 Days."

         We and our subsidiary's trade receivables are derived mainly from sales
to customers in the United States, Israel and Europe. We and our subsidiary
generally do not require collateral, however, in certain circumstances we may
require letters of credit. Our management believes that credit risks relating to
trade receivables are minimal since our customers are financially sound. We and
our subsidiary perform ongoing credit evaluation of our customers' financial
condition. The allowance for doubtful accounts is determined with respect to
specific debts that are doubtful of collection.


Marketable securities

         Marketable securities consist of available for sale securities, which
are debt securities in which we invested with the intention of holding until the
maturity dates of such securities. If it is determined, based on valuations,
that a decline in the fair value of any of the investments is not temporary, an
impairment loss is recorded and included in the consolidated statements of
income as financial expenses.


Legal contingencies

         We are, and have been in the past, a party to various lawsuits,
including employment claims and other legal proceedings in the normal course of
our business. In determining whether provisions should be recorded for pending
litigation claims, we assess the allegations made and the likelihood that our
company will successfully defend itself. When our management believes that it is
probable that we will not prevail in a particular matter, it then estimates the
amount of the provision based in part on advice of legal counsel.


Income taxes and valuation allowance

         We operate within multiple taxing jurisdictions and are subject to
audits in these jurisdictions. These audits can involve complex issues, which
may require an extended period of time to resolve. In management's opinion,
adequate provisions for income taxes have been made for all years. Although
management believes that its estimates are reasonable, no assurance can be given
that the final tax outcome of these issues will not be different than those that
are reflected in our historical income tax provisions.

         Deferred taxes are determined utilizing the asset and liability method
based on the estimated future tax effects of differences between the financial
accounting and tax bases of assets and liabilities under the applicable tax
laws. Valuation allowances are provided if based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

Overview

         Our revenues and cost of revenues may vary significantly from year to
year due to fluctuations in the mix of products ordered by customers and in the
timing of orders and deliveries. As a result, comparisons of one period to
another in any given year are not necessarily an accurate indication of future
trends.

                                       26

<PAGE>




         Sales to the United States and Israeli governments accounted for
approximately for approximately 15.3% and 3.3%, respectively, of our revenues
for 2003 and 10.6% and 3.2%, respectively, of our revenues for 2004. While a
substantial portion of our revenues is derived from the sale of products for the
non-military market in the United States, Israel and abroad, our management
believes that the success and development of our business will continue to
depend in part upon our ability to participate in the defense programs of the
United States, Israel and other governments. While certain of such defense
programs have been reduced or terminated as a result of current political
conditions and budgetary constraints, it is not possible to determine the extent
to which such reductions have affected our revenues. There can be no assurance
that any of these governments will continue to commit the current level of
resources to such programs, that we will be able to continue to participate in
such programs, or that changes thereto will not materially affect our financial
condition. As a result, our historical results of operations and financial
position are not necessarily indicative of any future operating results or
financial position.

         We maintain our accounts and present our financial statements in
dollars, the primary currency of our operations. Transactions and balances
denominated in currencies other than the dollar have been presented in dollars
based on representative rates of exchange of such currencies.

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

         Revenues. Our revenues increased 8.3% to $33.2 million in 2004 from
$30.7 million in 2003. The increase in our revenues in 2004 is mainly due to an
increase in our sales of products and services to the U.S. market. We expect
that our revenues will increase in 2005 as a result of our purchase of Piedmont

          Cost of Revenues. Cost of revenues increased 10.5% to $22.2 million in
2004 from $20.1 million in 2003, representing, 67% and 65% of revenues,
respectively. The increase in cost of revenues is mainly due to change in our
product mix, and to the worldwide increase in raw material prices. Cost of
revenues consists of labor, materials and royalties. We expect that our cost of
revenues will increase in 2005.

         Research and Development Costs. Our research and development costs were
$0.1 million in both 2004 and 2003. We do not anticipate any material change in
our cost of research and development in 2005.

          Selling and Marketing Expenses. Selling and marketing expenses
decreased by 3.2% to $1.9 million in 2004 from $2.0 million 2003, representing
5.7% and 6.4% of revenues, respectively. Selling and marketing expenses consist
primarily of salaries, commissions, advertising, trade shows, travel and other
related expenses. We expect that our selling and marketing expenses will
increase in 2005 consistent with the expected increase in revenues.

          General and Administrative Expenses. General and administrative
expenses increased 9.1% to $3.8 million in 2004 from $3.5 million in 2003,
representing 11.4% and 10.4% of revenues, respectively. In 2004, we kept
approximately the same ratio of administration expenses against revenue as in
2003. General and administrative expenses consist primarily of salaries, annual
rentals, management services, and other expenses. We expect that our general and
administrative expenses will increase consistent with the expected increase in
revenues.

         Operating income. Operating income in 2004 increased 4.1% to $5.3
million compared to $5.1 million in 2003.

                                       27



<PAGE>


         Financial Income (Expenses). We reported financial income of $87,000 in
2004 compared to financial expenses of $25,000 in 2003, as a result of the
appreciation in value of the exchange rate against the dollar in 2004 and
increase in our cash. We expect that our financial expenses will increase in
2005 as a result of the purchase of Piedmont.

         Other Income.  We had income of $54,000 in 2004 compared to income of
$24,000 in 2003.

         Income Taxes. As a result of the depletion of the tax credits we
accumulated in prior years, our total income tax expenses for 2004 amounted to
$1.7 million, compared to $1.2 million in 2003.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         Revenues. Revenues in 2003 amounted to approximately $30.68 million
compared to approximately $26.28 million in 2002. The increase in revenues in
2003 compared to 2002 was mainly due to new agreements with aircraft
manufacturers and airline companies.

         Cost of Revenues. Cost of revenues increased to approximately $20.1
million in 2003 from approximately $17.8 million in 2002. This increase is a
direct result of the increase in revenues.

         Research and Development Costs. Research and development costs
decreased to $120,000 in 2003 from $204,000 in 2002.

          Selling and Marketing Expenses. Selling and marketing expenses
increased by 32% to $2.0 million in 2003 from $1.5 million 2002, representing
6.4% and 5.6% of revenues, respectively. Selling and marketing expenses consist
primarily of salaries, commissions, advertising, trade shows, travel and other
related expenses. The increase is a direct result of the increase in revenues.

          General and Administrative Expenses. General and administrative
expenses increased 16% to $3.5 million in 2003 from $3.0 million in 2002,
representing, 10.4% and 11.3% of revenues, respectively. General and
administrative expenses consist primarily of salaries, annual rentals,
management services, and other expenses.

         Operating income. Operating income in 2003 increased approximately 31%
to $5 million compared to approximately $3.8 million in 2002, as a direct result
of an increase in sales.

         Financial Expenses. We had financial expenses of $25,000 in 2003
compared to expenses of approximately $99,000 in 2002, as a result of the
devaluation of the NIS against the dollar.

         Other Income. We reported other income of $24,000 in 2003 compared to
$8,000 in 2002.

         Income Taxes. As a result of the depletion of tax credits we
accumulated in prior years, our total income tax expenses for 2003 amounted to
$1.23 million compared to $367,000 in 2002.

Results of Operations

         The following table presents, for the periods indicated, information
concerning our results of operations:



                                       28



<PAGE>



<TABLE>
<CAPTION>
                                                                 Year ended December 31
                                                      ---------------------------------------------
                                                       2004               2003               2002
                                                       ----               ----               ----
                                                                     (in thousands)
<S>                                                   <C>                 <C>               <C>
Revenues
Products...................................           $20,724             $19,255           $15,936
Services and other.........................            12,519              11,427            10,344
                                                       ------              ------            ------
                                                       33,243              30,682            26,280
                                                       ------              ------            ------
Cost of revenues...........................            22,166              20,068            17,750
                                                       ------              ------            ------
Gross profit...............................            11,077              10,614             8,530
                                                       ------              ------             -----
Research and development costs, net........               125                 120               204
Sales and marketing expenses...............             1,894               1,958             1,483
General and administrative expenses........             3,793               3,476             2,994
                                                        -----               -----             -----
                                                        5,812               5,554             4,681
                                                        -----               -----             -----
Operative income...........................             5,265               5,060             3,849
Financial income (expenses), net...........                87                ( 25)               99
Other income...............................                54                  24                 8
                                                           --                  --                --
Income before income taxes.................             5,406               5,059             3,956
Income taxes...............................             1,667               1,225               367
                                                        -----               -----               ---
Net income.................................           $ 3,739             $ 3,834           $ 3,589
                                                      =======             =======           =======
</TABLE>

         The following table presents, for the periods indicated, information
concerning our results of operations as a percentage of our revenues:

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                ---------------------------------------------------------
                                                           2004               2003              2002
                                                           ----               ----              ----
                                                            %                  %                 %
<S>                                                        <C>                <C>               <C>
Revenues
Products...................................                 62                 63                61
Services...................................                 38                 37                39
                                                            --                 --                --
                                                           100                100               100
                                                           ---                ---               ---
Cost of revenues...........................                 67                 65                67
                                                            --                 --                --
Gross profit...............................                 33                 35                33
                                                            --                 --                --
Research and development costs, net........                  0                  0                 1
Sales and marketing expenses...............                  6                  6                 6
General and administrative expenses........                 11                 11                11
                                                            --                 --                --
                                                            17                 17                18
                                                            --                 --                --
Operating income...........................                 16                 17                15
Financial income (expenses) , net                            0                  1                 0
Other income...............................                  0                  0                 0
                                                            --                 --                --
Income before income taxes.................                 16                 16                15
Income taxes...............................                  5                  4                 1
                                                            --                 --                --
Net income.................................                 11                 12                14
                                                            ==                 ==                ==
</TABLE>

                                       29



<PAGE>




Recently Issued Accounting Standards

         On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued Statement No. 123 (revised 2004), Share-Based Payment or SFAS No. 123(R),
which is a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation," or SFAS No. 123.  Generally, the approach in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123.  However, SFAS No. 123
permitted, but did not require, share-based payments to employees to be
recognized based on their fair values while Statement 123(R) requires
all share-based payments to employees to be recognized based on their fair
values. SFAS No. 123(R) also revises, clarifies and expands guidance in several
areas, including measuring fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting periods. The new
standard will be effective for us in the first interim period beginning after
January 1, 2006. We do not expect a significant impact of this standard on our
results of operations and financial position.

Conditions in Israel

         We are incorporated under the laws of, and our principal executive
offices and manufacturing facilities are located in, the State of Israel.
Accordingly, we are directly affected by political, economic and military
conditions in Israel. Specifically, we could be adversely affected by any major
hostilities involving Israel, a full or partial mobilization of the reserve
forces of the Israeli army, the interruption or curtailment of trade between
Israel and its present trading partners, and a significant downturn in the
economic or financial condition of Israel.

         Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and a
state of hostility, varying from time to time in intensity and degree, has led
to security and economic problems for Israel. In 1979, Israel signed a peace
agreement with Egypt under which full diplomatic relations were established. In
October 1994, a peace treaty was signed between Israel and Jordan which
provides, among other things, for the commencement of full diplomatic relations
between the two countries. To date, there are no peace treaties between Israel
and Syria or Lebanon.

         Since 1993, several agreements have been signed between Israel and the
Palestinian representatives concerning conditions in the West Bank and Gaza and
outlining several interim Palestinian self-government arrangements. The
implementation of these agreements have been subject to difficulties and delays.

         Since September 2000, relations between Israel and the Palestinian
Authority have deteriorated and there has been a marked increase in violence,
civil unrest and hostility, including armed clashes, between the State of Israel
and the Palestinians, and acts of terror have been committed inside Israel and
against Israeli targets in the West Bank and Gaza. Recently, the Israeli
government has resolved to unilaterally evacuate all the Jewish settlements in
Gaza Strip and a few settlements in the West Bank. In addition, following the
death of Yasser Arafat, the Palestinian Authority has established a new regime
which has declared it will take active actions against terrorism and caused the
Palestinian terror organizations to commit to halt the execution of acts of
terror in Israel. Such commitment has not been observed. There is no indication
as to how long the current hostilities will last or whether there will be any
further escalation. Any further escalation in these hostilities or any future
armed conflict, political instability or violence in the region may have a
negative effect on our business condition, harm our results of operations and
adversely affect our share price.

                                       30



<PAGE>


         Furthermore, there are a number of countries that restrict business
with Israel or Israeli companies. Restrictive laws or policies of those
countries directed towards Israel or Israeli businesses may have an adverse
impact on our operations, our financial results or the expansion of our
business.

         In addition, some of our executive officers and employees in Israel are
obligated to perform up to 36 days, depending on rank and position, of military
reserve duty annually and are subject to being called for active duty under
emergency circumstances. If a military conflict or war arises, these individuals
could be required to serve in the military for extended periods of time. Our
operations could be disrupted by the absence for a significant period of one or
more of our executive officers or key employees or a significant number of other
employees due to military service. Any disruption in our operations could
adversely affect our business.

         To date, no executive officer or key employee has been recruited for
military service for any significant time period. Any further escalation in the
hostilities between Israel and the Palestinian Authority into a full scale
conflict might require more significant military reserve service by some of our
employees, which may have a material adverse effect on our business.

Economic Conditions

         In recent years Israel has been going through a period of recession in
economic activity, resulting in low growth rates and growing unemployment. Our
operations could be adversely affected if the economic conditions in Israel
continue to deteriorate. In addition, due to significant economic measures
proposed by the Israeli Government, there have been several general strikes and
work stoppages in 2003 and 2004, affecting all banks, airports and ports. These
strikes have had an adverse effect on the Israeli economy and on business,
including our ability to deliver products to our customers. Following the
passing by the Israeli Parliament of laws to implement the economic measures,
the Israeli trade unions have threatened further strikes or work-stoppages, and
these may have a material adverse effect on the Israeli economy and on us.

Trade Relations

         Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the
International Finance Corporation. Israel is a member of the World Trade
Organization and is a signatory to the General Agreement on Tariffs and Trade.
In addition, Israel has been granted preferences under the Generalized System of
Preferences from the United States, Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either
duty-free or at reduced tariffs.

         Israel and the EEC, known now as the "European Union," concluded a Free
Trade Agreement in July 1975 that confers some advantages with respect to
Israeli exports to most European countries and obligates Israel to lower its
tariffs with respect to imports from these countries over a number of years. In
1985, Israel and the United States entered into an agreement to establish a Free
Trade Area. The Free Trade Area has eliminated all tariff and some non-tariff
barriers on most trade between the two countries. On January 1, 1993, an
agreement between Israel and the European Free Trade Association, known as the
"EFTA," established a free-trade zone between Israel and the EFTA nations. In
November 1995, Israel entered into a new agreement with the European Union,
which includes a redefinition of rules of origin and other improvements, such as
allowing Israel to become a member of the Research and Technology programs of
the European Union. In recent years, Israel has established commercial and trade
relations with a number of other nations, including Russia, China, India, Turkey
and other nations in Eastern Europe and Asia.

                                       31



<PAGE>


         Israel receives significant amounts as economic assistance from the
United States. In the last several years, Israel has received from the U.S.
approximately $3 billion per year. We cannot assure you that U.S. economic
assistance will continue, or that the amounts received will not be reduced. If
U.S. economic assistance is eliminated or reduced significantly, the Israeli
economy could suffer material adverse consequences which may have material
adverse impact on our financial condition and results of operations.

Corporate Tax Rate

         Under the Israeli Income Tax Ordinance [New Version], 1980 we are
subject to corporate tax at the rate of 35% of taxable income for 2004, 34% for
2005, 32% for 2006 and 30% for 2007 onwards.

         In July 2002, Amendment 132 to the Israeli Income Tax Ordinance
("Amendment 132") was approved by the Israeli parliament and is effective as of
January 1, 2003. The principal objectives of Amendment 132 were to broaden the
categories of taxable income and to reduce the tax rates imposed on employment
income. There are no material implications of the Amendment applicable to us.

          On March 29, 2005, the Israeli parliament approved an amendment to the
Law for the Encouragement of Capital Investments, 1959, commonly referred to as
the Investment Law, which provides expanded tax incentives for future industrial
investments and simplifies the bureaucratic process for obtaining approval of
investments qualifying for tax incentives, or the 2005 Amendment. Under the
Investment Law, capital investments in new or expanded production facilities in
Israel, upon approval by the Israeli Government, can be designated as an
approved enterprise. An approved enterprise may receive cash incentives from the
Israeli Government or a company may elect the "alternative benefits track" that
allows it to forego the cash incentives in favor of certain tax exemptions. The
2005 Amendment primarily relates to the "alternative benefits track" tax
incentives which we have elected for our Approved Enterprises. The amendments to
the Investment Law include special tax incentives and expedite the approval
process for companies that make minimum qualifying investments in fixed assets
in production facilities located in Israel. The 2005 Amendment became effective
on April 1, 2005. We are currently evaluating the impact of the 2005 Amendment
on our business operations.

Impact of Currency Fluctuation and of Inflation

         For many years prior to 1986, the Israeli economy was characterized by
high rates of inflation and devaluation of the Israeli currency against the
dollar and other currencies. However, since the institution of the Israeli
Economic Program in 1985, inflation, while continuing, has been significantly
reduced and the rate of devaluation has substantially diminished. Because
governmental policies in Israel linked exchange rates to a weighted basket of
foreign currencies of Israel's major trading partners, the exchange rate between
the NIS and the dollar remained relatively stable during reported periods.

         The following table sets forth, for the periods indicated, information
with respect to the rate of inflation in Israel, the rate of devaluation of the
NIS against the dollar, and the rate of inflation in Israel adjusted for such
devaluation:

                                                               Israeli inflation
        Year ended    Israeli inflation   Israeli devaluation    adjusted for
       December 31,         rate %               rate %          devaluation %
       ------------         ------          ---------------      -------------
           2000              0                   (2.7)                2.7
           2001              1.4                  9.3                (7.9)
           2002              6.5                  7.3                (0.8)
           2003             (1.9)                (7.6)                5.7
           2004              1.2                 (1.6)                2.8


                                    32

<PAGE>




         Since most of our sales are quoted in dollars and in other foreign
currencies, and a significant portion of our expenses are incurred in NIS, our
results are adversely affected by a change in the rate of inflation in Israel
when such change is not offset (or is offset on a lagging basis) by a
corresponding devaluation of the NIS against the dollar and other foreign
currencies. We do not use any hedging instruments in order to protect ourselves
from currency fluctuation or inflation risks.

     B. Liquidity and Capital Resources

         We have principally financed our operations through cash generated from
operations. Cash and cash equivalents and short-term investments were $7.1
million and marketable securities were $1.6 million, totaling $8.7 million as of
December 31, 2004, as compared with cash and cash equivalents and short-term
investments of $5.0 million and marketable securities of $3.3 million, totaling
$8.3 million as of December 31, 2003.

         Net cash provided by operating activities was approximately $1.9
million, $3.8 million and $4.8 million in 2004, 2003 and 2002, respectively. Net
cash provided by operating activities for 2004 consisted primarily of net
income, plus depreciation less changes in other accounts payable and
receivables.

         Net cash provided by investing activities was $1.3 million, $(2.3)
million and $(1.0) million in 2004, 2003 and 2002, respectively. Net cash
provided by investing activities resulted from sale of marketable securities
(available for sale securities). Our capital expenditures consist mainly of the
purchase of property and equipment.

         In November 2004, we paid a $1.18 per share cash dividend to our
shareholders, which amounted to $7.1 million. The dividend was declared by our
Board of Directors after considering alternative means of increasing
shareholders value. Our Board determined that the dividend would be more
beneficial for our company and its shareholders.

         According to the Israeli Companies Law, a company may distribute
dividends out of its profits, so long as the company reasonably believes that
such dividend distribution will not prevent the company from paying all its
current and future debts. Profits, for purposes of the Israeli Companies Law,
means the greater of retained earnings or earnings accumulated during the
preceding two years. In the event cash dividends are declared, such dividends
are declared in dollars.

         Net cash used in financing activities was approximately $(1.2) million,
$(2.5) million and $(0.5) million in 2004, 2003 and 2002, respectively. Net cash
used in financing activities in 2004 was attributable to issuance of shares for
$5.7 million, which was offset by a cash dividend payment of $ (7.1) million.

         Our principal sources of liquidity consist of our current cash flow
from operations, financial income and our $2 million credit line. We believe
that these sources of liquidity will be sufficient to satisfy our operational
requirements for 2005.

         We believe that anticipated cash flow from operations and our current
cash balances will be sufficient to meet our cash requirements through at least
December 31, 2005. Our continued operations thereafter will depend upon cash
flow from operations and the availability of equity or debt financing.

         Pursuant to an agreement with European Air Force dated December 20,
2001, our subsidiary Limco-Airepair has a commitment to purchase non-serviceable
aircraft spare parts assemblies and

                                       33

<PAGE>




complete technical documentation, in the amount of $1,134,000. Pursuant to the
agreement, 10% of this amount was paid on December 20, 2001, and the remaining
$1,020,600 to be paid according to the terms of the agreement. As of March 31,
2005, approximately $1,093,000 of the commitment had been fulfilled. We entered
into an agreement with a third party, to share this purchase commitment and the
sales proceeds. The third party has advanced to us approximately $547,000. This
amount is included in other payables and accrued expenses.

         On June 15, 2004, we entered into a share purchase agreement with
T.O.P., a wholly-owned subsidiary of Ta-Tek Ltd., an Israeli private company
wholly-owned by FIMI Opportunity Fund. Under the agreement we sold 857,143 of
our shares to T.O.P for $6,000,001. We also granted T.O.P warrants to purchase
an aggregate of 500,000 of our ordinary shares at $8.50 per share, which price
was adjusted to $7.32 per share because of our 2004 dividend payment. The
warrants are exercisable for 66 months. In addition, we entered into a credit
line agreement with FIMI, which provides for a line of credit in an amount of up
to $2,000,000. Loans made pursuant to the credit line bear interest at 5% per
annum and are repayable on or before December 15, 2009. We will pay an annual
commitment fee equal to 0.5% of the amount of the credit line. We also entered
into a management agreement which provides that we will engage FIMI to provide
certain management services to us in exchange for annual payments equal to 3% of
our operating profit exceeding $500,000; provided, however, that in no event
will the total management fees in any given year exceed $250,000. The agreements
were approved by our shareholders on August 10, 2004.

         On May 24, 2005, our subsidiary, Limco-Airepair, Inc., entered into an
agreement, subject to certain closing conditions, for the purchase of Piedmont,
a private company based in Kernersville, North Carolina, engaged in the repair
and overhaul of various aircraft accessories. Under the terms of the
acquisition, we agreed to pay $5.5 million for Piedmont and to repay $9.5
million of its outstanding indebtedness. In addition, we agreed to pay former
shareholders $200,000 per year, for a term of three years, in consideration for
their obligation not to compete with Piedmont during this period. We will fund
this acquisition from our working capital and bank loans. In the future we may
issue convertibles notes in order to repay part of the bank loans.

     C. Research and Development, Patents and Licenses

         As of June 1, 2005, we had approximately three employees engaged in
research and development. We continually utilize our engineering and
manufacturing capabilities in the design and development of new products and
services and cost effective management techniques.

     D. Trend Information

         There are no significant recent trends that are material to production,
sales and inventory, the state of the order book and costs and selling prices
since the latest fiscal year.

     E. Off-balance Sheet Arrangements

         We are not a party to any material off-balance sheet arrangements. In
addition, we have no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.

                                       34

<PAGE>




     F. Tabular Disclosure of Contractual Obligations

         The following table summarizes our minimum contractual obligations and
commercial commitments, as of December 31, 2004 and the effect we expect them to
have on our liquidity and cash flow in future periods.

<TABLE>
<CAPTION>
         Contractual Obligations                                   Payments due by Period
----------------------------------------       ------------------------------------------------------------------
                                                                                                            More
                                                              Less than 1                                  than 5
                                                 Total           year         1-3 Years      3-5 Years      years
                                               ----------      ----------   -----------      ---------     ------
<S>                                            <C>             <C>          <C>               <C>             <C>
Long-term debt obligations .............           -               -              -              -            -
Operating lease obligations.............       $1,765,060      $359,260     $691,800          $714,000        -
Purchase obligations....................         $113,400      $113,400           -              -            -
Total...................................       $1,878,460      $472,660     $691,800          $714,000        -
</TABLE>

         Other Obligations

         In addition, pursuant to the terms of the agreement, we entered into a
lease agreement, pursuant to which we leased from TAT Industries, effective as
of January 1, 2000, the real estate and buildings encompassing an area of
approximately 312,000 square feet for a period of 24 years and eleven months. In
consideration for the lease agreement, we agreed to pay TAT Industries annual
rentals of approximately $300,000, with an additional incremental payment of 2%
per year, such rental rates are subject to revaluation every fifth year.

         In addition, we have long-term liabilities for severance pay that is
calculated pursuant to Israeli severance pay law generally based on the most
recent salary of the employees multiplied by the number of years of employment,
as of the balance sheet date. Employees are entitled to one month's salary for
each year of employment or a portion thereof. As of December 31, 2004, our
severance pay liability was $191,000.

         We have attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in the Risk Factors section
that appears in Item 3. "Key Information."

     Item 6. Directors, Senior Management and Employees

     A. Directors and Senior Management

         Our articles of association provide for a board of directors consisting
of no less than two and no more than eleven members or such other number as may
be determined from time to time at a general meeting of shareholders. Our board
of directors is currently composed of nine directors.

         Our executive officers are responsible for our day-to-day management.
The executive officers have individual responsibilities established by our chief
executive officer and by the board of directors. Executive officers are
appointed by and serve at the discretion of the board of directors, subject to
any applicable employment agreements.

         Set forth below are the name, age, principal position and a
biographical description of each of our directors and executive officers:

                                       35

<PAGE>




<TABLE>
<CAPTION>
    NAME                            AGE     POSITION WITH THE COMPANY
    ----                            ---     -------------------------
    <S>                              <C>    <C>
    Shlomo Ostersetzer..........     77     Chief Executive Officer and Chairman of the Board of Directors
    Dov Zeelim..................     64     President and Vice Chairman of the Board of Directors
    Israel Ofen.................     56     Executive Vice President and Chief Financial Officer
    Shraga Katz.................     60     Vice President Operations
    Avi Kahana..................     61     Secretary and Manager of Import and Export Division
    Jacob Danan.................     64     Chief Engineer and Vice President of Marketing
    Shaul Menachem..............     58     President - Limco-Airepair
    Eran Frenkel (1) ...........     39     V.P.  Business Development - Limco-Airepair
    Yossi Rosenberg (2) ........     39     Vice-President Economics
    Dr. Meir Dvir...............     74     Director
    Yaacov Fish.................     58     Director
    Ishay Davidi................     43     Director
    Gillon Beck ................     43     Director
    Yechiel Gutman..............     59     Director
    Michael Shevi...............     69     Outside Director
    Rami Daniel.................     39     Outside Director
</TABLE>
-----------------

(1) Mr. Frenkel is the son-in-law of Dov Zeelim.

(2) Mr. Rosenberg is the son-in-law of Shlomo Ostersetzer.

         Each of our directors (except our outside directors) is elected to
serve until the next annual general meeting of shareholders and until his
successor has been elected. Officers serve at the discretion of the Board of
Directors.

         On June 15, 2004, we entered into a share purchase agreement with
T.O.P. Under the agreement we sold 857,143 of our shares to T.O.P. As part of
the transaction, our parent company, TAT Industries, and T.O.P entered into a
shareholders' agreement, which provides among other things that each of TAT
Industries and T.O.P will vote all of the shares held by them for the election
to our Board of Directors of three designees of T.O.P and six designees of TAT
Industries.

         Shlomo Ostersetzer has served as the Chairman of our Board of Directors
since April 1985. Mr. Ostersetzer has also served as our Chief Executive Officer
since 1990. Mr. Ostersetzer is one of the founders of TAT Industries and is a
controlling shareholder, and he has served in various capacities with TAT
Industries since 1970, including President, Managing Director and Chairman of
its Board of Directors. Mr. Ostersetzer holds a M.Sc. in Mechanical Engineering
from ETH-Polytechnical Institute in Zurich, Switzerland.

         Dov Zeelim has served as our Vice Chairman of the Board of Directors
since April 1985 and has served as our President and Chief Operating Officer
since August 2000. In addition, Mr. Zeelim has served in various managerial
capacities at TAT Industries for over 21 years, including Managing Director,


                                       36



<PAGE>

Executive Vice President and Vice Chairman. Mr. Zeelim is a licensed Certified
Public Accountant in Israel.

         Israel Ofen has served as our Executive Vice President and Chief
Financial Officer since August 1993, as Managing Director since March 1991 and
has held other managerial positions since April 1985. In addition, Mr. Ofen
served as Vice President, Finance of TAT Industries from 1983 through August 31,
1993 and as its President since January 2000.  Mr. Ofen also serves as a
director of TAT Industries. Mr. Ofen holds a B.A. in Economics from Bar-llan
University in Ramat-Gan. Mr. Ofen is a licensed Certified Public Accountant in
Israel.

         Shraga Katz has served as our V.P. Operations since March 1998. From
August 1995 to March 1998, he served as General Manger of Limco. From 1986 to
1995, he served as manager of the Israeli heat exchanger operations division of
TAT Industries and has served as manager of our heat exchange operations since
1991. Mr. Katz is a retired Lieutenant Colonel of the Israeli Air Force in which
he served for 20 years. Mr. Katz hold a B.Sc. in Mechanical Engineering from the
Technion, Israel Institute of Technology and an M.Sc. in Aeronautical
Engineering from AFIT Air Force Institute of Technology.

         Avi Kahana has served as our Secretary since January 1998. During the
past five years, Mr. Kahana has been the Manager of our import and export
division. Mr. Kahana has worked for TAT Industries and its subsidiaries since
1984.

         Jacob Danan has served as our Chief Engineer since September 1996, and,
since January 1, 1998 as our Vice President of Marketing. Mr. Danan has been
with us since 1980. Mr. Danan holds a holds a B.Sc. in Aeronautical Engineering
from the Technion, Israel Institute of Technology.

          Eran Frenkel has served as Vice President Business Development of
Limco-Airepair since June 2003. Mr. Frenkel is the son-in-law of Dov Zeelim. Mr.
Frenkel holds an M.A. in Business Administration from Pace University in
New-York.

         Yossi Rosenberg has served as our Vice President of Economics and as a
Director of TAT Industries since June 2003. From February 2001 until March 2003,
Mr. Rosenberg served as an economist and as a financial consultant to our C.E.O.
Mr. Rosenberg is the son-in-law of Shlomo Ostersetzer. Mr. Rosenberg holds a
B.A. in Business Administration from the College of Management in Tel Aviv.

         Shaul Menachem has served as the President of Limco-Airepair since
February 1998. Mr. Menachem holds a M.Sc. in Engineering Management from
Bridgeport University of Connecticut.

         Dr. Meir Dvir has served as our director since December 1994. Mr. Dvir
has served as deputy General Manager of Business Research and Development and
also as General Manager of the Israeli Aircraft Industries Ltd. He is also a
director of T.T.I Telecom Ltd. and Bank Leumi Ltd. Mr. Dvir holds a Ph.D. in
Mathematics and Physics from the Hebrew University in Jerusalem.

         Yaacov Fish has served as our director since January 1994. From 1992 to
1997, Mr. Fish served as Managing Director of Magen Central Pension Fund Ltd.
Mr. Fish served as a financial advisor to Shalev Transportation Cooperative Ltd.
from 1990 to 1994 and served as general comptroller of Egged Ltd. from 1977
to 1990. Mr. Fish holds a B.Sc. in Economics from Bar-llan University in Tel
Aviv.

         Ishay Davidi was elected on December 21, 2004 as one of three designees
of FIMI Opportunity Fund. Mr. Davidi has served as the Chief Executive Officer
and Senior Partner of FIMI Opportunity Fund, an Israeli investment fund, since
1996. Mr. Davidi also serves as the Chairman and Senior Partner
                                       37



<PAGE>

of FITE (First Israel Turnaround  Enterprise), another Israeli investment fund
established by FIMI Group, and as a director of Tadiran Communications,  Lipman
Electronic  Engineering,  Ltd., Tedea  Technological Development and Automation
Ltd., TG Precision Products Ltd. and Medtechnica Ltd. Prior to the foundation of
FIMI, from 1994 to 1996 Mr. Davidi served as Chief Executive Officer of Tikvah
VC Fund, an Israeli VC fund and prior to that he served as Chief Executive
Officer of two Israeli industrial companies.  Mr. Davidi serves as a director of
Medtechnia Ltd., Tedea Technological Development and Automation Ltd. and Formula
Systems Ltd. Mr. Davidi holds a B.Sc. in Industrial Engineering from Tel Aviv
University and an MBA in Finance from Bar Ilan University.

         Gillon Beck was elected on December 21, 2004 as one of three designees
of FIMI  Opportunity Fund. Mr. Beck has served as a partner in FIMI Opportunity
Fund and a director  of several of the fund's  portfolio companies  since 2003.
Prior  thereto,  from  1999 Mr. Beck  served as Chief  Executive Officer  and
President  of Arad Ltd.  Group, a  leading  manufacturer of water  measurement
technologies.  Mr. Beck serves as a director of Medtechnia Ltd., Tedea
Technological Development and Automation Ltd. and Formula Vision Ltd. Mr.  Beck
holds a  B.Sc.  in  Industrial Engineering from  the Technion,  Israel Institute
of Technology and an M.B.A. in Finance from Bar Ilan University.

         Yechiel Gutman was elected on December 21, 2004 as one of three
designees of FIMI Opportunity  Fund. Mr. Gutman serves as a public member of the
Israeli  Security  Authority (ISA). He also serves as a director of many Israeli
companies,  including  Israel  Refinery  Company,  El-Al (the  Israeli national
airline),  and Bank Otzar Hachayal (a subsidiary of Bank Hapoalim).  In the past
Mr.  Gutman served as an advisor to the Israeli  Minster of Justice.  Mr. Gutman
holds L.L.B. and M.A. degrees from The Hebrew University, Jerusalem. Mr. Gutman
serves as an independent director.

         Michael Shevi has served as an outside director since June 10, 2004.
Mr. Shevi has served as Managing  Director of Cham Foods since 1973.  Currently,
Mr. Shevi is a director in Cham Foods  (Israel)  Ltd. Mr. Shevi is licensed as a
Certified Public Accountant in Israel.

         Rami Daniel has served as an outside director since June 10, 2004.  Mr.
Daniel has served as V.P. of Finance of Ganden  Real Estate  since  2001.  Mr.
Daniel is licensed as a Certified  Public  Accountant in Israel and holds B.S.C.
from the College of Management in Tel Aviv.

     B. Compensation

         The following table sets forth all the compensation we paid with
respect to all of our directors and executive officers as a group for the year
ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                         Pension,
                                              Salaries, fees,           retirement       Compensation due
                                              commissions and           and similar        to exercise of
                                                 bonuses                 benefits             options
                                              ---------------           -----------      -----------------
<S>                                             <C>                      <C>                <C>
All directors and executive officers
 as a group, (16) persons                       $ 1,657,000              $318,000           $3,048,000

</TABLE>


         During the year ended December 31, 2004, we paid each of our outside
directors a per meeting attendance fee of NIS 1,000 (approximately $232), plus
an annual fee of NIS 24,524 (approximately $5,700.


                                       38

<PAGE>


         As of December 31, 2004, our directors and executive officers as a
group, consisting of sixteen persons, held options to purchase an aggregate of
260,000 ordinary shares, at exercise prices ranging from $1.625 to $4.50 per
share, all of such option were vested. Of such options, 250,000 options expired
on March 3, 2005 and 10,000 options expire on January 19, 2009. All options were
issued under the 1995 and 1999 Employee Stock Option Plans. See--"Share
Ownership--Stock Option Plans." During 2004 548,435 options were exercised.

         Pursuant to their employment agreements, the chairman of our Board of
Directors, Mr. Shlomo Ostersetzer, and the vice chairman of the Board of
Directors, Mr. Dov Zeelim, are entitled each to a bonus of 2.5% of the annual
consolidated operating income, in excess of $500,000. In the years ended
December 31, 2004, 2003 and 2002, our Board of Directors and shareholders
approved total payments of approximately $246,488, $239,794 and $176,257 to the
chairman and vice chairman of our Board.

     C. Board Practices

Election of Directors

         Pursuant to our articles of association, all of our directors are
elected at our annual general meeting of shareholders by a vote of the holders
of a majority of the voting power represented and voting at such meeting. All
the members of our Board of Directors (except the outside directors) may be
reelected upon completion of their term of office. All of our current directors
(except one of our outside directors) were elected by our shareholders at our
annual general meeting of shareholders of July 2004.

Alternate Directors

         Our Articles of Association provide that any director may, by written
notice to us, appoint another person to serve as an alternate director, subject
to the approval of a majority of the directors, and may cancel such appointment.
Any person, whether or not already a director, may act as an alternate, and the
same person may act as the alternate for several directors and shall have the
corresponding number of votes equivalent to the number of directors who
appointed him. The term of appointment of an alternate director may be for a
specified period, or until notice is given of the termination of the specified
period, or of the appointment. No director currently intends to appoint any
other person as an alternate director, except if the director is unable to
attend a meeting of the Board of Directors. In the event of a tie vote, under
our Articles of Association, the Chairman of the Board shall have a second or
casting vote.

Independent and Outside Directors

         The Israeli Companies Law requires Israeli companies with shares that
have been offered to the public in or outside of Israel to appoint at least two
outside directors. No person may be appointed as an outside director if the
person or the person's relative, partner, employer or any entity under the
person's control has or had, on or within the two years preceding the date of
the person's appointment to serve as outside director, any affiliation with the
company or any entity controlling, controlled by the company. The term
affiliation includes an employment relationship, a business or professional
relationship maintained on a regular basis, control and service as an officer
holder, excluding service as an outside director of a company that is offering
its shares to the public for the first time.

         No person may serve as an outside director if the person's position or
other activities create, or may create, a conflict of interest with the person's
responsibilities as an outside director or may otherwise interfere with the
person's ability to serve as an outside director. If, at the time outside
directors are to be appointed, all current members of the board of directors are
of the same gender, then at least one outside director must be of the other
gender.


                                       39



<PAGE>

         Outside directors are elected by shareholders. The shareholders voting
in favor of their election must include at least one-third of the shares of the
non-controlling shareholders of the company who voted on the matter. This
minority approval requirement need not be met if the total shareholdings of
those non-controlling shareholders who vote against their election represent 1%
or less of all of the voting rights in the company. Outside directors serve for
a three-year term, which may be renewed for only one additional three-year term.
Outside directors can be removed from office only by the same special percentage
of shareholders as can elect them, or by a court, and then only if the outside
directors cease to meet the statutory qualifications with respect to their
appointment or if they violate their duty of loyalty to the company.

         Any committee of the board of directors must include at least one
outside director and the audit committee must include all the outside directors.
An outside director is entitled to compensation as provided in regulations
adopted under the Israeli Companies Law and is otherwise prohibited from
receiving any other compensation, directly or indirectly, in connection with
such service.

         In addition, the NASDAQ Marketplace Rules currently require us to have
at least two independent directors on our board of directors and to establish an
audit committee. As of July 31, 2005, under NASDAQ Marketplace Rules promulgated
pursuant to the Sarbanes-Oxley Act of 2002, our audit committee must have at
least three members and be comprised only of independent directors each of whom
satisfies the "independence" requirements of the Securities and Exchange
Commission and NASDAQ. Our board of directors has determined that Messrs. Rami
Daniel and Michael Shevi qualify both as independent directors under the
Securities and Exchange Commission and NASDAQ requirements and as outside
directors under the Israeli Companies Law requirements. Our board of director
has further determined that Mr. Yaacov Fish and Mr. Meir Dvir qualify as
independent directors under the Securities and Exchange Commission and NASDAQ
requirements.

         As a controlled company within the meaning of NASDAQ Marketplace Rule
4350(c)(5), we are exempted from the NASDAQ Marketplace Rules promulgated
pursuant to the Sarbanes-Oxley Act of 2002, effective as of July 31, 2005,
according to which a majority of our board of directors must qualify as
independent directors within the meaning of the NASDAQ Marketplace Rules see
Item 6.C. "Directors, Senior Management and Employees - Board Practices - NASDAQ
Exemptions for a Controlled Company."

NASDAQ Exemptions for a Controlled Company

         We are a controlled company within the meaning of NASDAQ Marketplace
Rule 4350(c)(5), or Rule 4350(c)(5), since TAT Industries holds more than 50% of
our voting power.

         Under Rule 4350(c)(5), a controlled company is exempt from the
following requirements of NASDAQ Marketplace Rule 4350(c) effective as of July
31, 2005:

          o    the majority of the company's  board of directors must qualify as
               independent directors, as defined under NASDAQ Marketplace Rules.

          o    the  compensation  of the chief  financial  officer and all other
               executive  officers must be  determined,  or  recommended  to the
               board of directors for determination, either by (i) a majority of
               the  independent  directors  or  (ii)  a  compensation  committee
               comprised solely of independent directors.


                                       40



<PAGE>

          o    director  nominees must either be selected or recommended for the
               board of  directors,  either  by (a) a  majority  of  independent
               directors  or (b) a  nominations  committee  comprised  solely of
               independent directors.

         We intend to rely on these exemptions provided under Rule 4350 (C)(5).

NASDAQ Exemptions and Home Country Practices

         NASDAQ Marketplace Rule 4350, or Rule 4350, was recently amended to
permit foreign private issuers to follow certain home country corporate
governance practices without the need to seek an individual exemption from
NASDAQ. Instead, a foreign private issuer must provide NASDAQ with a
letter from outside counsel in its home country certifying that the issuer's
corporate governance practices are not prohibited by home country law.

         On June 22, 2005 we provided NASDAQ with a notice of non-compliance
with Rule 4350. We do not comply with the requirement of Rule 4350 that we
distribute to shareholders, and file with NASDAQ, copies of an annual report
containing audited financial statements of our company and its subsidiaries
within a reasonable period of time prior to our annual meeting of shareholders.
Instead, we will follow Israeli Companies Law by sending our financial
statements to our shareholders. We will also make it available on our website.

Approval of Related Party Transactions under Israeli Law

         The Israeli Companies Law codifies the fiduciary duties that "office
holders," including directors and executive officers, owe to a company. An
"office holder" is defined in the Israeli Companies Law as a director, general
manager, chief business manager, deputy general manager, vice general manager,
other manager directly subordinate to the managing director or any other person
assuming the responsibilities of any of the foregoing positions without regard
to such person's title. An office holder's fiduciary duties consist of a duty of
care and a duty of loyalty. The duty of care requires an office holder to act at
a level of care that a reasonable office holder in the same position would
employ under the same circumstances. This includes the duty to utilize
reasonable means to obtain (i) information regarding the appropriateness of a
given action brought for his approval or performed by him by virtue of his
position and (ii) all other information of importance pertaining to the
foregoing actions. The duty of loyalty requires an office holder to act in good
faith and for the company's interest, including, avoiding any conflict of
interest between the office holder's position in the company and any other
position he holds or his personal affairs, avoiding any competition with the
company's business, avoiding exploiting any business opportunity of the company
in order to receive personal gain for the office holder or others, and
disclosing to the company any information or documents relating to the company's
affairs which the office holder has received by virtue of his position as an
office holder. Each person identified as a director or executive officer in the
table in Item 6.A. "Directors and Senior Management" is an office holder. Under
the Israeli Companies Law, all arrangements as to compensation of office holders
who are not directors require approval of our board of directors, and the
compensation of office holders who are directors must be approved by our audit
committee, board of directors and shareholders.

         The Israeli Companies Law requires that an office holder promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, in connection with any existing or proposed
transaction by us. In addition, if the transaction is an extraordinary
transaction, that is, a transaction other than in the ordinary course of
business, other than on market terms, or likely to have a material impact on the
company's profitability, assets or liabilities, the office holder must also
disclose any personal interest held by the office holder's spouse, siblings,
parents, grandparents, descendants, spouse's descendants and the spouses of any
of the foregoing, or by any corporation in which the office


                                       41



<PAGE>

holder or a relative is a 5% or greater shareholder, director or general
manager or in which he or she has the right to appoint at least one
director or the general manager. Some transactions, actions and arrangements
involving an office holder (or a third party in which an office holder
has an interest) must be approved by the board of directors or as otherwise
provided for in a company's articles of association, as not being adverse
to the company's interest. In some cases, including in the case of an
extraordinary transaction, such a transaction, action and arrangement must
be approved by the audit committee and by the board of directors itself, and
further shareholder approval is required to approve the terms of compensation
of an office holder who is a director. An office holder who has a personal
interest in a matter, which is considered at a meeting of the board of
directors or the audit committee, may not be present during the board
of directors or audit committee discussions and may not vote on this matter,
unless the majority of the members of the board or the audit committee have a
personal interest, as the case may be.

         The Israeli Companies Law also provides that an extraordinary
transaction with a controlling shareholder or in which a controlling shareholder
of the company has a personal interest (including private offerings in which a
controlling shareholder has a personal interest) and a transaction with a
controlling shareholder or his relative regarding terms of service and
employment, must be approved by the audit committee, the board of directors and
shareholders. The shareholder approval for such transactions must include at
least one-third of the shareholders who have no personal interest in the
transaction who voted on the matter. The transaction can be approved by
shareholders without this one-third approval, if the total shareholdings of
those shareholders who have no personal interest and voted against the
transaction do not represent more than one percent of the voting rights in the
company.

         However, under the Companies Regulations (Relief From Related Party
Transactions), 5760-2000, promulgated under the Israeli Companies Law and
amended in January 2002, certain transactions between a company and its
controlling shareholder(s) and certain transaction with its director(s)
regarding terms of compensation do not require shareholder approval.

         In addition, directors' compensation and employment arrangements do not
require the approval of the shareholders if both the audit committee and the
board of directors agree that such arrangements are for the benefit of the
company. If the director or the office holder is a controlling shareholder of
the company then the employment and compensation arrangements of such director
or office holder do not require the approval of the shareholders providing
certain criteria is met.

         The above relief will not apply if one or more shareholder, holding at
least 1% of the issued and outstanding share capital of the company or of the
company's voting rights, objects to the grant of such relief, provided that such
objection is submitted to the company in writing not later than seven (7) days
from the date of the filing of a report regarding the adoption of such
resolution by the company pursuant to the requirements of the Israeli Securities
Law. If such objection is duly and timely submitted, then the compensation
arrangement of the directors will require shareholders' approval as detailed
above.

         The Israeli Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% or greater shareholder of the
company. This rule does not apply if there is already another 25% or greater
shareholder of the company. Similarly, the Israeli Companies Law provides that
an acquisition of shares in a public company must be made by means of a tender
offer if as a result of the acquisition the purchaser would hold greater than a
45% interest in the company, unless there is another shareholder holding more
than a 45% interest in the company. These requirements do not apply if, in
general, the acquisition (1) was made in a private placement that received
shareholder approval, (2) was from a 25% or greater shareholder of the company
which resulted in the acquiror becoming a 25% or greater

                                       42



<PAGE>

shareholder of the company, or (3) was from a shareholder  holding more than a
45% interest in the company which resulted in the acquiror becoming a holder of
more than a 45% interest in the company.

         If, as a result of an acquisition of shares, the acquirer will hold
more than 90% of a company's outstanding shares, the acquisition must be made by
means of a tender offer for all of the outstanding shares. If less than 5% of
the outstanding shares are not tendered in the tender offer, all the shares that
the acquirer offered to purchase will be transferred to the acquirer. The
Israeli Companies Law provides for appraisal rights if any shareholder files a
request in court within three months following the consummation of a full tender
offer. If more than 5% of the outstanding shares are not tendered in the tender
offer, then the acquiror may not acquire shares in the tender offer that will
cause his shareholding to exceed 90% of the outstanding shares.

         Regulations under the Israeli Companies Law provide that the Israeli
Companies Law's tender offer rules do not apply to a company whose shares are
publicly traded outside of Israel, if pursuant to the applicable foreign
securities laws and stock exchange rules there is a restriction on the
acquisition of any level of control of the company, or if the acquisition of any
level of control of the company requires the purchaser to make a tender offer to
the public shareholders.

Exculpation, Indemnification and Insurance of Directors and Officers

         The Israeli Companies Law provides that an Israeli company cannot
exculpate an office holder from liability with respect to a breach of his duty
of loyalty, but may, if permitted by its articles of association, exculpate in
advance an office holder from his liability to the company, in whole or in part,
with respect to a breach of his duty of care. However, a company may not
exculpate in advance a director from his liability to the company with respect
to a breach of his duty of care in the event of distributions. Our articles of
association allow us to exculpate any office holder from his or her liability to
us for breach of duty of care, to the maximum extent permitted by law, before
the occurrence giving rise to such liability.

         Additionally, the Israeli Companies Law provides that a company may, if
permitted by its articles of association, enter into a contract for the
insurance of the liability of any of its office holders with respect to an act
performed by him in his capacity as an office holder, for: a breach of his duty
of care to us or to another person; a breach of his duty of loyalty to us,
provided that the office holder acted in good faith and had reasonable cause to
assume that his act would not prejudice our interests; or a financial liability
imposed upon him in favor of another person. Our articles of association provide
that, subject to any restrictions imposed by the Israeli Companies Law, we may
enter into an insurance contract providing coverage for the liability of any of
our office holders for a breach of his duty of care to us or to another person;
breach of his duty of loyalty to us, provided that the office holder acted in
good faith and had reasonable cause to assume that his act would not prejudice
our interests; or a financial liability imposed upon him in favor of another
person.

         Further, the Israeli Companies Law permits a company, if its articles
of association so provide, to indemnify an office holder for acts or omissions
committed in his or her capacity as an office holder of the company for:

          o    a financial  obligation  imposed on the office holder in favor of
               another  person by any  judgment,  including a  settlement  or an
               arbitrator's award approved by a court;

          o    reasonable   litigation  expenses,   including  attorneys'  fees,
               incurred by the office holder as a result of an  investigation or
               proceeding  instituted  against  him  by a

                                       43



<PAGE>

               competent   authority,   provided  that  such   investigation  or
               proceeding  concluded without the filing of an indictment against
               him or the  imposition  of any  financial  liability  in  lieu of
               criminal  proceedings,  or  concluded  without  the  filing of an
               indictment  against him and a financial  liability was imposed on
               him in lieu of criminal  proceedings  with  respect to a criminal
               offense that does not require proof of criminal intent; and

          o    reasonable   litigation  expenses,   including  attorney's  fees,
               expended  by such  office  holder or  charged  to him or her by a
               court: (a) in a proceeding instituted against him or her by or on
               behalf of the  company  or by another  person,  (b) in a criminal
               charge  from which he or she was  acquitted,  or (c) in  criminal
               proceedings  in which he or she was  convicted  of a crime  which
               does not require proof of criminal intent.

         The Israeli Companies Law provides that a company's articles of
association may permit the company to indemnify an office holder following a
determination to this effect made by the company after the occurrence of the
event in respect of which the office holder will be indemnified. It also
provides that a company's articles of association may permit the company to
undertake in advance to indemnify an office holder, provided that the
undertaking is limited to types of events, which, in the opinion of the
company's board of directors, are, at the time of giving the undertaking,
foreseeable due to our company's activities and to an amount or standard that
the board of directors has determined is reasonable under the circumstances. Our
articles of association provide that we may undertake to indemnify in advance an
office holder, in accordance with the conditions set under applicable law,
against any liabilities he or she may incur in such capacity, provided that such
undertaking is limited with respect to categories of events that can be expected
as determined by our board of directors when authorizing such undertaking, and
with respect to such amounts determined by our board of directors as reasonable
in the circumstances. Furthermore, under our articles of association, we may
indemnify any past or present office holder, in accordance with the conditions
set under any law, with respect to any past occurrence, whether or not we are
obligated under any agreement to indemnify such office holder in respect of such
occurrence.

         These provisions are specifically limited in their scope by the Israeli
Companies Law, which provides that a company may not indemnify an office holder,
nor exculpate an office holder, nor enter into an insurance contract which would
provide coverage for any monetary liability of an office holder, incurred as a
result of certain improper actions.

         Pursuant to the Israeli Companies Law, exculpation of, procurement of
insurance coverage for, and an undertaking to indemnify or indemnification of,
our office holders must be approved by our audit committee and our board of
directors and, if the office holder is a director, also by our shareholders.

         We have agreed to indemnify our office holders to the fullest extent
permitted by law. We currently maintain directors' and officers' liability
insurance with a per claim and aggregate coverage limit of the higher of $5
million or 25% of the Company's equity capital (net worth).

Employment Agreements

         In November 2000, Shlomo Ostersetzer and Dov Zeelim entered into
substantially similar employment agreements with us. These agreements provided
for a base salary and a package of benefits including a bonus of 2.5% of the
annual consolidated operating income, in excess of $500,000, and contained
certain non-competition and confidentiality provisions. According to the
agreements, in the event that the employment of Messrs. Ostersetzer or Zeelim
with us is terminated under circumstances

                                       44



<PAGE>

that entitle them to severance pay under Israeli law, they will be
entitled to receive the higher of severance pay due under Israeli
law or the amounts that have accumulated in mangers insurance funds, as
a result of our monthly contribution on their behalf, as well as amounts
accumulated in education funds as a result of our monthly contribution
to these funds. Under the agreements, the terms of Messrs. Ostersetzer's and
Zeelim's employment will continue at least until January 1, 2007. After such
date we may terminate the agreements subject to providing Messrs. Ostersetzer
and Zeelim with twelve-months' prior notice. Messrs. Ostersetzer and Zeelim may
terminate their agreement without notice after January 1, 2008.

Audit Committee

         Our audit committee, established in accordance with Section 114 of the
Israeli Companies Law and Section 3(a)(58)(A) of the Securities Exchange Act of
1934, assists our board of directors in overseeing the accounting and financial
reporting processes of our company and audits of our financial statements,
including the integrity of our financial statements, compliance with legal and
regulatory requirements, our independent public accountants' qualifications and
independence, the performance of our internal audit function and independent
public accountants, finding any defects in the business management of our
company for which purpose the audit committee may consult with our independent
auditors and internal auditor, proposing to the board of directors ways to
correct such defects, approving related-party transactions as required by
Israeli law, and such other duties as may be directed by our board of directors.

         Our audit committee currently consists of four board members who
satisfy the respective "independence" requirements of the Securities and
Exchange Commission, NASDAQ and Israeli Law for audit committee members. Our
audit committee members are Messrs. Michael Shevi, Rami Daniel and Yaacov Fish
and Dr. Meir Dvir. Mr. Yaacov Fish has been elected as the Chairman of the Audit
Committee, and our Board of Directors has determined that he qualifies as a
financial expert. The audit committee meets at least once each quarter. Our
audit committee charter is available on our website at www.tat.co.il.

         The responsibilities of the audit committee also include approving
related-party transactions as required by law. Under Israeli law, an audit
committee may not approve an action or a transaction with a controlling
shareholder, or with an office holder, unless at the time of approval two
outside directors are serving as members of the audit committee and at least one
of the outside directors was present at the meeting in which an approval was
granted.

         Our audit committee is authorized generally to investigate any matter
within the scope of its responsibilities and has the power to obtain from the
internal auditing unit, our independent auditors or any other officer or
employee any information that is relevant to such investigations.

         Our audit committee has adopted and our board of directors has approved
a company-wide Code of Business Conduct and Ethics which appears on our
company's website.

         Our Audit Committee chooses and engages our independent auditors to
audit our financial statements. In December 2004, our Audit Committee adopted a
policy requiring management to obtain the Audit Committee's approval before
engaging our independent auditors to provide any audit or permitted non-audit
services to us or to our subsidiaries. This policy, which is designed to assure
that such engagements do not impair the independence of our auditors, requires
the Audit Committee to pre-approve annually various audit and non-audit services
that may be performed by the our auditors. In addition, the Audit Committee
limited the aggregate amount of fees that our auditors may receive during 2004
for non-audit services in certain categories.



                                       45

<PAGE>

         The Audit Committee is not permitted to approve the engagement of our
auditors for any services that fall into a category of services that is not
permitted by applicable law or if the services would be inconsistent with
maintaining the auditor's independence. See "Item 16. C. Principal Accounting
Fees and Services."

Other Corporate Governance Matters

         Our board of directors has recently passed a resolution which provides
that the independent directors of our company will meet at least twice a year in
executive session. At such sessions the independent directors will recommend the
compensation of all our senior officers and will nominate directors to be
approved by our shareholders at the Annual General Meeting. Our executive
officers do not participate in any discussions or decisions that involve any
aspect of their compensation.

         We have adopted a Code of Business Conduct and Ethics applicable to all
of our principal officers and all employees. The Code of Ethics which is
distributed to all officers and employees may be viewed at our website.

          Our audit committee approves all audit and non-audit services rendered
by our independent registered public accountants. All members of our audit
committee are considered financially literate in accordance with the NASDAQ
definition.

Internal Audit

         The Israeli Companies Law also requires the board of directors of a
public company to appoint an internal auditor nominated by the audit committee.
A person who does not satisfy the Companies Law's independence requirements may
not be appointed as an internal auditor. The role of the internal auditor is to
examine, among other things, the compliance of the company's conduct with
applicable law and orderly business practice. Our internal auditor complies with
the requirements of the Companies Law. Our Internal Auditor is Yair Shilhav.

     D. Employees

         On December 31, 2004, we employed 284 persons, of whom 193 were
employed in manufacturing and quality control, 58 were employed in
administration, sales and marketing, and 33 were employed in engineering and
research and development.

         On December 31, 2003, we employed 270 persons, of whom 193 were
employed in manufacturing and quality control, 48 were employed in
administration, sales and marketing, and 29 were employed in engineering and
research and development.

         On December 31, 2002, we employed 261 persons, of whom 166 were
employed in manufacturing and quality control, 67 were employed in
administration, sales and marketing, and 28 were employed in engineering and
research and development.

         Our U.S. subsidiary employed 116 full-time employees as of December 31,
2004, 100 full-time employees at December 31, 2003 and 85 full-time employees at
December 31, 2002.

         Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists Association) are applicable
to our Israeli employees by order of the Israeli Ministry of Labor. These
provisions concern mainly the length of the workday, minimum daily wages for


                                       46



<PAGE>

professional workers, contributions to a pension fund, insurance for
work-related accidents, procedures for dismissing employees, determination of
severance pay and other conditions of employment. We generally provide our
employees with benefits and working conditions beyond the required minimums.
Furthermore, under the collective bargaining agreements, the wages of most of
our employees are linked to the Consumer Price Index, although the extent of the
linkage is limited.

         In addition, Israeli law generally requires severance pay upon the
retirement or death of an employee or termination of employment without due
cause. Furthermore, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute which is similar to the
United States Social Security Administration. The payments thereto amount to
approximately 13% of wages, with the employee contributing approximately 40% and
the employer approximately 60%.

          A general practice followed by us, although not legally required, is
the contribution of monies on behalf of its senior employees to a fund known as
"Management Insurance." This fund provides a combination of savings plan,
insurance and severance pay benefits to the employee, giving the employee a lump
sum payment upon retirement and securing his right to receive severance pay, if
legally entitled, upon termination of employment. The employee contributes an
amount equal to approximately 5% of his wages and the employer contributes an
additional amount of approximately 13-1/3% - 16% of such wages.

     E. Share Ownership

Beneficial Ownership of Executive Officers and Director

         The following table sets forth information as of June 22, 2005
regarding beneficial ownership by each of our directors and executive officers.

                                           Number of Ordinary
                                                 Shares            Percentage of
Name                                     Beneficially Owned (1)    Ownership (2)
----                                     ----------------------    -------------

Shlomo Ostersetzer (3)(4) ............          249,412                4.13%
Dov Zeelim (3)(4) ....................          175,000                2.89%
Israel Ofen (3) ......................           81,000                1.34%
Shraga Katz (3) ......................           10,000                  *
Avi Kahana (3) .......................             -                     -
Jacob Danan (3) ......................            2,000                  *
Shaul Menachem (3) ...................             -                     -
Eran Frenkel (3) .....................              400                  *
Yossi Rosenberg (3) ..................             -                     -
Dr. Meir Dvir (3)(5)..................           7,000                   *
Yaacov Fish (3)(5) ...................           5,000                   *
Ishay Davidi (3)......................             -                     -
Gillon Beck (3) ......................             -                     -
Yechiel Gutman (3) ...................             -                     -
Michael Shevi (3) ....................             -                     -
Rami Daniel (3) ......................             -                     -
All directors and executive officers
as a group, (16) persons                          529,812              8.75%

     ------------

     * less than one percent



                                       47



<PAGE>

         (1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Ordinary shares relating to options
and warrants currently exercisable or exercisable within 60 days of the date of
this table are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares shown as
beneficially owned by them.

         (2) The percentages shown are based on 6,042,671 ordinary shares issued
and outstanding as of June 22, 2005.

         (3) The business addresses of Messrs. Ostersetzer, Zeelim, Ofen, Katz,
Kahana, Danan, Frenkel, Rosenberg, Menachem, Fish, Davidi, Beck, Gutman, Shevi
and Daniel and Dr. Dvir is c/o TAT Technologies Ltd. P.O. Box 80, Gedera, Israel
70750.

         (4) Mr. Shlomo Ostersetzer, an officer, director and controlling
shareholder of TAT Industries, and Dov Zeelim, an officer, director and
controlling shareholder of TAT Industries, disclaim beneficial ownership of the
3,113,409 ordinary shares held by TAT Industries, except to the extent of their
proportional interest therein.

         (5) Includes 5,000 ordinary shares subject to currently exercisable
options granted under our 1999 stock option plan, at an exercise price of $1.625
per share. The options expire in January 2009.

Stock Option Plans

         In March 1995, our Board of Directors adopted a share option plan (the
"1995 Plan"), that was approved by our shareholders in August 1995 pursuant to
which 400,000 ordinary shares have been reserved for issuance upon the exercise
of options granted under the 1995 Plan. In June 1995, our Board of Directors
approved the granting of options under the 1995 Plan at an exercise price of
$4.50 per share as follows: Shlomo Ostersetzer-125,000 shares; Dov
Zeelim-125,000 shares; Israel Ofen: 65,000 shares; and an aggregate of 85,000
shares to other employees and services providers of our company. The 1995 Plan
was terminated in March 2005. As of June 20, 2005 there were no options
outstanding pursuant to the 1995 Plan.

         In January 1999, our Board of Directors adopted a share option plan
(the "1999 Plan") for which 500,000 ordinary shares have been reserved and
granted at an exercise price of $1.625 per share as follows: Shlomo
Ostersetzer-125,000 shares; Dov Zeelim-175,000 shares; Israel Ofen-102,500
shares; and an aggregate of 97,500 shares to other employees and directors. As
of June 20, 2005 there were 17,500 options outstanding, at an exercise price of
$1.625 per share, and no options were available for grant pursuant to the 1999
Plan. As of June 20, 2005, our executive officers and directors as a group,
consisting of sixteen persons, held 10,000 options under the 1999 Plan. The 1999
Plan will terminate on January 2009.

         All options are valid for 10 years.

     Item 7. Major Shareholders and Related Party Transactions

     A. Major Shareholders

         TAT Industries is the beneficial holder of 51.52 % of our outstanding
shares. Accordingly, TAT

                                       48

<PAGE>

Industries controls our company.

         The following table sets forth certain information as of June 22, 2005,
regarding the beneficial ownership by all shareholders known to us to own
beneficially 5% or more of our ordinary shares:

                                         Number of
                                      Ordinary Shares           Percentage of
              Name                 Beneficially Owned(1)         Ownership(2)
              ----                 ---------------------         ------------
  TAT Industries Ltd. (3)........        3,113,409                  51.52%
  T.O.P(4)(5)....................        1,357,143                  22.46%

  -------------
          (1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Ordinary shares relating to options
and warrants currently exercisable or exercisable within 60 days of the date of
this table are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table above
have sole voting and investment power with respect to all shares shown as
beneficially owned by them.

         (2) The percentages shown are based on 6,042,671 ordinary shares issued
and outstanding as of June 22, 2005.

         (3) The address of TAT Industries is Re'em Industrial Park Neta,
Boulevard Bnei Ayish, Gedera, Israel 70750.

         (4) The address of T.O.P is Mencham Begin 37, Tel Aviv, Israel.

         (5) Includes 500,000 ordinary shares issuable upon the exercise of
currently exercisable warrants, granted under the Share Purchase Agreement with
T.O.P., at an exercise price of $7.32 per share. The warrants expire in January
2010.

Significant Changes in the Ownership of Major Shareholders

         On June 15, 2004, we entered into a share purchase agreement with
T.O.P, a wholly-owned subsidiary of Ta-Tek Ltd., an Israeli private company
wholly-owned by FIMI Opportunity Fund. Under the agreement T.O.P purchased
14.18% of our outstanding shares and was granted warrants for the purchase of
additional 8.27% of our outstanding shares, at an exercise price of $7.32,
subject to certain anti-dilution provisions. Such warrants expire in January
2010.

Major Shareholders Voting Rights

         Our major shareholders do not have different voting rights.

Record Holders

         Based on a review of the information provided to us by our transfer
agent, as of June 10, 2005, there were 52 holders of record of our ordinary
shares, of which 41 record holders holding approximately 50% of our ordinary
shares had registered addresses in the United States. These numbers are not
representative of the number of beneficial holders of our shares nor is it
representative of where such beneficial holders reside since many of these
ordinary shares were held of record by brokers or other

                                       49

<PAGE>


nominees including CEDE & Co., the nominee for the Depositary Company (the
central depositary for the U.S. brokerage community), which held approximately
49.65% of our outstanding ordinary shares as of said date.

     B. Related Party Transactions

         Management and Services Agreement
         ---------------------------------

         In February 2000, we entered into an agreement with TAT Industries, our
controlling shareholder, to purchase operations of TAT Industries relating to
the manufacture of aviation accessories and the lease of certain real estate and
buildings. Pursuant to the terms of this agreement, all of the employees of TAT
Industries were transferred to us effective January 1, 2000, without any change
in the conditions of their employment. TAT Industries pays us $50,000 per year
for administrative and accounting personnel and secretarial staff, who served as
employees of TAT Industries that were transferred to us and who continue to
provide such services.

         In addition, pursuant to the terms of the agreement, we entered into a
lease agreement, pursuant to which we leased from TAT Industries, effective as
of January 1, 2000, an area of approximately 329,000 square feet, including
90,000 square feet of buildings, for a period of 24 years and eleven months. In
consideration for the lease agreement, we agreed to pay TAT Industries annual
rentals of approximately $300,000, with an additional incremental payment of 2%
per year, such rental rates are subject to revaluation every fifth year.

         Other Transactions
         ------------------

         Our Israeli operations employ the services of an agent, Gal Tech Inc.
(a company owned by Messrs. Shlomo Ostersetzer, Dov Zeelim and Israel Ofen, all
of whom are officers and directors of our company). According to an export
agreement, dated April 14, 1992, Gal Tech Inc. receives a handling fee in the
amount of 10% of all purchases by our company in North America per year and a
handling fee in the amount of 3% of all sales by our company to North America
per year (not including sales of heat transfer products). However, pursuant to
this agreement, the total amount to be paid by us to Gal Tech will not exceed
the sum of 5% of our purchases in North America and 5% of our sales to North
America (not including sales of heat transfer products) per year. In the years
ended December 31, 2002, 2003 and 2004, we paid approximately $503,000, $485,000
and $377,000, respectively, to Gal Tech, in accordance with such agreement.
Effective January 1, 2003, Ifat Frenkel (the daughter of Dov Zeelim) became the
President of Gal Tech.

         Pursuant to their employment agreements, the chairman of our Board of
Directors, Mr. Shlomo Ostersetzer, and the vice chairman of our Board of
Directors, Mr. Dov Zeelim, are entitled each to a bonus of 2.5% of the annual
consolidated operating income, in excess of $500,000. In the years ended
December 31, 2004, 2003 and 2002, our Board of Directors and shareholders
approved a total payments of approximately $246,488, $239,794 and $176,257 to
the chairman and vice chairman of our Board.

         T.O.P, one of our major shareholders, provides us with management and
consulting services in consideration for the lower of: (i) 3% of the
consolidated operating income in excess of $500,000, or (ii) $250,000 per year.
In the year ended December 31, 2004, we paid T.O.P $49,564 for such services.



                                       50



<PAGE>

Other Matters

         Mr. Shlomo Ostersetzer also serves as the Chairman of the Board of TAT
Industries. Mr. Dov Zeelim also serves as Vice Chairman of TAT Industries.
Messrs. Zeelim and Ostersetzer are both controlling shareholders of TAT
Industries, our controlling shareholder.

         Mr. Israel Ofen also serves as President of TAT Industries.

     C. Interests of Experts and Counsel

         Not applicable.

     Item 8. Financial Information

     A. Consolidated Statements and Other Financial Information

         See the Index to Consolidated Financial Statements accompanying this
report on Page F-1.

Legal Proceedings

          In August 2004, two former temporary employees filed a claim against
us and against an employment agency, alleging breach of contract and seeking
compensation for salary delays and salary differences in the amount of $250,000.
At this time, we are unable to predict the ultimate outcome of these claims;
however, we believe that such claims are without merit. As such, no provision
was provided.

Dividend Distribution

         In December 2002, we declared a cash dividend of $0.45 per share (an
aggregate of $2,017,582) paid in January 2003. In May 2003, we declared a cash
dividend of $0.25 per share (an aggregate of $1,120,879) payable in July 2003.
In September 2004, we declared a cash dividend of $1.18 per share (an aggregate
of $7,130,352) payable in November 2004. Our intention is to pay up to 40% of
our net profit as a cash dividend annually, depending on cash flow and
profitability and other factors affecting our business. There can be no
assurance that we will declare any further dividends.

         According to the Israeli Companies Law, a company may distribute
dividends out of its profits, so long as the company reasonably believes that
such dividend distribution will not prevent the company from paying all its
current and future debts. Profits, for purposes of the Israeli Companies Law,
means the greater of retained earnings or earnings accumulated during the
preceding two years. In the event cash dividends are declared, such dividends
will be declared in dollars.

     B. Significant Changes

         On May 24, 2005, our subsidiary, Limco-Airepair, Inc., entered into an
agreement, subject to certain closing conditions, for the purchase of Piedmont,
a private company based in Kernersville, North Carolina, engaged in the repair
and overhaul of various aircraft accessories. Under the terms of the
acquisition, we agreed to pay $5.5 million for Piedmont and to repay $9.5
million of its outstanding indebtedness. Piedmont is a recognized leader in the
overhaul, repair, maintenance, service and supply of propellers, landing gear
and APU/LRU units. In addition, we agreed to pay former shareholders of Piedmont
$200,000 per year, for a term of three years, in consideration for their
obligation not to compete with Piedmont in this period.


                                       51

<PAGE>


     Item 9. The Offer and Listing

     A. Offer and Listing Details

Annual Stock Information

         The following table sets forth, for each of the years indicated, the
range of high ask and low bid prices of our ordinary shares on the NASDAQ
SmallCap Market:

                                                        High          Low
                                                        ----          ---
Fiscal Year Ended December 31, 2000                    $7.75         $2.56
Fiscal Year Ended December 31, 2001                     3.25          1.39
Fiscal Year Ended December 31, 2002                     4.10          1.65
Fiscal Year Ended December 31, 2003                     8.00          2.06
Fiscal Year Ended December 31, 2004                     9.80          6.21


Quarterly Stock Information

         The following table sets forth, for each of the full financial quarters
in the years indicated, the range of high ask and low bid prices of our ordinary
shares on the NASDAQ SmallCap Market:



                2003                                       High         Low
                ----                                       ----         ---
                First Quarter........................     $3.86       $2.06
                Second Quarter.......................      6.65        3.15
                Third Quarter........................      6.59        4.79
                Fourth Quarter.......................      8.00        5.85

                2004                                       High         Low
                ----                                       ----         ---
                First Quarter........................     $9.80        $7.15
                Second Quarter.......................      9.29         7.55
                Third Quarter........................      9.00         7.00
                Fourth Quarter.......................      8.94         6.21


Monthly Stock Information

         The following table sets forth, for the most recent six months, the
range of high ask and low bid prices of our ordinary shares on the NASDAQ
SmallCap Market:

          2005                                             High         Low
          ----                                             ----         ---
          January................................         $8.00        $7.41
          February...............................         $8.85        $7.57
          March..................................         $9.35        $7.90
          April..................................         $8.81        $7.19
          May....................................         $8.57        $7.30
          June (through June 21).................         $8.40        $7.70



                                       52



<PAGE>


     B. Plan of Distribution

         Not applicable.

     C. Markets

         Our ordinary shares traded on the NASDAQ National Market under the
symbol "TATTF" from March 1987 until July 1998 when the listing of our ordinary
shares was transferred to the NASDAQ SmallCap Market. There is currently no
trading market for the ordinary shares outside the United States.

     D. Selling Shareholders

         Not applicable.

     E. Dilution

         Not applicable.

     F. Expense of the Issue

          Not applicable.

     Item 10. Additional Information

     A. Share Capital

          Not applicable.

     B. Memorandum and Articles of Association

          We are registered with the Israeli Companies Registry and have been
assigned company number [520035791]. Section 2 of our memorandum of association
provides that we were established for the purpose of engaging in the business of
providing services of planning, development, consultation and instruction in the
electronics field. In addition, the purpose of our company is to perform various
corporate activities permissible under Israeli law.

          On February 1, 2000, the Israeli Companies Law came into effect and
superseded most of the provisions of the Israeli Companies Ordinance (New
Version), 5743-1983, except for certain provisions which relate to liens,
bankruptcy, dissolution and liquidation of companies. Under the Israeli
Companies Law, various provisions, some of which are detailed below, overrule
the current provisions of our articles of association.

The Powers of the Directors

         Under the provisions of the Israeli Companies Law and our Articles of
Association, a director cannot participate in a meeting nor vote on a proposal,
arrangement or contract in which he or she is materially interested. In
addition, our directors cannot vote compensation to themselves or any members of
their body without the approval of our audit committee and our shareholders at a
general meeting. See Item 6.C. "Directors, Senior Management and Employees -
Board Practices - Approval of Related Party Transactions Under
Israeli Law."



                                       53

<PAGE>

         The authority of our directors to enter into borrowing arrangements on
our behalf is not limited, except in the same manner as any other transaction by
us.

         Our articles of association do not impose any mandatory retirement or
age-limit requirements on our directors and our directors are not required to
own shares in our company in order to qualify to serve as directors.

Rights Attached to Shares

         Our authorized share capital consists of 7,000,000 ordinary shares of a
nominal value of NIS 0.90 each. All outstanding ordinary shares are validly
issued, fully paid and non-assessable.

         The rights attached to the ordinary shares are as follows:

         Dividend rights. Holders of our ordinary shares are entitled to the
full amount of any cash or share dividend subsequently declared. The board of
directors may declare interim dividends and propose the final dividend with
respect to any fiscal year only out of the retained earnings, in accordance with
the provisions of the Israeli Companies Law. See Item 8.A. "Financial
Information - Consolidated and Other Financial Information - Dividend
Distribution." If after one year a dividend has been declared and it is still
unclaimed, the board of directors is entitled to invest or utilize the unclaimed
amount of dividend in any manner to our benefit until it is claimed. We are not
obligated to pay interest or linkage differentials on an unclaimed dividend.

         Voting rights. Holders of ordinary shares have one vote for each
ordinary share held on all matters submitted to a vote of shareholders. Such
voting rights may be affected by the grant of any special voting rights to the
holders of a class of shares with preferential rights that may be authorized in
the future.

         The quorum required for an ordinary meeting of shareholders consists of
at least two shareholders present in person or represented by proxy who hold or
represent, in the aggregate, at least one third of the voting rights of the
issued share capital. A meeting adjourned for lack of a quorum generally is
adjourned to the same day in the following week at the same time and place or
any time and place as the directors designate in a notice to the shareholders.
At the reconvened meeting, the required quorum consists of any two members
present in person or by proxy.

         Under our Articles of Association, any resolution, including
resolutions for the declaration of dividends, amending our memorandum of
association or articles of association, approving any change in capitalization,
winding-up, authorization of a class of shares with special rights, or other
changes as specified in our Articles of Association, requires approval of the
holders of a majority of the voting rights represented at the meeting, in
person, by proxy or by written ballot, and voting thereon.

         Pursuant to our articles of association, our directors are elected at
our annual general meeting of shareholders by a vote of the holders of a
majority of the voting power represented and voting at such meeting. See Item
6.C. "Directors, Senior Management and Employees - Board Practices - Election of
Directors."

         Rights to share in our company's profits. Our shareholders have the
right to share in our profits distributed as a dividend and any other permitted
distribution.

         Rights to share in surplus in the event of liquidation. In the event of
our liquidation, after satisfaction of liabilities to creditors, our assets will
be distributed to the holders of ordinary shares in

                                       54

<PAGE>


proportion to the nominal value of their holdings. This right may be affected
by the grant of preferential dividend or distribution rights to the holders of a
class of shares with preferential rights that may be authorized in the future.

         Liability to capital calls by our company. Under our memorandum of
association and the Israeli Companies Law, the liability of our shareholders is
limited to the par value of the shares held by them.

         Limitations on any existing or prospective major shareholder. See Item
6.C. "Directors and Senior Management -Board Practices - Approval of Related
Party Transactions Under Israeli Law."

Changing Rights Attached to Shares

         According to our Articles of Association, in order to change the rights
attached to any class of shares, unless otherwise provided by the terms of the
class, such change must be adopted by a general meeting of the shareholders and
by a separate general meeting of the holders of the affected class with a
majority of the voting rights represented at the meeting, in person, by proxy or
by written ballot, and voting thereon.

Annual and Extraordinary Meetings

         The Board of Directors must convene an annual meeting of shareholders
at least once every calendar year, within fifteen months of the last annual
meeting. Notice of at least twenty-one days prior to the date of the meeting is
required. An extraordinary meeting may be convened by the board of directors, as
it decides or upon a demand of any two directors or 25% of the directors,
whichever is less, or of one or more shareholders holding in the aggregate at
least 5% of our issued capital and at least 1% of the voting rights in our
company. An extraordinary meeting must be held not more than thirty-five days
from the publication date of the announcement of the meeting. See Item 10.B.
"Additional Information -- Memorandum and Articles of Association -- Rights
Attached to Shares--Voting Rights."

Limitations on the Rights to Own Securities in Our Company

         Neither our memorandum of association or our articles of association
nor the laws of the State of Israel restrict in any way the ownership or voting
of shares by non-residents, except with respect to subjects of countries which
are in a state of war with Israel.

Provisions Restricting Change in Control of Our Company

         The Israeli Companies Law requires that mergers between Israeli
companies be approved by the board of directors and general meeting of
shareholders of both parties to the transaction. The approval of the board of
directors of both companies is subject to such boards' confirmations that there
is no reasonable doubt that after the merger the surviving company will be able
to fulfill its obligations towards its creditors. Each company must notify its
creditors about the contemplated merger. Under the Israeli Companies Law, our
Articles of Association are deemed to include a requirement that such merger be
approved by an extraordinary resolution of the shareholders, as explained above.
The approval of the merger by the general meetings of shareholders of the
companies is also subject to additional approval requirements as specified in
the Israeli Companies Law and regulations promulgated thereunder. See also Item
6.C. "Directors, Senior Management and Employees - Board Practices - Approval of
Related Party Transactions Under Israeli Law."



                                       55

<PAGE>

Disclosure of Shareholders Ownership

         The Israeli Securities Law and regulations promulgated thereunder do
not require a company whose shares are publicly traded solely on a stock
exchange outside of Israel, as in the case of our company, to disclose its share
ownership.

Changes in Our Capital

         Changes in our capital are subject to the approval of the shareholders
at a general meeting by a majority of the voting rights represented at the
meeting, in person, by proxy or by written ballot, and voting thereon.

         There are no restrictions on the rights of nonresident or foreign
shareholders to hold or vote the Ordinary Shares.

     C. Material Contracts

         On June 15, 2004, we entered into a share purchase agreement with
T.O.P, a wholly-owned subsidiary of Ta-Tek Ltd., an Israeli private company
wholly-owned by FIMI Opportunity Fund. Under the agreement we sold 857,143 of
our shares to T.O.P for $6,000,001. T.O.P was given certain demand and
piggy-back registration rights with respect to these shares. As part of the
transaction, our parent company, TAT Industries, and T.O.P entered into a
shareholders' agreement, which provides among other things that T.O.P will have
the right to designate three members to serve on our Board of Directors. The
shareholders' agreement also provides for: (i) certain standard bring-along and
tag-along rights; (ii) a right of first refusal with respect to any shares
proposed to be sold by any of the parties; (iii) a lock-up whereby no party may
sell more than 150,000 shares prior to June 2006, and (iv) a standstill
restriction, which provides that T.O.P will not purchase (in the open market or
otherwise) such number of shares that would increase its holdings of our shares
to more than 35%.

         As part of the transaction, T.O.P received warrants to purchase an
aggregate of 500,000 of our ordinary shares at $8.50 per share, which price was
adjusted to $7.32 per share because of our 2004 dividend payment. The warrants
are exercisable for 66 months. In addition, we entered into a credit line
agreement with FIMI, which provides for a line of credit in an amount of up to
$2,000,000. Loans made pursuant to the credit line bear interest at 5% per annum
and are repayable on or before December 15, 2009. We will pay an annual
commitment fee equal to 0.5% of the amount of the credit line. We also entered
into a management agreement which provides that we will engage FIMI to provide
certain management services to us in exchange for annual payments equal to 3% of
our operating profit exceeding $500,000; provided, however, that in no event
will the total management fees in any given year exceed $250,000. The agreements
were approved by our shareholders on August 10, 2004.

         On May 24, 2005, our subsidiary, Limco-Airepair, Inc., entered into an
agreement, subject to certain closing conditions, for the purchase of Piedmont
Aviation Component Services, LLC, or Piedmont, a private company based in
Kernersville, North Carolina, engaged in the repair and overhaul of various
aircraft accessories. Under the terms of the acquisition, we agreed to pay $5.5
million for Piedmont and to repay $9.5 million of its outstanding indebtedness.
In addition, we agreed to pay Piedmont former shareholders $200,000 per year,
for a term of three years, in consideration for their obligation not to compete
with Piedmont in this period. Piedmont is a recognized leader in the overhaul,
repair, maintenance, service and supply of propellers, landing gear and APU/LRU
units.


                                       56



<PAGE>

     D. Exchange Controls

         Israeli law and regulations do not impose any material foreign exchange
restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new
"general permit" was issued under the Israeli Currency Control Law, 1978, which
removed most of the restrictions that previously existed under such law, and
enabled Israeli citizens to freely invest outside of Israel and freely convert
Israeli currency into non-Israeli currencies.

         Non-residents of Israel who purchase our ordinary shares will be able
to convert dividends, if any, thereon, and any amounts payable upon our
dissolution, liquidation or winding up, as well as the proceeds of any sale in
Israel of our ordinary shares to an Israeli resident, into freely repatriable
dollars, at the exchange rate prevailing at the time of conversion, provided
that the Israeli income tax has been withheld (or paid) with respect to such
amounts or an exemption has been obtained.

     E. Taxation

         Israeli Taxation, Foreign Exchange Regulation and Investment Programs
         ---------------------------------------------------------------------

         The following is a summary of the material Israeli tax consequences,
Israeli foreign exchange regulations and certain Israeli government programs
affecting us.

         To the extent that the discussion is based on new tax legislation that
has not been subject to judicial or administrative interpretation, we cannot
assure you that the tax authorities will accept the views expressed in the
discussion in question. The discussion is not intended, and should not be taken,
as legal or professional tax advice and is not exhaustive of all possible tax
considerations.

         Tax Reform
         ----------

         On January 1, 2003, the Law for Amendment of the Income Tax Ordinance
(amendment No.132), 2002, commonly referred to as the Tax Reform, came into
effect, following its enactment by the Israeli Parliament on July 24, 2002. On
December 17, 2002, the Israeli Parliament approved a number of amendments to the
Tax Reform, which came into effect on January 1, 2003. Other regulations and
decrees relating to the Tax Reform were approved as well.


         The Tax Reform, aimed at broadening the categories of taxable income
and reducing the tax rates imposed on employment income, introduced the
following, among other things:

          o    Reduction  of the tax rate  levied on capital  gains  (other than
               gains deriving from the sale of listed securities)  derived after
               January 1, 2003,  to a general  rate of 25% for both  individuals
               and  corporations.  Regarding assets acquired prior to January 1,
               2003, the reduced tax rate will apply to a proportionate  part of
               the gain,  in accordance  with the holding  periods of the asset,
               before or after January 1, 2003, on a linear basis;

          o    Imposition  of Israeli  tax on all  income of Israeli  residents,
               individuals  and  corporations,  regardless  of  the  territorial
               source of income,  including  income derived from passive sources
               such as interest, dividends and royalties;

          o    Introduction of controlled  foreign  corporation (CFC) rules into
               the Israeli tax structure. Generally under such rules, an Israeli
               resident who holds,  directly or  indirectly,  10% or more of the
               rights in a foreign  corporation  whose  shares are not  publicly
               traded,  in which  more than 50% of rights are held  directly  or
               indirectly by Israeli residents,  which has


                                       57




<PAGE>

               undistributed  profits  and a majority  of whose  income in a tax
               year is considered passive income,  will be liable for tax on the
               portion of such income  attributed to his or her holdings in such
               corporation,  as if such income were distributed to him or her as
               a dividend;

          o    Imposition  of capital  gains tax on capital  gains  realized  by
               individuals  as of January  1,  2003,  from the sale of shares of
               publicly  traded  companies  (which was  previously  exempt  from
               capital gains tax in Israel). For information with respect to the
               applicability  of  Israeli  capital  gains  taxes  on the sale of
               ordinary   shares,   see  "Capital   Gains  Tax   Applicable   to
               Shareholders" below;

          o    Introduction  of a new  regime  for the  taxation  of shares  and
               options issued to employees and officers (including directors).

          Statutory Corporate Tax Rate
          ----------------------------

         Israeli companies are subject to corporate tax on their taxable income.
The applicable rate is 35% in 2004, 34% in 2005, 32% in 2006 and 30% in 2007 and
thereafter. However, the effective tax rate payable by a company that derives
income from an approved enterprise, discussed further below, may be considerably
less. See "-Law for the Encouragement of Capital Investments, 1959."

          Tax Benefits under the Law for the Encouragement of Capital
          ------------------------------------------------------------
          Investments, 1959
          ------------------

         The Investment Law provides expanded tax incentives for future
industrial investments and simplified the bureaucratic process for obtaining
approval of investments qualifying for tax incentives. Under the Investment Law,
capital investments in new or expanded production facilities in Israel, upon
approval by the Israeli Government, can be designated as an approved enterprise.
An approved enterprise may receive cash incentives from the Israeli Government
or a company may elect the "alternative benefits track" that allows it to forego
the cash incentives in favor of certain tax exemption.

         A certain expansion plan of our company has been granted an "Approved
Enterprise" status, under the Investment Law. We have elected to receive our
benefits through the "alternative benefits track", waiving grants in return for
tax exemptions. Pursuant thereto, the increase in income from the date of
commencement of the program, which is derived from our approved enterprise
expansion program, is tax-exempt for the periods stated below and will be
eligible for reduced tax rates thereafter. Such reduced tax rates are dependent
on the level of non-Israeli investments in us, as described below.

         Income from sources other than the "Approved Enterprise" are subject to
tax at the regular corporate tax rate of 35%.

         Income derived from the approved enterprise, which commenced in 2003,
and will expire in 2014, will entitle us to a tax exemption for the two-year
period ending December 31, 2005, and to a reduced tax rate of 10%-25% for an
additional five to eight years ending December 31, 2014, depending on the level
of non-Israel investments in our company.

         The entitlement to the above benefits is conditioned upon the
fulfilling by us of the conditions stipulated by the Investment Law, regulations
published thereunder and the letters of approval for the specific investments in
the approved enterprises. In the event of failure to comply with these
conditions, the benefits may be canceled and we may be required to refund the
amount of the benefits, in whole or in part, including interest. As of December
31, 2004, our management believes that we are meeting all of the aforementioned
conditions.



                                       58

<PAGE>

         The tax-exempt income attributable to the approved enterprise can not
be distributed to shareholders without imposing tax liability on the company. As
of December 31, 2004, there was no tax-exempt income earned by our approved
enterprise.

         If the retained tax-exempt income is distributed to shareholders, it
would be taxed at the corporate tax rate applicable to such profits as if the
company had not elected the alternative tax benefits track which is currently
25%.

         By virtue of this law, we are entitled to claim accelerated
depreciation on equipment used by the approved enterprise during five tax years.

         On March 29, 2005, the Israeli parliament passed an amendment to the
Investment Law. The 2005 Amendment primarily relates to the "alternative
benefits track" tax incentives which we have elected for our approved
enterprise. The amendment include special tax incentives and expedited the
approval process for companies that make minimum qualifying investments in fixed
assets in production facilities located in Israel. The 2005 Amendment became
effective on April 1, 2005. We are currently evaluating the impact of the 2005
Amendment on its business operations.

          Tax Benefits under the Law for the Encouragement of Industry
          -------------------------------------------------------------
          (Taxation), 1969
          -----------------

         According to the Law for the Encouragement of Industry (Taxation),
1969, commonly referred to as the Industry Encouragement Law, an industrial
company is a company resident in Israel, that at least 90% of its income in any
tax year (determined in Israeli currency, exclusive of income from certain
government loans, capital gains, interest and dividends), is derived from an
industrial enterprise owned by it. An industrial enterprise is defined as an
enterprise whose major activity in a given tax year is industrial production
activity. We believe that we currently qualify as an industrial company within
the definition of the Industry Encouragement Law. Under the Industry
Encouragement Law, industrial companies are entitled to the following preferred
corporate tax benefits:

          o    deduction of purchases of know-how and patents over an eight-year
               period for tax purposes;

          o    right  to  elect,   under   specified   conditions,   to  file  a
               consolidated   tax  return  with   related   Israeli   Industrial
               Companies; and

          o    accelerated depreciation rates on equipment and buildings.

         Eligibility for the benefits under the Industry Encouragement Law is
not subject to receipt of prior approval from any governmental authority. The
Israeli tax authorities may determine that we do not qualify as an industrial
company, which would entail the loss of the benefits that relate to this status.
In addition, no assurance can be given that we will continue to qualify as an
industrial company, in which case the benefits described above will not be
available in the future.

         Special Provisions Relating to Measurement of Taxable Income
         ------------------------------------------------------------

         Pursuant to the Measurement of taxable income under the Income Tax
(Inflationary Adjustments) Law, 1985, results for tax purposes are measured and
reflected in real terms in accordance with the changes in the Israeli Consumer
Price Index (CPI).



                                       59




<PAGE>

          Stamp Tax
          ---------

         Under Israel's Stamp Tax on Documents Law, certain documents are
subject to stamp tax. Recently promulgated regulations provide for a gradual
phase-out of the stamp tax by 2008. In 2004, however, the tax authorities began
an enforcement campaign involving extensive audits of companies' compliance with
the stamp tax obligation with respect to all agreements which had been signed
since June 2003.

          Capital Gains Tax Applicable to Shareholders
          --------------------------------------------

         Israeli law generally imposes a capital gains tax on the sale of
capital assets located in Israel, including shares in Israeli resident
companies, by both residents and non-residents of Israel, unless a specific
exemption is available or unless a treaty between Israel and the country of the
non-resident provides otherwise. Regulations promulgated under the Israeli
Income Tax Ordinance provided for an exemption from Israeli capital gains tax
for gains accrued before January 1, 2003 and derived from the sale of shares of
an industrial company, as defined by the Industry Encouragement Law, that are
traded on specified non-Israeli markets, including The NASDAQ National Market,
provided that the sellers purchased their shares either in the company's initial
public offering or in public market transactions thereafter. This partial
exemption does not apply to shareholders who are in the business of trading
securities, or to shareholders that are Israeli resident companies subject to
the Inflationary Adjustments Law. The Company believes that it is currently an
Industrial Company, as defined by the Industry Encouragement Law. The status of
a company as an Industrial Company may be reviewed by the tax authorities from
time to time. There can be no assurance that the Israeli tax authorities will
not deny the Company's status as an Industrial Company, possibly with
retroactive effect.

         On January 1, 2003, the Tax Reform came into effect thus imposing
capital gains tax at a rate of 15% on gains derived on or after January 1, 2003
from the sale of shares in Israeli companies publicly traded on a recognized
stock exchange outside of Israel. This tax rate does not apply to:

          o    dealers in securities;

          o    shareholders  that  report in  accordance  with the  Inflationary
               Adjustments Law; or

          o    shareholders who acquired their shares prior to an initial public
               offering.

         The tax basis of shares acquired prior to January 1, 2003 will be
determined as the higher between the original price paid for the share and the
average closing share price in the three trading days preceding January 1, 2003.
Non-Israeli residents are exempt from Israeli capital gains tax on any gains
derived from the sale of shares publicly traded on the NASDAQ Stock Market,
provided such shareholders did not acquire their shares prior to an initial
public offering and do not have a permanent establishment in Israel. In any
event, the provisions of the Tax Reform shall not affect the exemption from
capital gains tax for gains accrued before January 1, 2003, as described in the
previous paragraph.

         In addition, pursuant to the Convention Between the Government of the
United States of America and the Government of Israel with respect to Taxes on
Income, as amended, commonly referred to as the United States-Israel Tax Treaty,
the sale, exchange or disposition of ordinary shares by a person who qualifies
as a resident of the United States within the meaning of the United
States-Israel Tax Treaty and who is entitled to claim the benefits afforded to
such person by the United States-Israel Tax Treaty (a "Treaty United States
Resident") generally will not be subject to the Israeli capital gains tax unless
such Treaty United States Resident holds, directly or indirectly, shares
representing 10% or more of the company's voting power during any part of the
twelve-month period preceding such sale, exchange or


                                       60




<PAGE>

disposition, subject to certain conditions.  A sale, exchange or disposition of
ordinary  shares by a Treaty  United States Resident who holds, directly or
indirectly, shares representing 10% or more of the company's voting power at any
time during such preceding  twelve-month period would be subject to such Israeli
tax,  to the extent  applicable;  however,  under the United  States-Israel  Tax
Treaty, such Treaty United States Resident would be permitted to claim a credit
for such taxes against the United States federal income tax imposed with respect
to such sale, exchange or disposition, subject to the limitations in United
States laws  applicable  to foreign tax credits.  The United States-Israel Tax
Treaty does not relate to United States state or local taxes.


          Taxation of Non-Resident Shareholders
          -------------------------------------

         Non-residents of Israel are subject to Israeli income tax on income
accrued or derived from sources in Israel, including passive income such as
dividends, royalties and interest. On distributions of dividends, other than
bonus shares and stock dividends, income tax at the rate of 25% is withheld at
the source, unless a different rate is provided in a treaty between Israel and
the shareholder's country of residence. If the dividends are distributed out of
approved enterprise earnings, the applicable tax rate would be 15%. Under the
United States - Israel Tax Treaty, the maximum tax on dividends paid to a holder
of ordinary shares who is a Treaty United States Resident will be 25%, however
the tax rate is reduced to 12.5% for dividends not generated by an approved
enterprise to a corporation which holds 10% or more of the company's voting
power during a certain period preceding the distribution of the dividend.
Dividends derived from an Approved Enterprise will still be subject to 15% tax
withholding.

          Foreign Exchange Regulations
          ----------------------------

         Dividends, if any, paid to the holders of the ordinary shares, and any
amounts payable upon dissolution, liquidation or winding up, as well as the
proceeds of any sale in Israel of the ordinary shares to an Israeli resident,
may be paid in non-Israeli currency or, if paid in Israeli currency, may be
converted into freely repatriable U.S. dollars at the rate of exchange
prevailing at the time of conversion, however, Israeli income tax is required to
have been paid or withheld on these amounts. In addition, the statutory
framework for the potential imposition of exchange controls has not been
eliminated, and may be restored at any time by administrative action.

         Withholding and Capital Gains Taxes Applicable to non-Israeli are
         ------------------------------------------------------------------
         holders.
         --------

          Nonresidents of Israel are subject to income tax on income accrued or
derived from sources in Israel. These sources of income include passive income
such as dividends, royalties and interest, as well as non-passive income from
services rendered in Israel. We are generally required to withhold income tax at
the rate of 25% on all distributions of dividends, although if the dividend
recipient holds 10% of our voting stock for a certain period prior to the
declaration and payment of the dividend, we are only required to withhold at a
12.5% rate. Notwithstanding the foregoing, with regard to dividends generated by
an approved enterprise, we are required to withhold income tax at the rate of
15%.

         Israeli law generally imposes a capital gains tax on the sale of
publicly traded securities. Pursuant to changes made to the Israeli Income Tax
Ordinance in January 2003, capital gains on the sale of our ordinary shares will
be subject to Israeli capital gains tax, generally at a rate of 15%. However, as
of January 1, 2003, nonresidents of Israel will be exempt from capital gains tax
in relation to the sale of our ordinary shares for so long as (a) our ordinary
shares are listed for trading on a stock exchange outside of Israel, (b) the
capital gains are not accrued or derived by the nonresident shareholder's
permanent enterprise in Israel, (c) the ordinary shares in relation to which the
capital gains are accrued or derived were acquired by the nonresident
shareholder after the initial listing of the ordinary shares on a stock exchange
outside of Israel, and (d) neither the shareholder nor the particular capital
gain is
                                       61


<PAGE>

otherwise subject to certain sections of the Israeli Income Tax Ordinance.
As of January 1, 2003, nonresidents of Israel are also exempt from
Israeli capital gains tax resulting from the sale of securities on the Tel Aviv
Stock Exchange; provided that the capital gains are not accrued or derived by
the nonresident shareholder's permanent enterprise in Israel.

           In addition, under the income tax treaty between the United States
and Israel, a holder of ordinary shares who is a United States resident will be
exempt from Israeli capital gains tax on the sale, exchange or other disposition
of such ordinary shares unless the holder owns, directly or indirectly,
10% or more of our voting power during the 12 months preceding such sale,
exchange or other disposition.

          A nonresident of Israel who receives interest, dividend or royalty
income derived from or accrued in Israel, from which tax was withheld at the
source, is generally exempt from the duty to file tax returns in Israel with
respect to such income, provided such income was not derived from a business
conducted in Israel by the taxpayer.

         Israel presently has no estate or gift tax.

         United States Federal Income Tax Consequences
         ---------------------------------------------

         The following is a summary of certain material U.S. federal income tax
consequences that apply to U.S. Holders who hold ordinary shares as capital
assets. This summary is based on the United States Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated thereunder,
judicial and administrative interpretations thereof, and the U.S.-Israel Tax
Treaty, all as in effect on the date hereof and all of which are subject to
change either prospectively or retroactively. This summary does not address all
tax considerations that may be relevant with respect to an investment in
ordinary shares. This summary does not discuss all the tax consequences that may
be relevant to a U.S. Holder in light of such holder's particular circumstances
or to U.S. Holders subject to special rules, including persons that are non-U.S.
Holders, broker dealers, financial institutions, certain insurance companies,
investors liable for alternative minimum tax, tax exempt organizations,
regulated investment companies, non-resident aliens of the U.S. or taxpayers
whose functional currency is not the dollar, persons who hold the ordinary
shares through partnerships or other pass-through entities, persons who acquired
their ordinary shares through the exercise or cancellation of employee stock
options or otherwise as compensation for services, investors that actually or
constructively own 10 percent or more of our voting shares, and investors
holding ordinary shares as part of a straddle or appreciated financial position
or as part of a hedging or conversion transaction.

         This summary does not address the effect of any U.S. federal taxation
other than U.S. federal income taxation. In addition, this summary does not
include any discussion of state, local or foreign taxation.

         You are urged to consult your tax advisors regarding the foreign and
United States federal, state and local tax considerations of an investment in
ordinary shares.

         For purposes of this summary, the term "U.S. Holder" means an
individual who is a citizen or, for U.S. federal income tax purposes, a resident
of the United States, a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate whose income is subject to U.S. federal income
tax regardless of its source, or a trust that (a) is subject to the primary
supervision of a court within the United States and the control of one or more
U.S. persons or (b) has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.



                                       62



<PAGE>

         Taxation of Dividends
         ---------------------

         Subject to the discussion below under the heading "Passive Foreign
Investment Companies, the gross amount of any distributions received with
respect to ordinary shares, including the amount of any Israeli taxes withheld
therefrom, will constitute dividends for U.S. federal income tax purposes, to
the extent of our current and accumulated earnings and profits as determined for
U.S. federal income tax purposes. You will be required to include this amount of
dividends in gross income as ordinary income.

         Distributions in excess of our current and accumulated earnings and
profits will be treated as a non taxable return of capital to the extent of your
tax basis in the ordinary shares and any amount in excess of your tax basis will
be treated as gain from the sale of ordinary shares. See " Disposition of
Ordinary Shares" below for the discussion on the taxation of capital gains.
Dividends will not qualify for the dividends received deduction generally
available to corporations under Section 243 of the Code.

         Dividends that we pay in NIS, including the amount of any Israeli taxes
withheld therefrom, will be included in your income in a dollar amount
calculated by reference to the exchange rate in effect on the day such dividends
are received. A U.S. Holder who receives payment in NIS and converts NIS into
dollars at an exchange rate other than the rate in effect on such day may have a
foreign currency exchange gain or loss that would be treated as ordinary income
or loss. U.S. Holders should consult their own tax advisors concerning the U.S.
tax consequences of acquiring, holding and disposing of NIS.

         Subject to complex limitations, any Israeli withholding tax imposed on
such dividends will be a foreign income tax eligible for credit against a U.S.
Holder's U.S. federal income tax liability (or, alternatively, for deduction
against income in determining such tax liability). The limitations set out in
the Code include computational rules under which foreign tax credits allowable
with respect to specific classes of income cannot exceed the U.S. federal income
taxes otherwise payable with respect to each such class of income. Dividends
generally will be treated as foreign source passive income or, in the case of
certain U.S. Holders, financial services income for United States foreign tax
credit purposes. U.S. Holders should note that recently enacted legislation
eliminates the "financial services income" category with respect to taxable
years beginning after December 31, 2006. Under this legislation, the foreign tax
credit limitation categories will be limited to "passive category income" and
"general category income." Further, there are special rules for computing the
foreign tax credit limitation of a taxpayer who receives dividends subject to a
reduced tax, see discussion below. A U.S. Holder will be denied a foreign tax
credit with respect to Israeli income tax withheld from dividends received on
the ordinary shares to the extent such U.S. Holder has not held the ordinary
shares for at least 16 days of the 30-day period beginning on the date which is
15 days before the ex dividend date or to the extent such U.S. Holder is under
an obligation to make related payments with respect to substantially similar or
related property. Any days during which a U.S. Holder has substantially
diminished its risk of loss on the ordinary shares are not counted toward
meeting the 16-day holding period required by the statute. The rules relating to
the determination of the foreign tax credit are complex, and you should consult
with your personal tax advisors to determine whether and to what extent you
would be entitled to this credit.

         Subject to certain limitations, "qualified dividend income" received by
a noncorporate U.S. Holder in tax years beginning on or before December 31, 2008
will be subject to tax at a reduced maximum tax rate of 15 percent.
Distributions taxable as dividends paid on the ordinary shares should qualify
for the 15 percent rate provided that either: (i) we are entitled to benefits
under the income tax treaty between the United States and Israel (the "Treaty")
or (ii) the ordinary shares are readily tradable on an established securities
market in the United States and certain other requirements are met. We believe
that we are entitled to benefits under the Treaty and that the ordinary shares
currently are readily tradable on an established securities market in the United
States. However, no assurance can be given that the ordinary shares will remain
readily tradable. The rate reduction does not apply unless certain holding
period requirements are satisfied. With respect to the ordinary shares, the U.S.
Holder must have

                                       63

<PAGE>

held such shares for at least 61 days during the 121-day period beginning
60 days before the ex-dividend date. The rate reduction also does not
apply to dividends received from passive foreign investment companies, see
discussion below, or in respect of certain hedged positions or in certain other
situations. The legislation enacting the reduced tax rate contains special rules
for computing the foreign tax credit limitation of a taxpayer who receives
dividends subject to the reduced tax rate. U.S. Holders of ordinary shares
should consult their own tax advisors regarding the effect of these rules in
their particular circumstances.

          Disposition of Ordinary Shares
          ------------------------------

         If you sell or otherwise dispose of ordinary shares, you will recognize
gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized on the sale or other disposition and your
adjusted tax basis in the ordinary shares. Subject to the discussion below under
the heading "Passive Foreign Investment Companies," such gain or loss generally
will be capital gain or loss and will be long term capital gain or loss if you
have held the ordinary shares for more than one year at the time of the sale or
other disposition. In general, any gain that you recognize on the sale or other
disposition of ordinary shares will be U.S. source for purposes of the foreign
tax credit limitation; losses, will generally be allocated against U.S. source
income. Deduction of capital losses is subject to certain limitations under the
Code.

         In the case of a cash basis U.S. Holder who receives NIS in connection
with the sale or disposition of ordinary shares, the amount realized will be
based on the dollar value of the NIS received with respect to the ordinary
shares as determined on the settlement date of such exchange. A U.S. Holder who
receives payment in NIS and converts NIS into United States dollars at a
conversion rate other than the rate in effect on the settlement date may have a
foreign currency exchange gain or loss that would be treated as ordinary income
or loss.

         An accrual basis U.S. Holder may elect the same treatment required of
cash basis taxpayers with respect to a sale or disposition of ordinary shares,
provided that the election is applied consistently from year to year. Such
election may not be changed without the consent of the Internal Revenue Service
(the "IRS"). In the event that an accrual basis U.S. Holder does not elect to be
treated as a cash basis taxpayer (pursuant to the Treasury regulations
applicable to foreign currency transactions), such U.S. Holder may have a
foreign currency gain or loss for U.S. federal income tax purposes because of
differences between the dollar value of the currency received prevailing on the
trade date and the settlement date. Any such currency gain or loss would be
treated as ordinary income or loss and would be in addition to gain or loss, if
any, recognized by such U.S. Holder on the sale or disposition of such ordinary
shares.

         Passive Foreign Investment Companies
         ------------------------------------

         For U.S. federal income tax purposes, we will be considered a passive
foreign investment company ("PFIC") for any taxable year in which either (i) 75%
or more of our gross income is passive income, or (ii) at least 50% of the
average value of all of our assets for the taxable year produce or are held for
the production of passive income. For this purpose, passive income includes
dividends, interest, royalties, rents, annuities and the excess of gains over
losses from the disposition of assets which produce passive income. If we were
determined to be a PFIC for U.S. federal income tax purposes, highly complex
rules would apply to U.S. Holders owning ordinary shares. Accordingly, you are
urged to consult your tax advisors regarding the application of such rules.

         Based on our current and projected income, assets and activities, we
believe that we are not currently a PFIC nor do we expect to become a PFIC in
the foreseeable future. However, because the

                                       64



<PAGE>

determination of whether we are a PFIC is based upon the composition of our
income and assets from time to time, there can be no assurances that we will
not become a PFIC for any future taxable year.

         If we are treated as a PFIC for any taxable year, dividends would not
qualify for the reduced maximum tax rate, discussed above, and, unless you elect
either to treat your investment in ordinary shares as an investment in a
"qualified electing fund" (a "QEF election") or to "mark to market" your
ordinary shares, as described below:

          o    you  would  be  required  to  allocate  income   recognized  upon
               receiving   certain   dividends  or  gain   recognized  upon  the
               disposition  of ordinary  shares  ratably over the holding period
               for such ordinary shares,

          o    the amount  allocated to each year during which we are considered
               a PFIC other than the year of the dividend payment or disposition
               would be subject to tax at the highest  individual  or  corporate
               tax  rate,  as the case may be,  in  effect  for that year and an
               interest  charge would be imposed  with respect to the  resulting
               tax liability allocated to each such year,

          o    the amount  allocated to the current taxable year and any taxable
               year before we became a PFIC would be taxable as ordinary  income
               in the current year, and,

          o    you would be required  to make an annual  return on IRS Form 8621
               regarding  distributions received with respect to ordinary shares
               and any gain realized on your ordinary shares.

         If you make either a timely QEF election or a timely mark to market
election in respect of your ordinary shares, you would not be subject to the
rules described above. If you make a timely QEF election, you would be required
to include in your income for each taxable year your pro rata share of our
ordinary earnings as ordinary income and your pro rata share of our net capital
gain as long term capital gain, whether or not such amounts are actually
distributed to you. You would not be eligible to make a QEF election unless we
comply with certain applicable information reporting requirements.

         Alternatively, if the ordinary shares are considered "marketable stock"
and if you elect to "mark to market" your ordinary shares, you will generally
include in income any excess of the fair market value of the ordinary shares at
the close of each tax year over your adjusted basis in the ordinary shares. If
the fair market value of the ordinary shares had depreciated below your adjusted
basis at the close of the tax year, you may generally deduct the excess of the
adjusted basis of the ordinary shares over its fair market value at that time.
However, such deductions generally would be limited to the net mark to market
gains, if any, that you included in income with respect to such ordinary shares
in prior years. Income recognized and deductions allowed under the mark to
market provisions, as well as any gain or loss on the disposition of ordinary
shares with respect to which the mark to market election is made, is treated as
ordinary income or loss.

          Backup Withholding and Information Reporting
          --------------------------------------------

         Payments in respect of ordinary shares may be subject to information
reporting to the U.S. Internal Revenue Service and to U.S. backup withholding
tax at a rate equal to the third highest income tax rate applicable to
individuals (which, under current law, is 28%). Backup withholding will not
apply, however, if you (i) are a corporation or come within certain exempt
categories, and demonstrate the fact when so required, or (ii) furnish a correct
taxpayer identification number and make any other required certification.



                                       65

<PAGE>

         Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a U.S. Holder's U.S. tax
liability, and a U.S. Holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.

         Any U.S. holder who holds 10% or more in vote or value of our ordinary
shares will be subject to certain additional United States information reporting
requirements.

          U.S. Gift and Estate Tax
          ------------------------

         An individual U.S. Holder of ordinary shares will be subject to U.S.
gift and estate taxes with respect to ordinary shares in the same manner and to
the same extent as with respect to other types of personal property.

     F. Dividend and Paying Agents

         Not applicable.

     G. Statement by Experts

         Not applicable.

     H. Documents on Display

          We are subject to the reporting requirements of the United States
Securities Exchange Act of 1934, as amended, as applicable to "foreign private
issuers" as defined in Rule 3b-4 under the Exchange Act, and in accordance
therewith, we file annual and interim reports and other information with the
Securities and Exchange Commission.

          As a foreign private issuer, we are exempt from certain provisions of
the Exchange Act. Accordingly, our proxy solicitations are not subject to the
disclosure and procedural requirements of Regulation 14A under the Exchange Act
and transactions in our equity securities by our officers and directors are
exempt from reporting and the "short-swing" profit recovery provisions contained
in Section 16 of the Exchange Act. In addition, we are not required under the
Exchange Act to file periodic reports and financial statements as frequently or
as promptly as United States companies whose securities are registered under the
Exchange Act. However, we distribute annually to our shareholders, and make
available on our website www.tat.co.il, our financial statements, which have
been examined and reported on, with an opinion expressed by, an independent
public accounting firm, and we intend to file reports with the Securities and
Exchange Commission on Form 6-K containing unaudited financial information for
the first three quarters of each fiscal year.

          This annual report on Form 20-F and the exhibits thereto and any other
document we file pursuant to the Exchange Act may be inspected without charge
and copied at prescribed rates at the following Securities and Exchange
Commission public reference rooms: 450 Fifth Street, N.W., Judiciary Plaza, Room
1024, Washington, D.C. 20549; and on the Securities and Exchange Commission
Internet site (http://www.sec.gov) and on our website www.tat.co.il. You may
obtain information on the operation of the Securities and Exchange Commission's
public reference room in Washington, D.C. by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Exchange Act file number for our Securities
and Exchange Commission filings is 0-30198.



                                       66

<PAGE>


         The documents concerning our company which are referred to in this
annual report may also be inspected at our offices located at 7 Giborei Israel
Street, Netanya 42504, Israel.

     I. Subsidiary Information

          Not applicable.

     Item 11. Quantitative and Qualitative Disclosures about Market Risk

         We do not own and have not issued any market risk sensitive instruments
about which disclosure is required to be provided pursuant to this Item.

     Item 12. Description of Securities Other than Equity Securities

         Not Applicable.


                                     PART II

     Item 13. Defaults, Dividend Arrearages and Delinquencies

         None.

     Item 14. Material Modifications to the Rights of Security Holders

         None.

     Item 15. Controls and Procedures

         Our management, including our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the
period covered by this annual report on Form 20-F. Based upon that evaluation,
our chief executive officer and chief financial officer have concluded that, as
of such date, our disclosure controls and procedures were effective to ensure
that information required to be disclosed by our company in reports that we file
or submit under the U.S. Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information was made known to them by others within the company, as appropriate
to allow timely decisions regarding required disclosure.

         There were no changes to our internal control over financial reporting
that occurred during the period covered by this annual report on Form 20-F that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting

         All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
may not prevent or detect misstatements and can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.



                                       67



<PAGE>

     Item 16. [Reserved]

     Item 16A. Audit Committee Financial Expert

         Our board of directors has determined that Mr. Yakov Fish, one of our
outside directors, who qualifies a an independent director as this term is
defined in NASDAQ's Market Rule 4200, meets the definition of an audit committee
financial expert, as defined in Item 401 of Regulation S-K.

     Item 16B. Code of Ethics

         We have adopted a code of ethics that applies to our chief executive
officer and all senior financial officers of our company, including the chief
financial officer, chief accounting officer or controller, or persons performing
similar functions. The code of ethics is publicly available on our website at
www.tat.co.il. Written copies are available upon request. If we make any
substantive amendment to the code of ethics or grant any waivers, including any
implicit waiver, from a provision of the codes of ethics, we will disclose the
nature of such amendment or waiver on our website.

     Item 16C. Principal Accounting Fees and Services

Fees Paid to Independent Public Accountants

         The table below summarizes the audit fees paid by us and our
consolidated subsidiaries during each of 2003 and 2004.

<TABLE>
<CAPTION>
                                 Year Ended December 31, 2004           Year Ended December 31, 2003
                                 ----------------------------           ----------------------------
                                  Amount           Percentage           Amount            Percentage
                                  ------           ----------           ------            ----------
                                                     (in thousands, except percentages)
<S>                                 <C>                <C>                <C>                <C>
Audit Fees (1)..............        $57                 80%                $57                56%
Tax Fees   (2)..............         14                 20%                 44                44
Total ......................        $71                100%               $101               100%
</TABLE>

(1) "Audit-related fees" are fees related to due diligence investigations and to
other assignments relating to internal control and procedures over financial
reporting.


(2) "Tax fees" are fees for professional services rendered by the Company's
auditors for tax compliance, tax advice on actual or contemplated transactions,
tax consulting associated with international transfer prices and employee
benefits.

 Pre-Approval Policies and Procedures

         Our Audit Committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our independent public
accountants, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.
Pre-approval of an audit or non-audit service may be given as a general
pre-approval, as part of the audit committee's approval of the scope of the
engagement of our independent auditor, or on an individual basis. The policy
prohibits retention of the independent public accountants to perform the
prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act
or the rules of the SEC, and also requires the Audit Committee to consider
whether proposed services are compatible with the independence of the public
accountants.


                                       68


<PAGE>

     Item 16D. Exemptions from the Listing  Requirements and Standards for Audit
               Committee

         Not Applicable.


                                    PART III



     Item 17. Financial Statements

        Consolidated Financial Statements

         Index to Financial Statements......................................F-1

         Report of Independent Registered Public Accounting Firm............F-2

         Consolidated Balance Sheets........................................F-3

         Consolidated Statements of Income..................................F-5

         Statements of Changes in Shareholders' Equity .....................F-6

         Consolidated Statements of Cash Flows..............................F-7

         Notes to Consolidated Financial Statements.........................F-9

         Appendix to Consolidated Financial Statements.....................F-31

     Item 18. Financial Statements

         Not applicable.

     Item 19. Exhibits

         The following exhibits are filed as a part of this Report:

1.1  Memorandum of Association of the Company (1)
1.2  Articles of Association of the Company (1)
2.1  Specimen Certificate for Ordinary Shares (1)
4.1  The Company's 1999 Stock Purchase Plan (2)
4.2  Agreement  dated  February 10, 2000 between the Company and TAT  Industries
     Ltd. (English summary translation) (2)
4.3  Export  Agreement dated April 14. 1992,  between the Company and E.T Export
     Services Inc. (Gal Tech Inc.)
4.4  Share Purchase Agreement dated June 15, 2004 between the Company and T.O.P,
     Limited Partnership
4.5  Shareholders  Agreement  dated June 15,  2004  between TAT  Industries  and
     T.O.P, Limited Partnership
4.6  Registration  Rights  Agreement  dated June 15,  2004 with  T.O.P,  Limited
     Partnership, TAT Industries Ltd. and certain shareholders of our company
4.7  Credit Line  Agreement  dated June 15, 2004  between the Company and T.O.P,
     Limited Partnership
4.8  Warrant  Agreement  dated June 15,  2004  between  the  Company  and T.O.P,
     Limited Partnership
4.9  Membership   Interest  Purchase   Agreement  dated  May  24,  2005  between
     Limco-Airepair,  Inc.,  certain  Members  of  Piedmont  Aviation  Component
     Services, LLC, and Piedmont Aviation Component Services, LLC
8    List of Subsidiaries of the Registrant
12.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and
     Rule 15d-14(a) of the Securities Exchange Act, as amended

                                       69

<PAGE>

12.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and
     Rule 15d-14(a) of the Securities Exchange Act, as amended
13.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as
     adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as
     adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

----------------------
(1)  Incorporated  by reference to the Company's  Annual Report on Form 20-F for
     the year ended December 31, 1992.

(2)  Incorporated  by reference to the Company's  Annual Report on Form 20-F for
     the year ended December 31, 1999.




                                       70

<PAGE>









                    TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2004


                                 IN U.S. DOLLARS




                                      INDEX


                                                                       Page
                                                                  --------------

 Report of Independent Registered Public Accounting Firm               F-2

 Consolidated Balance Sheets                                        F-3 - F-4

 Consolidated Statements of Income                                     F-5

 Statements of Changes in Shareholders' Equity                         F-6

 Consolidated Statements of Cash Flows                              F-7 - F-8

 Notes to Consolidated Financial Statements                        F-9 - F-30

 Appendix to Consolidated Financial Statements                        F-31


                              - - - - - - - - - - -


                                      F-1


<PAGE>









ERNST & YOUNG
                             Kost Forer Gabbay & Kasierer   Phone: 972-3-6232525
                             3 Aminadav St.                 Fax:   972-3-5622555
                             Tel-Aviv 67067, Israel






             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             To the Shareholders of

                              TAT TECHNOLOGIES LTD.


     We  have  audited  the  accompanying  consolidated  balance  sheets  of TAT
Technologies Ltd. ("the Company") and its subsidiary as of December 31, 2004 and
2003,   and  the  related   consolidated   statements  of  income,   changes  in
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2004. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

     We did not  audit  the  financial  statements  of  Limco-Airepair  Inc.,  a
wholly-owned subsidiary,  which statements reflect total assets constituting 33%
in 2004 and 34% in 2003 and total revenues constituting 42% in 2004, 40% in 2003
and  40% in 2002 of the  related  consolidated  totals.  Those  statements  were
audited by other  auditors  whose  reports  have been  furnished  to us, and our
opinion,  insofar as it relates to amounts included for Limco-Airepair  Inc., is
based solely on the reports of the other auditors.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial statements are free of material  misstatement.  We were not engaged to
preform an audit of the company's internal control over financial reporting. Our
audit included  consideration of internal control over financial  reporting as a
basis for designing audit  procedures that are appropiate in the  circumstances,
but not for the purpose of  expressing  an opinion on the  effectiveness  of the
Company's internal control over financial  reporting.  Accordingly we express no
such  opinion.  An audit also  includes  examining,  on a test  basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  based on our audits and the reports of other auditors, the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the consolidated  financial position of the Company and its
subsidiary at December 31, 2004 and 2003, and the consolidated  results of their
operations  and their cash flows for each of the three years in the period ended
December  31,  2004,  in  conformity  with U.S.  generally  accepted  accounting
principles.


                                              /s/Kost Forer Gabbay and Kasierer
 Tel-Aviv, Israel                                KOST FORER GABBAY & KASIERER
   March 29, 2005                             A Member of Ernst & Young Global
   (Except as to Note 16 which
   the date is June 27, 2005)

                                       F-2



<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands


                                                               December 31,
                                                           --------------------
                                                              2004       2003
                                                            --------    -------
    ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                  $ 7,078     $ 5,067
  Restricted short-term bank deposit (Note 10b)                 --           396
  Marketable securities (Note 3)                               1,566       2,841
  Trade receivables (net of allowance for doubtful
    accounts of $ 237 and $ 167
    as of December 31, 2004 and 2003, respectively)            7,936       6,329
  Other accounts receivable and prepaid expenses               1,545       1,269
  Inventories (Note 4)                                        13,182      13,349
                                                             -------     -------
Total current assets                                          31,307      29,251
-----                                                        -------     -------

LONG-TERM INVESTMENTS:
  Severance pay fund                                           3,304       3,077
  Long-term marketable securities (Note 3)                      --           491
                                                             -------     -------
Total long-term investments                                    3,304       3,568
-----                                                        -------     -------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 5)                    5,852       5,961
                                                             -------     -------
INTANGIBLE ASSETS, NET AND DEFERRED CHARGES

  Goodwill                                                       599         599
  Other intangible assets, net and deferred charges              202          13
                                                             -------     -------
                                                                 801         612
                                                             -------     -------
Total assets                                                 $41,264     $39,392
-----                                                        =======     =======




The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-3


<PAGE>


                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

<TABLE>
<CAPTION>
                                                                  December 31,
                                                               --------------------
                                                                  2004       2003
                                                                --------    -------
<C>                                                            <C>          <C>
    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit                                       $   --      $    290
  Current maturities of long-term loans (Note 8)                   --           248
  Trade payables                                                  1,810       1,922
  TAT (the parent company) - current account (Note 7)                73         525
  Other accounts payable and accrued expenses (Note 6)            2,744       3,930
                                                               --------    --------
Total current liabilities                                         4,627       6,915
-----                                                          --------    --------
LONG-TERM LIABILITIES:
  Long-term loans, net of current maturities (Note 8)              --            46
  Accrued severance pay                                           3,495       3,300
  Long-term deferred tax liability (Note 13)                        616         447
                                                               --------    --------
Total long-term liabilities                                       4,111       3,793
-----                                                          --------    --------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
SHAREHOLDERS' EQUITY:
  Share capital (Note 11) -
    Ordinary shares of NIS 0.9 par value -
      Authorized: 7,000,000 shares as of
      December 31, 2004 and 2003; Issued and
      outstanding: 6,042,671 and 4,637,093
      shares as of December 31, 2004 and 2003, respectively       2,094       1,813
  Additional paid-in capital                                     35,704      28,763
  Accumulated other comprehensive income                            106          95
  Accumulated deficit                                            (5,378)     (1,987)
                                                               --------    --------
Total shareholders' equity                                       32,526      28,684
-----                                                          --------    --------
Total liabilities and shareholders' equity                     $ 41,264    $ 39,392
-----                                                          ========    ========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<TABLE>
<CAPTION>
<S>                       <C>                        <C>                     <C>
     June 27, 2005          /s/Shlomo Ostersetzer          /s/Dov Zeelim          /s/P.P. Mazal
-----------------------   -----------------------   ----------------------  ------------------------
Date of approval of the     Shlomo Ostersetzer            Dov Zeelim              Israel Ofen
 financial statements         Chairman of the        Vice Chairman of the   Executive Vice President
                          Board of Directors and    Board of Directors and    and Chief Financial
                          Chief Executive Officer          President                Officer
</TABLE>

                                      F-4

<PAGE>





                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
U.S dollars in thousands (except per share data)


                                               Year ended December 31,
                                           -------------------------------
                                             2004       2003        2002
                                           --------   --------    ---------
Revenues:
  Products (Note 14)                       $ 20,724   $ 19,255    $ 15,936
  Services and other                         12,519     11,427      10,344
                                           --------   --------    --------
                                             33,243     30,682      26,280
Cost of revenues                             22,166     20,068      17,750
                                           --------   --------    --------
Gross profit                                 11,077     10,614       8,530
                                           --------   --------    --------
 Research and development costs, net            125        120         204
Selling and marketing expenses                1,894      1,958       1,483
General and administrative expenses           3,793      3,476       2,994
                                           --------   --------    --------
                                              5,812      5,554       4,681
                                           --------   --------    --------
Operating income                              5,265      5,060       3,849
Financial income (expenses) (Note 15a)           87        (25)         99
Other income, net (Note 15b)                     54         24           8
                                           --------   --------    --------

Income before income taxes                    5,406      5,059       3,956
Income taxes (Note 13)                        1,667      1,225         367
                                           --------   --------    --------
Net income                                 $  3,739   $  3,834    $  3,589
                                           ========   ========    ========
Basic net earnings per share (Note 12)     $   0.72   $   0.85    $   0.80
                                           ========   ========    ========
Diluted net earnings per share (Note 12)   $   0.67   $   0.78    $   0.77
                                           ========   ========    ========




The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-5

<PAGE>





                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share data)
<TABLE>
<CAPTION>
                                                                         Accumulated
                                             Share capital Additional      other                          Total           Total
                                          ----------------  paid-in    comprehensive   Accumulated     comprehensive   shareholders'
                                           Number   Amount  capital        income        deficit          income          equity
                                          --------- ------ ---------- ---------------- -------------  --------------- --------------

<S>                                       <C>       <C>    <C>          <C>               <C>             <C>           <C>
Balance as of January 1, 2002             4,483,528 $1,781 $  28,311    $       26        $ (6,270)                     $   23,848
  Comprehensive income:
    Net income                                    -      -         -           -             3,589        $   3,589          3,589
Dividend                                          -      -         -           -            (2,018)               -         (2,018)
                                          --------- ------ ---------    ----------        --------        ---------      ---------
Total comprehensive income                                                                                $   3,589
                                                                                                          =========
Balance as of December 31, 2002           4,483,528  1,781    28,311            26          (4,699)                         25,419
  Exercise of options into shares           153,565     32       452             -               -                             484
  Comprehensive income:
    Net income                                    -      -         -             -           3,834        $   3,834          3,834
    Unrealized gain on available-for-sale
     securities, net                              -      -         -            69               -               69              69
Dividend                                          -      -         -             -          (1,122)               -         (1,122)
                                          --------- ------ ---------    ----------        --------        ---------      ---------
Total comprehensive income                                                                                $   3,903
                                                                                                          =========
Balance as of December 31, 2003           4,637,093  1,813    28,763            95          (1,987)                         28,684

  Exercise of options into shares           548,435    111     1,119             -               -                           1,230
  Issuance of shares and warrants,
    net in a private placement              857,143    170     5,822             -               -                -          5,992
  Comprehensive income:
    Net income                                    -      -         -             -           3,739        $   3,739          3,739
    Unrealized gain on available-for-sale
     securities, net                              -      -        11             -              11               11
Dividend                                          -      -         -             -          (7,130)               -          (7,130)
                                          --------- ------ ---------    ----------        --------        ---------      ---------
Total comprehensive income                                                                                $   3,750
                                                                                                          =========
Balance as of December 31, 2004           6,042,671 $2,094 $  35,704    $      106        $ (5,378)                     $    32,526
                                          ========= ====== =========    ==========        ========                      ===========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-6

<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                     ------------------------------
                                                        2004       2003       2002
                                                      -------    -------    -------
<S>                                                   <C>        <C>        <C>
Cash flows from operating activities:
-------------------------------------
Net income                                            $ 3,739    $ 3,834    $ 3,589
Adjustments to reconcile net income to
  net cash provided by
  operating activities:
  Depreciation and amortization                         1,031      1,004        994
  Gain on sale of property and equipment                  (17)       (63)       (11)
  Loss (gain) on sale of marketable securities            (35)        39          3
  Deferred income taxes, net                              168         63        131
  Trading securities, net                                --         --           50
  Increase in trade receivables                        (1,607)    (1,401)      (136)
  Decrease (increase) in other accounts
    receivable, prepaid expenses
    and deferred charges                                 (208)        27       (342)
  Decrease (increase) in inventories                      167     (1,281)      (409)
  Increase (decrease) in trade payables                  (112)       505        380
  Increase (decrease) in other accounts payable
    and accrued expenses                               (1,186)     1,109        588
  Accrued severance pay, net                              (32)       (59)       (14)
                                                      -------    -------    -------
Net cash provided by operating activities               1,908      3,777      4,823
                                                      -------    -------    -------
Cash flows from investing activities:
-------------------------------------
  Proceeds from restricted short-term bank
    deposits                                              396         44        449
  Proceeds from sale and redemption of
    available-for-sale securities                       2,973      1,650      1,089
  Proceeds from sale of property and equipment             30         89         14
  Purchase of property and equipment                     (926)    (1,451)      (899)
  Purchase of available-for-sale securities            (1,161)    (2,680)    (1,626)
                                                      -------    -------    -------
Net cash provided by (used in) investing activities     1,312     (2,348)      (973)
                                                      -------    -------    -------
</TABLE>





The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-7


<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands


<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                          -----------------------------
                                                            2004       2003      2002
                                                          --------   -------    -------
<S>                                                       <C>        <C>        <C>
Cash flows from financing activities:
-------------------------------------
  Short-term bank credit, net                             $  (290)   $   290    $  --
  Repayments of long-term loans                              (294)      (249)      (414)
  Cash dividend                                            (7,130)    (3,140)      --
  Proceeds from exercise of options                         1,230        484       --
  TAT (the parent company) - current account                 (452)        95       (119)
  Issuance of shares and warrants, net                      5,727       --         --
                                                          -------    -------    -------
Net cash used in financing activities                      (1,209)    (2,520)      (533)
                                                          -------    -------    -------
Increase (decrease) in cash and cash
   equivalents                                              2,011     (1,091)     3,317
Cash and cash equivalents at the beginning
   of the year                                              5,067      6,158      2,841
                                                          -------    -------    -------
Cash and cash equivalents at the
   end of the year                                        $ 7,078    $ 5,067    $ 6,158
                                                          =======    =======    =======

(1)  Supplemental disclosure of non-cash
       investing and financing activities:
       -----------------------------------

        Declared dividend                                 $  --      $  --      $ 2,018
                                                          =======    =======    =======

      Issuance of share and warrants in
      consideration for providing
      credit line and cash                                $   265    $  --      $  --
                                                          =======    =======    =======

      Supplemental disclosure of cash flows activities:
      -------------------------------------------------
      Cash paid during the year for:

        Interest                                          $    16    $    12    $    32
                                                          =======    =======    =======
         Income taxes                                     $ 2,491    $   105    $    99
                                                          =======    =======    =======
</TABLE>



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-8


<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 1:- GENERAL

          a.   TAT Technologies  Ltd. ("the Company") is an Israeli  corporation
               which  is 52%  held by TAT  Industries  Ltd.  ("TAT"  or  "parent
               company").     The     Company    and     Limco-Airepair     Inc.
               ("Limco-Airepair"),   a  wholly   owned  U.S.   subsidiary,   are
               principally  engaged in the manufacture and sale of a broad range
               of heat  transfer  equipment  used in mechanical  and  electronic
               systems  on-board  commercial  and  military  aircraft  and  in a
               variety  of  other  electronic  equipment.  The  Company  is also
               engaged  in  the  remanufacture,  overhaul  and  repair  of  heat
               transfer equipment and other aircraft components  manufactured by
               the  Company.  In  addition,  the Company  designs,  develops and
               manufactures aviation accessories. These accessories include fuel
               components,  such as valves and pumps,  secondary  power systems,
               various instrumentation and electronic assemblies.  The principal
               markets of the Company and its subsidiary are Israel,  Europe and
               the United  States.  The  Company and its  subsidiary  sell their
               products mainly to the aircraft industry.

          b.   As for major customers see note 14 b.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

          The consolidated financial statements have been prepared in accordance
          with  generally  accepted  accounting  principles in the United States
          ("U.S. GAAP").

          a.   Use of estimates:

               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that affect the amounts  reported
               in  the  financial  statements  and  accompanying  notes.  Actual
               results could differ from those estimates.

          b.   Financial statements in U.S. dollars:

               The  majority  of the Company  and its  subsidiary's  revenues is
               generated in U.S. dollars ("dollar") and a substantial portion of
               the Company and its subsidiary's costs is incurred in dollars. In
               addition,   the  Company's  financing  is  obtained  in  dollars.
               Accordingly,  the dollar is the currency of the primary  economic
               environment in which the Company and its  subsidiary  operate and
               the  functional  and  reporting  currency  of the Company and its
               subsidiary is the dollar.

               Transactions and balances  originally  denominated in dollars are
               Presented at their original  amounts  Presented at their original
               amounts.  Transactions and balances in other currencies have been
               remeasured  into dollars in accordance  with the  principles  set
               forth in Statement of Financial Accounting Standards ("SFAS") No.
               52 "Foreign Currency Translation: ("SFAS No. 52").

                                       F-9


<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               Accordingly,  items have been  translated  as  follows:  Monetary
               items - at the exchange rate in effect on the balance sheet date.
               Nonmonetary  items - at historical  exchange  rates.  Revenue and
               expense items - at the exchange rates in effect as of the date of
               recognition  of those  items  (excluding  depreciation  and other
               items deriving from non-monetary items).

               All  transaction  gains  and  losses  from the  remeasurement  of
               mentioned  above  are  reflected  in the  statement  of income as
               financial income (expenses), net.

          c.   Principles of consolidation:

               The consolidated financial statements include the accounts of the
               Company   and  its   wholly-owned   subsidiary   ("the   Group").
               Intercompany  balances and  transactions,  including profits from
               intercompany  sales not yet realized outside the Group, have been
               eliminated upon consolidation.

          d.   Cash equivalents:

               Cash  equivalents are short-term  highly liquid  investments that
               are readily convertible to cash with original maturities of three
               months or less.

          e.   Short-term bank deposit:

               The  restricted  short-term  bank  deposit  was a deposit  with a
               maturity  of more than three  months but less than one year.  The
               deposit  was in NIS  bearing  interest at an annual rate of 4.4%.
               The  short-term  deposit  was  presented  at its  cost  including
               accrued  interest.  The  short-term  bank deposit  secured a bank
               credit received by the Company.

          f.   Marketable securities:

               Management  determines the  classification of investments in debt
               securities  with fixed  maturities  at the time of  purchase  and
               reevaluates  such  designations as of each balance sheet date. At
               December 31, 2004 and 2003, all marketable  securities covered by
               Statement of Financial  Accounting Standard No. 115,  "Accounting
               for Certain Investments in Debt and Equity Securities" ("SFAS No.
               115") were designated as available-for-sale.  Accordingly,  these
               securities are stated at fair value,  with  unrealized  gains and
               losses reported in accumulated  other  comprehensive  income,  as
               separate component of shareholders' equity. The amortized cost of
               available-for-sale  securities  is adjusted for  amortization  of
               premiums to maturity. Such amortization and interest are included
               in financial income, net.

               Realized gains and losses on sales of investments,  as determined
               on  a  specific   identification   basis,  are  included  in  the
               consolidated statement of income, among "Other income, net".

                                      F-10


<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               According to Staff  Accounting  Bulletin No. 59,  "Accounting for
               Non-current   Marketable   Equity   Securities"  ("SAB  No.  59")
               management  is  required  to  evaluate  each  period   whether  a
               security's  decline  in  value is other  than  temporary.  In all
               reported  periods , the  Company  did not  record  an other  than
               temporary  decline  in  the  carrying  value  of  its  marketable
               securities.

          g.   Inventories:

               Inventories  are  stated at the  lower of cost or  market  value.
               Inventory  write-offs  are  provided to cover risks  arising from
               slow-moving items.

               Inventories  write-offs  are provided to cover risks arising from
               dead and  slow-moving  items,  discontinued  products  and excess
               inventories according to revenue forecasts.

               Cost is determined as follows:

               Raw materials and components - using the average cost method.

               Work  in  progress  -  represents  the  cost  of  raw  materials,
               components  and  manufacturing  costs  which  include  direct and
               indirect  allocable costs. Cost of raw material and components is
               determined as described above. Manufacturing costs are determined
               on an average basis.

          h.   Property, plant and equipment:

               Property,  plant  and  equipment  are  stated  at  cost,  net  of
               accumulated  depreciation.  Depreciation is calculated  using the
               straight-line  method  over  the  estimated  useful  lives of the
               assets. The annual rates of depreciation are as follows:

                                                                    %
                                                          ---------------------

               Buildings                                            4
               Machinery and equipment                           10 - 25
               Motor vehicles                                      15
               Office furniture and equipment                    6 - 33

          i.   Intangible assets:

               Intangible  assets subject to  amortization  are being  amortized
               over their  useful  lives,  using a method of  amortization  that
               reflects  the  pattern  in which  the  economic  benefits  of the
               intangible   assets  are  consumed  or  otherwise   used  up,  in
               accordance with SFAS No. 142. Technology and deferred charges are
               amortized over 6-10 years.

               Amortization  expenses  amounted  to $ 9, $ 33  and $ 39 for  the
               years ended December 31, 2004, 2003 and 2002, respectively.

                                      F-11


<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          j.   Impairment of long-lived assets

               The Company's  long-lived  assets (except goodwill - see k below)
               are  reviewed  for  impairment  in  accordance  with SFAS No. 144
               whenever  events or changes in  circumstances  indicate  that the
               carrying   amount   of  an   asset   may   not  be   recoverable.
               Recoverability  of  assets to be held and used is  measured  by a
               comparison  of the  carrying  amount  of an asset  to the  future
               undiscounted cash flows expected to be generated by the asset. If
               such assets are  considered to be impaired,  the impairment to be
               recognized is measured by the amount by which the carrying amount
               of the assets exceeds their fair value.  As of December 31, 2004,
               no impairment losses have been identified.

          k.   Goodwill:

               Goodwill  represents  the excess of  purchase  cost over the fair
               value of identifiable net assets of acquired companies.  Prior to
               January 1, 2002,  goodwill was amortized on a straight-line basis
               over a weighted  average period of 12 years.  On January 1, 2002,
               the Company adopted,  Statement of Financial  Accounting Standard
               No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
               As a result,  goodwill is no longer  amortized  but is subject to
               annual  impairment  tests (or more  frequent  tests if impairment
               indicators  arise).  SFAS No. 142  prescribes a two phase process
               for impairment  testing of goodwill.  The first phase screens for
               impairment;  while  the  second  phase  (if  necessary)  measures
               impairment.  The Company performed its first phase impairment and
               found no instances of impairment of its recorded goodwill.

               In the first phase of impairment testing,  goodwill is tested for
               impairment by comparing  the fair value of the reporting  unit to
               which the goodwill was attributed,  to its carrying  value.  Fair
               value of the reporting  unit was  determined by the Company using
               market capitalization.

          l.   Revenue recognition:

               The Company and its  subsidiary  generate their revenues from the
               sale of products and from providing services.

               Revenues  from the sale of products are  recognized in accordance
               with Staff Accounting  Bulletin No. 104, "Revenue  Recognition in
               Financial Statements" ("SAB No. 104") when persuasive evidence of
               an  arrangement  exists,  delivery of the  product has  occurred,
               collection of the resulting receivable is probable,  the price is
               fixed or determinable and no significant  obligation  exists. The
               Company does not grant its customers a right of return.

               Revenues  from  remanufacture,  repair and overhaul  services are
               recognized as services are performed.


                                      F-12


<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          m.   Research and development:

               Research and development  costs, net of grants and participations
               received are charged to expenses as incurred.

          n.   Grants:

               Royalty-bearing and non royalty-bearing grants and participations
               from the Government of Israel and royalty-bearing grants from the
               BIRD  Foundation  for  funding  certain  approved   research  and
               development  projects  are  recognized  at the time in which  the
               Company is  entitled  to such  grants,  on the basis of the costs
               incurred.  Such  grants  and  participations  are  included  as a
               deduction  of  research  and  development  costs.   Research  and
               development  grants  amounted to $ 0, $ 0 and $ 42 in 2004,  2003
               and 2002, respectively.

          o.   Warranty costs:

               The Company  provides  warranties  for its  products and services
               ranging  from one to five years,  which vary with respect to each
               contract  and in  accordance  with the  nature  of each  specific
               product.  Based on the Company's  experience,  warranty  expenses
               have been immaterial and,  therefore,  the Company did not record
               any warranty provision.

          p.   Income taxes:

               Income taxes are accounted for in  accordance  with  Statement of
               Financial  Accounting  Standards No. 109,  "Accounting for Income
               Taxes" ("SFAS No. 109"). This statement prescribes the use of the
               liability  method,  whereby  deferred  tax assets  and  liability
               account  balances are determined  based on temporary  differences
               between   financial   reporting  and  tax  bases  of  assets  and
               liabilities  and for tax loss  carryforwards.  Deferred taxes are
               measured  using the  enacted  laws and tax rates  that will be in
               effect when the differences are expected to reverse.  The Company
               and its subsidiary provide a valuation  allowance,  if necessary,
               to  reduce  deferred  tax  assets to their  estimated  realizable
               value.

               Results for tax purposes are measured and reflected in real terms
               in  accordance  with the  changes in the Israeli  Consumer  Price
               Index  ("CPI").   As  explained  in  b  above,  the  consolidated
               financial statements are presented in U.S. dollars. In accordance
               with paragraph 9(f) of SFAS No. 109, the Company has not provided
               deferred income taxes on the  differences  resulting from changes
               in exchange rate and indexing for tax purposes.


                                      F-13


<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          q.   Concentrations of credit risk:

               Financial  instruments that  potentially  subject the Company and
               its   subsidiary  to   concentrations   of  credit  risk  consist
               principally of cash and cash equivalents,  marketable  securities
               and trade receivables.

               Cash and cash  equivalents  are  deposited  with  major  banks in
               Israel and the United States.  Such deposits in the United States
               may be in excess of insured  limits and are not  insured in other
               jurisdictions.    Management    believes   that   the   financial
               institutions  that hold the Company and its subsidiary's cash and
               cash  equivalents,   are  financially  sound,  and,  accordingly,
               minimal  credit  risk  exists  with  respect  to these  financial
               instruments.

               The  Company's   marketable   securities  include  investment  in
               debentures and in shares.  Management believes that the companies
               that issued the debentures and the shares are financially  sound,
               the  portfolio  is well  diversified,  and  accordingly,  minimal
               credit risk exists with respect to the marketable securities.

               The Company's and its subsidiary's  trade receivables are derived
               mainly from sales to customers in the United  States,  Israel and
               Europe.  The Company and its subsidiary  generally do not require
               collateral,  however,  in certain  circumstances  the Company may
               require letters of credit.  Management believes that credit risks
               relating to trade  receivables  are minimal  since the  Company's
               customers are financially  sound.  The Company and its subsidiary
               perform ongoing credit  evaluation of their customers'  financial
               condition. The allowance for doubtful accounts is determined with
               respect to specific debts that are doubtful of collection.

               The Company has no off-balance-sheet concentration of credit risk
               such as foreign  exchange  contracts,  option  contracts or other
               foreign hedging arrangements.

          r.   Severance pay:

               The Company's  liability for severance pay is calculated pursuant
               to Israeli  Severance  Pay Law based on the most recent salary of
               the employees  multiplied by the number of years of employment as
               of the balance  sheet date.  The  liability  is  presented  on an
               undiscounted  basis.  The  Company  records as an expense the net
               increase in its severance liability.  The Company's liability for
               all of its  employees is fully  covered by monthly  deposits with
               severance  pay  funds,   insurance   policies,   Mivtahim  Social
               Insurance Institution Ltd. ("Mivtahim") and by an accrual.

               The liability  covered by deposits  with Mivtahim is  irrevocably
               transferred  to  Mivtahim.   Accordingly,   neither  the  amounts
               accumulated with Mivtahim, nor the corresponding  liabilities for
               severance pay are reflected in the balance sheet.

               The  value of the  policies,  other  than the  value of  Mivtahim
               policies, is included as an asset in the Company's balance sheet.


                                      F-14

<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               The deposited funds include profits accumulated up to the balance
               sheet date.  The deposited  funds may be withdrawn  only upon the
               fulfillment of the obligation  pursuant to Israeli  Severance Pay
               Law or labor  agreements.  The  value of the  deposited  funds is
               based  on the cash  surrendered  value  of  these  policies,  and
               includes immaterial profits.

               Severance  expense was $ 274, $ 284 and $ 297 for the years ended
               December 31, 2004, 2003 and 2002, respectively.

          s.   Fair value of financial instruments:

               The  carrying  amounts  of  cash  and  cash  equivalents,   trade
               receivables,  other accounts receivable, trade payables and other
               accounts  payable  approximate  their  fair  values,  due  to the
               short-term maturities of such instruments.

               The  fair  value  for   marketable   securities   classified   as
               available-for-sale is based on quoted market prices.

          t.   Basic and diluted net earnings per share:

               Basic net earnings  per share are computed  based on the weighted
               average number of Ordinary shares  outstanding  during each year.
               Diluted  net  earnings  per share  further  include the effect of
               dilutive  stock  options  outstanding  during  the  year,  all in
               accordance  with  Statement  of  Financial   Accounting  Standard
               Statement No. 128, "Earnings Per Share".

               The weighted average number of outstanding  options excluded from
               the  calculations of diluted net earnings per share, due to their
               anti dilutive effect, was 500,000,  0 and 713,500,  for the years
               ended December 31, 2004, 2003 and 2002, respectively.

          u.   Accounting for stock-based compensation:

               The Company applies the provisions of Accounting Principles Board
               Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB
               No. 25") and FASB  interpretation No. 44, "Accounting for Certain
               Transactions  Involving  Stock  Compensation"  ("FIN No.  44") in
               accounting for its employee  stock options.  According to APB NO.
               25,  compensation  expense is measured under the intrinsic  value
               method,  whereby  compensation expense is equal to the excess, if
               any, of the quoted  market  price of the stock over the  exercise
               price at the grant date of the award.


                                      F-15

<PAGE>




                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               Pro forma information  regarding the Company's net income and net
               earnings  per share is required by SFAS 123 as if the company had
               accounted  for its employee  stock  options  under the fair value
               based method.  Since all shares options were vested  preceding to
               all reported  periods,  the  Company's  net income would not have
               changed for all  reported  periods if the Company had applied the
               fair value recognition provisions according to SFAS 123.

          v.   Reclassification

               Certain  amounts  from  prior  years  have been  reclassified  to
               conform to current classification.

          w.   Impact of recently issued accounting standards

               1.   In March 2004,  the  Financial  Accounting  Standards  Board
                    approved the consensus  reached on the Emerging  Issues Task
                    Force   (EITF)    Issue   No.   03-1,    "The   Meaning   of
                    Other-Than-Temporary   Impairment  and  Its  Application  to
                    Certain  Investments"  ("EITF 03-1").  The objective of this
                    Issue  is  to  provide  guidance  for  identifying  impaired
                    investments.   EITF  03-1  also   provides  new   disclosure
                    requirements   for   investments   that  are  deemed  to  be
                    temporarily   impaired.   The  impairment   measurement  and
                    recognition guidance prescribe in EITF 03-1 is delayed until
                    the  final  issuance  of FSP EITF  03-01-a.  The  disclosure
                    requirements for available for sale investment are effective
                    for annual reporting  periods ending after June 15, 2003.The
                    Company  has  evaluated  the impact of the  adoption of EITF
                    03-1 and does not believe the impact will be  significant to
                    the  Company's  overall  results of  operations or financial
                    position.

               2.   On December 16, 2004,  the  Financial  Accounting  Standards
                    Board  (FASB)   issued   Statement  No.  123  (revised  2004
                    Share-Based Payment ("Statement 123R"),  which is a revision
                    of FASB  Statement  No.  123,  "Accounting  for  Stock-Based
                    Compensation"  ("Statement 123"). Generally, the approach in
                    Statement  123(R) is similar to the  approach  described  in
                    Statement 123. However, Statement 123 permitted, but did not
                    require,  share-based payments to employees to be recognized
                    based on their fair values while  Statement  123(R) requires
                    all share-based payments to employees to be recognized based
                    on their fair values. Statement 123R also revises, clarifies
                    and expands guidance in several areas,  including  measuring
                    fair value, classifying an award as equity or as a liability
                    and attributing  compensation cost to reporting periods. The
                    new standard  will be effective for the Company in the first
                    interim period  beginning  after January 1, 2006.  Currently
                    the  company  has no  unvested  stock  options.  However the
                    impact  of  this  standard  on  the  company's   results  of
                    operations  will depend on the level of share based payments
                    granted in the future.


                                      F-16

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               3.   In November  2004,  the FASB issued  Statement  of Financial
                    Accounting  Standard No. 151, "Inventory Costs, an Amendment
                    of ARB No.  43,  Chapter  4" ("SAFS  151").  SFAS 151 amends
                    Accounting  Research  Bulletin ("ARB") No. 43, Chapter 4, to
                    clarify  that  abnormal  amounts of idle  facility  expense,
                    freight  handling  costs  and  wasted  materials  (spoilage)
                    should be recognized as current-period charges. In addition,
                    SFAS  151  requires  that  allocation  of  fixed  production
                    overheads  to the  costs of  conversion  be based on  normal
                    capacity of the production facilities. SAFS 151 is effective
                    for inventory  costs incurred  during fiscal years beginning
                    after June 15,  2005.  The Company  does not expect that the
                    adoption  of SFAS 151 will  have a  material  effect  on its
                    financial position or results of operations.


NOTE 3:- MARKETABLE SECURITIES AND LONG TERM MARKETABLE SECURITIES

          The   following   is  a  summary  of   available-for-sale   marketable
          securities:
<TABLE>
<CAPTION>
                                                                               December 31,
                                               -----------------------------------------------------------------------------
                                                               2004                                   2003
                                               ------------------------------------- ---------------------------------------
                                                                         Estimated                               Estimated
                                                               Gross       fair                       Gross        fair
                                                Amortized   unrealized    market      Amortized     unrealized    market
                                                  cost         gains       value         cost         gains        value
                                               ------------ ------------------------ ------------- -------------------------
                 <S>                            <C>          <C>         <C>           <C>            <C>           <C>
                 Available-for-sale:
                 -------------------
                 Government and agency bonds    $     -      $   -       $     -       $   491        $  -          $  491
                 Shares                             758         94           852           652          84             736
                 Debentures and convertible
                  debentures                        702         12           714         2,093          11            2,104
                                                -------      -----       -------       -------        ----          -------
                                                $ 1,460      $ 106       $ 1,566       $ 3,236        $ 95          $ 3,331
                                                =======      =====       =======       =======        ====          =======
</TABLE>

          Unrealized losses amounted to $1 and $3 on December 31, 2004 and 2003,
          respectively.

          During  2004,  2003 and  2002,  the  Company  recorded  proceeds  from
          redemption and sales of these  securities in the amounts of $ 2,973, $
          1,650 and $ 1,089, respectively.  The related gains (losses) amounting
          to $ 35, $ (39) and $ (3),  in 2004 and 2003 and  2002,  respectively,
          were recorded in other income, net.

NOTE 4:- INVENTORIES

                                                      December 31,
                                            -------------------------------
                                                 2004            2003
                                            --------------   --------------
          Raw materials and components      $      4,736     $     4,375
          Work in process                          8,446           8,974
                                            --------------   --------------
                                            $     13,182     $    13,349
                                            ==============   ==============

          As for charges, see Note 10.


                                      F-17

<PAGE>
                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 5:- PROPERTY, PLANT AND EQUIPMENT, NET

                                                          December 31,
                                             -----------------------------------
                                                   2004               2003
                                             ---------------   -----------------
          Cost:
            Land and buildings (1)            $    2,294         $    2,216
            Machinery and equipment               19,157             18,580
            Motor vehicles                         1,187              1,065
            Office furniture and equipment           333                316
                                             ---------------   -----------------
                                                  22,971             22,177
          Accumulated depreciation                17,119             16,216
                                             ---------------   -----------------
          Depreciated cost                     $   5,852         $    5,961
                                             ===============   =================

          Depreciation  expenses  amounted  to $ 1,022,  $ 974 and $ 955 for the
          years ended December 31, 2004, 2003 and 2002, respectively.

          (1)  Including  lease  rights  to  land in the  amount  of $ 1 under a
               sub-lease  agreement  with TAT. The lease period ends in 2020 and
               includes a renewal  option if TAT exercises the option granted by
               the Israel Land Administration.

               Registration with the Land Registrar of the transfer of sub-lease
               rights from TAT to the Company has not yet been  finalized due to
               technical reasons.

          As for charges, see Note 10.


NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                       December 31,
                                           -------------------------------------
                                                 2004                 2003
                                           -----------------   -----------------
          Employees and payroll accruals    $      1,422         $      1,462
          Government authorities                       -                  645
          Accrued expenses                           677                  585
          Deferred revenue                             -                  217
          Advances from customers                     86                  350
          Other                                      559                  671
                                           -----------------   -----------------
                                            $      2,744         $      3,930
                                           =================   =================

                                      F-18

<PAGE>
                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 7:- TRANSACTIONS WITH RELATED PARTIES

          a.   The Company entered into an agreement with TAT,  whereby in April
               1994 the Company exercised the option and purchased the prototype
               and rights to  manufacture  and  distribute  an air  conditioning
               system  without freon gas (EFACS) for aircraft and trains,  which
               was developed by TAT.

               The following are the terms of the agreement:

               1.   TAT  has  a  right  of  first   refusal  for  regarding  the
                    manufacture of components of the air  conditioning  systems,
                    which are included  among the  technologies  and  components
                    which TAT deals with or will deal with from time to time.

               2.   The Company is committed to pay TAT the following:

                    a)   Royalties  amounting  to 17% on the  first $ 10,000  in
                         revenues  from  sales  of  the  systems,   directly  or
                         indirectly,  and 7% on all such revenues in excess of $
                         10,000.

                    b)   Reimbursement   of  the  royalties  due  to  the  Chief
                         Scientist in connection with the sales of the systems.

                    c)   25% of the proceeds in connection  with the transfer or
                         sale of  know-how  and/or  any  rights  related  to the
                         system.

               As of  December  31,  2004,  the  Company has not sold EFACS and,
               therefore, the Company has not paid or accrued royalties for this
               commitment.

          b.   Transactions with TAT:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                     ----------------------------------------------------
                                                           2004              2003              2002
                                                     ----------------  ----------------  ----------------
                <S>                                    <C>               <C>               <C>
                Revenues from management fees          $         50      $         50      $         50
                                                     ================  ================  ================
                Other manufacturing costs              $         59      $        134      $        210
                                                     ================  ================  ================
                Lease expenses (1)                     $        324      $        318      $        312
                                                     ================  ================  ================
</TABLE>

               (1)  During 2000, the Company entered into a lease agreement with
                    TAT for a period of 25 years.  According  to the  agreement,
                    the  Company  leases from TAT the  factory  premises  for an
                    annual  amount  of  approximately  $  300,  increased  by 2%
                    annually,  subject to a  revaluation  based on market  value
                    every five  years.  The  Company is  entitled  to a one-time
                    right of termination of the agreement after 10 years.


                                      F-19

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 7:- TRANSACTIONS WITH RELATED PARTIES (Cont.)

          c.   Balances with related parties:

                                                         December 31,
                                             ----------------------------------
                                                   2004               2003
                                             ---------------   ----------------
               TAT - current account (1)      $         73       $        525
                                             ===============   ================

               (1)  The  current  account  is  denominated  in NIS linked to the
                    Israeli Consumer Price Index and bears no interest.

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                  -----------------------------------------------------
                                                                         2004              2003              2002
                                                                  ----------------- ----------------- -----------------
          <S>                                                       <C>               <C>               <C>
          d.     Commissions   to  a  company  owned  by
                   certain  shareholders (see Note 9b)              $        377      $        487      $        503
                                                                  ================= ================= =================
                 Management fee (see f below)                       $         54      $          -      $          -
                                                                  ================= ================= =================
</TABLE>

          e.   The Chairman of the Board of Directors  and the Vice  Chairman of
               the Board of Directors  are  entitled  each to a bonus of 2.5% of
               the annual  consolidated  operating  income,  in excess of $ 500.
               Bonus  expenses were $ 246, $ 240,  $176 in 2004,  2003 and 2002,
               respectively,  and  were  recorded  as  part of the  general  and
               administrative expenses.

          f.   A shareholder of the Company provides the Company with management
               and consulting services in consideration for the lower of: (i) 3%
               of the consolidated  operating income in excess of $ 500, or (ii)
               $ 250.  Consulting  expenses were $50, $ 0, $0 in 2004,  2003 and
               2002, respectively,  and were recorded as part of the general and
               administrative expenses. See also Note 11b.

NOTE 8:- LONG-TERM LOANS

          a.   Terms of the loans:

<TABLE>
<CAPTION>
                                                                     Weighted average
                                                       Currency       interest rate                December 31
                                                    -------------- --------------------  --------------------------------
                                                                      2004      2003          2004             2003
                                                                   ---------- ---------  ---------------  ---------------
                                                                            %
                                                                   --------------------
                       <S>                           <C>              <C>       <C>        <C>              <C>
                       Banks                         U.S. dollar      -         3.4        $         -      $       294
                       Less - current maturities                                                     -              248
                                                                                         ---------------  ---------------
                                                                                           $         -      $        46
                                                                                         ===============  ===============
</TABLE>

          b.   As for collateral, see Note 10.

                                      F-20

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES

          a.   The Company and Limco-Airepair  obtained from the BIRD Foundation
               grants  for the  support of  research  and  development  projects
               aggregating  to $ 551. The Company is obligated to pay  royalties
               of between 2.5% to 5% of the sales of the products generated from
               such  projects,  up to an  amount  equal  to  100%  of the  grant
               received.   The   contingent   liability   in   respect   of  the
               aforementioned  grants  amounted to $551.  The  Company  does not
               expect any sales generated from these projects in the future.

          b.   The Company is committed to pay commissions to a company owned by
               certain of its  shareholders for representing the heat exchangers
               division in North  America  (see Note 7d). The  commissions  were
               recorded as part of the Selling and marketing expenses.

               According to the agreement,  the  commissions are to be paid at a
               rate of 10% of the  amount  of  inventories  purchased  in  North
               America  and  3%  of  the  sales  made  in  North  America.   The
               commissions  were  recorded as part of the Cost of  revenues  and
               Selling and marketing expenses, respectively.

          c.   The Company is committed  to pay  royalties to a third party at a
               range of 5% to 6% of  sales of  products  developed  through  the
               intellectual property and goodwill which were purchased from that
               third party.  Royalties expenses were $ 31, $ 51 and $ 39 for the
               years ended December 31, 2004, 2003 and 2002,  respectively.  The
               royalties were recorded as part of the Cost of revenues.

          d.   The Company is committed to pay marketing commissions to salesmen
               at a range 1% to 12% of the  total  sales  contracts  which  were
               received through promotion and distribution  carried out by them.
               Commission  expenses were $ 346, $ 500, $ 241 for the years ended
               December 31, 2004, 2003 and 2002,  respectively.  The commissions
               were recorded as part of the Selling and marketing expenses.

          e.   The Company is  committed  to pay  royalties  to a third party of
               between 9% to 12% of sales of the products developed by the third
               party.  Royalties expenses amounted to $ 214, $ 448 and $ 321 for
               the years ended December 31, 2004,  2003 and 2002,  respectively.
               The royalties were recorded as part of the Cost of revenues.

          f.   As for commitments to TAT, see Note 7a.

          g.   Lease commitments:
               Limco-Airepair  entered into  operating  lease  agreements  which
               expire in 2006. As of December 31, 2004,  future  minimum  rental
               payments under non-cancelable operating leases are as follows:

                        2005              $  29
                        2006                 14
                                         --------
                                          $  43
                                         ========

                                      F-21


<PAGE>


                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

               Total rent expenses for the years ended  December 31, 2004,  2003
               and 2002 were approximately $ 30, $ 30 and $ 29, respectively. As
               for the lease of the factory  premises by the  Company,  see Note
               7b.

          h.   The Company's subsidiary  previously had a commitment to purchase
               non-serviceable  aircraft spare parts assemblies and the relating
               complete technical documentation, as identified in the agreement,
               in  the  amount  of $  1,134.  According  to the  agreement,  the
               subsidiary  had to pay a 10% down payment  while the  remaining $
               1,021 was to be paid in several  separate  payments  according to
               the  terms  of  the   agreement.   As  of  December   31,   2004,
               approximately $ 1,015 of the commitment had been  fulfilled.  The
               Company  has a  proposed  agreement  with a third  party to share
               equally in this  purchase  commitments  and sales  proceeds.  The
               third party has advanced  approximately $474 to the Company which
               is included in other payables and accrued expenses.

          i.   During  2004,  two former  employees  filed a claim  against  the
               Company  and against an  employment  agency,  alleging  breach of
               contract,  and seeking  compensation for salary delays and salary
               differences in the amount of $250.  The Company,  with the advice
               of its legal counsel,  is unable to predict the ultimate  outcome
               of these claims, yet believes that such claims are without merit.
               As such, no provision was provided.

NOTE 10:- CHARGES AND GUARANTEES

          The  Company  provided a bank  guarantee  in the  amount of $ 201,  to
          secure customer advances and performance to customers.

NOTE 11:- SHAREHOLDERS' EQUITY

          a.   The  Company's  shares are  registered  with the  Securities  and
               Exchange  Commission  in the United  States and are traded on the
               NASDAQ (Small Cap Market).  The Company's  Ordinary shares confer
               upon their holders voting rights, the right to receive dividends,
               if  declared,  and any  amounts  payable  upon  the  dissolution,
               liquidation or winding up of the affairs of the Company.

          b.   On August  10,  2004,  the  Company  entered  into an  investment
               agreement,  according  to which  an  investor  purchased  857,143
               Ordinary  shares  of NIS 0.90 par  value of the  Company  and was
               granted 500,000  warrants to purchase  500,000 Ordinary shares of
               NIS 0.90 par value at an exercise price of $ 8.50 per share.  The
               warrants  are  exercisable  for 66 months from the date of grant.
               The total cash received was $ 6,000.

               In addition,  the investor and the Company  entered into a credit
               line  agreement,  under which the investor  made a line of credit
               available to the Company in the amount of up to $ 2,000.

               The amount of the credit withdrawn from the investor shall not be
               less than $ 1,000.  The  withdrawn  credit  bears  interest at an
               annual rate of 5%, in addition to an annual  handling fee of 0.5%
               of the credit line amount.  The withdrawn  credit will be settled
               in four equal payments,  no later than 66 months from the date of
               the  agreement.  As of  December  31,  2004,  the Company has not
               withdrawn any amounts from the credit line.


                                      F-22

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHAREHOLDERS' EQUITY (Cont.)

               The Company  recorded  the fair value of the credit  line,  which
               amounted to $ 265, as deferred  charges,  which will be amortized
               throughout the term of the credit line agreement.

               As such, the total  proceeds  received for the issuance of shares
               and  warrants,  consisting  of cash and a  provision  of a credit
               line,  amounted to $ 6,265,  from which issuance  expenses in the
               amount of $ 273 were deducted.  Regarding a consulting  agreement
               entered with the investors, see also Note 7f.

          c.   Stock option plans:

               1.   In June 1994,  the Company  adopted a stock  option plan for
                    its employees,  directors and service providers,  whereby up
                    to 125,000  options to purchase  Ordinary  shares were to be
                    granted,  at an exercise  price of $ 4 per share (the market
                    price at the date of the  grant).  Out of this plan  116,000
                    options (out of which  87,500 stock  options were granted to
                    executives)  were granted.  Under the terms of the plan, the
                    options   vested   ratably  over  a  period  of  five  years
                    commencing  with the date of grant.  This stock  option plan
                    together with options  issued and not  exercised  expired in
                    June 2004.

               2.   In March 1995,  the Company  adopted a stock option plan for
                    its employees,  employees of the parent  company,  directors
                    and  service  providers,  whereby up to  400,000  options to
                    purchase Ordinary shares were to be granted,  at an exercise
                    price of $ 4.5 per share  (the  market  price at the date of
                    grant).  Out of this  plan  372,500  options  (out of  which
                    315,000  stock  options  were  granted to  executives)  were
                    granted.  Under the terms of the plan,  the  options  vested
                    after a period  of five  years  commencing  with the date of
                    grant.  In March 2005, the remaining  267,500 options out of
                    the plan expired.

               3.   In January 1999, the Company adopted a stock option plan for
                    its  employees,  directors  and  officers  of  the  Company,
                    whereby up to 500,000  options to purchase  Ordinary  shares
                    (out  of  which   402,500  stock  options  were  granted  to
                    executives)  were to be granted,  at an exercise  price of $
                    1.625 per share (which  equaled the market price on the date
                    of grant).  All options  have been  granted  under the above
                    plan.  Under the terms of the plan,  the options  were fully
                    vested  as of the  grant  date.  These  options  expired  in
                    January 2009.

                                      F-23

<PAGE>
                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHAREHOLDERS' EQUITY (Cont.)

               The following table is a summary of the activity of the Company's
               stock Option plans:

<TABLE>
                                                    Year ended December 31,
                                ----------------------------------------------------------------
                                        2004                 2003                  2002
                                -------------------- -------------------- ----------------------
                                            Weighted             Weighted              Weighted
                                 Number     average    Number    average     Number     average
                                   of       exercise     of      exercise      of      exercise
                                 options     price     options    price     Options      price
                                ---------- ---------  --------- ---------- ---------- -----------
  <S>                             <C>      <C>        <C>        <C>        <C>         <C>
  Outstanding at the              834,935  $   2.95   988,500    $   2.99   988,500     $  2.99
    beginning of the year

  Exercised                      (548,435) $   2.25  (153,565)   $   2.36         -     $     -
  Expired                          (1,500) $   4.00         -    $      -         -     $     -
                                ---------            --------               -------
  Outstanding at the end of
    the year                      285,000  $   4.323  834,935    $   2.95   988,500     $  2.99
                                  =======  =========  =======    ========   =======     =======
  Exercisable options             285,000  $   4.323  834,395    $   2.95   988,500     $  2.99
                                  =======  =========  =======    ========   =======     =======
</TABLE>

               The  options  outstanding  as of  December  31,  2004,  have been
               separated into ranges of exercise prices, as follows:

<TABLE>
<CAPTION>
                                             Options          Weighted           Options
                                           outstanding         average         exercisable        Exercise
                                              as of           remaining           as of           price of
                      Exercise            December 31,       contractual      December 31,         options
                        price                 2004          life (years)          2004           exercisable
              -------------------------  ---------------   ---------------   ---------------   ---------------
                      <S>                    <C>             <C>                 <C>                <C>
                      $  1.625                17,500           4.08               17,500            $    1.625
                      $  4.5                 267,500*          0.25              267,500*           $    4.50
                                            ----------                        -------------
                                             285,000         $ 4.323             285,000            $   4.323
                                            ==========     ============       =============      =============
</TABLE>

               * In March 2005, these options were expired.

          d.   Dividends:

               Dividends on the Ordinary  shares,  if any,  will be declared and
               paid in U.S dollars.  The Company's  intentions  are to pay up to
               40% of the  Company's  net  profit as a cash  dividend  annually,
               depending  on cash  flow  and  profitability  and  other  factors
               affecting the Company's business.

               On  September  8, 2004,  the  Company  declared a dividend in the
               amount of $ 7,130.  The ex-date was set for October 18, 2004, and
               the dividend was fully paid on November 8, 2004.


                                      F-24

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- NET EARNINGS PER SHARE

               The  following  table sets forth the  computation  of  historical
               basic and diluted net earnings per share:

<TABLE>
                                                           Year ended December 31,
                                                    ------------------------------------
                                                       2004          2003        2002
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
Numerator: Net income                               $    3,739   $    3,834   $    3,589
                                                    ==========   ==========   ==========
Denominator:
  Weighted average number of Ordinary shares
  outstanding during the year                        5,166,218    4,509,891    4,483,516
                                                    ==========   ==========   ==========
  Basic net earnings per share - weighted average    5,166,218    4,509,891    4,483,516
    number of shares
  Effect of dilutive securities:
  Stock options and warrants                           397,842      397,529      167,497
                                                    ----------   ----------   ----------
Denominator for diluted net earnings per share       5,564,060    4,907,420    4,651,013
                                                    ==========   ==========   ==========
</TABLE>

NOTE 13:- INCOME TAXES

          a.   Measurement of taxable income under the Income Tax  (Inflationary
               Adjustments) Law, 1985:

               In  accordance  with the above law results for tax  purposes  are
               measured  and  reflected  in real  terms in  accordance  with the
               changes in the Israeli Consumer Price Index (CPI).

          b.   Tax benefits under Israel's Law for the Encouragement of Industry
               (Taxation), 1969:

               The Company is an "industrial company", as defined by the law for
               the  Encouragement  of Industry  (Taxes),  1969,  and as such, is
               entitled  to  certain  tax  benefits,  which  mainly  consist  of
               amortization of costs relating to know-how and patents over eight
               years,  the  right  to  claim  public  issuance   expenses,   and
               accelerated depreciation.

          c.   Tax  benefits  under  the Law for the  Encouragement  of  Capital
               Investments, 1959 ("the Law"):

               A certain  expansion  plan of the  Company  has been  granted  an
               "Approved  Enterprise"  status,  under the Law.  The  Company has
               elected to receive its benefits through the "alternative benefits
               track",  waiving  grants in return for tax  exemptions.  Pursuant
               thereto,  the increase in income from the date of commencement of
               the program  which is the income of the Company  derived from the
               following "Approved  Enterprise"  expansion program is tax-exempt
               for the periods stated below and will be eligible for reduced tax
               rates  thereafter  (such  reduced tax rates are  dependent on the
               level of foreign investments in the Company), as described below.

               Income from  sources  other than the  "Approved  Enterprise"  are
               subject to tax at the regular corporate tax rate of 35%.


                                      F-25

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 13:- INCOME TAXES (Cont.)

               Income derived from the program,  which  commenced in 2003,  will
               entitle the Company to a tax  exemption  for the two-year  period
               ending  December 31,  2004,  and to a reduced tax rate of 10%-25%
               for an additional five to eight years ending December 31, 2009 to
               2012  (depending  on the level of  foreign  investments  into the
               Company).

               The  entitlement to the above  benefits is  conditional  upon the
               Company    fulfilling   the   conditions    stipulated   by   the
               abovementioned  law,  regulations  published  thereunder  and the
               letters of approval  for the  specific  investments  in "approved
               enterprises".  In the  event of  failure  to  comply  with  these
               conditions,  the  benefits may be canceled and the Company may be
               required  to refund  the amount of the  benefits,  in whole or in
               part,  including  interest.  As of December 31, 2004,  management
               believes  that the Company is meeting  all of the  aforementioned
               conditions.

               The tax-exempt income  attributable to the "Approved  Enterprise"
               can not be  distributed  to  shareholders  without  imposing  tax
               liability on the Company other than in complete  liquidation.  As
               of December 31, 2004,  there is  approximately  $ 170  tax-exempt
               income earned by the Company's "Approved  Enterprise" included in
               retained earnings.

               If the retained tax-exempt income is distributed to shareholders,
               it would be taxed at the  corporate  tax rate  applicable to such
               profits as if the Company had not  elected  the  alternative  tax
               benefits track (currently - 25%).

               By  virtue  of  this  law,  the  Company  is  entitled  to  claim
               accelerated  depreciation  on  equipment  used  by the  "Approved
               Enterprise" during five tax years.

               See also note 13(f).

          d.   Amendment 132 to the Israeli Income Tax Ordinance:

               In July 2002,  Amendment 132 to the Israeli  Income Tax Ordinance
               ("Amendment  132") was approved by the Israeli  parliament and is
               effective  as of January 1, 2003.  The  principal  objectives  of
               Amendment 132 were to broaden the  categories  of taxable  income
               and to reduce the tax rates  imposed on  employment  income.  The
               Amendment had no material impact on the Company.

          e.   Reduction in corporate tax rate:

               In June 2004, the Israeli parliament approved an amendment to the
               Income Tax  Ordinance  (No. 140 and  Temporary  Provision)  ("the
               Amendment"),  which progressively  reduces the corporate tax rate
               from  36% to 35% in  2004,  34% in  2005,  32% in 2006 and 30% in
               2007.


                                      F-26

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 13:- INCOME TAXES (Cont.)

          f.   On March 29, 2005, the Israeli  parliament passed an amendment to
               the Law for the Encouragement of Capital Investments,  1959 ("the
               Law"),   which  provides   expanded  tax  incentives  for  future
               industrial  investments and simplified the  bureaucratic  process
               for  obtaining   approval  of  investments   qualifying  for  tax
               incentives ("the 2005 Amendment").  The 2005 Amendment  primarily
               relates to the "alternative  benefits track" tax incentives which
               the Company has elected  for its  Approved  Enterprises.  Changes
               include special tax incentives and an expedited  approval process
               for companies that make minimum  qualifying  investments in fixed
               assets in  production  facilities  located  in  Israel.  The 2005
               Amendment  became  effective  on April 1,  2005.  The  Company is
               currently  evaluating  the  impact of the 2005  Amendment  on its
               business operations.

          g.   Non-Israeli subsidiary

               A  non-Israeli  subsidiary  is taxed based on the tax laws in its
               country of residence - the U.S. The tax rate in the U.S. is 40%.

          h.   Tax assessments

               The Company received tax assessments  considered as final through
               2001.

          i.   Income tax reconciliation:

               A  reconciliation  of the  theoretical  tax expense  assuming all
               income  is taxed at the  statutory  tax rate and the  actual  tax
               expense is as follows:
<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
                                                                       ---------------------------------------------------
                                                                            2004              2003              2002
                                                                       ---------------   ---------------   ---------------
                      <C>                                                <C>               <C>               <C>
                      Income before income taxes as reported in the      $      5,408      $      5,059      $      3,956
                        statements of income
                                                                       ===============   ===============   ===============
                       Statutory tax rate in Israel                               35%               36%               36%
                                                                       ===============   ===============   ===============
                      Theoretical tax expenses                           $      1,893      $      1,821      $      1,424
                      Increase (decrease) in income taxes resulting
                        from:
                      Tax adjustment in respect of foreign
                        subsidiary subject to a different tax rate                 76                67                36
                      Reversal of valuation allowance in respect of
                        carryforward losses                                                           -            (1,019)
                      Difference in basis of measurement for
                        financial reporting and income tax  purposes              (94)             (519)             (158)
                      Tax in respect of prior years                              (310)             (258)                -
                      Non-deductible expenses                                     102               114                84
                                                                       ---------------   ---------------   ---------------
                      Income taxes as reported in the statements of
                        income                                           $      1,667      $      1,225      $        367
                                                                       ===============   ===============   ===============
</TABLE>



                                      F-27

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 13:- INCOME TAXES (Cont.)

<TABLE>
<CAPTION>
          j.   Income before income taxes is comprised as follows:

                                                                                     Year ended December 31,
                                                                       ---------------------------------------------------
                                                                            2004              2003              2002
                                                                       ---------------   ---------------   ---------------
          <S>                                                           <C>               <C>                <C>
                      Domestic (Israel)                                 $       3,880     $       3,387      $      2,961
                      Foreign (United States)                                   1,526             1,672               995
                                                                       ---------------   ---------------   ---------------
                                                                        $       5,406     $       5,059      $      3,956
                                                                       ===============   ===============   ===============

          k.   Income taxes included in the statements of income:

                      Current:
                        Domestic (Israel)                               $         999      $        627      $          -
                        Foreign (United States)                                   500               535               236
                                                                       ---------------   ---------------   ---------------
                                                                                1,499             1,162               236
                                                                       ---------------   ---------------   ---------------
                       Deferred:
                        Domestic (Israel)                                        112                27                  -
                        Foreign (United States)                                   56                36                131
                                                                       ---------------   ---------------   ---------------
                                                                                 168                63                131
                                                                       ---------------   ---------------   ---------------
                                                                        $      1,667       $     1,225       $       367
                                                                       ===============   ===============   ===============
</TABLE>

          l.   Deferred income taxes:

               Deferred  income  taxes  reflect the net tax effects of temporary
               differences   between   the   carrying   amounts  of  assets  and
               liabilities for financial reporting purposes and the amounts used
               for income tax purposes.  Significant components of the Company's
               deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                                                    December 31
                                                                                         ----------------------------
                                                                                             2004             2003
                                                                                         -------------   ------------
                      <S>                                                                  <C>             <C>
                      Deferred tax assets (liabilities):
                        Provisions for employee benefits and other temporary
                          differences                                                      $     559       $     449
                        Tax loss carryforwards                                                   100             209
                                                                                         -------------   ------------
                      Deferred tax assets                                                        659             658
                      Deferred tax liabilities                                                  (616)           (447)
                                                                                         -------------   ------------
                      Net deferred tax assets (liabilities)                                $      43       $     211
                                                                                         =============   ============
</TABLE>


               As of December 31, 2004,  the Company and its  subsidiary did not
               provide a valuation  allowance in respect of deferred tax assets,
               since management  currently  believes that it is more likely than
               not that the deferred tax asset will be realized in the future.

               The Company has no present  intention of remitting  undistributed
               earnings  of a  foreign  subsidiary  aggregating  $  3,288  as of
               December 31, 2004, and accordingly, no deferred tax liability has
               been  established  relative to these  earnings.  If these amounts
               were  not  considered  permanently  reinvested,  a  deferred  tax
               liability would have been required.

                                      F-28

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 14:- MAJOR CUSTOMER AND GEOGRAPHICAL INFORMATION

          a.   Summary information about geographic areas:

               The Company and its subsidiary  operate in one industry  segment.
               Total  revenues are  attributed to geographic  areas based on the
               location of the  customers.  This data is presented in accordance
               with  Statement  of  Financial   Accounting   Standard  No.  131,
               "Disclosures   About   Segments  of  an  Enterprise  and  Related
               Information" ("SFAS No. 131").

               The following  presents total revenues,  based on the location of
               the end customers,  for the years ended  December 31, 2004,  2003
               and 2002 and long-lived assets as of December 31, 2004 and 2003:
<TABLE>
<CAPTION>
                                                           2004                        2003             2002
                                            --------------------------- --------------------------  -------------
                                                Total      Long-lived      Total       Long-lived      Total
                                              revenues       assets       revenues       assets       revenues
                                            ------------- ------------- ------------  ------------  ------------
                      <S>                     <C>           <C>           <C>           <C>           <C>
                      Israel                  $   5,095     $   4,037     $   4,796     $   4,332     $   4,277
                      Asia                        1,430             -         1,845             -         1,382
                      United States              17,569         2,418        15,441         2,241        13,531
                      Europe                      8,736             -         8,340             -         6,879
                      Other                         413             -           260             -           211
                                            ------------- ------------- ------------  ------------  ------------
                                              $  33,243     $   6,455     $  30,682     $   6,573     $  26,280
                                            ============= ============= ============  ============  ============
</TABLE>

          b.   Major customer data as a percentage of total revenues:

                                            Year ended December 31,
                              --------------------------------------------------
                                   2004              2003              2002
                              ---------------   ---------------   --------------
                                                       %
                              --------------------------------------------------

               Customer A           10.1              15.3              11.9
               Customer B           15.4              12.9              12.8
               Customer C            9.8              12.1               4.9
               Customer D            7.8               5.6              17.3


                                      F-29

<PAGE>

                                        TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 15:- SELECTED STATEMENTS OF INCOME DATA

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                          ------------------------------------
                                                                             2004          2003        2002
                                                                          ---------   -----------   ----------
               <S>                                                         <C>         <C>          <C>
               a. Financial income (expenses), net:

                       Financial income:
                         Foreign currency translation adjustments          $    86     $     49     $       -
                         Interest on cash equivalents, short-term bank
                           deposits and others                                 147           46           203
                                                                          ---------   -----------   ----------
                                                                               233           95           203
                                                                          ---------   -----------   ----------
                       Financial expenses:
                         Bank charges                                          (68)         (47)           -
                         Interest on short-term loans                           (6)         (12)         (56)
                         Interest on long-term loans                           (28)         (13)         (30)
                         Foreign currency translation adjustments              (42)         (20)         (18)
                         Others                                                 (2)         (28)           -
                                                                          ---------   -----------   ----------
                                                                              (146)        (120)        (104)
                                                                          ---------   -----------   ----------
                                                                           $    87     $    (25)    $     99
                                                                          =========   ===========   ==========

               b. Other income (expenses), net:

                         Gain on sale of property and equipment            $    18      $    63      $    11
                         Gain (loss) on sale of marketable securities
                          classified as available-for-sale                      36          (39)          (3)
                                                                          ---------   -----------   ----------
                                                                           $    54      $    24      $     8
                                                                          =========   ===========   ==========
</TABLE>

NOTE 16:- SUBSEQUENT EVENTS

     On May 16,  2005,  the Company  entered  into an  agreement  with  Piedmont
     Component Services,  LLC ("Piedmont"),  according to which the Company will
     purchase 100% of Piedmont's  shares for the aggregate amount of $ 5,500. In
     addition,  at the  closing,  the Company  will repay $ 9,500 of  Piedmont's
     outstanding indebtedness.



                       - - - - - - - - - - - - - - - - - -


                                      F-30


<PAGE>

                                 [LETTERHEAD OF
                      TULLIUS TAYLOR SARTAIN & SARTAIN LLP]


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of Directors of
LIMCO-Airepair, Inc.


We have audited the  accompanying  balance  sheets of  LIMCO-Airepair,  Inc. (an
Oklahoma  corporation)  as of  December  31,  2004  and  2003,  and the  related
statements  of income,  retained  earnings  and cash flows for each of the three
years in the period ended Deember 31, 2004.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to preform an
audit of the company's  internal  control over  financial  reporting.  Our audit
included  consideration of internal control over financial  reporting as a basis
for designing audit procedures that are appropiate in the circumstances, but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly  we  express no such
opinion. An audit includes examining,  on a test basis,  evidence supporting the
amounts and  disclosures  in the  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of  LIMCO-Airepair,  Inc. as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for each of the three years in the period ended  December 31, 2004 in conformity
with the U.S. generally accepted accounting principles.



/s/Tullius Taylor Sartain & Sartain LLP

June 27, 2005




                                       F-31
<PAGE>





                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report on Form 20-F to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                      TAT TECHNOLOGIES LTD.-



                                      By: /s/ Israel Ofen
                                         ----------------
                                           Israel Ofen, Executive Vice President
                                           and Chief Financial Officer

Date:  June 30, 2005

                                       71

</TEXT>
</DOCUMENT>
