**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 September 30, 2007.





 ̈
            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.)**411
                Fountain Lakes Blvd.**
              **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
ý                                No
       ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.





Large
      Accelerated Filer  ̈                                                      Accelerated
      Filer ý                                           Non-Accelerated
      Filer  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes
 ̈                                No
      ý





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





On
      November 1, 2007, there were 11,431,869 shares of our common stock, par value
      $0.02 per share outstanding.








**LMI
      AEROSPACE, INC.**





**QUARTERLY
      REPORT ON FORM 10-Q**


**FOR
      THE FISCAL QUARTER ENDING SEPTEMBER 30, 2007**








PART
      I.  FINANCIAL INFORMATION





Page
                No.**Item
                1.  Financial Statements (unaudited).**Condensed
                Consolidated Balance Sheets as of
                September 30, 2007 and
              December
                31, 2006.
            3Condensed
                Consolidated Statements of Operations
                for the three months and
              nine
                months ended September 30, 2007 and
                2006.
            4Condensed
                Consolidated Statements of Cash
                Flows for the nine months
              ended
                September 30, 2007 and
                2006.
            5Notes
                to Condensed Consolidated Financial
                Statements.
            6**Item
                2.  Management’s Discussion and Analysis of
                Financial Condition and**
              **Results
                of Operations.**
            14**Item
                3.  Quantitative and Qualitative Disclosures
                About Market Risk.**
            21**Item
                4.  Controls and
                Procedures.**
            21







PART
        II.  OTHER INFORMATION




**Item
                1.  Legal
                Proceedings.**
            22**Item
                1A.  Risk
                Factors.**
            22**Item
                2.  Unregistered Sales of Equity
                Securities and Use of Proceeds.**
            22**Item
                3.  Defaults Upon Senior
                Securities.**
            22**Item
                4.  Submission of Matters to a Vote of
                Security Holders.**
            22**Item
                5.  Other
                Information.**
            22**Item
                6.  Exhibits.**
            22SIGNATURE
                PAGE
            23EXHIBIT
                INDEX
            24


2


**PART
      I**





**FINANCIAL
      INFORMATION**





**Item
      1.  Financial Statements
      (unaudited).**




**LMI
      Aerospace, Inc.**


**Condensed
      Consolidated Balance
      Sheets**


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




(Unaudited)September
                30, 2007
            
            
            December
                31, 2006AssetsCurrent
                assets:Cash
                and cash equivalents
            
            $
            355
            
            
            $
            24,411Short-term
                investments
            
            
            -
            
            
            
            2,243Trade
                accounts receivable, net of allowance of $353 at September
              30,
                2007 and $311 at December 31, 2006
            
            
            31,860
            
            
            
            14,658Inventories
            
            
            38,079
            
            
            
            33,956Prepaid
                expenses and other current assets
            
            
            1,786
            
            
            
            1,760Deferred
                income taxes
            
            
            2,865
            
            
            
            2,210Income
                taxes receivable
            
            
            1,206
            
            
            
            232Total
                current assets
            
            
            76,151
            
            
            
            79,470Property,
                plant and equipment, net
            
            
            19,519
            
            
            
            19,514Goodwill
            
            
            48,389
            
            
            
            5,653Customer
                intangible assets, net
            
            
            19,798
            
            
            
            3,425Other
                assets
            
            
            1,428
            
            
            
            548Total
                assets
            
            $
            165,285
            
            
            $
            108,610Liabilities
                and stockholders’ equityCurrent
                liabilities:Accounts
                payable
            
            $
            9,551
            
            
            $
            9,758Accrued
                expenses
            
            
            11,654
            
            
            
            3,916Short-term
                deferred gain on sale of real estate
            
            
            234
            
            
            
            147Current
                installments of long-term debt and capital lease
                obligations
            
            
            677
            
            
            
            238Total
                current liabilities
            
            
            22,116
            
            
            
            14,059Long-term
                deferred gain on sale of real estate
            
            
            3,832
            
            
            
            2,493Long-term
                debt and capital lease obligations, less current
                installments
            
            
            33,015
            
            
            
            583Deferred
                income taxes
            
            
            5,915
            
            
            
            965Total
                long-term liabilities
            
            
            42,762
            
            
            
            4,041Stockholders’
                equity:Common
                stock, $.02 par value per share; authorized 28,000,000
              shares;
                issued 11,819,057 shares and 11,577,631 shares at September
              30,
                2007 and December 31, 2006, respectively
            
            
            236
            
            
            
            232Preferred
                stock, $.02 par value per share; authorized 2,000,000
              shares;
                none issued in both periods
            
            
            -
            
            
            
            -Additional
                paid-in capital
            
            
            66,668
            
            
            
            66,104Treasury
                stock, at cost, 387,188 shares at September 30, 2007 and
              389,732
                share at December 31, 2006
            
            
            (1,837
            )
            
            
            (1,849
            )Retained
                earnings
            
            
            35,340
            
            
            
            26,023Total
                stockholders’ equity
            
            
            100,407
            
            
            
            90,510Total
                liabilities and stockholders’ equity
            
            $
            165,285
            
            
            $
            108,610





*See
      accompanying Notes to Condensed Consolidated Financial
      Statements.*




3




**LMI
      Aerospace, Inc.**


**Condensed
      Consolidated Statements of
      Operations**


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


*(Unaudited)*





Three
                Months Ended
            
            
            Nine
                Months EndedSeptember
                30
            
            
            September
                302007
            
            
            2006
            
            
            2007
            
            
            2006Net
                sales
            
            $
            47,795
            
            
            $
            30,799
            
            
            $
            113,906
            
            
            $
            92,809Cost
                of sales
            
            
            34,494
            
            
            
            22,430
            
            
            
            83,117
            
            
            
            67,271Gross
                profit
            
            
            13,301
            
            
            
            8,369
            
            
            
            30,789
            
            
            
            25,538Selling,
                general and administrative expenses
            
            
            6,396
            
            
            
            4,435
            
            
            
            16,338
            
            
            
            12,807Income
                from operations
            
            
            6,905
            
            
            
            3,934
            
            
            
            14,451
            
            
            
            12,731Other
                income (expense):Interest
                income (expense), net
            
            
            (650
            )
            
            
            134
            
            
            
            (258
            )
            
            
            (216
            )Other,
                net
            
            
            (2
            )
            
            
            (63
            )
            
            
            (25
            )
            
            
            (63
            )Income
                before income taxes
            
            
            6,253
            
            
            
            4,005
            
            
            
            14,168
            
            
            
            12,452Provision
                for income taxes
            
            
            2,068
            
            
            
            1,289
            
            
            
            4,851
            
            
            
            4,470Net
                income
            
            $
            4,185
            
            
            $
            2,716
            
            
            $
            9,317
            
            
            $
            7,982Amounts
                per common share:Net
                income per common share
            
            $
            0.38
            
            
            $
            0.24
            
            
            $
            0.84
            
            
            $
            0.78Net
                income per common share assuming dilution
            
            $
            0.37
            
            
            $
            0.24
            
            
            $
            0.83
            
            
            $
            0.77Weighted
                average common shares outstanding
            
            
            11,157,959
            
            
            
            11,112,599
            
            
            
            11,155,041
            
            
            
            10,266,897Weighted
                average dilutive common shares outstanding
            
            
            11,291,108
            
            
            
            11,234,505
            
            
            
            11,279,643
            
            
            
            10,390,833**








*See
      accompanying Notes to Condensed Consolidated Financial
      Statements.*


4


**LMI
      Aerospace, Inc.**


**Condensed
      Consolidated Statements of Cash
      Flows**


*(Amounts
      in thousands)*


*(Unaudited)*






**Nine
                Months Ended September 30,****2007**
            
            **2006**Operating
                activities:Net
                income
            
            $
            9,317
            
            
            $
            7,982Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            3,081
            
            
            
            2,763Charges
                for bad debt expense
            
            
            195
            
            
            
            39Charges
                for inventory obsolescence and valuation
            
            
            516
            
            
            
            550Restricted
                stock compensation
            
            
            566
            
            
            
            133Changes
                in operating assets and liabilities:Trade
                accounts receivable
            
            
            (8,903
            )
            
            
            1,141Inventories
            
            
            (4,639
            )
            
            
            (7,182
            )Prepaid
                expenses and other assets
            
            
            (743
            )
            
            
            (133
            )Income
                taxes
            
            
            530
            
            
            
            (3,425
            )Accounts
                payable
            
            
            (1,110
            )
            
            
            2,400Accrued
                expenses
            
            
            (787
            )
            
            
            1,218Net
                cash (used) provided by operating activities
            
            
            (1,977
            )
            
            
            5,486Investing
                activities:Additions
                to property, plant and equipment
            
            
            (5,197
            )
            
            
            (4,381
            )Proceeds
                from sale of real estate
            
            
            5,920
            
            
            
            -Proceeds
                from sale of equipment
            
            
            1,681
            
            
            
            -Purchase
                of debt securities
            
            
            -
            
            
            
            (18,192
            )Proceeds
                from matured debt securities
            
            
            2,243
            
            
            
            2,979Acquisition
                of Technical Change Associates
            
            
            -
            
            
            
            (626
            )Acquisition
                of D3 Technologiesm, net of cash acquired
            
            
            (59,082
            )
            
            
            -Other,
              net
            
            
            (210
            )
            
            
            127Net
                cash used by investing activities
            
            
            (54,645
            )
            
            
            (20,093
            )Financing
                activities:Proceeds
                from public offering
            
            
            -
            
            
            
            39,249Proceeds
                from issuance of debt and origination of capital leases
            
            
            39,380
            
            
            
            512Net
                payments on revolving line of credit
            
            
            (6,500
            )
            
            
            (8,898
            )Principal
                payments on long-term debt and notes payable
            
            
            (328
            )
            
            
            (5,401
            )Proceeds
              from exercise of stock options
            
            
            14
            
            
            
            125Net
                cash provided by financing activities
            
            
            32,566
            
            
            
            25,587Net
                (decrease) increase in cash and cash equivalents
            
            
            (24,056
            )
            
            
            10,980Cash
                and cash equivalents, beginning of year
            
            
            24,411
            
            
            
            35Cash
                and cash equivalents, end of quarter
            
            $
            355
            
            
            $
            11,015Supplemental
                disclosures of cash flow information:Interest
                paid
            
            $
            592
            
            
            $
            635Income
                taxes paid (refunded), net
            
            $
            4,224
            
            
            $
            7,895




*See
      accompanying Notes to Condensed Consolidated Financial
      Statements.*


5


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial
      Statements**


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


*(Unaudited)*


September
      30, 2007





**1.  Overview
      and Accounting Policies**





**Description
      of Business**





LMI
      Aerospace, Inc. (the “Company”) is a leading provider of design engineering
      services, structural components, assemblies and kit to the aerospace, defense
      and technology industries. The Company primarily sells products and services
      to
      the large commercial aircraft, military, corporate and regional aircraft and
      technology markets within the aerospace and technology industries. The Company
      is a Missouri corporation with headquarters in St. Charles,
      Missouri.





**Basis
      of Presentation**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America 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 of America 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
      and nine months ending September 30, 2007 are not necessarily indicative of
      the
      results that may be expected for the year ending December 31,
      2007.  These financial statements should be read in conjunction with
      the consolidated financial statements and accompanying footnotes included in
      the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2006, as
      filed with the Securities and Exchange Commission.





**Customer
      Concentration**





Direct
      sales to the Company’s largest customer accounted for 22.8% and 32.5% of the
      Company’s total revenues for the three months ended September 30, 2007 and
      September 30, 2006, respectively. Direct sales to the Company’s largest customer
      accounted for 27.7% and 32.6% of the Company’s total revenues for the nine
      months ended September 30, 2007 and September 30, 2006, respectively. Accounts
      receivable balances related to the largest customer based on direct sales were
      21.0% and 31.9% at September 30, 2007 and December 31, 2006,
      respectively.





Direct
      sales to the Company’s second largest customer accounted for 17.3% and 15.8% of
      the Company’s total revenues for the three months ended September 30, 2007 and
      September 30, 2006, respectively. Direct sales to the Company’s second largest
      customer accounted for 16.3% and 15.4% of the Company’s total revenues for the
      nine months ended September 30, 2007 and September 30, 2006, respectively.
      Accounts receivable balances related to the second largest customer based on
      direct sales were 21.7% and 10.4% at September 30, 2007 and December 31, 2006,
      respectively.





Direct
      sales to the Company’s third largest customer accounted for 15.9% and 12.7% of
      the Company’s total revenues for the three months ended September 30, 2007 and
      September 30, 2006, respectively. Direct sales to the Company’s third largest
      customer accounted for 11.3% and 11.3% of the Company’s total revenues for the
      nine months ended September 30, 2007 and September 30, 2006, respectively.
      Accounts receivable balances related to the third largest customer based on
      direct sales were 13.6% and 10.3% at September 30, 2007 and December 31, 2006,
      respectively.


6


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include cash on hand, amounts due from banks and all highly
      liquid investment instruments with an initial maturity of three months or less,
      excluding those held in our trading accounts.




**Short-term
      Investments**





Short-term
      investments consist of investment instruments with an initial maturity of one
      year or less, including those with an initial maturity of three months or less
      held in our trading accounts.  All securities were classified as
      held-to-maturity and recorded at amortized cost.





**Income
      Taxes**





The
      Company accounts for income taxes under the provisions of Statement of Financial
      Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS No.
      109”). The objectives of accounting for income taxes are 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. On January 1, 2007, the Company adopted FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of
      FASB Statement No. 109” (“FIN 48”), which prescribes a recognition
      threshold and measurement process for recording in the financial statements
      uncertain tax positions taken or expected to be taken in a tax return. In
      addition, FIN 48 provides guidance on the derecognition, classification,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions.





The
      Company had no unrecognized tax benefits as of the January 1, 2007 adoption
      date
      and as of September 30, 2007. The Company expects no significant increases
      or
      decreases in unrecognized tax benefits due to changes in tax positions within
      one year of September 30, 2007. The Company recognizes accrued amounts of
      interest and penalties related to its uncertain tax positions as part of its
      income tax expense within its consolidated statement of operations. The Company
      has no interest or penalties relating to income taxes recognized in the balance
      sheet as of September 30, 2007. At September 30, 2007, returns for the calendar
      years 2002 through 2006 remain subject to examination by U.S. and various state
      tax jurisdictions.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 these estimates.





**2.  Acquisition
      and New Credit Agreement**





On
      July
      31, 2007, the Company acquired all of the outstanding capital stock of D3
      Technologies, Inc. (“D3 Technologies”), a premier design and engineering
      services firm, for $65,000 in cash plus transaction costs.  The
      combined capabilities of LMI and D3 Technologies will substantially improve
      the
      value proposition that we can offer our customers.


7


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





Concurrent
      with the acquisition, the Company entered into a Credit Agreement (the “Credit
      Agreement”). The Credit Agreement provides for a senior secured revolving credit
      facility in an aggregate principal amount of up to $80,000 (the “Facility”).
      Borrowings under the Facility are secured by substantially all of the Company’s
      assets and bear interest at either the “Base Rate” (the higher of the federal
      funds rate plus one-half of one percent or the prime commercial lending rate)
      plus the applicable interest margin ranging from 0.125% to 1.0%, depending
      upon
      the Company’s then total leverage ratio, or the LIBOR rate.  Interest
      accruing under the LIBOR rate option is defined as the LIBOR rate (ranging
      from
      5.34% to 5.58% at September 30, 2007) plus the applicable interest margin
      ranging from 1.125% to 2.0% depending upon the Company’s then total leverage
      ratio.  The maturity date of the Facility, which is subject to
      acceleration upon breach of the financial covenants (consisting of a maximum
      total leverage ratio and a minimum fixed charge coverage ratio) and other
      customary non-financial covenants contained in the Credit Agreement, is July
      31,
      2012.





The
      purchase price for D3 Technologies was funded in part with $38,500 of borrowings
      under the Credit Agreement and the remainder with the Company’s existing
      cash.





The
      following table presents unaudited pro forma consolidated operating results
      for
      the Company for the three and nine months ended September 30, 2007 as if D3
      Technologies had been acquired as of the beginning of the periods
      presented:





Three
                Months Ended September 30
            
            
            Nine
                Months Ended September 302007
            
            
            2006
            
            
            2007
            
            
            2006Net
                sales
            
            $
            52,947
            
            
            $
            45,654
            
            
            $
            156,010
            
            
            $
            140,519Net
                earnings
            
            $
            4,029
            
            
            $
            2,994
            
            
            $
            9,595
            
            
            $
            9,472Basic
                earnings per share
            
            $
            0.36
            
            
            $
            0.27
            
            
            $
            0.86
            
            
            $
            0.92Diluted
                earnings per share
            
            $
            0.36
            
            
            $
            0.27
            
            
            $
            0.85
            
            
            $
            0.91





The
      following table summarizes the preliminary purchase price allocation for D3
      Technologies at the date of acquisition:





Tangible
                assets, exclusive of cash
            
            $
            13,195Intangible
                assets, net of deferred taxes
            
            
            12,056Goodwill
            
            
            42,736Liabilities
                assumed
            
            
            (8,905
            )Cost
                of acquisition, net of cash acquired
            
            $
            59,082





**3.  Inventories**





Inventories
      consist of the following:





**September
                30, 2007**
            
            
            **December
                31, 2006**Raw
                materials
            
            $
            6,049
            
            
            $
            5,583Work
                in progress
            
            
            9,252
            
            
            
            8,556Manufactured
                and purchased components
            
            
            8,095
            
            
            
            7,955Finished
                goods
            
            
            14,683
            
            
            
            11,862Total
                inventories
            
            $
            38,079
            
            
            $
            33,956





8


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





These
      amounts include reserves for obsolete and slow moving inventory of $1,986 and
      $1,932 and a reserve for lower of cost or market of $187 and $255 at September
      30, 2007 and December 31, 2006, respectively.





**4.  Goodwill
      and Intangible Assets**





Goodwill
      balance at September 30, 2007 consists of $42,736 from acquisition of D3
      Technologies in July 2007 and $5,653 from acquisition of Tempco Engineering,
      Inc. in April 2001. See Note 2 above for allocation of purchase price of D3
      Technologies.





As
      required by SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No.
      142”), the Company performs a goodwill impairment test at least annually. 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 2006, the Company performed the required annual impairment
      test under SFAS No. 142 and concluded that the remaining goodwill balance for
      Tempco Engineering, Inc. was not further impaired.





**Intangible
      Assets**




Intangible
      assets resulted from the acquisitions of D3 Technologies, Versaform Corporation
      and Technical Change Associates, Inc. and have an original estimated useful
      life
      of 5 to 15 years.  The carrying value at September 30, 2007 and
      December 31, 2006 were as follows:





September
                30, 2007
            
            
            December
                31, 2006Trademarks
            
            $
            4,222
            
            
            $
            -Customer
                Intangible Assets
            
            
            17,330
            
            
            
            4,694Accumulated
                Amortization
            
            
            (1,754
            )
            
            
            (1,269
            )Intangible
                assets, net
            
            $
            19,798
            
            
            $
            3,425





Customer-related
      intangibles amortization expense was $281 and $103 for the three months ended
      September 30, 2007 and 2006, respectively, and $485 and $306 for the nine months
      ended September 30, 2007 and 2006, respectively.


9


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





**5.  Long-Term
      Debt and Capital Lease Obligations**





Long-term
      debt and capital lease obligations consist of the following:





**September
                30, 2007**
            
            
            **December
                31, 2006**Capital
                Lease Obligations
            
            $
            655
            
            
            $
            -Revolving
                line of credit
            
            
            32,000
            
            
            
            -Notes
                payable, principal and interest payable monthly, at
              fixed
                rates, ranging from 2.78% to 7.20% at September 30,
              2007
                and 6.70% to 7.20% at December 31, 2006
            
            
            1,037
            
            
            
            821Total
                debt
            
            $
            33,692
            
            
            $
            821Less
                current installments
            
            
            677
            
            
            
            238Total
            
            $
            33,015
            
            
            $
            583





In
      connection and concurrently with its acquisition of D3 Technologies on July
      31,
      2007, the Company entered into the Facility replacing its previous credit
      agreement.  See Note 2 above.





The
      Company also entered into various notes payable primarily for the purchase
      of
      certain equipment. The notes are payable in monthly installments including
      interest at fixed annual rates with maturity dates through January 2012. The
      notes payable are secured by the equipment purchased.





**6.  Earnings
      Per Common Share**





Basic
      net
      income per common share is based upon the weighted average number of common
      shares outstanding. Diluted net income per common share is based upon the
      weighted average number of common shares outstanding, including the dilutive
      effect of stock options and restricted stock, using the treasury stock and
      if
      converted methods.  The number of such shares for the quarter ended
      September 30, 2007 and September 30, 2006 subject to stock options and
      restricted stock was 133,149 and 121,906, respectively.  The number of
      such shares for the nine months ended September 30, 2007 and September 30,
      2006
      subject to stock options and restricted stock was 124,602 and 123,936,
      respectively.





**7.  Stock-Based
      Compensation**





On
      July
      7, 2005, the Company’s shareholders approved the LMI Aerospace, Inc. 2005
      Long-term Incentive Plan (the “2005 Plan”). The 2005 Plan replaced the Amended
      and Restated LMI Aerospace, Inc. 1998 Stock Option Plan (the “1998 Plan”) as the
      Company’s only compensation plan under which shares of the Company’s common
      stock are authorized for issuance to employees or directors. The 2005 Plan
      provides for the grant of non-qualified stock options, incentive stock options,
      shares of restricted stock, restricted stock units, stock appreciation rights,
      performance awards and other stock-based awards and cash bonus awards. A total
      of 1,200,000 shares of the Company’s common stock are reserved for issuance in
      connection with awards granted under the 2005 Plan.


10


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
      Payment” (“SFAS No. 123R”), which revises and replaces SFAS No. 123, “Accounting
      for Stock-Based Payments” (“SFAS No. 123”) and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS No. 123R
      requires that compensation expense be recognized for all share-based payments
      based on the grant date fair value. The Company adopted SFAS No. 123R using
      the
      modified prospective method of transition. Accordingly, prior periods have
      not
      been restated. In connection with the adoption of SFAS No. 123R, the Company’s
      pre-tax income from operations for 2006 was not materially different than if
      it
      had continued to account for share-based compensation under APB No. 25, as
      the
      majority of outstanding options was vested at December 31, 2005. The Company
      did
      not grant any options during the three and nine months ended September 30,
      2007
      and 2006, respectively.





A
      summary
      of stock option activity under the Company’s share-based compensation plans for
      the nine months ended September 30, 2007 is presented below:




**Stock
                Options**
            
            **Shares**
            
            
            **Weighted
                Average**
              **Exercise Price**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding
                at January 1, 2007
            
            
            137,234
            
            
            $
            3.24Granted
            
            
            -
            
            
            
            -Exercised
            
            
            (2,544
            )
            
            
            3.50Forfeited
                or expired
            
            
            (400
            )
            
            
            4.75Outstanding
                at September 30, 2007
            
            
            134,290
            
            
            $
            3.23
            
            
            
            3.4
            
            
            $
            2,675




All
      outstanding stock options were exercisable at September 30, 2007. The total
      intrinsic value of options exercised during the nine months ended September
      30,
      2007 and 2006, based upon the market price on exercise date, was approximately
      $9 and $494, respectively.





The
      following table summarizes information about stock options outstanding at
      September 30, 2007:





**Range
                of Exercise**
              **Prices**
            **Number
                of**
              **Outstanding**
              **Options**
            **Weighted
                Average**
              **Remaining**
              **Contractual
                Life**
            **Weighted
                Average**
              **Exercise
                Price**$1.31
                - $1.95
            12,000
            6.75
            $1.31$1.96
                - $2.90
            76,590
            2.99
            2.55$2.91
                - $4.35
            13,500
            3.25
            3.51$4.36
                - $6.06
            32,200
            2.99
            5.46Total
            134,290
            3.36
            $3.23





11


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007







A
      summary
      of the activity for non-vested restricted stock awards as of September 30,
      2007
      and changes during the nine-month period is presented below:




**Restricted
                Stock Awards**
            
            **Shares**
            
            
            **Weighted**
              **Average
                Grant**
              **Date
                Fair Value**Outstanding
                at January 1, 2007
            
            
            37,000
            
            
            $
            12.85Granted
            
            
            241,426
            
            
            
            22.43Vested
            
            
            (4,550
            )
            
            
            14.16Forfeited
            
            
            -
            
            
            
            -Outstanding
                at September 30, 2007
            
            
            273,876
            
            
            $
            21.27




Common
      stock compensation expense related to restricted stock awards granted under
      the
      2005 Plan was $379 and $566 for the three and nine months ended September 30,
      2007, respectively. Common stock compensation expense related to restricted
      stock awards was $54 and $126 for the three and nine months ended September
      30,
      2006, respectively.





At
      September 30, 2007 there was $5,128 of total unrecognized compensation costs
      related to non-vested share-based compensation awards granted under the 2005
      Plan. That cost is expected to be recognized over a weighted average period
      of
      4.0 years. At December 31, 2006, there was $280 of total unrecognized
      compensation costs related to non-vested share-based compensation awards granted
      under the Plan. Those costs are expected to be recognized over a weighted
      average period of 1.6 years.





**8.  Business
      Segment Information**





As
      a
      result of acquiring D3 Technologies and in accordance with the criteria set
      forth in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
      Information,”**the Company is organized into two reportable
      segments: the Aerostructures segment and the Engineering Services
      segment.  The Aerostructures segment fabricates,
      machines, assembles and kits formed, close tolerance aluminum and specialty
      alloy components and sheet metal products for use by the aerospace,
      semiconductor and medical products industries. The Engineering Services
      segment provides engineering solutions to commercial and military aviation,
      aerospace, military weapons systems, marine and industrial markets.





The
      accounting policies of the segments are the same as those described in Note
      1.  Sales between segments are insignificant. Corporate assets,
      liabilities and expenses related to the Company’s corporate offices, except for
      interest expense and income taxes, primarily support the Aerostructures segment.
      The table below presents information about reported segments on the basis used
      internally to evaluate segment performance:





12


**LMI
      Aerospace, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


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


*(Unaudited)*


September
      30, 2007





Three
                Months Ended September 30,
            
            
            Nine
                Months Ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Net
                sales:Aerostructures
            
            $
            35,829
            
            
            $
            30,799
            
            
            $
            101,940
            
            
            $
            92,809Engineering
                Services
            
            
            11,966
            
            
            
            -
            
            
            
            11,966
            
            
            
            -$
            47,795
            
            
            $
            30,799
            
            
            $
            113,906
            
            
            $
            92,809Income
                from operations:Aerostructures
            
            $
            6,009
            
            
            $
            3,934
            
            
            $
            13,555
            
            
            $
            12,731Engineering
                services
            
            
            896
            
            
            
            -
            
            
            
            896
            
            
            
            -$
            6,905
            
            
            $
            3,934
            
            
            $
            14,451
            
            
            $
            12,731Depreciation
                and Amortization:Aerostructures
            
            $
            955
            
            
            $
            976
            
            
            $
            2,713
            
            
            $
            2,763Engineering
                Services
            
            
            368
            
            
            
            -
            
            
            
            368
            
            
            
            -$
            1,323
            
            
            $
            976
            
            
            $
            3,081
            
            
            $
            2,763Interest
                income (expense):Aerostructures
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Engineering
                Services
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Corporate
            
            
            (650
            )
            
            
            134
            
            
            
            (258
            )
            
            
            (216
            )$
            (650
            )
            
            $
            134
            
            
            $
            (258
            )
            
            $
            (216
            )Capital
                expenditures:Aerostructures
            
            $
            1,461
            
            
            $
            2,535
            
            
            $
            5,003
            
            
            $
            4,381Engineering
                Services
            
            
            194
            
            
            
            -
            
            
            
            194
            
            
            
            -$
            1,655
            
            
            $
            2,535
            
            
            $
            5,197
            
            
            $
            4,381





September
                30, 2007
            
            
            December
                31, 2006Goodwill:Aerostructures
            
            $
            5,653
            
            
            $
            5,653Engineering
                Services
            
            
            42,736
            
            
            
            -48,389
            
            
            
            5,653Total
                assets:Aerostructures
            
            $
            90,600
            
            
            $
            108,610Engineering
                Services
            
            
            74,685
            
            
            
            -165,285
            
            
            
            108,610





13


**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, 2006, as filed with the Securities and Exchange Commission
      on
      March 15, 2007.





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 of America, 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
      Operations” contained in the Company’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2006.





**OVERVIEW**





We
        are a
        leading provider of design engineering services, structural components,
        assemblies and kits to the aerospace, defense and technology industries.
        We
        primarily sell our products and services to the large commercial aircraft,
        military, corporate and regional aircraft, and technology markets within
        the
        aerospace and technology industries.  Historically, our business was
        primarily dependent on the large commercial market, with Boeing as our principal
        customer. In order to diversify our product and customer base, we implemented
        an
        acquisition and marketing strategy in the late 1990s that has broadened the
        number of industries to which we sell our products and services and, within
        the
        aerospace industry, diversified our customer base to reduce our dependence
        on
        Boeing.


14





Beginning
      in 2001, we began an aggressive acquisition campaign that resulted in the
      consummation of several acquisitions. We recently acquired all of the capital
      stock of D3 Technologies, a premier design and engineering services firm based
      in San Diego, California, for $65.0 million in cash plus transaction fees (see
      Note 2 of the Condensed Consolidated Financial Statements). We believe that
      the
      combined capabilities of LMI and D3 Technologies will substantially improve
      the
      value proposition that we can offer our customers. As a result of acquiring
      D3
      Technologies and in accordance with the criteria set forth in SFAS No. 131,
      “Disclosures about Segments of an Enterprise and Related
      Information,”**we are now organized into two reportable segments:
      the Aerostructures segment and the Engineering Services segment.  The
      Aerostructures segment fabricates,
      machines, assembles and kits formed, close tolerance aluminum and specialty
      alloy components and sheet metal products for use by the aerospace,
      semiconductor and medical products industries. The Engineering Services
      segment provides engineering solutions to commercial and military aviation,
      aerospace, military weapons systems, marine and industrial markets.








**RESULTS
      OF OPERATIONS**




*Three
      months ended September 30, 2007 compared to three months ended September 30,
      2006*





The
      following table is a summary of our operating results for the three months
      ended
      September 30, 2007 and September 30, 2006, respectively:





Three
                Months Ended
            
            
            Three
                Months EndedSeptember
                30, 2007
            
            
            September
                30, 2006($
                in millions)Aerostructures
            
            
            Engineering
                Services
            
            
            Total
            
            
            Aerostructures
            
            
            Engineering
                Services
            
            
            TotalNet
                sales
            
            $
            35.8
            
            
            $
            12.0
            
            
            $
            47.8
            
            
            $
            30.8
            
            
            $
            
            
            
            $
            30.8Cost
                of sales
            
            
            24.7
            
            
            
            9.8
            
            
            
            34.5
            
            
            
            22.4
            
            
            
            
            
            
            
            22.4Gross
                profit
            
            
            11.1
            
            
            
            2.2
            
            
            
            13.3
            
            
            
            8.4
            
            
            
            -
            
            
            
            8.4S,G
                & A
            
            
            5.1
            
            
            
            1.3
            
            
            
            6.4
            
            
            
            4.5
            
            
            
            
            
            
            
            4.5Income
                from operations
            
            $
            6.0
            
            
            $
            0.9
            
            
            $
            6.9
            
            
            $
            3.9
            
            
            $
            -
            
            
            $
            3.9





**Aerostructures
      Segment**





**Net
      Sales.**  The following table specifies the amount of the
      Aerostructures segment’s net sales by category for the third quarter of 2007 and
      2006 and the percentage of the segment’s total net sales for each period
      represented by each category:






Category
            
            Three
                Months Ended September 30, 2007
            
            
            %
                of
              Total
            
            
            Three
                Months Ended September 30, 2006
            
            
            %
                of
              Total($
                in millions)Corporate
                and Regional Aircraft
            
            $
            12.4
            
            
            
            34.6
            %
            
            $
            11.6
            
            
            
            37.7
            %Large
                Commercial Aircraft
            
            
            11.5
            
            
            
            32.1
            
            
            
            9.5
            
            
            
            30.8Military
            
            
            9.2
            
            
            
            25.7
            
            
            
            7.6
            
            
            
            24.7Technology
            
            
            1.7
            
            
            
            4.7
            
            
            
            1.0
            
            
            
            3.2Other
                (1)
            
            
            1.0
            
            
            
            2.8
            
            
            
            1.1
            
            
            
            3.6Total
            
            $
            35.8
            
            
            
            100.0
            %
            
            $
            30.8
            
            
            
            100.0
            %





(1)  Includes
      various aerospace products and consulting revenue.


15





Net
      sales
      for the third quarter of 2007 were $35.8 million, up 16.2% from $30.8 million
      in
      the third quarter of 2006. The majority of the increase resulted from higher
      net
      sales of products used in each segment we support and included a $1.2 million
      benefit from the settlement of claims. See Part II, Item 1, “Legal Proceedings,”
of this Quarterly Report on Form 10-Q. Excluding this settlement, net sales
      increased 12.3%.





Net
      sales
      of components for corporate and regional aircraft were $12.4 million for the
      quarter ended September 30, 2007, up 6.9% from $11.6 million for the quarter
      ended September 30, 2006.  This increase was primarily attributable to
      increased production rates for components used on aircraft manufactured by
      Gulfstream Aerospace Corporation.





Net
      sales
      of products used in large commercial aircraft were $11.5 million for the third
      quarter of 2007, compared to $9.5 million for the third quarter of 2006, an
      increase of 21.1%. Net sales to this market were driven by higher production
      rates on certain models of Boeing aircraft. In particular, we generated net
      sales for the Boeing 737 of $6.4 million in the third quarter of 2007, up 8.5%
      from $5.9 million in the third quarter of 2006, and net sales for the Boeing
      747
      of $2.2 million in the third quarter of 2007, up 37.5% from $1.6 million in
      the
      third quarter of 2006. In addition, sales for the Boeing 787, which primarily
      began in the first quarter of 2007, generated $0.8 million in the third
      quarter.





Military
      products generated $9.2 million of net sales in the third quarter of 2007,
      compared to $7.6 million in the third quarter of 2006, an increase of
      21.0%.  During the third quarter of 2007, we settled a claim with a
      customer which generated $1.2 million of net sales. Excluding this settlement,
      sales of military products increased $0.4 million or 5.3% in the third quarter
      of 2007 compared to the third quarter of 2006. This increase primarily resulted
      from the $0.4 million increase in net sales for the Boeing Apache helicopter
      platform from $1.1 million in the third quarter of 2006 to $1.5 million in
      the
      third quarter of 2007. Net sales for Blackhawk components remained at $4.0
      million for both the third quarter of 2007 and 2006.





Technology
      products generated $1.7 million of net sales for the third quarter of 2007
      compared to $1.0 million for the third quarter of 2006. This increase was due
      to
      higher net sales of products used in semiconductor equipment.





**Gross
      Profit.**  Gross profit for the third quarter of 2007 was $11.1
      million (31.0% of net sales), compared to $8.4 million (27.3% of net sales)
      for
      the third quarter of 2006. Excluding the one-time benefit of claims settlements
      discussed above, net of costs related to such settlement of $0.2 million, gross
      profit for the third quarter of 2007 was $10.1 million (29.2% of net sales).
      Gross profit was positively impacted by our higher production rates with
      aerospace customers which provided better coverage of fixed costs, but was
      reduced by increased salaries and wages, primarily from investment in our
      materiel organization. Specifically, salary and wages increased 10.8%, from
      $10.0 million for the three months ended September 30, 2006 to $11.1 million
      for
      the three months ended September 30, 2007.





**Selling,
      General and Administrative Expenses.**  Selling, general and
      administrative expenses were $5.1 million (14.5% of net sales) in the quarter
      ended September 30, 2007, up from $4.5 million (14.6% of net sales) in the
      quarter ended September 30, 2006.  This increase resulted from higher
      professional service fees and compensation and fringe benefit costs resulting
      from increased staffing to support our planned growth.





**Engineering
      Services Segment**





**Net
      Sales.**The
      following table specifies the amount of the Engineering Services segment’s net
      sales by category for the two months ending September 30, 2007 and the
      percentage of the segment’s total net sales represented by each category.Net
      sales for the Engineering Services segment were $12.0 million.  This
      segment was created with the acquisition of D3 Technologies on July 31, 2007
      and
      includes revenue for August and September of 2007.






16






Category
            
            Two
                Months Ended September 30, 2007
            
            
            %
                of
              Total($
                in millions)Commercial
                Aircraft
            
            $
            6.3
            
            
            
            52.5
            %Corporate
                Aircraft
            
            
            3.2
            
            
            
            26.7Military
            
            
            1.7
            
            
            
            14.2Tooling
            
            
            0.8
            
            
            
            6.7Total
            
            $
            12.0
            
            
            
            100.0
            %





Approximately
      $11.3 million, or 94.6% of net sales, was generated under reimbursement type
      contracts for engineering services which generate net sales from labor hours
      incurred at varying, pre-negotiated rates and other direct costs plus an
      administrative fee.  Net sales under these reimbursement contracts
      were primarily for commercial, corporate and military markets.  Net
      sales for engineering services for commercial aircraft were $6.3 million, or
      52.5% of net sales, in August and September 2007, primarily from programs
      supporting the Boeing 747, 777 and 787 platforms.  Net sales for
      services supporting corporate aircraft and various military programs were $3.2
      million, or 26.7% of net sales, and $1.7 million, or 14.2% of net sales,
      respectively.





Approximately
      $0.8 million, or 6.7% of net sales, was generated under firm, fixed-price
      contracts, primarily related to design and delivery of tooling on various
      programs supporting commercial aircraft.





**Gross
      Profit.**  Gross profit for the segment was $2.2 million (18.3%
      of net sales).  Costs included in cost of goods sold are primarily
      direct labor, fringe benefits, subcontract labor, direct costs related to
      specific contracts, depreciation and facility costs and are part of the
      negotiated rate structures for reimbursement type contracts.  During
      the months of August and September 2007, the segment encountered overruns on
      certain fixed-priced tooling contracts resulting in a loss of $0.1
      million.





**Selling,
      General and Administrative Expenses.**  Selling, general and
      administrative expenses for the segment were $1.3 million (10.8% of net
      sales).  These costs primarily include salaries, wages and benefits
      costs of approximately $0.7 million, $0.3 million of stock based compensation
      relating to a restricted stock award made on July 31, 2007 and vesting over
      five
      years, and amortization of intangibles of $0.2 million valued in connection
      with
      the acquisition of D3 Technologies.





**Non-segment
      Expenses**





**Interest
      Income (Expense), net.**Net interest expense for the third quarter of
      2007 was $0.7 million, compared to net interest income of $0.1 million in the
      third quarter of 2006. The increased expense resulted from borrowings due to
      the
      acquisition of D3 Technologies, as well as a charge for $0.2 million of
      unamortized prepaid financing costs related to our former credit
      facility.





**Income
      Tax Expense.**  Income tax expense for the third quarter of
      2007 was $2.1 million compared to $1.3 million for the third quarter of
      2006.  The effective tax rate for the third quarter of 2007 was
      approximately 33.1%, compared to 32.2 % for the third quarter of
      2006.  The lower 2006 effective tax rate was due to recognition of
      certain tax credits during the third quarter.  Our 2007 effective tax
      rate was positively impacted by additional deductions available for
      manufacturers, addition of D3 Technologies and strategies taken to reduce state
      income taxes.




17




*Nine
      months ended September 30, 2007 compared to nine months ended September 30,
      2006*





The
      following table is a summary of the Company’s operating results for the nine
      months ended September 30, 2007 and September 30, 2006,
      respectively:




September
                30, 2007
            
            
            September
                30, 2006($
                in millions)Aerostructures
            
            
            Engineering
                Services
            
            
            Total
            
            
            Aerostructures
            
            
            Engineering
                Services
            
            
            TotalNet
                sales
            
            $
            101.9
            
            
            $
            12.0
            
            
            $
            113.9
            
            
            $
            92.8
            
            
            $
            
            
            
            $
            92.8Cost
                of sales
            
            
            73.3
            
            
            
            9.8
            
            
            
            83.1
            
            
            
            67.3
            
            
            
            
            
            
            
            67.3Gross
                profit
            
            
            28.6
            
            
            
            2.2
            
            
            
            30.8
            
            
            
            25.5
            
            
            
            -
            
            
            
            25.5S,G
                & A
            
            
            15.0
            
            
            
            1.3
            
            
            
            16.3
            
            
            
            12.8
            
            
            
            
            
            
            
            12.8Income
                from operations
            
            $
            13.6
            
            
            $
            0.9
            
            
            $
            14.5
            
            
            $
            12.7
            
            
            $
            -
            
            
            $
            12.7





**Aerostructures
      Segment**





**Net
      Sales.**  The following table specifies the amount of the
      Aerostructures segment’s net sales by category for the nine months ended
      September 30, 2007 and 2006, respectively, and the percentage of the segment’s
      total net sales for each period represented by each category:




Category
              
              Nine
                  Months Ended
                September
                  30, 2007
              
              
              %
                  of Total
              
              
              Nine
                  Months Ended
                September
                  30, 2006
              
              
              %
                  of Total($
                  in millions)Corporate
                  and Regional Aircraft
              
              $
              36.1
              
              
              
              35.4
              %
              
              $
              35.7
              
              
              
              38.5
              %Large
                  Commercial Aircraft
              
              
              33.6
              
              
              
              33.0
              
              
              
              28.1
              
              
              
              30.3Military
              
              
              24.1
              
              
              
              23.7
              
              
              
              20.4
              
              
              
              22.0Technology
              
              
              5.0
              
              
              
              4.9
              
              
              
              4.7
              
              
              
              5.1Other
                  (1)
              
              
              3.1
              
              
              
              3.0
              
              
              
              3.9
              
              
              
              4.2Total
              
              $
              101.9
              
              
              
              100.0
              %
              
              $
              92.8
              
              
              
              100.0
              %


(1)  Includes
      various aerospace products and consulting revenue.





Net
      sales
      for the first nine months of 2007 were $101.9 million, up 9.8% from $92.8
      million in the first nine months of 2006. The majority of the increase resulted
      from higher net sales of products used in large commercial aircraft and military
      aircraft, which included a $1.2 million benefit from settlement of claims.
      Excluding this settlement, net sales increased 8.5%.





Corporate
      and regional aircraft product sales were $36.1 million for the first nine months
      of 2007, compared to $35.7 million for the first nine months of 2006, a slight
      increase of 1.1%.  Increased sales to Gulfstream were partially offset
      by lower production rates in regional aircraft.





Net
      sales
      of products used in large commercial aircraft were $33.6 million for the nine
      months ended September 30, 2007, an increase of 19.6% from $28.1 million for
      the
      nine months ended September 30, 2006.  This increase was driven by
      higher production rates on certain models of Boeing aircraft. Specifically,
      we
      generated $19.2 million net sales for the Boeing 737 during the nine months
      ended September 30, 2007, up 19.3% from $16.1 million net sales for the nine
      months ended September 30, 2006. We also generated net sales of $7.1 million
      for
      the Boeing 747 during the first nine months of 2007, up 29.1% from $5.5 million
      net sales for the first nine months of 2006. In addition, we began shipments
      for
      parts used on the Boeing 787 in 2007 and generated $1.5 million net sales for
      the first nine months of the year. Partially offsetting the increase was a
      decrease of sales on a 777 wing component offload program that was substantially
      completed in the second quarter of 2006.




18




Military
      products generated $24.1 million of net sales in the first nine months of 2007,
      compared to $20.4 million in the first nine months of 2006, an increase of
      18.1%. During the third quarter of 2007, we settled claims with a customer
      which allowed us to recognize $1.2 million of net sales. Excluding this
      settlement, sales of military products increased $2.5 million or 12.3% for
      the
      first nine months of 2007 compared to the first nine months of 2006. This
      increase was primarily attributable to sales of components and assemblies for
      Sikorsky’s Black Hawk program which generated $12.4 million in the first nine
      months of 2007, compared to $10.1 million in the first nine months of 2006.
      Net
      sales for the Boeing Apache helicopter platform also increased from $3.6 million
      for the first nine months of 2006 to $4.5 million for the first nine months
      of
      2007.





Technology
      products generated $5.0 million of net sales for the nine months ended September
      30, 2007, compared to $4.7 million for the nine months ended September 30,
      2006,
      an increase of 6.4%.  The increase was due to higher net sales of
      products used in semiconductor equipment.





**Gross
      Profit.**  Gross profit for the nine months ended September 30,
      2007 was $28.6 million (28.1% of net sales), up from $25.5 million (27.5% of
      net
      sales) for the nine months ended September 30, 2006. Excluding the benefit
      of
      claims settlements discussed above, gross profit for the first nine months
      of
      2007 was $27.8 million (27.6% of net sales).  Gross profit was
      positively impacted by our higher production rates with aerospace customers
      which provided better coverage of fixed costs, but was reduced by increased
      salaries and wages, primarily from investment in our materiel organization,
      and
      higher than expected workers compensation cost related to prior year claims.
      Specifically, salary and wages increased $3.0 million, or 10.1%, from $29.8
      million for the nine months ended September 30, 2006 to $32.8 million for the
      nine months ended September 30, 2007. Additional workers compensation cost
      incurred for prior year claims was $0.4 million for the nine months ended
      September 30, 2007.





**Selling,
      General and Administrative Expenses.**Selling, general and
      administrative expenses for the first nine months of 2007 were $15.0 million
      (14.7% of net sales), up from $12.8 million (13.8% of net sales) in the prior
      year period.  This increase is primarily due to higher employment
      levels resulting in additional salaries, wages and fringe benefit costs to
      support our growth.





**Engineering
      Services Segment**





Refer
      to
      the previous section for discussion of the operating results for August and
      September of 2007.





**Non-segment
      Expenses**





**Interest
      Income (Expense), net.**  Interest expense for the first nine
      months of 2007 was $0.3 million, compared to $0.2 million in the first nine
      months of 2006.  The increased expense resulted from borrowings due to
      the acquisition of D3 Technologies, as well as a charge for $0.2 million of
      unamortized prepaid financing costs related to the former credit facility.
      These
      increases were partially offset by higher investment income in
      2007.





**Income
      Tax Expense.**  During the nine months ended September 30,
      2007, we had income tax expense of $4.9 million compared to $4.5 million in
      the
      nine months ended September 30, 2006.  Our effective tax rate was
      34.2% for the first nine months of 2007, down from 35.9% for the first nine
      months of 2006, primarily due to additional deductions available for
      manufacturers, addition of D3 Technologies and strategies taken to reduce state
      income taxes.





19





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      July
      31, 2007, we entered into a new Credit Agreement (the “Credit Agreement”). See
      Note 2 of the Condensed Consolidated Financial Statements. The Credit Agreement
      provides for a senior secured revolving credit facility in an aggregate
      principal amount of up to $80 million (the “Facility”). Borrowings under the
      Facility are secured by substantially all of our assets and bear interest at
      either the “Base Rate” (the higher of the federal funds rate plus one-half of
      one percent or the prime commercial lending rate) plus the applicable interest
      margin ranging from 0.125% to 1.0%, depending upon our then total leverage
      ratio, or the LIBOR rate.  Interest accruing under the LIBOR rate
      option is defined as the LIBOR rate plus the applicable interest margin ranging
      from 1.125% to 2.0% depending upon our then total leverage ratio.  The
      maturity date of the Facility, which is subject to acceleration upon breach
      of
      the financial covenants (consisting of a maximum total leverage ratio and a
      minimum fixed charge coverage ratio) and other customary non-financial covenants
      contained in the Credit Agreement, is July 31, 2012. In connection with our
      acquisition of D3 Technologies, we borrowed a total of approximately $38.5
      million under the Facility. The foregoing description of the Credit Agreement
      does not purport to be complete and is qualified in its entirety by reference
      to
      the Credit Agreement, a copy of which is attached as Exhibit 4.1 to our Form
      8-K
      filed with the Securities and Exchange Commission on August 6,
      2007.





During
      the first nine months of 2007, we used $2.0 million of cash in operating
      activities compared to $5.5 million cash provided during the first nine months
      of 2006. Cash was reduced by an $8.9 million increase in accounts receivable
      due
      to greater shipments near the end of the third quarter of 2007, changes in
      payment terms on certain contracts affecting 2007 and shifting of sales to
      programs with longer payment terms. Cash was also reduced by a $4.6 million
      increase in inventories, primarily due to increased levels of raw materials
      and
      finished goods. These inventory increases were due to production increases
      to
      support growing revenues expected in the remainder of 2007. Cash was also
      decreased by a $1.1 million reduction in accounts payable, primarily due to
      a
      $0.6 million payment made to purchase inventory from a customer on extended
      terms.





Net
      cash
      used in investing activities was $54.6 million for the first nine months of
      2007
      compared to $20.1 million for the first nine months of 2006. We paid $59.1
      million, net of cash acquired, in the acquisition of D3 Technologies. We also
      incurred $5.2 million of capital expenditures during the first nine months
      of
      2007 compared to $4.4 million during the first nine months of 2006. On
      December 28, 2006, we entered into an agreement with a third party to sell
      and
      lease back certain of our real estate properties for a total sale price of
      $10.3
      million. The sale of one of these properties occurred on December 28, 2006
      for a
      sale price of $4.3 million. On February 13, 2007, the sale of the three
      remaining properties was completed at a price of $5.9 million which favorably
      impacted our cash flow. The total non-cash gain from sale of these properties
      of
      $4.3 million is deferred and will be recognized over the 18-year term of the
      lease. Also, proceeds from matured short-term securities as well as sale
      and lease back of equipment generated $2.2 million and $1.7 million,
      respectively, of cash during the first nine months of 2007.




Cash
      provided by financing activities was $32.6 million for the first nine months
      of
      2007 compared to $25.6 million for the first nine months of 2006. In connection
      with the acquisition of D3 Technologies, we incurred $38.5 million of debt,
      of
      which $6.5 million was repaid during the third quarter. Funds generated in
      2006
      resulted from our public offering of common stock completed on March 29, 2006,
      reduced by payments of outstanding debt.




20




**CONTRACTUAL
      OBLIGATIONS AND COMMITMENTS**





As
      discussed in the “Liquidity and Capital Resources” section, we completed the
      sale and leaseback of three real estate properties on February 13, 2007. The
      operating lease agreement resulting from the sale expires on February 28, 2025,
      and we have options for three additional five-year renewal terms. As of
      September 30, 2007, the impact of the lease on our future contractual
      obligations is as follows (dollars in thousands):




**Total**
            **Less
                than**
              **1
                year**
            **1-3
                years**
            **3-5
                years**
            **More
                than 5**
              **years****Operating
                Leases**
            $      11,061
            $     524
            $     1,084
            $    1,134
            $     8,319







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




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




Interest
      on both our credit facility outstanding at September 30, 2007 and our new
      Facility described above accrue at a fluctuating rate.  Thus, we are
      subject to potential fluctuations in our debt service as the base rate changes.
      Based on the amount of our outstanding debt as of September 30, 2007, a
      hypothetical 1% change in the interest rate of the Facility would result in
      a
      change in our annual interest expense of approximately $0.3 million during
      the
      next fiscal year.




**Item
      4.  Controls and
      Procedures.**




Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and Chief Financial Officer, carried out an evaluation of
      the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures (as defined by Rules 13a-15(e) and 15d-15(c) of the Securities
      Exchange Act of 1934, as amended) as of September 30, 2007.  Based
      upon and as of the date of this evaluation, our Chief Executive Officer and
      Chief Financial Officer have concluded that such disclosure controls and
      procedures were effective to ensure that the information required to be
      disclosed by the Company in the reports that it files or submits under the
      Exchange Act (a) is recorded, processed, summarized and reported within the
      time
      period specified in the Securities and Exchange Commission’s rules and forms and
      (b) is accumulated and communicated to the Company's management, including
      the
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure.





No
      change
      in our internal control over financial reporting occurred during the period
      covered by this report that has materially affected, or is reasonable likely
      to
      materially affect, our internal control over financial
      reporting.


21


**PART
      II**





**OTHER
      INFORMATION**





**Item
      1.  Legal Proceedings.**





Our
      $4.0
      million claim with a customer regarding a dispute over a price increase and
      certain extraordinary costs we had incurred was settled. Under the terms of
      the
      settlement, we received a payment of $1.2 million in full settlement of all
      claims by each party against the other in connection with this matter, including
      the customer’s asserted counterclaim for $9.5 million, alleging delivery of
      non-conforming parts.





**Item
      1A.  Risk Factors.**





Reference
      is made to the risk factors as previously disclosed in our 2006 Annual Report
      on
      Form 10-K filed with the Securities and Exchange Commission on March 15,
      2007.





**Item
      2.  Unregistered Sales of Equity Securities and
      Use of Proceeds.**





None.





**Item
      3.  Defaults Upon Senior
      Securities.**





None.








**Item
      4.  Submission of Matters to a Vote of Security
      Holders.**





None.





**Item
      5.  Other Information.**





None.





**Item
      6.  Exhibits.**





See
      Exhibit Index.


22




**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, in the County of St. Charles and State of Missouri on the
      8th
      day of November, 2007.





LMI
                AEROSPACE, INC./s/
                Ronald S. SaksRonald
                S. Saks,
              President
                and Chief Executive Officer
              (Principal
                Executive Officer)/s/
                Lawrence E. DickinsonLawrence
                E. Dickinson
              Chief
                Financial Officer and Secretary
              (Principal
                Financial and Principal Accounting
                Officer)








23


**EXHIBIT
      INDEX**




Exhibit
              Number
            Description10.1
            Stock
                Purchase Agreement dated June 17, 2007 among John J. Bogan, Trustee
                of the
                John J. Bogan Separate Property Trust dated October 5, 1999, William
                A.
                Huston and LMI Aerospace, Inc., filed as Exhibit 2.1 to the Registrant’s
                Form 8-K filed June 18, 2007 and incorporated herein by
                reference.31.1
            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, 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.













24