<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-K/A

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended May 31, 2001

[ ]  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 0-26088

                     PACIFIC AEROSPACE & ELECTRONICS, INC.
            (Exact name of registrant as specified in its charter)

    Washington                                           91-1744587
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                       Identification No.)

    430 Olds Station Road, Third Floor
    Wenatchee, Washington                                98801
    (Address of principal executive offices)             (Zip Code)

    Registrant's telephone number, including area code:  (509) 667-9600


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

        Title of each class    Name of each exchange on which registered
        -------------------    -----------------------------------------
              None                                 None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.001 par value
                               (Title of class)

                        Common Stock Purchase Warrants
                               (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes   X     No
                                         ---       ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

State the aggregate market value of the voting stock held by non-affiliates,
based on the closing price for the registrant's common stock on the Nasdaq
National Market System, as of August 27, 2001:  approximately $3,444,135.

Indicate the number of shares outstanding of each of the registrant's classes of
common equity, as of August 27, 2001: common stock, $.001 par value:  39,315,309
shares.

The company has prepared this Form 10-K/A solely to provide the information
required to be included in Part III hereof.  All information not specifically
amended in this amendment remains accurate as of date of such information.

This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.  Discussions containing
such forward-looking statements may be found in the material set forth under
Item 1. Business and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as within this Annual Report
generally (including any document incorporated by reference herein).  Also,
documents subsequently filed by the Company with the Securities and Exchange
Commission may contain forward-looking statements.  Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors identified herein or in other public filings by the Company.
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Directors and Executive Officers

The following table sets forth information as of August 27, 2001, regarding the
current directors and those nominated to become directors, and the executive
officers of the Company.

<TABLE>
<CAPTION>
Name                              Age                      Position with Company
-----------------------------  ---------  ---------------------------------------------------------------
<S>                            <C>        <C>
Donald A. Wright                   49      Chairman of the Board, Chief Executive Officer and President
Werner Hafelfinger                 55      Chief Operating Officer, Vice President Operations, Director
Sheryl A. Symonds                  46      Vice President Administration, General Counsel and Secretary
Dale L. Rasmussen                  51      Director
Gene C. Sharratt, Ph.D.            54      Director
Robert M. Stemmler                 66      Director
William A. Wheeler                 67      Director
</TABLE>

Donald A. Wright has been the Chairman of the Board, Chief Executive Officer and
President of the Company since February 1995, and of its predecessors since
1990.  Mr. Wright is also an officer and director of each of the Company's
operating subsidiaries.

Werner Hafelfinger has been a director of the Company since August 17, 1998.
Mr. Hafelfinger has been Vice President Operations and Chief Operating Officer
of the Company since March 1999.  Mr. Hafelfinger was employed by St. Jude
Medical (Cardiac Rhythm Management Division), a manufacturer of implantable
medical devices, from 1984 until February 1999, where he served as Vice
President of Global Manufacturing.

Sheryl A. Symonds has been the Vice President Administration and General Counsel
of the Company since September 1997.  Prior to joining the Company, Ms. Symonds
was a partner at Stoel Rives LLP, which provides outside legal counsel services
to the Company.  Ms. Symonds joined Stoel Rives LLP in 1985 and became a partner
in 1992.  Ms. Symonds has been Secretary of the Company since August 1996 and is
also Secretary of each of the Company's operating subsidiaries.

Dale L. Rasmussen has been a director of the Company since June 1997.  Mr.
Rasmussen has been employed as the Senior Vice President and Secretary of IMPCO
Technologies, Inc. since 1989.

Dr. Gene C. Sharratt has been a director of the Company since October 10, 2000.
Dr. Sharratt has been Superintendent of the North Central Education Service
District in Wenatchee, Washington since July 1991.

Robert M. Stemmler has been a director of the Company since May 14, 1999.  Mr.
Stemmler has been the Chairman, CEO and President of IMPCO Technologies, Inc.
since 1993.

William A. Wheeler has been a director of the Company since June 1997.  Mr.
Wheeler retired from Dowty Aerospace Yakima in May 1997, where he served as
President, Chief Executive Officer and Chairman of the Board of Directors since
1979.

Other Significant Employees

Lewis L. Wear, 60, has been President of the U.S. Electronics Group since August
1996 and President of Pacific Coast Technologies, Inc. since February 1996.  He
also has been Vice President of Ceramic Devices, Inc. since October 1997,
President of Northwest Technical Industries, Inc. since April 8, 1997,

                                       2
<PAGE>

President of Balo Precision Parts, Inc. since February 1998, and President of
Electronic Specialty Corporation since October 1998. Prior to November 1995, Mr.
Wear was Vice President of Operations for Vacuum Atmospheres, a division of
WEMS, Inc.

Duncan Crighton, 65, has been Chief Executive Officer of Aeromet International
PLC ("Aeromet") since March 1997 and became President of the Company's European
Aerospace Group upon closing of the Aeromet acquisition.  Mr. Crighton served as
Managing Director of Aeromet's predecessor, Kent Aerospace Castings plc, from
1990 through 1995, and as a management consultant to Aeromet from 1995 to
February 1997.

Board of Directors

Committees.  The Board of Directors has a number of committees, as follows:

<TABLE>
<CAPTION>
                                                                                  Members as of
Committee              Function                                                   August  27, 2001
------------------------------------------------------------------------------------------------------
<S>                    <C>                                                     <C>
Option Committee       Administers the Company's Amended and Restated Stock       Gene C. Sharratt
                       Incentive Plan and 1999 Stock Incentive Plan.              Dale L. Rasmussen
                                                                                  Robert M. Stemmler
------------------------------------------------------------------------------------------------------
Finance and Audit      Reviews the Company's accounting policies, practices,      Dale L. Rasmussen
 Committee             internal accounting controls and financial reporting.      Robert M. Stemmler
                       Also oversees engagement of the Company's independent      William A. Wheeler
                       auditors and monitors management implementation of
                       the recommendations and findings of the Company's
                       independent auditors.
------------------------------------------------------------------------------------------------------
Compensation           Establishes salaries, incentives and other                 William A. Wheeler
 Committee             compensation for the chief executive officer, chief        Gene C. Sharratt
                       operating officer, chief financial officer, general        Dale L. Rasmussen
                       counsel, subsidiary presidents and other key
                       employees of the Company and its subsidiaries. Also
                       administers policies relating to compensation and
                       benefits, including the Amended and Restated
                       Independent Director Stock Plan and the Employee
                       Stock Purchase Plan (which was terminated in August
                       2001).
------------------------------------------------------------------------------------------------------
Nominating Committee   Recommends individuals to be presented to the              Donald A. Wright
                       shareholders for election or reelection to the Board       Dale L. Rasmussen
                       of Directors.                                              Robert M. Stemmler
------------------------------------------------------------------------------------------------------
</TABLE>

Tenure.  Directors of the Company hold office until the next annual meeting of
the Company's shareholders and until their successors have been elected and duly
qualified.  The Board of Directors appoints the Company's executive officers at
the first Board meeting after each annual meeting of shareholders.  Executive
officers hold office at the pleasure of the Board of Directors.

Compensation.   Under the Company's Amended and Restated Independent Director
Stock Plan, each non-employee director of the Company receives an initial award
of options to purchase 2,500 shares of common stock when that director is first
elected and an annual award of options to purchase 10,000 shares of common
stock.  In addition, non-employee directors receive $1,000 in cash per year for
each committee on which they serve, and an additional $500 in cash per year for
serving as chairperson of a committee.  The Board may elect to pay any of the
cash fees in shares of common stock.  All directors are reimbursed for
reasonable travel and other out-of-pocket expenses incurred in attending
meetings of the Board of Directors.

                                       3
<PAGE>

Vacancies.  Replacement directors for vacancies resulting from an increase in
the size of the Board of Directors or the resignation or removal of a director
may be appointed by the Board of Directors, or may be elected by the
shareholders at a special meeting.  Directors so appointed or elected hold
office until the next annual meeting of shareholders and until their successors
are elected and qualified.

Board of Directors Meetings.  The Company's Board of Directors met four times
during fiscal 2001.  The committees met as follows during fiscal 2001:  Option
Committee, two times; Finance and Audit Committee, four  times; Compensation
Committee, two times; and Nominating Committee, one time. Each director attended
at least 75% of all meetings of the Board of Directors and the committees of
which the director was a member during the period he was a director in fiscal
2001.  The Board of Directors and the committees also approved a number of
actions by unanimous written consent.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during its most recent fiscal
year, and on written representations of the Company's officers, directors, or
principal shareholders ("Reporting Persons") that no other reports were
required, the Company believes that, during the fiscal year ended May 31, 2001,
the Reporting Persons complied in all material respects with all applicable
filing requirements under Section 16(a) of the Exchange Act.

Finance and Audit Committee Report to Shareholders

The Committee.  The Finance and Audit Committee of the Board of Directors (the
"Committee") is composed of three non-employee directors: Dale L. Rasmussen,
Chairman, Robert M. Stemmler, and William A. Wheeler.  The Committee has adopted
a written charter, which has been approved by the Board of Directors.

Audited Financial Statements.  The Committee has reviewed and discussed the
Company's audited financial statements with management, which has primary
responsibility for the financial statements.  KPMG LLP, the Company's
independent auditor for fiscal year 2001, gave a disclaimer of opinion in its
report on the Company's financial statements for fiscal year 2001.  The
Committee has discussed with KPMG the disclaimer and matters that are required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees).

Auditor Independence.  KPMG has provided to the Committee the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees).  The Committee has discussed
with KPMG that firm's independence.

Annual Report on Form 10-K.  Based on the Committee's review and the discussions
referred to above, the Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for fiscal 2001.

Respectfully submitted,


Dale L. Rasmussen, Chairman
Robert M. Stemmler
William A. Wheeler

                                       4
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth in summary form the compensation paid by the
Company to the Chief Executive Officer and to the Company's three most highly
compensated executive officers (the "Named Executives") for services in all
capacities to the Company for the last three fiscal years:

<TABLE>
<CAPTION>
                                           Annual Compensation    Long-Term Compensation
----------------------------------------------------------------------------------------------------------------
Name and Principal                                               Securities Underlying         Other Annual
 Position                   Fiscal Year        Salary ($)         Options/SARs(#) (1)        Compensation ($)
----------------------------------------------------------------------------------------------------------------
<S>                         <C>            <C>                   <C>                       <C>

Donald A. Wright                2001             335,809                  75,000                  7,316 (4)
                          --------------------------------------------------------------------------------------
CEO and President               2000             292,008                 450,000 (2)              5,800 (4)
                          --------------------------------------------------------------------------------------
                                1999             247,551               1,000,000 (3)              5,547 (4)
----------------------------------------------------------------------------------------------------------------

Werner Hafelfinger              2001             200,000                  37,500                  2,438 (5)
                          --------------------------------------------------------------------------------------
COO, V.P. Operations            2000             175,000                 100,000 (2)              2,500 (5)
                          --------------------------------------------------------------------------------------
                                1999(6)           33,654                  50,000                    600 (5)
----------------------------------------------------------------------------------------------------------------

Nick A. Gerde (7)               2001             150,000                  37,500                  2,438 (5)
                          --------------------------------------------------------------------------------------
Former CFO, VP                  2000             140,000                 100,000 (2)              2,500 (5)
                          --------------------------------------------------------------------------------------
Finance,                        1999             130,000                 116,056 (3)              2,400 (5)
                          --------------------------------------------------------------------------------------
Treasurer and Assistant
                          --------------------------------------------------------------------------------------
Secretary
----------------------------------------------------------------------------------------------------------------

Sheryl A. Symonds               2001             190,473                  37,500                        --
                          --------------------------------------------------------------------------------------
V.P. Administration,            2000             176,364                 100,000 (2)                    --
                          --------------------------------------------------------------------------------------
General Counsel and             1999             160,973                 160,000 (3)                    --
 Secretary
----------------------------------------------------------------------------------------------------------------
</TABLE>
________________________
(1)  Represents options to purchase shares of common stock.

(2)  One-half of these options were granted in June 1999 with respect to fiscal
     1999, and one-half were granted in May 2000, with respect to fiscal 2000.

(3)  Represents repricing of previously granted options.  On December 4, 1998,
     the Board of Directors approved the repricing of outstanding options under
     the Company's Amended and Restated Stock Incentive Plan. For purposes of
     this table, repriced options are considered to be option grants and,
     therefore, are required to be included in the table as options granted in
     fiscal 1999.  Other than repricing of options, no options were granted to
     Mr. Wright, Mr. Gerde, or Ms. Symonds during fiscal 1999.

(4)  Represents estimated value of the personal use of Company vehicles ($4,138
     in fiscal 2001; $5,000 in fiscal 2000; $4,800 in fiscal 1999) and premiums
     on $2 million of key-man life insurance denoting Mr. Wright's spouse as
     beneficiary.

(5)  Represents estimated value of the personal use of a Company vehicle.

(6)  Represents the compensation received by Mr. Hafelfinger during the three
     months he was employed by the Company in fiscal year 1999.

(7)  Mr. Gerde's employment with the Company terminated on August 15, 2001.

                                       5
<PAGE>

Option Grants Table

The following table sets forth information on grants of stock options by the
Company during the year ended May 31, 2001 to the Named Executives:

<TABLE>
<CAPTION>
                                            % of Total
                           Securities         Options
                           Underlying        Granted to        Exercise or                      Grant Date
                            Options         Employees in       Base Price       Expiration        Present
Name                        Granted (#)      Fiscal Year        ($/Share)          Date        Value(1) ($)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
<S>                    <C>              <C>              <C>              <C>              <C>
Donald A. Wright             75,000            23.1%             $0.22            5/24/11         $16,500
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Werner Hafelfinger           37,500            11.6%             $0.22            5/24/11         $ 8,250
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Nick A. Gerde                37,500            11.6%             $0.22            5/24/11         $ 8,250
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Sheryl A. Symonds            37,500            11.6%             $0.22            5/24/11         $ 8,250
-----------------------------------------------------------------------------------------------------------
</TABLE>
_____________________
(1)  Although the Company believes that it is not possible to place a value on
     an option, in accordance with the rules of the SEC, the Company has used a
     Black-Scholes model of option valuation to estimate grant date present
     value.  The actual value realized, if any, may vary significantly from the
     values estimated by this model.  Any future values realized will ultimately
     depend upon the excess of the stock price over the exercise price on the
     date the option is exercised.  The assumptions used to estimate the grant
     date present value of this option were: volatility (148.11%); risk-free
     rate of return (6%); dividend yield (0%); and time of exercise (remaining
     life 10 years).

Aggregated Options and Fiscal Year-End Option Values

The following table summarizes the aggregate employee stock options and non-
public warrants, and their market values at May 31, 2001, held by the Named
Executives:

<TABLE>
<CAPTION>
                                  Number of Securities                    Value of Unexercised
                                 Underlying Unexercised                   In-the-Money Options
                                  Options at FY-end (#)                    at FY-end ($) (1)
                           ------------------------------------  ---------------------------------------
Name                          Exercisable       Unexercisable         Exercisable        Unexercisable
----                       ------------------  ----------------  ---------------------  ----------------
<S>                        <C>                 <C>               <C>                    <C>
Donald A. Wright               2,307,560               --                   --                 --
Werner Hafelfinger (2)           197,500               --                   --                 --
Nick A. Gerde                    308,556               --                   --                 --
Sheryl A. Symonds                297,500               --                   --                 --
</TABLE>

(1)  No options or warrants held by the Named Executives had exercise prices of
     less than $0.21 per share, the closing price of the common stock on May 31,
     2001.

(2)  Includes options to purchase 10,000 shares granted to Mr. Hafelfinger in
     October 1998 under the Amended and Restated Independent Director Stock
     Plan, when Mr. Hafelfinger was a non-employee director of the Company.

                                       6
<PAGE>

Employment Agreements

The Company has entered into employment agreements with Mr. Wright, Mr.
Hafelfinger, and Ms. Symonds.  The employment agreements employ Mr. Wright
through fiscal 2003, and employ Mr. Hafelfinger and Ms. Symonds through fiscal
2002.  The employment agreements provide for an annual salary in fiscal 2002 of
$386,180, $210,000 and $205,710 for Mr. Wright, Mr. Hafelfinger and Ms. Symonds,
respectively.  Mr. Wright agreed to forego $50,000 of his fiscal 2002 salary and
received 238,095 restricted shares of common stock in lieu of this amount.  Mr.
Hafelfinger and Ms. Symonds each agreed to forego $10,000 of their fiscal 2002
salary and each received 47,619 restricted shares of common stock in lieu of the
foregone salary.  The employment agreements also provide for the annual grant of
options to purchase up to 275,000 shares of common stock for Mr. Wright, and up
to 50,000 shares of common stock for Mr. Hafelfinger and Ms. Symonds.  Of these,
50,000 of Mr. Wright's options are fixed, 25,000 of Mr. Hafelfinger's and Ms.
Symonds' options are fixed, and the remainder are discretionary.  The exercise
price of any such options is equal to the fair market value of the common stock
on the date of grant.  Each option may contain vesting and other terms as are
approved by the Board of Directors, and will expire ten years after the date of
grant.  If a Named Executive's employment with the Company is terminated without
cause, or if there is a change of control, as those terms are defined in their
employment agreements, the Company will be required to make severance payments
equal to, in the case of Mr. Wright, twice Mr. Wright's then-current annual base
salary; in the case of Ms. Symonds, one and one-half times her then-current
annual base salary; and in the case of Mr. Hafelfinger, twice his then-current
annual base salary in the event of a change in control or one times his then-
current annual base salary if he is terminated without cause.  Under these
employment agreements, Mr. Wright and Mr. Hafelfinger agreed not to compete with
the Company for two years following termination of employment.  The Board of
Directors adopted a management incentive compensation program, which provides
for the payment of cash bonuses to the Named Executives, the group presidents,
and certain other senior managers, upon attainment of certain goals.  Under this
program, each participant can earn a cash bonus of 10% of his or her annual
salary if the Company achieves both budgeted revenue and budgeted operating
income levels for the year and an additional 5% if the Company exceeds these
budgeted amounts by 10%, for a possible total bonus of 15% of annual salary.
The Named Executives did not earn bonuses under this program for fiscal 2001.

On August 15, 2001, Nick Gerde, who served as Vice President Finance of the
Company, as well as Treasurer and Assistant Secretary, left his employment with
the Company.  In accordance with Mr. Gerde's employment agreement and a
separation letter executed by Mr. Gerde and the Company, Mr. Gerde will receive
severance pay of $150,000, which is the equivalent of one year's salary.  This
severance is payable on regular payroll days over a 12-month period.  Mr. Gerde
will also receive medical benefits for one year.

Certain Tax Considerations Related to Executive Compensation

As a result of Section 162(m) of the Code, if the Company pays more that
$1,000,000 in compensation to a "covered employee" (the chief executive officer
and the next four highest paid employees) in a single year, then the Company's
deduction for such compensation could be limited to $1,000,000.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is composed of William A. Wheeler, Dale L. Rasmussen,
and Gene C. Sharratt, none of whom are employees or current or former owners of
the Company.

Board Compensation Committee Report on Executive Compensation

The Committee.  The Compensation Committee of the Board of Directors (the
"Committee") is composed of three non-employee directors: William A. Wheeler,
Chairman, Dale L. Rasmussen, and

                                       7
<PAGE>

Gene C. Sharratt. No member of the Compensation Committee has a relationship
that would constitute an interlocking relationship with executive officers or
directors of another entity. From time to time officers of the Company attend
meetings of the Committee. However, no officer participates in discussions or
deliberations regarding his or her own compensation.

Responsibilities of the Committee.  The Committee's purpose is to provide a
compensation environment that will support and assist in fulfilling the
corporate mission and purpose.  The Committee is responsible for developing and
making recommendations to the Board with respect to the Company's compensation
policies, reviewing the performance of the Company's Chief Executive Officer,
and determining the level of compensation to be paid to executive officers and
certain other key employees of the Company.  The Committee coordinates its
efforts with the Company's Option Committee with respect to the grant of stock
options or other awards to executive officers and key employees under the
Company's Amended and Restated Stock Incentive Plan and 1999 Stock Incentive
Plan (the "Stock Incentive Plans").  The Committee also administers the
Company's Amended and Restated Independent Director Stock Plan and the Company's
Employee Stock Purchase Plan.

Executive Compensation.  The Company's executive compensation program is
designed to support the achievement of Company goals and to ensure that the
interests of executive officers and key employees are aligned with the success
of the Company.  Consequently, a significant portion of the compensation of
executive officers and key employees has been through the grant of options under
the Stock Incentive Plans.  The Committee believes that tying a significant
portion of executive compensation to the growth of the Company's stock price
helps align the interests of management with those of the Company's
shareholders.

Compensation of the Chief Executive Officer.  Mr. Wright's salary increased at
the beginning of fiscal 2001 in accordance with his employment agreement, which
provides for an annual 15% increase.  This percentage was set by the Committee
at the end of fiscal 2000, based on a number of criteria, including relevant
data from a third party compensation survey.  In using the survey, the Committee
compared the Company to other Northwest publicly-traded manufacturing companies
within the applicable revenue range.  Based on the survey information, the
Committee believes that Mr. Wright contractual salary is at approximately the
median in terms of base salary for chief executive officers of similarly
situated Northwest manufacturing companies.

Annual Salaries.  Annual salaries for the executive officers of the Company are
set pursuant to the terms of employment agreements with Mr. Wright, Mr.
Hafelfinger and Ms. Symonds.  The president of the Company's U.S. Electronics
Group also has an employment agreement that establishes his annual salary.
Annual salaries under the employment agreements are subject to increase on an
annual basis in accordance with the terms of those agreements.  All of these
employment agreements are approved by the Committee when they are first signed.
From time to time, the Committee has also elected to review these contracts
annually. In May 2000, the Committee reviewed Mr. Hafelfinger's contract and,
after considering his duties and applicable third-party compensation survey
data, increased his salary for fiscal 2001 by $10,000.  In August 2001, Mr.
Gerde left his employment with the Company and the Company agreed to pay
severance in accordance with his employment agreement amounting to $150,000
payable over 12 months and to continue his medical benefits for 12 months.

Adjustment to Annual Salaries for Fiscal 2002.  During May 2001, after reviewing
the Company's financial performance and cash position, the Committee determined
that the Named Executives should be requested to accept restricted common stock
of the Company in lieu of some or all of their contractual salary increases for
fiscal 2002.  The amount of common stock granted in lieu of salary increases was
calculated by dividing the cash compensation not received by the fair market
value of a share of the Company's common stock.  The fair market value of the
Company's common stock was deemed to be the average of the closing price of the
Company's common stock on Nasdaq for the five trading days prior to June 1,
2001.  Mr. Wright agreed to forego $50,000 in salary and received 238,095 shares
of restricted

                                       8
<PAGE>

common stock as of June 1, 2001. Mr. Hafelfinger, Mr. Gerde, and Ms. Symonds
each agreed to forego $10,000 in salary and each received 47,619 shares of
restricted common stock as of June 1, 2001.

Incentive Compensation Program.  The Company has a management incentive
compensation program, which provides for the payment of cash bonuses to the
executive officers and certain other senior managers, upon attainment of certain
goals.  The purpose of the plan is to provide a direct financial incentive to
achieve predetermined levels of Company performance.  Under this program, each
of the participants can earn a cash bonus of 10% of their annual salary upon
achieving budgeted revenue and operating income levels for the year and an
additional 5% upon exceeding budgeted revenue and operating income by 10%.  The
Committee did not consider any of the Named Executives for cash bonuses for
fiscal 2001 because of the Company's financial performance in fiscal 2001.

Long-Term Incentive Compensation.  The Stock Incentive Plans are long-term
incentive plans for executives, managers, and other employees of the Company.
The objective of the Plans is to align employee and shareholder long-term
interests by creating a strong and direct link between compensation and
shareholder value.  The Stock Incentive Plans authorize the Board of Directors,
or a committee of the Board, to award stock options to officers and other
employees of the Company, as well as to directors and consultants.  The Board of
Directors has designated the Option Committee to administer the Stock Incentive
Plans, and the Committee works with the Option Committee with respect to the
grant of options to executive officers and key employees.  Stock options are
granted at an exercise price not less than 100% of the fair market value of the
Company's common stock on the date of grant.  The amount of stock option grants
to an individual depends on the person's level of responsibility in the Company
and the person's job performance.  Stock options granted under the Stock
Incentive Plans may contain vesting provisions.  All of the Named Executives
received stock option grants at the end of fiscal 2001 as part of the fiscal
2001 annual option grant program for key employees.  The number of options
granted to each of the Named Executives at the end of fiscal 2001 was reduced
from the previous year because of the Company's performance in fiscal 2001.

Deductibility.  Section 162(m) of the Internal Revenue Code of 1986, as amended,
limits to $1 million per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers unless the
compensation is performance based.  The levels of compensation paid by the
Company have not exceeded this limit.  Although it may be possible in any given
year for option exercises to cause an officer's total compensation for that year
to exceed $1 million, the Committee believes that any options granted under the
Stock Incentive Plan would meet the requirement of being performance-based and
would, therefore not be subject to the $1 million limit on deductibility.

Respectfully submitted,


William A. Wheeler, Chairman
Dale L. Rasmussen
Gene C. Sharratt

                                       9
<PAGE>

Performance Graph

The following graph shows a comparison of the cumulative total return on the
Company's common stock, the Standard & Poor's ("S&P") 500 Index and the S&P
Aerospace/Defense Index, a published industry index, for the period beginning
May 31, 1996 and ending May 31, 2001.  The graph assumes that $100 was invested
on May 31, 1996, in the Company's common stock, the S&P 500 Index and the
industry index, and that all dividends were reinvested.  The stock price
information shown on the graph below is not necessarily indicative of future
price performance.

                              [PERFORMANCE GRAPH]

<TABLE>

----------------------------------------------------------------------------------------------------------
Company /Index Name                         5/31/96     5/31/97    5/31/98    5/31/99   5/31/00    5/31/01
---------------------------------------     -------     -------    -------    -------   -------    -------
<S>                                         <C>         <C>        <C>        <C>       <C>        <C>
Pacific Aerospace & Electronics, Inc.        100.00       74.82     149.88      41.32     30.56       5.13

S&P 500                                      100.00      126.78     163.02     194.56    212.31     187.68

S&P Aerospace                                100.00      120.48     126.16     127.38    101.58     144.59
----------------------------------------------------------------------------------------------------------
</TABLE>

1999 Stock Incentive Plan

The Company's shareholders adopted the Company's 1999 Stock Incentive Plan (the
"1999 Plan") in October 1999.  The Company has reserved for issuance under the
1999 Plan a maximum of 4,000,000 shares of common stock, subject to certain
adjustments.  Under the 1999 Plan, the plan administrator may award incentive
stock options ("ISOs") to key employees, and may award non-qualified stock
options ("NSOs"), stock appreciation rights ("SARs"), stock and cash bonus
awards, restricted stock, and performance units to employees and certain non-
employees (other than non-employee directors) who have important relationships
with the Company or its subsidiaries. However, no person may receive options to
purchase more than 1,000,000 shares in any one year.  As of May 31, 2001,
options to purchase an aggregate of 761,500 shares of common stock had been
granted under the 1999 Plan, of which options to purchase 7,500 shares had been
forfeited, leaving 3,246,000 shares available as of May 31, 2001 for future
grant under the 1999 Plan.  On June 1, 2001, an aggregate of 380,952 shares of
restricted stock

                                       10
<PAGE>

were issued to the Named Executives under the 1999 Plan in lieu of salary
increases, leaving 2,865,048 shares available as of June 1, 2001 for future
grant under the 1999 Plan.

The 1999 Plan is administered by the Option Committee of the Board of Directors,
which is comprised of disinterested directors in accordance with Rule 16b-3
under the Exchange Act, and of outside directors under Section 162(m) of the
Internal Revenue Code.  However, only the Board of Directors may amend or
terminate the 1999 Plan.  Unless terminated sooner by the Board of Directors,
the 1999 Plan expires in July 2009.  The 1999 Plan provides that, in general, a
vested option would have to be exercised within three months after the
optionee's employment or service with the Company or a subsidiary terminates.
However, options would be exercisable within 24 months following termination of
employment because of retirement, disability, or death, and options would
terminate automatically if an optionee were terminated for cause.  Options,
SARs, cash and stock bonus awards and performance units are nonassignable and
nontransferable except by will or by the laws of descent and distribution at the
time of the recipient's death.  On the date an ISO is granted, the aggregate
fair market value of the common stock issuable under ISOs available for exercise
during any calendar year, may not exceed $100,000.  ISOs must expire ten years
from the date of grant, and the exercise price must equal the fair market value
of the underlying shares of common stock at the date of grant.  ISOs may not be
granted to employees holding more than 10% of the Company's total voting power
unless (a) the exercise price is at least 110% of the common stock's fair market
value on the date of grant, and (b) the option is not exercisable until five
years after the date of grant.

Amended and Restated Stock Incentive Plan

The Company's shareholders adopted the Company's Amended and Restated Stock
Incentive Plan (the "1996 Plan") in October 1996.  The Company has reserved for
issuance under the 1996 Plan a maximum of 3,000,000 shares of common stock,
subject to certain adjustments.  As of May 31, 2001, options to purchase an
aggregate of 3,144,448 shares of common stock had been granted under the 1996
Plan, of which options for 25,000 shares had been exercised, and options for
268,000 shares had been forfeited, leaving 123,552 shares available as of May
31, 2001 for future grants under the 1996 Plan.  The terms and administration of
the 1996 Plan are substantially similar to those of the 1999 Plan.  The primary
differences between the 1999 Plan and the 1996 Plan relate to the termination
provisions for options.  Under the 1996 Plan, options would expire 12 months
after the termination of employment by reason of death or disability or within
three months after termination for any other reason except for cause.

Independent Director Stock Plan

The Company's shareholders adopted the Company's original Independent Director
Stock Plan in November 1995.  Following approval by the shareholders at the
Company's 1998 Annual Meeting, the plan was amended and restated.  The Company
has reserved for issuance under the Amended and Restated Independent Director
Stock Plan (the "Director Plan") a maximum of 500,000 shares of common stock,
subject to adjustments, issuable to directors who are not employees of the
Company or any of its subsidiaries.

The Director Plan is administered by the Compensation Committee of the Board of
Directors in accordance with Rule 16b-3 adopted under the Exchange Act. No
director may vote on any matter relating to an award held by such director. Only
the Board of Directors may suspend, amend or terminate the Director Plan. Unless
terminated sooner by the Board of Directors, the Director Plan expires on
October 2005.

Under the Director Plan, as amended in 1998, each Independent Director receives
fully-vested, non-qualified options to purchase up to 2,500 shares of common
stock upon election to the Board (the "Initial Award").  Each time an
Independent Director is elected to the Board (or on the date of each annual
shareholders' meeting during terms longer than one year), each Independent
Director receives an option to

                                       11
<PAGE>

purchase up to 10,000 shares of common stock (the "Annual Award"). Annual Awards
vest in full on the first anniversary of grant (the "Vesting Period") if the
Independent Director has attended at least 75% of the regularly scheduled Board
meetings during the Vesting Period. Otherwise the Annual Award is forfeited,
unless the Board of Directors votes unanimously to waive or modify the vesting
requirement. An unvested Annual Award will also be forfeited if the director
ceases to be an Independent Director during the Vesting Period for any reason
other than death or disability unless the Board votes unanimously to waive that
requirement. However, unvested Annual Awards automatically vest (a) if the
director is unable to continue due to disability or death, (b) upon the closing
of any merger, consolidation or plan of exchange in which the Company does not
survive, or (c) upon sale of all or substantially all of the Company's assets.
The exercise price of options granted under the Director Plan is based on the
fair market value of the Company's common stock for the five trading days prior
to the date of determination. No Independent Director may transfer any interest
in unvested Annual Awards to any person other than to the Company.

At May 31, 2001, 32,559 shares of common stock had been issued under the
Director Plan, and options to purchase an additional 139,137 shares of common
stock had been granted, 10,000 of which were forfeited, leaving 338,304 shares
available for issuance under the Director Plan.

Employee Stock Purchase Plan

The Company's shareholders adopted the Company's 1997 Employee Stock Purchase
Plan in October 1997 (the "Employee Stock Plan").  The Company has reserved for
issuance under the Employee Stock Plan a maximum of 1,000,000 shares of common
stock, subject to certain adjustments, for issuance to eligible employees of the
Company and its subsidiaries.  The Company pays all expenses relating to the
Employee Stock Plan except expenses related to the resale of shares acquired by
employees under the plan.  The Employee Stock Plan is administered by the
Compensation Committee of the Board of Directors.  The plan administrator
designated Salomon Smith Barney, Inc. as the plan's custodian to vote the shares
pursuant to the participants' instructions, keep the plan records, and provide
periodic statements to participants.

The Company's Board of Directors terminated the Employee Stock Plan on August
24, 2001. Between June 1, 2000 and May 31, 2001, between 100 and 142 employees
participated in the Employee Stock Plan each month, purchasing stock at prices
ranging between $0.1615 per share and $1.5938 per share.  During fiscal 2001, a
total of 407,092 shares of common stock were issued under the Employee Stock
Plan, and a total of 591,730 shares had been issued since inception of the plan,
leaving 408,270 shares available for issuance as of May 31, 2001.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders

The following table shows, to the best of the Company's knowledge based on the
records of the Company's transfer agent and the Company's records on issuances
of shares, as adjusted to reflect changes in ownership documented in filings
with the Securities and Exchange Commission made by certain shareholders and
provided to the Company pursuant to Section 16 of the Exchange Act, and
statements provided to the Company by certain shareholders, the common stock
owned as of August 27, 2001, by (1) each person known by the Company to own
beneficially more than 5% of the outstanding common stock; (2) each of the
Company's current directors; (3) the Named Executives; and (4) all executive
officers and the current directors of the Company as a group.  Except as
otherwise noted, the Company believes the persons listed below have sole
investment and voting power with respect to the common stock owned by them.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                             Amount and Nature of          Percentage of
Name and Address of Beneficial Owner:                      Beneficial Ownership (1)        Common Stock
-----------------------------------------------------  --------------------------------   ---------------
<S>                                                    <C>                               <C>
DDJ Capital Management, LLC(2)                                    4,036,978                     9.3%
141 Linden St. #S-4
Wellesley, MA 02482

Donald A. Wright(3)                                               2,985,705                     7.1%
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801

Werner Hafelfinger(4)                                               419,760                       *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801

Dale L. Rasmussen(5)                                                 30,492                       *
c/o IMPCO Technologies, Inc.
708 Industrial Drive
Tukwila, WA  98188

Gene C. Sharratt, Ph.D. (6)                                           2,500                       *
c/o North Central Educational Service District
P.O. Box 1847
Wenatchee, WA  98807

Robert M. Stemmler(7)                                                18,137                       *
c/o IMPCO Technologies, Inc.
16804 Gridley Place
Cerritos, CA  90703

William A. Wheeler(5)                                                28,092                       *
2011 Lombard Lane
Yakima, WA 98902

Sheryl A. Symonds(8)                                                352,962                       *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801

Nick A. Gerde(9)                                                    398,225                       *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801

All executive officers and current directors as a                 3,837,648                     8.9%
 group
(7 persons) (10)
</TABLE>
------------------
*    Less than 1%.

                                       13
<PAGE>

(1)  Shares that a person has the right to acquire within 60 days are treated as
     outstanding for determining the amount and percentage of common stock owned
     by such person but are not deemed to be outstanding as to any other person
     or group.

(2)  Includes warrants to purchase 4,036,978 shares of common stock at an
     exercise price of $.001 per share held by affiliates of DDJ Capital
     Management, LLC, as follows: B III Capital Partners, L.P. - 1,883,923
     shares; DDJ Canadian High Yield Fund - 538,263 shares; B III-A Capital
     Partners, L.P. - 807,396 shares; State Street Bank & Trust, Custodian -
     807,396 shares.

(3)  Includes (a) 4,000 shares issuable upon exercise of public warrants, (b)
     100,000 shares issuable upon exercise of another warrant, and (c) 2,207,560
     shares issuable upon exercise of vested stock options.

(4)  Includes 197,500 shares issuable upon exercise of vested stock options.

(5)  Includes 20,000 shares issuable upon exercise of vested stock options.
     Does not include 10,000 shares issuable upon exercise of unvested stock
     options.

(6)  Includes 2,500 shares issuable upon exercise of vested stock options.  Does
     not include 10,000 shares issuable upon exercise of unvested stock options.

(7)  Includes 16,637 shares issuable upon exercise of vested stock options.
     Does not include 10,000 shares issuable upon exercise of unvested stock
     options.

(8)  Includes (a) 500 shares issuable upon exercise of public warrants and (b)
     297,500 shares issuable upon exercise of vested stock options.

(9)  Includes (a) 4,000 shares issuable upon exercise of public warrants, (b)
     25,000 shares issuable upon exercise of another warrant, and (c) 283,556
     shares issuable upon exercise of vested stock options.  Mr. Gerde's
     employment with the Company terminated on August 15, 2001 and he is not a
     current director.

(10) Includes currently exercisable warrants and options to purchase up to
     2,846,197 shares of common stock.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Employment Agreements.  The Company has entered into employment agreements with
Donald A. Wright, Werner Hafelfinger and Sheryl A. Symonds.  The Company
terminated an employment agreement with Nick A. Gerde in August 2001 and entered
into a severance arrangement with Mr. Gerde.  See "Item 11 - Executive
Compensation - Employment Agreements."

Condominium.  In November 1998, the Company entered into a Condominium Purchase
and Sale Agreement (the "Condominium Agreement") with Donald A. Wright, the
Company's Chief Executive Officer, President, and Chairman of the Board.
Pursuant to the Condominium Agreement, Mr. Wright agreed to purchase from the
Company a residential condominium unit within the Company's headquarters
building for a total purchase price of $175,000.  At the time the Condominium
Agreement was executed, the condominium had not been completed.  Upon
completion, the condominium had a value higher than Mr. Wright's purchase price.
As a result, Mr. Wright requested that the purchase be rescinded.  The Board of
Directors agreed to rescind the purchase, but amended Mr. Wright's employment
agreement to require Mr. Wright to reside in the condominium unit.  Mr. Wright
pays rent on the condominium unit of $750.00 per month.  In addition, the Board
approved an Option to Purchase, which grants to Mr. Wright the right to purchase
the condominium unit.  The option became exercisable February 1, 2000.  The
purchase price would be:  (i)  $300,000 if the option is exercised on or after
February 1, 2001, but prior to February 1, 2002; and (ii) $250,000 if the option
is exercised on or after February 1, 2002.  In June 2001, the Board of Directors
voted to decrease the purchase price to $250,000 prior to February 1, 2002 if
Mr. Wright would agree to exercise the option, which he has not done to date.
The option terminates ten business days after Mr. Wright's employment
relationship with the Company ceases for any reason other than death.

NCESD Lease.  In August 2001, the Company entered into a lease agreement with
North Central Educational Services District (the "NCESD"), pursuant to which the
NCESD leased the second floor of the Company's Wenatchee headquarters building
from the Company for $6,183 per month for a term of 24 months.  In authorizing
the lease, the Board of Directors determined that the lease was made for fair
market value.  Gene C. Sharratt, a director of the Company, is Superintendent of
the NCESD.

                                       14
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.


Date:  September 27, 2001

                                   PACIFIC AEROSPACE & ELECTRONICS, INC.


                                   By /s/ DONALD A. WRIGHT
                                     --------------------------------------
                                     DONALD A. WRIGHT
                                     President and Chief Executive Officer

                                       15