##### 









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, 2005                                                 
|  
|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





Morton Industrial Group, Inc.


www.mortongroup.com


(Exact name of registrant as specified in its charter)


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

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)


o þ


o þ


þ


S-K 10-K 10-K. þ


12b-2 o þ


12b-2


o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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##### 



Safe Harbor Statement Under The Private
Securities Litigation Reform Act Of 1995:


PART I




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

Merger Agreement Disclosure




Narrative Description of Business




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



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





2



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##### 





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



just-in






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





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





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



3



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##### 





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

just-in




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







| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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  seat modules, frames,
    guards, platforms, step assemblies and cabs used in backhoes,
    excavators, crawlers, tractors and skid steer loaders.                                                                                            
|
| |  | 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  back frames, lights and
    brackets used in store displays and commercial refrigeration
    units.                                                                                                                                              



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





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





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





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





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



4



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##### 





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





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



Sales and Marketing




Manufacturing/ Production




Sheet Metal Fabrication.


Raw Materials




5



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##### 





Competition




Regulatory/ Environmental Matters




Financial Information about Industry Segments




Backlog




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




Working Capital Items




Employees




Internet


www.mortongroup.com.


6



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##### 



Significant Past Events of the Business




debtor-in




|         |             
|-------- | ------------
|Item 1A. | Risk Factors





| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of either of our two largest customers or the material
    reduction in purchases by either or both of them.              
|
| |  | Significant industry-wide declines in the sales of construction,
    industrial, or agricultural equipment.                        
|
| |  | The unavailability of raw materials such as steel in volumes or
    at times required to meet production needs and customer orders.
|
| |  | Increases in the prices of raw materials that cannot be passed
    through to customers in full or material part.                  
|
| |  | The lack of sufficient working capital to meet production
    requirements or growth opportunities.                                
|
| |  | Increases in interest rates that increases the costs of our
    indebtedness and the reduce the availability of capital.           
|
| |  | General economic conditions and the cyclicality of our
    customers businesses.                                                  

7



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##### 





|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments





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



|                                        |  |         |  |                                                                                                                   
|--------------------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------------
|                                        |  | Approx. |  |                                                                                                                   
|Location                                |  | Sq. Ft. |  | Products Manufactured                                                                                             
|                                        |  |         |  |                                                                                                                   
|1021 West Birchwood Street, Morton, IL  |  | 284,000 |  | 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
    metalcomponent 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







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

Worthington








8



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##### 









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



PART II




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





|     |                          |      |       |     |      
|---- | ------------------------ | ---- | ----- | --- | -----
|     |                          | High |       | Low
|     |                          |      |       |    
|2005 |                          |      |       |    
|     | October 1 to December 31 |      | $7.75 |     | $6.00
|     | July 1 to September 30   |      | $7.40 |     | $6.05
|     | April 1 to June 30       |      | $6.85 |     | $5.50
|     | January 1 to March 31    |      | $6.90 |     | $5.20

|     |                          |      |   |      |  |  |   |      | 
|---- | ------------------------ | ---- | - | ---- |  |  | - | ---- | 
|     |                          | High |   | Low 
|     |                          |      |   |     
|2004 |                          |      |   |      |  |  |   |     
|     | October 1 to December 31 |      | $ | 5.95 |  |  | $ | 4.30 | 
|     | July 1 to September 30   |      | $ | 5.10 |  |  | $ | 3.55 | 
|     | April 1 to June 30       |      | $ | 4.05 |  |  | $ | 2.20 | 
|     | January 1 to March 31    |      | $ | 1.90 |  |  | $ | 0.50 | 











9



---



##### 





|          |         |  |          |   |       |                 |  |        |               |  |  |  |         | 
|--------- | ------- |  | -------- | - | ----- | --------------- |  | ------ | ------------- |  |  |  | ------- | 
|          |         |  |          |   |       | Number of       | 
|Number of |         |  | Exercise |   |       |                 |  | Shares |              
|Shares    |         |  | Price    |   |       | Expiration Date |  |        | Exercisable   | 
|          |         |  |          |   |       |                 |  |        |               | 
|          | 51,650  |  |          | $ | 1.875 |                 |  |        | February 2011 |  |  |  | 51,650  | 
|          | 38,334  |  |          |   | 0.325 |                 |  |        | June 2012     |  |  |  | 38,334  | 
|          | 316,336 |  |          |   | 0.150 |                 |  |        | February 2013 |  |  |  | 116,333 | 
|          | 30,000  |  |          |   | 0.250 |                 |  |        | April 2013    |  |  |  | 30,000  | 
|          | 72,500  |  |          |   | 0.250 |                 |  |        | August 2013   |  |  |  | 72,500  | 
|          | 10,000  |  |          |   | 0.300 |                 |  |        | November 2013 |  |  |  | 6,666   | 
|          |         |  |          |   |       |                 |  |        |               | 
|          | 518,820 |  |          |   |       |                 |  |        |               |  |  |  | 315,483 | 
|          |         |  |          |   |       |                 |  |        |               | 





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

Selected Historical Financial Data




|                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                           |  | Year Ended December 31, |        
|                                                                                                           |  |                         |        
|                                                                                                           |  | 2001                    |         |   | 2002 |   |         | 2003 |  |   | 2004    |   |  | 2005 |        
|                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |        
|Operating data:                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                                                                  |  | $                       | 127,103 |   |      | $ | 116,567 |      |  | $ | 131,431 |   |  | $    | 185,469 |   |  | $ | 196,276 |  
|Cost of sales                                                                                              |  |                         | 111,358 |   |      |   | 101,522 |      |  |   | 113,318 |   |  |      | 161,910 |   |  |   | 169,445 |  
|Gross profit                                                                                               |  |                         | 15,745  |   |      |   | 15,045  |      |  |   | 18,113  |   |  |      | 23,559  |   |  |   | 26,831  |  
|Selling and administrative expenses                                                                        |  |                         | 13,131  |   |      |   | 12,170  |      |  |   | 12,583  |   |  |      | 14,401  |   |  |   | 15,835  |  
|Restructuring charges                                                                                      |  |                         | 1,323   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Operating income                                                                                           |  |                         | 1,291   |   |      |   | 2,875   |      |  |   | 5,530   |   |  |      | 9,158   |   |  |   | 10,996  |  
|Other income (expense)                                                                                     |  |                         | (610    | ) |      |   | 365     |      |  |   | 442     |   |  |      | 172     |   |  |   | 60      |  
|Interest expense, net                                                                                      |  |                         | (6,706  | ) |      |   | (4,228  | )    |  |   | (3,863  | ) |  |      | (4,922  | ) |  |   | (6,180  | )
|Interest on redeemable preferred stock                                                                     |  |                         |        |   |      |   |        |      |  |   | (427    | ) |  |      | (250    | ) |  |   |        |  
|Gain on redemption of preferred stock                                                                      |  |                         |        |   |      |   |        |      |  |   |        |   |  |      | 2,833   |   |  |   | 2,833   |  
|Earnings (loss) before income taxes, accounting change and
    discontinued operations                     |  |                         | (6,025  | ) |      |   | (988    | )    |  |   | 1,682   |   |  |      | 6,991   |   |  |   | 7,709   |  
|Income taxes (benefit)                                                                                     |  |                         | 1,242   |   |      |   | (288    | )    |  |   | 426     |   |  |      | (5,775  | ) |  |   | (4,017  | )
|Earnings (loss) before discontinued operations and cumulative
    effect of change in accounting principle |  |                         | (7,267  | ) |      |   | (700    | )    |  |   | 1,256   |   |  |      | 12,766  |   |  |   | 11,726  |  
|Net income (loss) from operations of discontinued plastics
    operations                                  |  |                         | (9,454  | ) |      |   | 6,790   |      |  |   | 85      |   |  |      |        |   |  |   |        |  
|Earnings (loss) before cumulative effect of accounting change                                              |  |                         | (16,721 | ) |      |   | 6,090   |      |  |   | 1,341   |   |  |      | 12,766  |   |  |   | 11,726  |  
|Cumulative effect of change in accounting principle                                                        |  |                         |        |   |      |   | (8,118  | )    |  |   |        |   |  |      |        |   |  |   |        |  
|Net earnings (loss)                                                                                        |  |                         | (16,721 | ) |      |   | (2,028  | )    |  |   | 1,341   |   |  |      | 12,766  |   |  |   | 11,726  |  
|Accretion of discount on preferred shares                                                                  |  |                         | (1,066  | ) |      |   | (1,265  | )    |  |   | (715    | ) |  |      |        |   |  |   |        |  
|Net earnings (loss) available to common shareholders                                                       |  |                         | (17,787 | ) |      |   | (3,293  | )    |  |   | 626     |   |  |      | 12,766  |   |  |   | 11,726  |  
|                                                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |        

10



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##### 



|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |         |      |  |   |        |      | 
|----------------------------------------------------- | -------------------------------------------- | ----------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ | ---- | 
|                                                      |                                              | Year Ended December 31, |        
|                                                      |                                              |                         |        
|                                                      |                                              | 2001                    |         |       | 2002 |   |         | 2003  |   |   | 2004    |      |  | 2005 |        
|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |        
|Earnings (loss) per share  basic:                    |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |         |      |  |   |        |     
|                                                      | Earnings (loss) from continuing operations   |                         |         | (1.81 | )    |   |         | (0.42 | ) |   |         | 0.12 |  |      |         | 2.73 |  |   |        | 2.37 | 
|                                                      | Earnings (loss) from discontinued operations |                         |         | (2.06 | )    |   |         | 1.46  |   |   |         | 0.02 |  |      |         |     |  |   |        |     | 
|Cumulative effect of a change in accounting principle |                                              |                         |        |       |      |   | (1.75   | )     |   |   |        |      |  |      |        |      |  |   |       |     
|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |        
|                                                      | Total earnings (loss) per share  basic      |                         |         | (3.87 | )    |   |         | (0.71 | ) |   |         | 0.14 |  |      |         | 2.73 |  |   |        | 2.37 | 
|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |        
|Earnings (loss) per share  diluted:                  |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |         |      |  |   |        |     
|                                                      | Earnings (loss) from continuing operations   |                         |         | (1.81 | )    |   |         | (0.42 | ) |   |         | 0.11 |  |      |         | 2.16 |  |   |        | 1.98 | 
|                                                      | Earnings (loss) from discontinued operations |                         |         | (2.06 | )    |   |         | 1.46  |   |   |         | 0.02 |  |      |         |     |  |   |        |     | 
|Cumulative effect of a change in accounting principle |                                              |                         |        |       |      |   | (1.75   | )     |   |   |        |      |  |      |        |      |  |   |       |     
|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |        
|                                                      | Total earnings (loss) per share  diluted    |                         |         | (3.87 | )    |   |         | (0.71 | ) |   |         | 0.13 |  |      |         | 2.16 |  |   |        | 1.98 | 
|                                                      |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |        
|Financial position (at end of year):                  |                                              |                         |         |       |      |   |         |       |   |   |         |      |  |      |         |      |  |   |        |     
|Working capital                                       |                                              | $                       | (1,475  | )     |      | $ | (2,294  | )     |   | $ | (6,818  | )    |  | $    | 6,428   |      |  | $ | 2,428  |     
|Total assets                                          |                                              |                         | 106,517 |       |      |   | 56,853  |       |   |   | 48,822  |      |  |      | 67,145  |      |  |   | 73,794 |     
|Total debt                                            |                                              |                         | 79,138  |       |      |   | 45,102  |       |   |   | 38,541  |      |  |      | 43,575  |      |  |   | 38,903 |     
|Stockholders equity (deficit)                        |                                              | $                       | (20,944 | )     |      | $ | (24,224 | )     |   | $ | (23,598 | )    |  | $    | (10,804 | )    |  | $ | 949    |     

11



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##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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




General




debtor-in










12



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Results of Operations




|                                                         |  |                         |       |   |      |  |       |      |  |  |       |  
|-------------------------------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                         |  | Year Ended December 31, |      
|                                                         |  |                         |      
|                                                         |  | 2003                    |       |   | 2004 |  |       | 2005 | 
|                                                         |  |                         |       |   |      |  |       |      | 
|Statements of Operations Data:                           |  |                         |       |   |      |  |       |      |  |  |       |  
|Net sales                                                |  |                         | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Gross profit                                             |  |                         | 13.8  |   |      |  | 12.7  |      |  |  | 13.7  |  
|Selling and administrative expenses                      |  |                         | 9.6   |   |      |  | 7.8   |      |  |  | 8.1   |  
|Operating income                                         |  |                         | 4.2   |   |      |  | 4.9   |      |  |  | 5.6   |  
|Interest expense, net                                    |  |                         | 2.9   |   |      |  | 2.7   |      |  |  | 3.1   |  
|Earnings before income taxes and discontinued operations |  |                         | 1.3   |   |      |  | 3.8   |      |  |  | 3.9   |  



|                                                                               |  |  |       |  |  |  |       |  |  |  |        | 
|------------------------------------------------------------------------------ |  |  | ----- |  |  |  | ----- |  |  |  | ------ | 
|Operating income                                                               |  |  | 5,530 |  |  |  | 9,158 |  |  |  | 10,996 | 
|Depreciation and amortization of plant and equipment and
    intangible assets |  |  | 5,694 |  |  |  | 5,804 |  |  |  | 5,422  | 
|Capital expenditures                                                           |  |  | 4,119 |  |  |  | 5,365 |  |  |  | 6,492  | 



| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2005 versus Year Ended
    December 31, 2004



13



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##### 











payment-in










14



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##### 





| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2004 versus Year Ended
    December 31, 2003







payment-in










15



---



##### 





Financial Position and Liquidity








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









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) A four-year secured term loan in the original principal
    amount of $21,000,000 with variable rate interest; principal
    payments were due in quarterly installments of $500,000 which
    began June 30, 2004 and continued through March 31,
    2005, and due in quarterly installments of $750,000 beginning
    June 30, 2005 through December 31, 2007 with the
    balance of $6,427,000 due on March 31, 2008. Mandatory
    principal payments of $633,000 related to the 2003 sale of the
    assets of Mid-Central
    Plastics, Inc. have been made. The term loan requires excess
    cash flow repayments of $1,734,000 and $1,958,000 to be paid on
    March 31, 2006 and May 31, 2006, respectively. The
    excess cash flow payments are equal to 75% of the amount by
    which earnings before interest, income taxes, depreciation and
    amortization (EBITDA) exceed interest expense paid in cash,
    income taxes paid in cash, principal payments on all
    indebtedness and capital expenditures. No estimate has been made
    for any excess cash flow payment that could become due on
    March 31, 2007.
|
| | 2) A secured revolving credit facility with a limit of
    $18,000,000 with variable rate interest. At December 31,
    2005, the Company has a revolving credit balance of $9,700,000
    and availability of $7,042,000 under this facility. The balance
    is due March 31, 2008. The amount available under the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

16



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##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | revolving credit facility is limited to 85% of eligible accounts
    receivable and 60% of eligible inventories. 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 secured revolving credit facility, interest will be at
    either a bank base rate plus applicable margin, or an adjusted
    LIBOR plus a LIBOR applicable margin. At inception, the bank
    rate plus applicable margin was 6.75% and the adjusted LIBOR
    plus a LIBOR applicable margin was 5.35%. At December 31,
    2004 those rates were 7.75% and 6.78%, respectively, and at
    December 31, 2005, those rates were 9.25% and 7.97%,
    respectively.                                                                                                                                                                                                                                                                             
|
| | The Company entered into a swap agreement effective
    June 30, 2004 related to $10,750,000 (the original notional
    amount) of its term debt. The swap agreement is for the purpose
    of limiting the effects of interest rate increases on
    approximately one-half of the Companys variable rate term
    debt. Under this agreement, the Company pays a fixed rate of
    3.72% on the notional amount, which is payable quarterly. In
    accordance with the term loan agreement, the Company also pays
    an interest margin which adjusts in steps based on achieved
    operating and leverage metrics (4.00% during the first three
    months of 2005, and then reducing to 3.50%). The notional amount
    as of December 31, 2005 was $8,875,000. The swap agreement
    expires March 31, 2008
|
| | 3) Senior secured subordinated notes totaling $12,000,000
    with cash interest of 12% and
    payment-in-kind
    interest of 2% or 4% with no principal amortization, and the
    balances due March 26, 2009. This debt is subordinated to
    the secured term loan and the revolving credit facility with
    respect to both payment and lien priority. The balance as of
    December 31, 2005 is $12,771,000 (reported as $11,988,000,
    reflecting a discount of $783,000).                                                                                                                                                                                                                                                                                                                              
|
| | Related to the senior secured subordinated note, on
    March 26, 2004, the Company issued 545,467 warrants to
    purchase shares of its Class A Common Stock for
    $0.02 per share; these warrants expire March 26, 2014.
    The warrant holder may exercise the warrants at any time. The
    warrants may be put to the Company, at their then fair market
    value, at the earlier of: a) five years from the date of
    issue; b) a change of control; c) a default on the
    senior secured subordinated loan; or d) a prepayment of 75%
    or more of the original principal balance of the senior secured
    subordinated loan.                                                                                                                                                                     







17



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##### 









| |                           
| | --------------------------
| | Redeemable Preferred Stock





| |                     
| | --------------------
| | Capital Expenditures







Quarterly Financial Information




|                                              |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |        |  |  |   |         | 
|--------------------------------------------- |  | ------------------------------------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | ----- | ------ |  |  | - | ------- | 
|                                              |  | First                                 |        |  | Second  |   |        | Third   |  |   | Fourth  |  |  | Total |       
|                                              |  | Quarter                               |        |  | Quarter |   |        | Quarter |  |   | Quarter |  |  | Year  |       
|                                              |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |       
|                                              |  | (In thousands, except per share data) |       
|2005                                          |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |        |  |  |   |         | 
|Net sales                                     |  | $                                     | 54,123 |  |         | $ | 53,558 |         |  | $ | 43,339  |  |  | $     | 45,256 |  |  | $ | 196,276 | 
|Gross profit                                  |  |                                       | 7,134  |  |         |   | 7,589  |         |  |   | 5,430   |  |  |       | 6,678  |  |  |   | 26,831  | 
|Operating income                              |  |                                       | 3,595  |  |         |   | 3,685  |         |  |   | 1,645   |  |  |       | 2,071  |  |  |   | 10,996  | 
|Net earnings available to common shareholders |  |                                       | 3,001  |  |         |   | 2,714  |         |  |   | 738     |  |  |       | 5,273  |  |  |   | 11,726  | 
|Earnings per share of common stock  basic:   |  | $                                     | 0.62   |  |         | $ | 0.54   |         |  | $ | 0.15    |  |  | $     | 1.06   |  |  | $ | 2.37    | 
|Earnings per share of common stock  diluted: |  | $                                     | 0.50   |  |         | $ | 0.46   |         |  | $ | 0.13    |  |  | $     | 0.89   |  |  | $ | 1.98    | 

18



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##### 



|                                              |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |        |  |  |   |         | 
|--------------------------------------------- |  | ------------------------------------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | ----- | ------ |  |  | - | ------- | 
|                                              |  | First                                 |        |  | Second  |   |        | Third   |  |   | Fourth  |  |  | Total |       
|                                              |  | Quarter                               |        |  | Quarter |   |        | Quarter |  |   | Quarter |  |  | Year  |       
|                                              |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |       
|                                              |  | (In thousands, except per share data) |       
|2004                                          |  |                                       |        |  |         |   |        |         |  |   |         |  |  |       |        |  |  |   |         | 
|Net sales                                     |  | $                                     | 39,920 |  |         | $ | 50,706 |         |  | $ | 46,146  |  |  | $     | 48,697 |  |  | $ | 185,469 | 
|Gross profit                                  |  |                                       | 5,509  |  |         |   | 6,145  |         |  |   | 5,318   |  |  |       | 6,587  |  |  |   | 23,559  | 
|Operating income                              |  |                                       | 2,168  |  |         |   | 2,730  |         |  |   | 1,888   |  |  |       | 2,372  |  |  |   | 9,158   | 
|Net earnings available to common shareholders |  |                                       | 2,126  |  |         |   | 2,228  |         |  |   | 965     |  |  |       | 7,447  |  |  |   | 12,766  | 
|Earnings per share of common stock  basic:   |  | $                                     | 0.46   |  |         | $ | 0.48   |         |  | $ | 0.20    |  |  | $     | 1.59   |  |  | $ | 2.73    | 
|Earnings per share of common stock  diluted: |  | $                                     | 0.38   |  |         | $ | 0.38   |         |  | $ | 0.15    |  |  | $     | 1.25   |  |  | $ | 2.16    | 

Off-Balance Sheet Arrangements






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The Companys operating lease obligation amounts
    are shown in the significant cash commitments table below. The
    Company enters into operating leases for larger units of
    manufacturing equipment related to many of its operations,
    including the laser cutting of sheet metal and the forming of
    sheet metal. Most parts fabricated by the Company are either
    laser cut, or formed, or both. The Company has operating leases
    that are scheduled to expire in 2006-2011; as these leases
    expire, it is likely that the Company will either extend those
    operating leases for the same units of manufacturing equipment
    or enter into new operating lease arrangements for replacement
    manufacturing units.                                                                                                                                                                                                                   
|
| | (ii) The Company has provided bank letters of credit
    totaling approximately $2,086,000 to two creditors. One letter
    of credit is in support of operating lease payments; this letter
    of credit is for $388,000 and will be in effect through the
    entire term of certain leases that expire in December 2011,
    unless released earlier; the other letters of credit, in the
    total amount of $1,698,000 support future potential payments by
    the Company related to workers compensation claims. These
    letters of credit will renew on an annual basis until the need
    for the letters of credit expires. Based on workers
    compensation claims experience, the amount of these letters of
    credit are subject to adjustment on December 31, 2006. The
    outstanding letters of credit decrease, on a dollar-for-dollar
    basis, the amount of revolving line of credit available under
    the secured revolving credit facility.
|
| | (iii) The Company entered into a swap agreement effective
    June 30, 2004 as described above in this Item 7 and
    also below in Item 7A. The swap agreement is for the
    purpose of limiting the effects of interest rate increases on
    approximately one-half of the Companys variable rate term
    debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



Significant Cash Commitments




19



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##### 





|                                   |  |                        |        |           |        |   |        |           |       |   |           |  |  |         |        |  |  |  |   | 
|---------------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ------ | --------- | ----- | - | --------- |  |  | ------- | ------ |  |  |  | - | 
|                                   |  | Payments Due by Period |        |           |       
|                                   |  |                        |        |           |       
|                                   |  |                        |        | Less than |        |   |        |           | After |  
|                                   |  | Total                  |        |           | 1 Year |   |        | 1-3 Years |       |   | 4-5 Years |  |  | 5 Years |       
|                                   |  |                        |        |           |        |   |        |           |       |   |           |  |  |         |       
|                                   |  | (In thousands)         |       
|Term loan                          |  | $                      | 16,118 |           |        | $ | 6,637  |           |       | $ | 9,481     |  |  | $       |       |  |  |  |  | 
|Revolving line of credit           |  |                        | 9,700  |           |        |   |       |           |       |   | 9,700     |  |  |         |       |  |  |  |  | 
|Senior subordinated debt           |  |                        | 12,771 |           |        |   |       |           |       |   |          |  |  |         | 12,771 |  |  |  |  | 
|Other debt obligations             |  |                        | 1,223  |           |        |   | 502    |           |       |   | 721       |  |  |         |       |  |  |  |  | 
|Interest  estimated               |  |                        | 11,100 |           |        |   | 3,700  |           |       |   | 6,800     |  |  |         | 600    |  |  |  |  | 
|Operating leases                   |  |                        | 22,634 |           |        |   | 7,142  |           |       |   | 12,937    |  |  |         | 2,555  |  |  |  |  | 
|Preferred stock redemption         |  |                        | 500    |           |        |   | 500    |           |       |   |          |  |  |         |       |  |  |  |  | 
|                                   |  |                        |        |           |        |   |        |           |       |   |           |  |  |         |       
|Total contractual cash obligations |  | $                      | 74,046 |           |        | $ | 18,481 |           |       | $ | 39,639    |  |  | $       | 15,926 |  |  |  |  | 
|                                   |  |                        |        |           |        |   |        |           |       |   |           |  |  |         |       







Seasonality




Critical Accounting Policies




20



---



##### 





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





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





| |                        
| | -----------------------
| | Group Health Care Costs





| |                      
| | ---------------------
| | Valuation of Warrants





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



Recently Issued Accounting Standards






21



---



##### 







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

Interest Rate Risk














Steel Commodity Risk




22



---



##### 





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

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES


INDEX


|                                                                                                                   |  |      |    | 
|------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                   |  | Page |   
|                                                                                                                   |  |      |   
|Report of Independent Registered Public Accounting Firm                                                            |  |      | 24 | 
|Consolidated Balance Sheets as of December 31, 2004 and 2005                                                       |  |      | 25 | 
|Consolidated Statements of Operations for the years ended
    December 31, 2003, 2004 and 2005                     |  |      | 26 | 
|Consolidated Statements of Stockholders Equity (Deficit)
    for the years ended December 31, 2003, 2004 and 2005 |  |      | 27 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2003, 2004 and 2005                     |  |      | 28 | 
|Notes to Consolidated Financial Statements                                                                         |  |      | 29 | 
|Schedule                                                                                                           |  |      |    | 
|Schedule II  Valuation and Qualifying Accounts
    for the years ended December 31, 2003, 2004 and 2005           |  |      | 45 | 

23



---



##### 



Report of Independent Registered Public Accounting
Firm














| |             
| | ------------
| | /s/ KPMG LLP







24



---



##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES


Consolidated Balance Sheets


December 31, 2004 and 2005


|                                                          |                                                                                                                                                     |                                      |        |         |         |   |        |         |        | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------ | ------- | ------- | - | ------ | ------- | ------ | 
|                                                          |                                                                                                                                                     | 2004                                 |        |         | 2005    |  
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | (Dollars in thousands,               |       
|                                                          |                                                                                                                                                     | except per share data)               |       
|ASSETS                                                   
|Current assets:                                           |                                                                                                                                                     |                                      |        |         |         |   |        |        
|                                                          | Trade accounts receivable, less allowance for doubtful accounts
    of $160 in 2004 and $192 in 2005                                                |                                      | $      | 9,788   |         |   | $      | 12,714  |       
|                                                          | Unbilled receivables                                                                                                                                |                                      |        | 2,741   |         |   |        | 801     |       
|                                                          | Inventories                                                                                                                                         |                                      |        | 19,218  |         |   |        | 20,631  |       
|                                                          | Prepaid expenses and other current assets                                                                                                           |                                      |        | 1,324   |         |   |        | 824     |       
|                                                          | Deferred income taxes                                                                                                                               |                                      |        | 2,700   |         |   |        | 2,583   |       
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | Total current assets                 |        |         | 35,771  |   |        |         | 37,553 | 
|Property, plant, and equipment, net                       |                                                                                                                                                     |                                      | 22,390 |         |         |   | 23,432 |        
|Note receivable                                           |                                                                                                                                                     |                                      | 1,102  |         |         |   |       |        
|Intangible assets, at cost, less accumulated amortization |                                                                                                                                                     |                                      | 649    |         |         |   | 570    |        
|Deferred income taxes                                     |                                                                                                                                                     |                                      | 5,400  |         |         |   | 10,617 |        
|Other assets                                              |                                                                                                                                                     |                                      | 1,833  |         |         |   | 1,622  |        
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | $                                    | 67,145 |         |         | $ | 73,794 |        
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                         
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)           
|Current liabilities:                                      |                                                                                                                                                     |                                      |        |         |         |   |        |        
|                                                          | Outstanding checks in excess of bank balance                                                                                                        |                                      | $      | 2,801   |         |   | $      | 3,050   |       
|                                                          | Current installments of long-term debt                                                                                                              |                                      |        | 3,295   |         |   |        | 7,139   |       
|                                                          | Accounts payable                                                                                                                                    |                                      |        | 17,860  |         |   |        | 19,295  |       
|                                                          | Accrued payroll and payroll taxes                                                                                                                   |                                      |        | 1,782   |         |   |        | 2,226   |       
|                                                          | Other accrued expenses                                                                                                                              |                                      |        | 2,905   |         |   |        | 2,416   |       
|                                                          | Income taxes payable                                                                                                                                |                                      |        | 200     |         |   |        | 499     |       
|                                                          | Redeemable preferred stock                                                                                                                          |                                      |        | 500     |         |   |        | 500     |       
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | Total current liabilities            |        |         | 29,343  |   |        |         | 35,125 | 
|Long-term debt, excluding current installments            |                                                                                                                                                     |                                      | 40,280 |         |         |   | 31,764 |        
|Other liabilities                                         |                                                                                                                                                     |                                      | 368    |         |         |   | 250    |        
|Redeemable preferred stock                                |                                                                                                                                                     |                                      | 6,167  |         |         |   | 2,834  |        
|Warrants payable                                          |                                                                                                                                                     |                                      | 1,791  |         |         |   | 2,872  |        
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | Total liabilities                    |        |         | 77,949  |   |        |         | 72,845 | 
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|Stockholders equity (deficit):                           |                                                                                                                                                     |                                      |        |         |         |   |        |        
|                                                          | Class A common stock  $0.01 par value.
    Authorized 20,000,000 shares; issued and outstanding
    4,723,878 shares in 2004 and 4,880,878 in 2005 |                                      |        | 47      |         |   |        | 49      |       
|                                                          | Class B common stock  $0.01 par value.
    Authorized 200,000 shares; issued and outstanding 100,000
    in 2004 and 2005                          |                                      |        | 1       |         |   |        | 1       |       
|                                                          | Additional paid-in capital                                                                                                                          |                                      |        | 20,922  |         |   |        | 20,947  |       
|                                                          | Accumulated deficit                                                                                                                                 |                                      |        | (31,774 | )       |   |        | (20,048 | )     
|                                                          |                                                                                                                                                     | Total stockholders equity (deficit) |        |         | (10,804 | ) |        |         | 949    | 
|                                                          |                                                                                                                                                     |                                      |        |         |         |  
|                                                          |                                                                                                                                                     | $                                    | 67,145 |         |         | $ | 73,794 |        
|                                                          |                                                                                                                                                     |                                      |        |         |         |  



25



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##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES


Consolidated Statements of Operations


Years ended December 31, 2003, 2004, and 2005


|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |        |        |        | 
|------------------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------------------------------------- | --------------------------------------------- | ------ | ------ | ----- | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | 
|                                                                          |                                                              | 2003                                                     |                                               |        | 2004   |       |         | 2005   |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | (Dollars in thousands,                                   |                                              
|                                                                          |                                                              | except per share data)                                   |                                              
|Net sales                                                                 |                                                              | $                                                        | 131,431                                       |        |        | $     | 185,469 |        |        | $      | 196,276 |       
|Cost of sales                                                             |                                                              |                                                          | 113,318                                       |        |        |       | 161,910 |        |        |        | 169,445 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Gross profit                                             |                                               |        | 18,113 |       |         |        | 23,559 |        |         |        | 26,831 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|Operating expenses:                                                       |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |       
|                                                                          | Selling expenses                                             |                                                          |                                               | 2,948  |        |       |         | 3,211  |        |        |         | 3,092  |       
|                                                                          | Administrative expenses                                      |                                                          |                                               | 9,635  |        |       |         | 11,190 |        |        |         | 12,743 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Total operating expenses                                 |                                               |        | 12,583 |       |         |        | 14,401 |        |         |        | 15,835 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Operating income                                         |                                               |        | 5,530  |       |         |        | 9,158  |        |         |        | 10,996 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|Other income (expense):                                                   |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |       
|                                                                          | Interest expense                                             |                                                          |                                               | (3,863 | )      |       |         | (4,922 | )      |        |         | (6,180 | )     
|                                                                          | Interest on redeemable preferred stock                       |                                                          |                                               | (427   | )      |       |         | (250   | )      |        |         |       |       
|                                                                          | Gain on redemption of preferred stock                        |                                                          |                                               |       |        |       |         | 2,833  |        |        |         | 2,833  |       
|                                                                          | Other                                                        |                                                          |                                               | 442    |        |       |         | 172    |        |        |         | 60     |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Total other expense                                      |                                               |        | (3,848 | )     |         |        | (2,167 | )      |         |        | (3,287 | )     
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Earnings before income taxes and discontinued operations |                                               |        | 1,682  |       |         |        | 6,991  |        |         |        | 7,709  |       
|Income taxes                                                              |                                                              |                                                          | 426                                           |        |        |       | (5,775  | )      |        |        | (4,017  | )     
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              | Earnings from continuing operations                      |                                               |        | 1,256  |       |         |        | 12,766 |        |         |        | 11,726 |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|Discontinued operations:                                                  |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |       
|                                                                          | Earnings from operations of discontinued plastics operations |                                                          |                                               | 140    |        |       |         |       |        |        |         |       |       
|                                                                          | Income taxes                                                 |                                                          |                                               | 55     |        |       |         |       |        |        |         |       |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              |                                                          | 85                                            |        |        |       |        |        |        |        |        |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              |                                                          | Net earnings                                  |        |        | 1,341 |         |        |        | 12,766 |         |        |        | 11,726 | 
|Accretion of discount on preferred shares                                 |                                                              |                                                          | (715                                          | )      |        |       |        |        |        |        |        |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              |                                                          | Net earnings available to common shareholders |        | $      | 626   |         |        | $      | 12,766 |         |        | $      | 11,726 | 
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|Earnings available to common shareholders per common
    share  basic:   |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |       
|                                                                          | Earnings from continuing operations                          |                                                          | $                                             | 0.12   |        |       |         | 2.73   |        |        |         | 2.37   |       
|                                                                          | Earnings from discontinued operations                        |                                                          |                                               | 0.02   |        |       |         |       |        |        |         |       |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              |                                                          | Earnings per common share  basic             |        | $      | 0.14  |         |        | $      | 2.73   |         |        | $      | 2.37   | 
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|Earnings available to common shareholders per common
    share  diluted: |                                                              |                                                          |                                               |        |        |       |         |        |        |        |         |       
|                                                                          | Earnings from continuing operations                          |                                                          | $                                             | 0.11   |        |       | $       | 2.16   |        |        | $       | 1.98   |       
|                                                                          | Earnings from discontinued operations                        |                                                          |                                               | 0.02   |        |       |         |       |        |        |         |       |       
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       
|                                                                          |                                                              |                                                          | Earnings per common share  diluted           |        | $      | 0.13  |         |        | $      | 2.16   |         |        | $      | 1.98   | 
|                                                                          |                                                              |                                                          |                                               |        |        |       |         |        |       



26



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##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES




Consolidated Statement of Stockholders Equity
(Deficit)


Years ended December 31, 2003, 2004, and 2005


|                           |                                                                                      |                        |           |         |              |   |        |            |  |  |          |          |   |               |          |    |           |        |        |           |  |   |         |        |   |   |         |        |  
|-------------------------- | ------------------------------------------------------------------------------------ | ---------------------- | --------- | ------- | ------------ | - | ------ | ---------- |  |  | -------- | -------- | - | ------------- | -------- | -- | --------- | ------ | ------ | --------- |  | - | ------- | ------ | - | - | ------- | ------ | -
|                           |                                                                                      | Class A                |           |         | Class B      |   |        |            |  |  |          |         
|                           |                                                                                      | Common Stock           |           |         | Common Stock |   |        |            |  |  |          | Total    |  
|                           |                                                                                      |                        |           |         |              |   |        | Additional |  |  | Retained |          |   | Stockholders |         
|                           |                                                                                      | Shares                 |           |         |              |   | Shares |            |  |  |          | Paid-In  |   |               | Earnings |    |           | Equity |       
|                           |                                                                                      | Issued                 |           |         | Amount       |   |        | Issued     |  |  | Amount   |          |   | Capital       |          |    | (Deficit) |        |        | (Deficit) | 
|                           |                                                                                      |                        |           |         |              |   |        |            |  |  |          |          |   |               |          |    |           |        |        |           | 
|                           |                                                                                      | (Dollars in thousands) |          
|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 | )     
|                           | Net earnings                                                                         |                        |           |        |              |   |        |           |  |  |          |         |   |               |          |   |           |        |        |          |  |   |         | 12,766 |   |   |         | 12,766 |  
|                           | Stock options exercised                                                              |                        |           | 163,331 |              |   |        | 1          |  |  |          |         |   |               |          |   |           |        |        | 27        |  |   |         |       |   |   |         | 28     |  
|                           |                                                                                      |                        |           |         |              |   |        |            |  |  |          |          |   |               |          |    |           |        |        |           | 
|Balance, December 31, 2004 |                                                                                      |                        | 4,723,878 |         |              |   | 47     |            |  |  | 100,000  |          |   |               | 1        |    |           |        | 20,922 |           |  |   | (31,774 | )      |   |   | (10,804 | )     
|                           | Net earnings                                                                         |                        |           |        |              |   |        |           |  |  |          |         |   |               |          |   |           |        |        |          |  |   |         | 11,726 |   |   |         | 11,726 |  
|                           | Stock options exercised                                                              |                        |           | 157,000 |              |   |        | 2          |  |  |          |         |   |               |          |   |           |        |        | 25        |  |   |         |       |   |   |         | 27     |  
|                           |                                                                                      |                        |           |         |              |   |        |            |  |  |          |          |   |               |          |    |           |        |        |           | 
|Balance, December 31, 2005 |                                                                                      |                        | 4,880,878 |         |              | $ | 49     |            |  |  | 100,000  |          |   | $             | 1        |    |           | $      | 20,947 |           |  | $ | (20,048 | )      |   | $ | 949     |       
|                           |                                                                                      |                        |           |         |              |   |        |            |  |  |          |          |   |               |          |    |           |        |        |           | 



27



---



##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES




Consolidated Statements of Cash Flows


Years ended December 31, 2003, 2004, and 2005


|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |        |       |        |        |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ---------------------- | ------------------------------------------------ | -------------------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------- | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | -
|                                                   |                                                                                                   | 2003                   |                                                  |                                                          | 2004                                                |       |        | 2005    |      
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|                                                   |                                                                                                   | (Dollars in thousands) |                                                 
|Cash flows from operating activities:              |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |       
|                                                   | Net earnings                                                                                      |                        | $                                                | 1,341                                                    |                                                     |       | $      | 12,766  |       |        | $      | 11,726 |      
|                                                   | Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities: |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |        |      
|                                                   |                                                                                                   |                        | Depreciation and amortization                    |                                                          |                                                     | 5,694 |        |         |       | 5,804  |        |        |       | 5,422  |       
|                                                   |                                                                                                   |                        | Other amortization                               |                                                          |                                                     | 427   |        |         |       | 1,253  |        |        |       | 2,400  |       
|                                                   |                                                                                                   |                        | Provision for bad debts                          |                                                          |                                                     | 310   |        |         |       | 145    |        |        |       | 394    |       
|                                                   |                                                                                                   |                        | Provision for deferred income taxes              |                                                          |                                                     | 151   |        |         |       | (6,500 | )      |        |       | (5,100 | )     
|                                                   |                                                                                                   |                        | Loss (gain) on sale of property and equipment    |                                                          |                                                     | (12   | )      |         |       | 2      |        |        |       | (7     | )     
|                                                   |                                                                                                   |                        | Gain on sale of discontinued business            |                                                          |                                                     | (8    | )      |         |       |       |        |        |       |       |       
|                                                   |                                                                                                   |                        | Unrealized loss (gain) on derivative instruments |                                                          |                                                     |      |        |         |       | 40     |        |        |       | (205   | )     
|                                                   |                                                                                                   |                        | Gain on redemption of preferred stock            |                                                          |                                                     |      |        |         |       | (2,833 | )      |        |       | (2,833 | )     
|                                                   |                                                                                                   |                        | Changes in operating assets and liabilities:     |                                                          |                                                     |       |        |         |       |        |        |        |       |        |       
|                                                   |                                                                                                   |                        |                                                  | Increase in accounts receivable                          |                                                     |       | (2,115 | )       |       |        | (2,680 | )      |       |        | (3,320 | )     
|                                                   |                                                                                                   |                        |                                                  | Decrease (increase) in unbilled receivables              |                                                     |       |       |         |       |        | (2,741 | )      |       |        | 1,940  |       
|                                                   |                                                                                                   |                        |                                                  | Decrease (increase) in inventories                       |                                                     |       | 583    |         |       |        | (5,355 | )      |       |        | (1,413 | )     
|                                                   |                                                                                                   |                        |                                                  | Decrease (increase) in prepaid expenses and other assets |                                                     |       | 431    |         |       |        | (286   | )      |       |        | 349    |       
|                                                   |                                                                                                   |                        |                                                  | Increase (decrease) in income taxes payable              |                                                     |       | 275    |         |       |        | (75    | )      |       |        | 299    |       
|                                                   |                                                                                                   |                        |                                                  | Increase in accrued payroll and payroll taxes            |                                                     |       | 274    |         |       |        | 257    |        |       |        | 444    |       
|                                                   |                                                                                                   |                        |                                                  | Increase in accounts payable                             |                                                     |       | 2,856  |         |       |        | 817    |        |       |        | 1,435  |       
|                                                   |                                                                                                   |                        |                                                  | Increase (decrease) in accrued expenses and other        |                                                     |       | 53     |         |       |        | (810   | )      |       |        | (402   | )     
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|                                                   |                                                                                                   |                        |                                                  |                                                          | Net cash provided by (used in) operating activities |       |        | 10,260  |       |        |        | (196   | )     |        |        | 11,129 |  
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|Cash flows from investing activities:              |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |       
|                                                   | Capital expenditures                                                                              |                        |                                                  | (4,119                                                   | )                                                   |       |        | (5,365  | )     |        |        | (6,492 | )    
|                                                   | Proceeds from sale of property, plant and equipment                                               |                        |                                                  | 67                                                       |                                                     |       |        | 54      |       |        |        | 70     |      
|                                                   | Proceeds from sale of business discontinued                                                       |                        |                                                  | 4,800                                                    |                                                     |       |        |        |       |        |        |       |      
|                                                   | Payment received on note receivable for sale of discontinued
    operations                       |                        |                                                  | 99                                                       |                                                     |       |        | 100     |       |        |        | 1,102  |      
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|                                                   |                                                                                                   |                        |                                                  |                                                          | Net cash provided by (used in) investing activities |       |        | 847     |       |        |        | (5,211 | )     |        |        | (5,320 | )
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|Cash flows from financing activities:              |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |       
|                                                   | Increase (decrease) in checks issued in excess of bank balance                                    |                        |                                                  | (346                                                     | )                                                   |       |        | 1,858   |       |        |        | 249    |      
|                                                   | Net advances (repayments) on revolving debt                                                       |                        |                                                  | (5,350                                                   | )                                                   |       |        | 5,600   |       |        |        | (1,700 | )    
|                                                   | Principal payments on long-term debt and capital leases                                           |                        |                                                  | (4,961                                                   | )                                                   |       |        | (4,246  | )     |        |        | (3,844 | )    
|                                                   | Retirement of revolving debt in connection with refinancing                                       |                        |                                                  |                                                         |                                                     |       |        | (14,650 | )     |        |        |       |      
|                                                   | Retirement of term debt in connection with refinancing                                            |                        |                                                  |                                                         |                                                     |       |        | (22,153 | )     |        |        |       |      
|                                                   | Proceeds from issuance of revolving debt                                                          |                        |                                                  |                                                         |                                                     |       |        | 7,200   |       |        |        |       |      
|                                                   | Proceeds from issuance of long-term debt                                                          |                        |                                                  |                                                         |                                                     |       |        | 34,071  |       |        |        |       |      
|                                                   | Redemption of preferred stock                                                                     |                        |                                                  |                                                         |                                                     |       |        | (500    | )     |        |        | (500   | )    
|                                                   | Proceeds from issuance of common stock                                                            |                        |                                                  |                                                         |                                                     |       |        | 28      |       |        |        | 27     |      
|                                                   | Debt issuance costs paid                                                                          |                        |                                                  | (450                                                     | )                                                   |       |        | (1,801  | )     |        |        | (41    | )    
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|                                                   |                                                                                                   |                        |                                                  |                                                          | Net cash provided by (used in) financing activities |       |        | (11,107 | )     |        |        | 5,407  |       |        |        | (5,809 | )
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|                                                   |                                                                                                   |                        |                                                  |                                                          | Net change in cash                                  |       |        |        |       |        |        |       |       |        |        |       |  
|Cash at beginning of year                          |                                                                                                   |                        |                                                 |                                                          |                                                     |       |       |         |       |        |       |       
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|Cash at end of year                                |                                                                                                   | $                      |                                                 |                                                          |                                                     | $     |       |         |       | $      |       |       
|                                                   |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |      
|Supplemental disclosures of cash flow information: |                                                                                                   |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |       
|                                                   | Cash paid during the year for:                                                                    |                        |                                                  |                                                          |                                                     |       |        |         |       |        |        |        |      
|                                                   |                                                                                                   | Interest               |                                                  | $                                                        | 3,296                                               |       |        | $       | 3,481 |        |        | $      | 3,979 |       
|                                                   |                                                                                                   | Income taxes           |                                                  |                                                          | 48                                                  |       |        |         | 550   |        |        |        | 785   |       



28



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##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES




Notes to Consolidated Financial Statements


December 31, 2004 and 2005


(Dollars in thousands, except per share data)




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



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





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





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





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





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

first-in,




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







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

Goodwill and Other Intangible
Assets,


29



---



##### 



Accounting for Impairment or Disposal
of Long-Lived Assets.




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





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

Accounting for Stock Issued
to Employees, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of
APB Opinion No. 25, Accounting for Stock-Based
Compensation, Accounting for
Stock-Based Compensation  Transition and Disclosure,
an amendment of SFAS No. 123,






|                                                             |                                                                                                                         |      |   |      |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                             |                                                                                                                         | 2003 |   |      | 2004 |  |   | 2005   |  
|                                                             |                                                                                                                         |      |   |      |      |  |   |        |  
|Net earnings available to common shareholders:               |                                                                                                                         |      |   |      |      |  |   |        |   |  |   |       
|                                                             | As reported                                                                                                             |      | $ | 626  |      |  | $ | 12,766 |   |  | $ | 11,726 |  
|                                                             | Total stock-based employee compensation expense determined under
    fair-value-based method for all awards, net of tax |      |   | (112 | )    |  |   | (49    | ) |  |   | (37    | )
|                                                             |                                                                                                                         |      |   |      |      |  |   |        |  
|                                                             | Pro forma                                                                                                               |      | $ | 514  |      |  | $ | 12,717 |   |  | $ | 11,689 |  
|                                                             |                                                                                                                         |      |   |      |      |  |   |        |  
|Basic earnings available to common shareholders per share:   |                                                                                                                         |      |   |      |      |  |   |        |   |  |   |       
|                                                             | As reported                                                                                                             |      | $ | 0.14 |      |  | $ | 2.73   |   |  | $ | 2.37   |  
|                                                             | Pro forma                                                                                                               |      |   | 0.11 |      |  |   | 2.72   |   |  |   | 2.36   |  
|Diluted earnings available to common shareholders per share: |                                                                                                                         |      |   |      |      |  |   |        |   |  |   |       
|                                                             | As reported                                                                                                             |      |   | 0.13 |      |  |   | 2.16   |   |  |   | 1.98   |  
|                                                             | Pro forma                                                                                                               |      |   | 0.10 |      |  |   | 2.15   |   |  |   | 1.97   |  



30



---



##### 





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



Business Combinations.




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







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







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



31



---



##### 









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

Earnings Per Share.




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

Share-Based Payment Accounting for Stock Issued to
Employees,


Inventory Costs


Accounting Changes and
Error Corrections




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







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



32



---



##### 





|                  |                                                     |      |       |     | 
|----------------- | --------------------------------------------------- | ---- | ----- | --- | 
|                  |                                                     | 2003 |      
|                  |                                                     |      |      
|Net sales         |                                                     | $    | 9,124 |    
|Operating expense |                                                     |      | 8,819 |    
|                  |                                                     |      |      
|                  | Operating income                                    |      |       | 305 | 
|Interest expense  |                                                     |      | (165  | )  
|                  |                                                     |      |      
|                  | Earnings from operations of discontinued operations |      |       | 140 | 
|Income taxes      |                                                     |      | 55    |    
|                  |                                                     |      |      
|                  | Net earnings from discontinued operations           |      | $     | 85  | 
|                  |                                                     |      |      



|    |            
|--- | -----------
|(3) | Inventories



|                |  |             |        |  |      |   |        | 
|--------------- |  | ----------- | ------ |  | ---- | - | ------ | 
|                |  | December 31 |       
|                |  |             |       
|                |  | 2004        |        |  | 2005 |  
|                |  |             |        |  |      |  
|Finished goods  |  | $           | 8,361  |  |      | $ | 9,025  | 
|Work in process |  |             | 4,765  |  |      |   | 4,082  | 
|Raw materials   |  |             | 6,092  |  |      |   | 7,524  | 
|                |  |             |        |  |      |  
|                |  | $           | 19,218 |  |      | $ | 20,631 | 
|                |  |             |        |  |      |  



|    |                               
|--- | ------------------------------
|(4) | Property, Plant, and Equipment



|                                     |                                     |             |         |  |             |   |        |        |  |   |        |        | 
|------------------------------------ | ----------------------------------- | ----------- | ------- |  | ----------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                     |                                     | Depreciable |         |  | December 31 |  
|                                     |                                     | Lives       |         |  |             |  
|                                     |                                     | (In years)  |         |  | 2004        |   |        | 2005   | 
|                                     |                                     |             |         |  |             |   |        |        | 
|Land and land improvements           |                                     |             | 15      |  |             | $ | 1,769  |        |  | $ | 1,781  |       
|Buildings and leasehold improvements |                                     |             | 15  39 |  |             |   | 8,991  |        |  |   | 9,655  |       
|Machinery and vehicles               |                                     |             | 5  12  |  |             |   | 29,421 |        |  |   | 32,194 |       
|Tooling                              |                                     |             | 3       |  |             |   | 4,696  |        |  |   | 5,317  |       
|Office equipment                     |                                     |             | 5  10  |  |             |   | 6,712  |        |  |   | 7,574  |       
|Construction in progress             |                                     |             |        |  |             |   | 99     |        |  |   | 27     |       
|                                     |                                     |             |         |  |             |   |        |        | 
|                                     |                                     |             |         |  |             |   | 51,688 |        |  |   | 56,548 |       
|Less accumulated depreciation        |                                     |             |         |  |             |   | 29,298 |        |  |   | 33,116 |       
|                                     |                                     |             |         |  |             |   |        |        | 
|                                     | Property, plant, and equipment, net |             |         |  |             |   | $      | 22,390 |  |   | $      | 23,432 | 
|                                     |                                     |             |         |  |             |   |        |        | 

33



---



##### 





|    |                  
|--- | -----------------
|(5) | Intangible Assets



|                              |                       |             |       |     |      |   |       |     | 
|----------------------------- | --------------------- | ----------- | ----- | --- | ---- | - | ----- | --- | 
|                              |                       | December 31 |      
|                              |                       |             |      
|                              |                       | 2004        |       |     | 2005 |  
|                              |                       |             |       |     |      |  
|Goodwill                      |                       | $           | 1,200 |     |      | $ | 1,200 |    
|Other                         |                       |             | 847   |     |      |   | 847   |    
|                              |                       |             |       |     |      |  
|                              |                       |             | 2,047 |     |      |   | 2,047 |    
|Less accumulated amortization |                       |             | 1,398 |     |      |   | 1,477 |    
|                              |                       |             |       |     |      |  
|                              | Net intangible assets |             | $     | 649 |      |   | $     | 570 | 
|                              |                       |             |       |     |      |  



|             |  |   |    | 
|------------ |  | - | -- | 
|Year Ending: |  |  
|             |  |  
|2006         |  | $ | 60 | 
|2007         |  |   | 20 | 
|2008         |  |   | 18 | 
|2009         |  |   | 12 | 
|2010         |  |   |   | 



|    |                                              
|--- | ---------------------------------------------
|(6) | Derivative Instruments and Hedging Activities





Accounting for Derivative Instruments
and Hedging Activities,


34



---



##### 





|    |               
|--- | --------------
|(7) | Long-term Debt



|                                                                                                                                                              |  |             |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ |  | ---- | - | ------ | 
|                                                                                                                                                              |  | December 31 |       
|                                                                                                                                                              |  |             |       
|                                                                                                                                                              |  | 2004        |        |  | 2005 |  
|                                                                                                                                                              |  |             |        |  |      |  
|Revolving credit facility with the current Harris syndicate                                                                                                   |  | $           | 11,400 |  |      | $ | 9,700  | 
|Senior subordinated debt, net of debt discount of $1,159 in 2004
    and $783 in 2005                                                                         |  |             | 11,166 |  |      |   | 11,988 | 
|Note payable to the current Harris syndicate, with variable rate
    interest (6.45% and 7.97% as of December 31, 2004 and 2005,
    respectively)            |  |             | 19,418 |  |      |   | 16,118 | 
|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 |  |             | 1,396  |  |      |   | 1,035  | 
|Note payable, electric cooperative, non-interest bearing, due in
    monthly payments with the balance due November 1, 2006                                   |  |             | 85     |  |      |   | 41     | 
|Capital lease obligations                                                                                                                                     |  |             | 81     |  |      |   | 18     | 
|Notes payable, miscellaneous                                                                                                                                  |  |             | 29     |  |      |   | 3      | 
|                                                                                                                                                              |  |             |        |  |      |  
|                                                                                                                                                              |  | $           | 43,575 |  |      | $ | 38,903 | 
|Less current installments                                                                                                                                     |  |             | 3,295  |  |      |   | 7,139  | 
|                                                                                                                                                              |  |             |        |  |      |  
|                                                                                                                                                              |  | $           | 40,280 |  |      | $ | 31,764 | 
|                                                                                                                                                              |  |             |        |  |      |  



| |                                          
| | -----------------------------------------
| | Financing in effect as of January 1, 2004











| |                                                         
| | --------------------------------------------------------
| | March 26, 2004 Refinancing and Subsequent
    Amendments



35



---



##### 









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) A four-year secured term loan in the original principal
    amount of $21,000,000 with variable rate interest; principal
    payments were due in quarterly installments of $500,000 which
    began June 30, 2004 and continued through March 31,
    2005, and due in quarterly installments of $750,000 beginning
    June 30, 2005 through December 31, 2007 with the
    balance of $6,427,000 due on March 31, 2008. Mandatory
    principal payments of $633,000 related to the 2003 sale of the
    assets of Mid-Central Plastics, Inc. have been made. The term
    loan requires excess cash flow repayments of $1,734,000 and
    $1,958,000 to be paid on March 31, 2006 and May 31,
    2006, respectively. The excess cash flow payments are equal to
    75% of the amount by which earnings before interest, income
    taxes, depreciation and amortization (EBITDA) exceed
    interest expense paid in cash, income taxes paid in cash,
    principal payments on all indebtedness and capital expenditures.
    No estimate has been made for any excess cash flow payment that
    could become due on March 31, 2007.
|
| | 2) A secured revolving credit facility with a limit of
    $18,000,000, with variable rate interest. At December 31,
    2005, the Company has a revolving credit balance of $9,700,000
    and availability of $7,042,000 under this facility. 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 inventories. 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 secured revolving credit facility, interest will be at
    either a bank base rate plus applicable margin, or an adjusted
    LIBOR plus a LIBOR applicable margin. At inception, the bank
    rate plus applicable margin was 6.75% and the adjusted LIBOR
    plus a LIBOR applicable margin was 5.35%. At December 31,
    2004 those rates were 7.75% and 6.78%, respectively, and at
    December 31, 2005, those rates were 9.25% and 7.97%,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The Company entered into a swap agreement effective
    June 30, 2004 related to $10,750,000 (the original notional
    amount) of its term debt. The swap agreement is for the purpose
    of limiting the effects of interest rate increases on
    approximately one-half of the Companys variable rate term
    debt. Under this agreement, the Company pays a fixed rate of
    3.72% on the notional amount, which is payable quarterly. In
    accordance with the term loan agreement, the Company also pays
    an interest margin which adjusts in steps based on achieved
    operating and leverage metrics (4.00% during the first three
    months of 2005, and then reducing to 3.50%). The notional amount
    as of December 31, 2005 was $8,875,000. The swap agreement
    expires March 31, 2008.                                                                                                                                                                                                                                                                                                                         
|
| | 3) Senior secured subordinated notes totaling $12,000,000
    with cash interest of 12% and
    payment-in-kind
    interest of 2% or 4% with no principal amortization, and the
    balances due March 26, 2009. This debt is subordinated to
    the secured term loan and the revolving credit facility with
    respect to both payment and lien priority. The balance as of
    December 31, 2005 is $12,771,000 (reported as $11,988,000,
    reflecting a discount of $783,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Related to the senior secured subordinated note, on
    March 26, 2004, the Company issued 545,467 warrants to
    purchase shares of its Class A Common Stock for
    $0.02 per share; these warrants expire March 26, 2014.
    The warrant holder may exercise the warrants at any time. The
    warrants may be put to the Company, at their then fair market
    value, at the earlier of: a) five years from the date of
    issue; b) a change of control; c) a default on the
    senior secured subordinated loan; or d) a prepayment of 75%
    or more of the original principal balance of the senior secured
    subordinated loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

36



---



##### 













|      |  |   |        | 
|----- |  | - | ------ | 
|Year: |  |  
|      |  |  
|2006  |  | $ | 7,139  | 
|2007  |  |   | 3,472  | 
|2008  |  |   | 16,303 | 
|2009  |  |   | 11,989 | 
|2010  |  |   |       | 
|      |  |   |       
|      |  | $ | 38,903 | 
|      |  |   |       

37



---



##### 





|    |       
|--- | ------
|(8) | Leases



|          |                               |      |     |     |      |   |     |     | 
|--------- | ----------------------------- | ---- | --- | --- | ---- | - | --- | --- | 
|          |                               | 2004 |     |     | 2005 |  
|          |                               |      |     |     |      |  
|Machinery |                               | $    | 299 |     |      | $ | 299 |    
|          | Less accumulated amortization |      |     | 136 |      |   |     | 244 | 
|          |                               |      |     |     |      |  
|          |                               | $    | 163 |     |      | $ | 55  |    
|          |                               |      |     |     |      |  





|                                                      |  |   |    | 
|----------------------------------------------------- |  | - | -- | 
|Year 2006                                             |  | $ | 19 | 
|Less amount representing interest (from 6.0% to 7.9%) |  |   | 1  | 
|                                                      |  |   |   
|Present value of net minimum capital lease payments   |  | $ | 18 | 
|                                                      |  |   |   





|                             |            |   |        |       | 
|---------------------------- | ---------- | - | ------ | ----- | 
|Year:                        |            |  
|                             |            |  
|                             | 2006       |   | $      | 7,142 | 
|                             | 2007       |   |        | 5,508 | 
|                             | 2008       |   |        | 4,567 | 
|                             | 2009       |   |        | 2,862 | 
|                             | 2010       |   |        | 1,934 | 
|                             | Thereafter |   |        | 621   | 
|                             |            |   |       
|Total minimum lease payments |            | $ | 22,634 |      
|                             |            |   |       



|    |             
|--- | ------------
|(9) | Income Taxes



|                                        |  |             |     |  |      |   |        |      |  |   |        |  
|--------------------------------------- |  | ----------- | --- |  | ---- | - | ------ | ---- |  | - | ------ | -
|                                        |  | December 31 |    
|                                        |  |             |    
|                                        |  | 2003        |     |  | 2004 |   |        | 2005 | 
|                                        |  |             |     |  |      |   |        |      | 
|Earnings before discontinued operations |  | $           | 426 |  |      | $ | (5,775 | )    |  | $ | (4,017 | )
|Discontinued operations                 |  |             | 55  |  |      |   |       |      |  |   |       |  
|                                        |  |             |     |  |      |   |        |      | 
|                                        |  | $           | 481 |  |      | $ | (5,775 | )    |  | $ | (4,017 | )
|                                        |  |             |     |  |      |   |        |      | 

38



---



##### 





|                              |         |         |       |     |          |   |        |        |   |   |        |        |  
|----------------------------- | ------- | ------- | ----- | --- | -------- | - | ------ | ------ | - | - | ------ | ------ | -
|                              |         | Current |       |     | Deferred |   |        | Total  |  
|                              |         |         |       |     |          |   |        |        |  
|Year ended December 31, 2003: |         |         |       |     |          |   |        |        |   |   |        |       
|Federal                       |         | $       | 80    |     |          | $ | 151    |        |   | $ | 231    |       
|State                         |         |         | 195   |     |          |   |       |        |   |   | 195    |       
|                              |         |         |       |     |          |   |        |        |  
|                              |         | $       | 275   |     |          | $ | 151    |        |   | $ | 426    |       
|                              |         |         |       |     |          |   |        |        |  
|Year ended December 31, 2004: |         |         |       |     |          |   |        |        |   |   |        |       
|                              | Federal |         | $     | 185 |          |   | $      | (6,050 | ) |   | $      | (5,865 | )
|                              | State   |         |       | 540 |          |   |        | (450   | ) |   |        | 90     |  
|                              |         |         |       |     |          |   |        |        |  
|                              |         | $       | 725   |     |          | $ | (6,500 | )      |   | $ | (5,775 | )     
|                              |         |         |       |     |          |   |        |        |  
|Year ended December 31, 2005: |         |         |       |     |          |   |        |        |   |   |        |       
|                              | Federal |         | $     | 140 |          |   | $      | (4,185 | ) |   | $      | (4,045 | )
|                              | State   |         |       | 943 |          |   |        | (915   | ) |   |        | 28     |  
|                              |         |         |       |     |          |   |        |        |  
|                              |         | $       | 1,083 |     |          | $ | (5,100 | )      |   | $ | (4,017 | )     
|                              |         |         |       |     |          |   |        |        |  



|                                                            |  |             |      |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------- |  | ----------- | ---- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                            |  | December 31 |     
|                                                            |  |             |     
|                                                            |  | 2003        |      |   | 2004 |   |        | 2005 | 
|                                                            |  |             |      |   |      |   |        |      | 
|Computed expected tax expense (benefit)                   |  | $           | 572  |   |      | $ | 2,377  |      |  | $ | 2,621  |  
|State income tax expense, net of Federal income tax benefit |  |             | 129  |   |      |   | 59     |      |  |   | 18     |  
|Non-deductible interest on redeemable preferred stock       |  |             | 146  |   |      |   | 85     |      |  |   |       |  
|Non-deductible change in fair value of warrants             |  |             |     |   |      |   | 99     |      |  |   | 368    |  
|Non-taxable gain on redemption of preferred stock           |  |             |     |   |      |   | (963   | )    |  |   | (963   | )
|Decrease in valuation allowance                             |  |             | (719 | ) |      |   | (7,441 | )    |  |   | (5,856 | )
|Other, net                                                  |  |             | 298  |   |      |   | 9      |      |  |   | (205   | )
|                                                            |  |             |      |   |      |   |        |      | 
|                                                            |  | $           | 426  |   |      | $ | (5,775 | )    |  | $ | (4,017 | )
|                                                            |  |             |      |   |      |   |        |      | 

39



---



##### 





|                                          |                                                                         |                                 |         |        |        |   |        |        |        |  
|----------------------------------------- | ----------------------------------------------------------------------- | ------------------------------- | ------- | ------ | ------ | - | ------ | ------ | ------ | -
|                                          |                                                                         | December 31                     |        
|                                          |                                                                         |                                 |        
|                                          |                                                                         | 2004                            |         |        | 2005   |  
|                                          |                                                                         |                                 |         |        |        |  
|Deferred tax assets attributable to:      |                                                                         |                                 |         |        |        |   |        |       
|                                          | Net operating loss and credit carryforwards                             |                                 | $       | 22,677 |        |   | $      | 21,232 |       
|                                          | Accrued vacation pay                                                    |                                 |         | 345    |        |   |        | 339    |       
|                                          | Reserves and other                                                      |                                 |         | 398    |        |   |        | 259    |       
|                                          |                                                                         |                                 |         |        |        |  
|                                          |                                                                         | Total gross deferred tax assets |         |        | 23,420 |   |        |        | 21,830 |  
|Less valuation allowance                  |                                                                         |                                 | (13,043 | )      |        |   | (7,187 | )     
|                                          |                                                                         |                                 |         |        |        |  
|                                          |                                                                         | Total deferred tax assets       |         |        | 10,377 |   |        |        | 14,643 |  
|                                          |                                                                         |                                 |         |        |        |  
|Deferred tax liabilities attributable to: |                                                                         |                                 |         |        |        |   |        |       
|                                          | Plant and equipment, principally due to differences in
    depreciation |                                 |         | (2,174 | )      |   |        | (1,366 | )     
|                                          | Excess of tax over book amortization                                    |                                 |         | (34    | )      |   |        | (27    | )     
|                                          | Debt discount                                                           |                                 |         | (69    | )      |   |        | (50    | )     
|                                          |                                                                         |                                 |         |        |        |  
|                                          |                                                                         | Total deferred tax liabilities  |         |        | (2,277 | ) |        |        | (1,443 | )
|                                          |                                                                         |                                 |         |        |        |  
|                                          |                                                                         | Net deferred tax asset          |         | $      | 8,100  |   |        | $      | 13,200 |  
|                                          |                                                                         |                                 |         |        |        |  







|     |                           
|---- | --------------------------
|(10) | Redeemable Preferred Stock





40



---



##### 







|     |                     
|---- | --------------------
|(11) | Stockholders Equity







|     |                   
|---- | ------------------
|(12) | Stock Option Plans





|                                 |  |           |            |          |          |   |        | 
|-------------------------------- |  | --------- | ---------- | -------- | -------- | - | ------ | 
|                                 |  |           |            | Weighted |         
|                                 |  |           |            | Average  |         
|                                 |  | Number of |            |          | Exercise |  
|                                 |  | Shares    |            |          | Price    |  
|                                 |  |           |            |          |          |  
|Outstanding at December 31, 2002 |  |           | 1,167,871  |          |          | $ | 12.290 | 
|Issued                           |  |           | 712,500    |          |          |   | 0.166  | 
|Exercised                        |  |           |           |          |          |   |       | 
|Forfeited                        |  |           | (1,041,220 | )        |          |   | 13.675 | 
|                                 |  |           |            |          |          |  
|Outstanding at December 31, 2003 |  |           | 839,151    |          |          |   | 0.286  | 
|Issued                           |  |           |           |          |          |   |       | 
|Exercised                        |  |           | (163,331   | )        |          |   | 0.180  | 
|Forfeited                        |  |           |           |          |          |   |       | 
|                                 |  |           |            |          |          |  
|Outstanding at December 31, 2004 |  |           | 675,820    |          |          | $ | 0.311  | 
|Issued                           |  |           |           |          |          |   |       | 
|Exercised                        |  |           | (157,000   | )        |          |   | 0.159  | 
|Forfeited                        |  |           |           |          |          |   |       | 
|                                 |  |           |            |          |          |  
|Outstanding at December 31, 2005 |  |           | 518,820    |          |          | $ | 0.357  | 
|                                 |  |           |            |          |          |  

41



---



##### 





|                 |         |  |                |   |       |                 |  |  |                    |  |  |  |         | 
|---------------- | ------- |  | -------------- | - | ----- | --------------- |  |  | ------------------ |  |  |  | ------- | 
|                 |         |  |                |   |       | Number of       | 
|Number of Shares |         |  | Exercise Price |   |       | Expiration Date |  |  | Shares Exercisable | 
|                 |         |  |                |   |       |                 |  |  |                    | 
|                 | 51,650  |  |                | $ | 1.875 |                 |  |  | February 2011      |  |  |  | 51,650  | 
|                 | 38,334  |  |                |   | 0.325 |                 |  |  | June 2012          |  |  |  | 38,334  | 
|                 | 316,336 |  |                |   | 0.150 |                 |  |  | February 2013      |  |  |  | 116,333 | 
|                 | 30,000  |  |                |   | 0.250 |                 |  |  | April 2013         |  |  |  | 30,000  | 
|                 | 72,500  |  |                |   | 0.250 |                 |  |  | August 2013        |  |  |  | 72,500  | 
|                 | 10,000  |  |                |   | 0.300 |                 |  |  | November 2013      |  |  |  | 6,666   | 
|                 |         |  |                |   |       |                 |  |  |                    | 
|                 | 518,820 |  |                |   |       |                 |  |  |                    |  |  |  | 315,483 | 
|                 |         |  |                |   |       |                 |  |  |                    | 
|                 |         |  |                |   |       |                 |  |  |                    | 



|     |                       
|---- | ----------------------
|(13) | Concentration of Sales



|             |                   |            |  |    |            |  |  |    |  
|------------ | ----------------- | ---------- |  | -- | ---------- |  |  | -- | -
|             |                   | Customer A |  |    | Customer B | 
|             |                   |            |  |    |            | 
|Years ended: |                   |            |  |    |            |  |  |   
|             | December 31, 2003 |            |  | 38 | %          |  |  | 50 | %
|             | December 31, 2004 |            |  | 35 |            |  |  | 52 |  
|             | December 31, 2005 |            |  | 34 |            |  |  | 57 |  





|     |                            
|---- | ---------------------------
|(14) | Employee Participation Plan



42



---



##### 





|     |                   
|---- | ------------------
|(15) | Earnings Per Share



|                            |                                                                                              |                                                     |   |           |           |  |   |           |           |  |   |           |           | 
|--------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------- | - | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                            |                                                                                              | 2003                                                |   |           | 2004      |  |   | 2005      |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|Numerator:                  |                                                                                              |                                                     |   |           |           |  |   |           |           |  |   |          
|                            | Earnings from continuing operations, including accretion of
    discount on preferred shares |                                                     | $ | 541       |           |  | $ | 12,766    |           |  | $ | 11,726    |          
|                            | Earnings from discontinued operations                                                        |                                                     |   | 85        |           |  |   |          |           |  |   |          |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|                            |                                                                                              | Net earnings available to common shareholders       |   | $         | 626       |  |   | $         | 12,766    |  |   | $         | 11,726    | 
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|Denominator:                |                                                                                              |                                                     |   |           |           |  |   |           |           |  |   |          
|                            | Weighted average common shares outstanding  basic                                           |                                                     |   | 4,660,547 |           |  |   | 4,670,374 |           |  |   | 4,950,819 |          
|                            | Dilutive potential common shares  stock options and
    warrants                            |                                                     |   | 430,300   |           |  |   | 1,228,647 |           |  |   | 985,037   |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|                            |                                                                                              | Weighted average common stock outstanding  diluted |   |           | 5,090,847 |  |   |           | 5,899,021 |  |   |           | 5,935,856 | 
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|Basic earnings per share:   |                                                                                              |                                                     |   |           |           |  |   |           |           |  |   |          
|                            | Earnings from continuing operations                                                          |                                                     | $ | 0.12      |           |  | $ | 2.73      |           |  | $ | 2.37      |          
|                            | Earnings from discontinued operations                                                        |                                                     |   | 0.02      |           |  |   |          |           |  |   |          |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|                            | Earnings available to common shareholders  basic                                            |                                                     | $ | 0.14      |           |  | $ | 2.73      |           |  | $ | 2.37      |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|Diluted earnings per share: |                                                                                              |                                                     |   |           |           |  |   |           |           |  |   |          
|                            | Earnings from continuing operations                                                          |                                                     | $ | 0.11      |           |  | $ | 2.16      |           |  | $ | 1.98      |          
|                            | Earnings from discontinued operations                                                        |                                                     |   | 0.02      |           |  |   |          |           |  |   |          |          
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          
|                            |                                                                                              | Earnings available to common shareholders  diluted |   | $         | 0.13      |  |   | $         | 2.16      |  |   | $         | 1.98      | 
|                            |                                                                                              |                                                     |   |           |           |  |   |           |          



|     |                  
|---- | -----------------
|(16) | Segment Reporting





|     |                                              
|---- | ---------------------------------------------
|(17) | Selected Quarterly Financial Data (Unaudited)



|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |   |        |  |  |   |         | 
|----- | --------------------------------------------- | ------- | - | ------ | ------- |  | - | ------- |  |  | ------- | ------ |  | ---------- | - | ------ |  |  | - | ------- | 
|      |                                               | First   |   |        | Second  |  |   | Third   |  |  | Fourth  |        |  |           
|      |                                               | Quarter |   |        | Quarter |  |   | Quarter |  |  | Quarter |        |  | Total Year |  
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  
|2005: |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |   |        |  |  |   |        
|      | Net sales                                     |         | $ | 54,123 |         |  | $ | 53,558  |  |  | $       | 43,339 |  |            | $ | 45,256 |  |  | $ | 196,276 | 
|      | Gross profit                                  |         |   | 7,134  |         |  |   | 7,589   |  |  |         | 5,430  |  |            |   | 6,678  |  |  |   | 26,831  | 
|      | Operating income                              |         |   | 3,595  |         |  |   | 3,685   |  |  |         | 1,645  |  |            |   | 2,071  |  |  |   | 10,996  | 
|      | Net earnings available to common shareholders |         |   | 3,001  |         |  |   | 2,714   |  |  |         | 738    |  |            |   | 5,273  |  |  |   | 11,726  | 
|      | Earnings per share of common stock  basic    |         | $ | 0.62   |         |  | $ | 0.54    |  |  | $       | 0.15   |  |            | $ | 1.06   |  |  | $ | 2.37    | 
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  
|      | Earnings per share of common stock  diluted  |         | $ | 0.50   |         |  | $ | 0.46    |  |  | $       | 0.13   |  |            | $ | 0.89   |  |  | $ | 1.98    | 
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  

43



---



##### 



|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |   |        |  |  |   |         | 
|----- | --------------------------------------------- | ------- | - | ------ | ------- |  | - | ------- |  |  | ------- | ------ |  | ---------- | - | ------ |  |  | - | ------- | 
|      |                                               | First   |   |        | Second  |  |   | Third   |  |  | Fourth  |        |  |           
|      |                                               | Quarter |   |        | Quarter |  |   | Quarter |  |  | Quarter |        |  | Total Year |  
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  
|2004: |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |   |        |  |  |   |        
|      | Net sales                                     |         | $ | 39,920 |         |  | $ | 50,706  |  |  | $       | 46,146 |  |            | $ | 48,697 |  |  | $ | 185,469 | 
|      | Gross profit                                  |         |   | 5,509  |         |  |   | 6,145   |  |  |         | 5,318  |  |            |   | 6,587  |  |  |   | 23,559  | 
|      | Operating income                              |         |   | 2,168  |         |  |   | 2,730   |  |  |         | 1,888  |  |            |   | 2,372  |  |  |   | 9,158   | 
|      | Net earnings available to common shareholders |         |   | 2,126  |         |  |   | 2,228   |  |  |         | 965    |  |            |   | 7,447  |  |  |   | 12,766  | 
|      | Earnings per share of common stock  basic    |         | $ | 0.46   |         |  | $ | 0.48    |  |  | $       | 0.20   |  |            | $ | 1.59   |  |  | $ | 2.73    | 
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  
|      | Earnings per share of common stock  diluted  |         | $ | 0.38   |         |  | $ | 0.38    |  |  | $       | 0.15   |  |            | $ | 1.25   |  |  | $ | 2.16    | 
|      |                                               |         |   |        |         |  |   |         |  |  |         |        |  |            |  



|     |           
|---- | ----------
|(18) | Litigation







|     |                                                                                                     
|---- | ----------------------------------------------------------------------------------------------------
|(19) | Subsequent Event  Entry into a Material Definitive
    Agreement that Will Take the Company Private









44



---



##### 



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES


Schedule II  Valuation and Qualifying Accounts


Years ended December 31, 2003, 2004 and 2005


|                                 |                              |            |   |     |            |  |   |            |  |  |       |            |        |  |   |   |  |  |   |     | 
|-------------------------------- | ---------------------------- | ---------- | - | --- | ---------- |  | - | ---------- |  |  | ----- | ---------- | ------ |  | - | - |  |  | - | --- | 
|                                 |                              | Balance at |   |     | Charged to |  |   |            |  |  |       | Balance at |       
|                                 |                              | Beginning  |   |     | Costs and  |  |   |            |  |  |       | End of     |       
|Description                      |                              | of Period  |   |     | Expenses   |  |   | Deductions |  |  | Other |            | Period | 
|                                 |                              |            |   |     |            |  |   |            |  |  |       |            |        | 
|Allowance for doubtful accounts: |                              |            |   |     |            |  |   |            |  |  |       |            |        |  |   |   |  |  |   |    
|                                 | Year ended December 31, 2003 |            | $ | 84  |            |  | $ | 310        |  |  | $     | (192       | )      |  | $ |  |  |  | $ | 202 | 
|                                 | Year ended December 31, 2004 |            |   | 202 |            |  |   | 145        |  |  |       | (187       | )      |  |   |  |  |  |   | 160 | 
|                                 | Year ended December 31, 2005 |            |   | 160 |            |  |   | 394        |  |  |       | (362       | )      |  |   |  |  |  |   | 192 | 

45



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##### 





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

Evaluation of disclosure controls and procedures. 13a-15(c) 10-K.




Changes in internal controls.


Item 9B.     Other
Information




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



46



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##### 



PART IV




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





| |                                                                              
| | -----------------------------------------------------------------------------
| | 1. Financial Statements.                                                     
|
| | The following financial statements of the Company are included
    in Item 8:



| |                                                                         
| | ------------------------------------------------------------------------
| | a. Report of KPMG LLP, Independent Registered Public
    Accounting Firm
|
| | b. Consolidated Balance Sheets as of December 31, 2004
    and 2005     



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | c. Consolidated Statements of Operations for the years
    ended December 31, 2003, 2004 and 2005                        
|
| | d. Consolidated Statements of Stockholders Equity
    (Deficit) for the years ended December 31, 2003, 2004 and
    2005
|
| | e. Consolidated Statements of Cash Flows for the years
    ended December 31, 2003, 2004 and 2005                        



| |                                              
| | ---------------------------------------------
| | 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, 2003, 2004 and 2005

| |               |  |  |                                   |  |                                                                                                                                                                  |  |                                                                                                                                                              |  | 
| | ------------- |  |  | --------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
| |               |  |  |                                   |  |                                                                                                                                                                  |  | 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                                                                             |  | 
| | 2.3 and 10.65 |  |  |                                  |  | Agreement and Plan of Merger among Morton Industrial Group,
    Inc., MMC Precision Holdings Corp. and MMC Precision Merger
    Corp. dated as of March 22, 2006 |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on
    Form 8-K filed with the SEC on March 23, 2006                                                    |  | 
| | 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                                                                             |  | 

47



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##### 



| |       |  |  |                                   |  |                                                                                                                                                                        |  |                                                                                                                          |  | 
| | ----- |  |  | --------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | 
| |       |  |  |                                   |  |                                                                                                                                                                        |  | Filed                                                                                                                   
| |       |  |  | Exhibit Number and Document Title |  | Incorporated by Reference to                                                                                                                                           |  | Herewith                                                                                                                
| |       |  |  |                                   |  |                                                                                                                                                                        |  |                                                                                                                         
| | 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                                         |  | 
| | 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                                         |  | 
| | 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 to 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 to Morton Industrial Group, Inc. Report on
    Form 8-K filed with the SEC on April 14, 1998                |  | 

48



---



##### 



| |       |  |  |                                   |  |                                                                                                          |  |                                                                                                           |  | 
| | ----- |  |  | --------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | 
| |       |  |  |                                   |  |                                                                                                          |  | Filed                                                                                                    
| |       |  |  | Exhibit Number and Document Title |  | Incorporated by Reference to                                                                             |  | Herewith                                                                                                 
| |       |  |  |                                   |  |                                                                                                          |  |                                                                                                          
| | 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  |  | 
| | 10.47 |  |  |                                  |  | 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.  |  | 
| | 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  |  | Exhibit 10.49 to Morton Industrial Group, Inc. Report on
    Form 10-K filed with SEC on March 30, 2004   |  | 
| | 10.50 |  |  |                                  |  | Second Amended and Restated Credit Agreement                                                             |  | Exhibit 10.50 to Morton Industrial Group, Inc. Report on
    Form 10-K filed with SEC on March 30, 2004   |  | 
| | 10.51 |  |  |                                  |  | Note and Warrant Purchase Agreement                                                                      |  | Exhibit 10.51 to Morton Industrial Group, Inc. Report on
    Form 10-K filed with SEC on March 30, 2004   |  | 
| | 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.    |  | 

49



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##### 



| |       |  |  |                                   |  |                                                                                                                                                                  |  |                                                                                                              |  |  
| | ----- |  |  | --------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | -
| |       |  |  |                                   |  |                                                                                                                                                                  |  | Filed                                                                                                       
| |       |  |  | Exhibit Number and Document Title |  | Incorporated by Reference to                                                                                                                                     |  | Herewith                                                                                                    
| |       |  |  |                                   |  |                                                                                                                                                                  |  |                                                                                                             
| | 10.56 |  |  |                                  |  | Investor Rights Agreement                                                                                                                                        |  | Exhibit 10.56 to Morton Industrial Group, Inc. Report on
    Form 10-K filed with SEC on March 30, 2004      |  |  
| | 10.57 |  |  |                                  |  | First Amendment to the Second Amended and Restated Credit
    Agreement                                                                                          |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on
    Form 10-Q filed with SEC on August 6, 2004       |  |  
| | 10.58 |  |  |                                  |  | Amended and Restated Note and Warrant Purchase Agreement                                                                                                         |  | Exhibit 99.2 to Morton Industrial Group, Inc. Report on
    Form 10-Q filed with SEC on August 6, 2004       |  |  
| | 10.59 |  |  |                                  |  | Amendment to By-Laws                                                                                                                                             |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on
    Form 8-K filed with SEC on December 14, 2004     |  |  
| | 10.60 |  |  |                                  |  | Second Amendment to Second Amended and Restated Credit Agreement                                                                                                 |  |                                                                                                              |  | X
| | 10.61 |  |  |                                  |  | First Amendment to Amended and Restated Note and Warrant
    Purchase Agreement                                                                                  |  |                                                                                                              |  | X
| | 10.62 |  |  |                                  |  | Third Amendment to Second Amended and Restated Credit Agreement                                                                                                  |  |                                                                                                              |  | X
| | 10.63 |  |  |                                  |  | Fourth Amendment to Amended and Restated Credit Agreement                                                                                                        |  |                                                                                                              |  | X
| | 10.64 |  |  |                                  |  | Second Amendment to Amended and Restated Note and Warrant
    Purchase Agreement                                                                                 |  |                                                                                                              |  | X
| | 10.65 |  |  |                                   |  | Agreement and Plan of Merger among Morton Industrial Group,
    Inc., MMC Precision Holdings Corp. and MMC Precision Merger
    Corp. dated as of March 22, 2006 |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on
    Form 8-K filed with the SEC on March 23, 2006    |  |  
| | 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 independent registered public accounting firm                                                                                                         |  |                                                                                                              |  | X

50



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##### 



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

Reports on Form 8-K


8-K


8-K


8-K/A


51



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##### 






SIGNATURES






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



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

| |                                                
| | -----------------------------------------------
| |                                                
| | William D. Morton                              
| | Chairman, Chief Executive Officer and President





|                                         |  |                                                 |  |                |  | 
|---------------------------------------- |  | ----------------------------------------------- |  | -------------- |  | 
|Name                                     |  | Title                                           |  | Date          
|                                         |  |                                                 |  |               
|                                        
|/s/ WILLIAM D. MORTONWilliam D. Morton   |  | Chairman, Chief Executive Officer and President |  | March 31, 2006
|                                        
|/s/ DARYL R. LINDEMANNDaryl R. Lindemann |  | Chief Financial Officer and Secretary           |  | March 31, 2006
|                                        
|/s/ FRED W. BROLINGFred W. Broling       |  | Director                                        |  | March 31, 2006
|                                        
|/s/ MARK W. MEALYMark W. Mealy           |  | Director                                        |  | March 31, 2006

52



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##### 



SHAREHOLDER INFORMATION


CORPORATE OFFICES








-263-1841


INVESTOR INFORMATION














E-mail:


FORM 10-K


10-K,


STOCK TRANSFER AGENT AND REGISTRAR












INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






STOCK MARKET INFORMATION




BOARD OF DIRECTORS




















53



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##### 



CORPORATE OFFICERS














54