##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For
the transition period from
               
to
 Commission File No. 1-11775
 TIMCO AVIATION SERVICES, INC.
  Delaware
    
    65-0665658(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)623 Radar Road
    
    27410Greensboro, North Carolina
    
    (Zip Code)(Address of principal executive offices)
  þ o
 o þ




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TIMCO AVIATION SERVICES, INC.
 INDEX
 Part I. Financial Information
 PageItem 1. FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004 (unaudited)
    
    
    3-4Condensed Consolidated Statements of Operations for the three months and six months

ended June 30, 2005 and 2004 (unaudited)
    
    
    5-6Condensed Consolidated Statements of Stockholders Deficit for the six months ended
June 30, 2005 (unaudited)
    
    
    7Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005
and 2004 (unaudited)
    
    
    8-9Notes to Condensed Consolidated Financial Statements
    
    
    10Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    23Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    33Item 4. CONTROLS AND PROCEDURES
    
    
    33Part II. Other InformationItem 1. LEGAL PROCEEDINGS
    
    
    34Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    
    34Item 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    34Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
    
    
    34Item 5. OTHER INFORMATION
    
    
    34Item 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    34Ex-10.1Ex-31.1Ex-32.1
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    December 31,2005
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    275
    
    
    $
    293Marketable securities
    
    
    1,487
    
    
    
    Accounts receivable, net of allowances of $5,488 at
June 30, 2005 and $5,190 at December 31, 2004
    
    
    48,467
    
    
    
    49,721Inventories
    
    
    26,904
    
    
    
    22,244Other current assets
    
    
    5,532
    
    
    
    4,553Total current assets
    
    
    82,665
    
    
    
    76,811Fixed assets:Fixed assets at cost
    
    
    81,094
    
    
    
    79,293Less accumulated depreciation
    
    
    51,396
    
    
    
    48,756Fixed assets, net
    
    
    29,698
    
    
    
    30,537Goodwill, net
    
    
    26,124
    
    
    
    26,124Deferred financing costs, net
    
    
    3,590
    
    
    
    3,263Other
    
    
    1,175
    
    
    
    633Total assets
    
    $
    143,252
    
    
    $
    137,368LIABILITIES & STOCKHOLDERS DEFICITCurrent Liabilities:Accounts payable
    
    $
    18,412
    
    
    $
    18,000Accrued expenses
    
    
    17,205
    
    
    
    19,667Customer deposits
    
    
    15,350
    
    
    
    9,254Revolving loan
    
    
    3,274
    
    
    
    11,692Current maturities of notes payable to financial
institutions
    
    
    1,239
    
    
    
    1,164Current maturities of capital lease obligations
    
    
    1,106
    
    
    
    1,327Accrued interest
    
    
    1,033
    
    
    
    1,812Total current liabilities
    
    
    57,619
    
    
    
    62,916Senior subordinated notes, net:New notes due 2006
    
    
    61,437
    
    
    
    115,800Old notes due 2008
    
    
    16,247
    
    
    
    16,247Notes payable to financial institutions, net of
current portion
    
    
    20,485
    
    
    
    12,945Term loan with a related party
    
    
    16,587
    
    
    
    14,412Capital lease obligations, net of current portion
    
    
    3,269
    
    
    
    3,593Deferred income
    
    
    1,220
    
    
    
    1,305Junior subordinated notes due 2007, net
    
    
    942
    
    
    
    3,514Other long-term liabilities
    
    
    818
    
    
    
    1,488Total long-term liabilities
    
    
    121,005
    
    
    
    169,304
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June 30,
    
    December 31,2005
    
    2004Commitments and Contingencies (see notes)Stockholders Deficit:Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding, 15,000 shares
designated Series A Junior Participating
    
    
    
    
    
    
    Common stock, $.001 par value, 500,000,000 shares
authorized, 256,559,172 and 31,640,615 shares
issued and outstanding at June 30, 2005 and
December 31, 2004, respectively
    
    
    257
    
    
    
    32Additional paid-in capital
    
    
    239,099
    
    
    
    182,088Accumulated other comprehensive loss, net of tax
    
    
    (286
    )
    
    
    Accumulated deficit
    
    
    (274,442
    )
    
    
    (276,972
    )Total stockholders deficit
    
    
    (35,372
    )
    
    
    (94,852
    )Total liabilities and stockholders deficit
    
    $
    143,252
    
    
    $
    137,368
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three MonthsEnded June 30,2005
    
    2004Revenues, net
    
    $
    81,114
    
    
    $
    78,172Cost of sales
    
    
    73,587
    
    
    
    71,164Gross profit
    
    
    7,527
    
    
    
    7,008Operating expenses
    
    
    5,914
    
    
    
    5,566Income from operations
    
    
    1,613
    
    
    
    1,442Interest expense
    
    
    2,148
    
    
    
    2,144Gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    Other income  net
    
    
    (11
    )
    
    
    (310
    )Income (loss) before income taxes and discontinued
operations
    
    
    1,249
    
    
    
    (392
    )Income tax benefit
    
    
    31
    
    
    
    Income (loss) from continuing operations before discontinued
operations
    
    
    1,280
    
    
    
    (392
    )Income from discontinued operations, net of income taxes
    
    
    44
    
    
    
    144Net income (loss)
    
    $
    1,324
    
    
    $
    (248
    )Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.01
    )Income from discontinued operations
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.01
    
    
    $
    (0.01
    )Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    
    
    
    $
    (0.01
    )Income from discontinued operations
    
    
    
    
    
    
    Net income (loss)
    
    $
    
    
    
    $
    (0.01
    )Weighted average shares outstanding:Basic
    
    
    256,559,172
    
    
    
    31,640,994Diluted
    
    
    464,303,673
    
    
    
    31,640,994
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Six MonthsEnded June 30,2005
    
    2004Revenues, net
    
    $
    171,796
    
    
    $
    161,502Cost of sales
    
    
    154,840
    
    
    
    148,403Gross profit
    
    
    16,956
    
    
    
    13,099Operating expenses
    
    
    12,337
    
    
    
    10,823Income from operations
    
    
    4,619
    
    
    
    2,276Interest expense
    
    
    4,279
    
    
    
    3,953Gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    Charge for early conversion of notes
    
    
    400
    
    
    
    Other income  net
    
    
    (350
    )
    
    
    (432
    )Income (loss) before income taxes and discontinued
operations
    
    
    2,063
    
    
    
    (1,245
    )Income tax benefit
    
    
    368
    
    
    
    Income (loss) from continuing operations before discontinued
operations
    
    
    2,431
    
    
    
    (1,245
    )Income from discontinued operations, net of income taxes
    
    
    99
    
    
    
    1,115Net income (loss)
    
    $
    2,530
    
    
    $
    (130
    )Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    0.02
    
    
    $
    (0.04
    )Income from discontinued operations
    
    
    
    
    
    
    0.04Net income (loss)
    
    $
    0.02
    
    
    $
    Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.04
    )Income from discontinued operations
    
    
    
    
    
    
    0.04Net income (loss)
    
    $
    0.01
    
    
    $
    Weighted average shares outstanding:Basic
    
    
    158,390,464
    
    
    
    31,640,994Diluted
    
    
    366,160,691
    
    
    
    31,640,994
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 AccumulatedAdditional
    
    Other
    
    
    
    
    
    TotalCommon Stock
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Loss
    
    Deficit
    
    DeficitBalance as of
December 31, 2004
    
    
    31,640,615
    
    
    $
    32
    
    
    $
    182,088
    
    
    $
    
    
    
    $
    (276,972
    )
    
    $
    (94,852
    )Conversion of New Senior
Notes
    
    
    126,883,592
    
    
    
    127
    
    
    
    54,236
    
    
    
    
    
    
    
    
    
    
    
    54,363Conversion of Junior
Notes
    
    
    7,009,078
    
    
    
    7
    
    
    
    2,635
    
    
    
    
    
    
    
    
    
    
    
    2,642Inducement for early
conversion of Notes
    
    
    20,083,667
    
    
    
    20
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    160Partial exercise of the
LJH Warrant
    
    
    70,942,220
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71Net unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (286
    )
    
    
    
    
    
    
    (286
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,530
    
    
    
    2,530Balance as of
June 30, 2005
    
    
    256,559,172
    
    
    $
    257
    
    
    $
    239,099
    
    
    $
    (286
    )
    
    $
    (274,442
    )
    
    $
    (35,372
    )
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the SixMonths EndedJune 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    2,530
    
    
    $
    (130
    )Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:Income from discontinued operations
    
    
    (99
    )
    
    
    (1,115
    )Gain on settlement of bankruptcy claim
    
    
    (1,773
    )
    
    
    Paid-in-kind interest note obligations
    
    
    1,121
    
    
    
    1,095Inducement charge for conversion of notes
    
    
    160
    
    
    
    Write-off of deferred financing fees
    
    
    
    
    
    
    145Depreciation and amortization
    
    
    2,726
    
    
    
    2,654Amortization of deferred financing costs
    
    
    663
    
    
    
    542Provision for doubtful accounts
    
    
    11
    
    
    
    27Change in working capital:Accounts receivable
    
    
    1,243
    
    
    
    (10,696
    )Inventories
    
    
    (4,660
    )
    
    
    70Other assets
    
    
    (1,521
    )
    
    
    173Accounts payable
    
    
    412
    
    
    
    (2,363
    )Customer deposits
    
    
    6,096
    
    
    
    3,514Other liabilities
    
    
    (2,831
    )
    
    
    (1,216
    )Net cash provided by (used in) operating activities
    
    
    4,078
    
    
    
    (7,300
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assets
    
    
    (1,887
    )
    
    
    (1,139
    )Proceeds from sale of fixed assets, net of transaction
expenses
    
    
    
    
    
    
    24,861Net cash (used in) provided by investing activities
    
    
    (1,887
    )
    
    
    23,722CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under senior debt facilities
    
    
    177,936
    
    
    
    171,787Payments under senior debt facilities
    
    
    (186,354
    )
    
    
    (174,818
    )Proceeds of term loan with financial institutions, net
    
    
    8,155
    
    
    
    5,900Payments of deferred financing costs
    
    
    (990
    )
    
    
    (2,896
    )Payments on term loan with financial institution
    
    
    (581
    )
    
    
    Payments on capital leases
    
    
    (545
    )
    
    
    (24,623
    )Partial exercise of LJH Warrant
    
    
    71
    
    
    
    Proceeds of term loan with related party
    
    
    
    
    
    
    6,162Net cash used in financing activities
    
    
    (2,308
    )
    
    
    (18,488
    )Net cash provided by discontinued operations
    
    
    99
    
    
    
    720Net decrease in cash and cash equivalents
    
    
    (18
    )
    
    
    (1,346
    )Cash and cash equivalents, beginning of period
    
    
    293
    
    
    
    1,603Cash and cash equivalents, end of period
    
    $
    275
    
    
    $
    257SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    (2,126
    )
    
    $
    (2,422
    )Income taxes refunded
    
    $
    368
    
    
    $
    
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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
 For the SixMonths EndedJune 30,2005
    
    2004SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:Common stock issued in connection with
conversion of New Senior Notes
    
    $
    54,363
    
    
    $
    Common stock issued in connection with
conversion of Junior Notes
    
    $
    2,642
    
    
    $
    Available for sale investment equity change
    
    $
    (286
    )
    
    $
    Acquisition of property through capital lease
    
    $
    
    
    
    $
    2,224
  9




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TIMCO AVIATION SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     DESCRIPTION OF BUSINESS
      10




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BASIS OF PRESENTATION
 
 LIQUIDITY
    11




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June 30,
    
    December 31,2005
    
    2004Finished goods
    
    $
    15,446
    
    
    $
    14,274Work in progress
    
    
    9,430
    
    
    
    6,455Raw materials
    
    
    2,028
    
    
    
    1,515$
    26,904
    
    
    $
    22,244
   June 30,
    
    December 31,2005
    
    2004Original basis
    
    $
    8,437
    
    
    $
    7,447Accumulated amortization
    
    
    (4,847
    )
    
    
    (4,184
    )$
    3,590
    
    
    $
    3,263
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    1,324
    
    
    $
    (248
    )
    
    $
    2,530
    
    
    $
    (130
    )Unrealized loss on
marketable securities, net of tax
    
    
    (286
    )
    
    
    
    
    
    
    (286
    )
    
    
    Comprehensive income (loss), net of tax
    
    $
    1,038
    
    
    $
    (248
    )
    
    $
    2,244
    
    
    $
    (130
    )
   12




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10-K
      13




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14




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OFFERING AND CONSENT SOLICITATION
















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(1)
    
    
    Adjustments
    
    
    (2)UponActual
    
    
    Maturity
    
    
    Pro Forma(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revolving loan
    
    $
    3,274
    
    
    $
    
    
    
    $
    3,274Notes payable to financial
institutions
    
    
    21,724
    
    
    
    
    
    
    
    21,724Capital lease obligation
    
    
    4,375
    
    
    
    
    
    
    
    4,375Related party term loan
    
    
    16,587
    
    
    
    
    
    
    
    16,587Old senior subordinated notes
due 2008
    
    
    16,247
    
    
    
    
    
    
    
    16,247New senior subordinated
convertible PIK notes due 2006
    
    
    61,437
    
    
    
    (61,437
    )(A)
    
    
    Junior subordinated
convertible PIK notes due 2007
    
    
    942
    
    
    
    (942
    )(A)
    
    
    Total debt
    
    $
    124,586
    
    
    $
    (62,379
    )
    
    $
    62,207Stockholders (deficit) equity:Preferred stock, $0.01 par
value, 1,000 shares
authorized, none outstanding,
15 shares designated series A
junior participating
    
    $
    
    
    
    $
    
    
    
    $
    Common Stock, $0.001 par
value, 500,000 shares
authorized, 256,559 shares
issued and outstanding on June
30, 2005, 464,707 shares
issued and outstanding on June
30, 2005 on a proforma basis
    
    
    257
    
    
    
    208
    (B)
    
    
    465Additional paid in capital
    
    
    239,099
    
    
    
    62,233
    (B)
    
    
    301,332Accumulated other
comprehensive loss
    
    
    (286
    )
    
    
    
    
    
    
    (286
    )Accumulated deficit
    
    
    (274,442
    )
    
    
    
    
    
    
    (274,442
    )Total stockholders (deficit)
equity
    
    $
    (35,372
    )
    
    $
    62,441
    
    
    $
    27,069Total capitalization
    
    $
    89,214
    
    
    $
    62
    
    
    $
    89,276
 
 (A)
    
    Represents the conversion of the outstanding New Senior Notes and Junior
Notes into shares of common stock at their maturity.(B)
    
    Reflects: (i) the issuance of 145,703 shares to the holders of the
untendered New Senior Notes and Junior Notes upon the maturity of such Notes;
and (ii) the issuance of 62,445 shares to the Companys principal stockholder
upon the complete exercise of the LJH Warrant. Upon the maturity of the New
Senior Notes and Junior Notes, and upon the complete exercise of the remaining
portion of the LJH Warrant in early 2007, the Company will have 464,707 shares
of common stock outstanding. 16




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8% SENIOR SUBORDINATED PIK NOTES DUE 2006
     8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
   8% JUNIOR SUBORDINATED PIK NOTES DUE 2007
  17




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ENVIRONMENTAL MATTERS
    LEASE COMMITMENTS WITH RELATED PARTIES
  18




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LITIGATION AND CLAIMS
  OTHER MATTERS
       19




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For the Three
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average common and common
equivalent shares outstanding:Basic
    
    
    256,559,172
    
    
    
    31,640,994
    
    
    
    158,390,464
    
    
    
    31,640,994Effect of dilutive securities
Convertible debt
    
    
    145,702,888
    
    
    
    
    
    
    
    145,702,888
    
    
    
    Stock warrants and options
    
    
    62,041,613
    
    
    
    
    
    
    
    62,067,339
    
    
    
    Diluted
    
    
    464,303,673
    
    
    
    31,640,994
    
    
    
    366,160,691
    
    
    
    31,640,994Common stock equivalents outstanding
which are not included in the
calculation of diluted earnings
per share because their impact
is antidilutive
    
    
    15,533,006
    
    
    
    308,514,906
    
    
    
    15,533,006
    
    
    
    308,501,700
  20




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For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
(loss)  as reported
    
    $
    1,324
    
    
    $
    (248
    )
    
    $
    2,530
    
    
    $
    (130
    )Additional expense
    
    
    (19
    )
    
    
    (26
    )
    
    
    (39
    )
    
    
    (208
    )Net income (loss)  pro forma
    
    $
    1,305
    
    
    $
    (274
    )
    
    $
    2,491
    
    
    $
    (338
    )Net income (loss) per share, basic  as reported
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    Net income (loss) per share, diluted  as reported
    
    
    
    
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    Net income (loss) per share, basic  pro forma
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.01
    )Net income (loss) per share, diluted  pro forma
    
    
    
    
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    The Company intends to grant rights to stockholders, as of a record date to be determined
(the record date), to purchase additional shares of the Companys post-reverse split
common stock for a subscription price of $4.80 per share ($0.12 per pre-reverse split
share). For every 40 pre-reverse split shares (one post-reverse split share) of common
stock held on the record date, stockholders will be granted 1.25 subscription rights. If,
for example, a stockholder owned 400 shares of pre-reverse split common stock on the record
date, the stockholder would own 10 post-reverse split shares after the reverse split (see
below) and would have the right to purchase an additional 12.5 post-reverse split shares of
the Companys common stock for $4.80 per share.
    
    The Company intends to allow its principal stockholder to use
amounts due to him under the LJH Term Loan (including interest previously paid in kind and accrued but unpaid cash and
PIK interest to the closing date of the rights offering) as consideration (on a
dollar-for-dollar basis) to exercise rights that he will receive to purchase shares of
common stock in the rights offering. The Companys principal stockholder has agreed to use
the balance of the LJH Term Loan to the full extent of amounts due as of the
closing date of the rights offering.Based on his current ownership, the Companys principal stockholder will have the
right to purchase 4,561 post-reverse split shares in the rights offering for a total
purchase price of $21,891. The related party term loan had a balance due
(including interest previously paid in kind and accrued but unpaid cash and PIK interest) as
of July 31, 2005 of $18,067. As such, if the rights offering had
closed on July 31,
2005, the Company would have issued to its principal stockholder 3,764 post-reverse split shares
of common stock based on his use of the LJH Term Loan to pay the purchase
price for such shares. Further, the Companys principal stockholder would have the right at
that date, but not the obligation, to purchase up to an additional 797 shares of common
stock in the rights offering for an aggregate cash purchase price of $3,824.
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If the Companys principal stockholder is the only participant in the rights offering and if the level of his participation is only to the
extent of using the LJH Term Loan as full payment to purchase shares, and no other stockholders exercise their right to purchase shares in the rights offering, the Companys principal stockholder will own 72.8% of the Companys outstanding common stock (58.3% on a fully
diluted basis after maturity of the New Senior Notes and Junior Notes and final exercise of the LJH Warrant).
    
    Prior to the rights offering record date, the Company intends to give
the holders of its New Senior Notes and its Junior Notes the opportunity to
convert their New Senior Notes and Junior Notes into the number of shares of common stock that the New Senior Notes and Junior
Notes will convert into at their maturity. Holders of New Senior Notes and Junior Notes who agree to an early conversion of their notes on
these terms will be permitted to participate in the rights offering
on the same terms as other stockholders. The outstanding New Senior Notes and Junior Notes will automatically convert at their maturity (December 31, 2006 and January 2, 2007,
respectively) into a fixed number of shares of the Companys authorized but unissued common stock unless such notes are redeemed prior to their
maturity. Upon the maturity of the outstanding New Senior Notes and Junior Notes, the Company will issue an aggregate of 145,703 pre-reverse
split shares (3,643 post-reverse split shares) of its authorized but unissued common stock.
    
    If holders of the New Senior Notes and Junior Notes agree to an early conversion of their notes, the Companys principal stockholder will be
given the opportunity, at the time of the early conversion of the New Senior Notes and the Junior Notes, to exercise the LJH Warrant and to
thereafter purchase, for cash, additional shares in the rights offering based on the shares that he acquires on the exercise of the LJH
Warrant. If less than all holders of the New Senior Notes and Junior Notes elect to convert their notes into common stock, the Company will
allow its principal stockholder to exercise the LJH Warrant in part and will issue a replacement warrant to him for the shares that he may
purchase on maturity of the untendered New Senior Notes and Junior Notes (such that the principal stockholder will receive upon the full
exercise of the LJH Warrant such number of shares of common stock that he would have otherwise received had the New Senior Notes and the Junior
Notes automatically converted into common stock at their maturity and had the Companys principal stockholder exercised the LJH Warrant
immediately thereafter).
    
    The Company plans to effect, simultaneously with the closing
of the rights offering, a reverse split of its common stock on a one-new-share-for-40-old-shares
basis. In conjunction with the reverse split, the Company plans to amend its certificate of incorporation to
reduce its authorized common stock, $0.001 par value, from 500,000 to 100,000 shares.
  22




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   GENERAL
 www.timco.aero.
    23




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RESULTS OF OPERATIONS
 General
   
    
    the timing of repair orders and payments from large customers,
    
    the state of the economy generally, the state of the airline industry generally, and the financial condition of our airline customers
specifically,
    
    competition from other third-party MRO service providers,
    
    the number of airline customers seeking repair services at any time,
    
    the impact of fixed pricing on gross margins and our ability to accurately project our costs in a dynamic environment,
    
    our ability to fully utilize our hangar space dedicated to maintenance and repair services,
    
    the impact during future periods on airline use of out-of-production aircraft (such as 727, DC 8, DC 9 and DC 10) and JT8D engines as a result
of increased fuel costs and other factors,
    
    our ability to retain the services of our executive officers
    
    our ability to attract and retain a sufficient number of mechanics to perform the maintenance, repair and overhaul services requested by our
customers, and
    
    the timeliness of customer aircraft arriving for scheduled maintenance.
  Three and Six Months Ended June 30, 2005 and 2004
    24




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25




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MARKET OUTLOOK
  26




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LIQUIDITY AND CAPITAL RESOURCES
 Developments Concerning the Aviation Industry and Our Operations
    27




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Contractual Payment Obligation and Other Commercial Commitments
  Contractual
    
    
    
    
    
    Less than
    
    Payments due by periodObligations
    
    Total
    
    One Year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsRevolving
Credit
Facility
    
    $
    3,274
    
    
    $
    3,274
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term
Debt
    
    
    116,893
    
    
    
    1,241
    
    
    
    115,652
    *
    
    
    
    
    
    
    Capital
Leases
    
    
    4,375
    
    
    
    1,106
    
    
    
    285
    
    
    
    336
    
    
    
    2,648Operating
Leases
    
    
    25,752
    
    
    
    4,323
    
    
    
    8,445
    
    
    
    4,790
    
    
    
    8,194Total
contractual
cash
obligations
    
    $
    150,294
    
    
    $
    9,944
    
    
    $
    124,382
    
    
    $
    5,126
    
    
    $
    10,842
 OtherCommercial
    
    
    
    
    
    Less than
    
    Payments due by periodCommitments
    
    Total
    
    One Year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsLetters of
Credit +
    
    
    11,434
    
    
    
    11,434
    
    
    
    
    
    
    
    
    
    
    
    Total Other
Commercial
Commitments
    
    $
    11,434
    
    
    $
    11,434
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 *
    
    Included within this amount is $61,437 of our New Senior Subordinated Notes and $942 of our Junior Subordinated Notes. If not redeemed or repurchased by
the Company prior to the maturity dates of these obligations, these notes automatically convert to 143,392 and 2,311 shares, respectively, of our
authorized but unissued common stock.+
    
    Outstanding letters of credit primarily relate to security for our obligation to make payments on an operating lease requiring future aggregate payments
of approximately $8,200. This amount is removed from the operating lease and total contractual cash obligations line because it is included within the
letters of credit.  Liquidity
  28




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
    
    our vulnerability to adverse general economic and industry conditions;
    
    our ability to obtain additional financing for future working capital expenditures, general corporate or other purposes,
particularly where our current lenders have a lien on all of our assets;
    
    the requirement that we obtain the consent from our lenders if we wish to borrow additional amounts; and
    
    the dedication of a significant portion of our cash flow from operations to the payment of principal and interest on
indebtedness, thereby reducing the funds available for operations.
   29




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Source and Use of Cash
  Senior Credit Facilities
  Subordinated Notes
     30




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(1)
    
    Adjustments
    
    
    
    
    
    (2)UponActual
    
    Maturity
    
    
    
    
    
    Pro Forma(Unaudited)
    
    (Unaudited)
    
    
    
    
    
    (Unaudited)Revolving loan
    
    $
    3,274
    
    
    $
    
    
    
    
    
    
    
    $
    3,274Notes payable to financial institutions
    
    
    21,724
    
    
    
    
    
    
    
    
    
    
    
    21,724Capital lease obligation
    
    
    4,375
    
    
    
    
    
    
    
    
    
    
    
    4,375Related party term loan
    
    
    16,587
    
    
    
    
    
    
    
    
    
    
    
    16,587Old senior subordinated notes due 2008
    
    
    16,247
    
    
    
    
    
    
    
    
    
    
    
    16,247New senior subordinated convertible PIK notes
due 2006
    
    
    61,437
    
    
    
    (61,437
    )
    (A)
    
    
    
    
    
    Junior subordinated convertible PIK notes due
2007
    
    
    942
    
    
    
    (942
    )
    (A)
    
    
    
    
    
    Total debt
    
    $
    124,586
    
    
    $
    (62,379
    )
    
    
    
    
    
    
    62,207Stockholders (deficit) equity:Preferred stock, $0.01 par value, 1,000 shares
authorized, none outstanding, 15 shares
designated series A junior participating
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    Common Stock, $0.001 par value, 500,000 shares
authorized, 256,559 shares issued and
outstanding on June 30, 2005, 464,707 shares
issued and outstanding on June 30, 2005 on a
proforma basis
    
    
    257
    
    
    
    208
    
    (B)
    
    
    
    
    
    465Additional paid in capital
    
    
    239,099
    
    
    
    62,233
    
    (B)
    
    
    
    
    
    301,332Accumulated other comprehensive loss
    
    
    (286
    )
    
    
    
    
    
    
    
    
    
    
    (286
    )Accumulated deficit
    
    
    (274,442
    )
    
    
    
    
    
    
    
    
    
    
    (274,442
    )Total stockholders (deficit) equity
    
    $
    (35,372
    )
    
    $
    62,441
    
    
    
    
    
    
    $
    27,069Total capitalization
    
    $
    89,214
    
    
    $
    62
    
    
    
    
    
    
    $
    89,276
 
 (A)
    
    Represents the conversion of the outstanding New Senior Notes and Junior Notes into shares of common stock at their maturity.(B)
    
    Reflects: (i) the issuance of 145,703 shares to the holders of the untendered New Senior Notes and Junior Notes upon the maturity of such
Notes; and (ii) the issuance of 62,445 shares to our principal stockholder upon the complete exercise of the LJH Warrant.
Upon the maturity of the New Senior Notes and Junior Notes, and upon the complete exercise of the remaining portion of the LJH
Warrant in early 2007, we will have 464,707 shares of common stock outstanding. 31




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CONTINGENCIES
  CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
   32




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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   
 ITEM 4: CONTROLS AND PROCEDURES
 (a)
    
    Our Chief Executive Officer (who is also our acting Chief Financial Officer) evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on that evaluation, this officer has concluded that as of June
30, 2005 our disclosure controls and procedures were effective in timely alerting him to material information relating to our company (including our consolidated
subsidiaries) required to be included in our reports filed or submitted by us under the Exchange Act.As of June 30, 2005, we have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer
(who is also our acting principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on such
evaluation, our principal executive officer concluded that the Companys disclosure controls and procedures are effective.(b)
    
    There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date of
their evaluation in connection with the preparation of this quarterly report on Form 10-Q.
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. CHANGES IN SECURITIES
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K
  10.1
    
    Amended and Restated Common Stock Purchase Warrant dated as
of March 15, 2005 in favor of LJH, Ltd.31.1
    
    Certification of CEO and CFO under Section 302 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002
   
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SIGNATURES
  TIMCO Aviation Services, Inc.By:
    
    /s/ Roy T. Rimmer, Jr.Chief Executive Officer(Principal Executive and
Financial Officer)
  35




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ExhibitNumber
    
    Description10.1
    
    Amended and Restated Common Stock Purchase Warrant dated as
of March 15, 2005 in favor of LJH, Ltd.31.1
    
    Certification of CEO and CFO under Section 302 the Sarbanes-Oxley Act of 200232.2
    
    Certification of CEO and CFO under Section 906 the Sarbanes-Oxley Act of 2002
 36