##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year Ended December 31,
    2003                                             
|  
|or
|  
|o  |  | 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 0-13198



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Morton Industrial Group, Inc.

www.mortongroup.com


(Exact name of registrant as specified in its
charter)


|                                                                          |  |                                                         
|------------------------------------------------------------------------- |  | --------------------------------------------------------
|Georgia(State or other jurisdiction of
    Incorporation or organization) |  | 38-0811650(I.R.S. Employer Identification
    No.)      
|                                                                         
|1021 W. Birchwood,
    Morton, Illinois 61550                             |  | (309) 266-7176                                          
|(Address of principal executive
    offices)                              |  | (Registrants telephone number, including
    area code)

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

None


Securities registered pursuant to
section 12(g) of the Act:

Class A Common Stock, par value
$.01 per share

(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.     þ

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

The aggregate market value of the common stock
held by non-affiliates of the registrant (based upon the last
reported sale price on the Nasdaq Small Cap Market) on the last
day business day of the registrants most recently
completed second fiscal quarter was approximately $850,000.

As of March 19, 2004, the aggregate market
value of the Class A Common Stock held by non-affiliates
was approximately $2,000,000 and there were
4,560,547 shares of Class A Common Stock and
100,000 shares of Class B Common Stock issued and
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of the
Registrant for the Annual Meeting of Shareholders to be held in
June 2004 are incorporated by reference into Part III
hereof.



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TABLE OF CONTENTS



|                                    |                                                                                               |  |  |  |  |  |  | 
|----------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                             
|                                    | Item 1. Business                                                                             
|                                    | Item 2. Properties                                                                           
|                                    | Item 3. Legal Proceedings                                                                    
|                                    | Item 4. Submission of Matters to Vote of Security Holders                                    
|PART II                            
|                                    | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.               
|                                    | Item 6. Selected Financial Data                                                              
|                                    | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                    | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                    | Item 8. Financial Statements and Supplementary Data                                          
|                                    | Item 9A. Controls and Procedures                                                             
|PART III                           
|                                    | Item 10. Directors and Executive Officers of the Registrant.                                 
|                                    | Item 11. Executive Compensation.                                                             
|                                    | Item 12. Security Ownership of Certain Beneficial Owners and Management.                     
|                                    | Item 13. Certain Relationships and Related Transactions.                                     
|                                    | Item 14. Principal Accountant Fees and Services                                              
|PART IV                            
|                                    | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                   
|Sixth Amendment to Credit Agreement
|Credit Agreement                   
|Note and Warrant Purchase Agreement
|Investor Rights Agreement          
|Annual Report                      
|Subsidiaries of Registrant         
|Consent                            
|Certification                      
|Certification                      
|Certification                      
|Certification                      



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Safe Harbor Statement Under The
Private Securities Litigation Reform Act Of
1995:This annual report contains
forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934,
including statements containing the words
anticipates, believes,
intends, estimates, expects,
projects and similar words. The forward looking
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results to be materially
different from any future results expressed or implied by such
forward looking statements. Such factors include, among others,
the following: the loss of certain significant customers; the
cyclicality of our construction and agricultural sales; the
availability of working capital; general economic and business
conditions, both nationally and in the markets in which we
operate or will operate; competition; and other factors
referenced in the Companys reports and registration
statements filed with the Securities and Exchange Commission.
Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements.
The forward-looking statements contained herein speak only of
the Companys expectation as of the date of this annual
report. We disclaim any obligations to update any such factors
or publicly announce the result of any revisions to any of the
forward looking statements contained herein to reflect future
events or developments.




PART I






|        |         
|------- | --------
|Item 1. | Business

General Development of Business

On January 20, 1998, Morton Metalcraft
Holding Co. and its subsidiaries (Morton) merged
(the Merger) with MLX Corp. (MLX), with
MLX being the surviving corporation. As a result of the Merger,
Morton ceased to exist as a separate corporate entity and MLX
amended its Articles of Incorporation to change the corporate
name of MLX to Morton Industrial Group, Inc. (the Company).
Morton was engaged in the business of manufacturing fabricated
metal components for construction and agricultural original
equipment manufacturers and other industrial customers.

On April 15, 1999, we acquired from
Worthington Custom Plastics three manufacturing facilities that
produced plastic components for industrial original equipment
manufacturers. The Worthington acquisition expanded our plastic
product offerings to include appliance parts, electronics
housings and other injection molded and thermoformed plastic
products. These plastics facilities operated as Morton Custom
Plastics, LLC (MCP, LLC). On November 1, 2002, MCP, LLC,
filed for protection as debtor-in-possession under
Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware.
Before filing, MCP, LLC had negotiated the terms of an agreement
for sale of substantially all of its assets to
Wilbert, Inc., pursuant to an Asset Purchase Agreement.
Under the agreement, Wilbert, Inc. was also to assume the
liabilities of MCP, LLC under certain of their contracts and
leases. This sales transaction closed on December 24, 2002,
with the cash consideration applied to the reduction of MCP,
LLCs senior secured debt. The Company also operated an
injection molding business in Iowa until that operation was sold
in June, 2003. These sales allowed the Company to focus on its
core competency, manufacturing fabricated sheet metal components.

The Company operates its metal fabrication
operations in five facilities in Illinois, North Carolina and
South Carolina.

Narrative Description of Business



| |         
| | --------
| | Business



| |         
| | --------
| | Overview

We are a contract manufacturer of highly
engineered metal components and subassemblies for industrial,
construction, agricultural and recreational vehicle original
equipment manufacturers (OEMs). Our metal
products include cabs, engine enclosures, panels, platforms,
frames and complex weldments used in backhoes, excavators,
tractors, motor homes, beverage coolers and similar industrial
equipment. Our largest customers

1



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include Deere & Co. (Deere)
and Caterpillar Inc. (Caterpillar) who together
generated 88% of our 2003 net sales. Our five manufacturing
facilities are located in the Midwestern and Southeastern United
States in close proximity to their customers. We have no foreign
operations.




| |        
| | -------
| | Markets

Customers use our products in industrial,
construction, agricultural and recreational vehicle equipment.
As OEMs in these industries have intensified their focus
on core competencies, they have increasingly outsourced more of
their production parts to reduce costs. To effectively
manufacture products for OEMs, suppliers must invest in
technologically advanced equipment, develop in-house design
capabilities, and coordinate manufacturing and product delivery
with their customers.

Historically, our largest customers, Deere and
Caterpillar, have been supplied by a large number of local
suppliers that would each produce a small number of products. As
these OEMs have increased the complexity of their equipment and
become more dependent on component and subassembly suppliers,
they have reduced the size of their supplier base and have
established close relationships with a smaller number of
sophisticated suppliers who can provide a range of services,
including design engineering, prototyping, sophisticated quality
systems, and just-in-time delivery. The high levels of service
necessary to serve these customers, coupled with significant
tooling investments, have resulted in the sole-sourcing of many
products rather than dual or multi-sourcing. Currently, we are
the sole-source provider of over 85% of the products that we
supply to our customers. As these customers continue to reduce
the size of their supplier base and outsource a growing
percentage of their product needs, we expect to become the
sole-source provider on an increasing number of products.

Virtually all of our customers are located in the
United States, and we do not have material sales to foreign
customers.



| |                     
| | --------------------
| | Industrial Equipment

We produce a range of components and
subassemblies for equipment used in a variety of industrial
applications. Our products are used in store fixtures and power
generators. Customers in the industrial equipment area generally
serve stable or growth markets, and these customers include
Caterpillar and Hallmark. Industrial equipment products account
for approximately 22% of our 2003 net sales.



| |                       
| | ----------------------
| | Construction Equipment

The $18 billion U.S. construction equipment
industry includes construction, earth moving and forestry
equipment, as well as some material handling equipment, lifts,
off-highway trucks and a variety of machines for specialized
industrial applications. Caterpillar and Deere dominate the
U.S. construction equipment industry, and together
accounted for approximately 50% of total unit sales in 2003. We
supply metal components and subassemblies, such as engine
enclosures, cabs, platforms, frames and complex weldments. Our
customers use these products in backhoes, excavators, wheel
loaders, skid-steer loaders, lifts and similar construction
equipment. Our sales per construction equipment vehicle range
from $500 to $2,500. Construction equipment products account for
approximately 65% of our 2003 net sales.



| |                       
| | ----------------------
| | Agricultural Equipment

The $15 billion U.S. agricultural
equipment industry includes large, relatively expensive products
such as tractors, combines and other farming equipment. Deere
and Caterpillar accounted for approximately 35% of total
agricultural equipment unit sales in 2003. We supply metal
components and subassemblies such as steps, grills, and landing
decks. Our sales per agricultural equipment vehicle range from
$200 to $3,000. Agricultural equipment products account for
approximately 13% of our 2003 net sales.

2



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| |                      
| | ---------------------
| | Products and Services



| |         
| | --------
| | Products

Our investments in modern equipment and systems
have allowed us to produce a broad line of highly engineered
components and subassemblies. We strive to meet customers
needs for design engineering, prototyping, product fabrication
and just-in-time delivery.



| |                        
| | -----------------------
| | Sheet Metal Fabrication

Our sheet metal fabrication capabilities include
laser and plasma cutting, forming, punching, welding, painting
and assembly processes. Our sheet metal fabrication processes
operate on information created by CAD/ CAM software, utilize
optic laser cutting machines to cut parts at high speeds and use
robotic welders to complement manual welding operations. Our
painting operations are capable of producing the wide variety of
paint finishes required by customers.

Fabricated Sheet Metal Products Include:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sheet Metal Enclosures and Boxes generator set enclosures, electrical
    and battery boxes, panels, doors, hoods and covers used in
    backhoes, excavators and tractors.                                                                                 
|
| |  | Special Weldments lift arms, seat modules, frames,
    guards, platforms, step assemblies and cabs used in backhoes,
    excavators, crawlers, tractors and skid steer loaders; and
    components for refuse haulers.                                      
|
| |  | Fabricated Steel Tanks fuel and hydraulic fluid reservoirs
    used in motor graders, trucks, crawlers, wheel loaders and
    excavators.                                                                                                                   
|
| |  | Sheet Metal Component Packages laser cut and formed parts that are
    used in higher level assemblies at customer locations. These
    products include brackets, plates and frame components that are
    used in a wide variety of customer end products.
|
| |  | Store Fixtures backframes, lights and brackets used
    in store displays and commercial refrigeration units.                                                                                                                                               



| |         
| | --------
| | Services

We offer our customers a number of services
described below:



| |                               
| | ------------------------------
| | Product Design and Development

This service category includes design,
development, analysis and costing for our products. We prefer to
and often work with customers in the early stages of designing
their products.



| |                     
| | --------------------
| | Prototyping/ Tooling

This service category includes prototyping,
tooling and pre-production steps in the manufacturing process.
Our dedicated prototype and tooling departments work with
customers throughout development efforts, allowing for a smooth
introduction of new products.



| |                                           
| | ------------------------------------------
| | Part Decorating and Exterior
    Finishing

This service category includes a number of
decorating operations such as liquid and powder coat painting
and decal application.



| |                      
| | ---------------------
| | Just-In-Time Delivery

This service category includes providing
customers the ability to order products in low lot sizes with
minimal lead time enabling them to reduce their overall order
cycle time. We also provide deliveries that are specially
sequenced to customers manufacturing schedules.

3



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| |                                    
| | -----------------------------------
| | Engineering and Design Capabilities

Engineering capabilities have become increasingly
emphasized as suppliers provide design services for new
projects. Computer aided design capabilities include
Pro/ENGINEER, Anvil 1000/5000, Apollo, Merry Mechanization and
CADKEY. We have focused our computer aided design investment on
the Pro/ENGINEER system during the last several years because
Pro/ENGINEER is the preferred system of the majority of our
customers. Computer aided design allows us to download completed
and approved designs directly to production equipment in most
plants. The resulting direct interaction between customers
designers and our engineers facilitates joint development of new
components and redesigns of old parts.



| |                     
| | --------------------
| | Systems and Controls

Consistent with our emphasis on technology,
computer systems and controls are an integral part of our
operating strategy. We have invested heavily in management
information systems and computer aided design capabilities and
control functions, particularly during the last several years.
We also use computer systems to provide timely performance
measurements of shop floor quality and activity, daily actual
cost information for each factory, electronic data interchange
with major customers, real-time dispatching of work orders,
integration of purchasing information with production
scheduling, capacity management and inventory information.

Sales and Marketing

To better serve our customers, we have combined
our sales and engineering organizations. The sales and
engineering group has primary responsibility for managing
relationships with customers and working with them to design new
products. Our customers are serviced by account teams led by an
account manager and include representatives from our primary
functional areas. These areas include engineering and customer
service. Account teams work with the customer to design products
and produce prototypes, schedule production and monitor quality
and customer satisfaction. Our account managers also lead the
new business development process, working with customers to
obtain details of new outsourcing programs, new products
currently being designed and existing products which will be
redesigned. We believe that the structure of our sales and
marketing organization helps to ensure cooperation in product
design and helps us to gain repeat and new business from our
customers.

Manufacturing/ Production

We use a range of manufacturing processes to
serve the needs of our customers. Using these processes, we can
manufacture products ranging from simple metal parts to more
complex metal subassemblies. Our design and engineering
capabilities provide us with a competitive edge in obtaining and
maintaining preferred supplier status with our customers.

Sheet Metal
Fabrication.Our sheet metal
fabrication capabilities include laser cutting, punching,
forming, folding, welding, painting and assembly processes. Our
sheet metal fabrication processes, operating on information
created by Pro/ENGINEERING software, use optic laser cutting
machines to cut parts at high speeds. We use robotic welders to
complement our manual welding operations. Our painting
operations are capable of producing the wide variety of paint
finishes required by our customers.

Raw Materials

The primary raw materials that we use are sheet
steel, assembly parts and paint. Prices of these raw materials
fluctuate, although the price of our most significant raw
material, steel, has been slowly increasing since 2002.
Recently, steel prices have increased as steel supply has
tightened, due in part to the national economic recovery,
Chinas growing steel consumption, and reduced domestic
steel production capacity. We expect that this trend will
continue through 2004, and there could be periods when steel is
not available on demand. We will work with our steel suppliers
to attempt to address these issues. Historically we have been
able to negotiate with our customers to have them absorb
increases in our raw material costs. In addition, we have
generally passed on reductions in our raw material costs to our
customers. We also participate in the steel

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purchase programs of certain major customers
which lowers our cost for steel. Generally, we purchase our raw
materials from multiple suppliers, and we believe that the
prices we obtain are competitive.


Competition

The manufacturing and supplying of highly
engineered metal products to original equipment manufacturers is
a fragmented and highly competitive business, with no single
supplier having significant market share. We believe suppliers
with a strong management team, a range of capabilities,
modernized facilities and technologically sophisticated
equipment like us are more likely to benefit from original
equipment manufacturers increased outsourcing of
production than other participants in the industry lacking such
assets. However, competitive pressures or other factors could
cause us to lose market share or could result in a significant
price erosion with respect to our products.

Regulatory/ Environmental Matters

Our operations are subject to numerous federal,
state and local environmental and worker health and safety laws
and regulations. We believe that we are in substantial
compliance with such laws and regulations and have not budgeted
any material capital expenditures for environmental control
facilities.

Financial Information about Industry
Segments

We have one continuing reportable
segment  contract metal fabrication. The contract
metal fabrication segment provides full-service fabrication of
parts and sub-assemblies for the construction, agricultural, and
industrial equipment industry.

Backlog

Our backlog of orders was approximately
$99 million at December 31, 2003, and $95 million
at December 31, 2002. We anticipate that we will
substantially fill all of the December 31, 2003, backlog
orders during the current year.

Patents, Trademarks, Licenses, Franchises, and
Concessions; Research and Development

We hold no material patents, trademarks,
franchises, or concessions. We are the licensee under a number
of software licenses that we use in our design, production, and
other business operations. All of these licenses have customary
terms and conditions. Our research and development expenditures
are not material.

Working Capital Items

Our working capital requirements reflect several
business factors. Our working capital requirements are typically
greater during the second half of the calendar year because both
Deere & Co. and Caterpillar, Inc. suspend
operations for two weeks of vacation time during July and/or
August. Production operations of both of these customers also
slow during the last two weeks of December. During these
periods, we must rely more heavily on our credit facilities for
liquidity. Additional discussion regarding working capital can
be found in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Employees

As of February 28, 2004, we employed 1,167
employees, of which 977 were hourly and 190 were salaried. None
of these employees was subject to a collective bargaining
agreement. We believe our relationship with our employees is
good.

Internet

You can find our web site at
www.mortongroup.com. At this website, click
on the Annual Report link; you can choose to view the latest
Annual Report on file, or you can click SEC Offsite
Filings to link to the SEC website that provides all of the
Companys SEC filings since 1997.

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|        |           
|------- | ----------
|Item 2. | Properties

The following table presents summary information
regarding our facilities. The properties are owned except where
indicated by the word leased. Lease terms for these
facilities expire between 2004 and 2008. Our facilities are
generally located in close proximity to our customers.

|                               |            |         |         |                       |  |                                           |                                            
|------------------------------ | ---------- | ------- | ------- | --------------------- |  | ----------------------------------------- | -------------------------------------------
|                               |            | Approx. |         |                      
|Location                       |            | Sq. Ft. |         | Products Manufactured
|                               |            |         |         |                      
|1021 West Birchwood Street,    |            |         |         |                       |  |                                          
|                               | Morton, IL |         |         | 280,000               |  |                                           | Sheet metal enclosures and boxes, sheet    
|                               |            |         |         |                       |  |                                           | metal component packages, store fixtures   
|                               |            |         |         |                       |  |                                           | and tractor frames                         
|                              
|400 Detroit Avenue, Morton, IL |            |         |         |                       |  |                                          
|                               | (leased)   |         |         | 155,000               |  |                                           | Special weldments, including seat modules, 
|                               |            |         |         |                       |  |                                           | cabs and fabricated steel tanks            
|                              
|231 Detroit Avenue, Morton, IL |            |         |         |                       |  |                                          
|                               | (leased)   |         |         | 40,000                |  |                                           | Raw materials and components storage       
|                              
|Apex, NC (leased)              |            |         | 100,000 |                       |  | Special weldments, sheet metal enclosures
|                               |            |         |         |                       |  |                                           | and boxes, sheet metal component packages  
|                               |            |         |         |                       |  |                                           | and fabricated steel tanks                 
|                              
|Honea Path, SC                 |            |         | 30,000  |                       |  | Store fixtures and sheet metal component 
|                               |            |         |         |                       |  |                                           | packages                                   
|                              
|Welcome, NC                    |            |         | 185,000 |                       |  | Sheet metal enclosures and boxes, special
|                               |            |         |         |                       |  |                                           | weldments, fabricated steel tanks and sheet
|                               |            |         |         |                       |  |                                           | metal component packages                   

In addition to manufacturing operations, our
1021 W. Birchwood Street complex in
Morton, Illinois, houses the senior management of the
Company.

While we own much of the equipment used in our
operations, we also use customer-owned tooling and equipment as
well as equipment under operating leases. We believe our
facilities are adequate to satisfy current and reasonably
anticipated production requirements.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Worthington

On May 1, 2000, Worthington
Industries, Inc. (Worthington) filed suit (in
the United States District Court for the Southern District of
Ohio, Eastern Division (the Court)) against us and
Morton Custom Plastics, LLC (MCP, LLC) related to
MCP, LLCs 1999 acquisition of the non-automotive plastics
business from Worthington. Worthington claimed that it was owed
additional amounts under the sale agreement and a related
service agreement, and that it was owed dividends on shares of
our preferred stock that it received. We believed that certain
warranties and representations made by Worthington at the time
of acquisition were breached and that amounts claimed by
Worthington were not due. We had filed a counterclaim against
Worthington related to these matters. In connection with a
preferred stock redemption agreement dated December 23,
2003, the parties settled all litigation between the Company and
Worthington. The Court entered an order of dismissal of the
Worthington lawsuit on January 20, 2004.

The Company is also involved in routine
litigation. Management does not believe any legal proceedings
would have a material adverse effect on the Companys
financial condition, results of operations or cash flows.

6



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##### Table of Contents








|        |                                                      
|------- | -----------------------------------------------------
|Item 4. | Submission of Matters to Vote of Security
    Holders

Not applicable




PART II






|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters.

Effective April 11, 2001, the Companys
ticker symbol on the Nasdaq Small Cap Market was MGRP. Effective
August 1, 2002, trading of the Companys Class A
common stock moved to the OTC Bulletin Board (the Company
elected not to appeal a notice from the Nasdaq Listing
Qualifications Department to delist the Companys
Class A common stock). Subsequent to this change, the
Companys ticker symbol was changed to MGRPE. Effective
September 27, 2002, the trading of the Companys
Class A common stock was moved to OTC. Upon this change,
the Companys ticker symbol changed to MGRP.

The following table sets forth for 2002 and 2003
the quarterly high and low bid prices and, with respect to the
OTC market high and low bid quotations. OTC market quotations
reflect interdealer prices, without retail mark-up, mark-down,
or commission, and may not necessarily represent actual
transactions.

|     |                          |      |   |       |  |  |   |       | 
|---- | ------------------------ | ---- | - | ----- |  |  | - | ----- | 
|     |                          | High |   | Low  
|     |                          |      |   |      
|2003 |                          |      |   |       |  |  |   |      
|     | October 1 to December 31 |      | $ | 0.850 |  |  | $ | 0.200 | 
|     | July 1 to September 30   |      | $ | 0.700 |  |  | $ | 0.150 | 
|     | April 1 to June 30       |      | $ | 0.650 |  |  | $ | 0.200 | 
|     | January 1 to March 31    |      | $ | 0.550 |  |  | $ | 0.100 | 
|2002 |                          |      |   |       |  |  |   |      
|     | October 1 to December 31 |      | $ | 0.350 |  |  | $ | 0.010 | 
|     | July 1 to September 30   |      | $ | 0.350 |  |  | $ | 0.040 | 
|     | April 1 to June 30       |      | $ | 1.050 |  |  | $ | 0.120 | 
|     | January 1 to March 31    |      | $ | 1.200 |  |  | $ | 0.320 | 

We obtained the foregoing information from
research services made available by Nasdaq for the first two
quarters of 2002, and by Pink Sheets for the last two quarters
of 2002 and all of 2003.

As of March 19, 2004 there were 3,293
holders of record and 1,690 beneficial holders of our
Class A Common Stock.

We did not declare or pay any common stock
dividends in our fiscal years ended December 31, 2003 and
2002. Our credit agreements preclude the payment of dividends.

During the year ended December 31, 2003, we
did not issue any shares of capital stock that were unregistered
under the Securities Act of 1933.

On September 20, 2000, the Company issued
warrants to purchase 238,548 shares of its Class A
common stock to its bank lenders. The warrants, as amended, were
exercisable at any time through December 31, 2006 at an
exercise price of $.01 per share. On March 26, 2004,
in connection with a refinancing described in Item 7, the
holders surrendered these warrants.

On March 26, 2004, in connection with the
refinancing described in Item 7, we issued our lenders
545,467 warrants to purchase Class A shares of common stock
at an exercise price of $0.02 per share. The warrants
expire March 26, 2014.

7



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As of December 31, 2003, under our 1997
Stock Option Plan, issued and outstanding stock options are as
follows:

|          |         |          |  |                 |       |             |  |               |  |  |         | 
|--------- | ------- | -------- |  | --------------- | ----- | ----------- |  | ------------- |  |  | ------- | 
|          |         |          |  |                 |       | Number of  
|Number of |         | Exercise |  |                 |       | Shares     
|Shares    |         | Price    |  | Expiration Date |       | Exercisable
|          |         |          |  |                 |       |            
|          | 51,650  |          |  | $               | 1.875 |             |  | February 2011 |  |  | 34,433  | 
|          | 75,000  |          |  |                 | 0.325 |             |  | June 2012     |  |  | 25,000  | 
|          | 600,000 |          |  |                 | 0.150 |             |  | February 2013 |  |  |        | 
|          | 30,000  |          |  |                 | 0.250 |             |  | April 2013    |  |  | 30,000  | 
|          | 72,500  |          |  |                 | 0.250 |             |  | August 2013   |  |  | 72,500  | 
|          | 10,000  |          |  |                 | 0.300 |             |  | November 2013 |  |  |        | 
|          |         |          |  |                 |       |             |  |               |  |  |         | 
|          | 839,150 |          |  |                 |       |             |  |               |  |  | 161,933 | 
|          |         |          |  |                 |       |             |  |               |  |  |         | 

In addition to these options, we could grant an
additional 327,561 options.

8



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Selected Historical Financial Data

Set forth below are certain selected historical
financial data. This information should be read in conjunction
with our financial statements and the related notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included herein. The
financial data is derived from our audited financial statements.

|                                                                                                           |                                                           |                         |         |       |   |      |         |       |   |      |         |       |   |   |         |       |   |   |         |      | 
|---------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------- | ------- | ----- | - | ---- | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ---- | 
|                                                                                                           |                                                           |                        
|                                                                                                           |                                                           | Year Ended December 31,
|                                                                                                           |                                                           |                        
|                                                                                                           |                                                           | 1999                    |         | 2000  |   | 2001 |         | 2002  |   | 2003
|                                                                                                           |                                                           |                         |         |       |   |      |         |       |   |     
|Operating data:                                                                                            |                                                           |                         |         |       |   |      |         |       |   |      |         |       |   |   |         |       |   |   |         |     
|Net sales                                                                                                  |                                                           | $                       | 102,885 |       |   | $    | 147,417 |       |   | $    | 127,103 |       |   | $ | 116,567 |       |   | $ | 131,431 |     
|Cost of sales                                                                                              |                                                           |                         | 88,987  |       |   |      | 128,007 |       |   |      | 111,358 |       |   |   | 101,522 |       |   |   | 113,318 |     
|Gross profit                                                                                               |                                                           |                         | 13,898  |       |   |      | 19,410  |       |   |      | 15,745  |       |   |   | 15,045  |       |   |   | 18,113  |     
|Selling and administrative expenses                                                                        |                                                           |                         | 14,120  |       |   |      | 12,874  |       |   |      | 13,131  |       |   |   | 12,170  |       |   |   | 13,362  |     
|Restructuring charges                                                                                      |                                                           |                         |        |       |   |      |        |       |   |      | 1,323   |       |   |   |        |       |   |   |        |     
|Operating income (loss)                                                                                    |                                                           |                         | (222    | )     |   |      | 6,536   |       |   |      | 1,291   |       |   |   | 2,875   |       |   |   | 4,751   |     
|Gain (loss) on sale of business units and other                                                            |                                                           |                         | 2,327   |       |   |      | (248    | )     |   |      | (610    | )     |   |   | 365     |       |   |   | 442     |     
|Interest expense, net                                                                                      |                                                           |                         | (4,454  | )     |   |      | (7,376  | )     |   |      | (6,706  | )     |   |   | (4,228  | )     |   |   | (3,084  | )   
|Interest on redeemable preferred stock                                                                     |                                                           |                         |        |       |   |      |        |       |   |      |        |       |   |   |        |       |   |   | (427    | )   
|Earnings (loss) before income taxes, accounting
    change and discontinued operations                     |                                                           |                         | (2,349  | )     |   |      | (1,088  | )     |   |      | (6,025  | )     |   |   | (988    | )     |   |   | 1,682   |     
|Income taxes                                                                                               |                                                           |                         | (643    | )     |   |      | (632    | )     |   |      | 1,242   |       |   |   | (288    | )     |   |   | 426     |     
|Earnings (loss) before discontinued operations
    and cumulative effect of change in accounting principle |                                                           |                         | (1,706  | )     |   |      | (456    | )     |   |      | (7,267  | )     |   |   | (700    | )     |   |   | 1,256   |     
|Net income (loss) from operations of discontinued
    plastics operations                                  |                                                           |                         | (5,951  | )     |   |      | 1,048   |       |   |      | (9,454  | )     |   |   | 6,790   |       |   |   | 85      |     
|Earnings (loss) before cumulative effect of
    accounting change                                          |                                                           |                         | (7,657  | )     |   |      | 592     |       |   |      | (16,721 | )     |   |   | 6,090   |       |   |   | 1,341   |     
|Cumulative effect of change in accounting
    principle                                                    |                                                           |                         | (1,074  | )     |   |      |        |       |   |      |        |       |   |   | (8,118  | )     |   |   |        |     
|Net earnings (loss)                                                                                        |                                                           |                         | (8,731  | )     |   |      | 592     |       |   |      | (16,721 | )     |   |   | (2,028  | )     |   |   | 1,341   |     
|Accretion of discount on preferred shares                                                                  |                                                           |                         | (1,129  | )     |   |      | (898    | )     |   |      | (1,066  | )     |   |   | (1,265  | )     |   |   | (715    | )   
|Net earnings (loss) available to common
    shareholders                                                   |                                                           |                         | (9,860  | )     |   |      | (306    | )     |   |      | (17,787 | )     |   |   | (3,293  | )     |   |   | 626     |     
|Earnings (loss) per share  basic:                                                                         |                                                           |                         |         |       |   |      |         |       |   |      |         |       |   |   |         |       |   |   |         |     
|                                                                                                           | Earnings (loss) from continuing operations                |                         |         | (0.63 | ) |      |         | (0.30 | ) |      |         | (1.81 | ) |   |         | (0.42 | ) |   |         | 0.12 | 
|                                                                                                           | Earnings (loss) from discontinued operations              |                         |         | (1.32 | ) |      |         | 0.23  |   |      |         | (2.06 | ) |   |         | 1.46  |   |   |         | 0.02 | 
|                                                                                                           | Cumulative effect of a change in accounting
    principle |                         |         | (0.24 | ) |      |         |      |   |      |         |      |   |   |         | (1.75 | ) |   |         |     | 
|                                                                                                           | Total earnings (loss) per share                           |                         |         | (2.19 | ) |      |         | (0.07 | ) |      |         | (3.87 | ) |   |         | (0.71 | ) |   |         | 0.14 | 
|Earnings (loss) per share  diluted:                                                                       |                                                           |                         |         |       |   |      |         |       |   |      |         |       |   |   |         |       |   |   |         |     
|                                                                                                           | Earnings (loss) from continuing operations                |                         |         | (0.63 | ) |      |         | (0.30 | ) |      |         | (1.81 | ) |   |         | (0.42 | ) |   |         | 0.11 | 
|                                                                                                           | Earnings (loss) from discontinued operations              |                         |         | (1.32 | ) |      |         | 0.23  |   |      |         | (2.06 | ) |   |         | 1.46  |   |   |         | 0.02 | 
|                                                                                                           | Cumulative effect of a change in accounting
    principle |                         |         | (0.24 | ) |      |         |      |   |      |         |      |   |   |         | (1.75 | ) |   |         |     | 
|                                                                                                           | Total earnings (loss) per share                           |                         |         | (2.19 | ) |      |         | (0.07 | ) |      |         | (3.87 | ) |   |         | (0.71 | ) |   |         | 0.13 | 

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|                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                       |  |                        
|                                       |  | Year Ended December 31,
|                                       |  |                        
|                                       |  | 1999                    |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                                       |  |                         |         |      |  |      |         |      |  |     
|Financial position (at end of period): |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Working capital                        |  | $                       | 10,011  |      |  | $    | 12,774  |      |  | $    | (1,475  | ) |  | $ | (2,294  | ) |  | $ | (6,818  | )
|Total assets                           |  |                         | 125,908 |      |  |      | 130,533 |      |  |      | 106,517 |   |  |   | 56,853  |   |  |   | 48,822  |  
|Total debt                             |  |                         | 90,956  |      |  |      | 88,357  |      |  |      | 79,138  |   |  |   | 45,102  |   |  |   | 38,541  |  
|Stockholders equity (deficit)         |  | $                       | (3,754  | )    |  | $    | (3,157  | )    |  | $    | (20,944 | ) |  | $ | (24,224 | ) |  | $ | (23,598 | )






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

MANAGEMENTS DISCUSSION AND ANALYSIS
OF

FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


The following discussion should be read in
conjunction with our consolidated financial statements and the
notes thereto included elsewhere in this annual report.

General

We are a contract manufacturer of highly
engineered metal components and subassemblies for construction,
agricultural and industrial original equipment manufacturers.
Our largest customers, Caterpillar Inc. and Deere & Co.,
accounted for approximately 88% and 87% of our net sales in 2003
and 2002, respectively.

Historically, the Company has been a fabricator
of sheet metal products. Subsequent to a merger in January,
1998, when the Company became a publicly-traded entity, the
Company acquired six facilities that fabricated either injection
molded or thermoformed plastic components. Two of the plastics
fabrication facilities were acquired separately in 1998, and
four were acquired together in 1999. One of the plastics
fabrication facilities acquired in 1998 was sold at the end of
1999. The four plastics fabrication facilities acquired together
in 1999 were sold in December, 2002. These four facilities,
operating as Morton Custom Plastics, LLC, were incurring
significant losses and filed for protection as
debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code. At the time of the sale of Morton Custom
Plastics, LLC, the Company determined that is was appropriate to
focus solely on its core competency, sheet metal fabrication,
and offered for sale its remaining plastics fabrication
facility, which was sold in June, 2003. In the Companys
accompanying financial statements, all of the plastics
fabrication results are reported as discontinued operations.

As a part of the 1999 plastics facilities
acquisition, the Company issued $10 million of redeemable
preferred stock with a maturity date of April 2004. The Company
negotiated a settlement in December 2003 with the holder of the
preferred stock, and began making redemption payments in
January, 2004. If the redemption payments are paid according to
the terms of the settlement agreement, the payments will
aggregate $1.5 million over a three-year period ending in
2006.

Since June, 2003, the Company has focused solely
on its core business, sheet metal fabrication (the
Companys continuing operations). The Company recognized
earnings of over $1.2 million from its continuing
operations in 2003, but had incurred losses from its continuing
operations in 2001 and 2002 when demand by the Companys
customers was depressed. These losses from continuing operations
as well as the acquisition and subsequent disposition of certain
plastics facilities created pressure on our liquidity.

To take advantage of the potential for growth in
2004 and beyond, and to be able to effectively serve our
customers, we must be able to ensure an adequate flow of raw
materials into our production processes, be able to hire and
train additional employees and be able to fund our need for new
manufacturing equipment and meet our other working capital
needs. Accordingly, the Company entered into a new credit
facility in March 2004 that is described below. The new credit
facility provided additional availability at the closing of
approximately $5 million. Management believes that the new
credit facility will permit the Company to meet

10



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its liquidity requirements driven by raw
material, manpower and capital expenditure requirements through
the term of the facility, which matures in March, 2008.


As noted above, two customers account for a
significant portion of our net sales. Caterpillar, Inc. and
Deere & Co. are both forecasting greater orders for
fabricated parts supplied by Morton Metalcraft Co. for 2004. We
believe that this demand is being fueled by the improved
economic conditions in the United States. The Company is
responding by hiring additional manpower, adding capital
equipment as necessary and increasing the flow of purchased raw
materials in a difficult steel market. The U.S. steel industry
has restructured, consolidated and is challenged to meet growing
domestic and international demand. The steel industry has been
impacted by Chinas growing consumption of scrap steel and
coke, a raw material used in processing steel. Cosmetically
sensitive sheet steel, our core commodity, is on allocation and
has correspondingly seen inflationary pricing; most inflationary
steel pricing becomes the responsibility of the customer.

In pricing our products, we consider the volume
of the product to be manufactured, required engineering
resources and the complexity of the product. Our customers
typically expect us to offset any manufacturing cost increases
with improvements in production flow, efficiency, productivity
or engineering redesigns. As a part of their supplier
development programs, our primary customers initiate cost
improvement efforts on a regular basis. At the conclusion of any
such effort, when savings can be documented, we share the
savings with our customer.

Results of Operations

The following table presents certain historical
financial information expressed as a percentage of our net sales.

|                                                                                                            |  |                         |       |      |  |      |       |   |  |  |       |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                            |  |                        
|                                                                                                            |  | Year Ended December 31,
|                                                                                                            |  |                        
|                                                                                                            |  | 2001                    |       | 2002 |  | 2003
|                                                                                                            |  |                         |       |      |  |     
|Statements of Operations Data:                                                                              |  |                         |       |      |  |      |       |   |  |  |       |  
|Net sales                                                                                                   |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Gross profit                                                                                                |  |                         | 12.4  |      |  |      | 12.9  |   |  |  | 13.8  |  
|Selling and administrative expenses                                                                         |  |                         | 10.3  |      |  |      | 10.4  |   |  |  | 10.2  |  
|Restructuring charges                                                                                       |  |                         | 1.0   |      |  |      |      |   |  |  |      |  
|Operating income                                                                                            |  |                         | 1.0   |      |  |      | 2.5   |   |  |  | 3.6   |  
|Interest expense, net                                                                                       |  |                         | 5.3   |      |  |      | 3.6   |   |  |  | 2.3   |  
|Earnings (loss) before income taxes, discontinued
    operations and cumulative effect of accounting change |  |                         | (4.7  | )    |  |      | (.8   | ) |  |  | 1.3   |  



| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2003 versus
    Year Ended December 31, 2002

Net sales for the year ended December 31,
2003 were $131.4 million compared to $116.6 million
for the year ended December 31, 2002, an increase of
$14.8 million or 12.8%. The sales increase resulted
primarily from increased unit demand by existing customers of
construction-related equipment components. Our
construction-related revenues increased by over 25% and
accounted for nearly two-thirds of our 2003 revenue, while our
agricultural-related revenues declined over 35%. Most of the
revenue growth came from sales to our two largest customers,
Deere & Co. and Caterpillar. Based upon customer
forecasts and the addition of new customers, the Company
currently anticipates revenue growth for 2004 that could exceed
15%. Our ability to increase revenues at that rate will be
subject to a number of factors, including the continuing demand
that we now forecast, the availability of raw materials,
principally steel, and the availability of working capital to
support that growth. Recently, steel prices have increased as
steel supply has tightened, due in part to the national economic
recovery, Chinas growing steel consumption, and reduced
domestic steel production capacity. We expect that this trend
will continue through 2004, and there could be periods when
steel is not available on demand. We will work with our steel
suppliers to attempt to address these issues. Historically we
have been able to negotiate with our customers to have them
absorb increases in our raw material costs. In addition, we have
generally passed on reductions in our raw material costs to our
customers.

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##### Table of Contents



Sales to Caterpillar and Deere were approximately
88% and 87% of our net sales for 2003 and 2002, respectively.

Gross profit for the year ended December 31,
2003 was $18.1 million compared with $15.0 million for
the year ended December 31, 2002, an increase of
$3.1 million or 20.0%. The Companys gross profit
percentage increased to 13.8% from 12.9%. The gross profit
amount and percentage increased as a result of our absorbing
fixed costs over a larger revenue base, as well as our
continuing focus on cost savings programs including 6 Sigma
and various lean manufacturing concepts. We use internal metrics
to measure our success in achieving various productivity,
quality, on-time delivery and profitability goals.

Selling and administrative expenses for the year
ended December 31, 2003 amounted to $13.3 million, or
10.2% of sales, compared with $12.2 million, or 10.5% of
sales in the prior year. This increased cost relates primarily
to a higher sales volume.

Interest expense in the year ended
December 31, 2003 amounted to $3.1 million compared to
$4.2 million in 2002. This decrease resulted from lower
average levels of debt from year-to-year. The debt decreased as
a result of scheduled payments on the Companys term debt
and a reduction of revolving debt upon the sale of the
operations of Mid-Central Plastics in June 2003.

Other income of $442,000 for the year ended
December 31, 2003, resulted primarily from an unrealized
gain on interest rate swaps of $337,000 and interest income of
$105,000 on the notes receivable related to the sale of the
operations Mid-Central Plastics. Other income for the year ended
December 31, 2002 resulted primarily from an unrealized
gain of $365,000 on the Companys interest rate swaps.

Interest on redeemable preferred
stock relates to the accretion of the discount on
redeemable preferred stock for the six months ended
December 31, 2003. This classification in other expense
resulted from the implementation of FAS 150. For the first
six months of 2003, the accretion was classified as
accretion of discount on preferred shares.

We recognized total income tax expense of
$481,000 in 2003 on the total of pre-tax income from both
continuing and discontinued operations; this represents income
tax expense of $330,000 for Federal alternative minimum tax and
state income taxes. Also included in the tax expense is $151,000
representing a decrease in the overall deferred tax asset
recognized. The deferred tax assets represent the estimated
utilization of Federal net operating loss carryforwards in 2004.

The income from discontinued operations
represents the results of the operations of Mid-Central
Plastics, Inc. until the sale of those operations in June
2003.



| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2002 versus
    Year Ended December 31, 2001

Net sales for the year ended December 31,
2002 were $116.6 million compared to $127.1 million
for the year ended December 31, 2001, a decrease of
$10.5 million or 8.3%. The sales decrease resulted
primarily from decreased unit demand by customers, the soft
status of the general economy and some continuing modest pricing
pressure from major customers.

Sales to Caterpillar and Deere were approximately
87% and 91% of our net sales for 2002 and 2001, respectively.

Gross profit for the year ended December 31,
2002 was $15.0 million compared with $15.7 million for
the year ended December 31, 2001, a decrease of
$0.7 million or 4.4%. The Companys gross profit
percentage increased to 12.9% from 12.4%. The gross profit
percentage was reduced by increased raw materials costs, but
offset by reduced manufacturing costs resulting from various
manufacturing costs saving initiatives.

Selling and administrative expenses for the year
ended December 31, 2002 amounted to $12.2 million, or
10.4% of sales, compared with $13.1 million, or 10.3% of
sales in the prior year, a decrease of nearly $1.0 million
or 7.3%. This decreased expense related primarily to a
continuing effort to achieve appropriate employment levels for
selling and administration functions.

12



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##### Table of Contents



Interest expense in the year ended
December 31, 2002 amounted to $4.2 million compared to
$6.7 million in 2001. This decrease resulted from both
lower average levels of debt and lower average interest rates.

Other income for the year ended December 31,
2002 resulted primarily from an unrealized gain of $365,000 on
the Companys interest rate swaps. Other expense of
$610,000 for the year ended December 31, 2001, resulted
primarily from an unrealized loss on the Companys interest
rate swap.

We recognized an income tax benefit of
approximately $0.3 million in 2002, which represents a
Federal income tax refund. Deferred tax assets were decreased to
reflect lower anticipated utilization of income tax net
operating loss carryforwards than we estimated at the preceding
year end, due significantly to the sale of Morton Custom
Plastics, LLC. The charge related to the decrease in deferred
tax assets is included in discontinued operations. The
utilization of the income tax net operating loss carryforwards,
and the realization of deferred tax assets, is based upon the
Companys future ability to generate the estimated taxable
income.

The net income of discontinued operations of
approximately $6.8 million includes a gain on disposal of
approximately $17.8 million, operating losses of
approximately $8.9 million, an income tax benefit related
to Federal income tax refunds of approximately $1.2 million
and an income tax charge related to the decrease in deferred
income tax assets of approximately $3.4 million. The
operating losses of discontinued operations were comparable to
the 2001 total of $8.6 million. The discontinued operations
are discussed in more detail in Note 2 of the accompanying
financial statements.

In accordance with SFAS No. 142, the
Company has not amortized goodwill during the year ended
December 31, 2002. Had goodwill not been amortized during
2001, net earnings (loss) available to common stockholders for
the year 2001 would have been $(17.4) million, or $(3.78)
per share.

Net loss available to common stockholders
decreased from $(17.8) million for the year ended
December 31, 2001 to $(3.3) million for the year ended
December 31, 2002. This decreased net loss resulted
primarily from improved manufacturing processes on reduced
sales, reduced interest costs on lower debt levels, the benefits
of a Federal income tax refund, and a gain recognized on the
disposal of discontinued plastics operations, reduced by the
cumulative effect of change in an accounting principal of
$8.1 million to recognize impairment of goodwill.

Financial Position and Liquidity

Historically, we have funded our business with
cash generated from operations, management of our working
capital and borrowings under revolving credit and term loan
facilities. In the years ended December 31, 2001, 2002 and
2003 we generated cash from operating activities of
$12.4 million, $7.4 million and $10.3 million,
respectively. Our capital expenditures for the years ended
December 31, 2001, 2002 and 2003 were $4.4 million,
$4.0 million and $4.1 million, respectively. These
capital expenditures were principally for additions to improve
or maintain our manufacturing capacity and efficiency. We
reduced total debt by over $10.0 million in 2003, including
term loan reductions of $4.5 million, and a reduction of
the revolving line of credit of $5.3 million. The line of
credit reduction related primarily to the sale of the operations
of Mid-Central Plastics, Inc.

Our consolidated working capital at
December 31, 2003 was a deficit of $6.8 million
compared to a working capital deficit of $2.3 million at
December 31, 2002. This represents a decrease in working
capital of approximately $4.5 million. This working capital
decrease results from several factors, including the increase in
accounts payable related to business growth, and the balance
sheet reclassifications resulting from the sale of the
operations of Mid-Central Plastics, and the above referenced
reduction in long-term debt. The Company has addressed the need
for improved working capital by entering into an amended and
restated credit facility effective March 26, 2004.

In May 1998, the Company entered into both a
revolving credit facility and a term loan agreement with a
syndicate of banks led by Harris Trust and Savings Bank
(the Harris syndicate).

In February 2002, the Company entered into a new
secured revolving credit facility and a secured term loan with
the Harris syndicate. This is the credit facility that was in
effect as of December 31, 2003 and

13



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##### Table of Contents



through March 25, 2004. The 2002 agreements
have been amended six times, including the latest amendment on
March 15, 2004. Amendments through February 28, 2003
have been described in previous filings with the SEC. A summary
of the three amendments since February 28, 2003 is as
follows:




| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An amendment dated June 20, 2003 in
    connection with the sale of the operations of Mid-Central
    Plastics, Inc., including the Harris syndicate consent to
    the sale                                                                               
|
| |  | An amendment dated December 22, 2003 that
    provided an extension of the credit facility through
    April 1, 2005, and provided consent to enter into a
    settlement regarding the redeemable preferred stock held by
    Worthington Industries, Inc.
|
| |  | An amendment dated March 15, 2004 that
    amended the definition of the borrowing base and increased the
    limitation for capital expenditures for 2003.                                                                                                

The two following paragraphs describe the credit
facility, as amended on March 15, 2004, that was effective
as of December 31, 2003 and through March 25, 2004:

The revolving credit agreement permitted the
Company to borrow up to a maximum of $18.8 million. The
agreement requires payment of a quarterly commitment fee of
..50% per annum of the average daily unused portion of the
revolving credit facility. Interest was due monthly and was
based upon bank prime plus 1.5% (effective rate of 5.75% at
December 31, 2003). The Company, alternatively, could
select a LIBOR plus 4.0% interest rate. The amount available
under the revolving credit facility was limited to 85% of
qualified accounts receivable, 60% of eligible inventory, plus
$2.1 million of other assets. The revolving credit
agreement was to mature April 1, 2005. At December 31,
2003, the Company had $13.3 million outstanding and
$1.2 million available under this credit facility.

In February 2002, the Company also entered into a
secured term loan arrangement with the Harris syndicate for a
term loan of $33.0 million. The new Harris syndicate term
loan arrangement replaced existing term loans and did not
provide additional availability. The term loan under this
financing arrangement was amortized monthly with principal
payments ranging from $500,000 on January 2, 2004, $250,000
for the months of January through March, 2004 and $500,000 for
the months of April 2004 through March 2005 and the balance of
$16.0 million was due on April 1, 2005. Interest was
due monthly and is based upon bank prime plus 1.5% (effective
rate of 5.75% at December 31, 2003). The Company,
alternatively, could select a LIBOR plus 4.0% interest rate.

In connection with these Harris syndicate loans,
we granted the lender a first lien on all of the Companys
accounts receivable, inventory, equipment and various other
assets. These Harris syndicate debt agreements contain
restrictions on capital expenditures, additional debt or liens,
investments, mergers and acquisitions, asset sales and payments
such as dividends or stock repurchases. No amount was available
for payment of dividends at December 31, 2002 and 2003.

The agreements also impose various financial
covenants, including financial performance ratios. These debt
agreements contain restrictions on capital expenditures,
incurring additional debt or liens, making investments, mergers
and acquisitions, selling assets or making payments such as
dividends or stock repurchases, as well as containing various
financial covenants.

Pursuant to a 1999 agreement to purchase certain
assets of Worthington Custom Plastics, Inc.
(Worthington), the Company issued 10,000 shares
of its preferred stock, without par value, to Worthington. The
preferred stock was mandatorily redeemable on April 15,
2004 at $1,000 per share. The Company and Worthington have
entered into a stock redemption agreement, dated
December 23, 2003, that provides for 30 monthly
redemption payments of $50,000 each over a three year period (10
payments each year in 2004, 2005 and 2006) to fully redeem the
preferred stock. Each $50,000 payment and redemption of 333 (or
334) shares reduces the fully accreted $10 million face
value of the redeemable preferred stock by $333,000 (or
$334,000). If shares are not redeemed under the provisions of
this agreement, the redemption price remains at $1,000 per
share.

14



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##### Table of Contents



We incurred $4.1 million of capital
expenditures during 2003, primarily for updating and purchases
of manufacturing equipment. Of the $4.1 million of capital
expenditures, $3.9 million related to continuing operations.

We estimate that our capital expenditures for
continuing operations in 2004 will total approximately
$5.0 million, of which $2.0 million will be for new
production equipment and the remaining $3.0 million will be
for normal replacement items.

Historically, we have met our near term liquidity
requirements for our businesses with cash flow from operations,
the Harris line of credit, and management of our working capital
to reflect current levels of operations.

Management expects that cash flow from
operations, working capital management and availability under
the new bank revolving line of credit described below will
permit us to meet our liquidity requirements through the term of
the new credit facility.



| |                               
| | ------------------------------
| | March 26, 2004
    Refinancing

On March 26, 2004, the Company entered into
a Second Amended and Restated Credit Agreement with a syndicate
of banks led by Harris Trust and Savings Bank, As Agent, and
also on March 26, 2004, entered into a Note and Warrant
Purchase Agreement with BMO Nesbitt Burns Capital (U.S.) Inc.,
As Agent. These agreements were effective on March 26,
2004, and provided financing to replace the $13.25 million
revolving credit facility with the Harris syndicate and the
$23.3 million term note payable to the Harris syndicate as
described in Note 8 in the accompanying financial
statements. In connection with this transaction, the 238,584
warrants to purchase Class A Common Stock were surrendered
by the holders.

Under the terms of the new agreements, the
Company has:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) A 4-year secured term loan in the amount
    of $22 million with variable rate interest; principal
    payments are due in quarterly installments of $500,000 beginning
    June 30, 2004 through March 31, 2005 and due in
    quarterly installments of $750,000 beginning June 30, 2005
    through December 31, 2007 with the balance of $11,750,000
    due on March 31, 2008. The Company will enter into interest
    rate protection contracts on at least 50% of the term loan.                                                
|
| | 2) A secured revolving credit facility with
    a limit of $18 million, variable rate interest, and with an
    initial revolving credit balance of $8.7 million, and with
    initial availability of $5.4 million as of March 26,
    2004. The balance is due March 31, 2008. The amount available
    under the revolving credit facility is limited to 85% of
    eligible accounts receivable and 60% of eligible inventory. The
    facility requires a commitment fee of 0.50% per annum on the
    unused portion of the facility.
|
| | At the Companys option, for both the
    secured term loan and the revolving credit facility, interest
    will be at either a bank base rate plus applicable margin, or an
    adjusted LIBOR plus a LIBOR margin. At inception, the bank rate
    plus applicable margin is 6.75% and the adjusted LIBOR plus a
    LIBOR margin is 5.35%.                                                                                                                                                                                              
|
| | 3) A senior secured subordinated note in the
    amount of $10 million bearing cash interest of 12% and PIK
    interest of 4% with no principal amortization, and the balance
    due March 26, 2009.                                                                                                                                                                                                                                                                                                                                     

Related to the senior secured subordinated note,
the Company will issue 545,467 warrants to purchase shares of
its Class A Common Stock at $0.02 per share; these warrants
expire March 26, 2014. The warrants may be put to the
Company, at the then fair market value, five years from the date
of issue, or upon change of control or upon a default on the
senior secured subordinated loan.

In connection with these loans, we have granted
the lenders a lien on all of the Companys accounts
receivable, inventory, equipment, land and buildings, and
various other assets. These agreements contain restrictions on
capital expenditures, additional debt or liens, investments,
mergers and acquisitions, asset sales and payments such as
dividends or stock repurchases. These agreements also impose
various financial covenants, including financial performance
ratios. Fees associated with the March 26, 2004
transactions, including underwriting and legal fees, were
approximately $1.5 million, paid at closing.

15



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##### Table of Contents



Quarterly Financial Information

Selected quarterly financial information for the
years ended December 31, 2003 and 2002 is as follows:

|                                                  |                              |                                       |        |         |  |         |        |         |   |       |        |      |  |   |        |      |  |   |         |      | 
|------------------------------------------------- | ---------------------------- | ------------------------------------- | ------ | ------- |  | ------- | ------ | ------- | - | ----- | ------ | ---- |  | - | ------ | ---- |  | - | ------- | ---- | 
|                                                  |                              | First                                 |        | Second  |  | Third   |        | Fourth  |   | Total
|                                                  |                              | Quarter                               |        | Quarter |  | Quarter |        | Quarter |   | Year 
|                                                  |                              |                                       |        |         |  |         |        |         |   |      
|                                                  |                              |                                      
|                                                  |                              | (In thousands, except per share data)
|2003                                              |                              |                                       |        |         |  |         |        |         |   |       |        |      |  |   |        |      |  |   |         |     
|Sales                                             |                              | $                                     | 32,380 |         |  | $       | 34,398 |         |   | $     | 31,452 |      |  | $ | 33,201 |      |  | $ | 131,431 |     
|Gross margin                                      |                              |                                       | 4,591  |         |  |         | 5,010  |         |   |       | 4,063  |      |  |   | 4,449  |      |  |   | 18,113  |     
|Operating income                                  |                              |                                       | 1,283  |         |  |         | 1,698  |         |   |       | 886    |      |  |   | 884    |      |  |   | 4,751   |     
|Net earnings available to common stockholders     |                              |                                       | 119    |         |  |         | 140    |         |   |       | 106    |      |  |   | 261    |      |  |   | 626     |     
|Earnings per share of common stock 
    basic:   |                              |                                       |        |         |  |         |        |         |   |       |        |      |  |   |        |      |  |   |         |     
|                                                  | From continuing operations   |                                       |        | 0.00    |  |         |        | 0.04    |   |       |        | 0.02 |  |   |        | 0.06 |  |   |         | 0.12 | 
|                                                  | From discontinued operations |                                       |        | 0.03    |  |         |        | (0.01   | ) |       |        |     |  |   |        |     |  |   |         | 0.02 | 
|                                                  | Total                        |                                       |        | 0.03    |  |         |        | 0.03    |   |       |        | 0.02 |  |   |        | 0.06 |  |   |         | 0.14 | 
|Earnings per share of common stock 
    diluted: |                              |                                       |        |         |  |         |        |         |   |       |        |      |  |   |        |      |  |   |         |     
|                                                  | From continuing operations   |                                       |        | 0.00    |  |         |        | 0.03    |   |       |        | 0.02 |  |   |        | 0.06 |  |   |         | 0.11 | 
|                                                  | From discontinued operations |                                       |        | 0.03    |  |         |        | (0.01   | ) |       |        |     |  |   |        |     |  |   |         | 0.02 | 
|                                                  | Total                        |                                       |        | 0.03    |  |         |        | 0.02    |   |       |        | 0.02 |  |   |        | 0.06 |  |   |         | 0.13 | 

|                                                                                              |                                                         |                                       |        |         |       |         |        |         |       |       |        |       |       |   |        |       |      |   |         |       |       |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | ------ | ------- | ----- | ------- | ------ | ------- | ----- | ----- | ------ | ----- | ----- | - | ------ | ----- | ---- | - | ------- | ----- | ----- | -
|                                                                                              |                                                         | First                                 |        | Second  |       | Third   |        | Fourth  |       | Total
|                                                                                              |                                                         | Quarter                               |        | Quarter |       | Quarter |        | Quarter |       | Year 
|                                                                                              |                                                         |                                       |        |         |       |         |        |         |       |      
|                                                                                              |                                                         |                                      
|                                                                                              |                                                         | (In thousands, except per share data)
|2002                                                                                          |                                                         |                                       |        |         |       |         |        |         |       |       |        |       |       |   |        |       |      |   |         |      
|Sales                                                                                         |                                                         | $                                     | 29,177 |         |       | $       | 32,241 |         |       | $     | 28,981 |       |       | $ | 26,168 |       |      | $ | 116,567 |      
|Gross margin                                                                                  |                                                         |                                       | 4,117  |         |       |         | 4,850  |         |       |       | 3,385  |       |       |   | 2,693  |       |      |   | 15,045  |      
|Operating income (loss)                                                                       |                                                         |                                       | 1,160  |         |       |         | 1,402  |         |       |       | 647    |       |       |   | (334   | )     |      |   | 2,875   |      
|Earnings (loss) before discontinued operations
    and cumulative effect of accounting change |                                                         |                                       | 184    |         |       |         | (473   | )       |       |       | (321   | )     |       |   | (90    | )     |      |   | (700    | )    
|Net earnings (loss) from discontinued operations                                              |                                                         |                                       | (526   | )       |       |         | (2,770 | )       |       |       | (4,326 | )     |       |   | 14,412 |       |      |   | 6,790   |      
|Cumulative effect of change in accounting
    principle                                       |                                                         |                                       | (8,118 | )       |       |         |       |         |       |       |       |       |       |   |       |       |      |   | (8,118  | )    
|Net earnings (loss) available to common
    stockholders                                      |                                                         |                                       | (8,739 | )       |       |         | (3,566 | )       |       |       | (4,978 | )     |       |   | 13,990 |       |      |   | (3,293  | )    
|Earnings per share of common stock 
    basic and diluted                                    |                                                         |                                       |        |         |       |         |        |         |       |       |        |       |       |   |        |       |      |   |         |      
|                                                                                              | From continuing operations                              |                                       |        | (0.02   | )     |         |        | (0.17   | )     |       |        | (0.14 | )     |   |        | (0.09 | )    |   |         | (0.42 | )    
|                                                                                              | From discontinued operations                            |                                       |        | (0.12   | )     |         |        | (0.59   | )     |       |        | (0.92 | )     |   |        | 3.09  |      |   |         | 1.46  |      
|                                                                                              | Cumulative effect of change in accounting
    principle |                                       |        | (1.75   | )     |         |        |        |       |       |        |      |       |   |        |      |      |   |         | (1.75 | )    
|                                                                                              |                                                         | Total                                 |        |         | (1.89 | )       |        |         | (0.76 | )     |        |       | (1.06 | ) |        |       | 3.00 |   |         |       | (0.71 | )

Off-Balance Sheet Arrangements

The Company has no significant off-balance sheet
arrangements, other than the operating lease obligations
described below, nor has it given any guarantees for any
unconsolidated entities.

16



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##### Table of Contents



Significant Cash Commitments

The Company has significant future cash
commitments, primarily scheduled debt payments and scheduled
lease payments. The commitments related to debt payments and
lease payments are fully described in Notes 8 and 9 of the
accompanying financial statements.

The following table summarizes the Companys
contractual obligations at December 31, 2003:

|                                   |                          |                        |        |           |  |           |        |           |  |         |        |        |  |   |       |   |  |   |   |   | 
|---------------------------------- | ------------------------ | ---------------------- | ------ | --------- |  | --------- | ------ | --------- |  | ------- | ------ | ------ |  | - | ----- | - |  | - | - | - | 
|                                   |                          |                       
|                                   |                          | Payments Due by Period
|                                   |                          |                       
|                                   |                          |                        |        | Less than |  |           |        | After    
|                                   |                          | Total                  |        | 1 Year    |  | 1-3 Years |        | 4-5 Years |  | 5 Years
|                                   |                          |                        |        |           |  |           |        |           |  |        
|                                   |                          |                       
|                                   |                          | (In thousands)        
|Bank indebtedness                  |                          |                        |        |           |  |           |        |           |  |         |        |        |  |   |       |   |  |   |   |  
|                                   | Term loan                |                        | $      | 23,253    |  |           | $      | 5,750     |  |         | $      | 17,503 |  |   | $     |  |  |   | $ |  | 
|                                   | Revolving line of credit |                        |        | 13,250    |  |           |        |          |  |         |        | 13,250 |  |   |       |  |  |   |   |  | 
|Other debt obligations             |                          |                        | 2,038  |           |  |           | 460    |           |  |         | 1,341  |        |  |   | 237   |   |  |   |  |  
|Operating leases                   |                          |                        | 17,504 |           |  |           | 6,007  |           |  |         | 10,615 |        |  |   | 882   |   |  |   |  |  
|Preferred stock redemption         |                          |                        | 1,500  |           |  |           | 500    |           |  |         | 1,000  |        |  |   |      |   |  |   |  |  
|                                   |                          |                        |        |           |  |           |        |           |  |         |        |        |  |   |       |   |  |   |   |  
|Total contractual cash obligations |                          | $                      | 57,545 |           |  | $         | 12,717 |           |  | $       | 43,709 |        |  | $ | 1,119 |   |  | $ |  |  
|                                   |                          |                        |        |           |  |           |        |           |  |         |        |        |  |   |       |   |  |   |   |  

Under its bank credit facility, the Company had
$618,000 standby letters of credit outstanding at
December 31, 2003 in connection with lease obligations.
Management expects that cash flow from operations, working
capital management and availability under its new bank revolving
line of credit will permit us to meet our liquidity requirements
through the term of the credit facility.

Pursuant to a 1999 agreement to purchase certain
assets of Worthington Custom Plastics, Inc.
(Worthington), the Company issued 10,000 shares
of its preferred stock, without par value, to Worthington. The
preferred stock was mandatorily redeemable on April 15,
2004 at $1,000 per share. The Company and Worthington have
entered into a preferred stock redemption agreement, dated
December 23, 2003, that provides for 30 monthly
redemption payments of $50,000 each over a three year period (10
payments each year in 2004, 2005 and 2006) to fully redeem the
preferred stock. Each $50,000 payment and redemption of 333 (or
334) shares reduces the fully accreted $10 million face
value of the redeemable preferred stock by $333,000 (or
$334,000). If shares are not redeemed under the provision of
this agreement, the redemption price remains at $1,000 per
share. The significant cash commitments table above assumes that
payments are made over the next three years and that the
redeemable preferred stock is retired for $1.5 million.

Seasonality

Our operating results vary significantly from
quarter to quarter due to, among other things, the purchasing
schedules of our key customers. Our sales and profits
historically have been higher in the first half of the calendar
year due to our largest customers preparation in the first
two quarters for increased demand during the warmer months of
the year.

Critical Accounting Policies

In the preparation of the financial statements in
accordance with generally accepted accounting principles,
management must often make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying disclosures. Some of these estimates and
assumptions can be subjective and complex, and consequently,
actual results could differ from those estimates. Such estimates
and assumptions affect the Companys most critical
accounting policies: the allowance for doubtful accounts,
inventory valuation and the recoverability of deferred tax
assets.

17



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##### Table of Contents





| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

The Company provides for an allowance for
doubtful accounts based on expected collectability of trade
receivables. The allowance for doubtful accounts is determined
based on the Companys analysis of customer
credit-worthiness, historical loss experience and general
economic conditions and trends.



| |            
| | -----------
| | Inventories

Inventories are valued at the lower of cost or
market. The Company evaluates its inventories for excess or slow
moving items based on sales order activity and expected market
changes. If circumstances indicate the cost of inventories
exceed their recoverable value, inventory is adjusted to its net
realizable value.



| |                                          
| | -----------------------------------------
| | Recoverability of Deferred Tax
    Assets

In assessing the recoverability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the
periods in which temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment, and the valuation
allowance is adjusted as appropriate.

Impact of New Accounting Standards

In January 2003, FASB issued
Interpretation 46, Consolidation of Variable Interest
Entities (Interpretation 46), which addresses
consolidation of certain variable interest entities and is
effective January 31, 2003. The Company does not anticipate
that the adoption of Interpretation 46 will have a material
impact on its financial statements.

The FASB also recently issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity(Statement 150), which establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset
in some circumstances). Many of those instruments were
previously classified as equity. Statement 150 is effective
for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
FASB Staff Position Financial Accounting Standard 150-3,
Effective Date, Disclosures, and Transition for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interest under
FASB Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, defers the effective date of Statement 150 for
certain mandatorily redeemable noncontrolling interests of all
entities. The Company adopted SFAS No. 150 as of
July 1, 2003 and that adoption has had the following
classification impact on the Companys Condensed
Consolidated Financial Statements:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) related to the Condensed Consolidated
    Balance Sheet as of December 31, 2003, the redeemable
    preferred stock, previously reported as temporary equity is
    classified as a current liability.                                                                    
|
| | (ii) related to the Condensed Consolidated
    Statements of Operations, the expense reported in previous
    periods as accretion of discount on preferred shares
    is classified as interest on redeemable preferred
    stock from July 1, 2003 to December 31, 2003.

On December 23, 2003, the Company entered
into a stock redemption agreement for the redeemable preferred
stock. See note 11 related to the terms of the redemption
agreement

18



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##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

The Company uses variable-rate debt to finance
its operations. The debt obligations expose the Company to
variability in interest payments due to changes in interest
rates. Management believes it is prudent to limit the
variability of a portion of its interest payments. To meet this
objective, management sometime enters into interest rate swap
agreements to manage fluctuations in cash flows resulting from
interest rate risk, the last of which expired June 30,
2003. These swaps changed the variable-rate cash flow exposure
on the debt obligations to fixed cash flows. Under the terms of
the interest rate swaps, the Company received variable interest
rate payments and made fixed interest rate payments, thereby
creating the equivalent of fixed rate debt during the first six
months of 2003. The Company recorded other income
(expense) of $(671,000), $418,000 and $337,000 for its
interest rate swap contracts for the years ended
December 31, 2001, 2002 and 2003 respectively.

19



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

INDEX

|                                                                                                                       |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                       |  | Page
|                                                                                                                       |  |     
|Independent Auditors Report                                                                                           |  |      | 21 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2003                                                       |  |      | 22 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2001, 2002 and 2003                         |  |      | 23 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) for the years ended December 31, 2001,
    2002 and 2003 |  |      | 24 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2001, 2002 and 2003                         |  |      | 25 | 
|Notes to Consolidated Financial Statements                                                                             |  |      | 26 | 
|Schedule                                                                                                               |  |      |    | 
|Schedule II  Valuation and
    Qualifying Accounts for the years ended December 31, 2001,
    2002 and 2003           |  |      | 52 | 

20



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

Morton Industrial Group, Inc.:


We have audited the accompanying consolidated
balance sheets of Morton Industrial Group, Inc. and
Subsidiaries as of December 31, 2002 and 2003, and the
related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 2003.
In connection with our audit of the consolidated financial
statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Morton Industrial
Group, Inc. and Subsidiaries as of December 31, 2002
and 2003, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the related consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As discussed in note 6 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) 142, Goodwill and
Other Intangible Assets.

/s/ KPMG LLP

Indianapolis, Indiana


March 19, 2004, except as to note 20


which is as of
March 29, 2004


21



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2003


|                                                              |                                                                                                     |                                      |        |         |         |   |        |         |         |  
|------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------ | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                              |                                                                                                     |                                     
|                                                              |                                                                                                     | December 31,                        
|                                                              |                                                                                                     |                                     
|                                                              |                                                                                                     | 2002                                 |        | 2003   
|                                                              |                                                                                                     |                                      |        |        
|                                                              |                                                                                                     |                                     
|                                                              |                                                                                                     | (Dollars in thousands)              
|ASSETS                                                       
|Current assets:                                               |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              | Trade accounts receivable, less allowance for
    doubtful accounts of $202 in 2003 and $84 in 2002 |                                      | $      | 5,251   |         |   | $      | 7,253   |        
|                                                              | Note receivable                                                                                     |                                      |        |        |         |   |        | 100     |        
|                                                              | Inventories                                                                                         |                                      |        | 14,322  |         |   |        | 13,863  |        
|                                                              | Prepaid expenses and other current assets                                                           |                                      |        | 1,179   |         |   |        | 1,087   |        
|                                                              | Deferred income taxes                                                                               |                                      |        | 400     |         |   |        | 1,600   |        
|                                                              | Assets held for sale                                                                                |                                      |        | 8,990   |         |   |        |        |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | Total current assets                 |        |         | 30,142  |   |        |         | 23,903  |  
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|Property, plant, and equipment, net                           |                                                                                                     |                                      | 23,364 |         |         |   | 22,432 |        
|Note receivable                                               |                                                                                                     |                                      |       |         |         |   | 1,183  |        
|Intangible assets, at cost, less accumulated
    amortization |                                                                                                     |                                      | 1,336  |         |         |   | 1,100  |        
|Deferred income taxes                                         |                                                                                                     |                                      | 1,351  |         |         |   |       |        
|Other assets                                                  |                                                                                                     |                                      | 660    |         |         |   | 204    |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | $                                    | 56,853 |         |         | $ | 48,822 |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)           
|Current liabilities:                                          |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              | Outstanding checks in excess of bank balance                                                        |                                      | $      | 1,289   |         |   | $      | 943     |        
|                                                              | Current installments of long-term debt                                                              |                                      |        | 5,331   |         |   |        | 6,210   |        
|                                                              | Accounts payable                                                                                    |                                      |        | 14,731  |         |   |        | 17,343  |        
|                                                              | Accrued expenses                                                                                    |                                      |        | 4,831   |         |   |        | 5,450   |        
|                                                              | Income taxes payable                                                                                |                                      |        |        |         |   |        | 275     |        
|                                                              | Liabilities held for sale                                                                           |                                      |        | 6,254   |         |   |        |        |        
|                                                              | Redeemable preferred stock                                                                          |                                      |        |        |         |   |        | 500     |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | Total current liabilities            |        |         | 32,436  |   |        |         | 30,721  |  
|Long-term debt, excluding current installments                |                                                                                                     |                                      | 39,771 |         |         |   | 32,331 |        
|Other liabilities                                             |                                                                                                     |                                      | 262    |         |         |   | 118    |        
|Redeemable preferred stock                                    |                                                                                                     |                                      |       |         |         |   | 9,250  |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | Total liabilities                    |        |         | 72,469  |   |        |         | 72,420  |  
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|Redeemable preferred stock                                    |                                                                                                     |                                      | 8,608  |         |         |   |       |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|Stockholders equity (deficit):                               |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              | Class A common stock                                                                                |                                      |        | 45      |         |   |        | 46      |        
|                                                              | Class B common stock                                                                                |                                      |        | 2       |         |   |        | 1       |        
|                                                              | Additional paid-in capital                                                                          |                                      |        | 20,895  |         |   |        | 20,895  |        
|                                                              | Retained deficit                                                                                    |                                      |        | (45,166 | )       |   |        | (44,540 | )      
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | Total stockholders equity (deficit) |        |         | (24,224 | ) |        |         | (23,598 | )
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        
|                                                              |                                                                                                     | $                                    | 56,853 |         |         | $ | 48,822 |        
|                                                              |                                                                                                     |                                      |        |         |         |   |        |        

See accompanying notes to consolidated financial
statements.

22



---



##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

Years Ended December 31, 2001, 2002 and
2003


|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |        |        |  
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                 |                                                                                                                   |                                                                                                            
|                                                                                 |                                                                                                                   | December 31,                                                                                               
|                                                                                 |                                                                                                                   |                                                                                                            
|                                                                                 |                                                                                                                   | 2001                                                                                                        |         | 2002   |         | 2003
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |     
|                                                                                 |                                                                                                                   |                                                                                                            
|                                                                                 |                                                                                                                   | (Dollars in thousands,                                                                                     
|                                                                                 |                                                                                                                   | except per share data)                                                                                     
|Net sales                                                                        |                                                                                                                   | $                                                                                                           | 127,103 |        |         | $    | 116,567 |        |        | $ | 131,431 |       
|Cost of sales                                                                    |                                                                                                                   |                                                                                                             | 111,358 |        |         |      | 101,522 |        |        |   | 113,318 |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Gross profit                                                                                                |         |        | 15,745  |      |         |        | 15,045 |   |         |        | 18,113 |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|Operating expenses:                                                              |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Selling expenses                                                                                                  |                                                                                                             |         | 2,809  |         |      |         | 2,723  |        |   |         | 2,948  |       
|                                                                                 | Administrative expenses                                                                                           |                                                                                                             |         | 10,322 |         |      |         | 9,447  |        |   |         | 10,414 |       
|                                                                                 | Restructuring charges                                                                                             |                                                                                                             |         | 1,323  |         |      |         |       |        |   |         |       |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Total operating expenses                                                                                    |         |        | 14,454  |      |         |        | 12,170 |   |         |        | 13,362 |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Operating income                                                                                            |         |        | 1,291   |      |         |        | 2,875  |   |         |        | 4,751  |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|Other income (expense):                                                          |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Interest expense                                                                                                  |                                                                                                             |         | (6,706 | )       |      |         | (4,228 | )      |   |         | (3,084 | )     
|                                                                                 | Interest on redeemable preferred stock                                                                            |                                                                                                             |         |       |         |      |         |       |        |   |         | (427   | )     
|                                                                                 | Other                                                                                                             |                                                                                                             |         | (610   | )       |      |         | 365    |        |   |         | 442    |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Total other expense                                                                                         |         |        | (7,316  | )    |         |        | (3,863 | ) |         |        | (3,069 | )
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Earnings (loss) before income taxes, discontinued
    operations and cumulative effect of accounting change |         |        | (6,025  | )    |         |        | (988   | ) |         |        | 1,682  |  
|Income taxes                                                                     |                                                                                                                   |                                                                                                             | 1,242   |        |         |      | (288    | )      |        |   | 426     |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Earnings (loss) before discontinued operations
    and cumulative effect of accounting change               |         |        | (7,267  | )    |         |        | (700   | ) |         |        | 1,256  |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|Discontinued operations:                                                         |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Net earnings (loss) from operations of
    discontinued plastics operations                                       |                                                                                                             |         | (8,596 | )       |      |         | 8,947  |        |   |         | 140    |       
|                                                                                 | Income taxes                                                                                                      |                                                                                                             |         | 858    |         |      |         | 2,157  |        |   |         | 55     |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   |                                                                                                             | (9,454  | )      |         |      | 6,790   |        |        |   | 85      |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Earnings (loss) before cumulative effect of
    accounting change                                           |         |        | (16,721 | )    |         |        | 6,090  |   |         |        | 1,341  |  
|Cumulative effect of change in accounting
    principle, net of tax of $0        |                                                                                                                   |                                                                                                             |        |        |         |      | (8,118  | )      |        |   |        |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Net earnings (loss)                                                                                         |         |        | (16,721 | )    |         |        | (2,028 | ) |         |        | 1,341  |  
|Accretion of discount on preferred shares                                        |                                                                                                                   |                                                                                                             | (1,066  | )      |         |      | (1,265  | )      |        |   | (715    | )     
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Net earnings (loss) available to common
    shareholders                                                    |         | $      | (17,787 | )    |         | $      | (3,293 | ) |         | $      | 626    |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|Earnings (loss) available to common shareholders
    per common share  basic:   |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Earnings (loss) from continuing operations                                                                        |                                                                                                             | $       | (1.81  | )       |      | $       | (0.42  | )      |   | $       | 0.12   |       
|                                                                                 | Earnings (loss) from discontinued operations                                                                      |                                                                                                             |         | (2.06  | )       |      |         | 1.46   |        |   |         | 0.02   |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Earnings (loss) available to common shareholders
    before cumulative effect of a change in accounting principle |                                                                                                             |         | (3.87  | )       |      |         | 1.04   |        |   |         | 0.14   |       
|                                                                                 | Cumulative effect of a change in accounting
    principle                                                         |                                                                                                             |         |       |         |      |         | (1.75  | )      |   |         |       |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Net earnings (loss) available to common
    shareholders                                                          |                                                                                                             | $       | (3.87  | )       |      | $       | (0.71  | )      |   | $       | 0.14   |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|Earnings (loss) available to common shareholders
    per common share  diluted: |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Earnings (loss) from continuing operations                                                                        |                                                                                                             | $       | (1.81  | )       |      | $       | (0.42  | )      |   | $       | 0.11   |       
|                                                                                 | Earnings (loss) from discontinued operations                                                                      |                                                                                                             |         | (2.06  | )       |      |         | 1.46   |        |   |         | 0.02   |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 | Earnings (loss) available to common shareholders
    before cumulative effect of a change in accounting principle |                                                                                                             |         | (3.87  | )       |      |         | 1.04   |        |   |         | 0.13   |       
|                                                                                 | Cumulative effect of a change in accounting
    principle                                                         |                                                                                                             |         |       |         |      |         | (1.75  | )      |   |         |       |       
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       
|                                                                                 |                                                                                                                   | Net earnings (loss) available to common
    shareholders                                                    |         | $      | (3.87   | )    |         | $      | (0.71  | ) |         | $      | 0.13   |  
|                                                                                 |                                                                                                                   |                                                                                                             |         |        |         |      |         |        |        |   |         |       

See accompanying notes to consolidated financial
statements.

23



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY (DEFICIT)

Years Ended December 31, 2001, 2002 and
2003


|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |       |   |    |   |   |        |    |  |   |         |         |   |   |         |         |  
|-------------------------- | ------------------------------------------------------------------------------------ | ---------------------- | --------- | ------------ |  | ------------- | -- | -------- |  | ------- | ------- | --------- | - | ----- | - | -- | - | - | ------ | -- |  | - | ------- | ------- | - | - | ------- | ------- | -
|                           |                                                                                      |                        |           |              |  |               |    |          |  |        
|                           |                                                                                      | Class A                |           | Class B      |  |               |    |          |  |        
|                           |                                                                                      | Common Stock           |           | Common Stock |  | Additional    |    | Retained |  |        
|                           |                                                                                      |                        |           |              |  | Paid-in       |    | Earnings |  |        
|                           |                                                                                      | Shares Issued          |           | Amount       |  | Shares Issued |    | Amount   |  | Capital |         | (Deficit) |   | Total
|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |      
|                           |                                                                                      |                        |           |             
|                           |                                                                                      | (Dollars in thousands) |           |             
|Balance, December 31, 2000 |                                                                                      |                        | 4,400,850 |              |  | $             | 44 |          |  |         | 200,000 |           |   | $     | 2 |    |   | $ | 20,883 |    |  | $ | (24,086 | )       |   | $ | (3,157  | )      
|                           | Net earnings (loss)                                                                  |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | (16,721 | ) |   |         | (16,721 | )
|                           | Accretion of discount on preferred shares                                            |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | (1,066  | ) |   |         | (1,066  | )
|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |       |   |    |   |   |        |    |  |   |         |         |   |   |         |        
|Balance, December 31, 2001 |                                                                                      |                        | 4,400,850 |              |  | $             | 44 |          |  |         | 200,000 |           |   | $     | 2 |    |   | $ | 20,883 |    |  | $ | (41,873 | )       |   | $ | (20,944 | )      
|                           | Net earnings (loss)                                                                  |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | (2,028  | ) |   |         | (2,028  | )
|                           | Stock options exercised                                                              |                        |           | 59,697       |  |               |    | 1        |  |         |         |          |   |       |   |   |   |   |        | 12 |  |   |         |        |   |   |         | 13      |  
|                           | Accretion of discount on preferred shares                                            |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | (1,265  | ) |   |         | (1,265  | )
|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |       |   |    |   |   |        |    |  |   |         |         |   |   |         |        
|Balance, December 31, 2002 |                                                                                      |                        | 4,460,547 |              |  | $             | 45 |          |  |         | 200,000 |           |   | $     | 2 |    |   | $ | 20,895 |    |  | $ | (45,166 | )       |   | $ | (24,224 | )      
|                           | Net earnings                                                                         |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | 1,341   |   |   |         | 1,341   |  
|                           | Accretion of discount on preferred shares                                            |                        |           |             |  |               |    |         |  |         |         |          |   |       |   |   |   |   |        |   |  |   |         | (715    | ) |   |         | (715    | )
|                           | Conversion of shares of Class B common stock
    into shares of Class A common stock |                        |           | 100,000      |  |               |    | 1        |  |         |         | (100,000  | ) |       |   | (1 | ) |   |        |   |  |   |         |        |   |   |         |        |  
|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |       |   |    |   |   |        |    |  |   |         |         |   |   |         |        
|Balance, December 31, 2003 |                                                                                      |                        | 4,560,547 |              |  | $             | 46 |          |  |         | 100,000 |           |   | $     | 1 |    |   | $ | 20,895 |    |  | $ | (44,540 | )       |   | $ | (23,598 | )      
|                           |                                                                                      |                        |           |              |  |               |    |          |  |         |         |           |   |       |   |    |   |   |        |    |  |   |         |         |   |   |         |        

See accompanying notes to consolidated financial
statements.

24



---



##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2001, 2002 and
2003


|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |        |       |        |         |  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------- | ----- | ------ | ------ | ------ | ------- | ----- | ------ | ------ | ----- | ------ | ------- | -
|                                                   |                                                                                                |                                                                                                   
|                                                   |                                                                                                | December 31,                                                                                      
|                                                   |                                                                                                |                                                                                                   
|                                                   |                                                                                                | 2001                                                                                               |                                            | 2002                                                    |       | 2003  
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |       
|                                                   |                                                                                                |                                                                                                   
|                                                   |                                                                                                | (Dollars in thousands)                                                                            
|Cash flows from operating activities:              |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   | Net earnings (loss)                                                                            |                                                                                                    | $                                          | (16,721                                                 | )     |        | $      | (2,028 | )       |       | $      | 1,341  |      
|                                                   | Adjustments to reconcile net earnings (loss) to
    net cash provided by operating activities: |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |        |      
|                                                   |                                                                                                | Depreciation and amortization of plant and
    equipment                                           |                                            |                                                         | 8,672 |        |        |        | 8,075   |       |        |        | 4,855 |       
|                                                   |                                                                                                | Other amortization                                                                                 |                                            |                                                         | 1,338 |        |        |        | 1,345   |       |        |        | 1,266 |       
|                                                   |                                                                                                | Asset impairment                                                                                   |                                            |                                                         | 803   |        |        |        |        |       |        |        |      |       
|                                                   |                                                                                                | Payments on restructuring charge                                                                   |                                            |                                                         |      |        |        |        | (375    | )     |        |        |      |       
|                                                   |                                                                                                | Cumulative effect of change in accounting
    principle                                            |                                            |                                                         |      |        |        |        | 8,118   |       |        |        |      |       
|                                                   |                                                                                                | Increase (decrease) in allowance for doubtful
    accounts                                         |                                            |                                                         | (943  | )      |        |        | (78     | )     |        |        | 118   |       
|                                                   |                                                                                                | Decrease in deferred income taxes                                                                  |                                            |                                                         | 2,100 |        |        |        | 3,197   |       |        |        | 151   |       
|                                                   |                                                                                                | Gain on sale of property and equipment                                                             |                                            |                                                         |      |        |        |        | (8      | )     |        |        | (12   | )     
|                                                   |                                                                                                | Gain on sale of businesses                                                                         |                                            |                                                         |      |        |        |        | (17,784 | )     |        |        | (8    | )     
|                                                   |                                                                                                | Unrealized loss (gain) on derivative
    instruments                                               |                                            |                                                         | 671   |        |        |        | (418    | )     |        |        |      |       
|                                                   |                                                                                                | Changes in current assets and liabilities,
    excluding effects of acquisitions and dispositions: |                                            |                                                         |       |        |        |        |         |       |        |        |       |       
|                                                   |                                                                                                |                                                                                                    | Decrease (increase) in accounts receivable |                                                         |       | 10,152 |        |        |         | 3,555 |        |        |       | (1,923 | )      
|                                                   |                                                                                                |                                                                                                    | Increase in accrued interest receivable    |                                                         |       |       |        |        |         |      |        |        |       | (87    | )      
|                                                   |                                                                                                |                                                                                                    | Decrease (increase) in inventories         |                                                         |       | 7,528  |        |        |         | (162  | )      |        |       | 583    |        
|                                                   |                                                                                                |                                                                                                    | Decrease (increase) in prepaid expenses    |                                                         |       | (329   | )      |        |         | (220  | )      |        |       | 62     |        
|                                                   |                                                                                                |                                                                                                    | Decrease (increase) in other assets        |                                                         |       | (825   | )      |        |         | 19    |        |        |       | 456    |        
|                                                   |                                                                                                |                                                                                                    | Increase in income taxes payable           |                                                         |       |       |        |        |         |      |        |        |       | 275    |        
|                                                   |                                                                                                |                                                                                                    | Increase (decrease) in accounts payable    |                                                         |       | (881   | )      |        |         | 1,976 |        |        |       | 2,856  |        
|                                                   |                                                                                                |                                                                                                    | Increase in accrued expenses and other     |                                                         |       | 881    |        |        |         | 2,166 |        |        |       | 327    |        
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   |                                                                                                |                                                                                                    |                                            | Net cash provided by operating activities               |       |        | 12,446 |        |         |       | 7,378  |        |       |        | 10,260  |  
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|Cash flows from investing activities:              |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   | Capital expenditures                                                                           |                                                                                                    |                                            | (4,357                                                  | )     |        |        | (4,023 | )       |       |        | (4,119 | )    
|                                                   | Proceeds from sale of property and equipment                                                   |                                                                                                    |                                            |                                                        |       |        |        | 538    |         |       |        | 67     |      
|                                                   | Proceeds from sale of businesses                                                               |                                                                                                    |                                            |                                                        |       |        |        |       |         |       |        | 4,800  |      
|                                                   | Payment received on note receivable for sale of
    business                                   |                                                                                                    |                                            |                                                        |       |        |        |       |         |       |        | 99     |      
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   |                                                                                                |                                                                                                    |                                            | Net cash provided by (used in) investing
    activities |       |        | (4,357 | )      |         |       | (3,485 | )      |       |        | 847     |  
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|Cash flows from financing activities:              |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   | Increase (decrease) in checks issued in excess of
    bank balance                             |                                                                                                    |                                            | 1,253                                                   |       |        |        | (1,869 | )       |       |        | (346   | )    
|                                                   | Net repayments of line of credit                                                               |                                                                                                    |                                            | (3,710                                                  | )     |        |        | (485   | )       |       |        | (5,350 | )    
|                                                   | Proceeds from issuance of long-term debt                                                       |                                                                                                    |                                            |                                                        |       |        |        | 4,907  |         |       |        |       |      
|                                                   | Principal payments on long-term debt and capital
    leases                                    |                                                                                                    |                                            | (5,509                                                  | )     |        |        | (5,597 | )       |       |        | (4,961 | )    
|                                                   | Proceeds from issuance of common stock                                                         |                                                                                                    |                                            |                                                        |       |        |        | 13     |         |       |        |       |      
|                                                   | Debt issuance cost                                                                             |                                                                                                    |                                            | (123                                                    | )     |        |        | (862   | )       |       |        | (450   | )    
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   |                                                                                                |                                                                                                    |                                            | Net cash used in financing activities                   |       |        | (8,089 | )      |         |       | (3,893 | )      |       |        | (11,107 | )
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|Net increase (decrease) in cash                    |                                                                                                |                                                                                                    |                                           |                                                         |       |        |       |        |         |       |       |       
|Cash at beginning of period                        |                                                                                                |                                                                                                    |                                           |                                                         |       |        |       |        |         |       |       |       
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|Cash at end of period                              |                                                                                                | $                                                                                                  |                                           |                                                         |       | $      |       |        |         | $     |       |       
|                                                   |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|Supplemental disclosures of cash flow information: |                                                                                                |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |       
|                                                   | Cash paid during the year for:                                                                 |                                                                                                    |                                            |                                                         |       |        |        |        |         |       |        |        |      
|                                                   |                                                                                                | Interest                                                                                           |                                            | $                                                       | 9,653 |        |        | $      | 5,511   |       |        | $      | 3,296 |       
|                                                   |                                                                                                | Income taxes                                                                                       |                                            |                                                         | 24    |        |        |        | 26      |       |        |        | 48    |       

See accompanying notes to consolidated financial
statements.

25



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2001, 2002 and
2003


(Dollars in thousands, except per share
data)




|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | Description of Business and Summary of
    Significant Accounting Policies



|    |                        
|--- | -----------------------
|(a) | Description of Business

Morton Industrial Group, Inc. and
subsidiaries is a contract manufacturer and supplier of
high-quality fabricated sheet metal and plastic components and
subassemblies for construction, agricultural, industrial and
recreational equipment manufacturers located primarily in the
Midwestern and Southeastern United States. Sales for the year
ended December 31, 2003, were approximately as follows:
construction  65%, agricultural  13%,
industrial  20% and recreational  2%. The
Companys raw materials are readily available, and the
Company is not dependent on a single supplier or only a few
suppliers.



|    |                            
|--- | ---------------------------
|(b) | Principles of Consolidation

The consolidated financial statements include the
financial statements of Morton Industrial Group, Inc. (the
Company) and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.



|    |                                                       
|--- | ------------------------------------------------------
|(c) | Use of Estimates in Preparing Financial
    Statements

Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets
and liabilities, the disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses
during the reporting period to prepare these financial
statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could
differ from those estimates.



|    |                          
|--- | -------------------------
|(d) | Trade Accounts Receivable

Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Companys best estimate of the
amount of probable credit losses in the Companys existing
accounts receivable. The Company determines the allowance based
on customer credit-worthiness, historical write-off experience
and general economic conditions and trends. Account balances are
charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote. The Company does not have any off-balance-sheet credit
exposure related to its customers.



|    |            
|--- | -----------
|(e) | Inventories

Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
(FIFO) method for all inventories.



|    |                                   
|--- | ----------------------------------
|(f) | Property, Plant, and
    Equipment

Property, plant, and equipment are stated at cost
less accumulated depreciation. Equipment under capital leases is
stated at the lower of the net present value of the minimum
lease payments at the beginning of the lease term or fair value
at the inception of the lease.

Depreciation of plant and equipment is calculated
over the estimated useful lives of the respective assets using
straight-line and accelerated methods. The equipment held under
capital leases is amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of
the asset.

26



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                         
|--- | ----------------------------------------
|(g) | Goodwill and Other Intangible
    Assets

Goodwill represents the excess of costs over fair
value of assets of businesses acquired. The Company adopted the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and OtherIntangible
Assets, as of January 1, 2002. Goodwill and intangible
assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized,
but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets.



|    |             
|--- | ------------
|(h) | Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.



|    |                  
|--- | -----------------
|(i) | Stock Option Plan

The Company applies the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of
APB Opinion No. 25, to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeded the exercise price.
SFAS No. 123, Accounting for Stock-Based
Compensation, and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and disclosure,
an amendment of SFAS No. 123, established
accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation
plans. As permitted by existing accounting standards, the
Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and
has adopted only the disclosure requirements of SFAS 123,
as amended.

The per share weighted-average fair value of
stock options granted during 2001, 2002 and 2003 was $1.67,
$0.29 and $0.15 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions: expected dividend yield of 0%, risk-free interest
rate of 6%, volatility of 91%, and an expected life of
10 years.

27



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table illustrates the effect on net
income if the fair-value-based method had been applied to all
outstanding and unvested awards in each period.

|                                                                        |                                                                                                             |      |   |         |   |      |   |        |   |  |   |      |  
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ---- | -
|                                                                        |                                                                                                             | 2001 |   | 2002    |   | 2003
|                                                                        |                                                                                                             |      |   |         |   |     
|Net earnings (loss) available to common
    shareholders:               |                                                                                                             |      |   |         |   |      |   |        |   |  |   |     
|                                                                        | As reported                                                                                                 |      | $ | (17,787 | ) |      | $ | (3,293 | ) |  | $ | 626  |  
|                                                                        | Total stock-based employee compensation expense
    determined under fair value based method for all awards |      |   | (40     | ) |      |   | (216   | ) |  |   | (112 | )
|                                                                        |                                                                                                             |      |   |         |   |      |   |        |   |  |   |     
|                                                                        | Pro forma                                                                                                   |      | $ | (17,827 | ) |      | $ | (3,509 | ) |  | $ | 514  |  
|                                                                        |                                                                                                             |      |   |         |   |      |   |        |   |  |   |     
|Basic earnings (loss) available to common
    shareholders per share:   |                                                                                                             |      |   |         |   |      |   |        |   |  |   |     
|                                                                        | As reported                                                                                                 |      | $ | (3.87   | ) |      | $ | (0.71  | ) |  | $ | 0.14 |  
|                                                                        | Pro forma                                                                                                   |      |   | (3.87   | ) |      |   | (0.76  | ) |  |   | 0.11 |  
|Diluted earnings (loss) available to common
    shareholders per share: |                                                                                                             |      |   |         |   |      |   |        |   |  |   |     
|                                                                        | As reported                                                                                                 |      |   | (3.87   | ) |      |   | (0.71  | ) |  |   | 0.13 |  
|                                                                        | Pro forma                                                                                                   |      |   | (3.87   | ) |      |   | (0.76  | ) |  |   | 0.10 |  



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(j) | Impairment of Long-Lived Assets and
    Long-Lived Assets to Be Disposed Of

The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, on January 1, 2002. The adoption of
SFAS No. 144 did not affect the Companys
financial statements.

In accordance with SFAS No. 144,
long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a disposal
group classified as held for sale are presented separately in
the appropriate asset and liability sections of the balance
sheet.

Goodwill is tested annually for impairment, and
is tested for impairment more frequently if events and
circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying
amount exceeds the assets fair value. This determination
is made at the reporting unit level and consists of two steps.
First, the Company determines the fair value of reporting unit
and compares it to its carrying amount. Second, if the carrying
amount of a reporting unit exceeds its fair value, an impairment
loss is recognized for any excess of the carrying amount of the
reporting units goodwill over the implied fair value of
that goodwill. The implied fair value of goodwill is determined
by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation, in accordance with
SFAS No. 141, Business Combinations. The
residual fair value after this allocation is the implied fair
value of the reporting unit goodwill.



|    |                    
|--- | -------------------
|(k) | Revenue Recognition

Generally, revenue from sales is recognized when
the goods are shipped and the customer takes ownership and
assumes risk of loss, collection of the relevant receivable is
probable, persuasive evidence of an arrangement exists and the
sales price is fixed or determinable. In certain cases, at the
customers written

28



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

request, the Company enters into bill and hold
transactions whereby title transfers to the customer, but the
product does not ship until a specified later date. The Company
recognizes revenues associated with the bill and hold
arrangements when the product is complete, ready to ship, and
hold criteria have been met.



|    |                    
|--- | -------------------
|(l) | Interest Rate Swaps

As required by one of its financing arrangements,
the Company entered into interest rate swap agreements to limit
the effect of increases in the interest rates on certain
floating rate debt. The difference between the floating rate on
the Companys debt and the rate on the swap agreements is
accrued as interest rates change and is recorded in interest
expense. During 1998, the Company entered into two swap
agreements, expiring May 31, 2003 to June 30, 2003,
with an initial aggregate notional amount of $27,500. The effect
of these agreements was to limit the LIBOR interest rate
component to 5.87% on half of the Companys $27,930 term
loans under the applicable financing arrangement. As a result of
these swap agreements, interest expense was increased by $291,
$709 and $337 in 2001, 2002 and 2003, respectively.



|    |                                        
|--- | ---------------------------------------
|(m) | Fair Value of Financial
    Instruments

The Company believes the recorded value of cash,
accounts receivable, notes receivable, accounts payable and
accrued expenses approximates fair value because of the short
maturity of these financial instruments. The Company believes
the recorded value of notes payable and long-term debt
approximates fair value because their respective interest rates
fluctuate with market rates or approximate current market rates.

Interest rate swaps are stated at fair value,
which is the estimated amount that the Company would receive or
pay to terminate the agreements at the reporting date, taking
into account current interest rates and the current
creditworthiness of the counterparties. At December 31,
2002, the Company estimates it would have paid $337 to terminate
the agreements. The agreements terminated June 30, 2003.



|    |                          
|--- | -------------------------
|(n) | Earnings (Loss) Per Share

Earnings (loss) per share is computed under the
provisions of SFAS No. 128, Earnings Per Share.
Amounts reported as earnings (loss) per share reflect the
earnings available to common stockholders for the year divided
by the weighted average number of Class A and Class B
common shares outstanding during the year.



|    |                                                   
|--- | --------------------------------------------------
|(o) | Impact of Recently Issued Accounting
    Standards

In January 2003, FASB issued Interpretation 46,
Consolidation of Variable Interest Entities(Interpretation 46), which addresses
consolidation of certain variable interest entities and is
effective January 31, 2003. The Company does not anticipate
that the adoption of Interpretation 46 will have a material
impact on its financial statements.

The FASB also recently issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity(Statement 150), which establishes standards for
how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. FASB Staff Position
Financial Accounting Standard 150-3, Effective Date,
Disclosures, and Transition for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interest under FASB
Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, defers the effective date of SFAS 150 for
certain mandatorily redeemable noncontrolling interests of

29



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

all entities. The Company adopted SFAS No.
150 as of July 1, 2003, and that adoption has had the
following classification impact on the Companys Condensed
Consolidated Financial Statements:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) related to the Condensed Consolidated
    Balance Sheet as of December 31, 2003, the redeemable
    preferred stock, previously reported as temporary equity, is
    classified as a liability.                                                                           
|
| | (ii) related to the Condensed Consolidated
    Statements of Operations, the expense reported in previous
    periods as accretion of discount on preferred shares
    is classified as interest on redeemable preferred
    stock from July 1, 2003 to December 31, 2003.

On December 23, 2003, the Company entered
into a stock redemption agreement for the redeemable preferred
stock. See note 11 related to the terms of the redemption
agreement.



|    |                  
|--- | -----------------
|(p) | Reclassifications

Certain amounts in the 2002 financial statements
have been reclassified to conform with the 2003 presentation.



|    |                        
|--- | -----------------------
|(2) | Discontinued Operations

The financial results from discontinued
operations are so classified as a result of two significant
events during 2002: (i) the bankruptcy and subsequent sale
of the assets of Morton Custom Plastics, LLC, and (ii) the
Board of Directors decision to divest the only other
remaining plastics operations facility in the Company,
Mid-Central Plastics, Inc. (Mid-Central).

On November 1, 2002, Morton Custom Plastics
LLC (MCP, LLC), Morton Holdings, LLC (Holdings) and Morton
Lebanon Kentucky IBRB, LLC (Kentucky) filed as
debtors-in-possession under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. Before filing, MCP, LLC and Kentucky had
negotiated the terms of an agreement for sale of substantially
all of their assets to Wilbert, Inc., pursuant to an Asset
Purchase Agreement. Under the agreement, Wilbert, Inc. also
agreed to assume the liabilities of MCP, LLC and Kentucky under
certain of their contracts and leases. Based on its filing under
Chapter 11, the Company did not include Morton Custom
Plastics, LLCs results in its consolidated financial
statements subsequent to November 1, 2002.

The sale of MCPs, Holdings and
Kentuckys assets was completed on December 24, 2002,
in accordance with Section 363 of the United States
Bankruptcy Code. The proceeds from the sale were used to retire
a portion of the then-existing debt and pay expenses of the
sale. The registrant received no proceeds from the sale.

At December 31, 2002, the assets of
Mid-Central were reduced to their estimated fair value less
costs to sell, resulting in an impairment charge of $325 for the
year ended December 31, 2002. The assets and liabilities of
Mid-Central were classified in the December 31, 2002
balance sheet as assets held for sale and
liabilities held for sale, respectively.

The Company sold its assets held for
sale and the liabilities held for sale on
June 20, 2003. The terms of the transaction were
substantially the same as those anticipated as of
December 31, 2002. The sales price, subsequent to a working
capital adjustment, was $6,100, with $4,800 received in cash at
closing plus notes receivable from the buyer of $99, $97 and
$1,100.

The notes receivable of $99 and $97 were both
collected prior to January 31, 2004. The note receivable of
$1,100 is due June 20, 2006 and bears interest at
15% per annum. Interest for the period of June 20,
2003 through June 20, 2004 shall be 15% payment-in-kind,
with interest payable in cash on June 20, 2005, and at the
date of maturity, June 20, 2006.

30



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The remaining note receivable, due from the
buyer, is subordinate to required payments due by the buyer to
its senior secured lender. Payments received by the Company are
assigned to the Harris Bank syndicate, the Companys senior
secured lender.

Summary financial data of the discontinued
operations is presented below:

|                                                             |  |      |         |      |  |      |        |   |  |   |       |  
|------------------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                                             |  | 2001 |         | 2002 |  | 2003
|                                                             |  |      |         |      |  |     
|Operating revenue                                            |  | $    | 110,050 |      |  | $    | 78,737 |   |  | $ | 9,124 |  
|Operating expense                                            |  |      | 116,024 |      |  |      | 85,469 |   |  |   | 8,819 |  
|                                                             |  |      |         |      |  |      |        |   |  |   |       |  
|Operating income (loss)                                      |  |      | (5,974  | )    |  |      | (6,732 | ) |  |   | 305   |  
|Interest expense                                             |  |      | (2,622  | )    |  |      | (2,105 | ) |  |   | (165  | )
|                                                             |  |      |         |      |  |      |        |   |  |   |       |  
|Income (loss) from operations of discontinued
    operations |  |      | (8,596  | )    |  |      | (8,837 | ) |  |   | 140   |  
|Gain on disposal of MCP, LLC                                 |  |      |        |      |  |      | 17,784 |   |  |   |      |  
|Income taxes                                                 |  |      | (858    | )    |  |      | (2,157 | ) |  |   | (55   | )
|                                                             |  |      |         |      |  |      |        |   |  |   |       |  
|Net income (loss) from discontinued operations               |  | $    | (9,454  | )    |  | $    | 6,790  |   |  | $ | 85    |  
|                                                             |  |      |         |      |  |      |        |   |  |   |       |  

Amounts held for sale of Mid-Central
Plastics, Inc. as of December 31, 2002 consisted of
the following:

|                                               |                           |   |       |       | 
|---------------------------------------------- | ------------------------- | - | ----- | ----- | 
|Accounts receivable, net of allowance of $134  |                           | $ | 1,423 |      
|Inventories                                    |                           |   | 2,241 |      
|Other current assets                           |                           |   | 427   |      
|Property, plant and equipment, net             |                           |   | 4,899 |      
|                                               |                           |   |       |      
|                                               | Assets held for sale      |   | $     | 8,990 | 
|                                               |                           |   |       |      
|Current liabilities                            |                           | $ | 2,504 |      
|Estimated debt required to be repaid upon sale |                           |   | 3,750 |      
|                                               |                           |   |       |      
|                                               | Liabilities held for sale |   | $     | 6,254 | 
|                                               |                           |   |       |      



|    |                     
|--- | --------------------
|(3) | Restructuring Charge

In connection with a restructuring plan adopted
in October of 2001, the Company recorded a $1,323 restructuring
charge associated with the restructuring and consolidation of
certain of its Illinois plants. The restructuring included $520
for costs associated with certain leased facilities which will
no longer be used and an $803 impairment charge for the
abandonment of certain leasehold improvements and impairment of
certain assets under the provisions of SFAS 121. As of
December 31, 2002 a restructuring reserve of $145 is
included in accrued expenses relating to facility lease
payments, utilities, insurance and taxes expected to be incurred
through the lease termination date. No restructuring reserve
remains as of December 31, 2003.



|    |            
|--- | -----------
|(4) | Inventories

A summary of inventories follows:

|                |  |             |        |      |  |   |        | 
|--------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                |  |            
|                |  | December 31
|                |  |            
|                |  | 2002        |        | 2003
|                |  |             |        |     
|Finished goods  |  | $           | 4,590  |      |  | $ | 5,427  | 
|Work in process |  |             | 6,087  |      |  |   | 3,521  | 
|Raw materials   |  |             | 3,645  |      |  |   | 4,915  | 
|                |  |             |        |      |  |   |        | 
|                |  | $           | 14,322 |      |  | $ | 13,863 | 
|                |  |             |        |      |  |   |        | 

31



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                               
|--- | ------------------------------
|(5) | Property, Plant, and Equipment

A summary of property, plant, and equipment,
including assets held under capital leases as described in
note 9, is as follows:

|                                     |                                     |             |         |             |  |      |        |        |  |   |        |        | 
|------------------------------------ | ----------------------------------- | ----------- | ------- | ----------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                                     |             |         |            
|                                     |                                     |             |         | December 31
|                                     |                                     | Depreciable |         |            
|                                     |                                     | Lives       |         | 2002        |  | 2003
|                                     |                                     |             |         |             |  |     
|                                     |                                     | (In years)  |         |             |  |     
|Land and land improvements           |                                     |             | 15      |             |  | $    | 1,608  |        |  | $ | 1,757  |       
|Buildings and leasehold improvements |                                     |             | 15 - 39 |             |  |      | 8,604  |        |  |   | 8,577  |       
|Machinery and vehicles               |                                     |             | 5 - 12  |             |  |      | 26,134 |        |  |   | 27,008 |       
|Tooling                              |                                     |             | 3       |             |  |      | 9,648  |        |  |   | 11,068 |       
|Office equipment                     |                                     |             | 5 - 10  |             |  |      | 5,052  |        |  |   | 5,724  |       
|Construction in progress             |                                     |             |        |             |  |      | 517    |        |  |   | 462    |       
|                                     |                                     |             |         |             |  |      |        |        |  |   |        |       
|                                     |                                     |             |         |             |  |      | 51,563 |        |  |   | 54,596 |       
|Less accumulated depreciation        |                                     |             |         |             |  |      | 28,199 |        |  |   | 32,164 |       
|                                     |                                     |             |         |             |  |      |        |        |  |   |        |       
|                                     | Property, plant, and equipment, net |             |         |             |  |      | $      | 23,364 |  |   | $      | 22,432 | 
|                                     |                                     |             |         |             |  |      |        |        |  |   |        |       



|    |                  
|--- | -----------------
|(6) | Intangible Assets

A summary of intangible assets is as follows:

|                              |                       |             |       |       |  |   |       |       | 
|----------------------------- | --------------------- | ----------- | ----- | ----- |  | - | ----- | ----- | 
|                              |                       |            
|                              |                       | December 31
|                              |                       |            
|                              |                       | 2002        |       | 2003 
|                              |                       |             |       |      
|Goodwill                      |                       | $           | 1,587 |       |  | $ | 1,587 |      
|Covenants not to compete      |                       |             | 2,186 |       |  |   | 2,186 |      
|Debt issuance costs           |                       |             | 1,758 |       |  |   | 2,358 |      
|Other                         |                       |             | 435   |       |  |   | 435   |      
|                              |                       |             |       |       |  |   |       |      
|                              |                       |             | 5,966 |       |  |   | 6,566 |      
|Less accumulated amortization |                       |             | 4,630 |       |  |   | 5,466 |      
|                              |                       |             |       |       |  |   |       |      
|                              | Net intangible assets |             | $     | 1,336 |  |   | $     | 1,100 | 
|                              |                       |             |       |       |  |   |       |      

For amortizable intangible assets, the total
intangible amortization expense for the years ended
December 31, 2001, 2002 and 2003 was $462, $793 and $836,
respectively. The estimated amortization expense for each of the
next five years ending December 31 is as follows:

|             |      |  |   |     | 
|------------ | ---- |  | - | --- | 
|Year ending: |      |  |   |    
|             | 2004 |  | $ | 378 | 
|             | 2005 |  |   | 153 | 
|             | 2006 |  |   | 60  | 
|             | 2007 |  |   | 19  | 
|             | 2008 |  |   | 19  | 

The Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets, effective
January 1, 2002, and recorded a non-cash transition charge
of $8,118, or a $1.75 loss per share, for impairment of goodwill
during the year ended December 31, 2002. The Company
determined the goodwill recorded at January 1, 2002 was
primarily associated with indefinite-lived intangible assets
resulting from the acquisitions of certain plastics facilities.

32



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The charge has been treated as the cumulative
effect of a change in accounting principle. On January 1,
2002, the fair value of one of the Companys reporting
units (based on a multiple of projected EBITDA, less total debt)
was less than the carrying value of its net assets, including
goodwill, which indicated an impairment of goodwill. Under
SFAS No. 142, fair value was allocated to the assets
and liabilities of the reporting unit based on the purchase
accounting method. This calculation indicated that the full
amount of goodwill was impaired at the date of adoption of
SFAS No. 142.

The impact of goodwill amortization on net
earnings available to common shareholders in prior years is
presented below:

|                                             |                                                                   |      |   |         |  
|-------------------------------------------- | ----------------------------------------------------------------- | ---- | - | ------- | -
|                                             |                                                                   | 2001
|                                             |                                                                   |     
|Year ended December 31:                      |                                                                   |      |   |        
|                                             | Net loss available to common shareholders                         |      | $ | (17,787 | )
|                                             | Add back: goodwill amortization                                   |      |   | 389     |  
|                                             |                                                                   |      |   |        
|                                             | Adjusted net earnings (loss) available to common
    shareholders |      | $ | (17,398 | )
|                                             |                                                                   |      |   |        
|Basic and diluted earnings per common share: |                                                                   |      |   |        
|                                             | Net loss available to common shareholders                         |      | $ | (3.87   | )
|                                             | Goodwill amortization                                             |      |   | 0.09    |  
|                                             |                                                                   |      |   |        
|                                             | Adjusted net earnings (loss) available to common
    shareholders |      | $ | (3.78   | )
|                                             |                                                                   |      |   |        



|    |                                                  
|--- | -------------------------------------------------
|(7) | Derivative Instruments and Hedging
    Activities

The Company uses variable-rate debt to finance
its operations. The debt obligations expose the Company to
variability in interest payments due to changes in interest
rates. Management believes it is prudent to limit the
variability of a portion of its interest payments. To meet this
objective, management entered into interest rate swap agreements
to manage fluctuations in cash flows resulting from interest
rate risk, the last of which expired June 30, 2003. These
swaps changed the variable-rate cash flow exposure on the debt
obligations to fixed cash flows. Under the terms of the interest
rate swaps, the Company received variable interest rate payments
and made fixed interest rate payments, thereby creating the
equivalent of fixed rate debt.

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and
No. 138 on January 1, 2001. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet
at their fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The Company used derivative financial instruments
(interest rate swaps) to mitigate its interest rate risk on a
related financial instrument. SFAS 133 requires that
changes in the fair value of derivatives that qualify as a cash
flow hedge be recognized in other comprehensive income while the
ineffective portion of the derivatives change in fair
value be recognized immediately in earnings. SFAS 133
requires that unrealized gains and losses on that portion of
derivatives not qualifying for hedge accounting be recognized
currently in earnings. The Company recorded other income
(expense) of $(671), $418 and $337 for its interest rate
swap contracts for the years ended December 31, 2001, 2002
and 2003 respectively, as they did not qualify for hedge
accounting.

33



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |               
|--- | --------------
|(8) | Long-term Debt

A summary of long-term debt follows:

|                                                                                                                                                              |  |             |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                              |  |            
|                                                                                                                                                              |  | December 31
|                                                                                                                                                              |  |            
|                                                                                                                                                              |  | 2002        |        | 2003
|                                                                                                                                                              |  |             |        |     
|Revolving credit facility with the Harris
    syndicate                                                                                                       |  | $           | 18,600 |      |  | $ | 13,250 | 
|Note payable to the Harris syndicate, with
    variable rate interest (5.75% as of December 31, 2002 and
    2003)                                            |  |             | 27,756 |      |  |   | 23,253 | 
|Subordinated note payable with interest payable
    at 7.0%, discounted $393 to yield 10.0%, due in quarterly
    payments with the balance due April 8, 2008 |  |             | 2,134  |      |  |   | 1,734  | 
|Note payable, electric cooperative, non-interest
    bearing, due in monthly payments with the balance due
    November 1, 2006                               |  |             | 166    |      |  |   | 130    | 
|Capital lease obligations                                                                                                                                     |  |             | 160    |      |  |   | 113    | 
|Notes payable, miscellaneous                                                                                                                                  |  |             | 36     |      |  |   | 61     | 
|                                                                                                                                                              |  |             |        |      |  |   |        | 
|                                                                                                                                                              |  |             | 48,852 |      |  |   | 38,541 | 
|Less current installments                                                                                                                                     |  |             | 5,331  |      |  |   | 6,210  | 
|Less amount included in liabilities held for sale                                                                                                             |  |             | 3,750  |      |  |   |       | 
|                                                                                                                                                              |  |             |        |      |  |   |        | 
|                                                                                                                                                              |  | $           | 39,771 |      |  | $ | 32,331 | 
|                                                                                                                                                              |  |             |        |      |  |   |        | 

In May 1998, the Company entered into both a
revolving credit facility and a term loan agreement with a
syndicate of banks led by Harris Trust and Savings Bank
(the Harris syndicate).

The financing arrangements with the Harris
syndicate, as subsequently amended, are described as of
December 31, 2002 and 2003 in the following paragraphs:

In February 2002, the Company entered into a new
secured revolving credit facility with the Harris syndicate. The
revolving credit agreement permits the Company to borrow up to a
maximum of $21,000. The agreement requires payment of a
quarterly commitment fee of .50% per annum of the average
daily unused portion of the revolving credit facility. Interest
is due monthly and is based upon the bank prime rate plus 1.5%
(effective rate of 5.75% at December 31, 2002 and
December 31, 2003). The Company, alternatively, could
select a LIBOR plus 4.0% interest rate. The amount available
under the revolving credit facility is limited to 85% of
qualified accounts receivable, 50% of eligible inventory, plus
$2,500 of other assets. The revolving credit agreement was
originally set to mature on July 1, 2003. As described
below, that date has been extended to April 1, 2005. At
December 31, 2002 and 2003, the Company had $18,600 and
$13,250 outstanding and $262 and $1,211 available under this
credit facility.

In February 2002, the Company also entered into a
secured term loan arrangement with the Harris syndicate for a
term loan of $32,965. The new Harris syndicate term loan
arrangement replaced existing term loans and did not provide
additional availability. The term loan under this financing
arrangement is amortized monthly with principal payments ranging
from $235 to $500 and the balance of $24,930 due originally on
July 1, 2003 (now extended to April 1, 2005). Interest
is due monthly and is based upon the bank prime rate plus 1.5%
(effective rate of 5.75% at December 31, 2002 and
December 31, 2003). The Company, alternatively, could
select a LIBOR plus 4.0% interest rate. The agreement is secured
by a first lien on all of the Companys accounts
receivable, inventory, equipment and various other assets, other
than the assets of Morton Custom Plastics, LLC.

34



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The February, 2002 Harris syndicate agreement was
amended during 2003 as follows:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | maturity date of the revolving credit facility
    and remaining balance of the term loan extended to April 1,
    2005              
|
| |  | a reduction in the revolving credit commitment to
    $18,800 (from a previous level of $21,000)                                     
|
| |  | effective February 28, 2003, increasing the
    limit of eligible inventory under the revolving credit facility
    to 60%           
|
| |  | a change in the definition of other asset
    value in the borrowing base to $2,212 (from previous
    levels of $2,500 and $3,500)
|
| |  | establishing principal payment installments of
    $500 per month for the months ending April, 2004 through
    March, 2005          
|
| |  | providing consent to the sale of Mid-Central
    Plastics Inc.                                                                       
|
| |  | providing consent to enter into a settlement
    regarding the redeemable preferred stock held by Worthington
    Industries, Inc.   
|
| |  | increasing the limitation for capital
    expenditures for 2003                                                                      

These debt agreements contain restrictions on
capital expenditures, incurring additional debt or liens, making
investments, mergers and acquisitions, selling assets or making
payments such as dividends or stock repurchases, as well as
containing various financial covenants.

Under the most restrictive covenant in any
agreement, no amount was available for payment of dividends at
December 31, 2002 and 2003.

The aggregate amounts of contractual long-term
debt maturities and principal payments (based upon the amended
credit facilities described above) for each of the five years
subsequent to December 31, 2003 and thereafter are as
follows:

|             |  |   |        | 
|------------ |  | - | ------ | 
|Year ending: |  |  
|             |  |  
|2004         |  | $ | 6,210  | 
|2005         |  |   | 31,233 | 
|2006         |  |   | 448    | 
|2007         |  |   | 411    | 
|2008         |  |   | 239    | 
|Thereafter   |  |   |       | 
|             |  |   |        | 
|             |  | $ | 38,541 | 
|             |  |   |        | 

On September 20, 2000, the Company issued
warrants to a lender, in connection with an amendment to the
credit agreement, to purchase 238,548 shares of its
Class A common stock. The 238,548 warrants issued are
exercisable at any time through December 31, 2006, at an
exercise price of $.01 per share. The warrants were valued
at $863 and were recorded as a discount on the related term
loans in the year ended December 31, 2000.

35



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |       
|--- | ------
|(9) | Leases

The Company is obligated under various capital
leases for certain machinery. At December 31 the gross
amount of equipment and related amortization recorded under
capital leases was as follows:

|                              |  |      |     |      |  |   |     | 
|----------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                              |  | 2002 |     | 2003
|                              |  |      |     |     
|Machinery                     |  | $    | 228 |      |  | $ | 228 | 
|Less accumulated amortization |  |      | 68  |      |  |   | 115 | 
|                              |  |      |     |      |  |   |     | 
|                              |  | $    | 160 |      |  | $ | 113 | 
|                              |  |      |     |      |  |   |     | 

Assets under capital leases are included in
property, plant, and equipment and amortization of assets held
under capital leases is included in depreciation expense.

The present value of future minimum capital lease
payments at December 31, 2003 was as follows:

|                                                          |      |                              |                                                         |    |     |     | 
|--------------------------------------------------------- | ---- | ---------------------------- | ------------------------------------------------------- | -- | --- | --- | 
|Year ending:                                              |      |                              |                                                         |   
|                                                          | 2004 |                              | $                                                       | 58 |    
|                                                          | 2005 |                              |                                                         | 48 |    
|                                                          | 2006 |                              |                                                         | 18 |    
|                                                          |      |                              |                                                         |   
|                                                          |      | Total minimum lease payments |                                                         |    | 124 |    
|Less amount representing interest (from 7.1% to
    7.9%) |      |                              | 11                                                      |   
|                                                          |      |                              |                                                         |   
|                                                          |      |                              | Present value of net minimum capital lease
    payments |    | $   | 113 | 
|                                                          |      |                              |                                                         |   

The Company also has operating leases for several
of its plants, certain warehouse space, and manufacturing and
computer equipment. Rental expense for operating leases was
$7,901, $6,317, and $6,516 for the years ended December 31,
2001, 2002, and 2003, respectively.

Future minimum lease payments under noncancelable
operating leases (with initial or remaining lease terms in
excess of one year) as of December 31, 2003 are:

|                         |            |                              |   |       |        | 
|------------------------ | ---------- | ---------------------------- | - | ----- | ------ | 
|Year ending December 31: |            |                              |   |      
|                         | 2004       |                              | $ | 6,007 |       
|                         | 2005       |                              |   | 4,957 |       
|                         | 2006       |                              |   | 3,169 |       
|                         | 2007       |                              |   | 2,489 |       
|                         | 2008       |                              |   | 882   |       
|                         | Thereafter |                              |   |      |       
|                         |            |                              |   |      
|                         |            | Total minimum lease payments |   | $     | 17,504 | 
|                         |            |                              |   |      

36



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |             
|---- | ------------
|(10) | Income Taxes

Total income tax expense (benefit) for the
periods presented was allocated as follows:

|                                                                                            |  |             |       |      |  |      |       |   |  |   |     | 
|------------------------------------------------------------------------------------------- |  | ----------- | ----- | ---- |  | ---- | ----- | - |  | - | --- | 
|                                                                                            |  |            
|                                                                                            |  | December 31
|                                                                                            |  |            
|                                                                                            |  | 2001        |       | 2002 |  | 2003
|                                                                                            |  |             |       |      |  |     
|Earnings loss before discontinued operations and
    cumulative effect of accounting change |  | $           | 1,242 |      |  | $    | (288  | ) |  | $ | 426 | 
|Discontinued operations                                                                     |  |             | 858   |      |  |      | 2,157 |   |  |   | 55  | 
|                                                                                            |  |             |       |      |  |      |       |   |  |   |     | 
|                                                                                            |  | $           | 2,100 |      |  | $    | 1,869 |   |  | $ | 481 | 
|                                                                                            |  |             |       |      |  |      |       |   |  |   |     | 

Income tax expense (benefit) from continuing
operations consists of the following:

|                              |         |         |      |          |   |       |       |       |  |   |       |       |  
|----------------------------- | ------- | ------- | ---- | -------- | - | ----- | ----- | ----- |  | - | ----- | ----- | -
|                              |         | Current |      | Deferred |   | Total
|                              |         |         |      |          |   |      
|Year ended December 31, 2001: |         |         |      |          |   |       |       |       |  |   |       |      
|                              | Federal |         | $    |         |   |       | $     | 1,082 |  |   | $     | 1,082 |  
|                              | State   |         |      |         |   |       |       | 160   |  |   |       | 160   |  
|                              |         |         |      |          |   |       |       |       |  |   |       |      
|                              |         | $       |     |          |   | $     | 1,242 |       |  | $ | 1,242 |      
|                              |         |         |      |          |   |       |       |       |  |   |       |      
|Year ended December 31, 2002: |         |         |      |          |   |       |       |       |  |   |       |      
|                              | Federal |         | $    | (288     | ) |       | $     |      |  |   | $     | (288  | )
|                              | State   |         |      |         |   |       |       |      |  |   |       |      |  
|                              |         |         |      |          |   |       |       |       |  |   |       |      
|                              |         | $       | (288 | )        |   | $     |      |       |  | $ | (288  | )    
|                              |         |         |      |          |   |       |       |       |  |   |       |      
|Year ended December 31, 2003: |         |         |      |          |   |       |       |       |  |   |       |      
|                              | Federal |         | $    | 80       |   |       | $     | 151   |  |   | $     | 231   |  
|                              | State   |         |      | 195      |   |       |       |      |  |   |       | 195   |  
|                              |         |         |      |          |   |       |       |       |  |   |       |      
|                              |         | $       | 275  |          |   | $     | 151   |       |  | $ | 426   |      
|                              |         |         |      |          |   |       |       |       |  |   |       |      

Total income tax expense (benefit) attributable
to earnings before discontinued operations and cumulative effect
of accounting change differed from the amounts computed by
applying the U.S. Federal corporate income tax rate of 34%
for all periods to earnings (loss) before income taxes as a
result of the following:

|                                                                                  |  |             |        |      |  |      |      |   |  |   |      |  
|--------------------------------------------------------------------------------- |  | ----------- | ------ | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                                  |  |            
|                                                                                  |  | December 31
|                                                                                  |  |            
|                                                                                  |  | 2001        |        | 2002 |  | 2003
|                                                                                  |  |             |        |      |  |     
|Computed expected tax expense
    (benefit)                                     |  | $           | (2,049 | )    |  | $    | (336 | ) |  | $ | 572  |  
|State income tax expense, net of Federal income
    tax benefit                   |  |             | 106    |      |  |      |     |   |  |   | 129  |  
|Non-deductible interest on redeemable preferred
    stock                         |  |             |       |      |  |      |     |   |  |   | 146  |  
|Amortization of non-deductible goodwill                                           |  |             | 149    |      |  |      |     |   |  |   |     |  
|Officers life insurance                                                          |  |             | 20     |      |  |      | 20   |   |  |   | 20   |  
|Increase (decrease) in valuation allowance
    allocated to continuing operations |  |             | 3,096  |      |  |      | (42  | ) |  |   | (719 | )
|Other, net                                                                        |  |             | (80    | )    |  |      | 70   |   |  |   | 278  |  
|                                                                                  |  |             |        |      |  |      |      |   |  |   |      |  
|                                                                                  |  | $           | 1,242  |      |  | $    | (288 | ) |  | $ | 426  |  
|                                                                                  |  |             |        |      |  |      |      |   |  |   |      |  

37



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2002 and 2003, are
presented below:

|                                          |                                                                         |                                 |         |        |        |   |         |        |        |  
|----------------------------------------- | ----------------------------------------------------------------------- | ------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                          |                                                                         |                                
|                                          |                                                                         | December 31                    
|                                          |                                                                         |                                
|                                          |                                                                         | 2002                            |         | 2003  
|                                          |                                                                         |                                 |         |       
|Deferred tax assets attributable to:      |                                                                         |                                 |         |        |        |   |         |       
|                                          | Net operating loss and credit carryforwards                             |                                 | $       | 25,261 |        |   | $       | 23,971 |       
|                                          | Accrued vacation pay                                                    |                                 |         | 286    |        |   |         | 314    |       
|                                          | Reserves and other                                                      |                                 |         | 904    |        |   |         | 853    |       
|                                          |                                                                         |                                 |         |        |        |   |         |       
|                                          |                                                                         | Total gross deferred tax assets |         |        | 26,451 |   |         |        | 25,138 |  
|Less valuation allowance                  |                                                                         |                                 | (21,203 | )      |        |   | (20,484 | )     
|                                          |                                                                         |                                 |         |        |        |   |         |       
|                                          |                                                                         | Net deferred tax assets         |         |        | 5,248  |   |         |        | 4,654  |  
|                                          |                                                                         |                                 |         |        |        |   |         |       
|Deferred tax liabilities attributable to: |                                                                         |                                 |         |        |        |   |         |       
|                                          | Plant and equipment, principally due to
    differences in depreciation |                                 |         | (3,345 | )      |   |         | (2,926 | )     
|                                          | Excess of tax over book amortization of
    organization costs          |                                 |         | (49    | )      |   |         | (41    | )     
|                                          | Debt discount                                                           |                                 |         | (103   | )      |   |         | (87    | )     
|                                          |                                                                         |                                 |         |        |        |   |         |       
|                                          |                                                                         | Total deferred tax liabilities  |         |        | (3,497 | ) |         |        | (3,054 | )
|                                          |                                                                         |                                 |         |        |        |   |         |       
|                                          |                                                                         | Net deferred tax asset          |         | $      | 1,751  |   |         | $      | 1,600  |  
|                                          |                                                                         |                                 |         |        |        |   |         |       

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. In order to
fully realize the deferred tax asset, the Company will need to
generate future taxable income of approximately $4,700 prior to
the expiration of the net operating loss carryforwards in 2021.
Management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 2003 based
upon anticipated profitability over the period of years that the
temporary differences are expected to become tax deductions.
Management believes that sufficient book and taxable income will
be generated to realize the benefit of these tax assets. The
amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.

At December 31, 2003, the Company has net
operating loss carryforwards for Federal income tax purposes of
approximately $66,000 which are available to offset future
federal taxable income, if any, through 2022.



|     |                           
|---- | --------------------------
|(11) | Redeemable Preferred Stock

Pursuant to a 1999 agreement to purchase certain
assets of Worthington Custom Plastics, Inc.
(Worthington), the Company issued 10,000 shares
of its preferred stock, without par value, to Worthington. The
preferred stock was mandatorily redeemable on April 15,
2004 at $1,000 per share. The preferred stock was valued at
$4,250 at the time of the acquisition and the discount is being
accreted over a five-year period using the effective yield
method. See also note 2 related to the 2002 sale of assets
acquired from Worthington Custom Plastics, Inc and
note 19 related to litigation regarding Worthington
Industries, Inc.

The Company and Worthington have entered into a
stock redemption agreement, dated December 23, 2003, that
provides for 30 monthly redemption payments of $50 each
over a three year period (10 payments

38



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

each year in 2004, 2005 and 2006) to fully redeem
the preferred stock. Each payment will redeem 333 (or 334)
shares of the 10,000 shares outstanding and will result in
a gain on redemption of $283. If shares are not redeemed under
the provisions of this agreement, the redemption price remains
at $1,000 per share. As part of this agreement, all
litigation between the Company and Worthington is settled and
dismissed.



|     |                     
|---- | --------------------
|(12) | Stockholders Equity

The Companys capital stock consists of
Class A and Class B common stock. The Class A and
Class B shares have the same rights and preferences, except
that the Class B shares guarantee the holders certain
special voting rights. The holders of the Class B common
stock are ensured that the total votes available to be cast by
the holders, when combined with Class A common stock held,
will be at least 24% of the votes available to be cast by all
holders of common stock.

The Board of Directors is also authorized to
issue one or more series of preferred stock, with the number of
shares, dividend rate, voting rights, redemption features and
other rights to be determined by the Board of Directors.



|     |                   
|---- | ------------------
|(13) | Stock Option Plans

In 1998, the Company adopted a stock option plan
(the Plan) pursuant to which the Companys
Board of Directors may grant stock options to officers and key
employees. The Plan authorizes grants of options to purchase up
to 1,166,896 shares of authorized but unissued Class A
common stock. Stock options are granted with an exercise price
equal to the stocks fair market value at the date of
grant. All stock options under the Plan have ten-year terms and
vest and become fully exercisable after three years from the
date of grant. At December 31, 2002 and 2003, there were
8,100 and 327,561 additional shares available for grant
under the Plan.

The Company had a predecessor stock option plan
under which key officers and employees were granted options at
prices equal to fair market value of the stock on the date of
grant. At December 31, 2002 and 2003, there were 9,259 and
no options outstanding under the prior plan, respectively.

Stock option activity during the periods
indicated is as follows:

|                                 |  |           |            |          |  |   |         |  
|-------------------------------- |  | --------- | ---------- | -------- |  | - | ------- | -
|                                 |  |           |            | Weighted
|                                 |  |           |            | Average 
|                                 |  | Number of |            | Exercise
|                                 |  | Shares    |            | Price   
|                                 |  |           |            |         
|Outstanding at December 31, 2000 |  |           | 1,096,517  |          |  | $ | 13.904  |  
|Issued                           |  |           | 139,150    |          |  |   | 1.875   |  
|Exercised                        |  |           |           |          |  |   |        |  
|Forfeited                        |  |           | (139,600   | )        |  |   | (8.447  | )
|                                 |  |           |            |          |  |   |         |  
|Outstanding at December 31, 2001 |  |           | 1,096,067  |          |  |   | 13.072  |  
|Issued                           |  |           | 131,500    |          |  |   | 0.325   |  
|Exercised                        |  |           | (59,697    | )        |  |   | (0.216  | )
|Forfeited                        |  |           |           |          |  |   |        |  
|                                 |  |           |            |          |  |   |         |  
|Outstanding at December 31, 2002 |  |           | 1,167,870  |          |  |   | 12.290  |  
|Issued                           |  |           | 712,500    |          |  |   | 0.166   |  
|Exercised                        |  |           |           |          |  |   |        |  
|Forfeited                        |  |           | (1,041,220 | )        |  |   | (13.675 | )
|                                 |  |           |            |          |  |   |         |  
|Outstanding at December 31, 2003 |  |           | 839,150    |          |  | $ | 0.286   |  
|                                 |  |           |            |          |  |   |         |  

39



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following is summary information about the
Companys stock options outstanding at December 31,
2003:

|          |         |          |  |                 |       |             |  |  |               |  |  |  |         | 
|--------- | ------- | -------- |  | --------------- | ----- | ----------- |  |  | ------------- |  |  |  | ------- | 
|          |         |          |  |                 |       | Number of  
|Number of |         | Exercise |  |                 |       | Shares     
|Shares    |         | Price    |  | Expiration Date |       | Exercisable
|          |         |          |  |                 |       |            
|          | 51,650  |          |  | $               | 1.875 |             |  |  | February 2011 |  |  |  | 34,433  | 
|          | 75,000  |          |  |                 | 0.325 |             |  |  | June 2012     |  |  |  | 25,000  | 
|          | 600,000 |          |  |                 | 0.150 |             |  |  | February 2013 |  |  |  |        | 
|          | 30,000  |          |  |                 | 0.250 |             |  |  | April 2013    |  |  |  | 30,000  | 
|          | 72,500  |          |  |                 | 0.250 |             |  |  | August 2013   |  |  |  | 72,500  | 
|          | 10,000  |          |  |                 | 0.300 |             |  |  | November 2013 |  |  |  |        | 
|          |         |          |  |                 |       |             |  |  |               |  |  |  |         | 
|          | 839,150 |          |  |                 |       |             |  |  |               |  |  |  | 161,933 | 
|          |         |          |  |                 |       |             |  |  |               |  |  |  |         | 



|     |                       
|---- | ----------------------
|(14) | Concentration of Sales

Sales to customers in excess of 10% of total net
sales for the years ended December 31, 2001, 2002, and 2003
are as follows:

|             |                   |            |  |            |  |  |  |     | 
|------------ | ----------------- | ---------- |  | ---------- |  |  |  | --- | 
|             |                   | Customer A |  | Customer B
|             |                   |            |  |           
|Years ended: |                   |            |  |            |  |  |  |    
|             | December 31, 2001 |            |  | 40%        |  |  |  | 51% | 
|             | December 31, 2002 |            |  | 37%        |  |  |  | 50% | 
|             | December 31, 2003 |            |  | 38%        |  |  |  | 50% | 

Trade accounts receivable with these customers
totaled $4,130 and $4,302 at December 31, 2002 and 2003,
respectively.



|     |                            
|---- | ---------------------------
|(15) | Employee Participation Plan

The Companys Employee Participation Plan
allows substantially all employees to defer up to
15 percent of their income through payroll deduction of
pre-tax contributions under section 401(k) of the Internal
Revenue Code. The Company matches 25 percent of the first
6 percent of pre-tax income contributed by each employee.
Employees may also make contributions of after-tax income.
Additionally, the Company may make discretionary contributions
to the plan for the benefit of participating employees. Certain
of the acquired subsidiaries also had defined contribution plans
which allow for employee pre-tax contributions and employer
matching and discretionary contributions. The expense charged to
operations related to defined contribution plans was $240, $239
and $230 for the years ended December 31, 2001, 2002 and
2003, respectively.

40



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                          
|---- | -------------------------
|(16) | Earnings (Loss) Per Share

The following reflects the reconciliation of the
numerators and denominators of the income (loss) available to
common shareholders per share and net income (loss) available to
common shareholders per share assuming dilution computations:

|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |           |           | 
|--------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | - | - | --------- | --------- | 
|                            |                                                                                | 2001                                                     |   | 2002      |           | 2003
|                            |                                                                                |                                                          |   |           |           |     
|Numerator:                  |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) from continuing operations                                     |                                                          | $ | (8,333    | )         |      | $ | (1,965    | )         |   | $ | 541       |          
|                            | Earnings (loss) from discontinued operations                                   |                                                          |   | (9,454    | )         |      |   | 6,790     |           |   |   | 85        |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) before cumulative effect of
    change in accounting principle |                                                          |   | (17,787   | )         |      |   | 4,825     |           |   |   | 626       |          
|                            | Cumulative effect of change in accounting
    principle                        |                                                          |   |          |           |      |   | (8,118    | )         |   |   |          |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            |                                                                                | Net Earnings (loss) available to common
    shareholders |   | $         | (17,787   | )    |   | $         | (3,293    | ) |   | $         | 626       | 
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|Denominator:                |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Weighted average shares outstanding 
    basic                                |                                                          |   | 4,600,850 |           |      |   | 4,638,467 |           |   |   | 4,660,547 |          
|                            | Dilutive potential common shares 
    stock options                           |                                                          |   |          |           |      |   |          |           |   |   | 430,300   |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            |                                                                                | Weighted average shares outstanding 
    diluted        |   |           | 4,600,850 |      |   |           | 4,638,467 |   |   |           | 5,090,847 | 
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|Basic earnings per share:   |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) from continuing operations                                     |                                                          | $ | (1.81     | )         |      | $ | (0.42     | )         |   | $ | 0.12      |          
|                            | Earnings (loss) from discontinued operations                                   |                                                          |   | (2.06     | )         |      |   | 1.46      |           |   |   | 0.02      |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) before cumulative effect of
    change in accounting principle |                                                          |   | (3.87     | )         |      |   | 1.04      |           |   |   | 0.14      |          
|                            | Cumulative effect of change in accounting
    principle                        |                                                          |   |          |           |      |   | (1.75     | )         |   |   |          |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            |                                                                                | Net Earnings (loss) available to common
    shareholders |   | $         | (3.87     | )    |   | $         | (0.71     | ) |   | $         | 0.14      | 
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|Diluted earnings per share: |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) from continuing operations                                     |                                                          | $ | (1.81     | )         |      | $ | (0.42     | )         |   | $ | 0.11      |          
|                            | Earnings (loss) from discontinued operations                                   |                                                          |   | (2.06     | )         |      |   | 1.46      |           |   |   | 0.02      |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            | Earnings (loss) before cumulative effect of
    change in accounting principle |                                                          |   | (3.87     | )         |      |   | 1.04      |           |   |   | 0.13      |          
|                            | Cumulative effect of change in accounting
    principle                        |                                                          |   |          |           |      |   | (1.75     | )         |   |   |          |          
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          
|                            |                                                                                | Net Earnings (loss) available to common
    shareholders |   | $         | (3.87     | )    |   | $         | (0.71     | ) |   | $         | 0.13      | 
|                            |                                                                                |                                                          |   |           |           |      |   |           |           |   |   |          

Options to purchase 1,096,067 shares of
Class A common stock at an average price of
$13.072 per share and warrants to purchase
238,548 shares of Class A common stock at
$.01 per share were outstanding at December 31, 2001,
but were not included in the computation of diluted earnings per
share because they were anti-dilutive.

Options to purchase 1,167,870 shares of
Class A common stock at an average price of
$12.294 per share and warrants to purchase
238,548 shares of Class A common stock at
$.01 per share were outstanding at December 31, 2002,
but were not included in the computation of diluted earnings per
share because they were anti-dilutive.

41



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                  
|---- | -----------------
|(17) | Segment Reporting

Subsequent to the previously reported sales of
Morton Custom Plastics, LLC and Mid-Central Plastics, Inc.,
the Company has only one remaining segment  the
contract metal fabrication segment.



|     |                                                  
|---- | -------------------------------------------------
|(18) | Selected Quarterly Financial Data
    (Unaudited)

Selected quarterly financial information for the
years ended December 31, 2003 and 2002 is as follows:

|      |                                                                                               |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |         |       |       |  
|----- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----- | ------- | ----- | ------- | - | ------- | ----- | ---------- | - | ------ | ----- | ----- | - | ------ | ----- | ---- | - | ------- | ----- | ----- | -
|      |                                                                                               | First                                                   |       | Second  |       | Third   |   | Fourth  |       |           
|      |                                                                                               | Quarter                                                 |       | Quarter |       | Quarter |   | Quarter |       | Total Year
|      |                                                                                               |                                                         |       |         |       |         |   |         |       |           
|      |                                                                                               |                                                        
|      |                                                                                               | (In thousands, except per share data)                  
|2003: |                                                                                               |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |        
|      | Sales                                                                                         |                                                         | $     | 32,380  |       |         | $ | 34,398  |       |            | $ | 31,452 |       |       | $ | 33,201 |       |      | $ | 131,431 |      
|      | Gross margin                                                                                  |                                                         |       | 4,591   |       |         |   | 5,010   |       |            |   | 4,063  |       |       |   | 4,449  |       |      |   | 18,113  |      
|      | Operating income                                                                              |                                                         |       | 1,283   |       |         |   | 1,698   |       |            |   | 886    |       |       |   | 884    |       |      |   | 4,751   |      
|      | Earnings before discontinued operations and
    cumulative effect of accounting change        |                                                         |       | 316     |       |         |   | 573     |       |            |   | 106    |       |       |   | 261    |       |      |   | 1,256   |      
|      | Net earnings (loss) from discontinued operations                                              |                                                         |       | 135     |       |         |   | (50     | )     |            |   |       |       |       |   |       |       |      |   | 85      |      
|      | Net earnings available to common shareholders                                                 |                                                         |       | 119     |       |         |   | 140     |       |            |   | 106    |       |       |   | 261    |       |      |   | 626     |      
|      | Earnings per share of common stock 
    basic:                                               |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |         |      
|      |                                                                                               | From continuing operations                              |       |         | 0.00  |         |   |         | 0.04  |            |   |        | 0.02  |       |   |        | 0.06  |      |   |         | 0.12  |      
|      |                                                                                               | From discontinued operations                            |       |         | 0.03  |         |   |         | (0.01 | )          |   |        |      |       |   |        |      |      |   |         | 0.02  |      
|      |                                                                                               |                                                         | Total |         |       | 0.03    |   |         |       | 0.03       |   |        |       | 0.02  |   |        |       | 0.06 |   |         |       | 0.14  |  
|      | Earnings per share of common stock 
    diluted:                                             |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |         |      
|      |                                                                                               | From continuing operations                              |       |         | 0.00  |         |   |         | 0.03  |            |   |        | 0.02  |       |   |        | 0.06  |      |   |         | 0.11  |      
|      |                                                                                               | From discontinued operations                            |       |         | 0.03  |         |   |         | (0.01 | )          |   |        |      |       |   |        |      |      |   |         | 0.02  |      
|      |                                                                                               |                                                         | Total |         |       | 0.03    |   |         |       | 0.02       |   |        |       | 0.02  |   |        |       | 0.06 |   |         |       | 0.13  |  
|2002: |                                                                                               |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |        
|      | Sales                                                                                         |                                                         | $     | 29,177  |       |         | $ | 32,241  |       |            | $ | 28,981 |       |       | $ | 26,168 |       |      | $ | 116,567 |      
|      | Gross margin                                                                                  |                                                         |       | 4,117   |       |         |   | 4,850   |       |            |   | 3,385  |       |       |   | 2,693  |       |      |   | 15,045  |      
|      | Operating income (loss)                                                                       |                                                         |       | 1,160   |       |         |   | 1,402   |       |            |   | 647    |       |       |   | (334   | )     |      |   | 2,875   |      
|      | Earnings (loss) before discontinued operations
    and cumulative effect of accounting change |                                                         |       | 184     |       |         |   | (473    | )     |            |   | (321   | )     |       |   | (90    | )     |      |   | (700    | )    
|      | Net earnings (loss) from discontinued operations                                              |                                                         |       | (526    | )     |         |   | (2,770  | )     |            |   | (4,326 | )     |       |   | 14,412 |       |      |   | 6,790   |      
|      | Cumulative effect of change in accounting
    principle                                       |                                                         |       | (8,118  | )     |         |   |        |       |            |   |       |       |       |   |       |       |      |   | (8,118  | )    
|      | Net earnings (loss) available to common
    shareholders                                      |                                                         |       | (8,739  | )     |         |   | (3,566  | )     |            |   | (4,978 | )     |       |   | 13,990 |       |      |   | (3,293  | )    
|      | Earnings per share of common stock 
    basic and diluted:                                   |                                                         |       |         |       |         |   |         |       |            |   |        |       |       |   |        |       |      |   |         |      
|      |                                                                                               | From continuing operations                              |       |         | (0.02 | )       |   |         | (0.17 | )          |   |        | (0.14 | )     |   |        | (0.09 | )    |   |         | (0.42 | )    
|      |                                                                                               | From discontinued operations                            |       |         | (0.12 | )       |   |         | (0.59 | )          |   |        | (0.92 | )     |   |        | 3.09  |      |   |         | 1.46  |      
|      |                                                                                               | Cumulative effect of change in accounting
    principle |       |         | (1.75 | )       |   |         |      |            |   |        |      |       |   |        |      |      |   |         | (1.75 | )    
|      |                                                                                               |                                                         | Total |         |       | (1.89   | ) |         |       | (0.76      | ) |        |       | (1.06 | ) |        |       | 3.00 |   |         |       | (0.71 | )

42



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |           
|---- | ----------
|(19) | Litigation

On May 1, 2000, Worthington
Industries, Inc. (Worthington) filed suit (in the United
States District Court for the Southern District of Ohio, Eastern
Division (the Court)) against the Company and Morton
Custom Plastics, LLC (MCP, LLC) related to MCP,
LLCs 1999 acquisition of the non-automotive plastics
business from Worthington. In connection with the stock
redemption agreement described in Note 11 above, all
litigation between the Company and Worthington was released. An
order of dismissal of the Worthington lawsuit against the
Company was entered in the Court on January 20, 2004.

The Company is also involved in routine
litigation. Management does not believe any legal proceedings
would have a material adverse effect on the Companys
financial condition or results of operations.



|     |                 
|---- | ----------------
|(20) | Subsequent Event

On March 26, 2004, the Company entered into
a Second Amended and Restated Credit Agreement with a syndicate
of banks led by Harris Trust and Savings Bank, As Agent, and
also on March 26, 2004, entered into a Note and Warrant
Purchase Agreement with BMO Nesbitt Burns Capital (U.S.) Inc.,
As Agent. These agreements were effective on March 26,
2004, and provided financing to replace the $13,300 revolving
credit facility with the Harris syndicate and the $23,300 term
note payable to the Harris syndicate as described in Note 8
above. In connection with this transaction, holders of 238,584
warrants to purchase Class A Common Stock surrendered them
to the Company.

Under the terms of the new agreements, the
Company has:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) A 4-year secured term loan in the amount
    of $22,000 with variable rate interest; principal payments are
    due in quarterly installments of $500 beginning June 30,
    2004 through March 31, 2005 and due in quarterly
    installments of $750 beginning June 30, 2005 through
    December 31, 2007 with the balance of $11,750 due on
    March 31, 2008. The Company will enter into interest rate
    protection contracts on at least 50% of the term loan.                                                
|
| | 2) A secured revolving credit facility with
    a limit of $18,000, variable rate interest, and with an initial
    revolving credit balance of $8,700, and with initial
    availability of $5,400 as of March 26, 2004. The balance is
    due March 31, 2008. The amount available under the revolving
    credit facility is limited to 85% of eligible accounts
    receivable and 60% of eligible inventory. The facility requires
    a commitment fee of 0.50% per annum on the unused portion of the
    facility.
|
| | At the Companys option, for both the
    secured term loan and the revolving credit facility, interest
    will be at either a bank base rate plus applicable margin, or an
    adjusted LIBOR plus a LIBOR margin. At inception, the bank rate
    plus applicable margin is 6.75% and the adjusted LIBOR plus a
    LIBOR margin is 5.35%.                                                                                                                                                                              
|
| | 3) A senior secured subordinated note in the
    amount of $10,000 bearing cash interest of 12% and PIK interest
    of 4% with no principal amortization, and the balance due
    March 26, 2009.                                                                                                                                                                                                                                                                                                                         

Related to the senior secured subordinated note,
the Company issued 545,467 warrants to purchase shares of its
Class A Common Stock at an exercise price of $0.02 per
share; these warrants expire March 26, 2014. The warrants
may be put to the Company, at the then fair market value, five
years from the date of issue, or upon change of control or upon
a default on the senior secured subordinated loan.

43



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MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In connection with these loans, we have granted
the lenders a lien on all of the Companys accounts
receivable, inventory, equipment, land and buildings, and
various other assets. These agreements contain restrictions on
capital expenditures, additional debt or liens, investments,
mergers and acquisitions, asset sales and payments such as
dividends or stock repurchases. These agreements also impose
various financial covenants, including financial performance
ratios. Fees associated with the March 26, 2004
transactions, including underwriting and legal fees, were
approximately $1,500, paid at closing.

44



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|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of disclosure controls and
procedures. The Companys principal executive officer
and principal financial officer have concluded that the
Companys disclosure controls and procedures (as defined in
Rule 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended), based on their evaluation of these
controls and procedures as of the end of the period covered by
this Form 10-K, are effective.

The Companys management, including its
principal executive officer and principal financial officer,
does not expect that the Companys disclosure controls and
procedures or its internal controls will prevent all error and
all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgements in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by management
override of the control.

Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. The design of any system
of controls also is based, in part, upon certain assumptions
about the likelihood of future events, and there can only be
reasonable assurance that any design will succeed in achieving
its stated goals under all potential future conditions.

(b) Changes in internal controls.
There have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation.




PART III






|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant.

The information required by this Item 10
about the executive officers and Directors of the Company is
incorporated herein by reference to the information set forth
under the caption Election of Directors in our
definitive proxy statement for the 2004 annual meeting of
shareholders, which we expect to file with the Securities and
Exchange commission not later than one hundred twenty days after
December 31, 2003 pursuant to Regulation 14A.






|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.

The information required by this Item 11 is
incorporated herein by reference to the information set forth
under the caption Executive Compensation in our
definitive proxy statement for the 2004 annual meeting of
shareholders, which we expect to file with the Securities and
Exchange commission not later than one hundred twenty days after
December 31, 2003 pursuant to Regulation 14A.






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management.

The information required by this Item 12 is
incorporated herein by reference to the information set forth
under the caption Principal Shareholders of the
Company in our definitive proxy statement for the 2004
annual meeting of shareholders, which we expect to file with the
Securities and Exchange commission not later than one hundred
twenty days after December 31, 2003 pursuant to
Regulation 14A.

45



---



##### Table of Contents








|         |                                                    
|-------- | ---------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions.

The information required by this Item 13 is
incorporated herein by reference to the information set forth
under the caption Executive Compensation 
Certain Relationships and Related Transactions in our
definitive proxy statement for the 2004 annual meeting of
shareholders, which we expect to file with the Securities and
Exchange commission not later than one hundred twenty days after
December 31, 2003 pursuant to Regulation 14A.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this Item 14 is
incorporated herein by reference to the information set forth
under the caption Ratification of the Selection of
Auditors in our definitive proxy statement for the 2004
annual meeting of shareholders, which we expect to file with the
Securities and Exchange commission not later than one hundred
twenty days after December 31, 2003 pursuant to
Regulation 14A.




PART IV






|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K.

(a) The following documents are filed as a
part of this report:

1. Financial Statements.

The following financial statements of the Company
are included in Item 8:



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | a. Report of KPMG LLP, Independent
    Auditors                                                  
|
| | b. Consolidated Balance Sheets as of
    December 31, 2002 and 2003                              
|
| | c. Consolidated Statements of Operations for
    the years ended December 31, 2001, 2002 and 2003



| |    |                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------
| | d. | Consolidated Statements of Stockholders
    Equity (Deficit) for the years ended December 31, 2001,
    2002 and 2003



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | e. Consolidated Statements of Cash Flows for
    the years ended December 31, 2001, 2002 and 2003
|
| | f. Notes to Consolidated Financial Statements                                                    

2. Financial Statement Schedules

The following financial statement schedule of the
Company is included in Item 8:



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and
    Qualifying Accounts for the years ended December 31, 2001,
    2002 and 2003

|                                  |  |                              |  |                                                                                                                                           |  |                                                                                                                                                              |  |  |  | 
|--------------------------------- |  | ---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|                                  |  |                              |  | Filed                                                                                                                                    
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                                                 
|                                  |  |                              |  |                                                                                                                                          
|2.1 and 10.1                      |  |                             |  | Agreement and Plan of Merger Between MLX Corp.
    and Morton Metalcraft Holding Co., dated as of October 20,
    1997                    |  | Annex B to the Definitive Proxy Statement on
    Schedule 14A filed by MLX Corp. with the Securities and
    Exchange Commission (SEC) on January 6, 1998. |  |  |  | 
|2.2 and 10.2                      |  |                             |  | Securities Purchase Agreement Among MLX Corp. and
    Security Holders of Morton Metalcraft Holding Co., dated as of
    October 20, 1997 |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                                                                             |  |  |  | 

46



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##### Table of Contents



|                                  |  |                              |  |                                                                                                                                                                                                                                             |  |                                                                                                            |  |  |  | 
|--------------------------------- |  | ---------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  |  |  | 
|                                  |  |                              |  | Filed                                                                                                                                                                                                                                      
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                                                                                                                                                   
|                                  |  |                              |  |                                                                                                                                                                                                                                            
|3.1 and 4.1                       |  |                             |  | Articles of Incorporation of the registrant as
    Amended prior to January 20, 1998                                                                                                                                                        |  | MLX Corp. Form 10-Q for the quarter ended
    June 30, 1993 Exhibit 3 to Morton Industrial
    Group, Inc. |  |  |  | 
|3.2 and 4.2                       |  |                             |  | Articles of Amendment to Articles of
    Incorporation of the Registrant Effective January 20, 1998                                                                                                                                         |  | Report on Form 8-K filed with the SEC on
    February 4, 1998                                              |  |  |  | 
|3.2 and 4.2                       |  |                             |  | Bylaws of the Registrant, as Amended                                                                                                                                                                                                        |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|4.3 and 10.3                      |  |                             |  | Credit Agreement Among the Registrant, Metalcraft
    Co., Morton Metalcraft Co. of North Carolina and Harris
    Trust & Savings Bank, individually and as Agent, dated
    January 20, 1998                                               |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|4.4 and 10.4                      |  |                             |  | Security Agreement executed by Morton Industrial
    Group, Inc., Morton Metalcraft Co., and Morton Metalcraft
    Co. of North Carolina in favor of Harris Trust &
    Savings Bank, individually and as Agent, dated January 20,
    1998 |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|4.5 and 10.5                      |  |                             |  | Mortgage and Security Agreement with Assignment
    of Rents executed by Morton Metalcraft Co. in favor of Harris
    Trust & Savings Bank, individually and as Agent, dated
    January 20, 1998                                           |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|4.6 and 10.6                      |  |                             |  | Pledge Agreement executed by Registrant in favor
    of Harris Trust & Savings Bank, individually and as
    Agent, dated January 20, 1998                                                                                                  |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|10.7                              |  |                             |  | Limited Indemnification Agreement dated as of
    October 20, 1997, among MLX Corp., William D. Morton, and
    Other Morton Metalcraft Shareholders and Option Holders                                                                     |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|                                  |  |                              |  |                                                                                                                                                                                                                                             |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|10.10                             |  |                             |  | Lease between Agracel, Inc., and Morton
    Metalcraft Co. dated November 6, 1996.                                                                                                                                                          |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|10.11                             |  |                             |  | Employment Agreement dated as of January 20,
    1998, between the Registrant and William D. Morton                                                                                                                                         |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 
|10.12                             |  |                             |  | Employment Agreement dated as of January 20,
    1998, between the Registrant and Daryl R. Lindemann                                                                                                                                        |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                           |  |  |  | 

47



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|                                  |  |                              |  |                                                                                                                                             |  |                                                                                                                          |  |  |  | 
|--------------------------------- |  | ---------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|                                  |  |                              |  | Filed                                                                                                                                      
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                                                   
|                                  |  |                              |  |                                                                                                                                            
|10.13                             |  |                             |  | MLX Corp. 1997 Stock Option Plan                                                                                                            |  | Appendix C to the Definitive Proxy Statement
    on Schedule 14A filed by MLX Corp. with the SEC on January
    6. 1998. |  |  |  | 
|10.14                             |  |                             |  | MLX Corp. 1995 Stock Option Plan                                                                                                            |  | MLX Corp. Definitive Proxy Statement on
    Schedule 14A for the 1995 Annual Meeting of Stockholders                     |  |  |  | 
|10.15                             |  |                             |  | Master Lease Agreement between Morton Metalcraft
    Co. and General Electric Capital Corporation dated
    August 7, 1996                  |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                                         |  |  |  | 
|10.16                             |  |                             |  | Guaranty of Master Lease Agreement by Morton
    Metalcraft Holding Co., dated August 7, 1996                                               |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                                         |  |  |  | 
|10.23                             |  |                             |  | Death Benefit Agreement between Morton Metalcraft
    Co. and William D. Morton                                                             |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                                         |  |  |  | 
|10.24                             |  |                             |  | Salary Continuation Agreement between Morton
    Metalcraft Co. and William D. Morton dated February 26,
    1996.                          |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1997                                         |  |  |  | 
|10.26                             |  |                             |  | Stock Purchase Agreement among the Company,
    Joseph T. Buie, Jr., and Ernest J. Butler, dated
    April 8, 1998.                         |  | Exhibit 10.2 to Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    April 14, 1998            |  |  |  | 
|10.27                             |  |                             |  | Non-negotiable Promissory Note
    (subordinated) of the Company, Joseph T. Buie, Jr.,
    dated April 8, 1998.                             |  | Exhibit 10.3 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    April 14, 1998               |  |  |  | 
|10.28                             |  |                             |  | Non-negotiable Promissory Note
    (subordinated) of the Company to Ernest. J. Butler, dated
    April 8, 1998.                             |  | Exhibit 10.4 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    April 14, 1998               |  |  |  | 
|10.29                             |  |                             |  | Stock Purchase Agreement among the Company and
    Richard L. Goreham, Delores A. Staples and William B. Goreham,
    dated April 27, 1998. |  | Exhibit 10.1 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998                |  |  |  | 
|10.30                             |  |                             |  | Credit Agreement dated May 28, 1998 among
    the Company, Harris Trust and Savings Bank, and the lenders
    signatory thereto             |  | Exhibit 10.2 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998                |  |  |  | 
|10.32                             |  |                             |  | Deed of Trust and Security Agreement with
    Assignment of Rents executed by B&W Metal
    Fabricators, Inc.                               |  | Exhibit 10.4 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998                |  |  |  | 

48



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|                                  |  |                              |  |                                                                                                                                                                                                                                                                   |  |                                                                                                               |  |  |  | 
|--------------------------------- |  | ---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  |  |  | 
|                                  |  |                              |  | Filed                                                                                                                                                                                                                                                            
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                                                                                                                                                                         
|                                  |  |                              |  |                                                                                                                                                                                                                                                                  
|10.33                             |  |                             |  | Amended and Restated Security Agreement executed
    by the Company, Morton Metalcraft Co., Morton Metalcraft Co. of
    North Carolina, Morton Metalcraft Co. of South Carolina, Carroll
    George Inc. and B&W Metal Fabricators, Inc. dated
    May 28, 1998. |  | Exhibit 10.5 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998     |  |  |  | 
|10.34                             |  |                             |  | Amended and Restated Pledge Agreement executed by
    the Company, Morton Metalcraft Co., Morton Metalcraft Co. of
    North Carolina, Morton Metalcraft Co. of South Carolina, Carroll
    George Inc. and B&W Metal Fabricators, Inc. dated
    May 28, 1998.   |  | Exhibit 10.6 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998     |  |  |  | 
|10.35                             |  |                             |  | Amended and Restated Mortgage and Security
    Agreement with Assignment of Rents executed by Morton Metalcraft
    Co., dated May 28, 1998.                                                                                                                      |  | Exhibit 10.7 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998     |  |  |  | 
|10.35                             |  |                             |  | Mortgage and Security Agreement with Assignment
    of Rents to executed by Mid-Central Plastics, Inc. dated
    May 28, 1998.                                                                                                                                    |  | Exhibit 10.8 Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    June 12, 1998     |  |  |  | 
|10.36                             |  |                             |  | First Amendment to Credit Agreement with Harris
    Trust & Savings Bank                                                                                                                                                                                          |  | Morton Industrial Group, Inc. Form 10-K
    for the year ended December 31, 1998                              |  |  |  | 
|10.41                             |  |                             |  | Amended and Restated Agreement with Harris Trust
    and Savings Bank, As Agent                                                                                                                                                                                   |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 10-K filed with SEC on
    April 1, 2002     |  |  |  | 
|10.42                             |  |                             |  | First Amendment to Amended and Restated Agreement
    with Harris Trust and Savings Bank, As Agent                                                                                                                                                                |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 10-K filed with SEC on
    March 31, 2003    |  |  |  | 
|10.43                             |  |                             |  | Second Amendment to Amended and Restated
    Agreement with Harris Trust and Savings Bank, As Agent                                                                                                                                                               |  | Exhibit 99.2 to Morton Industrial
    Group, Inc. Report on Form 10-K filed with SEC on
    March 31, 2003    |  |  |  | 
|10.44                             |  |                             |  | Third Amendment to Amended and Restated Agreement
    with Harris Trust and Savings Bank, As Agent                                                                                                                                                                |  | Exhibit 99.3 to Morton Industrial
    Group, Inc. Report on Form 10-K filed with SEC on
    March 31, 2003    |  |  |  | 
|10.45                             |  |                             |  | Asset Purchase Agreement between Morton Custom
    Plastics, LLC and Wilbert, Inc.                                                                                                                                                                                |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 10-Q filed with SEC on
    November 4, 2002  |  |  |  | 
|10.46                             |  |                             |  | Senior Secured, Super-Priority
    Debtor-in-Possession Credit Agreement among Morton Custom
    Plastics, LLC and General Electric Capital Corporation                                                                                                           |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 10-Q filed with SEC on
    November 12, 2002 |  |  |  | 
|10.47                             |  |                             |  | Fourth Amendment to Amended and Restated Credit
    Agreement with Harris Trust & Savings Bank, As Agent                                                                                                                                                          |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 10-Q filed with SEC on
    August 11, 2003.  |  |  |  | 

49



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|                                  |  |                              |  |                                                                                                                      |  |                                                                                                                  |  |  |   | 
|--------------------------------- |  | ---------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  |  | - | 
|                                  |  |                              |  | Filed                                                                                                               
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                            
|                                  |  |                              |  |                                                                                                                     
|10.48                             |  |                             |  | Fifth Amendment to Amended and Restated Credit
    Agreement with Harris Trust & Savings Bank, As Agent              |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 8-K filed with SEC on
    December 29, 2003.    |  |  |   | 
|10.49                             |  |                             |  | Sixth Amendment to Amended and Restated Credit
    Agreement with Harris Trust & Savings Bank, As Agent              |  |                                                                                                                  |  |  | X | 
|10.50                             |  |                             |  | Second Amended and Restated Credit Agreement                                                                         |  |                                                                                                                  |  |  | X | 
|10.51                             |  |                             |  | Note and Warrant Purchase Agreement                                                                                  |  |                                                                                                                  |  |  | X | 
|10.52                             |  |                             |  | Settlement Agreement                                                                                                 |  | Exhibit 99.2 to Morton Industrial
    Group, Inc. Report on Form 8-K filed with SEC on
    December 29, 2003.    |  |  |   | 
|10.53                             |  |                             |  | Stock Redemption Agreement                                                                                           |  | Exhibit 99.3 to Morton Industrial
    Group, Inc. Report on Form 8-K filed with SEC on
    December 29, 2003.    |  |  |   | 
|10.54                             |  |                             |  | Agreement with Innovative Injection
    Technologies, Inc.                                                           |  | Exhibit 99.1 to Morton Industrial
    Group, Inc. Report on Form 8-K/A filed with SEC on
    July 7, 2003.       |  |  |   | 
|10.55                             |  |                             |  | First Amendment to Agreement with Innovative
    Injection Technologies, Inc.                                        |  | Exhibit 99.2 to Morton Industrial
    Group, Inc. Report on Form 8-K/A filed with SEC on
    July 7, 2003.       |  |  |   | 
|10.56                             |  |                             |  | Investor Rights Agreement                                                                                            |  |                                                                                                                  |  |  | X | 
|13                                |  |                             |  | Annual Report                                                                                                        |  |                                                                                                                  |  |  | X | 
|16.2                              |  |                             |  | Letter re: change in certifying accountant                                                                           |  | Exhibit 16.1 to Morton Industrial
    Group, Inc. Report on Form 8-K filed with the SEC on
    February 18, 1999 |  |  |   | 
|21.1                              |  |                             |  | Subsidiaries of Registrant                                                                                           |  |                                                                                                                  |  |  | X | 
|23.1                              |  |                             |  | Consent of KPMG LLP                                                                                                  |  |                                                                                                                  |  |  | X | 
|31.1                              |  |                             |  | Certification pursuant to 18 U.S.C.
    Section 1350, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002. |  |                                                                                                                  |  |  | X | 
|31.2                              |  |                             |  | Certification pursuant to 18 U.S.C.
    Section 1350, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002. |  |                                                                                                                  |  |  | X | 

50



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##### Table of Contents



|                                  |  |                              |  |                                                                                                                      |  |  |  |  |   | 
|--------------------------------- |  | ---------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  | - | 
|                                  |  |                              |  | Filed                                                                                                               
|Exhibit Number and Document Title |  | Incorporated by Reference to |  | Herewith                                                                                                            
|                                  |  |                              |  |                                                                                                                     
|32.1                              |  |                             |  | Certification pursuant to 18 U.S.C.
    Section 1350, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002. |  |  |  |  | X | 
|32.2                              |  |                             |  | Certification pursuant to 18 U.S.C.
    Section 1350, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002. |  |  |  |  | X | 

(b) Reports on Form 8-K



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Form 8-K was filed with the SEC on
    December 29, 2003 related to an extension of the
    Companys bank credit facility and a settlement related to
    its redeemable preferred stock.

51



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##### Table of Contents



MORTON INDUSTRIAL GROUP, INC. AND
SUBSIDIARIES

Schedule II  Valuation and
Qualifying Accounts

|                                 |                              |              |   |            |  |            |  |       |  |            |  |        |   |  |  |      |    |  |  |     | 
|-------------------------------- | ---------------------------- | ------------ | - | ---------- |  | ---------- |  | ----- |  | ---------- |  | ------ | - |  |  | ---- | -- |  |  | --- | 
|                                 |                              | Balance At   |   | Charged to |  |            |  |       |  | Balance At
|                                 |                              | Beginning of |   | Costs and  |  |            |  |       |  | End of    
|Description                      |                              | Period       |   | Expenses   |  | Deductions |  | Other |  | Period    
|                                 |                              |              |   |            |  |            |  |       |  |           
|Allowance for doubtful accounts: |                              |              |   |            |  |            |  |       |  |            |  |        |   |  |  |      |    |  |  |    
|                                 | Year ended December 31, 2001 |              | $ | 1,324      |  |            |  | 595   |  |            |  | (1,538 | ) |  |  |     |    |  |  | 381 | 
|                                 |                              |              |   |            |  |            |  |       |  |            |  |        |   |  |  |      |    |  |  |    
|                                 | Year ended December 31, 2002 |              | $ | 381        |  |            |  | 7     |  |            |  | (52    | ) |  |  | (252 | )* |  |  | 84  | 
|                                 |                              |              |   |            |  |            |  |       |  |            |  |        |   |  |  |      |    |  |  |    
|                                 | Year ended December 31, 2003 |              | $ | 84         |  |            |  | 310   |  |            |  | (192   | ) |  |  |     |    |  |  | 202 | 
|                                 |                              |              |   |            |  |            |  |       |  |            |  |        |   |  |  |      |    |  |  |    



---



|  |                                                                                                 
|- | ------------------------------------------------------------------------------------------------
|* | Represents the December 31, 2001 allowance
    for doubtful accounts of discontinued operations.

52



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                              
| | -----------------------------
| | MORTON INDUSTRIAL GROUP, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ WILLIAM D. MORTON

| |                             
| | ----------------------------
| |                             
| | William D. Morton           
| | President, Chief Executive  
| | Officer, and Chairman of the
| | Board of Directors          

Dated: March 30, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                         |  |                                                                                |  |                |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------------- |  | 
|                                         |  |                                                                                |  |               
|Name                                     |  | Title                                                                          |  | Date          
|                                         |  |                                                                                |  |               
|                                        
|/s/ WILLIAM D. MORTONWilliam D. Morton   |  | President, Chief Executive Officer, and Chairman
    of the Board of Directors |  | March 30, 2004
|                                        
|/s/ RODNEY B. HARRISONRodney B. Harrison |  | Vice President of Finance and Treasurer
    (Principal Accounting Officer)     |  | March 30, 2004
|                                        
|/s/ FRED W. BROLINGFred W. Broling       |  | Director                                                                       |  | March 30, 2004
|                                        
|/s/ MARK W. MEALYMark W. Mealy           |  | Director                                                                       |  | March 30, 2004



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##### Table of Contents



SHAREHOLDER INFORMATION

CORPORATE OFFICES

Morton Industrial Group, Inc.

1021 W. Birchwood


Morton, Illinois 61550-0429


Phone: 309-266-7176 Fax: 309-263-1841


INVESTOR INFORMATION

Shareholders and prospective investors are
welcome to call or write with questions or requests for
additional information. Please direct inquiries to Van Negris at:

Van Negris & Company, Inc.

1120 Avenue Of The Americas 
Suite 4100


New York, NY 10036


Phone: 212-626-6730 Fax: 212-626-6732


ANNUAL MEETING

The Annual Meeting of the Shareholders of Morton
Industrial Group, Inc. will be held on Tuesday,
June 8, 2004 at 10:00 a.m. (CDT) at:

Bertha Frank Performing Arts Center

350 North Illinois Avenue


Morton, Illinois 61550


FORM 10-K

A copy of form 10-K, the Annual Report which the
Company is required to file with the Securities and Exchange
Commission, is available without charge upon request to the
Company at the above address.

STOCK TRANSFER AGENT AND REGISTRAR

For inquiries about stock transfers or address
changes, shareholders may contact:

American Stock Transfer & Trust Co.

59 Maiden Lane


New York, NY 10038


Phone: 800-937-5449


INDEPENDENT PUBLIC ACCOUNTANTS

KPMG LLP

Indianapolis, Indiana


STOCK MARKET INFORMATION

The common stock of Morton Industrial
Group, Inc. is traded on the OTC Market under the ticker
symbol MGRP.



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##### Table of Contents



BOARD OF DIRECTORS

William D. Morton

Chairman of the Board, President and CEO


Morton Industrial Group, Inc.


Fred W. Broling

Retired President and CEO


US Precision Glass


Mark W. Mealy

Head of the Mergers and Acquisitions Group


Wachovia Securities, Inc.


CORPORATE OFFICERS

William D. Morton

Chairman of the Board, President and CEO


Daryl R. Lindemann

Secretary


Rodney B. Harrison

Vice President of Finance & Treasurer