Forward-Looking Statements

This report contains forward-looking statements that relate to future events or our future financial performance. We have attempted to identify these statements by terminology including "believe," "anticipate," "plan," "expect," "estimate," "intend," "seek," "goal," "may," "will," "should," "can," "continue," or the negative of these terms or other comparable terminology. These statements include statements about our market opportunity, our growth strategy, competition, expected activities, and the adequacy of our available cash resources. These statements may be found throughout the Report, including in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including those discussed in our most recent Annual Report on Form 10-K. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. We expressly decline any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date of this report.

General
General Development of Business and Information about Business Activity LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware corporation, incorporated in 1968, that provides custom high-performance electronic, electromechanical and interconnect systems on a contract basis for customers in diverse technology-driven markets. The Company's core competencies are manufacturing, engineering and design of interconnect systems, circuit card assemblies, high-level assemblies, and complete electronic systems for its customers' specialized applications.

The Company markets its services to customers desiring an engineering and manufacturing partner capable of developing and providing products that can perform reliably in harsh environmental conditions, such as high and low temperatures, severe shock and vibration. The Company serves customers in a variety of markets including defense, aerospace, natural resources, industrial, medical and other commercial markets. The Company's engineering and manufacturing facilities are located in Arkansas, Missouri, Oklahoma, Texas and Pennsylvania. The Company employs approximately 1,340 people, including approximately 1,130 people who provide support for production activities (including assembly, testing and engineering) and approximately 210 people who provide administrative support.

The Company uses a fiscal year ending the Sunday closest to June 30; each fiscal quarter is 13 weeks. Fiscal year 2008 consisted of 52 weeks.

Results of Operations - Three Months Ended September 28, 2008


Backlog
(in thousands)

                                                                  September 28,                 June 29,
                                              Change                  2008                        2008

Backlog                                           $(2,928 )             $   218,365            $ 221,293

Approximately $62.9 million of the backlog at September 28, 2008 is scheduled to ship beyond the next 12 months pursuant to the shipment schedules contained in those contracts. This compares with $48.4 million at June 29, 2008.

As of September 28, 2008, the Company's backlog includes approximately $39.6 million relating to orders on a very light jet program. Approximately $25.5 million of the backlog is scheduled to ship beyond the next 12 months. This program is discussed in more detail in Part II - Item 1A, "Risk Factors," in the section related to customer concentration.

Net Sales
(dollars in thousands)

                                                                            Three Months Ended

                                                                  September 28,             September 30,
                                              Change                  2008                       2007

Net sales                                       15.2%                  $  68,192                 $ 59,190

The largest contributor to fiscal 2009 first-quarter revenues was shipments to defense customers, representing $30.8 million of net sales, versus $22.9 million in 2008. During the current year's first quarter, LaBarge provided cables and electronic assemblies for a variety of defense applications, including military aircraft, missile systems, radar systems and shipboard programs. Shipments to natural resources customers were $11.2 million in the first quarter of fiscal 2009, compared with $15.4 million in the year-ago period. In addition, industrial customers represented $14.6 million of fiscal 2009 first-quarter net sales, compared with $11.0 million in the year-ago period. Shipments to medical customers represented $4.7 million of fiscal 2009 first-quarter net sales, compared with $3.2 million in the year-ago period.

Sales to the Company's 10 largest customers represented 70% of total revenue in the first quarter of fiscal 2009, compared with 69% for the same period of fiscal 2008. The Company's top three customers accounted for 18%, 9% and 9%, respectively, of total sales for the first quarter of fiscal 2009. This compares with 13%, 12% and 11%, respectively, for the first quarter of fiscal 2008.

Gross Profit
(dollars in thousands)

                                                                       Three Months Ended

                                                           September 28,             September 30,
                                   Change                      2008                       2007

Gross profit                        2,891                     14,263                           11,372
Gross margin                      $   1.7   points        $     20.9 %                 $         19.2 %

Gross profit margins vary significantly from contract to contract. The gross profit margin for any particular quarter will reflect the mix of contracts recognized in revenue for the quarter. The gross margin expansion is the result of improved operating efficiencies and favorable product mix.

Selling and Administrative Expenses
(dollars in thousands)

                                                                         Three Months Ended

                                                               September 28,            September 30,
                                            Change                  2008                    2007

Selling and administrative expenses     $ 1,323                $   8,270                   $ 6,947
Percent of sales                            0.4   points            12.1 %                    11.7 %

Selling and administrative expenses increased over the prior comparable period, primarily as a result of an increase in compensation cost and related fringes of $1.3 million due to wage inflation and higher accrued incentive pay.

Interest Expense
(in thousands)

                                                           Three Months Ended

                                       Change     September 28,         September 30,
                                                       2008                  2007

 Interest expense                   $ (269 )      $   158                 $        427

Interest expense declined for the three months ended September 28, 2008, versus the year-ago period. The reduction reflects lower average debt levels and lower average interest rates.

Average interest rates during the current-year period were 4.3%, compared with 6.8% in the comparable quarter a year ago.

Income Tax Expense
(in thousands)

                                                        Three Months Ended

                                       Change   September 28,        September 30,
                                                     2008                 2007

Income tax expense                    $ 688      $     2,156          $       1,468

The reported income tax rate was 37.0% and 36.8% for the three-month periods ended September 28, 2008 and September 30, 2007, respectively. The effective income tax rate for the three-month period ended September 28, 2008 was 37.9%, compared with 37.3% for the three-month period ended September 30, 2007. The difference between the reported income tax rate and the effective income tax rate was due to changes in estimated Sub Part F income.

Liquidity Capital Resources
The following table shows LaBarge's equity and total debt positions:

Stockholders' Equity and Debt
(in thousands)

                                     September 28,          June 29,
                                         2008                 2008

Stockholders' equity                    $ 95,896            $ 91,469
Debt                                       8,252              15,629

The Company's operations generated $7.3 million of cash in the first quarter ended September 28, 2008.

Senior Lender:

The Company entered into a senior secured loan agreement with a group of banks on October 3, 2008. The following is a summary of the agreement:

• A revolving credit facility, up to $25.0 million, available for direct borrowings or letters of credit. The facility is based on a borrowing base formula equal to the sum of 85% of eligible receivables and 35% of eligible inventories. As of September 28, 2008, the outstanding loans under the revolving credit facility were $4.7 million; $3.5 million of the loans were reclassified to long-term debt under SFAS No. 6 due to the October 3, 2008 amendment to the credit facility. As of September 28, 2008, letters of credit issued were $1.0 million; and an aggregate of $22.8 million was available under the revolving credit facility. This credit facility matures on October 3, 2010.

• A $10.0 million term loan amortized beginning November 2008, at a quarterly rate of $500,000, with the balance due October 2010. The balance sheet reflects the amount outstanding at September 28, 2008 under the previous term loan, $3.0 million, plus the reclassification of $3.5 million of short-term borrowings to long-term debt discussed in the paragraph above. The Company is obligated to borrow the remaining $3.5 million by November 30, 2008.

• Interest on both loans is calculated at a percentage of prime or a stated rate over LIBOR based on certain ratios. For the fiscal quarter ended September 28, 2008, the average rate was approximately 4.47%.

• Both loans are secured by substantially all the assets of the Company other than real estate.

• Covenants and performance criteria consist of Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") in relation to debt, EBITDA in relation to fixed charges and minimum net worth. The Company was in compliance with its borrowing agreement covenants as of September 28, 2008.

Other Long-Term Debt:
Other long-term debt includes capital lease agreements with outstanding balances totaling $302,000 the three months ended September 28, 2008 and $336,000 at June 29, 2008.

The aggregate maturities of long-term obligations are as follows:
(in thousands)

Fiscal Year

2009    ………………………………………………………     $ 1,605
2010    ………………………………………………………       2,146
2011    ………………………………………………………       3,051
2012    ………………………………………………………         250
2013    ………………………………………………………         ---

Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these financial statements, management has made its best estimates and judgment of certain amounts included in the financial statements. The Company believes there is a likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. The Company's senior management discusses the accounting policies described below with the Audit Committee of the Company's Board of Directors on a periodic basis.

The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting policies that management believes are critical to the Company's consolidated financial statements and other financial disclosures. It is not intended to be a comprehensive list of all of our significant accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included with this quarterly report on Form 10-Q for the quarter ended September 28, 2008 and as referenced in the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 2008.

Revenue Recognition and Cost of Sales
Revenue is recognized in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition." Revenue is recognized on substantially all transactions when title transfers, which is usually upon shipment. The Company has a significant number of contracts for which revenue is accounted for under the percentage of completion method based upon units delivered. This results in revenue for these contracts being recognized when the units are shipped to the customer and title transfers.

The percentage-of-completion method gives effect to the most recent contract value and estimates of cost at completion. Management's estimates of material, labor and overhead costs on long-term contracts are critical to the Company. Due to the size, length of time and nature of many of our contracts, the estimation of costs through completion is complicated and subject to many variables. Total contract cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that influence these estimates include inflationary trends, technical and schedule risk, performance trends, business volume assumptions, asset utilization, and anticipated labor rates.

The development of estimates of costs at completion involves procedures and personnel in all areas that provide financial or production information on the status of contracts. Estimates of each significant contract's value and estimate of costs at completion are reviewed and reassessed quarterly. Changes in these estimates result in recognition of cumulative adjustments to the contract profit in the period in which the change in estimate was made. When the current estimate of costs indicates a loss will be incurred on the contract, a provision is made in the current period for the total anticipated loss.

Due to the significance of judgment in the estimation process described above, it is likely that different cost of sales amounts could be recorded if we used different assumptions, or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, supplier performance, or circumstances may adversely or positively affect financial performance in the future.

During fiscal year 2007, the Company entered an agreement with an industrial customer to manufacture and supply certain parts. Under the Financial Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF") No. 99-19, "Reporting Revenue Gross as a Principle versus Net as an Agent," the cost of the supplied parts is netted against the invoice price to determine net sales when the part is shipped. In the quarter ended September 28, 2008, the Company's net revenues recognized under this contract were $4.8 million, related to the manufactured assemblies, and $137,000, related to the supplied parts.

On a very limited number of transactions, at a customer's request, the Company will recognize revenue when title passes, but prior to the shipment of the product to the customer. As of September 28, 2008, the Company has recognized revenue on products for which title has transferred but the product has not been shipped to the customer of $950,000. The Company recognizes revenue for storage and other related services as the services are provided.

Inventories
Inventories, which consist of materials, labor and manufacturing overhead, are carried at the lower of cost or market value. In addition, management regularly reviews inventory for obsolescence to determine whether any additional write-down is necessary. Various factors are considered in making this determination, including expected program life, recent sales history, predicted trends and market conditions. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. For the quarters ended September 28, 2008 and September 30, 2007, expense for obsolete or slow-moving inventory charged to income before income taxes was $597,000 and $317,000, respectively.

Recently Adopted Accounting Standards
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"), to clarify the definition of fair value, establish a framework for measuring fair value and expand the disclosures on fair value measurements. On June 29, 2008, the company adopted the provision of SFAS No. 157. The adoption did not have a material impact on its consolidated financial statements. The Company will defer the adoption of SFAS No. 157 for its nonfinancial assets and nonfinancial liabilities until the year ended June 27, 2010, as permitted under FASB Staff Position 157-2, "Effective Date of FASB Statement No. 157."

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. An entity shall report unrealized gains and losses, on items for which the fair value option has been elected, in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157. On June 29, 2008, the Company adopted the provisions of SFAS No. 159. The adoption did not have a material impact on its consolidated financial statements when it became effective for the fiscal year ending June 28, 2009.

In September 2006, the FASB's EITF reached a consensus on EITF Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefits Aspects of Endorsement Split-Dollar Life Insurance Arrangements" ("EITF 06-4"). This addresses only endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. EITF 06-04 was adopted on June 29, 2008. Adopting the provisions of EITF 06-4 did not have a material impact on the Company's consolidated financial statements.