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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

|   |  |                                                                                         
|-- |  | ----------------------------------------------------------------------------------------
|   |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|  
|  
|  
|   |  | For the fiscal year ended March 31, 2000                                                
|  
|OR
|  
|   |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|  
|  
|  
|   |  | For the transition period
fromto                                                        

Commission File Number 0-2762

MAXCO, INC.(Exact Name of Registrant as Specified in its Charter)

|                                                               |  |                                          
|-------------------------------------------------------------- |  | -----------------------------------------
|Michigan                                                       |  | 38-1792842                               
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)  
|                                                              
|1118 Centennial Way, Lansing, Michigan                         |  | 48917                                    
|                                                              
|                                                              
|                                                              
|                                                              
|(Address of principal executive offices)                       |  | (Zip Code)                               
|                                                              
|Registrants Telephone Number, including area code:            |  | (517) 321-3130                           
|                                                              
|Securities registered pursuant to Section 12(b) of the Act:   
|                                                              
|Title of each class                                            |  | Name of each exchange on which registered
|                                                              
|                                                              
|                                                              
|                                                              
|NONE                                                           |  | NONE                                     
|                                                              
|Securities registered pursuant to Section 12(g) of the Act:   
|                                                              
|Common stock                                                   |  | Series Three Preferred Stock             
|                                                              
|                                                              
|                                                              
|                                                              
|(Title of Class)                                               |  | (Title of Class)                         

Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.

| |     |  |  |    |  | 
| | --- |  |  | -- |  | 
| | Yes |  |  | No
| |     |  | 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of May 31, 2000: $12,955,389.

At May 31, 2000, there were 3,101,195 outstanding shares of Registrants common
stock.

Documents Incorporated By Reference

Portions of the annual proxy statement for the year ended March 31, 2000 are
incorporated by reference into Part III.

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1



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|                                                                                           |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------ |  |  |  |  |  |  |  | 
|Consolidated balance sheetsMarch 31, 2000 and 1999                                       
|Consolidated Statements of operationsYears ended March 31, 2000, 1999, and 1998          
|Consolidated statements of stockholders equityYears ended March 31, 2000, 1999, and 1998
|Consolidated statements of cash flowsYears ended March 31, 2000, 1999, and 1998          
|Notes to consolidated financial statementsMarch 31, 2000                                 
|Schedule IIValuation and Qualifying Accounts                                             



---



The Company has filed this amendment to its 10-K, filed on July 14, 2000, as a
result of the conclusion reached by the Securities and Exchange Commission on
August 7, 2000. The conclusion requires The Company to file the audited
historical financial statements of Foresight Solutions, Inc. and Mid-State
Industrial Services, Inc. as required by Rule 3-09. These financial statements
are included in Item 14(d) in this amendment. Because there were no changes to
any of the exhibits, the exhibits were not included with this filing. Due to
the fact that they are included in the listing of exhibits, Item 14(a)(3),
there was an annotation added to note that the these exhibits were included in
our originally filed 10-K. Other than the previously discussed changes, there
were no other changes to the original filing.

2



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##### Table of Contents



PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (2)The response to this portion of Item 14 is submitted as a
separate section of this report.

(3) Listing of Exhibits

|               |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- | ----- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |      
|               |      
|               | 3     |  |  | Restated Articles of Incorporation are hereby
incorporated by reference from Form 10-Q dated February 13, 1998.                                                                                                                                                                                                                                                                                                                     
|              
|              
|              
|              
|               | 3.1   |  |  | By-laws are hereby incorporated by reference from Form
S-4 dated November 4, 1991 (File No. 33-43855).                                                                                                                                                                                                                                                                                                                              
|              
|              
|              
|              
|               | 4.2   |  |  | Resolution establishing Series Three Preferred Shares is
hereby incorporated by reference from Form S-4 dated November 4,
1991 (File No. 33-43855).                                                                                                                                                                                                                                                                                 
|              
|              
|              
|              
|               | 4.3   |  |  | Resolution authorizing the redemption of Series Two
Preferred Stock, establishing Series Four Preferred Stock and the
terms of the subordinated notes is hereby incorporated by
reference from Form 10-Q dated February 14, 1997.                                                                                                                                                                                                   
|              
|              
|              
|              
|               | 4.4   |  |  | Resolution establishing Series Five Preferred Shares is
hereby incorporated by reference from Form 10-K dated June 5,
1997.                                                                                                                                                                                                                                                                                                         
|              
|              
|              
|              
|               | 4.5   |  |  | Resolution establishing Series Six Preferred Shares is
hereby incorporated by reference from Form 10-K dated June 23,
1999.                                                                                                                                                                                                                                                                                                         
|              
|              
|              
|              
|               | 10.1  |  |  | Incentive stock option plan adopted August 15, 1983,
including the amendment (approved by shareholders August 25, 1987)
to increase the authorized shares on which options may be granted
by two hundred fifty thousand (250,000), up to five hundred
thousand (500,000) shares of the common stock of the company is
hereby incorporated by reference from the annual report on Form
10-K for the fiscal year ended March 31, 1988.
|              
|              
|              
|              
|               | 10.9  |  |  | Asset Purchase Agreement  Wright Plastic Products, Inc.
is hereby incorporated by reference from registrants Form 10-Q
dated November 14, 1996.                                                                                                                                                                                                                                                                                    
|              
|              
|              
|              
|               | 10.10 |  |  | Amended and restated loan agreement between Comerica
Bank and Maxco, Inc. dated September 30, 1996, is hereby
incorporated by reference from registrants Form 10-Q dated
November 14, 1996.                                                                                                                                                                                                                                         
|              
|              
|              
|              
|               | 10.11 |  |  | Asset purchase agreement for the purchase of Atmosphere
Annealing, Inc. is hereby incorporated by reference from
registrants Form 8-K dated January 17, 1997.                                                                                                                                                                                                                                                                       
|              
|              
|              
|              
|               | 10.12 |  |  | Asset Purchase Agreement  Axson North America Inc. is
hereby incorporated by reference from registrants Form 10-Q dated
February 14, 1997.                                                                                                                                                                                                                                                                                         
|              
|              
|              
|              
|               | 10.13 |  |  | Loan agreement between Michigan Strategic Fund and
Atmosphere Annealing, Inc. is hereby incorporated by reference
from registrants Form 10-Q dated February 13, 1998.                                                                                                                                                                                                                                                               
|              
|              
|              
|              
|               | 10.14 |  |  | Loan agreement between LAM Funding, L.L.C. and borrower
including Guaranty-Maxco, Inc. is hereby incorporated by reference
from registrants Form 10-Q dated February 13, 1998.                                                                                                                                                                                                                                                      
|              
|              
|              
|              
|               | 10.15 |  |  | First Amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated August 1, 1997, is
hereby incorporated by reference from Form 10-K dated June 24,
1998.                                                                                                                                                                                                                                          
|              
|              
|              
|              
|               | 10.16 |  |  | Second amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated June 24, 1998, is
hereby incorporated by reference from Form 10-K dated June 24,
1998.                                                                                                                                                                                                                                          
|              
|              
|              
|              
|               | 10.17 |  |  | Third amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated September 24, 1998, is
hereby incorporated by reference from Form 10-Q dated November 12,
1998.                                                                                                                                                                                                                                  
|              
|              
|              
|              
|               | 10.18 |  |  | Maxco, Inc. 1998 Employee Stock Option Plan is hereby
incorporated by reference from Form 10-Q dated November 12, 1998.                                                                                                                                                                                                                                                                                                             
|              
|              
|              
|              
|               | 10.19 |  |  | Fourth amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated June 22, 1999 is
hereby incorporated by reference from Form 10-K dated June 23,
1999.                                                                                                                                                                                                                                           
|              
|              
|              
|              
|               | 10.20 |  |  | Fifth amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated September 1, 1999 is
hereby incorporated by reference from Form 10-Q dated November 12,
1999.                                                                                                                                                                                                                                    

3



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##### Table of Contents



| |        |  |  |                                                                                                                                             
| | ------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------
| | 10.21* |  |  | Sixth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated July 12, 2000                            
|
|
|
|
| | 21*    |  |  | Subsidiaries of the Registrant                                                                                                              
|
|
|
|
| | 23*    |  |  | Consent of Independent Auditors (Form S-8 filed June 2,
1992  File No. 33-48351 and Form S-8 filed November 19, 1998 
File No. 333-67539).
|
|
|
|
| | 27*    |  |  | Financial Data Schedules                                                                                                                    

(b) Reports on Form 8-K:

None

(c) Exhibits



| | * |  | Sixth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated July 12, 2000.
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| | * |  | Subsidiaries of the Registrant                                                                                   
|
| | * |  | Consent of Independent Auditors                                                                                  
|
| | * |  | Financial Data Schedules                                                                                         

(d) Financial Statement Schedules

The response to this portion of Item 14 is submitted as a separate section of
this report.



|* |  | The Company filed these exhibits previously on Form 10-K which was filed with
the commission on July 14, 2000.
|- |  | --------------------------------------------------------------------------------------------------------------

4



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##### Table of Contents



SIGNATURES

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

|     |  |                |  |                                                          |  |                     | 
|---- |  | -------------- |  | -------------------------------------------------------- |  | ------------------- | 
|Date |  | April 17, 2001 |  | MAXCO, INC.                                             
|     |  |               
|    
|    
|    
|    
|     |  |                |  | By                                                       |  | /S/ VINCENT SHUNSKY
|     |  |               
|    
|    
|    
|    
|     |  |                |  | Vincent Shunsky, Vice President of Finance and Treasurer
|    
|    
|    
|    
|     |  |                |  | (Principal Financial and Accounting Officer)            

5



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ANNUAL REPORT ON FORM 10-K

ITEM 14(a)(1) AND (2), (c), AND (d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED MARCH 31, 2000

MAXCO, INC.

LANSING, MICHIGAN

6



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FORM 10-KITEM 14(a)(1) AND (2)

MAXCO, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

|                                                                                                                   |                                                                                            |  |  |    | 
|------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ |  |  | -- | 
|The following consolidated financial statements of Maxco, Inc. and subsidiaries are included in Item 8:           
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Consolidated balance sheetsMarch 31, 2000 and 1999                                        |  |  | 9  | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Consolidated statements of operationsYears ended March 31, 2000, 1999, and 1998           |  |  | 10 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Consolidated statements of stockholders equityYears ended March 31, 2000, 1999, and 1998 |  |  | 11 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Consolidated statements of cash flowsYears ended March 31, 2000, 1999, and 1998           |  |  | 12 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Notes to consolidated financial statementsMarch 31, 2000                                  |  |  | 13 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|The following consolidated financial statement schedule of Maxco, Inc. and subsidiaries is included in Item 14(d):
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Schedule IIValuation and qualifying accounts and reserves                                 |  |  | 25 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|The following financial statement schedules of Maxco, Inc. and subsidiaries are included in Item 14(d):           
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Separate financial statements of subsidiaries not consolidated                             |  |  | 26 | 

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

| |                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial statements of the Registrants significant unconsolidated affiliate
(Integral Vision, Inc.) are hereby incorporated by reference from the
Integral Vision, Inc. Form 10-K for the year ended December 31, 1999, as
filed with the Securities and Exchange Commission (SEC File Number 0-12728).

7



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Maxco, Inc.

We have audited the consolidated balance sheets of Maxco, Inc. and subsidiaries
as of March 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in
the period ended March 31, 2000. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Maxco,
Inc. and subsidiaries at March 31, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.



| | /S/ ERNST & YOUNG LLP | 
| | --------------------- | 

Detroit, Michigan
July 12, 2000

8



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##### Table of Contents






CONSOLIDATED BALANCE SHEETS

MAXCO, INC. AND SUBSIDIARIES

|                                                      |                                                           |                                                                 |                                         |                           |        |                |        |         |        |       |        | 
|----------------------------------------------------- | --------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------- | ------------------------- | ------ | -------------- | ------ | ------- | ------ | ----- | ------ | 
|                                                      |                                                           |                                                                 |                                         |                           |        | March 31,      |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 |                                         |                           |        | 2000           |        |         | 1999   |      
|                                                      |                                                           |                                                                 |                                         |                           |        |                |        |         |        |      
|                                                      |                                                           |                                                                 |                                         |                           |        | (in thousands) |       
|                                                     
|ASSETS                                               
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT ASSETS                                       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cash and cash equivalents                                 |                                                                 | $                                       | 542                       |        |                | $      | 1,122   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Marketable securities                                     |                                                                 |                                         | 185                       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accounts receivable, less allowance of                   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | $513,000 in 2000 and $558,000 in 1999                           |                                         |                           | 22,098 |                |        |         | 18,506 |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Advances to affiliate                                     |                                                                 |                                         | 3,008                     |        |                |        | 1,308   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | InventoriesNote 1                                        |                                                                 |                                         | 8,000                     |        |                |        | 5,010   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Investment held for saleNote 8                           |                                                                 |                                         | 1,121                     |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Prepaid expenses and other                                |                                                                 |                                         | 760                       |        |                |        | 608     |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 |                                         | TOTAL CURRENT ASSETS      |        |                | 35,714 |         |        |       | 26,554 | 
|                                                     
|                                                     
|                                                     
|                                                     
|MARKETABLE SECURITIES  LONG TERMNote 1              |                                                           |                                                                 | 4,240                                   |                           |        |                | 2,501  |        
|                                                     
|                                                     
|                                                     
|                                                     
|PROPERTY AND EQUIPMENT                               
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Land                                                      |                                                                 |                                         | 732                       |        |                |        | 732     |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Buildings                                                 |                                                                 |                                         | 12,271                    |        |                |        | 11,152  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Machinery, equipment, and fixtures                        |                                                                 |                                         | 41,650                    |        |                |        | 30,814  |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 | 54,653                                  |                           |        |                | 42,698 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Allowances for depreciation                               |                                                                 |                                         | (14,893                   | )      |                |        | (10,799 | )     
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 | 39,760                                  |                           |        |                | 31,899 |        
|                                                     
|                                                     
|                                                     
|                                                     
|OTHER ASSETS                                         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | InvestmentsNote 8                                        |                                                                 |                                         | 12,165                    |        |                |        | 16,144  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Notes and contracts receivable and other                  |                                                                 |                                         | 4,325                     |        |                |        | 3,996   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | IntangiblesNote 1                                        |                                                                 |                                         | 4,216                     |        |                |        | 4,336   |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 | 20,706                                  |                           |        |                | 24,476 |        
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | $                                                               | 100,420                                 |                           |        | $              | 85,430 |        
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|LIABILITIES AND STOCKHOLDERS EQUITY                 
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT LIABILITIES                                  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Notes payableNote 3                                      |                                                                 | $                                       | 23,667                    |        |                | $      | 226     |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accounts payable                                          |                                                                 |                                         | 12,989                    |        |                |        | 10,489  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Employee compensation                                     |                                                                 |                                         | 3,247                     |        |                |        | 2,192   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Taxes, interest, and other liabilities                    |                                                                 |                                         | 381                       |        |                |        | 1,726   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Current maturities of long-term obligations               |                                                                 |                                         | 3,117                     |        |                |        | 2,063   |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 |                                         | TOTAL CURRENT LIABILITIES |        |                | 43,401 |         |        |       | 16,696 | 
|                                                     
|                                                     
|                                                     
|                                                     
|LONG-TERM OBLIGATIONS, less current maturitiesNote 5 |                                                           |                                                                 | 22,390                                  |                           |        |                | 32,856 |        
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED INCOME TAXESNote 7                          |                                                           |                                                                 | 2,319                                   |                           |        |                | 1,734  |        
|                                                     
|                                                     
|                                                     
|                                                     
|STOCKHOLDERS EQUITYNotes 4 & 5                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred stock:                                         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | Series Three: 10% cumulative callable, $60 face value;         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           |                                                                 | 14,784 shares issued and outstanding    |                           |        | 678            |        |         |        | 683   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | Series Four: 10% cumulative callable, $51.50 face value;       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           |                                                                 | 46,414 shares issued and outstanding    |                           |        | 2,390          |        |         |        | 2,390 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | Series Five: 10% cumulative callable, $120 face value;         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           |                                                                 | 6,648 shares issued and outstanding     |                           |        | 798            |        |         |        | 798   |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | Series Six: 10% cumulative callable, $160 face value;          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           |                                                                 | 20,000 shares authorized, issued  none
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock, $1 par value; 10,000,000 shares authorized,
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                           | 3,101,195 shares (19993,219,995 shares) issued and outstanding |                                         |                           | 3,101  |                |        |         | 3,220  |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated other comprehensive income (loss)             |                                                                 |                                         | (877                      | )      |                |        | 9       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Retained earnings                                         |                                                                 |                                         | 26,220                    |        |                |        | 27,044  |       
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           |                                                                 | 32,310                                  |                           |        |                | 34,144 |        
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       
|                                                      |                                                           | $                                                               | 100,420                                 |                           |        | $              | 85,430 |        
|                                                      |                                                           |                                                                 |                                         |                           |        |                |       

See notes to consolidated financial statements

9



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##### Table of Contents






CONSOLIDATED STATEMENTS OF OPERATIONS

MAXCO, INC. AND SUBSIDIARIES

|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |      |   |         |        |       |  |       | 
|---------------------------------------------------------------- | ------------------------------------ | -------------------------------------------- | -------------------------------------- | ------------------------------------- | --- | ------------------------------------ | ------- | ------ | ---- | - | ------- | ------ | ----- |  | ----- | 
|                                                                 |                                      |                                              |                                        |                                       |     | Year Ended March 31,                 |        
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |        
|                                                                 |                                      |                                              |                                        |                                       |     | 2000                                 |         |        | 1999 |   |         | 1998   |      
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |      |   |         |        |      
|                                                                 |                                      |                                              |                                        |                                       |     | (in thousands except per share data) |        
|                                                                
|Net sales                                                        |                                      | $                                            | 156,490                                |                                       |     | $                                    | 124,732 |        |      | $ | 102,544 |       
|                                                                
|                                                                
|                                                                
|                                                                
|Costs and expenses:                                             
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Cost of sales and operating expenses |                                              |                                        | 119,749                               |     |                                      |         | 97,403 |      |   |         | 77,707 |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Selling, general and administrative  |                                              |                                        | 27,832                                |     |                                      |         | 20,919 |      |   |         | 17,044 |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Depreciation and amortization        |                                              |                                        | 4,907                                 |     |                                      |         | 3,395  |      |   |         | 2,481  |      
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              | 152,488                                |                                       |     |                                      | 121,717 |        |      |   | 97,232  |       
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              |                                        | OPERATING EARNINGS                    |     |                                      | 4,002   |        |      |   | 3,015   |        |       |  | 5,312 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Other income (expense):                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Investment income                    |                                              |                                        | 656                                   |     |                                      |         | 837    |      |   |         | 1,048  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest expense                     |                                              |                                        | (3,624                                | )   |                                      |         | (2,403 | )    |   |         | (2,114 | )    
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loss on investmentNote 8            |                                              |                                        | (860                                  | )  
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              | (3,828                                 | )                                     |     |                                      | (1,566  | )      |      |   | (1,066  | )     
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              | INCOME BEFORE FEDERAL INCOME TAXES AND
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                      |                                              |                                        | EQUITY IN INCOME (LOSS) OF AFFILIATES |     |                                      | 174     |        |      |   | 1,449   |        |       |  | 4,246 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Federal income tax expenseNote 7                                |                                      |                                              | 136                                    |                                       |     |                                      | 266     |        |      |   | 1,462   |       
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              |                                        | INCOME BEFORE EQUITY IN              
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                      |                                              |                                        | INCOME (LOSS) OF AFFILIATES           |     |                                      | 38      |        |      |   | 1,183   |        |       |  | 2,784 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Equity in income (loss) of affiliates, net of taxNotes 2, 7 & 8 |                                      |                                              | 278                                    |                                       |     |                                      | (395    | )      |      |   | (1,373  | )     
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      |                                              |                                        | NET INCOME                            |     |                                      | 316     |        |      |   | 788     |        |       |  | 1,411 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Less preferred stock dividends                                   |                                      |                                              | (408                                   | )                                     |     |                                      | (409    | )      |      |   | (390    | )     
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                 |                                      | NET INCOME (LOSS) APPLICABLE TO COMMON STOCK |                                        | $                                     | (92 | )                                    |         | $      | 379  |   |         | $      | 1,021 | 
|                                                                 |                                      |                                              |                                        |                                       |     |                                      |         |        |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|NET INCOME (LOSS) PER COMMON SHAREBasicNote 11                 |                                      | $                                            | (.03                                   | )                                     |     | $                                    | .12     |        |      | $ | .30     |       
|                                                                
|                                                                
|                                                                
|                                                                
|NET INCOME (LOSS) PER COMMON SHAREAssuming dilution           
|Note 11                                                          |                                      | $                                            | (.03                                   | )                                     |     | $                                    | .12     |        |      | $ | .30     |       

See notes to consolidated financial statements.

10



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##### Table of Contents






CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

MAXCO, INC. AND SUBSIDIARIES

|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          |       |   |        |        |       |       |     |        |  
|-------------------------- | --------------------------------- | -------------------------- | --------------- | -------------- | - | --------- | ----- |  | ------ | ---- | ---- | ------------- |  | ----------- | -------- | ----- | - | ------ | ------ | ----- | ----- | --- | ------ | -
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  | Accumulated
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  | Other      
|                           |                                   |                            |                 |                |   | Preferred |       |  | Common |      |      | Comprehensive |  |             | Retained |      
|                           |                                   |                            |                 |                |   | Stock     |       |  | Stock  |      |      | Income        |  |             | Earnings |       |   | Totals |       
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          |       |   |        |       
|                           | (in thousands)                   
|                          
|Balances at April 1, 1997  |                                   | $                          | 3,106           |                |   | $         | 3,518 |  |        | $    | (68  | )             |  | $           | 28,423   |       |   | $      | 34,979 |      
|                          
|                          
|                          
|                          
|                           | Net income for the year           |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | 1,411 |   |        |        | 1,411 |      
|                          
|                          
|                          
|                          
|                           | Net unrealized gain on marketable
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | securities     |   |           |       |  |        |      |      |               |  |             | 115      |       |   |        |        |       |       |     | 115    |  
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|                           |                                   | Total Comprehensive Income |                 |                |   |           |       |  |        |      |      |               |  |             |          |       |   |        |        |       | 1,526 |    
|                          
|                          
|                          
|                          
|                           | Preferred stock dividends         |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | (390  | ) |        |        | (390  | )    
|                          
|                          
|                          
|                          
|                           | Exercise of stock options for    
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | 25,000 shares  |   |           |       |  |        |      | 25   |               |  |             |          |       |   |        | 10     |       |       |     | 35     |  
|                          
|                          
|                          
|                          
|                           | Acquisition and retirement of    
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | 132,900 shares |   |           |       |  |        |      | (133 | )             |  |             |          |       |   |        | (1,123 | )     |       |     | (1,256 | )
|                          
|                          
|                          
|                          
|                           | Redemption of preferred stock     |                            |                 | (36            | ) |           |       |  |        |      |      |               |  |             |          | (1    | ) |        |        | (37   | )    
|                          
|                          
|                          
|                          
|                           | Conversion of common stock to    
|                          
|                          
|                          
|                          
|                           |                                   |                            | preferred stock |                |   | 812       |       |  |        | (102 | )    |               |  |             |          |       |   | (760   | )      |       |       | (50 | )     
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|Balances at March 31, 1998 |                                   |                            | 3,882           |                |   |           | 3,308 |  |        |      | 47   |               |  |             | 27,570   |       |   |        | 34,807 |      
|                          
|                          
|                          
|                          
|                           | Net income for the year           |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | 788   |   |        |        | 788   |      
|                          
|                          
|                          
|                          
|                           | Net unrealized loss on marketable
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | securities     |   |           |       |  |        |      |      |               |  |             | (38      | )     |   |        |        |       |       |     | (38    | )
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|                           |                                   | Total Comprehensive Income |                 |                |   |           |       |  |        |      |      |               |  |             |          |       |   |        |        |       | 750   |    
|                          
|                          
|                          
|                          
|                           | Preferred stock dividends         |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | (409  | ) |        |        | (409  | )    
|                          
|                          
|                          
|                          
|                           | Exercise of stock options for    
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | 52,500 shares  |   |           |       |  |        |      | 52   |               |  |             |          |       |   |        | 20     |       |       |     | 72     |  
|                          
|                          
|                          
|                          
|                           | Acquisition and retirement of    
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | 140,415 shares |   |           |       |  |        |      | (140 | )             |  |             |          |       |   |        | (925   | )     |       |     | (1,065 | )
|                          
|                          
|                          
|                          
|                           | Redemption of preferred stock     |                            |                 | (11            | ) |           |       |  |        |      |      |               |  |             |          |       |   |        |        | (11   | )    
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|Balances at March 31, 1999 |                                   |                            | 3,871           |                |   |           | 3,220 |  |        |      | 9    |               |  |             | 27,044   |       |   |        | 34,144 |      
|                          
|                          
|                          
|                          
|                           | Net income for the year           |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | 316   |   |        |        | 316   |      
|                          
|                          
|                          
|                          
|                           | Net unrealized loss on marketable
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | securities     |   |           |       |  |        |      |      |               |  |             | (886     | )     |   |        |        |       |       |     | (886   | )
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|                          
|                          
|                          
|                          
|                           |                                   | Total Comprehensive Loss   |                 |                |   |           |       |  |        |      |      |               |  |             |          |       |   |        |        |       | (570  | )  
|                          
|                          
|                          
|                          
|                           | Preferred stock dividends         |                            |                 |                |   |           |       |  |        |      |      |               |  |             |          | (408  | ) |        |        | (408  | )    
|                          
|                          
|                          
|                          
|                           | Redemption of preferred stock     |                            |                 | (5             | ) |           |       |  |        |      |      |               |  |             |          |       |   |        |        | (5    | )    
|                          
|                          
|                          
|                          
|                           | Acquisition and retirement of    
|                          
|                          
|                          
|                          
|                           |                                   |                            |                 | 118,800 shares |   |           |       |  |        |      | (119 | )             |  |             |          |       |   |        | (732   | )     |       |     | (851   | )
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         
|BALANCES AT MARCH 31, 2000 |                                   | $                          | 3,866           |                |   | $         | 3,101 |  |        | $    | (877 | )             |  | $           | 26,220   |       |   | $      | 32,310 |      
|                           |                                   |                            |                 |                |   |           |       |  |        |      |      |               |  |             |         

See notes to consolidated financial statements.

11



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##### Table of Contents






CONSOLIDATED STATEMENTS OF CASH FLOWS

MAXCO, INC. AND SUBSIDIARIES

|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |       |        |        |   |       |        |  
|----------------------------------------- | -------------------------------------------------------- | ------------------------ | ------------------------------------------- | ---------------------------------------------- | - | -------------------- | ------ | ------ | ---- | ----- | ------ | ------ | - | ----- | ------ | -
|                                          |                                                          |                          |                                             |                                                |   | Year Ended March 31, |       
|                                          |                                                          |                          |                                             |                                                |   |                      |       
|                                          |                                                          |                          |                                             |                                                |   | 2000                 |        |        | 1999 |       |        | 1998   |  
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |       |        |        |  
|                                          |                                                          |                          |                                             |                                                |   | (in thousands)       |       
|OPERATING ACTIVITIES                     
|                                         
|                                         
|                                         
|                                         
|                                          | Net Income                                               |                          | $                                           | 316                                            |   |                      | $      | 788    |      |       | $      | 1,411  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Adjustments to reconcile net income to net cash provided
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          | by operating activities:
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Depreciation                                |                                                |   | 4,232                |        |        |      | 2,930 |        |        |   | 2,240 |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Amortization                                |                                                |   | 675                  |        |        |      | 465   |        |        |   | 241   |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Equity in net (income) loss of affiliates   |                                                |   | (278                 | )      |        |      | 395   |        |        |   | 1,373 |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Deferred federal income taxes               |                                                |   | 855                  |        |        |      | 461   |        |        |   | (688  | )     
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Loss on investment                          |                                                |   | 860                  |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | Changes in operating assets and liabilities
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          | of continuing operations:                  
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          |                                             | Accounts receivable                            |   |                      | (2,014 | )      |      |       | (2,224 | )      |   |       | (3,496 | )
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          |                                             | Inventories                                    |   |                      | (436   | )      |      |       | (1,096 | )      |   |       | 88     |  
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          |                                             | Prepaid and other                              |   |                      | (132   | )      |      |       | (305   | )      |   |       | (34    | )
|                                         
|                                         
|                                         
|                                         
|                                          |                                                          |                          |                                             | Accounts payable and other current liabilities |   |                      | 1,735  |        |      |       | 2,828  |        |   |       | 612    |  
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      
|NET CASH PROVIDED BY OPERATING ACTIVITIES |                                                          |                          | 5,813                                       |                                                |   |                      | 4,242  |        |      |       | 1,747  |       
|                                         
|                                         
|                                         
|                                         
|INVESTING ACTIVITIES                     
|                                         
|                                         
|                                         
|                                         
|                                          | Payment received on note receivable                      |                          |                                             | 750                                            |   |                      |        |        |      |       |        | 3,443  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Sale of investment                                       |                          |                                             |                                                |   |                      |        | 2,160  |     
|                                         
|                                         
|                                         
|                                         
|                                          | Purchase of businesses                                   |                          |                                             | (4,587                                         | ) |                      |        | (2,700 | )    |       |        | (468   | )
|                                         
|                                         
|                                         
|                                         
|                                          | Purchases of property and equipment                      |                          |                                             | (11,698                                        | ) |                      |        | (9,198 | )    |       |        | (7,474 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Investment in affiliates                                 |                          |                                             | (3,867                                         | ) |                      |        | (3,961 | )    |       |        | (6,452 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Net proceeds from (investment in) marketable securities  |                          |                                             | (31                                            | ) |                      |        | 5,491  |      |       |        | 2,881  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Other                                                    |                          |                                             | 274                                            |   |                      |        | 74     |      |       |        | 191    |  
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      
|NET CASH USED IN INVESTING ACTIVITIES     |                                                          |                          | (19,159                                     | )                                              |   |                      | (8,134 | )      |      |       | (7,879 | )     
|                                         
|                                         
|                                         
|                                         
|FINANCING ACTIVITIES                     
|                                         
|                                         
|                                         
|                                         
|                                          | Restricted cash for acquisition of equipment             |                          |                                             |                                                |   |                      |        | 1,088  |      |       |        | (1,088 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from long-term obligations                      |                          |                                             | 18,014                                         |   |                      |        | 6,517  |      |       |        | 13,724 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Repayments on long-term obligations                      |                          |                                             | (3,984                                         | ) |                      |        | (2,218 | )    |       |        | (5,375 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from exercise of stock options                  |                          |                                             |                                                |   |                      |        | 72     |      |       |        | 35     |  
|                                         
|                                         
|                                         
|                                         
|                                          | Dividends paid on preferred stock                        |                          |                                             | (408                                           | ) |                      |        | (409   | )    |       |        | (390   | )
|                                         
|                                         
|                                         
|                                         
|                                          | Acquisition and retirement of preferred and common stock |                          |                                             | (856                                           | ) |                      |        | (1,076 | )    |       |        | (1,343 | )
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      
|NET CASH PROVIDED BY FINANCING ACTIVITIES |                                                          |                          | 12,766                                      |                                                |   |                      | 3,974  |        |      |       | 5,563  |       
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      
|                                         
|                                          |                                                          |                          |                                             | INCREASE (DECREASE) IN CASH                    |   |                      | (580   | )      |      |       | 82     |        |   |       | (569   | )
|                                         
|                                          |                                                          |                          |                                             | CASH AT BEGINNING OF YEAR                      |   |                      | 1,122  |        |      |       | 1,040  |        |   |       | 1,609  |  
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      
|                                         
|                                          |                                                          |                          |                                             | CASH AT END OF YEAR                            |   | $                    | 542    |        |      | $     | 1,122  |        |   | $     | 1,040  |  
|                                          |                                                          |                          |                                             |                                                |   |                      |        |        |      |      

See notes to consolidated financial statements.

12



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##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAXCO, INC. AND SUBSIDIARIES

March 31, 2000

NOTE 1  SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: Maxco, Inc. (the Company) is a Michigan corporation
incorporated in 1946. Maxco currently operates in three business segments:
construction supplies, heat-treating, and packaging products. Maxcos
businesses include Ersco, a distributor of construction supplies; Atmosphere
Annealing Inc., a production metal heat treating service company; and Pak-Sak
Industries Inc., which makes polyethylene packaging. Maxco also has
investments in three real estate related companies: L/M Associates, LLC,
LandEquities Corporation, and Nilson Builders. In addition to real estate,
Maxco also has investments representing less than majority interests in the
following: a registered investor advisory firm; a registered broker-dealer of
securities that is primarily focused on the trading of fixed income investments
over the internet; a company offering a business-to-business vertical web
portal designed to bring solution-seekers together with solution-providers; a
company in the business of selling, leasing, and servicing lift trucks; three
technology-related businesses; and two energy-related businesses.

Principles of Consolidation: The consolidated financial statements include the
accounts of Maxco, Inc. and its majority owned subsidiaries. Upon
consolidation, all intercompany accounts and transactions are eliminated.
Investments in greater than 20% owned investments are accounted for under the
equity method. Investments in less than 20% owned affiliates are accounted for
under the cost method.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

Reclassifications: Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 2000.

Cash and Cash Equivalents: The Company considers cash and other highly liquid
investments, including investments in interest bearing repurchase agreements
with less than 90 day maturities, as cash and cash equivalents.

Receivables: Trade accounts receivable represent amounts due from customers in
the highway and general construction, automotive, and flexible packaging
industries, primarily in the mid-western United States. Accounts and notes
receivable at the Companys construction supplies unit are collateralized or
secured by perfected lien rights and payment bonds, where applicable.

Inventories: Inventories are stated at the lower of first-in, first-out cost
or market and at March 31 consisted of the following:

|                                   |  |                |       |  |      |   |       | 
|---------------------------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|                                   |  | 2000           |       |  | 1999 |  
|                                   |  |                |       |  |      |  
|                                   |  | (in thousands) |      
|Raw materials                      |  | $              | 589   |  |      | $ | 732   | 
|                                  
|                                  
|                                  
|                                  
|Finished goods and work in process |  |                | 1,136 |  |      |   | 1,283 | 
|                                  
|                                  
|                                  
|                                  
|Purchased products for resale      |  |                | 6,275 |  |      |   | 2,995 | 
|                                   |  |                |       |  |      |  
|                                   |  | $              | 8,000 |  |      | $ | 5,010 | 
|                                   |  |                |       |  |      |  

Marketable Securities: Marketable securities are classified in accordance with
FASB 115 as securities available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders equity. The amortized cost
of securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in
investment income. Realized gains and losses and declines in value judged to
be other than temporary on available-for-sale securities are included in
investment income or loss. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities
classified as available-for-sale are included in investment income. The fair
value of marketable securities is based on quoted market value.

13



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued

MAXCO, INC. AND SUBSIDIARIES

NOTE 1  SIGNIFICANT ACCOUNTING POLICIES  Continued

In November 1999, Maxco began accounting for its investment in Provant, Inc.
common stock as securities available for sale as defined by FASB 115.
Consequently, the securities are carried at market value with the unrealized
gains and losses net of tax, reported as a separate component of stockholders
equity. At March 31, 2000, the unrealized loss on this stock was approximately
$822,000 net of tax.

At March 31, 2000, the Companys marketable securities consist of debt and
equity securities and United States government securities.

Advances to Affiliate: The Company periodically advances amounts to its real
estate investment holding. These advances are unsecured and bear interest.
During 2000 and 1999, advances made were approximately $1.7 million and $1.3
million respectively.

Properties and Depreciation: Property and equipment are stated on the basis of
cost and include expenditures for new facilities and equipment and those which
materially extend the useful lives of existing facilities and equipment.
Equipment capitalized under lease agreements is not significant.

Expenditures for normal repairs and maintenance are charged to operations as
incurred. Depreciation (and amortization of capitalized leases) for financial
reporting purposes is computed by the straight-line method based on the
estimated useful lives of the assets ranging from 3 to 31 years.

Federal Income Taxes: The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.

Intangibles: Intangibles primarily consist of the excess of cost over fair
market value of net assets of acquired businesses. Intangibles, including
non-compete agreements, are amortized on a straight-line basis over periods
ranging from 5 to 20 years. The carrying value of goodwill will be reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Companys carrying value of the goodwill will be reduced by the
estimated shortfall of discounted cash flows. Accumulated amortization was
approximately $1.5 million and $1.0 million at March 31, 2000 and 1999,
respectively.

Revenue Recognition: The Company recognizes revenue from product sales upon
transfer of title, which is generally upon shipment.

Gain Recognition on Sale of Subsidiary Stock: The Companys policy is to
record gains from the sale or other issuance of previously unissued stock by
its subsidiaries.

Advertising: Advertising costs are expensed as incurred. The amounts were not
material for all years presented.

Interest Rate Swap: The Company entered into an interest rate swap agreement
to modify the interest characteristics of certain of its outstanding debt. The
interest rate swap agreement is designated with the principal balance and term
of a specific debt obligation. This agreement involves the exchange of amounts
based on a fixed interest rate for amounts based on variable interest rates
over the life of the agreement without an exchange of the notional amount upon
which the payments are based. The fair value of the swap agreement, which was
approximately $259,000 at March 31, 2000, and changes in the fair value as a
result of changes in market interest rates are not recognized in the financial
statements.

Fair Value Disclosure: The carrying amounts of certain financial instruments
such as cash and cash equivalents, accounts receivable, marketable securities,
accounts payable and long-term debt approximate their fair values. The fair
value of the long-term debt is estimated using discounted cash flow analysis
and the Companys current incremental borrowing rates for similar types of
arrangements.

14



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 1  SIGNIFICANT ACCOUNTING POLICIES  Continued

Comprehensive Income: The Company displays comprehensive income in the
Consolidated Statements of Shareholders Equity. At March 31, 2000 and 1999,
accumulated other comprehensive income (loss) consisted of unrealized income
(loss) on marketable securities.

Stock Options: The Company has elected to follow APB No. 25 Accounting for
Stock Issued to Employees and related interpretations in accounting for its
employee stock options because, in managements opinion, the alternative fair
value provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation, requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Companys employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

New Financial Accounting Pronouncements: The Financial Accounting Standards
Board issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. Statement 133 is effective for fiscal years beginning
after June 15, 2000. The Company expects to adopt the new statement effective
April 1, 2001. The statement requires the Company to recognize all derivatives
on the balance sheet at fair value. The Company has not evaluated the
potential effect the adoption of this statement will have on its results of
operations or financial condition.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. The accounting and disclosures prescribed by SAB 101 will be
effective for the fourth quarter of fiscal year 2001. The Company believes
there will be no material impact resulting from the application of SAB 101.

In March 2000, the FASB issued Interpretation No. 44, (FIN44), Accounting for
Certain Transactions Involving Stock Compensation  an Interpretation of APB
25. This Interpretation clarified (a) the definition of employee for purposes
of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers
events occurring during the period after December 15, 1998, or January 12, 2000
but before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company has not yet determined the impact, if any, of adopting this
Interpretation.

NOTE 2  INVESTMENT IN INTEGRAL VISION, INC.(FORMERLY MEDAR, INC.)

At March 31, 2000, Maxco owned 2,240,605 shares of Integral Visions common
stock (aggregate market value of $7.6 million), representing approximately 25%
of Integral Visions total common stock outstanding.

During the quarter ended September 30, 1997, the Company participated in a
private placement by Integral Vision of $7.0 million of subordinated
debentures. Maxco purchased $750,000 of these debentures representing 10.7% of
the total placed. Maxco also received warrants to purchase 150,000 shares of
Integral Vision stock at $6.86, which were outstanding and exercisable at March
31, 2000. In connection with this transaction, Maxco also purchased 150,000
shares of previously unissued Integral Vision stock at $5.00 a share. On June
30, 1999, Integral Vision sold its welding division for cash and debt. Maxco
recognized its proportionate share of the gain on this transaction as part of
equity in income of affiliates. Also, as a result of this transaction, Maxco
received payment on June 30, 1999 of the full balance due on subordinated
debentures of $750,000. Maxcos investment in Integral Vision is accounted for
under the equity method for all periods presented.

15



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 2  INVESTMENT IN INTEGRAL VISION, INC.(FORMERLY MEDAR, INC.)  Continued

Integral Visions net income for the year ended March 31, 2000 was
approximately $3.8 million and its net loss for the years ended March 31, 1999
and 1998 was approximately $2.6 million, and $10.1 million, respectively.
Accordingly, Maxcos equity share of Integral Visions net income for the year
ended March 31, 2000 was approximately $896,000 and Maxcos equity share of
Integral Visions net loss for the years ended March 31, 1999 and 1998 was
approximately $627,000, and $2.4 million, respectively and is recorded net of
deferred tax for these periods in equity in earnings of affiliates, along with
the equity results of other 50% or less owned affiliates accounted for under
the equity method. For the years ended March 31, 2000, 1999 and 1998, Integral
Visions restated sales were $11.0 million, $9.5 million and $13.5 million,
respectively.

The difference between the carrying amount and the underlying equity of the
Companys investment in the net assets of Integral Vision, approximately $1.5
million, is being amortized over a 30 year life.

NOTE 3  DEBT

The Company is currently in default of the tangible net worth ratio as required
by its $18 million and $10 million lines of credit with a bank. As such the
outstanding balance on the lines ($23.4 million at March 31, 2000) has been
classified as current in the accompanying financial statements. These lines of
credit were amended in July 2000, increasing the availability under the $18
million line to $20 million, and as provided under the original agreement with
the bank, the $10 million acquisition line was converted to a $7.6 million term
loan. However, there are still ongoing negotiations with the bank to obtain a
waiver of default. Management anticipates that the negotiation will be
completed by September 30, 2000.

The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern. The Companys ability to meet its
short term and long term debt service and other obligations (including
compliance with financial covenants) will be dependent upon its future
operating performance and the successful renegotiation of its credit
facilities. These dependencies will be subject to financial, business and
other factors, certain of which are beyond the Companys control, such as
prevailing economic conditions. There can be no assurance that, in the event
the Company were to require additional financing, such additional financing
would be available on satisfactory terms. The Company believes that funds
generated by its operations and funds available under other credit facilities,
will be sufficient to finance short term capital needs, as well as to fund
existing operations for the foreseeable future. However, in the event that the
Company is unable to successfully renegotiate its credit facilities, the
Company has liquid long term equity investments that could be used to meet its
short term and long term debt service requirements and fund operating cash
flows.

Long-term obligations at March 31 consisted of the following:

|                                                   |                                      |   |                |       |  |      |        |        | 
|-------------------------------------------------- | ------------------------------------ | - | -------------- | ----- |  | ---- | ------ | ------ | 
|                                                   |                                      |   | 2000           |       |  | 1999 |       
|                                                   |                                      |   |                |       |  |      |       
|                                                   |                                      |   | (in thousands) |      
|Revolving lines of credit (variable interest rate
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | 8.3% at March 31, 2000)              |   | $              | 2,800 |  |      | $      | 16,999 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Tax exempt revenue bonds (variable interest rates) |                                      |   | 3,990          |       |  |      | 4,472  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Taxable revenue bonds                              |                                      |   | 4,508          |       |  |      | 4,915  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Mortgage notes payable (various interest rates    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | ranging up to 10.0%)                 |   |                | 2,060 |  |      |        | 2,149  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Equipment purchase contracts and capitalized lease
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | obligations (various interest rates) |   |                | 7,785 |  |      |        | 1,460  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Subordinated debt (fixed interest rate of 10%)     |                                      |   | 3,357          |       |  |      | 3,765  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Other                                              |                                      |   | 1,007          |       |  |      | 1,159  |       
|                                                   |                                      |   |                |       |  |      |       
|                                                   |                                      |   | 25,507         |       |  |      | 34,919 |       
|                                                  
|                                                  
|                                                  
|                                                  
|Less current maturities                            |                                      |   | 3,117          |       |  |      | 2,063  |       
|                                                   |                                      |   |                |       |  |      |       
|                                                   |                                      | $ | 22,390         |       |  | $    | 32,856 |       
|                                                   |                                      |   |                |       |  |      |       

The Company can borrow up to $5 million under its long term revolving line of
credit, of which $2.2 million is available at March 31, 2000. This line of
credit matures in March 2002.

16



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 3  DEBT  Continued

Certain of the agreements require a facility fee of 0.25%, a commitment fee of
0.25% of the unused line, and compensating balances equal to 5% of borrowings
under this arrangement or the fee equivalent. Certain of these agreements
require maintenance of specified financial ratios.

In December 1998, Maxco entered into a swap agreement with a notional amount of
approximately $5.0 million converting its variable rate taxable revenue bonds
to a fixed rate of 5.34%, which matures in December 2005. The fair value of
the swap is approximately $259,000 as of March 31, 2000.

Notes and contracts payable are generally collateralized by assets purchased
with proceeds of the borrowings. The aggregate principal maturities of
long-term debt from 2002  2005 are as follows:

|     |           |      |   |           |      |  |   |           |  |  |   |          
|---- | --------- | ---- | - | --------- | ---- |  | - | --------- |  |  | - | ---------
|2002 |           | 2003 |   |           | 2004 |  |   | 2005      | 
|     |           |      |   |           |      |  |   |           | 
|$    | 4,285,000 |      | $ | 3,268,000 |      |  | $ | 3,743,000 |  |  | $ | 3,636,000

Interest paid approximates interest expensed for the years presented.

As of March 31, 2000, the Company has guaranteed various debt obligations of
certain real estate and technology related investments in an aggregate amount
of approximately $60 million. Maxco does not believe that there is any unusual
degree of risk related to these guarantees because of sufficient underlying
asset values supporting the respective debt obligations.

NOTE 4  PREFERRED STOCK

Maxco may issue up to 100,000 shares of preferred stock with terms determined
by Maxcos Board of Directors.

Series Three Preferred Stock is voting stock on a par with the common stock,
and has twenty votes per share. Quarterly cumulative dividends are provided at
the annual rate of 10% of face value annually, subject to the restrictions of
Michigan corporate law and the discretion of the Maxco Board of Directors. The
stock is callable at the option of the Company, with the call price declining
at the rate of one percent per year to a minimum price after February 1999,
equal to face value ($60 per share).

Series Four Preferred Stock is cumulative, callable at the Companys option, is
non-voting, has no conversion rights, and will pay an annual dividend at the
rate of 10% of face value annually.

Series Five Preferred shares have a face value of $120, are callable at the
Companys option, are non-voting, have no conversion rights, and pay a
quarterly cumulative dividend at the rate of 10% of face value annually.

Series Six Preferred Stock, established February 4, 1999, is voting stock on a
par with the common stock, and has twenty votes per share. Quarterly
cumulative dividends are provided at the annual rate of 10% of face value
annually, subject to the restrictions of Michigan corporate law and the
discretion of the Maxco Board of Directors. The stock is callable, at the
option of the Company, at any time after the second anniversary of their
issuance in whole or in part. The call price will be face value ($160 per
share) plus a declining premium amount, which shall be equal to 5% until the
third anniversary of issuance and shall decline 1% annually thereafter to zero
following the seventh anniversary.

NOTE 5  STOCK OPTIONS

Under the terms of Maxcos incentive common stock option plan, options for the
purchase of up to 500,000 shares of common stock may be granted and options are
exercisable upon grant.

A summary of incentive stock options activity follows for the year ended March
31:

17



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 5  STOCK OPTIONS  Continued

|                               |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  |     |     |  |  |  |       |  |          |        |      |  |  |     |     |  |       |  |  |          |  |      |      | 
|------------------------------ | ----------------- |  | ------------------------------- | --- |  | ---- |  |  | ---- | ----- | -------- | ---- | ------ |  | --- | --- |  |  |  | ----- |  | -------- | ------ | ---- |  |  | --- | --- |  | ----- |  |  | -------- |  | ---- | ---- | 
|                               |                   |  | 2000                            |     |  | 1999 |  |  | 1998 |      
|                               |                   |  |                                 |     |  |      |  |  |      |      
|                               |                   |  |                                 |     |  |      |  |  |      |       | Weighted |      |        |  |     |     |  |  |  |       |  | Weighted |        |      |  |  |     |     |  |       |  |  | Weighted | 
|                               |                   |  |                                 |     |  |      |  |  |      |       | Average  |      |        |  |     |     |  |  |  |       |  | Average  |        |      |  |  |     |     |  |       |  |  | Average  | 
|                               |                   |  | Shares                          |     |  |      |  |  |      | Price |          |      | Shares |  |     |     |  |  |  | Price |  |          | Shares |      |  |  |     |     |  | Price | 
|                               |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  |     |     |  |  |  |       |  |          |        |      |  |  |     |     |  |       | 
|                               |                   |  | (number of shares in thousands) |    
|Outstanding and exercisable at
|                              
|                              
|                              
|                              
|                               | beginning of year |  |                                 | 145 |  |      |  |  |      |       | $        | 7.90 |        |  |     | 188 |  |  |  |       |  |          | $      | 6.09 |  |  |     | 203 |  |       |  |  |          |  | $    | 5.47 | 
|                              
|                              
|                              
|                              
|Granted and exercisable        |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  | 10  |     |  |  |  |       |  |          | 7.50   |      |  |  | 10  |     |  |       |  |  |          |  | 7.00 |     
|                              
|                              
|                              
|                              
|Exercised                      |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  | (53 | )   |  |  |  |       |  |          | 1.38   |      |  |  | (25 | )   |  |       |  |  |          |  | 1.38 |     
|Outstanding and exercisable at |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  |     |     |  |  |  |       |  |          |       
|                              
|                              
|                              
|                              
|                               | end of year       |  |                                 | 145 |  |      |  |  |      |       | $        | 7.90 |        |  |     | 145 |  |  |  |       |  |          | $      | 7.90 |  |  |     | 188 |  |       |  |  |          |  | $    | 6.09 | 
|                               |                   |  |                                 |     |  |      |  |  |      |       |          |      |        |  |     |     |  |  |  |       |  |          |       

The exercise price for options outstanding as of March 31, 2000 ranged from
$7.00 to $8.00. There were no options granted during the year ended March 31,
2000. The weighted average fair value of options granted during the years
ended March 31, 1999 and 1998 was $2.94 and $2.68, respectively. The weighted
average remaining contractual life of those options is approximately eight
years.

Pro forma information regarding net income and income per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using a Black-Schole
option pricing model.

After adjusting for the proforma effect of stock compensation, the net income
is estimated to be approximately $316,000 (loss of $.03 per share after
preferred dividends) for 2000, $759,000 ($.11 per share) for 1999 and $1.4
million ($.29 per share) for 1998. Assumptions used in determining the above
proforma disclosures were risk free interest rates of approximately 6%, no
dividend yields, .323 market price volatility in 1999 (.31 for the 1998 grant),
and a five year weighted average life of these options. These proforma results
reflect only stock options granted in 1999 and 1998 (none were granted in
2000), and may not be comparable with the results of applying the fair market
value methodology to all stock options granted prior to the initial adoption of
this statement.

NOTE 6  EMPLOYEE SAVINGS PLAN

Company contributions charged to operations under the employee savings plans
were approximately $335,000, $351,000 and $251,000 for the years ended March
31, 2000, 1999 and 1998, respectively.

NOTE 7  FEDERAL INCOME TAXES

The provision for federal income taxes consists of the following:

|                              |                      |   |                |     |  |      |      |      |      |   |       |      |  
|----------------------------- | -------------------- | - | -------------- | --- |  | ---- | ---- | ---- | ---- | - | ----- | ---- | -
|                              |                      |   | 2000           |     |  | 1999 |      |      | 1998 |  
|                              |                      |   |                |     |  |      |      |      |      |  
|                              |                      |   | (in thousands) |    
|Current                       |                      | $ | (719           | )   |  | $    | (195 | )    |      | $ | 2,150 |     
|                             
|                             
|                             
|                             
|Deferred (benefit)            |                      |   | 855            |     |  |      | 461  |      |      |   | (688  | )   
|                              |                      |   |                |     |  |      |      |      |     
|                              |                      |   | 136            |     |  |      | 266  |      |      |   | 1,462 |     
|                             
|                             
|                             
|                             
|Amount allocated to equity in
|                             
|                             
|                             
|                             
|                              | income of affiliates |   |                | 143 |  |      |      | (203 | )    |   |       | (707 | )
|                              |                      |   |                |     |  |      |      |      |     
|                              |                      | $ | 279            |     |  | $    | 63   |      |      | $ | 755   |     
|                              |                      |   |                |     |  |      |      |      |     

The reconciliation of income taxes computed at the United States federal
statutory tax rate to income tax expense is as follows:

18



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 7  FEDERAL INCOME TAXES  Continued

|                                   |  |                |     |  |      |   |      |      |  |   |       | 
|---------------------------------- |  | -------------- | --- |  | ---- | - | ---- | ---- |  | - | ----- | 
|                                   |  | 2000           |     |  | 1999 |   |      | 1998 | 
|                                   |  |                |     |  |      |   |      |      | 
|                                   |  | (in thousands) |    
|Income taxes computed at          
|                                  
|                                  
|                                  
|                                  
|United States statutory rate (34%) |  | $              | 59  |  |      | $ | 493  |      |  | $ | 1,444 | 
|                                  
|                                  
|                                  
|                                  
|Prior year tax adjustment          |  |                |     |  |      |   | (294 | )   
|                                  
|                                  
|                                  
|                                  
|Other                              |  |                | 77  |  |      |   | 67   |      |  |   | 18    | 
|                                   |  |                |     |  |      |   |      |      | 
|                                   |  | $              | 136 |  |      | $ | 266  |      |  | $ | 1,462 | 
|                                   |  |                |     |  |      |   |      |      | 

Federal income taxes paid by Maxco were $350,000 in 2000, $600,000 in 1999, and
$2.1 million in 1998.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax liabilities and assets as of March 31 were as
follows:

|                          |                                 |                                |                          |                       |       |                |     |       |       |       |     | 
|------------------------- | ------------------------------- | ------------------------------ | ------------------------ | --------------------- | ----- | -------------- | --- | ----- | ----- | ----- | --- | 
|                          |                                 |                                |                          |                       |       | 2000           |     |       | 1999  |      
|                          |                                 |                                |                          |                       |       |                |     |       |       |      
|                          |                                 |                                |                          |                       |       | (in thousands) |    
|DEFERRED TAX LIABILITIES:
|                         
|                         
|                         
|                         
|                          | Depreciation                    |                                | $                        | 2,087                 |       |                | $   | 1,259 |      
|                         
|                         
|                         
|                         
|                          | Undistributed earnings          |                                |                          | 723                   |       |                |     | 457   |      
|                         
|                         
|                         
|                         
|                          | Other                           |                                |                          |                       |       |                |     | 23    |      
|                          |                                 |                                |                          |                       |       |               
|                          |                                 | Total Deferred Tax Liabilities |                          |                       | 2,810 |                |     |       | 1,739 |      
|                         
|                         
|                         
|                         
|DEFERRED TAX ASSETS:     
|                         
|                         
|                         
|                         
|                          | Allowance for doubtful accounts |                                |                          | 174                   |       |                |     | 190   |      
|                         
|                         
|                         
|                         
|                          | Inventory                       |                                |                          | 123                   |       |                |     | 111   |      
|                         
|                         
|                         
|                         
|                          | Marketable securities           |                                |                          | 452                   |      
|                          |                                 |                                |                          |                       |       |               
|                          |                                 |                                |                          | Total Deferred Assets |       |                | 749 |       |       |       | 301 | 
|                          |                                 |                                |                          |                       |       |               
|                          |                                 |                                | Net Deferred Liabilities |                       | $     | 2,061          |     |       | $     | 1,438 |    
|                          |                                 |                                |                          |                       |       |               

Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:

|             |                                        |   |                |       |   |      |       |       |  
|------------ | -------------------------------------- | - | -------------- | ----- | - | ---- | ----- | ----- | -
|             |                                        |   | 2000           |       |   | 1999 |      
|             |                                        |   |                |       |   |      |      
|             |                                        |   | (in thousands) |      
|LIABILITIES:
|            
|            
|            
|            
|             | Taxes, interest, and other liabilities |   | $              | (258  | ) |      | $     | (296  | )
|            
|            
|            
|            
|             | Deferred income taxes                  |   |                | 2,319 |   |      |       | 1,734 |  
|             |                                        |   |                |       |   |     
|             |                                        | $ | 2,061          |       |   | $    | 1,438 |      
|             |                                        |   |                |       |   |     

Components of accumulated comprehensive income are shown net of tax.

NOTE 8  OTHER INVESTMENTS

Real Estate:



| |  | Effective January 1, 1997, Maxco acquired a 50% interest in a Limited
Liability Company (LLC), L/M Associates, for approximately $4.3 million in
cash and properties. The LLC was formed to develop and lease real estate in
central Michigan. In addition, effective October 1, 1998, the Company made
additional investments in its real estate activity as it acquired a 50%
interest in LandEquities and Nilson Builders. These companies manage,
develop, and build commercial and residential properties.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 8  OTHER INVESTMENTS  Continued

Technology Related:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition to its investment in Integral Vision, Inc., the Company has an
equity interest in two other technology related businesses. Effective August
1, 1998, the Company acquired a 40% equity interest in Foresight Solutions,
Inc. (acquired an additional 10% in November 1999), a developer of accounting
software and e-business solutions for small to medium size businesses.
Additionally, the Company sold its 45% equity interest in Strategic
Interactive, Inc. to Provant, Inc. for cash and approximately 249,000 shares
of Provants stock in October 1998 when Provant acquired 100% of the stock of
Strategic Interactive.

Energy Related:

| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 1998, Maxco acquired an interest in AMI Energy, Inc.,
which is a retail energy marketing and consulting firm. In addition,
effective November 1, 1997, Maxco acquired a 50% interest in Robinson Oil
Company, LLC, which is in the business of acquiring and developing oil and gas
interests.

Other:

| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective June 1, 1998, Maxco acquired a one-third interest in Blasen Brogan
Asset Management Company, a Lansing, Michigan based registered investor
advisory firm.



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective August 1, 1998, the Company acquired a 50% equity interest in and
agreed to finance certain debt of Mid-State Industrial Services, Inc., which
is in the business of selling, leasing, and servicing lift trucks.



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective June 1, 1999, Maxco acquired a 12.5% equity interest in Phoenix
Financial Group, LTD and its subsidiary Cambridge Group Investments, LTD (dba
Bondpage.com), a registered broker-dealer of securities that is primarily
focused on the trading of fixed income investments over the Internet.



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In October 1999, the Company invested in approximately 6% of the common stock
of MYOEM.COM, a company offering a business-to-business vertical web portal
designed to bring solution-seekers together with solution-providers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Maxco has a 7% investment in Axson, S.A. of France (Axson), a manufacturer of
resins and composite materials for advanced applications. In the fourth
quarter of fiscal 2000, the majority shareholders of Axson began negotiations
with Axson management for a management buyout of the existing shareholders
interests. As such, Maxco classified its investment in Axson as available for
sale at March 31, 2000 and adjusted its carrying amount to its estimated fair
value, which resulted in a $860,000 charge. This transaction is subject to
approval by the French government and is expected to be completed in July
2000.

The combined results of operations and financial position of the Companys
unconsolidated affiliates are summarized below.

20



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 8  OTHER INVESTMENTS  Continued

|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |                |        |  |  |   |        | 
|------------------------------------------------- |  | -------------- | ------ | - | ------------------ | - | ------ | --------- |  | - | ----------- |  |  | ---- | ------ | - | ---- | -------------- | ------ |  |  | - | ------ | 
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      | Energy Related |       
|                                                  |  | Real Estate    |        |   | Technology Related |   |        | and Other | 
|                                                  |  | March 31,      |        |   | March 31,          |   |        | March 31, | 
|                                                  |  |                |        |   |                    |   |        |           | 
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  | 1999 |       
|                                                  |  | 2000           |        |   | 1999               |   |        | 2000      |  |   | (restated)* |  |  | 2000 |        |   | 1999 |               
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |               
|                                                  |  | (in thousands) |       
|Condensed income statement information:          
|                                                 
|                                                 
|                                                 
|                                                 
|Net Sales                                         |  | $              | 16,100 |   |                    | $ | 7,956  |           |  | $ | 12,974      |  |  | $    | 13,267 |   |      | $              | 12,247 |  |  | $ | 7,627  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Gross Margin                                      |  |                | 7,445  |   |                    |   | 4,142  |           |  |   | 2,433       |  |  |      | 4,151  |   |      |                | 3,900  |  |  |   | 2,744  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Net Income(Loss)                                  |  |                | (686   | ) |                    |   | 82     |           |  |   | 3,153       |  |  |      | (2,769 | ) |      |                | 104    |  |  |   | 95     | 
|                                                 
|                                                 
|                                                 
|                                                 
|Condensed balanced sheet information:            
|                                                 
|                                                 
|                                                 
|                                                 
|Current Assets                                    |  | $              | 29,235 |   |                    | $ | 21,780 |           |  | $ | 8,814       |  |  | $    | 8,713  |   |      | $              | 2,447  |  |  | $ | 7,128  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Net Current Assets of Discontinued Operations     |  |                |        |   |                    |   |        |           |  |   |             |  |  |      | 9,605  |  
|                                                 
|                                                 
|                                                 
|                                                 
|Non-Current Assets                                |  |                | 45,979 |   |                    |   | 34,413 |           |  |   | 9,285       |  |  |      | 10,184 |   |      |                | 4,232  |  |  |   | 3,823  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Net Non-Current Assets of Discontinued Operations |  |                |        |   |                    |   |        |           |  |   |             |  |  |      | 6,218  |  
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |               
|                                                  |  | $              | 75,214 |   |                    | $ | 56,193 |           |  | $ | 18,099      |  |  | $    | 34,720 |   |      | $              | 6,679  |  |  | $ | 10,951 | 
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |               
|Current Liabilities                               |  | $              | 35,644 |   |                    | $ | 23,812 |           |  | $ | 2,780       |  |  | $    | 23,046 |   |      | $              | 2,689  |  |  | $ | 7,188  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Non-Current Liabilities                           |  |                | 31,466 |   |                    |   | 23,116 |           |  |   | 2,933       |  |  |      | 2,240  |   |      |                | 2,347  |  |  |   | 2,923  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Stockholders Equity                              |  |                | 8,104  |   |                    |   | 9,265  |           |  |   | 12,386      |  |  |      | 9,434  |   |      |                | 1,643  |  |  |   | 840    | 
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |               
|                                                  |  | $              | 75,214 |   |                    | $ | 56,193 |           |  | $ | 18,099      |  |  | $    | 34,720 |   |      | $              | 6,679  |  |  | $ | 10,951 | 
|                                                  |  |                |        |   |                    |   |        |           |  |   |             |  |  |      |        |   |      |               



| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The difference between the carrying amount and the underlying equity of the
Companys investment in the net assets of the Companys 50% or less owned
investments, approximately $1,388,000, is being amortized over a 15 year life.
|
| | *The amounts for Integral Vision, Inc. (formerly Medar, Inc.) have been
restated for 1999 to reflect that companys sale of its welding controls
division.                                                                          

21



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 8  OTHER INVESTMENTS  Continued

The following companies represent the equity investees where Maxcos share of
their net income (loss) exceeded 20% of consolidated pre-tax income. This
financial information is also included in the combined table above.

|                                        |  |                 |       |   |                     |   |       |      |  |   |        |  |  |   |       | 
|--------------------------------------- |  | --------------- | ----- | - | ------------------- | - | ----- | ---- |  | - | ------ |  |  | - | ----- | 
|                                        |  | Foresight       |       |   | Midstate Industrial |  
|                                        |  | Solutions, Inc. |       |   | Services, Inc.      |  
|                                        |  | March 31,       |       |   | March 31,           |  
|                                        |  |                 |       |   |                     |  
|                                        |  | 2000            |       |   | 1999                |   |       | 2000 |  |   | 1999   | 
|                                        |  |                 |       |   |                     |   |       |      |  |   |        | 
|                                        |  | (in thousands)  |      
|Condensed income statement information:
|                                       
|                                       
|                                       
|                                       
|Net Sales                               |  | $               | 1,965 |   |                     | $ | 1,456 |      |  | $ | 11,933 |  |  | $ | 6,407 | 
|                                       
|                                       
|                                       
|                                       
|Gross Margin                            |  |                 | 1,654 |   |                     |   | 908   |      |  |   | 3,645  |  |  |   | 2,291 | 
|                                       
|                                       
|                                       
|                                       
|Net Income(Loss)                        |  |                 | (686  | ) |                     |   | (398  | )    |  |   | 564    |  |  |   | 416   | 
|                                       
|                                       
|                                       
|                                       
|Condensed balanced sheet information:  
|                                       
|                                       
|                                       
|                                       
|Current Assets                          |  | $               | 335   |   |                     | $ | 189   |      |  | $ | 1,722  |  |  | $ | 1,576 | 
|                                       
|                                       
|                                       
|                                       
|Non-Current Assets                      |  |                 | 807   |   |                     |   | 764   |      |  |   | 3,537  |  |  |   | 3,590 | 
|                                        |  |                 |       |   |                     |   |       |      |  |   |        | 
|                                        |  | $               | 1,142 |   |                     | $ | 953   |      |  | $ | 5,259  |  |  | $ | 5,166 | 
|                                        |  |                 |       |   |                     |   |       |      |  |   |        | 
|Current Liabilities                     |  | $               | 938   |   |                     | $ | 103   |      |  | $ | 1,865  |  |  | $ | 1,749 | 
|                                       
|                                       
|                                       
|                                       
|Non-Current Liabilities                 |  |                 | 981   |   |                     |   | 871   |      |  |   | 2,326  |  |  |   | 2,900 | 
|                                       
|                                       
|                                       
|                                       
|Stockholders Equity                    |  |                 | (777  | ) |                     |   | (21   | )    |  |   | 1,068  |  |  |   | 517   | 
|                                        |  |                 |       |   |                     |   |       |      |  |   |        | 
|                                        |  | $               | 1,142 |   |                     | $ | 953   |      |  | $ | 5,259  |  |  | $ | 5,166 | 
|                                        |  |                 |       |   |                     |   |       |      |  |   |        | 

NOTE 9  CONTINGENCIES AND COMMITMENTS

Maxco and certain operating subsidiaries occupy facilities and use equipment
under operating lease agreements requiring annual rental payments approximating
$1,839,000 in 2001, $1,650,000 in 2002, $1,304,000 in 2003, $1,032,000 in 2004,
$307,000 in 2005, and $222,000 thereafter for a total commitment aggregating
$6,354,000. Rent expense charged to operations, including short-term leases,
aggregated $2,285,000 in 2000, $1,580,000 in 1999, and $1,231,000 in 1998.

The Company is involved in various lawsuits and other claims arising in the
ordinary course of business. While the results of these matters cannot be
predicted with certainty, management, upon advice from counsel, believes that
losses, if any, arising from these proceedings will not have a material adverse
effect.

22



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

MAXCO, INC. AND SUBSIDIARIES

NOTE 10  INDUSTRY SEGMENT INFORMATION

The following summarizes Maxcos industry segment information:

|                                       |                                             |  |  |   |         |                |  |   |         |   |  |      |         |   |  | 
|-------------------------------------- | ------------------------------------------- |  |  | - | ------- | -------------- |  | - | ------- | - |  | ---- | ------- | - |  | 
|                                       |                                             |  |  |   |         | 2000           |  |   | 1999    |   |  | 1998 |        
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |      |        
|                                       |                                             |  |  |   |         | (in thousands) | 
|Net sales:                            
|                                      
|                                      
|                                      
|                                      
|                                       | Construction supplies                       |  |  | $ | 99,924  |                |  | $ | 72,440  |   |  | $    | 50,667  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Heat treating                               |  |  |   | 40,368  |                |  |   | 35,700  |   |  |      | 33,328  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Packaging products                          |  |  |   | 15,865  |                |  |   | 16,251  |   |  |      | 18,200  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other                         |  |  |   | 333     |                |  |   | 341     |   |  |      | 349     |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|                                       | Total Net Sales                             |  |  | $ | 156,490 |                |  | $ | 124,732 |   |  | $    | 102,544 |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|Operating earnings (loss):            
|                                      
|                                      
|                                      
|                                      
|                                       | Construction supplies                       |  |  | $ | 2,770   |                |  | $ | 2,538   |   |  | $    | 2,819   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Heat treating                               |  |  |   | 5,245   |                |  |   | 3,434   |   |  |      | 4,452   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Packaging products                          |  |  |   | (530    | )              |  |   | (1,006  | ) |  |      | (431    | )
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other                         |  |  |   | (3,483  | )              |  |   | (1,951  | ) |  |      | (1,528  | )
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|                                       | Total Operating Earnings                    |  |  | $ | 4,002   |                |  | $ | 3,015   |   |  | $    | 5,312   |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|Identifiable assets:                  
|                                      
|                                      
|                                      
|                                      
|                                       | Construction supplies                       |  |  | $ | 32,902  |                |  | $ | 21,275  |   |  | $    | 11,863  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Heat treating                               |  |  |   | 30,367  |                |  |   | 26,211  |   |  |      | 23,058  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Packaging products                          |  |  |   | 6,565   |                |  |   | 7,402   |   |  |      | 7,543   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other                         |  |  |   | 18,421  |                |  |   | 17,639  |   |  |      | 17,778  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Investments and advances                    |  |  |   | 12,165  |                |  |   | 12,903  |   |  |      | 15,813  |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|                                       | Total Identifiable Assets                   |  |  | $ | 100,420 |                |  | $ | 85,430  |   |  | $    | 76,055  |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|Depreciation and amortization expense:
|                                      
|                                      
|                                      
|                                      
|                                       | Construction supplies                       |  |  | $ | 1,870   |                |  | $ | 1,017   |   |  | $    | 487     |  
|                                      
|                                      
|                                      
|                                      
|                                       | Heat treating                               |  |  |   | 1,852   |                |  |   | 1,400   |   |  |      | 1,186   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Packaging products                          |  |  |   | 742     |                |  |   | 674     |   |  |      | 585     |  
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other                         |  |  |   | 443     |                |  |   | 304     |   |  |      | 223     |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|                                       | Total Depreciation And Amortization Expense |  |  | $ | 4,907   |                |  | $ | 3,395   |   |  | $    | 2,481   |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|Capital expenditures:                 
|                                      
|                                      
|                                      
|                                      
|                                       | Construction supplies                       |  |  | $ | 5,310   |                |  | $ | 2,208   |   |  | $    | 640     |  
|                                      
|                                      
|                                      
|                                      
|                                       | Heat treating                               |  |  |   | 5,656   |                |  |   | 5,920   |   |  |      | 5,378   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Packaging products                          |  |  |   | 693     |                |  |   | 960     |   |  |      | 1,371   |  
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other                         |  |  |   | 39      |                |  |   | 110     |   |  |      | 85      |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     
|                                       | Total Capital Expenditures                  |  |  | $ | 11,698  |                |  | $ | 9,198   |   |  | $    | 7,474   |  
|                                       |                                             |  |  |   |         |                |  |   |         |   |  |     



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Accounting policies of the business segments are consistent with those
described in the summary of significant accounting policies (see Note 1).                                                         
|
| | Identifiable assets are those assets that are used in Maxcos operations in
each industry segment. Corporate assets are principally cash, notes
receivable, investments, and corporate office properties.
|
| | Maxco has no significant foreign operations, export sales, or inter-segment
sales.                                                                                                                       
|
| | No sales to any single customer exceeded 10% of consolidated sales for 2000,
1999 or 1998.                                                                                                               

23



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued

MAXCO, INC. AND SUBSIDIARIES

NOTE 11  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |   |     |      |       |   |       | 
|--------------------------------- | --------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------- | ----- | ------------------------------------ | --- | --- | ----- | - | --- | ---- | ----- | - | ----- | 
|                                  |                                                     |                                                    |                                                |       | 2000                                 |     |     | 1999  |   |     | 1998 |      
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |   |     |      |      
|                                  |                                                     |                                                    |                                                |       | (in thousands except per share data) |    
|NUMERATOR:                       
|                                 
|                                 
|                                 
|                                 
|                                  | Net income                                          |                                                    | $                                              | 316   |                                      |     | $   | 788   |   |     | $    | 1,411 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Preferred stock dividends                           |                                                    |                                                | (408  | )                                    |     |     | (409  | ) |     |      | (390  | )
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|                                  |                                                     | Numerator for basic and diluted earning per share
|                                 
|                                 
|                                 
|                                 
|                                  |                                                     |                                                    | income (loss) available to common stockholders |       |                                      | (92 | )   |       |   | 379 |      |       |   | 1,021 | 
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|DENOMINATOR:                     
|                                 
|                                 
|                                 
|                                 
|                                  | Denominator for basic earnings per share          
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted-average shares                             |                                                    |                                                | 3,157 |                                      |     |     | 3,256 |   |     |      | 3,379 |  
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Effect of dilutive securities:   
|                                 
|                                 
|                                 
|                                 
|                                  | Employee stock options                              |                                                    |                                                |       |                                      |     |     | 34    |   |     |      | 81    |  
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|Dilutive potential common shares  |                                                     |                                                    |                                                |       |                                      |     | 34  |       |   |     | 81   |      
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                  | Denominator for diluted earnings per shareadjusted
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted-average shares and assumed conversions     |                                                    |                                                | 3,157 |                                      |     |     | 3,290 |   |     |      | 3,460 |  
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|BASIC EARNINGS (LOSS) PER SHARE   |                                                     | $                                                  | (.03                                           | )     |                                      | $   | .12 |       |   | $   | .30  |      
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  
|DILUTED EARNINGS (LOSS) PER SHARE |                                                     | $                                                  | (.03                                           | )     |                                      | $   | .12 |       |   | $   | .30  |      
|                                  |                                                     |                                                    |                                                |       |                                      |     |     |       |  

24



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##### Table of Contents



MAXCO, INC. AND SUBSIDIARIES




(in thousands)

|                                |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |        |         |  |  |   |    
|------------------------------- |  | ---------- | --- |  |  |  |  | ---------- | - | --------- | --------------- |  |  | ----------- |  |  | --------- | ------ | ------- |  |  | - | ---
|COL. A                          |  | COL. B     |     |  |  |  |  | COL. C     |   |           | COL. D          |  |  | COL. E      |  |  | COL. F    |       
|                                |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |       
|                                |  |            |     |  |  |  |  |            |   | ADDITIONS |                 |  |  |             | 
|                                |  |            |     |  |  |  |  |            |   |           |                 |  |  |             | 
|                                |  | Balance at |     |  |  |  |  | Charged to |   |           | Charged to      |  |  |             |  |  |           |        | Balance | 
|                                |  | Beginning  |     |  |  |  |  | Costs and  |   |           | Other Accounts- |  |  | Deductions- |  |  | at End    |       
|DESCRIPTION                     |  | of Period  |     |  |  |  |  | Expenses   |   |           | Describe        |  |  | Describe    |  |  | of Period |       
|                                |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |       
|Year ended March 31, 2000:      |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |        |         | 
|                               
|                               
|                               
|                               
|Allowance for doubtful accounts |  | $          | 558 |  |  |  |  |            | $ | 370       |                 |  |  |             |  |  | $         | 415(A) |         |  |  | $ | 513
|                               
|                               
|                               
|                               
|Year ended March 31, 1999:      |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |        |         | 
|                               
|                               
|                               
|                               
|Allowance for doubtful accounts |  | $          | 565 |  |  |  |  |            | $ | 191       |                 |  |  |             |  |  | $         | 198(A) |         |  |  | $ | 558
|                               
|                               
|                               
|                               
|Year ended March 31, 1998:      |  |            |     |  |  |  |  |            |   |           |                 |  |  |             |  |  |           |        |         | 
|                               
|                               
|                               
|                               
|Allowance for doubtful accounts |  | $          | 470 |  |  |  |  |            | $ | 113       |                 |  |  |             |  |  | $         | 18(A)  |         |  |  | $ | 565



|(A) |  | Represents uncollectible accounts written off, less recoveries.
|--- |  | ---------------------------------------------------------------





---



##### Table of Contents



MID-STATE INDUSTRIAL SERVICES, INC.



FINANCIAL STATEMENTS



FOR THE YEAR ENDED DECEMBER 31, 1999



AND



INDEPENDENT AUDITORS REPORT







---



##### Table of Contents



C O N T E N T S

|                                                     |  |      |  | 
|---------------------------------------------------- |  | ---- |  | 
|                                                     |  | PAGE | 
|                                                     |  |      | 
|INDEPENDENT AUDITORS REPORT                         |  | 1    | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|BALANCE SHEET                                        |  | 2-3  | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
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|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|STATEMENT OF INCOME AND CHANGES IN RETAINED EARNINGS |  | 4    | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|STATEMENT OF CASH FLOWS                              |  | 5    | 
|                                                    
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|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
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|                                                    
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|                                                    
|                                                    
|                                                    
|NOTES TO FINANCIAL STATEMENTS                        |  | 7-11 | 





---



##### Table of Contents



Board of Directors
Mid-State Industrial Services, Inc.
Eaton Rapids, Michigan

We have audited the accompanying balance sheet of Mid-State Industrial
Services, Inc. as of December 31, 1999, and the related statement of income,
changes in stockholders equity, and cash flow for the year then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mid-State Industrial
Services, Inc., at December 31, 1999, and the result of its operations and its
cash flow for the year then ended, in conformity with generally accepted
accounting principles.

| |                             
| | ----------------------------
| | /S/ LAYTON & RICHARDSON     
|
| | Certified Public Accountants

East Lansing, Michigan
October 24, 2000

1



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##### Table of Contents



BALANCE SHEET

ASSETS

|                              |                                                     |                                   |           |           |           | 
|----------------------------- | --------------------------------------------------- | --------------------------------- | --------- | --------- | --------- | 
|CURRENT ASSETS               
|                             
|                             
|                             
|                             
|                              | Cash and cash equivalents                           |                                   | $         | 531,636   |          
|                             
|                             
|                             
|                             
|                              | Accounts receivable                                 |                                   |           | 802,384   |          
|                             
|                             
|                             
|                             
|                              | Inventory                                           |                                   |           | 419,638   |          
|                             
|                             
|                             
|                             
|                              | Prepaid expenses                                    |                                   |           | 99,820    |          
|                              |                                                     |                                   |          
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                              |                                                     | TOTAL CURRENT ASSETS              |           |           | 1,853,478 | 
|                              |                                                     |                                   |          
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|PROPERTY, PLANT AND EQUIPMENT
|                             
|                             
|                             
|                             
|                              | Land                                                |                                   |           | 53,332    |          
|                             
|                             
|                             
|                             
|                              | Buildings and improvements                          |                                   |           | 475,000   |          
|                             
|                             
|                             
|                             
|                              | Rental equipment  lift trucks                      |                                   |           | 751,272   |          
|                             
|                             
|                             
|                             
|                              | Transportation equipment                            |                                   |           | 279,067   |          
|                             
|                             
|                             
|                             
|                              | Furniture, fixtures, and computers                  |                                   |           | 73,374    |          
|                              |                                                     |                                   |          
|                              |                                                     |                                   | 1,632,045 |          
|                             
|                             
|                             
|                             
|                              |                                                     | Less: accumulated depreciation    |           |           | 330,518   | 
|                              |                                                     |                                   |          
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                              |                                                     | NET PROPERTY, PLANT AND EQUIPMENT |           |           | 1,301,527 | 
|                              |                                                     |                                   |          
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|OTHER ASSETS                 
|                             
|                             
|                             
|                             
|                              | Intangible assets  net of amortization of $242,099 |                                   |           | 2,215,372 |          
|                              |                                                     |                                   |          
|                              |                                                     | $                                 | 5,370,377 |          
|                              |                                                     |                                   |          

See accompanying notes to financial statements.

2



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##### Table of Contents



LIABILITIES AND STOCKHOLDERS EQUITY

|                     |                                                                                            |                            |           |           |           | 
|-------------------- | ------------------------------------------------------------------------------------------ | -------------------------- | --------- | --------- | --------- | 
|CURRENT LIABILITIES 
|                    
|                    
|                    
|                    
|                     | Current portion  notes payable                                                            |                            | $         | 1,001,988 |          
|                    
|                    
|                    
|                    
|                     | Current portion  leases payable                                                           |                            |           | 54,225    |          
|                    
|                    
|                    
|                    
|                     | Accounts payable                                                                           |                            |           | 931,423   |          
|                    
|                    
|                    
|                    
|                     | Accrued payroll and payroll taxes                                                          |                            |           | 41,010    |          
|                    
|                    
|                    
|                    
|                     | Other accrued expenses                                                                     |                            |           | 29,442    |          
|                     |                                                                                            |                            |          
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                     |                                                                                            | TOTAL CURRENT LIABILITIES  |           |           | 2,058,088 | 
|                     |                                                                                            |                            |          
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|LONG-TERM DEBT      
|                    
|                    
|                    
|                    
|                     | Notes payable  less current portion                                                       |                            |           | 2,303,254 |          
|                    
|                    
|                    
|                    
|                     | Leases payable  less current portion                                                      |                            |           | 18,793    |          
|                     |                                                                                            |                            |          
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                     |                                                                                            | TOTAL LONG-TERM DEBT       |           |           | 2,322,047 | 
|                     |                                                                                            |                            |          
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|STOCKHOLDERS EQUITY
|                    
|                    
|                    
|                    
|                     | Common stock, no par value,
60,000 shares authorized,
10,000 shares issued and outstanding |                            |           | 100,000   |          
|                    
|                    
|                    
|                    
|                     | Retained earnings                                                                          |                            |           | 890,242   |          
|                     |                                                                                            |                            |          
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                     |                                                                                            | TOTAL STOCKHOLDERS EQUITY |           |           | 990,242   | 
|                     |                                                                                            |                            |          
|                     |                                                                                            | $                          | 5,370,377 |          
|                     |                                                                                            |                            |          

See accompanying notes to financial statements.

3



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##### Table of Contents



STATEMENT OF INCOME AND CHANGES IN RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 1999

|                                    |                              |   |            |           |  
|----------------------------------- | ---------------------------- | - | ---------- | --------- | -
|SALES AND RENTAL INCOME             |                              | $ | 11,836,961 |          
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|COST OF GOODS SOLD                  |                              |   | 8,324,010  |          
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                    | GROSS PROFIT ON SALES        |   |            | 3,512,951 |  
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|GENERAL AND ADMINISTRATIVE EXPENSES |                              |   | 2,486,400  |          
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                    | OPERATING INCOME             |   |            | 1,026,551 |  
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|OTHER INCOME (EXPENSE)             
|                                   
|                                   
|                                   
|                                   
|                                    | Gain on sale of assets       |   |            | 291,273   |  
|                                   
|                                   
|                                   
|                                   
|                                    | Miscellaneous income         |   |            | 1,418     |  
|                                   
|                                   
|                                   
|                                   
|                                    | Interest expense             |   |            | (323,116  | )
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                    | TOTAL OTHER INCOME (EXPENSE) |   |            | (30,425   | )
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                    | NET INCOME BEFORE INCOME TAX |   |            | 996,126   |  
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|FEDERAL INCOME TAX                  |                              |   | 341,953    |          
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                    | NET INCOME                   |   |            | 654,173   |  
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|RETAINED EARNINGS, JANUARY 1        |                              |   | 236,069    |          
|                                    |                              |   |           
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|RETAINED EARNINGS, DECEMBER 31      |                              | $ | 890,242    |          
|                                    |                              |   |           

See accompanying notes to financial statements.

4



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##### Table of Contents



STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1999

|                                                  |                                            |                                           |                        |          |           |          |  
|------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | ---------------------- | -------- | --------- | -------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net income                                 |                                           | $                      | 654,173  |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Adjustments to reconcile net income       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | to net cash provided by operating        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | activities                               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            |                                           | Depreciation           |          |           | 308,045  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            |                                           | Amortization           |          |           | 170,894  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            |                                           | Gain on sale of assets |          |           | (291,273 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | (Increase) decrease in current assets     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Accounts receivable                       |                        |          | 25,737    |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Inventory                                 |                        |          | 254,742   |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Prepaid expenses                          |                        |          | 87,945    |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Increase (decrease) in current liabilities
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Accounts payable                          |                        |          | 228,105   |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Accrued payroll and payroll taxes         |                        |          | (17,827   | )       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Other accrued expenses                    |                        |          | 17,756    |         
|                                                  |                                            |                                           |                       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | NET CASH PROVIDED BY OPERATING ACTIVITIES |                        |          | 1,438,297 |         
|                                                  |                                            |                                           |                       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Purchase of property, plant and equipment  |                                           |                        | (621,852 | )        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from sale of property, plant     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | and equipment                             |                        |          | 440,973   |         
|                                                  |                                            |                                           |                       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | NET CASH USED IN INVESTING ACTIVITIES     |                        |          | (180,879  | )       
|                                                  |                                            |                                           |                       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|CASH FLOWS FROM FINANCING ACTIVITIES             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Principal payments                         |                                           |                        | (877,258 | )        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from long-term debt               |                                           |                        | 62,024   |          
|                                                  |                                            |                                           |                       
|                                                  |                                            | NET CASH USED IN FINANCING ACTIVITIES     |                        |          | (815,234  | )       
|                                                  |                                            |                                           |                       
|                                                  |                                            | NET INCREASE IN CASH AND                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            |                                           | CASH EQUIVALENTS       |          |           | 442,184  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|CASH AND CASH EQUIVALENTS, JANUARY 1              |                                            |                                           | 89,452                 |         
|                                                  |                                            |                                           |                       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|CASH AND CASH EQUIVALENTS, DECEMBER 31            |                                            | $                                         | 531,636                |         
|                                                  |                                            |                                           |                       
|Supplemental disclosures of cash flow information
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash paid during the year for:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Interest                                  |                        | $        | 323,116   |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                            | Income tax                                |                        |          | 346,200   |         

See accompanying notes to financial statements.

5



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6



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##### Table of Contents



MID-STATE INDUSTRIAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999





| |                                                   
| | --------------------------------------------------
| | NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | The following is a summary of the significant accounting
policies affecting the financial statements of Mid-State
Industrial Services, Inc.



| |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mid-State Industrial Services, Inc. (Mid-State) was
incorporated in the State of Michigan on August 7, 1998. The
Company is a material handling solution provider that sells,
leases, and services lift trucks and lift truck accessories.
Mid-States customers are primarily in the manufacturing and
distribution industries. The Company has two locations;
Battle Creek and their main office in Eaton Rapids, Michigan.



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



| |                                                                             
| | ----------------------------------------------------------------------------
| | Inventories are stated at the lower of cost (first-in,
first-out) or market.



| |                       
| | ----------------------
| | Property and Equipment



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment are depreciated using the Modified
Accelerated Cost Recovery System (MACRS) for both book
and tax purposes.



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment are carried at cost. When retired or
otherwise disposed of, the related carrying value and
accumulated depreciation are cleared from the respective
accounts, and the net difference less any amount realized
from disposition is reflected in earnings.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Maintenance and repairs, including the replacement of minor
items, are expensed as incurred, and major additions to
property and equipment are capitalized.



| |                          
| | -------------------------
| | Cash and Cash Equivalents



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For purposes of the statement of cash flows the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.



| |             
| | ------------
| | Other Assets



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A non-compete agreement and goodwill are being amortized on a
straight-line basis over 15 years. Start-up costs are being
amortized on a straight-line basis over 5 years.

7



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##### Table of Contents



MID-STATE INDUSTRIAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS  Continued

DECEMBER 31, 1999





| |                                                                
| | ---------------------------------------------------------------
| | NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- Concluded



| |                    
| | -------------------
| | Accounts Receivable



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Accounts receivable are recorded at their net realizable
value. Thirty days is the maximum term of credit and no
collateral is required.



| |                    
| | -------------------
| | Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue is recognized on sale of lift trucks when title passes
from the Company to the customer. The Company also leases
equipment to customers under short-term agreements, and such
revenue is recognized over the lease period as earned.
Revenue for servicing of lease trucks is recognized as repair
work is completed.



| |          
| | ---------
| | Estimates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.



| |            
| | -----------
| | Advertising



| |                                                    
| | ---------------------------------------------------
| | The Company expenses advertising costs as incurred.



| |                                        
| | ---------------------------------------
| | NOTE 2:   PROPERTY, PLANT AND EQUIPMENT



| |                                              
| | ---------------------------------------------
| | The detail of property and equipment follows:

|                  |                                |   |           |         |              |             |         |      |           |              |      |         |         |  |  |         | 
|----------------- | ------------------------------ | - | --------- | ------- | ------------ | ----------- | ------- | ---- | --------- | ------------ | ---- | ------- | ------- |  |  | ------- | 
|                  |                                |   |           |         |              |             |         |      | NET       |             
|                  |                                |   |           |         |              | ACCUMULATED |         | BOOK |           | DEPRECIATION |      | USEFUL 
|                  |                                |   | COST      |         | DEPRECIATION |             | VALUE   |      | EXPENSE   |              | LIFE
|                  |                                |   |           |         |              |             |         |      |           |              |     
|DECEMBER 31, 1999
|                  | Land                           |   | $         | 53,332  |              | $           |         |      | $         | 53,332       |      | $       |         | 
|                  | Buildings                      |   |           | 475,000 |              |             | 16,747  |      |           | 458,253      |      |         | 12,179  |  |  | 39 yrs 
|                  | Rental equipment -
lift trucks |   |           | 751,272 |              |             | 211,543 |      |           | 539,729      |      |         | 211,756 |  |  | 5-7 yrs
|                  | Transportation
equipment       |   |           | 279,067 |              |             | 86,689  |      |           | 192,378      |      |         | 70,168  |  |  | 5 yrs  
|                  | Furniture
and fixtures         |   |           | 73,374  |              |             | 15,539  |      |           | 57,835       |      |         | 13,942  |  |  | 5-7 yrs
|                  |                                |   |           |         |              |             |         |      |          
|                  |                                | $ | 1,632,045 |         | $            | 330,518     |         | $    | 1,301,527 |              | $    | 308,045 |        
|                  |                                |   |           |         |              |             |         |      |          

8



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##### Table of Contents



MID-STATE INDUSTRIAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS  Continued



DECEMBER 31, 1999

| |                         
| | ------------------------
| | NOTE 3:   LONG-TERM DEBT



|                  |                                                                                                                    |                   |   |           |        |            |   |           |           | 
|----------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------- | - | --------- | ------ | ---------- | - | --------- | --------- | 
|                  |                                                                                                                    |                   |   |           |        | DUE WITHIN |   |           | DUE AFTER
|                  |                                                                                                                    |                   |   |           |        | ONE YEAR   |   |           | ONE YEAR 
|                  |                                                                                                                    |                   |   |           |        |            |   |           |          
|DECEMBER 31, 1999 |                                                                                                                   
|                 
|                 
|                 
|                 
|                  | Notes payable in monthly installments including
interest ranging from 2.9% to 15%                                  |                   | $ | 460,947   |        |            | $ | 1,570,995
|                 
|                 
|                 
|                 
|                  | Line of credit; interest at .25% below the index
rate payable in monthly installments                              |                   |   | 462,444   |       
|                 
|                 
|                 
|                 
|                  | Note payable  MAXCO, Inc., a related party;
payable in monthly installments of $15,600
including interest at 14%. |                   |   |           | 78,597 |            |   |           | 732,259  
|                  |                                                                                                                    |                   |   |           |        |            |  
|                  |                                                                                                                    |                   | $ | 1,001,988 |        |            | $ | 2,303,254
|                  |                                                                                                                    |                   |   |           |        |           
|                  | Annual maturities are as follows:                                                                                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                  |                                                                                                                    | December 31, 2000 |   |           | $      | 1,001,988  |  
|                 
|                 
|                 
|                 
|                  |                                                                                                                    | December 31, 2001 |   |           |        | 561,900    |  
|                 
|                 
|                 
|                 
|                  |                                                                                                                    | December 31, 2002 |   |           |        | 587,438    |  
|                 
|                 
|                 
|                 
|                  |                                                                                                                    | December 31, 2003 |   |           |        | 735,147    |  
|                 
|                 
|                 
|                 
|                  |                                                                                                                    | December 31, 2004 |   |           |        | 137,152    |  
|                  |                                                                                                                    |                   |   |          
|                  |                                                                                                                    |                   | $ | 3,023,625 |       
|                  |                                                                                                                    |                   |   |          



| | 
| | 

| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Long-Term Debt obligations are generally collateralized by all assets of the company.



| |                       
| | ----------------------
| | NOTE 4:   INCOME TAXES



|                     |  |  |  |  |  |   |           |  | 
|-------------------- |  |  |  |  |  | - | --------- |  | 
|Taxable income       |  |  |  |  |  | $ | 1,001,943
|                     |  |  |  |  |  |   |           | 
|Income tax  rounded |  |  |  |  |  | $ | 341,953  
|                     |  |  |  |  |  |   |           | 



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | There are no deferred income taxes. Prepaid expenses
includes approximately $21,000 of federal income tax payments.



9



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##### Table of Contents



MID-STATE INDUSTRIAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS  Concluded

DECEMBER 31, 1999



| |                          
| | -------------------------
| | NOTE 5:   ASSIGNED LEASES



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The company has various leases that have been assigned to Banc One.
Mid-State collects the monthly lease payment from the lessee and makes a payment to Banc One.



| |                                              
| | ---------------------------------------------
| | Future minimum lease payments are as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|2000 |  | $ | 54,225 | 
|    
|    
|    
|    
|2001 |  |   | 7,939  | 
|    
|    
|    
|    
|2002 |  |   | 6,994  | 
|    
|    
|    
|    
|2003 |  |   | 3,860  | 
|     |  |   |       
|     |  | $ | 73,018 | 
|     |  |   |       



| |                        
| | -----------------------
| | NOTE 6:   LEASE REVENUE



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | The Company leases lift trucks to its customers. Total revenue from
the lease of equipment for 1999 is approximately $861,000.



| |                                                             
| | ------------------------------------------------------------
| | Future minimum lease payments to be received are as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2000 |  | $ | 98,022  | 
|    
|    
|    
|    
|2001 |  |   | 66,648  | 
|    
|    
|    
|    
|2002 |  |   | 6,120   | 
|    
|    
|    
|    
|2003 |  |   | 6,120   | 
|    
|    
|    
|    
|2004 |  |   | 1,020   | 
|     |  |   |        
|     |  | $ | 177,930 | 
|     |  |   |        



| |                              
| | -----------------------------
| | NOTE 7:   PROFIT SHARING PLAN



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company contributes to a profit sharing plan for all employees who
meet the eligibility requirements set forth in the plan. In order to
be eligible to participate in the plan, an employee must have at least
one year of service, worked a minimum of 1,000 hours, and be at least 21 years of age. The amount of the contribution to the plan is at the
discretion of the Companys Board of Directors. The
Companys contribution was $30,000 in 1999. Contributions are 100% vested.



| |                                      
| | -------------------------------------
| | NOTE 8:  CONCENTRATION OF CREDIT RISK



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial instruments which potentially subject the Company to credit risk
include cash balances in excess of the $100,000 insured by the FDIC and
trade receivables.

10



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY

FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 1999

AND

INDEPENDENT AUDITORS REPORT





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##### Table of Contents



CONTENTS

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|INDEPENDENT AUDITORS REPORT                                            |  | 1    | 
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|CONSOLIDATED BALANCE SHEET                                              |  | 2-3 
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|CONSOLIDATED
STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT) |  | 4    | 
|                                                                       
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|CONSOLIDATED STATEMENT OF CASH FLOWS                                    |  | 5    | 
|                                                                       
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|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              |  | 6-9 





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##### Table of Contents



Board of Directors
Foresight Solutions, Inc.
Okemos, Michigan

We have audited the accompanying balance sheet of FORESIGHT SOLUTIONS,
INC. AND SUBSIDIARY as of December 31 1999, and the related consolidated
statements of income, retained earnings and cash flows for the year then ended.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements
based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Foresight Solutions, Inc.
and Subsidiary as of December 31, 1999, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.





| |                             
| | ----------------------------
| | /S/ LAYTON & RICHARDSON     
|
| | Certified Public Accountants

East Lansing, Michigan
November 6, 2000

1



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY



DECEMBER 31, 1999

ASSETS

|               |                                                          |                                |                  |         |         |         | 
|-------------- | -------------------------------------------------------- | ------------------------------ | ---------------- | ------- | ------- | ------- | 
|CURRENT ASSETS
|              
|              
|              
|              
|               | Cash                                                     |                                | $                | 31,580  |        
|              
|              
|              
|              
|               | Accounts receivable  net of bad debt reserve
of $48,531 |                                |                  | 268,091 |        
|              
|              
|              
|              
|               | Prepaid expenses                                         |                                |                  | 7,005   |        
|               |                                                          |                                |                 
|               |                                                          | TOTAL CURRENT ASSETS           |                  |         | 306,676 |        
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|FIXED ASSETS  
|              
|              
|              
|              
|               | Equipment                                                |                                |                  | 158,281 |        
|              
|              
|              
|              
|               | Software                                                 |                                |                  | 2,654   |        
|              
|              
|              
|              
|               | Furniture and fixtures                                   |                                |                  | 24,885  |        
|               |                                                          |                                |                 
|               |                                                          |                                | 185,820          |        
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|               |                                                          | Less: accumulated depreciation |                  |         | 79,879  |        
|               |                                                          |                                |                 
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|               |                                                          |                                | NET FIXED ASSETS |         |         | 105,941 | 
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|OTHER ASSETS  
|              
|              
|              
|              
|               | Goodwill  net of amortization of $52,663                |                                |                  | 446,251 |        
|              
|              
|              
|              
|               | Intangible assets  net of amortization of $25,422       |                                |                  | 243,749 |        
|              
|              
|              
|              
|               | Receivable from employees                                |                                |                  | 17,049  |        
|               |                                                          |                                |                 
|               |                                                          |                                | 707,049          |        
|               |                                                          |                                |                 
|               |                                                          | $                              | 1,119,666        |        
|               |                                                          |                                |                 

See accompanying notes to financial statements.

2



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##### Table of Contents



LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

|                                        |                                                                                                                                                                                                   |                                      |           |            |           |  
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | --------- | ---------- | --------- | -
|CURRENT LIABILITIES                    
|                                       
|                                       
|                                       
|                                       
|                                        | Current portion  notes payable                                                                                                                                                                   |                                      | $         | 1,679,033  |          
|                                       
|                                       
|                                       
|                                       
|                                        | Accounts payable                                                                                                                                                                                  |                                      |           | 94,931     |          
|                                       
|                                       
|                                       
|                                       
|                                        | Accrued expenses                                                                                                                                                                                  |                                      |           | 53,102     |          
|                                       
|                                       
|                                       
|                                       
|                                        | Deferred income                                                                                                                                                                                   |                                      |           | 49,921     |          
|                                        |                                                                                                                                                                                                   |                                      |          
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        |                                                                                                                                                                                                   | TOTAL CURRENT LIABILITIES            |           |            | 1,876,987 |  
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|LONG TERM DEBT, less current maturities |                                                                                                                                                                                                   |                                      | 241,478   |           
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|STOCKHOLDERS EQUITY (DEFICIT)         
|                                        | Common stock  Class A; no par value
2,500,000 shares authorized, issued and
outstanding 1,008,000 sharesClass B, no par value, 1,000,000
shares authorized, issued and
outstanding 37,334 shares |                                      |           | 16,981708  |          
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Additional paid in capital                                                                                                                                                                        |                                      |           | 500,181    |          
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Retained earnings (deficit)                                                                                                                                                                       |                                      |           | (1,516,669 | )        
|                                        |                                                                                                                                                                                                   |                                      |          
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        |                                                                                                                                                                                                   | TOTAL STOCKHOLDERS EQUITY (DEFICIT) |           |            | (998,799  | )
|                                        |                                                                                                                                                                                                   |                                      |          
|                                        |                                                                                                                                                                                                   | $                                    | 1,119,666 |           
|                                        |                                                                                                                                                                                                   |                                      |          

See accompanying notes to financial statements.

3



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY



FOR THE YEAR ENDED DECEMBER 31, 1999

|                                              |  |   |            |  
|--------------------------------------------- |  | - | ---------- | -
|SALES                                         |  | $ | 2,101,126  |  
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|COST OF SALES                                 |  |   | 374,027    |  
|                                              |  |   |           
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|GROSS PROFIT                                  |  |   | 1,727,099  |  
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|OPERATING EXPENSE                             |  |   | 2,692,842  |  
|                                              |  |   |           
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|LOSS FROM OPERATIONS                          |  |   | (965,743   | )
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|OTHER INCOME                                  |  |   | 1,822      |  
|                                              |  |   |           
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|NET INCOME (LOSS)                             |  |   | (963,921   | )
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|RETAINED EARNINGS (DEFICIT) JANUARY 1, 1999   |  |   | (552,748   | )
|                                              |  |   |           
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|RETAINED EARNINGS (DEFICIT) DECEMBER 31, 1999 |  | $ | (1,516,669 | )
|                                              |  |   |           

See accompanying notes to financial statements.

4



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY



FOR THE YEAR ENDED DECEMBER 31, 1999

|                                                   |                                            |                                       |                                           |           |          |         | 
|-------------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----------------------------------------- | --------- | -------- | ------- | 
|CASH FLOWS FROM OPERATING ACTIVITIES              
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net income (loss)                          |                                       | $                                         | (963,921  | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Depreciation and amortization              |                                       |                                           | 106,797   |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Loss on disposal of assets                 |                                       |                                           | 30,359    |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | (Increase) decrease in current assets     
|                                                   |                                            | Accounts receivable                   |                                           |           | (133,162 | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                            | Prepaid expense                       |                                           |           | (1,099   | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Increase (decrease) in current liabilities
|                                                   |                                            | Accounts payable                      |                                           |           | 18,094   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                            | Other current liabilities             |                                           |           | 77,109   |        
|                                                   |                                            |                                       |                                          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                            | NET CASH USED IN OPERATING ACTIVITIES |                                           |           | (865,823 | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|CASH FLOWS FROM INVESTING ACTIVITIES              
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Purchase of fixed assets                   |                                       |                                           | (77,843   | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|CASH FLOWS FROM FINANCING ACTIVITIES              
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Funds borrowed                             |                                       |                                           | 1,321,676 |         
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Payments on debt                           |                                       |                                           | (477,462  | )       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Capital invested                           |                                       |                                           | 100,000   |         
|                                                   |                                            |                                       |                                          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                            |                                       | NET CASH PROVIDED BY FINANCING ACTIVITIES |           |          | 944,214 | 
|                                                   |                                            |                                       |                                          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|NET INCREASE IN CASH AND CASH EQUIVALENTS          |                                            |                                       | 548                                       |          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|CASH AND CASH EQUIVALENTS, JANUARY 1, 1999         |                                            |                                       | 31,032                                    |          
|                                                   |                                            |                                       |                                          
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|CASH AND CASH EQUIVALENTS, DECEMBER 31, 1999       |                                            | $                                     | 31,580                                    |          
|                                                   |                                            |                                       |                                          
|Supplemental disclosures of cash flow information:
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash paid during the year for             
|                                                   |                                            | Interest                              |                                           | $         | 77,734   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                            | Income tax                            |                                           |           | 0        |        

See accompanying notes to financial statements.

5



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY

DECEMBER 31, 1999



| |                                                     
| | ----------------------------------------------------
| | NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following is a summary of the significant accounting policies
affecting the financial statements of Foresight Solutions, Inc. and
its wholly owned subsidiary, Foresight Technology, Inc. The
Companies are consolidated in accordance with Statements of Financial
Accounting Standards No. 94.



| |                                                                
| | ---------------------------------------------------------------
| | All significant intercompany transactions have been eliminated.



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Background                                                                                                                                                                                                                                                                                                           
|
| | Foresight develops and markets business management applications
offering fully integrated accounting, customer relationship
management (CRM) and electronic business-to-business (B2B) e-commerce
solutions, as well as high-level consulting and customization
services for both Macintosh and Windows environments.



| |                                                                   
| | ------------------------------------------------------------------
| | Accounting Method                                                 
|
| | The Company records and maintains its books on the accrual method.



| |                              
| | -----------------------------
| | Property, Plant and Equipment



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property, plant and equipment are carried at cost and depreciated
over their estimated useful lives on straight line and declining
balance methods for book and tax purposes.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Maintenance and repairs, including the replacement of minor items,
are expensed as incurred, and major additions to equipment are
capitalized.



| |                          
| | -------------------------
| | Cash and Cash Equivalents



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the purpose of the statement of cash flows, the company considers
all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.



| |             
| | ------------
| | Income Taxes



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company uses the accrual method for reporting taxable income. The
Company has incurred net operating losses carrying forward totaling approximately $1,500,000 and is unlikely to have a tax liability in
the near future.



| |                    
| | -------------------
| | Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue from software sales is recognized when the software license
passes from the Company to the customer. Custom programming revenue is recognized as time is spent on a custom programming engagement.
The Company also sells software maintenance plans to customers, and such revenue is recognized over the life of the plan.



| |            
| | -----------
| | Intangibles



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Intangibles primarily consist of the excess of cost over fair market
value of the net assets of acquired businesses as well as the value
of purchased technology. Intangibles are amortized on a straight-line
basis over 15 years.

6



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY



DECEMBER 31, 1999



| |                                                                
| | ---------------------------------------------------------------
| | NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- Concluded



| |            
| | -----------
| | Advertising



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Advertising costs are expensed as incurred. The amounts were not
material for all years presented.



| |                    
| | -------------------
| | Accounts Receivable



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Accounts receivable are recorded at their net realizable value. Thirty
days is the maximum term of credit and no collateral is required.



| |          
| | ---------
| | Estimates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.



| |                       
| | ----------------------
| | NOTE 2:   FIXED ASSETS



| |                                          
| | -----------------------------------------
| | The detail of fixed assets is as follows:

|                       |  |      |         |  |              |             |        |       |          |   |         | 
|---------------------- |  | ---- | ------- |  | ------------ | ----------- | ------ | ----- | -------- | - | ------- | 
|                       |  |      |         |  |              | ACCUMULATED |        |       | NET BOOK |  
|                       |  | COST |         |  | DEPRECIATION |             |        | VALUE |         
|                       |  |      |         |  |              |             |        |       |         
|Equipment              |  | $    | 158,281 |  |              | $           | 64,118 |       |          | $ | 94,163  | 
|                      
|                      
|                      
|                      
|Software               |  |      | 2,654   |  |              |             | 531    |       |          |   | 2,123   | 
|                      
|                      
|                      
|                      
|Furniture and fixtures |  |      | 24,885  |  |              |             | 15,230 |       |          |   | 9,655   | 
|                       |  |      |         |  |              |             |        |       |         
|                       |  | $    | 185,820 |  |              | $           | 79,879 |       |          | $ | 105,941 | 
|                       |  |      |         |  |              |             |        |       |         



| |               
| | --------------
| | NOTE 3:   DEBT



| |                                    
| | -----------------------------------
| | The Company has the following debt:

|                                                                                                                  |  |         |         |  |           |   |         | 
|----------------------------------------------------------------------------------------------------------------- |  | ------- | ------- |  | --------- | - | ------- | 
|                                                                                                                  |  | CURRENT |         |  | LONG TERM |  
|                                                                                                                  |  |         |         |  |           |  
|Note payable  Acquisition debt. Requires monthly
payments of $2,595 including interest at 8%.                    |  | $       | 17,533  |  |           | $ | 160,478 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Note payable  Working capital loan which is due on
demand. This note bears interest at 9%.                       |  |         | 743,500 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Note payable  Working capital loan from Maxco, Inc.
for additional working capital. This note bears interest
9%. |  |         | 780,000 | 

7



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##### Table of Contents





DECEMBER 31, 1999



| |                         
| | ------------------------
| | NOTE 3:  DEBT Concluded

|                                                                                                                                                                       |  |         |           |  |           |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | --------- |  | --------- | - | --------- | 
|                                                                                                                                                                       |  | CURRENT |           |  | LONG TERM |  
|                                                                                                                                                                       |  |         |           |  |           |  
|Note payable  Acquisition debt. This note bears no
interest and is payable monthly at $11,000
per month until the last twelve payments which are
at $12,000 per month
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                       |  | $       | 138,000   |  |           | $ | 81,000    | 
|                                                                                                                                                                       |  |         |           |  |           |  
|                                                                                                                                                                       |  | $       | 1,679,033 |  |           | $ | 241,478   | 
|                                                                                                                                                                       |  |         |           |  |           |  
|Current maturities are as follows:                                                                                                                                    
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|December 31, 2000                                                                                                                                                      |  |         |           |  |           | $ | 1,679,033 | 
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|December 31, 2001                                                                                                                                                      |  |         |           |  |           |   | 99,988    | 
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|December 31, 2002                                                                                                                                                      |  |         |           |  |           |   | 20,564    | 
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|December 31, 2003                                                                                                                                                      |  |         |           |  |           |   | 22,271    | 
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|Thereafter                                                                                                                                                             |  |         |           |  |           |   | 98,655    | 
|                                                                                                                                                                       |  |         |           |  |           |  
|                                                                                                                                                                       |  |         |           |  |           | $ | 1,920,511 | 
|                                                                                                                                                                       |  |         |           |  |           |  



| |                            
| | ---------------------------
| | NOTE 4:   LEASE COMMITMENTS



| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has entered into a lease agreement for office
space for the time period March 1, 1999 through February 28,
2004. The lease calls for monthly payments of $6,870 with
annual increases of 2.5%. Lease expense during 1999 was
$61,830.



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has also entered into a month to month lease
dated May 27, 1999 of office space in Colorado which calls for
monthly rent of $500. Lease expense during 1999 was $4,000.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The Company is also leasing phone equipment under a sixty
month lease dated February 3, 1999. Total lease expense for
1999 was $15,144.



| |                                                       
| | ------------------------------------------------------
| | Future payments for significant leases are as follows:

|                  |  |              |        |  |           |   |        | 
|----------------- |  | ------------ | ------ |  | --------- | - | ------ | 
|                  |  | OFFICE SPACE |        |  | EQUIPMENT |  
|                  |  |              |        |  |           |  
|December 31, 2000 |  | $            | 84,160 |  |           | $ | 16,521 | 
|                 
|                 
|                 
|                 
|December 31, 2001 |  |              | 86,224 |  |           |   | 16,521 | 
|                 
|                 
|                 
|                 
|December 31, 2002 |  |              | 88,288 |  |           |   | 16,521 | 
|                 
|                 
|                 
|                 
|December 31, 2003 |  |              | 90,352 |  |           |   | 16,521 | 
|                 
|                 
|                 
|                 
|December 31, 2004 |  |              | 15,116 |  |           |   | 1,377  | 

8



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##### Table of Contents



FORESIGHT SOLUTIONS, INC. AND SUBSIDIARY



DECEMBER 31, 1999



| |                                   
| | ----------------------------------
| | NOTE 5:   RESEARCH AND DEVELOPMENT



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the course of operations, the Company incurs certain expenses
related to development of new products and the improvement of
existing products. It is the Companys policy to expense these
costs as incurred.



| |                        
| | -----------------------
| | NOTE 6:   RELATED PARTY



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is indebted to Maxco, Inc. in the amount of $780,000.
Maxco, Inc. owns 50% of the outstanding stock of Foresight Solutions,Inc. and has advanced the money as additional working capital. The
note bears interest at 9%. At December 31, 1999 interest in the
amount of $15,299 is accrued.

9