**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





**FORM
10-Q**





ý
    Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934.


For the
quarterly period ended March 31, 2005.








 ̈
    Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934.


For the
transition period from _______ to _______.





Commission
file number: 000-24293





**LMI
AEROSPACE, INC.**


(Exact
name of registrant as specified in its charter)





**Missouri**
      (State
      or other jurisdiction of
      incorporation
      or organization)
    **43-1309065**
      (I.R.S.
      Employer
      Identification
      No.)**3600
      Mueller Road**
      **St.
      Charles, Missouri**
      (Address
      of principal executive offices)
    **63301**
      (Zip
      Code)





**(636)
946-6525**


(Registrant’s
telephone number, including area code)





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 whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).


Yes  No
_ X _





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Title
      of class of common stock
    Number
      of shares outstanding as of May 9, 2005.Common
      Stock, par value $.02 per share
    8,239,265








1





**LMI
AEROSPACE, INC.**





**QUARTERLY
REPORT ON FORM 10-Q**


**FOR
THE FISCAL QUARTER ENDING MARCH 31, 2005**





PART
      I. FINANCIAL INFORMATIONPage
      No.**Item
      1.**
    **Financial
      Statements (unaudited).**Condensed Consolidated Balance Sheets as of
      March 31, 2005 and December 31, 2004.
    3Condensed Consolidated Statements of Operations
      for the three months ended March 31, 2005 and 2004.
    4Condensed Consolidated Statements of Cash Flows
      for the three months ended March 31, 2005 and 2004.
    5Notes to Condensed Consolidated Financial
      Statements.
    6**Item 2.**
    **Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.**
    13**Item 3.**
    **Quantitative and Qualitative Disclosures About Market
      Risk.**
    19**Item 4.**
    **Controls and Procedures.**
    19PART
      II.  OTHER INFORMATION**Item 1.**
    **Legal Proceedings.**
    21**Item 6.**
    **Exhibits.**
    21SIGNATURE PAGE
    22EXHIBIT INDEX
    23








2








**LMI
Aerospace, Inc.**


**Condensed Consolidated Balance
Sheets**


*(Amounts
in thousands, except share and per share data)*


*(Unaudited)*





March
      31, 2005
    
    
    December
      31, 2004AssetsCurrent
      assets:Cash
      and cash equivalents
    
    $
    22
    
    $
    414Trade
      accounts receivable, net of allowance of $192 at March31,
      2005 and $213 at December 31, 2004
    
    
    11,199
    
    
    9,093Inventories
    
    
    23,659
    
    
    23,687Prepaid
      expenses and other current assets
    
    
    1,074
    
    
    981Deferred
      income taxes
    
    
    2,043
    
    
    2,043Total
      current assets
    
    
    37,997
    
    
    36,218Property,
      plant and equipment, net
    
    
    18,267
    
    
    18,947Goodwill
    
    
    5,653
    
    
    5,653Customer
      intangible assets, net
    
    
    3,332
    
    
    3,408Other
      assets
    
    
    1,015
    
    
    1,155Total
      assets
    
    $
    66,264
    
    $
    65,381Liabilities
      and stockholders’ equityCurrent
      liabilities:Accounts
      payable
    
    $
    5,251
    
    $
    5,857Accrued
      expenses
    
    
    3,147
    
    
    2,795Current
      installments of long-term debt and capital leaseobligations
    
    
    1,863
    
    
    1,973Total
      current liabilities
    
    
    10,261
    
    
    10,625Long-term
      debt and capital lease obligations, less currentinstallments
    
    
    17,979
    
    
    17,583Subordinated
      debt
    
    
    1,000
    
    
    1,000Deferred
      income taxes
    
    
    1,821
    
    
    1,821Total
      long-term liabilities
    
    
    20,800
    
    
    20,404Stockholders’
      equity:Common
      stock, $.02 par value per share; authorized28,000,000
      shares; issued 8,736,427 shares in bothperiods
    
    
    175
    
    
    175Preferred
      stock, $.02 par value per share; authorized 2,000,000shares;
      none issued in both periods
    
    
    -
    
    
    -Additional
      paid-in capital
    
    
    26,171
    
    
    26,171Treasury
      stock, at cost, 497,162 shares at March 31, 2005 and499,712
      shares at December 31, 2004
    
    
    (2,361
    )
    
    (2,371
    )Retained
      earnings
    
    
    11,218
    
    
    10,377Total
      stockholders’ equity
    
    
    35,203
    
    
    34,352Total
      liabilities and stockholders’ equity
    
    $
    66,264
    
    $
    65,381


*See
accompanying notes.*





3





**LMI
Aerospace, Inc.**


**Condensed Consolidated Statements of
Operations**


*(Amounts
in thousands, except per share and per share data)*


*(Unaudited)*


Three
      Months Ended
      March
      31,2005
    
    
    2004Net
      sales
    
    $
    23,973
    
    $
    18,540Cost
      of sales
    
    
    18,752
    
    
    15,869Gross
      profit
    
    
    5,221
    
    
    2,671Selling,
      general and administrative expenses
    
    
    3,453
    
    
    3,216Restructuring
      charges
    
    
    -
    
    
    529Income
      (loss) from operations
    
    
    1,768
    
    
    (1,074
    )Other
      income (expense):Interest
      expense
    
    
    (420
    )
    
    (445
    )Other,
      net
    
    
    3
    
    
    -Income
      (loss) before income taxes
    
    
    1,351
    
    
    (1,519
    )Provision
      for income taxes
    
    
    507
    
    
    -Net
      income (loss)
    
    $
    844
    
    $
    (1,519
    )Amounts
      per common share:Net
      income (loss) per common share
    
    $
    0.10
    
    $
    (0.19
    )Net
      income (loss) per common share assumingdilution
    
    $
    0.10
    
    $
    -Weighted
      average common shares outstanding
    
    
    8,237,772
    
    
    8,181,786Weighted
      average diluted stock optionsoutstanding
    
    
    117,972
    
    
    -*See
      accompanying notes.*








4





**LMI
Aerospace, Inc.**


**Condensed Consolidated Statements of Cash
Flows**


*(Amounts
in thousands)*


*(Unaudited)*








Three
      Months Ended
      March
      31,2005
    
    
    2004Operating
      activities:Net
      income (loss)
    
    $
    844
    
    $
    (1,519
    )Adjustments
      to reconcile net income (loss) tonet
      cash provided by operating activities:Depreciation
      and amortization
    
    
    1,150
    
    
    1,163Changes
      in operating assets and liabilities:Trade
      accounts receivable
    
    
    (2,106
    )
    
    (482
    )Inventories
    
    
    28
    
    
    23Prepaid
      expenses and other assets
    
    
    (107
    )
    
    (140
    )Income
      taxes
    
    
    418
    
    
    7Accounts
      payable
    
    
    (606
    )
    
    874Accrued
      expenses
    
    
    (69
    )
    
    (49
    )Net
      cash used by operating activities
    
    
    (448
    )
    
    (123
    )Investing
      activities:Additions
      to property, plant and equipment
    
    
    (241
    )
    
    (290
    )Proceeds
      from sale of equipment
    
    
    4
    
    
    -Net
      cash used by investing activities
    
    
    (237
    )
    
    (290
    )Financing
      activities:Net
      borrowings on revolving line of credit
    
    
    841
    
    
    1,357Principal
      payments on long-term debt
    
    
    (555
    )
    
    (1,084
    )Proceeds
      from exercise of stock options
    
    
    7
    
    
    -Net
      cash provided by financing activities
    
    
    293
    
    
    273Effect
      of exchange rate changes on cash
    
    
    -
    
    
    (3
    )Net decrease
      in cash and cash equivalents
    
    
    (392
    )
    
    (143
    )Cash
      and cash equivalents, beginning of year
    
    
    414
    
    
    441Cash
      and cash equivalents, end of quarter
    
    $
    22
    
    $
    298





Supplemental
      disclosures of cash flow information:Interest
      paid
    
    $
    430
    
    $
    447Income
      taxes paid (refunded), net
    
    $
    88
    
    $
    (11
    )








*See
accompanying notes.*













5
 ****


**LMI
Aerospace, Inc.**
 **Notes to Condensed Consolidated Financial
Statements**
 *(Dollar
amounts in thousands, except share and per share data)*
 *(Unaudited)*
 March 31,
2005




**1.** **** **Accounting
Policies**





**Description
of Business**





LMI
Aerospace, Inc. (the “Company”) fabricates, machines and integrates formed,
close tolerance aluminum and specialty alloy components for use by the aerospace
and technology industries. The Company is a Missouri corporation with
headquarters in St. Charles, Missouri. The Company maintains facilities in
St. Charles, Missouri; Seattle, Washington; Tulsa, Oklahoma; Wichita,
Kansas; Irving, Texas; Sun Valley and Vista, California, and Savannah, Georgia.





**Basis
of Presentation**





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair representation have been included. Operating
results for the three months ending March 31, 2005 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005. These financial statements should be read in conjunction with the
condensed consolidated financial statements and accompanying footnotes included
in the Company’s Annual Report on Forms 10-K and 10-K/A for the year ended
December 31, 2004, as filed with the Securities and Exchange
Commission.




**Customer
Concentration**
 
 Direct
sales to the Company’s largest customer accounted for 43.6% and 21.7% of the
Company’s total revenues at March 31, 2005 and March 31, 2004,
respectively.
 
 Direct
sales to the Company’s second largest customer accounted for 22.9% and 16.1% of
the Company’s total revenues at March 31, 2005 and March 31, 2004,
respectively.
 
 Direct
sales to the Company’s third largest customer accounted for 8.5% and 10.3% of
the Company’s total revenues at March 31, 2005 and March 31, 2004,
respectively.


**Use
of Estimates**





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





6
 **LMI
Aerospace, Inc.**
 **Notes
to Condensed Consolidated Financial Statements**
 *(Dollar
amounts in thousands, except share and per share data)*
 *(Unaudited)*
 March 31,
2005


**Stock-Based
Compensation**
 
 The
Company accounts for its stock-based compensation in accordance with Accounting
Principles Board (“APB”) Opinion No. 25, *Accounting
for Stock Issued to Employees* , and
related interpretations and provides the pro forma disclosures required by
Statements of Financial Accounting Standards (“SFAS”) No. 123 (“SFAS No. 123), *Accounting
for Stock-Based Compensation* , and
SFAS No. 148, *Accounting
for Stock-Based Compensation - Transition and Disclosure* . No
stock-based employee compensation expense is recognized in the statement of
operations, as all options granted had an exercise price equal to the fair value
of the underlying common stock on the date of grant. Had the Company determined
compensation cost based on the fair value of the underlying common stock at the
grant date under SFAS No. 123, net income and earnings per share amounts would
have been as follows:
  Three
      Months Ended
      March
      31,2005
    
    2004Net
      income (loss)
    
    $
    844
    
    $
    (1,519
    )Total
      stock-based employee compensationexpense
      determined under fair valuebased
      method, net of tax effect
    
    $
    (16
    )
    $
    (9
    )Pro
      forma net income (loss)
    
    $
    828
    
    $
    (1,528
    )Net
      income (loss) per common share - basicand
      assuming dilution1As
      reported
    
    $
    0.10
    
    $
    (0.19
    )Pro
      forma
    
    $
    0.10
    
    $
    (0.19
    )


1
    Options
      to purchase 14,000 and 396,043 shares of common stock were outstanding at
      March 31, 2005 and March 31, 2004, respectively, but were not included in
      the computations of diluted EPS because the options’ exercise price was
      greater than the average market price of the common
  shares.





**Income
Taxes**




The
Company accounts for income taxes under the provisions of SFAS No. 109, *Accounting
for Income Taxes* (“SFAS
No. 109”). The objective of accounting for income taxes is to recognize the
amount of taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. SFAS No. 109
also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred tax asset will
not be realized.




7
 **LMI
Aerospace, Inc.**
**Notes
to Condensed Consolidated Financial Statements**
*(Dollar
amounts in thousands, except share and per share data)*
*(Unaudited)*
March 31,
2005


****


**2.********Inventories**

Inventories
consist of the following:
March
      31, 2005
    
    December
      31, 2004Gross
      inventoryRaw
      materials
    
    $
    4,948
    
    $
    4,603Work
      in progress
    
    
    6,875
    
    
    6,931Finished
      goods
    
    
    14,334
    
    
    14,458Total
      gross inventory
    
    
    26,157
    
    
    25,992ReservesLower
      of cost or market
    
    
    (316
    )
    
    (288
    )Obsolescence
      & slow moving
    
    
    (2,182
    )
    
    (2,017
    )Total
      reserves
    
    
    (2,498
    )
    
    (2,305
    )Net
      inventory
    
    $
    23,659
    
    $
    23,687





**3.     Goodwill
and Intangibles**





As
required by SFAS No. 142, *Goodwill
and Other Intangible Assets* (“SFAS
142”), the Company performs an annual goodwill impairment test on a reporting
segment basis. A fair value approach is utilized by management regarding
projected cash flows and other factors to determine the fair value of the
respective assets. If required, an impairment charge is recognized for the
amount by which the carrying amount of goodwill exceeds its fair value.





In the
fourth quarter of 2004, the Company performed the required annual impairment
test under SFAS No. 142 and concluded that the remaining goodwill balance, which
relates to the Machining and Technology segment only, was not further impaired.
The remaining goodwill was $5,653 at March 31, 2005 and December  31,
2004.




**Customer
Related Intangibles**




The
carrying amount of customer related intangibles at March 31, 2005 and December
31, 2004 were as follows:




Gross
      Amount
    
    Accumulated
      Amortization
    
    Useful
      LifeVersaform
    
    $
    3,975
    
    $
    662
    
    
    15
      yearsStretch
      Forming Corp.
    
    
    329
    
    
    310
    
    
    3.5
      yearsMarch
      31, 2005
    
    $
    4,304
    
    $
    972Versaform
    
    $
    3,975
    
    $
    596Stretch
      Forming Corp.
    
    
    329
    
    
    300December
      31, 2004
    
    $
    4,304
    
    $
    896





Customer
related intangibles amortization expense was $76 and $96 for the three months
ended March 31, 2005 and March 31, 2004, respectively.













8
 **LMI
Aerospace, Inc.**
 **Notes
to Condensed Consolidated Financial Statements**
 *(Dollar
amounts in thousands, except share and per share data)*
 *(Unaudited)*
 March 31,
2005





**4.     Long-Term
Debt and Revolving Line of Credit**





Long-term
debt and the revolving line of credit consist of the following:





March
      31, 2005
    
    December
      31, 2004Term
      Loans:Real
      Estate
    
    $
    3,554
    
    $
    3,645Equipment
    
    
    4,425
    
    
    4,720Revolving
      line of credit
    
    
    11,431
    
    
    10,590Note
      payable to director, principal and interest payablemonthly
      at 7%
    
    
    72
    
    
    181Notes
      payable, principal and interest payable monthly,at
      fixed rates, ranging from 6.99% to 8.88%
    
    
    360
    
    
    420Total
      debt
    
    
    19,842
    
    
    19,556Less
      current installments
    
    
    1,863
    
    
    1,973Total
      long-term debt
    
    $
    17,979
    
    $
    17,583Subordinated
      notes payable to certain directors, interestpayable
      monthly at 12%
    
    $
    1,000
    
    $
    1,000





**New
Credit Facility**





On
November 29, 2004 the Company negotiated a new lending agreement with Wells
Fargo Business Credit, Inc. (“Wells Fargo”). The new credit facility with Wells
Fargo provided the following structure:





·
    A
      revolving line of credit (the “Revolver”) of up to $18,000, subject to a
      borrowing base calculation. At March 31, 2005, the Company had $11,431
      outstanding under the Revolver. The borrowing base calculation at March
      31, 2005 allowed the Company to borrow up to $14,502. The Revolver
      requires monthly payments of interest at Wells Fargo’s prime lending rate
      (5.75% at March 31, 2005) and matures on November 15,
  2007.


·
    An
      equipment term loan (the “Equipment Loan”) of $4,720 payable monthly over
      three years in equal monthly principal installments of $98. The equipment
      loan requires monthly interest payments at Wells Fargo’s prime lending
      rate plus 4%. This rate can be reduced to Wells Fargo’s prime lending rate
      plus 0.5% if the Company is able to meet its 2005 covenants and pays a fee
      of $100.


·
    A
      real estate term loan (the “Real Estate Loan”) of $3,645 payable in equal
      monthly principal installments of $30 over three years, using a ten year
      amortization table. The real estate note requires interest at Wells
      Fargo’s prime lending rate plus 4%. This rate can be reduced to Wells
      Fargo’s prime lending rate plus 0.5% if the Company is able to maintain
      sufficient liquidity and reduce the borrowing base calculations by $1,800
      over the first year of the agreement.





Under
each of the Revolver, the Equipment Loan and the Real Estate Loan, the Company
has an option to fix the interest rate for a period not to exceed 90 days. The
new credit facility is secured by all the assets of the Company and requires the
Company to meet certain non-financial and financial covenants, including minimum
levels of net income and net worth and limits on capital expenditures. The new
credit facility expires on November 15, 2007 and includes prepayment penalties
for early termination of the facility.





9
 **LMI
Aerospace, Inc.**
**Notes
to Condensed Consolidated Financial Statements**
*(Dollar
amounts in thousands, except share and per share data)*
*(Unaudited)*
March 31,
2005





In
connection with the new credit facility, the Company issued an aggregate of
$1,000 of subordinated notes to certain of its directors. These subordinated
notes provide for no principal payments and quarterly interest payments at 12%
per annum and mature on December 31, 2007. Prepayments are allowed only if
certain financial transactions or measurements are accomplished.





**5.     Business
Segment Information**





As set
forth in the criteria of SFAS No. 131, *Disclosures
about Segments of an Enterprise and Related Information* , ** the
Company is organized into two reportable segments: the Sheet Metal segment and
the Machining and Technology segment. The Sheet Metal segment fabricates,
finishes and integrates close tolerance aluminum and specialty alloy components
primarily for the aerospace industry. The Machining and Technology segment
machines close tolerance aluminum and specialty alloy components for the
aerospace, semiconductor and medical products industries.





The
accounting policies of the segments are the same as those described in Note 1 of
the Condensed Consolidated Financial Statements included as part of this
Quarterly Report on Form 10-Q. Sales between segments are insignificant.
Corporate assets, liabilities and expenses related to the Company’s corporate
offices are allocated to the segments, except for income taxes. The table below
presents information about reported segments on the basis used internally to
evaluate segment performance:





10
 **LMI
Aerospace, Inc.**
 **Notes
to Condensed Consolidated Financial Statements**
 *(Dollar
amounts in thousands, except share and per share data)*
 *(Unaudited)*
 March 31,
2005











Three
      Months Ended
      March
      31,2005
    
    
    2004Net
      sales:Sheet
      Metal
    
    $
    20,406
    
    $
    14,750Machining
      and Technology
    
    
    3,567
    
    
    3,790$
    23,973
    
    $
    18,540Income
      (loss) from operations:Sheet
      Metal
    
    $
    1,833
    
    $
    (1,478
    )Machining
      and Technology
    
    
    (65
    )
    
    404$
    1,768
    
    $
    (1,074
    )Interest
      expense:Sheet
      Metal
    
    $
    3
    
    $
    112Machining
      and Technology
    
    
    -
    
    
    167Corporate
    
    
    417
    
    
    166$
    420
    
    $
    445Depreciation
      and amortization:Sheet
      Metal
    
    $
    877
    
    $
    884Machining
      and Technology
    
    
    98
    
    
    99Corporate
    
    
    175
    
    
    180$
    1,150
    
    $
    1,163Capital
      expenditures:Sheet
      Metal
    
    $
    228
    
    $
    267Machining
      and Technology
    
    
    3
    
    
    9Corporate
    
    
    10
    
    
    14$
    241
    
    $
    290







March
      31, 2005
    
    December
      31,2004Goodwill:Sheet
      Metal
    
    $
    -
    
    $
    -Machining
      and Technology
    
    
    5,653
    
    
    5,653Corporate
    
    
    -
    
    
    -$
    5,563
    
    $
    5,653Total
      assets:Sheet
      Metal
    
    $
    47,598
    
    $
    45,017Machining
      and Technology
    
    
    14,778
    
    
    15,981Corporate
    
    
    3,888
    
    
    4,383$
    66,264
    
    $
    65,381




11
 **LMI
Aerospace, Inc.**
**Notes
to Condensed Consolidated Financial Statements**
*(Dollar
amounts in thousands, except share and per share data)*
*(Unaudited)*
March 31,
2005




**6.** **Comprehensive
Income (Loss)**





Comprehensive
income (loss) includes adjustments for the change in foreign currency
translations as follows:





Three
      Months Ended
      March
      31,2005
    
    
    2004Net
      income (loss)
    
    $
    844
    
    $
    (1,519
    )Other
      comprehensive income (loss):Foreign
      currency translationadjustments
    
    
    -
    
    
    (3
    )Comprehensive
      income (loss)
    
    $
    844
    
    $
    (1,522
    )








**7.**  **Restructuring
Charges**





Two
separate restructuring efforts have been announced to improve the Company’s
operating performance. On July 23, 2003, the Company announced the details of a
plan to reduce operating expenses and increase efficiencies at its St. Charles,
Missouri facility. This plan reduced the workforce by approximately 60 people,
relocated a significant amount of equipment and allowed the Company to exit a
leased facility. In December 2003, the Company announced a restructuring of its
Wichita, Kansas facility, which included a staged reduction in workforce of
approximately 30 people, movement of work performed in Wichita to other Company
locations and the sale of a building and excess equipment. As of March 31, 2005,
the Company has completed all of the operational segments of the restructuring
efforts. There were no accrued expenses relating to the restructuring at March
31, 2004 or March 31, 2005.





Below is
a summary of the expenses incurred as of three months ended March 31, 2004 and
2005 for these restructuring efforts:




Three
      Months Ended
      March
      31,2005
    
    2004Payroll,
      severance and fringe benefits
    
    $
    -
    
    $
    135Equipment
      relocation and disposal
    
    
    -
    
    
    394Other
    
    
    -
    
    
    -Total
    
    $
    -
    
    $
    529


Below is
a summary of the expenses incurred as of March 31, 2005 for these restructuring
efforts:






Total
      Incurred through
      March
      31, 2005Payroll,
      severance and fringe benefits
    
    $
    1,011Equipment
      relocation and disposal
    
    
    221Other
    
    
    218Total
    
    $
    1,450




12





**Item 2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations.**





The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. The Company makes forward-looking statements in the
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of this Quarterly Report on Form 10-Q, which represent the
Company’s expectations or beliefs about future events and financial performance.
When used in this report, the words “expect,” “believe,” “anticipate,” “goal,”
“plan,” “intend,” “estimate,” “may,” “will” or similar words are intended to
identify forward-looking statements. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions, including
those referred to in the “Risk Factors” section of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2004, as filed with the Securities
and Exchange Commission on March 31, 2005.





In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed may not occur. In addition, actual results could differ materially
from those suggested by the forward-looking statements. Accordingly, investors
are cautioned not to place undue reliance on the forward-looking statements.
Except as required by law, the Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Investors should, however, review
additional disclosures made by the Company from time to time in its periodic
filings with the Securities and Exchange Commission.





This
Quarterly Report on Form 10-Q should be read completely and with the
understanding that the Company’s actual future results may be materially
different from what the Company expects. All forward-looking statements made by
the Company in this Form 10-Q and in the Company’s other filings with the
Securities and Exchange Commission are qualified by these cautionary
statements.





The
condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require the
Company to make estimates and assumptions. (See Note 1 of the Condensed
Consolidated Financial Statements included as part of this Quarterly Report on
Form 10-Q).





The
Company believes that certain significant accounting policies have the potential
to have a more significant impact on the financial statements either because of
the significance of the financial statements to which they relate or because
they involve a higher degree of judgment and complexity. A summary of such
critical accounting policies can be found in the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operation”
contained in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.







13







**OVERVIEW**




The
Company is a leader in fabricating, machining, finishing and integrating formed,
close tolerance aluminum and specialty alloy components and sheet metal products
for use by the aerospace and technology industries. Aerospace components
manufactured by the Company include leading edge wing slats, flaps and lens
assemblies; cockpit window frame assemblies; fuselage skins and supports; and
passenger and cargo door frames and supports. The Company manufactures more than
30,000 aerospace components for integration into a variety of civilian and
military aircraft platforms manufactured by leading original equipment
manufacturers and prime subcontractors. In addition, the Company produces
components and assemblies for laser equipment used by semiconductor and medical
equipment manufacturers in the technology industry. The Company also produces
sheet metal products for various companies in the commercial sheet metal
industry. In addition to manufacturing quality components, the Company provides
its customers with value-added services related to the design, production and
finishing of its components.





Historically,
the Company’s business was primarily dependent on the commercial aircraft
market, with Boeing Company as the Company’s principal customer. In order to
diversify its products and customer base, the Company implemented an acquisition
and marketing strategy in the late 1990’s that has broadened the number of
industries to which the Company sells its components, and, within the aerospace
industry, diversified its customer base to reduce the Company’s dependence on
Boeing Company. The following table specifies the Company’s sales by market as a
percentage of total sales for the three months ended March 31, 2005 as compared
to the three months ended March 31, 2004:




Market
    
    Three
      Months Ended
      March
      31, 2005
    
    Three
      Months Ended
      March
      31, 2004Corporate
      and regional aircraft
    
    
    42.7
    %
    
    26.8
    %Commercial
      aircraft
    
    
    26.2
    
    
    30.0Military
      products
    
    
    18.2
    
    
    23.2Technology
      products
    
    
    3.2
    
    
    12.0Other
      (1)
    
    
    9.7
    
    
    8.0Total
    
    
    100.0
    %
    
    100.0
    %
  (1)
Includes commercial sheet metal and various aerospace
products.





Beginning
in 2001, the Company began an aggressive acquisition campaign that resulted in
the consummation of four transactions through 2002. In April 2001, the Company
acquired Tempco Engineering Inc. and certain of its affiliates (“Tempco”), which
expanded the Company’s aerospace product line and introduced the Company to the
technology industry. In 2002, the Company acquired Versaform Corporation and
certain of its affiliates (“Versaform”), as well as Stretch Forming Corporation
(“SFC”) and Southern Stretch Forming and Fabrication, Inc. (“SSFF”). The
Versaform acquisition significantly increased the Company’s presence in the
corporate and regional aircraft market, while adding some military products to
the Company’s product line. The SFC acquisition further supplemented the
Company’s military product line. Finally, the Company’s acquisition of SSFF
increased the Company’s business in the corporate and regional
market.




As a
result of the development of Tempco’s business, the Company determined that
Tempco should operate and be managed as an autonomous unit, and, accordingly, as
a business segment separate from the Company’s other businesses. The Tempco
business, which sells machined components to both the aerospace and technology
industries, is referred to in this discussion as the Machining and Technology
segment and the Company’s other businesses are referred to as the Sheet Metal
segment.













14





**RESULTS
OF OPERATIONS**





*Three
months ended March 31, 2005 compared to March 31, 2004*





The
following table is a summary of the Company’s operating results for the three
months ended March 31, 2005 and March 31, 2004:





($
      in millions)
    
    Three
      Months Ended
      March
      31, 2005
    
    Three
      Months Ended
      March
      31, 2004Sheet
      Metal
    
    Machining
      & Technology
    
    Total
    
    Sheet
      Metal
    
    Machining
      &
      Technology
    
    TotalNet
      sales
    
    $
    20.4
    
    $
    3.6
    
    $
    24.0
    
    $
    14.7
    
    $
    3.8
    
    $
    18.5Cost
      of sales
    
    
    15.6
    
    
    3.2
    
    
    18.8
    
    
    12.9
    
    
    2.9
    
    
    15.8Gross
      profit
    
    
    4.8
    
    
    0.4
    
    
    5.2
    
    
    1.8
    
    
    0.9
    
    
    2.7S,
      G & A
    
    
    2.9
    
    
    0.5
    
    
    3.4
    
    
    2.8
    
    
    0.5
    
    
    3.3Restructuringexpenses
    
    
    -
    
    
    -
    
    
    -
    
    
    0.5
    
    
    -
    
    
    0.5Income
      (loss) fromoperations
    
    $
    1.9
    
    $
    (0.1
    )
    $
    1.8
    
    $
    (1.5
    )
    $
    0.4
    
    $
    (1.1
    )





**Sheet
Metal Segment**





**Net
Sales.** The
following table specifies the amount of the Sheet Metal segment’s net sales by
category for the first quarter of 2005 and 2004 and the percentage of the
segment’s total net sales for each period represented by each
category.





($ in
millions)


Category
    
    1stQtr
      2005
    
    %
      of
      Total
    
    1stQtr
      2004
    
    %
      of
      TotalCorporate
      and regional
    
    $
    10.2
    
    
    50.2
    %
    $
    5.0
    
    
    33.7
    %Commercial
      aircraft
    
    
    6.3
    
    
    30.8
    
    
    5.6
    
    
    37.8Military
      products
    
    
    2.1
    
    
    10.2
    
    
    3.1
    
    
    21.3Other
    
    
    1.8
    
    
    8.8
    
    
    1.0
    
    
    7.2Total
    
    $
    20.4
    
    
    100.0
    %
    $
    14.7
    
    
    100.0
    %


Net sales
for the first quarter of 2005 were $20.4 million, up 38.8% from $14.7 million in
the first quarter of 2004. This increase was primarily attributable to increases
in corporate, regional and commercial aircraft sales.





Net sales
in the first quarter of 2005 of corporate and regional aircraft were $10.2
million, a 104% increase from $5.0 million in the first quarter of 2004. This
increase was generated primarily from new work statements from both Gulfstream
and Bombardier awarded to the segment during 2004 and increased production rates
at Gulfstream.





Commercial
aircraft net sales were $6.3 million in the first quarter of 2005, an increase
of 12.5% from $5.6 million in the first quarter of 2004. The segment generated
these increased net sales primarily on the Boeing 737, 747 and 777 models which
accounted for $5.7 million of net sales in the first quarter of 2005 compared to
$4.8 million in the first quarter of 2004.





Net sales
of military products declined to $2.1 million in the first quarter of 2005, a
32.3% reduction from $3.1 million in the first quarter of 2004. This decrease
was primarily due to the conclusion of a B52 refurbishment program in the first
quarter of 2004 and the transfer of certain C-130 components to other suppliers
during 2004.






15


****


**Gross
Profit.** Gross
profit for the first quarter of 2005 was $4.8 million (23.5% of net sales)
compared to $1.8 million (12.2% of net sales) in the first quarter of 2004. The
growth in gross profit was attributable to increased labor efficiency as the
segment produced an additional $5.7 million of net sales on an increase in
manufacturing salaries, wages and fringe benefits of $0.2 million. These
efficiencies resulted from an increased focus on lean manufacturing techniques,
the restructuring benefits from downsizing the segment’s St. Charles, Missouri
and Wichita, Kansas facilities and increased orders for components the segment
has historically manufactured.





**Selling,
General and Administrative Expenses.** Selling,
general and administrative expenses for the first quarter of 2005 were $3.0
million (14.7% of net sales) compared to $2.8 million (19.0% of net sales) in
the first quarter of 2004. This increase is primarily attributable to additional
professional service fees.





**Restructuring
Expenses.** During
the second half of 2003, the segment began a restructuring of its St. Charles,
Missouri facility by realigning its production processes, reducing employment
levels and exiting a leased facility. Additionally, early in 2004, the segment
restructured its Wichita, Kansas facility by transferring all forming processes
other than hydraulic fluid forming and related milling operations to other
facilities within the segment, reducing employment levels and preparing to exit
an owned facility that the Company plans to sell in 2005. The segment has
completed the St. Charles restructuring and substantially completed the Wichita
restructuring, with the exception of moving certain equipment and selling a
piece of real estate. During the first quarter of 2004, the segment
spent $0.5 million. The segment expects to incur only modest costs related
to these restructurings in 2005.





**Machining
and Technology Segment**





**Net
Sales.** The
following table specifies the amount of the Machining and Technology segment’s
net sales by category for the first quarter of 2005 and 2004 and the percentage
of the segment’s total net sales for each period represented by each
category:





($ in
millions)


**Category**
    
    1stQtr of
      2005
    
    %
      of
      Total
    
    1stQtr
      of
      2004
    
    %
      of
      TotalMilitary
      products
    
    $
    2.3
    
    
    63.8
    %
    $
    1.2
    
    
    31.6
    %Technology
      products
    
    
    0.8
    
    
    21.7
    
    
    2.2
    
    
    57.9Other
    
    
    0.5
    
    
    14.5
    
    
    0.4
    
    
    10.5Total
    
    $
    3.6
    
    
    100.0
    %
    $
    3.8
    
    
    100.0
    %





Net sales
in the first quarter of 2005 were $3.6 million, down 5.3% from $3.8 million in
the first quarter of 2004. Net sales of technology products in the first quarter
of 2005 were $0.8 million, down 63.6% from $2.2 million in the first quarter of
2004, primarily due to reduced demand for laser product used in the production
of semiconductors. Net sales of military products were $2.3 million during the
first quarter of 2005, an increase of 91.7% from $1.2 million in the first
quarter of 2004, primarily due to shipments for the Apache helicopter program
under both production and spare part orders.





**Gross
Profit.** The
segment generated gross profit of $0.4 million (11.1% of net sales) in the first
quarter of 2005 compared to $0.9 million (23.7% of net sales) in the first
quarter of 2004. This decline is primarily attributable to lower labor
efficiency and the reduction in demand for higher margin technology
products.





**Selling,
General and Administrative Expenses.** Selling,
general, and administrative expenses were $0.5 million (13.9% of net sales in
2005 and 13.2% of net sales in 2004) in the first quarter of 2005, unchanged
from the prior year.







16


****


**Non-segment
Expenses**





**Interest
Expense.** Interest
expense for the first quarter of 2005 was $0.4 million, unchanged from the first
quarter of 2004. In the fourth quarter of 2004, the Company negotiated a lending
agreement with a new lender.





**Income
Tax Expense.** During
the first quarter of 2005, the Company had income tax expense of $0.5 million
compared to $0.0 million in the first quarter of 2004. The Company applied an
effective tax rate of 37.5% to income for the first quarter of 2005. During
2004, the Company did not accrue an income tax benefit for its losses as it had
exhausted its ability to carry back any further tax benefits and the ability to
collect these tax losses was questionable.








17





**LIQUIDITY
AND CAPITAL RESOURCES**





During
the first quarter of 2005, the Company’s operations used $0.4 million of cash.
Operating cash was principally provided by the Company’s net income of $0.8
million plus non-cash depreciation and amortization of $1.2 million but was
offset by an increase in accounts receivable of $2.1 million resulting from
increased sales late in the quarter and a reduction in accounts payable of $0.6
million..





The
Company used $0.2 million of cash for purchases of capital equipment. The
Company expects to invest between $2.0 and $2.5 million in capital equipment
during fiscal 2005.





Net cash
flow provided by financing activities was $0.3 million as the Company’s
revolving line of credit increased by $0.8 million and scheduled debt payments
were $0.5 million.





On
November 29, 2004, the Company negotiated a new lending agreement with Wells
Fargo and issued an aggregate of $1.0 million of subordinated notes to certain
of its directors. The Company believes that this new credit facility provides
adequate flexibility to cover working capital and capital expenditure needs
through the end of its term.











































18








**Item 3.  Quantitative and Qualitative Disclosures About
Market Risk.**




Market
risk represents the risk of loss that may impact the consolidated financial
position, results of operations or cash flows of the Company. The Company is
exposed to market risk primarily due to fluctuations in interest rates. The
Company does not utilize any particular strategy or instruments to manage its
interest rate risk.




The
Company’s outstanding credit facility carries a floating interest rate that now
varies based on changes to the prime lending rate of interest of Wells Fargo.
Accordingly, the Company is subject to potential fluctuations in its debt
service. Based on the amount of the Company’s outstanding debt as of March 31,
2005, a hypothetical 1% change in the interest rate of the Company’s outstanding
credit facility would result in a change in the Company’s annual interest
expense of approximately $0.2 million during the next fiscal year. However,
under each of the Revolver, the Equipment Loan and the Real Estate Loan, the
Company has an option to fix the interest rate for a period not to exceed 90
days, which, while not eliminating interest rate risk, allows the Company to
moderate the impact of changes in Wells Fargo’s prime lending rate.





**Item
4.********Controls
and Procedures.**




As of
March 31, 2005, the Company’s Chief Executive Officer and Chief Financial
Officer carried out an evaluation with the participation of other members of the
Company’s management as they deemed appropriate of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that as of March 31, 2005 the
Company’s disclosure controls and procedures were effective in all material
respects in ensuring that material information required to be disclosed in
periodic reports that the Company files with the Securities and Exchange
Commission is (a) recorded, processed, summarized and reported within the time
period specified in the SEC’s rules and forms and (b) is accumulated and
communicated to the Company’s management, including its officers, as appropriate
to allow timely decisions regarding required disclosure.




This
portion of the Company’s Quarterly Report on Form 10-Q is its disclosure of the
conclusions of its management, including its Chief Executive Officer and Chief
Financial Officer, regarding the effectiveness of its disclosure controls and
procedures as of the end of the period covered by this report, based on
management’s evaluation of those disclosure controls and procedures. You should
read this disclosure in conjunction with the certifications attached as Exhibits
31.1 and 31.2 to this Quarterly Report on Form 10-Q for a more complete
understanding of the topics presented.




In
connection with its 2004 year-end audit, our independent registered public
accounting firm identified certain material weaknesses relating to inventory
valuation at the Company’s Vista, California location. The Company will take
additional steps to address these concerns during 2005, including the
following:




1.
    Convert
      the Vista, California location systems to the Company’s operating and
      financial systems utilized at the corporate location during the second
      quarter of 2005;


2.
    Evaluate
      and document the procedures at the location;
and


3.
    Provide
      more management oversight of the accounting for inventories at the Vista,
      California location.





These
steps will constitute significant changes in internal controls. The Company will
continue to evaluate the effectiveness of its disclosure controls and internal
controls and procedures on an ongoing basis and will take further action as
appropriate.






19




The
Company believes that the interim steps that the Company has taken, including
increased management review of inventory valuation at its Vista facility,
help to ensure that all material information about the Company is accurately
disclosed in this Quarterly Report on Form 10-Q.




Based on
the foregoing, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that as of March 31, 2005 the Company’s disclosure
controls and procedures are effective to ensure that information the Company is
required to disclose in reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
accurately within the time periods specified in Securities and Exchange
Commission rules and forms.




No
significant changes were made in the Company’s internal controls or in other
factors that could significantly affect these controls during the fourth
quarter.







20





**PART
II**





**OTHER
INFORMATION**





**Item 1.  Legal
Proceedings.**





In
February 2004 Versaform Corporation, a wholly-owned subsidiary of the Company,
was served with a grand jury subpoena and learned that the federal government
(i.e., the U.S. Attorney's Office for the Southern District of California,
Department of Defense, Office of Inspector General, Defense Criminal
Investigative Service, and the Federal Bureau of Investigation) was conducting
an investigation relating to structural components of B-52 engine cowlings
Versaform manufactured for Nordam Corporation, components of auxiliary power
units Versaform manufactured for Hamilton Sundstrand, a United Technologies
Company, and certain tools Versaform manufactured for Lockheed Martin
Corporation.





Although
the investigation is ongoing, neither Versaform nor the Company has been served
with notice of any pending, related legal action, and they continue to cooperate
with the government.  Documents responsive to the subpoena have been
produced.





Other
than noted above, the Company is not a party to any legal proceedings, other
than routine claims and lawsuits arising in the ordinary course of its business.
The Company does not believe such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company’s
business.





**Item 6.  Exhibits.**





See
Exhibit Index.








21





**SIGNATURES**




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




LMI
      AEROSPACE, INC.May
      16, 2005
    By:
    /s/
      Ronald S. SaksRonald
      S. SaksPresident
      and Chief Executive OfficerMay
      16, 2005
    By:
    /s/
      Lawrence E. DickinsonLawrence
      E. DickinsonChief
      Financial Officer and Secretary








22





EXHIBIT INDEX











Exhibit
      No.
    Description31.1
    Rule
      13a-14(a) Certification of Ronald S. Saks, President and Chief Executive
      Officer.31.2
    Rule
      13a-14(a) Certification of Lawrence E. Dickinson, Secretary and Chief
      Financial Officer.32
    Certification
      pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of
      Sarbanes-Oxley Act of 2002.











23