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UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549








**FORM
      10-K/A**


**Amendment
      No. 2**








x
              ANNUAL
                  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934


**For
      the fiscal year ended March 31, 2005**




OR





o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934


For
      the
      transition period from __________ to
      __________





Commission
      File Number 0-2762





**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 registeredNONE
            
            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  þ  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. [ ü ]





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).





Yes   ̈  No  þ





The
      aggregate market value of the registrant’s common stock, $1.00 par value per
      share, held by non-affiliates of the registrant on September 30, 2004, the
      last
      business day of the registrant’s most recently completed second fiscal quarter,
      was $2,421,666 (based on the closing sales price of the registrant’s common
      stock on that date). Shares of the registrant’s common stock held by each
      officer and director and each person who owns 5% or more of the outstanding
      common stock of the registrant have been excluded in that such persons may
      be
      deemed to be affiliates. This determination of affiliate status is not
      necessarily a conclusive determination for other purposes. At June 30, 2005,
      there were 3,446,995 outstanding shares of the Registrant's common
      stock.





Documents
      Incorporated By Reference





Portions
      of the annual proxy statement for the year ended March 31, 2005 are incorporated
      by reference into Part III.









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**MAXCO,
      INC.**


**ANNUAL
      REPORT ON FORM 10-K**





**EXPLANATORY
      NOTE**




On
      November 18, 2005, we filed a Schedule 13E-3 and a preliminary proxy statement
      with the Securities and Exchange Commission (“SEC”) pertaining to a proposed
“going private” transaction. In the preliminary proxy, we incorporated by
      reference certain portions of the 10-K for the year ended March 31, 2005. We
      are
      amending certain portions of our Form 10-K, originally filed with the SEC on
      July 14, 2005 and amended on July 28, 2005, in response to comments received
      from the SEC.





**TABLE
      OF CONTENTS**


**ITEM**
            
            
            
            **PAGE**1
            
            Business
            
            32
            
            Properties
            
            53
            
            Legal
                Proceedings
            
            54
            
            Submission
                of Matters to a Vote of Security
                Holders
            
            55
            
            Market
                for Registrant’s Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            
            66
            
            Selected
                Financial Data
            
            77
            
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            
            87A
            
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            
            158
            
            Financial
                Statements and Supplemental
                Data
            
            169
            
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            
            169A
            
            Controls
                and Procedures
            
            169B
            
            Other
                Information
            
            1610
            
            Directors
                and Executive Officers of the
                Registrant
            
            1711
            
            Executive
                Compensation
            
            1812
            
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            
            2213
            
            Certain
                Relationships and Related
                Transactions
            
            2314
            
            Principal
                Accountant Fees and Services
            
            2415
            
            Exhibits
                and Financial Statement
                Schedules
            
            25Signatures
            
            26List
                of Financial Statements
            
            28






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**PART
      I**




**ITEM
      1 - BUSINESS**


Maxco,
      Inc. (Maxco) is a Michigan corporation incorporated in 1946. Maxco currently
      operates in the heat-treating business segment through Atmosphere Annealing
      Inc., a production metal heat-treating service company. Maxco also has
      investments in real estate and investments representing less than majority
      interests in the following businesses: a registered broker-dealer of securities
      that is primarily focused on the trading of fixed income investments; a
      developer, manufacturer and marketer of microprocessor-based process monitoring
      and inspection systems for use in industrial manufacturing environments; and
      an
      energy-related business. References to “the Company” are defined as Maxco, Inc.
      and its wholly owned subsidiary, Atmosphere Annealing, Inc.





**HEAT
      TREATING**


*Atmosphere
      Annealing, Inc.*





Atmosphere
      Annealing, Inc. provides metal heat treating, phosphate coating and bar shearing
      and sawing services to the cold forming, stamping, forging and casting
      industries. Its services are sold through Atmosphere’s own sales personnel and
      outside sales representatives, primarily to automotive companies and automotive
      suppliers. This unit’s facilities are located in Lansing, Michigan; Canton,
      Ohio; and North Vernon, Indiana.





Since
      Atmosphere is a service business, inventory levels for this segment are
      traditionally small and consist mainly of steel inventory, various lubricants
      and other materials used in the heat treating, phosphate coating or bar shearing
      and sawing process. The majority of heat treating services are completed on
      customer owned parts shipped to Atmosphere’s plants for heat treating. Title to
      these parts does not transfer to Atmosphere and therefore customer owned parts
      heat treated by Atmosphere are not included in Atmosphere Annealing Inc.’s
      inventory. Inventories of this segment represent 100% of Maxco’s total
      inventories at March 31, 2005.





Atmosphere
      Annealing is a service provider, not a manufacturer. With one exception, the
      parts processed are customer owned parts and therefore the right to return
      is
      not a material issue. Extended payment terms are not provided to
      customers.





The
      heat-treating industry is competitive with over 250 heat treaters in Michigan,
      Ohio, and Indiana. Atmosphere specializes in high volume, ferrous heat-treating
      using large furnaces. In its market niche of this type of heat-treating,
      Atmosphere competes with only a limited number of competitors. Much of the
      commercial heat treating industry is comprised of smaller companies that
      specialize in batch heat-treating such as carburizing, nitriding, tool and
      die,
      brazing, salt bath or induction hardening.





This
      unit’s response time to its customer just-in-time requirements does not result
      in significant backlog for this segment. Growth is possible by this unit in
      the
      future due to its customers’ outsourcing of high volume heat-treating services.
      These services are usually outsourced by Atmosphere’s customers because of
      extensive storage requirements, costs, and other issues.





Sales
      for
      this unit are fairly consistent throughout the year with the exception of lower
      volume during model changeovers for its automotive customers in July, and during
      the winter holiday season. This operating segment accounted for 100% of
      consolidated net sales for the years ended March 31, 2005, 2004, and
      2003.





**INVESTMENT
      IN REAL ESTATE (DISCONTINUED AND HELD FOR SALE)**


Maxco
      has
      ownership interests ranging from 31-50% in primarily two LLC’s which have been
      involved in the development and ownership of real estate in central Michigan.
      Effective January 1, 2000, a Master LLC (L/M Associates II) was formed
      consisting of the majority of the stabilized buildings in which Maxco and others
      had an ownership interest. At March 31, 2005 Maxco’s effective ownership
      interest in the Master LLC was approximately 31%. The other LLC (L/M Associates)
      includes properties that are not fully leased or individual properties not
      included in the Master LLC. These real estate investments are discontinued
      and
      Maxco is actively pursuing their liquidation.





In
      early
      2002, Maxco, as managing member of L/M Associates, which is the managing member
      of L/M Associates II, began negotiations to sell substantially all of the
      properties in the real estate portfolio of L/M Associates II. In June 2002,
      L/M
      Associates II entered into an agreement to sell substantially all of the
      properties within the Master LLC to an outside investor. The transaction was
      approved by more than 75% of the member interests in July 2002. This transaction
      was completed in January 2003. As part of this transaction, L/M Associates
      agreed to reinvest a portion of its distributable share of the proceeds to
      acquire approximately a 16% interest in the acquiring entity. Pursuant to the
      agreement, in July 2004, L/M Associates exercised its option to require the
      managing member of the acquiring entity to repurchase L/M’s 16% interest. To
      date this requirement has not been satisfied and L/M Associates intends to
      aggressively pursue other collection remedies against the managing member of
      the
      acquiring entity.




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At
      March
      31, 2005 Maxco had guarantees related to its real estate investments of $2.0
      million. Any real risks on guarantees that Maxco has estimated would be required
      to be paid by Maxco have been recorded in the accompanying financial statements
      and Maxco’s investment has been adjusted to the net realizable value of the
      remaining assets. Impairment charges totaling $350,000 were recognized during
      the year ended March 31, 2005 to further reduce the carrying value of the
      Company’s investment in real estate to its estimated fair value less costs to
      sell.





Subsequent
      to March 31, 2005, Maxco purchased an entity which owns two buildings from
      L/M
      Associates and, beginning in June 2005, will be including in its consolidation
      the operations of the buildings and vacant land. The debt associated with this
      transaction is approximately $1.8 million which was previously identified as
      guaranteed debt. In addition, a purchase agreement is currently being negotiated
      for the sale to an outside party of an additional real estate parcel which
      will
      eliminate the remaining debt guarantee.




**OTHER
      INVESTMENTS**


In
      addition to its investments in real estate, the Company has other investments
      in
      50% or less owned affiliates.





Maxco’s
      equity interest is 20% or greater in the following companies and consequently
      is
      accounted for using the equity method: approximately a 36% 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; and a 50% interest in
      Robinson Oil Company, LLC, which is in the business of acquiring and developing
      oil and gas interests. An impairment charge of $260,000 was recognized during
      the year ended March 31, 2005 to reduce the carrying value of the Company’s
      investment in Robinson Oil Company, LLC to its estimated fair
      value.








At
      March
      31, 2005, Maxco owned 2,240,605 shares or 15% of Integral Vision, Inc. common
      stock. Maxco’s ownership of Integral Vision had been greater than 20% but
      decreased as Integral Vision common stock warrants were exercised in March
      2004.
      However, Maxco continues to account for its investment in Integral Vision under
      the equity method because of its representation on Integral Vision’s Board of
      Directors. Integral Vision develops, manufactures, and markets
      microprocessor-based process monitoring and control systems related to optical
      inspection for use in industrial manufacturing environments.





Maxco
      accounts for its investment in Provant, Inc. common stock as securities
      available for sale as defined by SFAS 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. In 2004 and 2003 the
      Company recognized previously unrealized losses on its investment in Provant
      as
      other than temporary impairments in its statement of operations of $366,000
      and
      $1.4 million, respectively. In 2003, Maxco received additional consideration
      as
      one of the former shareholders of Strategic Interactive (Maxco’s former 45%
      owned affiliate sold to Provant, Inc. in October 1998) in the form of cash
      and
      Provant stock. On March 11, 2004 Provant completed the sale of substantially
      all
      its remaining assets. It is in the process of final liquidation which is
      expected to be completed during fiscal 2006.





**DISCONTINUED
      OPERATIONS**


Maxco’s
      discontinued operations include Ersco Corporation, which distributes concrete
      construction products and accessories, fabricates reinforcing steel and rents
      concrete forms used in road and commercial building construction; and Pak-Sak
      Industries, Inc., which extrudes polyethylene film and converts it into a
      variety of polyethylene bags and packaging materials.





For
      additional information regarding the Company's discontinued operations, see
      Note
      13 to "Notes to Consolidated Financial Statements."





**RESEARCH
      AND DEVELOPMENT**


Expenditures
      on research activities related to development or improvement of products were
      not significant.





**MAJOR
      CUSTOMERS**


The
      nature of the Company’s services may produce sales to one or a small number of
      customers in excess of 10% of total sales in any one year. It is possible that
      the specific customers reaching this threshold may change from year to year.
      Loss of any one of these customers could have a material impact on the Company’s
      results of operations. For the year ended March 31, 2005 sales to Honda of
      America Manufacturing, Inc. and GM Powertrain represented 33.3% and 10.7% of
      consolidated sales, respectively. Amounts due from these customers represented
      31% of the respective outstanding trade receivable balance at March 31, 2005.
      For the year ended March 31, 2004 sales to Honda of America Manufacturing,
      Inc.
      and GM Powertrain represented 38.3% and 14.3% of consolidated sales,
      respectively. Amounts due from these customers represented 43% of the respective
      outstanding trade receivable balance at March 31, 2004. For the year ended
      March
      31, 2003 sales to Honda of America Manufacturing, Inc. and GM Powertrain
      represented 27.2% and 17.3% of consolidated sales, respectively.




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**ENVIRONMENTAL
      FACTORS**


Compliance
      by Maxco and its operating subsidiaries with environmental protection laws
      had
      no material effect on capital expenditures, earnings, or competitive
      position.





**EMPLOYEES**


At
      March
      31, 2005, Maxco and its wholly owned operating subsidiary employed approximately
      260 full time employees.





**EXPORT
      SALES AND FOREIGN OPERATIONS**


The
      Company and its operating subsidiary had no foreign operations or material
      export sales during the years ended March 31, 2005, 2004, or 2003.





For
      additional information regarding industry segment information see Note 11 to
      “Notes to Consolidated Financial Statements”.





**ITEM
      2 - PROPERTIES**


The
      following table provides information relative to the principal properties owned
      or leased by the Company and its operating subsidiaries as of March 31, 2005.
      The Company considers its facilities to be in good operating
      condition.


**LOCATION**
            
            **APPROXIMATE
                SIZE**
            
            **OWNED/LEASED**
            
            **USE*****HEAT
                TREATING****Atmosphere
                Annealing, Inc.*Lansing,
                MI
            
            
            145,000
                sq ft
            
            
            Leased(A)
            
            
            Plant
                and administrative officesLansing,
                MI
            
            
            58,000
                sq ft
            
            
            Leased(A)
            
            
            Heat
                treating plantCanton,
                OH
            
            
            160,000
                sq ft on 8 acres
            
            
            Owned(B)
            
            
            Heat
                treating plantN.
                Vernon, IN
            
            
            88,000
                sq ft on 6 acres
            
            
            Owned(B)
            
            
            Heat
                treating plant***CORPORATE****Maxco,
                Inc.*Lansing,
                MI
            
            
            7,200
                sq ft on 1.9 acres
            
            
            Owned(B)(C)
            
            
            Executive
                offices





(A)
            Annual
                rent for these buildings amounted to approximately $250,000 for the
                year
                ended March 31, 2005. Subsequent to March 31, 2005, Atmosphere Annealing
                acquired the company that owns these
                buildings


(B)
            Subject
                to a mortgage


(C)
            Maxco
                is in the process of negotiating an agreement to sell this property
                to an
                outside party for $1.0 million. The proceeds will be used to reduce
                debt.





**ITEM
      3 - LEGAL PROCEEDINGS**


None





**ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**


None




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**PART
      II**





**ITEM
      5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**


Maxco's
      common stock trades on the Nasdaq SmallCap Market under the symbol MAXC. The
      approximate number of record holders of Maxco's common stock at June 30, 2005
      was 500.





The
      range
      of high and low sales prices for the last two fiscal years as reported by NASDAQ
      were:





**QUARTER
                ENDED**
            
            **HIGH**
            
            **LOW**June
                30, 2003
            
            
            4.52
            
            
            2.35September
                30, 2003
            
            
            3.50
            
            
            2.44December
                31, 2003
            
            
            3.20
            
            
            2.02March
                31, 2004
            
            
            3.00
            
            
            1.99June
                30, 2004
            
            
            3.50
            
            
            2.35September
                30, 2004
            
            
            5.58
            
            
            2.50December
                31, 2004
            
            
            5.02
            
            
            3.00March
                31, 2005
            
            
            4.30
            
            
            3.20




No
      cash
      dividends on common stock have been paid during any period.




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**ITEM
      6 - SELECTED FINANCIAL DATA**





**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001*****(in
                thousands, except per share data)***Net
                sales(3)
            
            $
            45,364
            
            $
            40,798
            
            $
            36,827
            
            $
            34,696
            
            $
            39,560Loss
                on investments(1)
            
            
            (610
            )
            
            (1,115
            )
            
            (9,320
            )
            
            (3,103
            )
            
            (1,362
            )Income
                (loss) before equity in net (loss) income of affiliates and discontinued
                operations(3)
            
            
            134
            
            
            (1,210
            )
            
            (10,474
            )
            
            (1,299
            )
            
            (1,697
            )Equity
                in net (loss) income of affiliates, net of tax
            
            
            —
            
            
            (321
            )
            
            (614
            )
            
            (528
            )
            
            (2,098
            )Loss
                from discontinued operations(3)
            
            
            —
            
            
            —
            
            
            (1,737
            )
            
            (2,674
            )
            
            (1,010
            )Net
                income (loss)
            
            
            134
            
            
            (1,531
            )
            
            (12,825
            )
            
            (4,501
            )
            
            (4,805
            )Net
                loss per share—dilutedContinuing
                operations
            
            
            (0.09
            )
            
            (0.63
            )
            
            (3.71
            )
            
            (0.72
            )
            
            (1.35
            )Discontinued
                operations(3)
            
            
            —
            
            
            —
            
            
            (0.56
            )
            
            (0.86
            )
            
            (0.33
            )Net
                loss per share(2)
            
            $
            (0.09
            )
            $
            (0.63
            )
            $
            (4.27
            )
            $
            (1.58
            )
            $
            (1.68
            )


**At
                March 31:****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001*****(in
                thousands)***Total
                assets
            
            $
            33,166
            
            $
            35,481
            
            $
            38,375
            
            $
            87,038
            
            $
            97,450Assets
                of discontinued operations(3)
            
            
            —
            
            
            —
            
            
            474
            
            
            29,252
            
            
            38,428Long-term
                obligations (net of current obligations)
            
            
            7,070
            
            
            11,480
            
            
            1,113
            
            
            11,380
            
            
            10,606Working
                capital (deficit)
            
            
            (7,988
            )
            
            (7,736
            )
            
            (19,698
            )
            
            (16,846
            )
            
            (15,250
            )




**NOTES**


(1)
            Includes
                the following charges for impairment of the Company’s
                investments:






**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001*****(in
                thousands)***Robinson
                Oil
            
            $
            260
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Real
                estate
            
            
            350
            
            
            749
            
            
            4,698
            
            
            —
            
            
            —Provant
            
            
            —
            
            
            366
            
            
            1,360
            
            
            3,103
            
            
            —Foresight
                Solutions
            
            
            —
            
            
            —
            
            
            2,790
            
            
            —
            
            
            —Integral
                Vision
            
            
            —
            
            
            —
            
            
            122
            
            
            —
            
            
            1,362Vertical
                VC
            
            
            —
            
            
            —
            
            
            250
            
            
            —
            
            
            —MYOEM.COM
            
            
            —
            
            
            —
            
            
            100
            
            
            —
            
            
            —$
            610
            
            $
            1,115
            
            $
            9,320
            
            $
            3,103
            
            $
            1,362




(2)
            Net
                loss per share amounts assume dilution for all years
                presented.


(3)
            In
                accordance with FASB Statement No. 144, the Company reclassified
                its
                results from operations for discontinued operations. See Note 13
                to “Notes
                to Consolidated Financial
                Statements.”




No
      cash
      dividends on common stock have been paid during any year.





The
      above
      selected financial data should be read in conjunction with the consolidated
      financial statements, which appear in Part II, Item 8 of this
      report.




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**ITEM
      7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS**


**CRITICAL
      ACCOUNTING POLICIES**


The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States. When more
      than one accounting method or its application is generally accepted, management
      selects the principle or method that is appropriate in the specific
      circumstances. Application of these accounting principles requires the Company’s
      management to make estimates about the future resolution of existing
      uncertainties; as a result, actual results could differ from these estimates.
      In
      preparing these financial statements, management has made its best estimates
      and
      judgments of the amounts and disclosures included in the financial statements,
      giving due regard to materiality. The Company does not believe there is a great
      likelihood that materially different amounts would be reported under different
      conditions or using different assumptions pertaining to the accounting policies
      described below.





***Material
      Trends and Uncertainties***





**Caution
      Concerning Forward Looking Statements and Certain Risks Related to Our Business
      and Our Company — Safe Harbor Statements**


This
      report contains statements reflecting the Company's views about its future
      performance, its financial condition, its markets and many other matters that
      constitute "forward-looking statements." These views involve risks and
      uncertainties that are difficult to predict and may cause the Company's actual
      results and/or expectations about various matters to differ significantly from
      those discussed in such forward-looking statements. All statements, other than
      statements of historical fact included in this annual report, regarding our
      strategy, future operations, financial condition, expected results and costs,
      new business, estimated revenues and losses, prospects and plans are
      forward-looking statements. When used in this annual report, the words "will,"
      "believe," "anticipate," "intend," "estimate," "expect," "project" and similar
      expressions are intended to identify forward-looking statements, although not
      all forward-looking statements contain such identifying words. You should not
      place undue reliance on these forward-looking statements. All forward-looking
      statements speak only as of the date of this annual report and we undertake
      no
      obligation to update such information. Readers should consider that various
      factors may affect whether actual results and experience correspond with our
      forward-looking statements and that many of these factors also represent risks
      attendant to owning securities in the Company, including the
      following:





·
            ***Dependence
                on Automotive Industry and Industry Cyclicality***—
                The industries in which we operate depend upon general economic conditions
                and are highly cyclical. Our performance is affected particularly
                by new
                vehicle sales, which can be highly sensitive to changes in interest
                rates,
                consumer confidence and fuel costs. We experience sales declines
                during
                the third and fourth calendar quarter as a result of scheduled OEM
                shutdowns.


·
              ***Customer
                  Concentration***—
                  Our base of customers is concentrated among original equipment
                  manufacturers as well as Tier I and Tier II suppliers in North
                  America.
                  The loss of business from a major customer, the discontinuance
                  of
                  particular vehicle models or a change in regulations or auto consumer
                  preferences could materially adversely affect us. In addition,
                  certain of
                  our customers have suffered financial distress, which may materially
                  adversely impact us as well in terms of the potential for lost
                  revenue
                  and/or uncollectible accounts
                  receivable.


·
            ***Ability
                to Finance Capital Requirements***—
                Our business is capital intensive. We have made substantial capital
                investments to improve capacity and productivity and to meet customer
                requirements. More investment is required to maintain and expand
                our
                future business awards. If we are unable to meet future capital
                requirements, our business may be materially adversely
                affected.


·
              ***Increases
                  in Energy Costs***—
                  Increases in energy costs could negatively affect our financial
                  health and
                  results. To the extent feasible, in light of competitive factors,
                  we have
                  offset these fluctuations through selective price adjustments.


·
            ***Increases
                in Healthcare Costs***—
                Increases in our healthcare costs could negatively affect our financial
                health and results.


·
              ***Our
                  Industries are Highly Competitive***—
                  Continuing trends among our customers will increase competitive
                  pressures
                  in our businesses. The continuing trend towards limiting outside
                  suppliers
                  involves significant risks, as well as opportunities, and has increased
                  competition. We have experienced and may continue to experience
                  adverse
                  pricing pressures as a result.


·
            ***Changing
                Technology***—
                Our processes are subject to changing technology, which could place
                us at
                a competitive disadvantage relative to alternative processes introduced
                by
                competitors. We may require significant ongoing and recurring additional
                capital expenditures to remain competitive.


·
              ***Changing
                  Processes***—
A
                  change in a foundry’smold line may eliminate the need for heat treating by controlled
                  cooling
                  in mold which would have a materially adverse affect on our
                  business.


·
            ***Dependence
                on Key Personnel and Relationships***—
                We depend on the services of key individuals, particularly our executive
                officers and senior managers. The loss of any key individual could
                materially and adversely harm us.


·
              ***Labor
                  Stoppages***—
                  Our customers or suppliers may be subject to work stoppages at
                  their
                  facilities, which could materially and adversely harm
                  us.


·
            ***Outsourcing
                Trend***—
                Our strategies may not succeed if anticipated outsourcing fails to
                materialize to the extent we have assumed. Principal risks to continued
                outsourcing are union/labor considerations and
                objections.


·
              ***Offshoring
                  Trend***—
                  Our customers could relocate their manufacturing facilities out
                  of the
                  United States which could materially and adversely harm
                  us.


·
            ***Environmental
                Matters***—
                Our business may be materially and adversely affected by compliance
                obligations and liabilities under environmental laws and
                regulations.






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We
      undertake no obligation to update publicly any forward-looking statements,
      whether as a result of new information, future events or otherwise.





**Market
      Opportunities and Growth Strategies**




We
      believe that the following favorable market factors will present opportunities
      for future growth:


·
              Companies
                  are focusing on core competencies and outsourcing non-core processes
                  such
                  as heat treating and coating.


·
              In
                  some cases, our customers are consolidating their supply
                  base.


·
            Foreign
                automakers are locating manufacturing facilities in the United
                States.





Our
      strategy is to leverage our technical capabilities along with our solid
      reputation in the industry to (i) expand our relationship with our current
      customers through superior quality and customer service, and (ii) become a
      preferred supplier to the foreign automakers locating in the United States.
      Key
      elements of our strategy include the following:


·
              ***Expand
                  Capabilities***.    By
                  adding new capabilities in our existing plants we believe that
                  we could
                  secure new business from our existing customer base. By offering
                  a
                  “one-stop" shop we could significantly reduce logistical costs for
                  our
                  customers.


·
            ***Provide
                Technical Expertise To Support Our Customers*****.**We
                believe that our technical expertise is one of our competitive advantages.
                We partner with our customers to find ways to improve quality and
                reduce
                cost.


·
              ***Cost
                  Savings Opportunities And Efficiency
                  Improvements***.    We
                  have pursued, and will continue to pursue, cost savings that enhance
                  our
                  competitive position in serving our customers. We have made significant
                  investments in material handling equipment in order to improve
                  efficiency
                  and to provide a safer environment for our
                  employees.


·
            ***Pursue
                Strategic Acquisitions***.    We
                plan to pursue acquisitions that strategically expand our process
                capabilities and contribute to our geographic diversity and market
                share.
                Our ability to execute this element of our strategy may be limited
                by our
                capital resources.





***Principles
      of Consolidation and Transactions With Affiliates***


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
      unconsolidated investments are accounted for under the equity method.
      Investments in less than 20% owned affiliates are accounted for under the cost
      method, with the exception of Integral Vision, Inc. which continues to be
      accounted for under the equity method as described on page four of this report.
      Transactions with equity affiliates are in the ordinary course of business
      and
      are generally conducted on an arm’s-length basis. Certain investments in equity
      affiliates and other activities may be between related parties and are generally
      conducted on an arm’s-length basis.





On
      December 20, 2001 the Company sold its 50% equity interest in Mid-State
      Industrial Services, Inc. to Maxco President, Max A. Coon, for $1.75 million,
      of
      which $750,000 was paid in cash with the remainder being applied to amounts
      due
      Mr. Coon for advances he had made to the Company and its affiliates.
      Additionally, Mid-State retired the $0.5 million obligation it had with Maxco.
      A
      portion of the proceeds from the sale was used to retire certain obligations
      not
      related to Mid-State which were guaranteed by the Company.





On
      August
      17, 2001 the Company’s previously wholly owned subsidiary, Ersco Corporation,
      entered into a sale-leaseback agreement involving some of its concrete forming
      products with a limited liability company in which Mr. Coon is a member. Ersco
      sold approximately $3.0 million in assets to the LLC that are now being leased
      back to Ersco for a period of 60 months. In June 2003 the Company agreed to
      assume the lease and as a result, reduced the amount owed to Contractor Supply
      Incorporated (the purchaser of Ersco) by $2.3 million. The Company recorded
      the
      $2.3 million obligation to the leasing company as a long term obligation in
      the
      accompanying financial statements. In February 2005, Maxco agreed to issue
      250,000 shares of common stock valued at $4 per share to Contractor Supply
      Incorporated to further reduce the Company’s obligation to Contractor Supply
      Incorporated. As a result, the outstanding principal balance due Contractor
      Supply Incorporated at March 31, 2005 was $1.2 million. Additionally, in
      February 2005, Maxco issued 95,800 shares of common stock valued at $4 per
      share
      to retire another obligation totaling approximately $383,000.





Maxco
      has
      provided the guarantee of various debt obligations of certain real estate and
      other investments in an aggregate amount of approximately $2.0 million as of
      March 31, 2005. Certain of the debt agreements related to its real estate
      investments, which Maxco and other guarantors have guaranteed, are in default
      at
      March 31, 2005. An extension has been issued by one of the banks and the
      applicable entities are currently working to liquidate the properties to satisfy
      the requirements of the lenders. The Company does not believe that there is
      any
      unusual degree of risk related to the guarantees because of sufficient
      underlying asset values supporting the respective debt obligations.




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In
      addition to the $2.0 million mentioned above, the Company has recorded in the
      accompanying financial statements amounts that had been previously identified
      as
      guarantees. The amounts so recorded aggregated approximately $249,000 as of
      March 31, 2005.





Subsequent
      to March 31, 2005, Maxco purchased an entity which owns two buildings from
      L/M
      Associates and, beginning in June 2005, will be including in its consolidation
      the operations of the buildings and vacant land. The debt associated with this
      transaction is approximately $1.8 million which was previously identified as
      guaranteed debt. In addition, a purchase agreement is currently being negotiated
      for the sale to an outside party of an additional real estate parcel which
      will
      eliminate the remaining debt guarantee.





***Investments
      and Marketable Securities***


The
      Company accounts for certain of its investments under SFAS 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.





The
      Company reviews its investments to determine if the value shows a decline that
      has been deemed other than temporary. Maxco’s investment in real estate was
      reduced by $350,000, $749,000, and $4.7 million in 2005, 2004, and 2003,
      respectively, related to other than temporary impairments. Investments in
      Integral Vision, Foresight Solutions, Inc., MYOEM.COM, and Vertical VC were
      impaired in 2003 resulting in a charge of $3.3 million. Maxco’s investment in
      Provant was impaired by $366,000 in 2004, $1.4 million in 2003 and $3.1 million
      in fiscal 2002 as a result of the fair value of Provant’s common stock being
      less than the Company’s investment. Additionally, the Company recorded a charge
      of $1.4 million in 2001 to recognize a decline in the value of its investment
      in
      Integral Vision that had been deemed other than temporary.





***Revenue
      Recognition***


The
      Company recognizes service revenue and revenue from product sales upon transfer
      of title, which is upon shipment. An estimate of reserves is recorded, if
      material, for anticipated reworks and credit memos which will be issued on
      sales
      recognized to date. The SEC’s Staff Accounting Bulletin (“SAB”) No. 101,
“Revenue Recognition,” provides guidance on the application of generally
      accepted accounting principles to selected revenue recognition issues. The
      Company has concluded its revenue recognition policy is appropriate and in
      accordance with generally accepted accounting principles and SAB No.
      101.





***Goodwill,
      Intangible and Other Long-Lived Assets***


Property,
      plant, and equipment, and certain other definite-lived assets are amortized
      over
      their useful lives. Useful lives are based on management's estimates of the
      period that the asset will be useful to the Company.





Effective
      April 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible
      Assets” (“SFAS No. 142”), which resulted in the discontinuance of amortization
      of goodwill and indefinite-lived intangible assets that were recorded in
      connection with previous business combinations, and SFAS No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Goodwill,
      intangible, and other long-lived assets are reviewed by management for
      impairment whenever events or changes in circumstances indicate the carrying
      amounts may not be recoverable. If management believes impairment may exist,
      an
      assessment is performed. This assessment consists of comparing the estimated
      undiscounted future cash flows with the carrying amount of the long-lived
      assets. If the undiscounted future cash flows are less than the carrying amounts
      of the long-lived assets, the Company adjusts the carrying amount of the
      long-lived assets to their estimated fair value. Fair value is determined by
      anticipated future cash flows discounted at a rate commensurate with the risk
      involved. All of the Company’s goodwill is related to the heat treating segment.
      Goodwill totaled approximately $1.4 million at March 31, 2005 and represented
      4%
      of total assets.





During
      2005, the Company performed the impairment tests of its goodwill,
      indefinite-long-lived intangible and other long-lived assets required by SFAS
      No. 142 and No. 144. The Company's tests indicated that the fair value of its
      heat treating segment, which was determined by using discounted cash flows
      and
      market multiples, exceeded the carrying value. As a result, the Company did
      not
      record an impairment charge for this segment in the accompanying financial
      statements. The Company will continue to perform an impairment review on an
      annual basis (or more frequently if impairment indicators arise).




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***Derivative
      Financial Instruments***


The
      Company applies hedge accounting pursuant to SFAS 133, as amended, with respect
      to interest rate swap agreements. Accordingly, changes in the fair value of
      the
      swap are reported as a component of other comprehensive income and are not
      included in operating results.





**RESULTS
      OF OPERATIONS**




The
      following is a discussion of the major elements relating to Maxco's financial
      and operating results for 2005 compared with 2004, and 2004 compared with 2003.
      The comments that follow should be read in conjunction with Maxco's Consolidated
      Financial Statements and related notes thereto, contained in Part II, Item
      8 of
      this report.





Except
      for the historical information contained herein, the matters discussed in this
      report are forward-looking statements made pursuant to the safe harbor
      provisions of Section 27A of the securities Act of 1933 and Section 21 E of
      the
      Securities Act of 1934. Such statements are based on management’s current
      expectations and are subject to a number of factors and uncertainties, which
      could cause actual results to differ materially from those described in the
      forward-looking statements. These forward-looking statements represent the
      Company’s best estimates as of the date of this report. The Company assumes no
      obligation to update such estimates except as required by the rules and
      regulations of the Securities and Exchange Commission.





**2005
      versus 2004**


Net
      sales
      increased to $45.4 million in 2005 compared to $40.8 million in 2004. Operating
      earnings were $2.0 million in 2005 compared to $169,000 in 2004. Net income
      in
      2005 was $134,000, a loss of $274,000 after preferred dividends, or a loss
      of
      $0.09 per share assuming dilution compared to last year’s net loss of $1.5
      million, a loss of $1.9 million after preferred dividends, or a loss of $0.63
      per share assuming dilution.





Sales
      and
      operating earnings for the years ending March 31, 2005 and 2004 by the Company’s
      heat treating and corporate and other segments were as follows:




**Year
                  Ended**
              
              **Year
                  Ended******
              
              **March
                  31, 2005**
              
              **March
                  31, 2004****Net
                  Sales**
              
              **Operating
                  Earnings (Loss)**
              
              **Net
                  Sales**
              
              **Operating
                  Earnings (Loss)*****(in
                  thousands)***Heat
                  treating
              
              $
              45,364
              
              $
              4,202
              
              $
              40,754
              
              $
              2,137Corporate
                  and other
              
              
              —
              
              
              (2,199
              )
              
              44
              
              
              (1,968
              )




The
      increase in net sales at the heat treating segment (Atmosphere Annealing) was
      due to increased volume from existing customers as well as an expanded customer
      base. Existing customers generated an additional $3.3 million over the prior
      year and new customers added $1.3 million. The decrease in revenue at corporate
      was due to a reduction in rental income from the prior year as a result of
      the
      sale of a building in the prior year.





Consolidated
      gross profit (net sales less cost of sales and operating expenses) increased
      $2.3 million to $16.3 million (36.0% of net sales) from $14.0 million (34.4%
      of
      net sales). The increase in Atmosphere Annealing’s sales accounted for $1.6
      million of the increase in gross profit while the improvement in margin
      accounted for $700,000.





Selling,
      general, and administrative (“SG&A”) expenses increased to $11.4 million in
      2005 from $11.0 million in 2004 as a result of the following factors: Atmosphere
      increased its provision for state and local income taxes by $273,000 and charged
      $186,000 to write off receivables that were deemed uncollectible. At the
      corporate level, the Company recorded a $650,000 expense in 2005 related to
      an
      incentive agreement. Corporate employee related costs and legal expenses were
      reduced by $376,000 and $173,000, respectively. The Company incurred fees to
      secure financing totaling $76,000 in 2005.





Depreciation
      and amortization expense was comparable to the prior year.





The
      Company recognized no gains or losses on the sale of investments in 2005. In
      2004, the Company recognized gains of $910,000 on the sale of land, $180,000
      on
      the sale of Integral Vision, Inc. common stock, and $250,000 to adjust a note
      receivable to its realizable value, collected subsequent to March 31, 2004.





Interest
      expense decreased 9.8% to $1.5 million from $1.7 million primarily due to
      reduced borrowing levels.




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The
      Company recorded the following charges to recognize declines in the value of
      its
      investments that were deemed other than temporary:




**Year
                  Ended March 31,******
              
              **2005**
              
              **2004*****(in
                  thousands)***Robinson
                  Oil
              
              $
              260
              
              $
              —Real
                  estate
              
              
              350
              
              
              749Provant
              
              
              —
              
              
              366$
              610
              
              $
              1,115


Equity
      in
      net loss of affiliates consists of Maxco’s share of the operating results of 50%
      or less owned entities accounted for under the equity method. On a consolidated
      basis, equity in net loss of affiliates was $321,000, net of tax, in fiscal
      2004.





Due
      to
      the uncertainty of future realization of deferred tax assets, the Company
      recorded a valuation allowance in prior fiscal years. During 2005, primarily
      as
      a result of the utilization of net operating loss (NOL) carryforwards of $2.7
      million, the valuation allowance was reduced by $526,000 resulting in a
      variation from the federal income tax statutory rate of 34%.





**2004
      versus 2003**


Net
      sales
      increased to $40.8 million in 2004 compared to $36.8 million in 2003. Operating
      earnings were $169,000 in 2004 compared to a loss of $534,000 in 2003. Net
      loss
      in 2004 was $1.5 million, a loss of $1.9 million after preferred dividends,
      or a
      loss of $0.63 per share assuming dilution compared to 2003’s net loss of $12.8
      million, a loss of $13.2 million after preferred dividends, or a loss of $4.27
      per share assuming dilution.





Sales
      and
      operating earnings for the years ending March 31, 2004 and 2003 by the Company’s
      heat treating and corporate and other segments were as follows:


**Year
                Ended**
            
            **Year
                Ended******
            
            **March
                31, 2004**
            
            **March
                31, 2003****Net
                Sales**
            
            **Operating
                Earnings (Loss)**
            
            **Net
                Sales**
            
            **Operating
                Earnings (Loss)*****(in
                thousands)***Heat
                treating
            
            $
            40,754
            
            $
            2,137
            
            $
            36,740
            
            $
            2,147Corporate
                and other
            
            
            44
            
            
            (1,968
            )
            
            87
            
            
            (2,681
            )





The
      increase in net sales at the heat treating segment was due to increased business
      with Honda of America Manufacturing, Inc. Existing customers generated an
      additional $3.2 million over the prior year and new customers added $766,000.
      The decrease in revenue at corporate was due to a reduction in rental income
      of
      $43,000 from 2003 as a result of the sale of a building in the third
      quarter.





Consolidated
      gross profit (net sales less cost of sales and operating expenses) saw a net
      increase of $502,000 to $14.0 million from $13.5 million. Consolidated gross
      margin (gross profit as a percentage of net sales) decreased to 34.4% from
      36.7%
      which had a negative impact on gross profit of approximately $900,000. The
      increase in heat treating sales accounted for a $1.4 million improvement in
      gross profit. Reductions in the costs of labor ($476,000), supplies ($134,000),
      maintenance ($272,000), shipping ($87,000), and general factory costs ($224,000)
      were the primary factors contributing to the increased gross profit. Natural
      gas
      and nitrogen costs increased by $162,000 in 2004. Gross margin decreased
      primarily as a result of the increased sales to Honda. By agreement, the Company
      is required to purchase and bill Honda for the steel used in the heat treating
      process resulting in lower margins.





Selling,
      general, and administrative (“SG&A”) expenses decreased $300,000 or 2.7% to
      $11.0 million from $11.3 million as a result of the following factors: Employee
      insurance costs at Atmosphere increased approximately $650,000 in 2004.
      Corporate employee related costs of $202,000 and general insurance of $148,000
      were reduced in 2004. The Company recorded a charge in 2003 of approximately
      $148,000 to write off certain assets related to the Company’s investments. Also
      in 2003 the Company incurred fees of approximately $138,000 charged by a primary
      lender and costs totaling $248,000 associated with efforts to secure alternative
      financing.





The
      Company recognized gains totaling $149,000 from the sale of two of the Company’s
      buildings in 2003.





Depreciation
      and amortization expense was comparable for both periods.




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Investment
      and interest income decreased by $564,000 in 2004. In 2003, the Company ceased
      the recording of interest income on certain notes when it was determined that
      any further amount would be uncollectible. The carrying value of the notes
      and
      accrued interest were adjusted in 2003 to estimated realizable
      values.





Gain
      on
      the sale of investments was $1.3 million in 2004 compared to a loss of $265,000
      in 2003. In 2004, the Company recognized gains of $910,000 on the sale of land,
      $180,000 on the sale of Integral Vision, Inc. common stock, and $250,000 to
      adjust a note receivable to its realizable value, collected subsequent to March
      31, 2004. In 2003, the Company had recorded a charge of $265,000 to adjust
      this
      note receivable to its estimated realizable amount at that time.





Interest
      expense decreased 13.5% to $1.7 million from $1.9 million primarily due to
      reduced borrowing levels.




The
      Company recorded the following charges to recognize declines in the value of
      its
      investments that were deemed other than temporary:


**Year
                Ended March 31,******
            
            **2004**
            
            **2003*****(in
                thousands)***Provant
            
            $
            366
            
            $
            1,360Real
                estate
            
            
            749
            
            
            4,698Foresight
                Solutions
            
            
            —
            
            
            2,790Integral
                Vision
            
            
            —
            
            
            122Vertical
                VC
            
            
            —
            
            
            250MYOEM.COM
            
            
            —
            
            
            100$
            1,115
            
            $
            9,320




Equity
      in
      net loss of affiliates consists of Maxco’s share of the operating results of 50%
      or less owned entities accounted for under the equity method. On a consolidated
      basis, equity in net loss of affiliates was $321,000 for the year ended March
      31, 2004, compared to a loss of $614,000, net of tax, for 2003.





Due
      to
      the uncertainty of future realization of deferred tax assets, a valuation
      allowance of $521,000 was recorded in 2004 resulting in a variation from the
      statutory rate of 34%.





**LIQUIDITY
      AND SOURCES OF CAPITAL**


Operating
      activities for 2005 generated $4.8 million in cash. Earnings, after non-cash
      adjustments, generated $3.7 million of that amount. Changes in net working
      capital generated approximately $1.1 million.





Overall,
      the Company’s working capital deficit (defined as current assets less current
      liabilities) increased from $7.7 million at March 31, 2004 to $8.0 million
      at
      March 31, 2005.





The
      aggregate principal maturities of long-term debt are approximately $5.0 million
      in 2006, $3.1 million in 2007, and $3.9 million thereafter.





The
      Company generated approximately $79,000 in cash from investing activities in
      2005. Specifically, during the year, the Company received $1.0 million in cash
      from the receipt of payments on notes receivable. Atmosphere Annealing purchased
      approximately $1.0 million of equipment during 2005. Maxco received
      approximately $57,000 from the sale of land and a building.





Net
      cash
      used in financing activities during 2005 amounted to $3.2 million. Atmosphere
      Annealing borrowed an additional $2.7 million from its primary lender the
      proceeds of which were used to repay a significant portion of its obligation
      to
      Maxco and other subordinated debt.





In
      May,
      2004, the Company reached an agreement with a new financial institution to
      repay
      lenders with which the Company was in default. The principal amount repaid
      was
      approximately $2.3 million. The new debt facility of $2.7 million requires
      interest only payments and matures in June 2006. The remaining proceeds of
      approximately $400,000 were used for working capital requirements.





Maxco’s
      heat treating segment occupies facilities and uses equipment under operating
      lease agreements requiring annual rental payments approximating $464,000 in
      2006, $215,000 in 2007, $198,000 in 2008, $164,000 in 2009, and $138,000 in
      2010
      for a total commitment aggregating $1.2 million.




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At
      March
      31, 2005, the 2,240,605 shares of Integral Vision common stock that Maxco owns
      had an aggregate market value of approximately $3.7 million. Maxco’s investment
      in Integral Vision is reflected in Maxco’s financial statements under the equity
      method for all periods presented as the Company maintains representation on
      Integral Vision’s Board of Directors. In April 2005, Maxco converted $95,684 of
      notes receivable from Integral Vision into 127,578 restricted shares of Integral
      Vision common stock. Also in April 2005, Maxco received 42,000 restricted shares
      of Integral Vision common stock for payment of consulting services.





At
      March
      31, 2005, the 2,837,089 shares of Provant common stock that Maxco owns had
      an
      aggregate fair value of approximately $119,000. Maxco’s investment in Provant is
      reflected in Maxco’s financial statements as an available-for-sale
      security.





The
      Company’s ability to meet its short term and long term debt service and other
      obligations (including compliance with financial covenants) will continue to
      be
      dependent upon its future operating performance. This dependency will be subject
      to financial, business and other factors, certain of which, such as prevailing
      economic conditions, are beyond the Company’s control. The Company believes that
      funds generated by its operations, funds available under its credit facilities,
      and funds that could be available under other credit facilities will be
      sufficient to finance near term capital needs, as well as to fund existing
      operations for the reasonably foreseeable future. Additionally the Company
      has
      long term equity investments that could be liquidated to meet its debt service
      requirements.





**SEASONAL
      AND QUARTERLY FLUCTUATIONS**


The
      following table sets forth consolidated operating data for each of the eight
      quarters ended March 31, 2005. The unaudited quarterly information has been
      prepared on the same basis as the annual information and, in management’s
      opinion, includes all adjustments, consisting of, with the exception of
      impairment charges, only normal recurring entries, necessary for a fair
      presentation of the information for the quarters presented. The operating
      results for any quarter are not necessarily indicative of results for any future
      period.





**Quarter
                Ended****Fiscal
                2004**
            
            **Fiscal
                2005******
            
            **6/30/03**
            
            **9/30/03**
            
            **12/31/03**
            
            **3/31/04**
            
            **6/30/04**
            
            **9/30/04**
            
            **12/31/04**
            
            **3/31/05*****(in
                thousands, except per share data)***Net
                sales
            
            $
            9,573
            
            $
            9,189
            
            $
            10,562
            
            $
            11,474
            
            $
            11,367
            
            $
            11,156
            
            $
            11,414
            
            $
            11,427Gross
                profit
            
            
            3,421
            
            
            3,119
            
            
            3,376
            
            
            4,108
            
            
            3,997
            
            
            3,811
            
            
            3,977
            
            
            4,540Gain
                (loss) on sale of investments(1)
            
            
            —
            
            
            —
            
            
            —
            
            
            1,340
            
            
            —
            
            
            —
            
            
            —
            
            
            —Loss
                on investments(2)
            
            
            (283
            )
            
            (57
            )
            
            (26
            )
            
            (749
            )
            
            —
            
            
            —
            
            
            —
            
            
            (610
            )Equity
                in net income (loss) of affiliates, net of tax
            
            
            -
            
            
            (90
            )
            
            50
            
            
            (281
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            
            122
            
            
            (787
            )
            
            (857
            )
            
            (9
            )
            
            204
            
            
            50
            
            
            212
            
            
            (332
            )Net
                income (loss) per common share—diluted:
            
            $
            0.01
            
            $
            (0.29
            )
            $
            (0.31
            )
            $
            (0.04
            )
            $
            0.03
            
            $
            (0.02
            )
            $
            0.04
            
            $
            (0.14
            )





(1)
            Represents
                gains of $910,000 on the sale of land, $180,000 on the sale of Integral
                Vision stock, and adjustments to a note receivable to a realizable
                amount
                of $250,000.


(2)
            Represents
                the following charges to recognize declines in the value of the Company’s
                investments that were deemed other than
                temporary:




**Quarter
                  Ended****Fiscal
                  2004**
              
              **Fiscal
                  2005****6/30/03**
              
              **9/30/03**
              
              **12/31/03**
              
              **3/31/04**
              
              **6/30/04**
              
              **9/30/04**
              
              **12/31/04**
              
              **3/31/05*****(in
                  thousands)***Robinson
                  Oil
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (260
              )Real
                  estate
              
              
              —
              
              
              —
              
              
              —
              
              
              (749
              )
              
              —
              
              
              —
              
              
              —
              
              
              (350
              )Provant
              
              
              (283
              )
              
              (57
              )
              
              (26
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —$
              (283
              )
              $
              (57
              )
              $
              (26
              )
              $
              (749
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (610
              )


The
      sum
      of the quarterly net income per share amounts may not equal the annual amounts
      reported. Net income per share is computed independently for each quarter and
      the full year and is based on the respective weighted average common shares
      outstanding.





Maxco’s
      sales and operating results have varied from quarter to quarter. Net sales
      are
      typically lower in the second and third quarters. The most significant factors
      affecting these fluctuations are the seasonal buying patterns of the Company’s
      customers due to customer model changeovers and the reduced number of business
      days during the holiday season. In addition, the timing of acquisitions or
      the
      occasional sale of corporate investments may cause substantial fluctuations
      of
      operating results from quarter to quarter. Maxco expects its net sales and
      operating results to continue to fluctuate from quarter to quarter.




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**IMPACT
      OF INFLATION**


Inflation
      impacts the Company’s costs for materials, labor and related costs of
      manufacturing. Specifically, the Company’s heat treating segment experiences
      fluctuations in the price of natural gas used in the heat treating process.
      To
      the extent feasible in light of competitive factors, the Company has offset
      these fluctuations through selective price adjustments.





**NEW
      FINANCIAL ACCOUNTING PRONOUNCEMENTS**


In
      December 2003, the Financial Accounting Standards Board (FASB) issued Financial
      Interpretation No. (FIN) 46-R *"Consolidation
      of Variable Interest Entities"* .
      This
      standard clarifies the application of Accounting Research Bulletin No. 51,
      " *Consolidated
      Financial Statements"* and
      addresses consolidation by business enterprises of variable interest entities,
      more commonly known as " *Special
      Purpose Entities"* or
      "SPE's." ** FIN
      46-R
      requires existing unconsolidated variable interest entities' interests to be
      consolidated by their primary beneficiaries if the entities do not effectively
      disperse risk among the parties involved. FIN 46-R also enhances the disclosure
      requirements related to variable interest entities. The interpretation is
      effective with respect to interests in variable interest entities created after
      January 31, 2003. For interests in variable interest entities created before
      February 1, 2003, the interpretation applies to the first interim or annual
      reporting period beginning after December 15, 2003. The Company reviewed the
      requirements of FIN 46-R and concluded that the provisions of FIN 46-R were
      not
      applicable to the Company. Accordingly, it is not expected that the provisions
      of FIN 46-R would have a material impact on financial position, results of
      operations, or cash flows of the Company.





In
      November 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 151 *Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4* .
      SFAS
      151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility
      expense, freight, handling costs and wasted materials (spoilage) be recognized
      as current period charges. It also requires that allocation of fixed production
      overheads to the costs of conversion be based on the normal capacity of the
      production facilities. SFAS 151 is effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. The Company does not believe that
      the adoption of SFAS 151 will have a material impact on its results of
      operations or financial position.





In
      December, 2004 the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 123R which will require the Company to
      measure the cost of employee services received in exchange for an award of
      common stock options as compensation expense in the statement of income using
      a
      fair value method. The Company will begin reporting these costs by the end
      of
      fiscal 2006. The effect of implementing this new accounting standard has not
      been determined at this time, but is not expected to impact reported earnings
      per share in amounts significantly different from the pro forma results
      historically reported.





In
      December 2004, the FASB issued SFAS 153 *Exchanges
      of Nonmonetary Assets, and Amendment of APB Opinion No.* 29.
      The
      guidance in APB Opinion No. 29, *Accounting
      for Nonmonetary Transactions* ,
      is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. The guidance in APB Opinion
      No.
      29, however, included certain exceptions to the principle. SFAS 153 amends
      APB
      Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary exchanges of nonmonetary assets that do not have commercial
      substance. A nonmonetary exchange has commercial substance if the future cash
      flows of the entity are expected to change significantly as a result of the
      exchange. SFAS 153 is effective for nonmonetary asset exchanges in fiscal
      periods beginning after June 15, 2005. The Company does not believe that the
      adoption of SFAS 153 will have a material impact on its results of operations
      or
      financial position.




**ITEM
      7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**


The
      Company’s variable interest expense is sensitive to changes in the general level
      of United States interest rates. While approximately $3.6 million of Maxco’s
      debt carries a fixed rate of interest, the Company entered into an interest
      rate
      swap agreement based on a notional amount of $2.7 million to manage its exposure
      to interest rate changes. The swap involves the exchange of fixed and variable
      interest payments without changing the notional principal amount. The Company
      had total outstanding variable rate short and long term borrowings of $10.6
      million at March 31, 2005. A 1% increase from the prevailing interest rates
      at
      March 31, 2005 on the unhedged variable rate portion of the Company’s short and
      long-term borrowings would increase interest expense on an annualized basis
      by
      approximately $106,000 based on principal balances at March 31,
      2005.





The
      Company’s heat treating segment experiences fluctuations in the price of natural
      gas used in the heat treating process. To the extent feasible in light of
      competitive factors, the Company has offset these fluctuations through selective
      price adjustments.




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**ITEM
      8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA******


The
      response to this item is submitted in a separate section of this report.




**ITEM
      9 - CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS**


Effective
      May 7, 2004, the Company engaged the registered accounting firm of Rehmann
      Robson as its new independent public accountants. Effective May 7, 2004, the
      Company dismissed Ernst & Young LLP.





The
      report of Ernst and Young LLP on the consolidated financial statements of Maxco
      for the fiscal year ended March 31, 2003 did not contain an adverse opinion
      or a
      disclaimer of opinion and was not qualified or modified as to uncertainty,
      audit
      scope or accounting principles, except that the reports of Ernst & Young LLP
      on Maxco’s financial statements for the fiscal year ended March 31, 2003
      contained a modification as to uncertainty concerning Maxco's ability to
      continue as a going concern.





The
      decision to change Maxco's accounting firm was approved by the Audit Committee
      of the Board of Directors on May 6, 2004.





In
      connection with the audit of Maxco's financial statements for the fiscal year
      ended March 31, 2003 and in the subsequent interim periods from March 31, 2003
      through and including May 7, 2004, there were no disagreements between Maxco
      and
      its auditors, Ernst & Young LLP on any matter of accounting principles or
      practices, consolidated financial statement disclosure, or auditing scope and
      procedures, which, if not resolved to the satisfaction of Ernst & Young LLP,
      would have caused Ernst & Young LLP to make reference to the matter in its
      reports.





Maxco
      had
      not consulted with Rehmann Robson during the fiscal year ended March 31, 2003
      or
      during the subsequent interim period from March 31, 2003 through and including
      May 7, 2004, on either the application of accounting principles to a specified
      transaction, either completed or proposed, or the type of audit opinion that
      might be rendered on Maxco's consolidated financial statements.




**ITEM
      9A - CONTROLS AND PROCEDURES**


a) Evaluation
      of disclosure controls and procedures




The
      Company’s chief executive officer and chief financial officer have each reviewed
      and evaluated the effectiveness of our disclosure controls and procedures (as
      defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e))
      as of the end of the period covered by this report. Based on that evaluation,
      the chief executive officer and chief financial officer have each concluded
      that
      the Company’s current disclosure controls and procedures are effective to ensure
      that information required to be disclosed in its periodic reports filed under
      the Exchange Act is recorded, processed, summarized, and reported, in each
      case,
      within the time period specified by the SEC’s rules and
      regulations.





b) Changes
      in internal controls




There
      have been no changes in the Company’s internal controls over financial reporting
      that occurred during the Company’s fourth quarter of the fiscal year that
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal controls over financial reporting.




**ITEM
      9B - OTHER INFORMATION**


None




-16-
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**PART
      III**





**ITEM
      10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**




The
      following information is given regarding the directors and executive officers
      of
      the Company.




Name
            
            Present
                Position with the Company andPrincipal
                Occupation
            
            Age
            
            Served
                as Directorof
                Maxco SinceMax
                A. Coon
            
            Director,
                President and Chairman of the Board of MAXCO, INC.
            
            70
            
            1969Eric
                L. Cross
            
            Executive
                Vice President and Secretary of MAXCO, INC.
            
            62Sanjeev
                Deshpande
            
            Director
                of MAXCO, INC., President of Atmosphere Annealing, Inc., a Lansing,
                Michigan based provider of heat treating services which was acquired
                by
                Maxco, Inc. in January 1997.
            
            47
            
            2003Joel
                I. Ferguson
            
            Director
                of MAXCO, INC., President of F&S Development Company, a Lansing,
                Michigan based company which develops, contracts and/or owns and
                manages
                real estate properties.
            
            66
            
            1985David
                R. Layton
            
            Director
                of MAXCO, INC. and President of Layton & Richardson, P.C., a Lansing,
                Michigan based accounting firm.
            
            65
            
            2001Samuel
                O. Mallory
            
            Director
                of MAXCO, INC.; Retired in 1998 as a dentist who managed his own
                practice
            
            72
            
            2002Vincent
                Shunsky
            
            Vice
                President of Finance and Treasurer of MAXCO, INC.
            
            56





All
      of
      the foregoing Directors and officers have been engaged in the principal
      occupation specified for the previous five (5) years:





The
      address and telephone number for each person named in the table is in care
      of
      Maxco, Inc., 1118 Centennial Way, Lansing, MI 48917, telephone number
      (517)321-3130.





During
      the past five years, none of the above named persons has been convicted in
      a
      criminal proceeding or has been a party to any judicial or administrative
      proceeding that resulted in a judgment, decree or final order enjoining him
      form
      future violations of, or prohibiting activities subject to, federal or state
      securities laws, or a finding of any violation of federal of state securities
      laws. All of the above named persons are citizens of the United States except
      Sanjeev Deshpande who is a citizen of the Republic of India.





Messrs.
      Cross, and Shunsky, resigned as directors of the company effective October
      21,
      2004 in order for the company to have its Board consist of a majority of outside
      directors as required by NASDAQ.





Messrs.
      Coon, and Shunsky, are Directors of Integral Vision, Inc. whose stock is traded
      on the OTCBB. On July 29, 2005, Integral Vision , Inc. was an 8% owned
      investment of Maxco, Inc. (15% at March 31, 2005).





Mr.
      Coon
      and Mr. Cross are brothers-in-law. There are no other family relationships
      between any Directors or Executive Officers.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's Directors
      and Executive Officers or beneficial owners of over 10% of any class of the
      Company's equity securities to file certain reports regarding their ownership
      of
      the Company's securities or any changes in such ownership All such reports
      were
      filed on a timely basis during the fiscal year ended March 31, 2005. Max A.
      Coon
      , Daryle L. Doden, and ROI Capital Management, Inc. are beneficial owners of
      more then 10% of Maxco’s voting securities. See table under Item 12 for further
      disclosure of security ownership of certain beneficial owners and
      management.




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          to Table of Contents**





**Code
      of Ethics**





The
      Company has adopted a code of ethics that applies to its directors, officers,
      and employees.  A paper copy of our code of ethics may be obtained free of
      charge by writing to the Company care of its Compliance Officer at our principal
      executive office located at 1118 Centennial Way, Lansing, MI 48917.





**Audit
      Committee and Audit Committee Financial Expert**





The
      members of the Audit Committee for the year ended March 31, 2005 were Joel
      I.
      Ferguson, David R. Layton and Samuel O. Mallory, each of whom are independent
      directors as defined by the rules of the Nasdaq Stock Market. In addition,
      our
      board of directors has determined that David R. Layton is an “audit committee
      financial expert” as defined by the Securities and Exchange Commission.




**ITEM
      11 - EXECUTIVE COMPENSATION******





**EXECUTIVE
      COMPENSATION**





**Compensation
      Committee Report on Executive Compensation**





**Compensation
      Committee Interlocks and Insider Participation**





The
      Compensation Committee of the Board of Directors (the "Committee") consisted
      of
      David R. Layton, Joel I. Ferguson and Samuel O. Mallory for the year ended
      March
      31, 2005.





**Overview
      and Philosophy**





The
      Committee is responsible for developing and making recommendations to the Board
      with respect to the Company's executive compensation policies. In addition,
      the
      Compensation Committee, pursuant to authority delegated by the Board, determines
      on an annual basis the compensation to be paid to the Chief Executive Officer
      and each of the other executive officers of the Company.





The
      objectives of the Company's executive compensation program are to:





࿄
            Support
                the achievement of desired Company
                performance.


࿄
              Provide
                  compensation that will attract and retain superior talent and reward
                  performance.


࿄
            Align
                the executive officers' interests with the success of the Company
                by
                placing a portion of pay at risk, with payout dependent upon corporate
                performance.





The
      executive compensation program provides an overall level of compensation
      opportunity that is competitive with companies of comparable size and
      complexity. The Compensation Committee will use its discretion to set executive
      compensation where in its judgment external, internal or an individual's
      circumstances warrant it.





**Executive
      Officer Compensation Program**





The
      Company's executive officer compensation program is comprised of base salary,
      annual cash incentive compensation, long-term incentive compensation in the
      form
      of stock options, and various benefits, including medical and deferred
      compensation plans, generally available to employees of the
      Company.





**Base
      Salary**





Base
      salary levels for the Company's executive officers are competitively set
      relative to other comparable companies. In determining salaries the Committee
      also takes into account individual experience and performance.





**Annual
      Incentive Compensation**





The
      Company's annual incentive program for executive officers and key managers
      provides direct financial incentives in the form of an annual cash bonus to
      executives to achieve the Company's annual goals. Goals for Company performance
      are set at the beginning of each fiscal year. In the year ended March 31, 2005,
      the following measures of Company performance were selected: net sales,
      operating earnings, consolidated net income, market penetration, and customer
      satisfaction.





Specific
      individual performance was also taken into account in determining bonuses,
      including meeting department goals, attitude, dependability, cooperation with
      co-workers, and creativity or ideas that benefit the Company.




-18-
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**Stock
      Option Program**





The
      stock
      option program is the Company's long-term incentive plan for executive officers
      and key employees. The objectives of the program are to align executive and
      shareholder long-term interests by creating a strong and direct link between
      executive pay and shareholder return, and to enable executives to develop and
      maintain a significant, long-term stock ownership position in the Company's
      Common Stock.





On
      August
      25, 1998, the Shareholders ratified an Employee Stock Option Plan to grant
      options on up to 500,000 shares of the Company's common stock to officers and
      key employees of the Company and its subsidiaries. The options which may be
      granted under this plan may either qualify as "incentive stock options" within
      the meaning of Section 422A of the Internal Revenue Code, as amended, or may
      be
      nonqualified options.





The
      stock
      option plan authorizes a committee of directors to award stock options to key
      employees, directors or agents of the Company. Stock options are granted at
      an
      option price equal to the fair market value of the Company's Common Stock on
      the
      date of grant, have ten year terms and can have exercise restrictions
      established by the Option Committee. Awards are made at a level calculated
      to be
      competitive with companies of comparable size and complexity.





**Deferred
      Compensation**





Effective
      January 1, 2005, the Maxco, Inc. 401(k) Employee Savings Plan was merged into
      Maxco’s wholly-owned subsidiary Atmosphere Annealing, Inc.’s 401(k) Plan which
      covers substantially all employees of the Company. The 401(k) plan is a "cash
      or
      deferred" plan under which employees may elect to contribute a certain portion
      of their annual compensation which they would otherwise be eligible to receive
      in cash. The Company has agreed to make a matching contribution in the
      percentages specified in the plan documents. In addition, a separate employer
      contribution may be made at the discretion of the Board. The plan does not
      contain an established termination date and it is not anticipated that it will
      be terminated at any time in the foreseeable future.





**Benefits**





The
      Company provides medical benefits to the executive officers that are generally
      available to Company employees. The amount of perquisites, as determined in
      accordance with the rules of the Securities and Exchange Commission relating
      to
      executive compensation, did not exceed 10% of salary for the year ended March
      31, 2005.





**Chief
      Executive Officer**





Max
      A.
      Coon has served as the Company's Chief Executive Officer since 1969. His base
      salary for the year ended March 31, 2005 was $250,000, which was deferred.
      No
      bonus was paid to Mr. Coon for 2005.





Significant
      factors the Committee looked at in establishing Mr. Coon’s compensation for the
      year ended March 31, 2005, were his strategic and overall management direction
      of the Company. Specifically the Committee discussed that through his direction,
      the Company was positioned to have an improvement in financial results for
      the
      2005 year. The Committee noted that sales have increased each of the last three
      years and operating results were positive in 2004 from losses sustained in
      2004
      and 2003. Despite being in a loss position, the net loss of the Company was
      reduced in 2004 from the prior two year period. In addition, the Committee
      felt
      that through Mr. Coon’s direction in the liquidation of its real estate
      investment, including the reduction of the majority of guarantees the Company
      had made on its real estate investments, was also a key factor in establishing
      his compensation. As a result of these factors, the committee felt the Company
      was poised to continue its sale s
      growth
      and improvement in its financial results in 2005. This was achieved as operating
      earnings in 2005 improved to $2.0 million and net income was positive for the
      year.





The
      Compensation Committee




David
      R.
      Layton


Joel
      I.
      Ferguson


Samuel
      O.
      Mallory




-19-
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          to Table of Contents**


**Summary
      Compensation Table**





The
      following table sets forth the cash and non-cash compensation for each of the
      last three fiscal years awarded to or earned by the Chief Executive Officer
      of
      the Company and to the others whose compensation exceeded $100,000:





Annual
                Compensation
            
            Long
                Term CompensationName
                andPrincipal
                Position
            
            Year
            
            Salary
            
            Bonus
            
            Other
                AnnualComp(1)
            
            Options
            
            All
                Other
              Comp(2)Max
                A. Coon
              Chief
                Executive Officer
            
            
            2005
              2004
              2003
            
            
            250,000
              200,000
              200,000
            (3)
            
            0
              0
              0
            
            
            300
              200
              300
            
            
            0
              0
              0
            
            
            0
              1,000
              3,600Eric
                L. Cross
              Executive
                Vice President
            
            
            2005
              2004
              2003
            
            
            150,000
              150,000
              150,000
            
            
            0
              0
              0
            
            
            200
              200
              300
            
            
            0
              0
              0
            
            
            3,750
              1,947
              3,300Vincent
                Shunsky
              Vice
                President of Finance
            
            
            2005
              2004
              2003
            
            
            150,000
              150,000
              150,000
            
            
            0
              0
              25,000
            
            
            200
              200
              300
            
            
            0
              0
              0
            
            
            3,750
              3,788
              3,550Sanjeev
                Deshpande
              President
                of Atmosphere Annealing
            
            
            2005
              2004
              2003
            
            
            165,998
              156,398
              154,710
            
            
            45,000
              45,000
              35,000
            
            
            400
              200
              0
            
            
            0
              0
              0
            
            
            5,034
              5,000
              4,712Lawrence
                O. Fields
              Controller
            
            
            2005
              2004
              2003
            
            
            95,000
              90,000
              90,000
            
            
            20,000
              15,000
              18,000
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            
            3,925
              2,633
              1,296





(1)
            Represents
                annual director fees. Messrs. Cross and Shunsky resigned as directors
                of
                the company on October 21, 2004.


(2)
            Represents
                the Company's match of employee deferrals of currently earned income
                into
                the 401(k) Employee Savings Plan and a profit sharing contribution
                made by
                the Company for all of its eligible employees to the 401(k) Employee
                Savings Plan at the rate of 1% of eligible
                compensation.


(3)
            Max
                A. Coon has deferred payment of his salary since December 1,
                2003.





**Options**





The
      following table summarizes the value of the options held by the above named
      individuals at the year end. No options were granted to or exercised by the
      named individuals during the year ended March 31, 2005. All of the options
      held
      by the named individuals are presently exercisable.




Year
      End
      Option Values


Name
                andPrincipal
                Position
            
            Number
                of UnexercisedOptions
                at Fiscal Year End
            
            Value
                of Unexercised
              Options
                at Fiscal Year EndMax
                A. Coon
              Chief
                Executive Officer
            
            
            0
            
            
            0Eric
                L. Cross
              Executive
                Vice President
            
            
            42,500(1)
            
            
            0Vincent
                Shunsky
              Vice
                President of Finance
            
            
            42,500(1)
            
            
            0





(1)
            Options
                granted by the Option Committee on 12/21/95 with an exercise price
                equal
                to the fair market value of the Company's Common Stock on the date
                of
                grant which was $8.00. These options were granted under the 1998
                Stock
                Option Plan as part of the long-term incentive program for executive
                officers and key employees.





**Equity
      Compensation Plan Information**





The
      following table summarizes information as of March 31, 2005 regarding the
      Company's common stock reserved for issuance under the Company's Employee Stock
      Option Plan. The Company's Employee **** Stock
      Option Plan is its only equity compensation plan and was approved by the
      shareholders in 1998.


**Plan
                Category**
            
            **Number
                of Securities to be Issued Upon Exercise****of
                Outstanding Options**
            
            **Weighted-Average
                Exercise Price of****Outstanding
                Options**
            
            **Number
                of Securities Remaining Available for Future Issuance Under the Stock
                Option Plan (Excluding Securities****Reflected
                in Column a)**Equity
                Compensation Plans Approved by Security Holders
            
            
            132,500(1)
            
            $
            7.74
            
            
            470,000







(1)
            Includes
                102,500 issued under a prior stock option plan






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**COMPARATIVE
      STOCK PERFORMANCE**





The
      graph
      below compares the cumulative total shareholder return on the Common Stock
      of
      the Company for the last five years with a cumulative total return on the CRSP
      Total Return Index for the NASDAQ Stock Market (US Companies) (1) and a peer
      group of companies (2) over the same period, assuming the investment of $100
      in
      the Company’s Common Stock, the NASDAQ Index and the peer group on March 31,
      2000, and reinvestment of all dividends.








3/00
              3/01
              3/02
              3/03
              3/04
              3/05MAXCO,
                  INC.
              
              100.00
              89.55
              78.69
              53.73
              35.22
              45.37NASDAQ
                  STOCK MARKET (U.S.)
              
              100.00
              47.20
              41.66
              22.38
              38.67
              37.64PEER
                  GROUP
              
              100.00
              69.78
              58.44
              45.64
              66.99
              28.82





(1)
            The
                CRSP Total Return Index for the NASDAQ Stock Market (US Companies)
                is
                composed of all domestic common shares traded on the NASDAQ National
                Market and the NASDAQ Small-Cap
                Market.


(2)
            The
                peer group consists of ten companies whose stock is publicly traded
                and
                whose market capitalizations are slightly above and below the Company’s
                capitalization in a range from $9.3 million to $20.96 million. Because
                of
                the diversified nature of the business represented by its subsidiary
                companies, the Company is unable to identify a published industry
                or line
                of business index or a group of peer issuers in comparable businesses
                which are sufficiently similar to allow meaningful comparison. Therefore,
                the Company has elected to compare its performance with a group of
                issuers
                having similar market capitalizations as allowed by SEC
                rules.





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          Contents**


**ITEM
      12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**


The
      following table sets forth certain information as of June 30, 2005, as to the
      equity securities of the Company owned beneficially by beneficial owners of
      5%
      or more of the Company's securities, by each Director and by Executive Officer,
      and by all Directors and Executive Officers of the Company as a group.





Each
      share of common stock entitles the holder thereof to one vote upon each matter
      to be voted on. Stockholders of series three preferred shares are entitled
      to 20
      votes for each one of such shares. Series Four and Series Five Preferred Stock
      are both nonvoting. As of June 30, 2005, the Company had outstanding 3,446,995
      shares of common stock and 14,784 shares of series three preferred stock for
      a
      total of 3,742,675 shareholder votes.


**Name
                  of Beneficial Owner**
              
              **Title
                  of Class**
              
              **Sole**
                **Investment**
                **Power**
              
              **Shared**
                **Investment**
                **Power****(1)**
              
              **%
                  of**
                **Class****(2)**
              
              **Shared**
                **Voting**
                **Power**
              
              **%
                  of Total**
                **Votes**Max
                  A. Coon(3)
              
              
              Common
                  Stock
              
              
              878,456
              
              
              948,693(4)
              
              
              27.5
              %
              
              948,693
              
              
              25.3
              %Eric
                  L. Cross
              
              
              Common
                  Stock
              
              
              168,775(5)
              
              
              220,525(6)
              
              
              6.3
              %
              
              178,025
              
              
              4.8
              %Vincent
                  Shunsky
              
              
              Common
                  Stock
              
              
              118,392(5)
              
              
              170,142(7)
              
              
              4.9
              %
              
              127,642
              
              
              3.4
              %Sanjeev
                  Deshpande
              
              
              Common
                  Stock
              
              
              45,089(8)
              
              
              45,089(8)
              
              
              1.3
              %
              
              5,089
              
              
              *Joel
                  I. Ferguson
              
              
              Common
                  Stock
              
              
              0
              
              
              0
              
              
              *
              
              
              0
              
              
              *David
                  R. Layton
              
              
              Common
                  Stock
              
              
              0
              
              
              1,000(9)
              
              
              *
              
              
              1,000
              
              
              *Samuel
                  O. Mallory
              
              
              Common
                  Stock
              
              
              22,200
              
              
              22,200
              
              
              *
              
              
              22,200
              
              
              *All
                  Directors and Officers as a group, including the above seven
                  people
              
              
              Common
                  Stock
              
              
              1,232,912
              
              
              1,407,649
              
              
              39.4
              %
              
              1,282,649
              
              
              34.3
              %ROI
                  Capital Management, Inc.(10)
              
              
              Common
                  Stock
              
              
              860,998
              
              
              928,463(11)
              
              
              26.9
              %
              
              928,463
              
              
              24.8
              %Daryle
                  L. Doden(12)
              
              
              Common
                  Stock
              
              
              250,000(13)
              
              
              345,800(14)
              
              
              10.0
              %
              
              345,800
              
              
              9.2
              %Andrew
                  S. Zynda(15)
              
              
              Common
                  Stock
              
              
              327,740
              
              
              342,740
              
              
              9.9
              %
              
              342,740
              
              
              9.2
              %2,671,650
              
              
              3,024,652
              
              
              84.7
              %
              
              2,899,652
              
              
              77.5
              %Max
                  A. Coon
              
              
              Series
                  Three Preferred Stock
              
              
              169
              
              
              3,409(16)
              
              
              23.1
              %
              
              68,180
              
              
              1.8
              %Vincent
                  Shunsky
              
              
              Series
                  Three Preferred Stock
              
              
              30
              
              
              30
              
              
              *
              
              
              600
              
              
              *Max
                  A. Coon
              
              
              Series
                  Four Preferred Stock17
              
              
              7,000
              
              
              7,000
              
              
              15.1
              %
              
              0Andrew
                  S. Zynda
              
              
              Series
                  Four Preferred Stock17
              
              
              10,000
              
              
              10,000
              
              
              21.6
              %
              
              0Max
                  A. Coon
              
              
              Series
                  Five Preferred Stock17
              
              
              3,816
              
              
              3,816
              
              
              57.4
              %
              
              0


*
                Beneficial
                    ownership does not exceed one percent
                    (1%).


(1)
            Includes
                Sole Investment Power as well as shares beneficially
                owned.


(2)
            Calculated
                based on Shared Investment Power.


(3)
            Mr.
                Coon’s address is 1118 Centennial Way, Lansing, Michigan
                49817.


(4)
            Includes
                18,487 shares owned by Mr. Coon's immediate family and a proportionate
                share of 155,250 shares held by a general partnership in which Mr.
                Coon is
                a 1/3 partner.


(5)
            Includes
                options to purchase 42,500 shares. Such options were not exercised
                as of
                June 30, 2005 and thus were not included in voting
                power.


(6)
            Includes
                a proportionate share of 155,250 shares held by a general partnership
                in
                which Mr. Cross is a 1/3 partner.


(7)
            Includes
                a proportionate share of 155,250 shares held by a general partnership
                in
                which Mr. Shunsky is a 1/3 partner.


(8)
            Includes
                options to purchase 40,000 shares. Such options were not exercised
                as of
                June 30, 2005 and thus were not included in voting
                power.


(9)
            Represents
                shares held in a pension fund of which Mr. Layton is one of the
                trustees.


(10)
            Information
                obtained from Schedule 13D/A dated April 5, 2005 filed with the Securities
                and Exchange Commission. The address of ROI Capital Management, Inc.
                is
                300 Drakes Landing Rd., Suite 175, Greenbrae, CA
                94904.


(11)
            Information
                obtained from Schedule 13D/A dated April 5, 2005 filed with the Securities
                and Exchange Commission. Includes 57,465 shares in a personal IRA
                of Mark
                T. Boyer and 10,000 shares in a personal IRA of Mitchell J. Soboleski.
                Messrs. Boyer and Soboleski are the owners of ROI Capital Management,
                Inc.
                and have dispositive authority of the reported securities held in
                advisory
                accounts of ROI Capital Management,
                Inc.


(12)
            Mr.
                Doden’s address is 1610 S. Grandstaff Dr., Auburn, IN 46706 or P.O. Box
                51, Auburn, IN 46706.


(13)
            Represents
                shares in the name of Contractor Supply, Incorporated of which Mr.
                Doden
                owns 100%.


(14)
            Includes
                95,800 shares in the name of Master Works Foundation, Inc., an Indiana
                non-profit corporation in which Mr. Doden is one-third
                member.


(15)
            Mr.
                Zynda’s address is Box 113, Corwin Road, Williamston, MI
                48895.


(16)
            Represents
                shares owned by a charitable foundation of which Mr. Coon is one
                of the
                trustees.


(17)
            Series
                Four and Series Five Preferred Stock are both
                nonvoting.






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**ITEM
      13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS******





In
      June
      2003 the Company assumed a lease with CJC Leasing, a limited liability company
      in which Mr. Coon is a member, from Contractor Supply Incorporated, the
      purchaser of the Company’s formerly wholly owned subsidiary, Ersco Corporation.
      Contractor Supply Incorporated was required under the lease to pay CJC Leasing
      an aggregate of approximately $2.3 million in monthly installment payments
      over
      a period of approximately 4 years. In exchange for the Company assuming
      Contractors Supply Incorporated’s lease payments to CJC Leasing, Contractors
      Supply Incorporated and the Company agreed to reduce the amount the Company
      owed
      Contractor Supply Incorporated by $2.3 million. The assumption of the lease
      obligations to CJC Leasing by the Company allowed the Company to retire a $2.3
      million debt that was otherwise due and payable to Contractors Supply
      Incorporated, by making monthly payments of the approximate $2.3 million over
      four years. In addition, at June 30, 2005, $107,000 was due from Maxco to
      entities in which Mr. Coon has an interest.





Vincent
      Shunsky, Vice President, is indebted to the Company in the principal amount
      of
      approximately $127,000. The indebtedness was incurred at various times prior
      to
      April 2002 for the purchase of affiliate company stock and personal use. This
      debt carries interest rates up to 8%. As of June 30, 2005 the amount outstanding
      was approximately $174,000 including accrued interest. In October 2004 the
      Company entered into a Retention Agreement with Mr. Shunsky to provide him
      with
      a bonus of $200,000 to retain his services until at least March 31, 2006. Should
      he leave the employ of the Company prior to that date the bonus must be repaid.
      The Company is expensing the bonus ratably during the retention
      period.





In
      April
      2004 the Company entered into an incentive agreement with the President of
      its
      wholly-owned subsidiary Atmosphere Annealing, Inc. The agreement provides for
      compensation to the officer based on the increased value, as defined, of the
      subsidiary by March 31, 2006. The incentive is equal to 1% of the first $25
      million in value plus 10% above that base amount. Any incentive so earned is
      payable by Maxco, Inc. in cash assuming a sale by March 31, 2006. If no such
      sale occurs by that date, at the option of Maxco the incentive is payable in
      cash or its equivalent in stock of Atmosphere Annealing, Inc. held by Maxco.
      As
      party to the agreement, Maxco, Inc. is recognizing incentive compensation
      expense on a pro-rata basis under the terms of the agreement. The amount accrued
      during the year ended March 31, 2005 was $650,000.





In
      April
      2005, the Company acquired BCGW, Inc. ("BCGW"), the entity that owns the
      buildings the Company currently leases in Lansing, Michigan. Max A. Coon’s
      spouse was a 25% shareholder of BCGW. At March 31, 2004, the Company owed BCGW
      $1.6 million on an outstanding loan obligation which carried an interest rate
      of
      10%. In May 2004 Atmosphere retired that obligation; Atmosphere and BCGW entered
      into an agreement whereby BCGW agreed to accept as payment in full the remaining
      outstanding balance less a discount of approximately $94,000. The amount the
      Company charged to rent expense related to the two buildings leased from BCGW
      totaled approximately $253,000 and $373,000 for the years ended March 31, 2005
      and 2004, respectively. Interest on the debt to BCGW totaled $3,000 and $181,000
      for the years ended March 31, 2005 and 2004, respectively.




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**ITEM****14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      firm
      of Ernst & Young LLP served as auditors for the Company for the fiscal year
      ended March 31, 2003. Effective May 7, 2004, the Company dismissed Ernst &
Young LLP and engaged the accounting firm of Rehmann Robson as its new
      independent public accountants. The decision to change Maxco’s accounting firm
      was approved by the audit committee of the board of directors on May 6, 2004
      and
      reported on Form 8-K/A dated May 7, 2004. Rehmann Robson served as auditors
      for
      the Company for the fiscal years ended March 31, 2005 and March 31, 2004.





For
      the
      two years ended March 31, 2005 and 2004, the Company’s auditors billed the
      Company for its services as follows:





*Audit
      Fees* . 2005 $57,500
      for aggregate fees billed for professional services rendered by Rehmann Robson
      for the audit of the Company’s annual financial statements for the year ended
      March 31, 2005 and the reviews of the financial statements included in the
      Company’s quarterly reports filed with the Securities and Exchange Commission
      during the year.




*Audit
      Fees.* 2004 $54,500
      for aggregate fees billed for professional services rendered by Rehmann Robson
      for the audit of the Company’s annual financial statements for the year ended
      March 31, 2004.





2004 $25,500
      for aggregate fees billed for professional services by Ernst & Young, LLP
      rendered for the reviews of the financial statements included in the Company’s
      quarterly reports filed with the Securities and Exchange Commission during
      the
      year.





*Audit-Related
      Fees* .   There
      were no such fees.




*Tax
      Fees* .       There
      were no such fees.




*All
      Other Fees* .     There
      were no such fees.





There
      were no additional fees billed for services to the Company other than the
      above.





The
      Audit
      Committee of the Company’s Board of Directors is of the opinion that the
      provision of services described above was compatible with maintaining the
      independence of Rehmann Robson and Ernst & Young LLP. In 2004, the Audit
      Committee revised its charter to comply with the mandates of the Sarbanes-Oxley
      Act of 2002 and related rules and regulations of the Securities and Exchange
      Commission, including pre-approval policies and procedures. All services
      rendered to the Company by the Company’s auditors for the years ended March 31,
      2004, and March 31, 2005 were permissible under applicable laws and regulations,
      and were pre-approved by the Audit Committee.




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**PART
      IV**





**ITEM
      15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





(a)(1)
      and (2)--The response to this portion of Item 15 is submitted as a separate
      section of this report.


(3)  Listing
      of Exhibits





Exhibit
                Number3
            
            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,
                1988.10.11
            
            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,
                1997.10.18
            
            Maxco,
                Inc. 1998 Employee Stock Option Plan is hereby incorporated by reference
                from Form 10-Q dated November 12, 1998.10.29
            
            Obligor
                assignment agreement among Contractor Supply Incorporated, Maxco,
                Inc.,
                and Ersco Corporation dated November 14, 2002 is hereby incorporated
                by
                reference from Form 10-Q dated November 25, 2002.10.30
            
            Stock
                purchase agreement between Ersco Corporation, Maxco, Inc., and Contractor
                Supply Incorporated dated November 14, 2002 is hereby incorporated
                by
                reference from Form 10-Q dated November 25, 2002.10.31
            
            Asset
                Purchase Agreement between Pak Sak Industries, Inc., Maxco, Inc.,
                P-S
                Business Acquisition, Inc., and P&D Real Estate, LLC and Packaging
                Personified, Inc. dated September 27, 2002 is hereby incorporated
                by
                reference from Form 10-Q dated February 14, 2003.10.32
            
            First
                Amendment to Asset Purchase Agreement between Pak Sak Industries,
                Inc.,
                Maxco, Inc., P-S Business Acquisition, Inc., and P&D Real Estate, LLC
                and Packaging Personified, Inc. dated October 30, 2002 is hereby
                incorporated by reference from Form 10-Q dated February 14,
                2003.10.33
            
            Second
                Amendment to Asset Purchase Agreement between Pak Sak Industries,
                Inc.,
                Maxco, Inc., P-S Business Acquisition, Inc., and P&D Real Estate, LLC
                and Packaging Personified, Inc. dated November 25, 2002 is hereby
                incorporated by reference from Form 10-Q dated February 14,
                2003.10.34
            
            Credit
                Agreement between Atmosphere Annealing, Inc. and Huntington National
                Bank
                dated November 18, 2003 is hereby incorporated by reference from
                Form 10-Q
                dated November 19, 2003.10.35
            
            Subordination
                Agreement between Maxco, Inc., Atmosphere Annealing, Inc. and Comerica
                Bank and Huntington National Bank dated November 18, 2003 is hereby
                incorporated by reference from Form 10-Q dated November 19,
                2003.10.36
            
            Incentive
                agreement between Sanjeev Deshpande and Maxco, Inc. dated April 20,
                2004
                is hereby incorporated by reference from Form 10-K dated July 13,
                2004.10.37
            
            Business
                Loan Agreement between Capitol National Bank and Maxco, Inc. dated
                May 28,
                2004 is hereby incorporated by reference from Form 10-K dated July
                13,
                2004.21
            
            Subsidiaries
                of the Registrant23.1
            
            Consent
                of Independent Registered Public Accounting Firm—Rehmann Robson (Form S-8
                filed June 2, 1992 - File No. 33-48351 and Form S-8 filed November
                19,
                1998 - File No. 333-67539).23.2
            
            Consent
                of Independent Registered Public Accounting Firm—Ernst & Young LLP
                (Form S-8 filed June 2, 1992 - File No. 33-48351 and Form S-8 filed
                November 19, 1998 - File No. 333-67539).23.3
            
            Consent
                of Independent Registered Public Accounting Firm—Moore Stephens Doeren
                Mayhew (Form S-8 filed June 2, 1992 - File No. 33-48351 and Form
                S-8 filed
                November 19, 1998 - File No. 333-67539).31.1
            
            Certification
                of Chief Executive Officer of periodic report pursuant to Rule 13a-15(e)
                or Rule 15d-15(e).31.2
            
            Certification
                of Chief Financial Officer of periodic report pursuant to Rule 13a-15(e)
                or Rule 15d-15(e).32.1
            
            Certification
                of Chief Executive Officer of periodic report pursuant to 18 U.S.C.
                §1350.32.2
            
            Certification
                of Chief Financial Officer of periodic report pursuant to 18 U.S.C.
                §1350.





(b)
            Exhibits


-  Subsidiaries
      of the Registrant


-  Consent
      of Independent Registered Public Accounting Firm—Rehmann Robson


-  Consent
      of Independent Registered Public Accounting Firm—Ernst & Young
      LLP


-  Consent
      of Independent Registered Public Accounting Firm—Moore Stephens Doeren
      Mayhew


-  Certification
      of Chief Executive Officer of periodic report pursuant to Rule 13a-15(e) or
      Rule
      15d-15(e)


-  Certification
      of Chief Financial Officer of periodic report pursuant to Rule 13a-15(e) or
      Rule
      15d-15(e)


-  Certification
      of Chief Executive Officer of periodic report pursuant to 18 U.S.C.
§1350


-  Certification
      of Chief Financial Officer of periodic report pursuant to 18 U.S.C.
§1350


(c)
              Financial
                  Statement Schedules


None




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**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 February
      3, 2006


**MAXCO,
      INC.**




By /S/
      LAWRENCE O. FIELDS


Lawrence
      O. Fields, Chief Financial Officer and Treasurer


(Principal
      Financial and Accounting Officer)





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




/S/
                  MAX A. COON
              
              February
                  3, 2006
              
              President
                  (Principal Executive Officer) and DirectorMax
                  A. Coon
              
              Date/S/
                  JOEL I. FERGUSON
              
              February
                  3, 2006
              
              DirectorJoel
                  I. Ferguson
              
              Date/S/
                  DAVID R. LAYTON
              
              February
                  3, 2006
              
              DirectorDavid
                  R. Layton
              
              Date/S/
                  SANJEEV DESHPANDE
              
              February
                  3, 2006
              
              DirectorSanjeev
                  Deshpande
              
              Date/S/
                  SAMUEL O. MALLORY
              
              February
                  3, 2006
              
              DirectorSamuel
                  O. Mallory
              
              Date


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ANNUAL
      REPORT ON FORM 10-K





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





CONSOLIDATED
      FINANCIAL STATEMENTS





CERTAIN
      EXHIBITS





YEAR
      ENDED MARCH 31, 2005





MAXCO,
      INC.





LANSING,
      MICHIGAN




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FORM
      10-K--ITEM 15(a)(1) AND (2)





MAXCO,
      INC. AND SUBSIDIARIES




CONSOLIDATED
      FINANCIAL STATEMENTS





The
                following consolidated financial statements of Maxco, Inc. and
                subsidiaries are included in Item 8:
            Page(s)Reports
                of Independent Registered Public Accounting
                Firms
            29-30Consolidated
                balance sheets—March 31, 2005 and
                2004
            31Consolidated
                statements of operations—Years ended March 31,
                2005, 2004, and 2003
            32Consolidated
                statements of stockholders’ equity—Years ended
                March 31, 2005, 2004, and 2003
            33Consolidated
                statements of cash flows—Years ended March 31,
                2005, 2004, and 2003
            34Notes
                to consolidated financial statements—Years ended March
                31, 2005, 2004, and 2003
            35-47





All
      schedules for which provision is made in the applicable accounting regulations
      of the Securities and Exchange Commission are included in Notes to Consolidated
      Financial Statements, 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, 2004, as filed with the
      Securities and Exchange Commission (SEC File Number 0-12728).




-28-
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          to Table of Contents**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








Board
      of
      Directors and Stockholders


Maxco,
      Inc.


Lansing,
      Michigan








We
      have
      audited the accompanying consolidated balance sheets of Maxco, Inc. and
      subsidiaries as of March 31, 2005 and 2004, and the related consolidated
      statements of operations, stockholders' equity and cash flows for each of the
      two years then ended. These consolidated financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated 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 as of March 31, 2005 and 2004, and the consolidated results of
      their operations and their cash flows for each of the two years then ended
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.








/S/
      Rehmann Robson


Troy,
      Michigan


July
      14,
      2005




-29-
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          to Table of Contents**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








To
      the
      Shareholders and Board of Directors, Maxco, Inc.:





We
      have
      audited the accompanying consolidated statements of operations, shareholders'
      equity, and cash flows of Maxco, Inc. and subsidiaries for the year ended March
      31, 2003. 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. The financial statements of Integral Vision,
      Inc., (a corporation in which the Company had approximately a 24% interest)
      for
      the year ended December 31, 2002, have been audited by other auditors whose
      report has been furnished to us; insofar as our opinion on the consolidated
      financial statements relates to data included for Integral Vision, Inc., it
      is
      based solely on their report.





We
      conducted our audit in accordance with standards of the Public Company
      Accounting Oversight Board (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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company's internal control over financial reporting. Accordingly, we express
      no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, assessing
      the accounting principles used and significant estimates made by management,
      and
      evaluating the overall financial statement presentation. We believe that our
      audit provides a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated results of Maxco, Inc. and
      subsidiaries’ operations and their cash flows for the year ended March 31, 2003,
      in conformity with U.S. generally accepted accounting principles.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      Maxco, Inc. will continue as a going concern. As more fully described in Note
      1
      to the consolidated financial statements, Maxco, Inc. is currently negotiating
      with third parties in an attempt to obtain alternative financing, which, in
      management’s opinion, would provide adequate cash flows to meet its debt service
      requirements. There can be no assurance that the Company will have sufficient
      funds to meet current debt service requirements. Uncertainties inherent in
      obtaining additional sources of funds raise substantial doubt about Maxco,
      Inc.’s ability to continue as a going concern. Management's intentions with
      respect to these matters are also described in Note 1. The accompanying
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





As
      discussed in Notes 1 and 12 to the consolidated financial statements in 2003,
      the Company adopted Statement of Financial Accounting Standards (SFAS) No.
      142,
      which changed its method of accounting for goodwill and indefinite-lived
      intangible assets, and SFAS No. 144, which separately reported discontinued
      operations for all years reported.





/s/
      Ernst
& Young LLP





Detroit,
      Michigan


June
      11,
      2003




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**CONSOLIDATED
      BALANCE SHEETS**


**MAXCO,
      INC. AND SUBSIDIARIES**


**March
                  31,****2005**
              
              **2004*****(in
                  thousands)*****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              1,781
              
              $
              78Accounts
                  receivable, less allowance of $128,000 in 2005 and $134,000 in
                  2004
              
              
              6,605
              
              
              7,629Inventories—Note
                  1
              
              
              534
              
              
              408Prepaid
                  expenses and other
              
              
              223
              
              
              429**Total
                  Current Assets**
              
              
              9,143
              
              
              8,544**Marketable
                  Securities—Note 1**
              
              
              2
              
              
              2**Property
                  and Equipment**Land
              
              
              437
              
              
              446Buildings
              
              
              5,997
              
              
              6,170Machinery,
                  equipment, and fixtures
              
              
              30,052
              
              
              29,06836,486
              
              
              35,684Allowances
                  for depreciation
              
              
              (18,018
              )
              
              (15,265
              )18,468
              
              
              20,419**Other
                  Assets**Investments—Note
                  9
              
              
              878
              
              
              1,138Notes
                  and contracts receivable and other, less allowance of $350,000
                  in
                  2004
              
              
              994
              
              
              1,338Real
                  estate investments held for sale—Note 9
              
              
              1,850
              
              
              2,200Accounts
                  receivable, related parties—Note 2
              
              
              407
              
              
              416Intangibles—Note
                  1
              
              
              1,424
              
              
              1,4245,553
              
              
              6,516$
              33,166
              
              $
              35,481**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Notes
                  payable—Note 4
              
              $
              2,091
              
              $
              4,885Accounts
                  payable—Note 2
              
              
              3,870
              
              
              4,221Employee
                  compensation
              
              
              1,711
              
              
              1,525Incentive
                  compensation—Note 10
              
              
              650
              
              
              —Taxes,
                  interest, and other liabilities
              
              
              3,850
              
              
              3,585Current
                  maturities of long-term obligations
              
              
              4,959
              
              
              2,064**Total
                  Current Liabilities**
              
              
              17,131
              
              
              16,280**Long-Term
                  Obligations, Less Current Maturities—Note 4**
              
              
              7,070
              
              
              11,480**Total
                  Liabilities**
              
              
              24,201
              
              
              27,760**Stockholders'
                  Equity—Notes 5 and 6**Preferred
                  stock:Series
                  Three: 10% cumulative callable, $60 face value; 14,784 shares issued
                  and
                  outstanding
              
              
              678
              
              
              678Series
                  Four: 10% cumulative callable, $51.50 face value; 46,414 shares
                  issued and
                  outstanding
              
              
              2,390
              
              
              2,390Series
                  Five: 10% cumulative callable, $120 face value; 6,648 shares issued
                  and
                  outstanding
              
              
              798
              
              
              798Series
                  Six: 10% cumulative callable, $160 face value; 20,000 shares authorized,
                  none issued
              
              
              —
              
              
              —3,866
              
              
              3,866Common
                  stock, $1 par value; 10,000,000 shares authorized, 3,446,995 shares
                  issued
                  and outstanding (3,101,195 at March 31, 2004)
              
              
              3,447
              
              
              3,101Accumulated
                  other comprehensive loss
              
              
              (38
              )
              
              (172
              )Retained
                  earnings
              
              
              1,690
              
              
              926**Total
                  Stockholders' Equity**
              
              
              8,965
              
              
              7,721$
              33,166
              
              $
              35,481


See
      notes
      to consolidated financial statements.




-31-
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          to Table of Contents**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**MAXCO,
      INC. AND SUBSIDIARIES**





**Year
                Ended March 31,****2005**
            
            **2004**
            
            **2003*****(in
                thousands, except per share data)*****Net
                Sales**
            
            $
            45,364
            
            $
            40,798
            
            $
            36,827**Costs
                and Expenses:**Cost
                of sales and operating expenses
            
            
            29,039
            
            
            26,774
            
            
            23,305Selling,
                general, and administrative
            
            
            11,396
            
            
            10,956
            
            
            11,256Gain
                on sale of buildings
            
            
            —
            
            
            —
            
            
            (149
            )Depreciation
                and amortization
            
            
            2,926
            
            
            2,899
            
            
            2,94943,361
            
            
            40,629
            
            
            37,361**Operating
                Earnings (Loss)**
            
            
            2,003
            
            
            169
            
            
            (534
            )**Other
                Income (Expense):**Investment,
                interest, and other income
            
            
            266
            
            
            150
            
            
            714Gain
                (loss) on sale of investments—Note 9
            
            
            —
            
            
            1,340
            
            
            (265
            )Loss
                on sale of assets
            
            
            (8
            )
            
            (72
            )
            
            —Interest
                expense
            
            
            (1,517
            )
            
            (1,682
            )
            
            (1,944
            )Loss
                on investments—Note 9
            
            
            (610
            )
            
            (1,115
            )
            
            (9,320
            )(1,869
            )
            
            (1,379
            )
            
            (10,815
            )**Income
                (Loss) Before Federal Income Taxes, Equity in Net Loss of Affiliates,
                and
                Discontinued Operations**
            
            
            134
            
            
            (1,210
            )
            
            (11,349
            )Federal
                income tax benefit—Note 8
            
            
            —
            
            
            —
            
            
            (875
            )**Income
                (Loss) Before Equity in Net Loss of Affiliates and Discontinued
                Operations**
            
            
            134
            
            
            (1,210
            )
            
            (10,474
            )Equity
                in net loss of affiliates, net of tax—Notes 3, 8, and 9
            
            
            —
            
            
            (321
            )
            
            (614
            )**Income
                (Loss) from Continuing Operations**
            
            
            134
            
            
            (1,531
            )
            
            (11,088
            )Loss
                from discontinued operations, net of tax—Note 13
            
            
            —
            
            
            —
            
            
            (1,737
            )**Net
                Income (Loss)**
            
            
            134
            
            
            (1,531
            )
            
            (12,825
            )Less
                preferred stock dividends
            
            
            (408
            )
            
            (408
            )
            
            (408
            )**Net
                Loss Applicable to Common Stock**
            
            $
            (274
            )
            $
            (1,939
            )
            $
            (13,233
            )**Net
                Loss Per Share—Basic and Diluted—Note 12**Continuing
                operations
            
            $
            (0.09
            )
            $
            (0.63
            )
            $
            (3.71
            )Discontinued
                operations
            
            
            —
            
            
            —
            
            
            (0.56
            )$
            (0.09
            )
            $
            (0.63
            )
            $
            (4.27
            )


See
      notes
      to consolidated financial statements.




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**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’
EQUITY**


**MAXCO,
      INC. AND SUBSIDIARIES**





**Number
                of Common Shares Outstanding**
            
            **Preferred**
              **Stock**
            
            **Common**
              **Stock**
            
            **Accumulated
                Other Comprehensive Loss**
            
            **Retained
                Earnings**
            
            **Totals*****(in
                thousands)*****Balances
                at April 1, 2002**
            
            
            3,101
            
            $
            3,866
            
            $
            3,101
            
            $
            (78
            )
            $
            16,098
            
            $
            22,987Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (12,825
            )
            
            (12,825
            )Net
                unrealized loss on marketable securities, net of taxes of
                $29,000
            
            
            
            
            
            
            
            
            
            
            
            (56
            )
            
            
            
            
            (56
            )Realized
                loss on marketable securities, net of taxes of $2,000
            
            
            
            
            
            
            
            
            
            
            
            (6
            )
            
            
            
            
            (6
            )Unrealized
                loss on swap agreement
            
            
            
            
            
            
            
            
            
            
            
            (158
            )
            
            
            
            
            (158
            )Total
                Comprehensive Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (13,045
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (408
            )
            
            (408
            )**Balances
                at March 31, 2003**
            
            
            3,101
            
            
            3,866
            
            
            3,101
            
            
            (298
            )
            
            2,865
            
            
            9,534Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,531
            )
            
            (1,531
            )Net
                unrealized gain on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            56
            
            
            
            
            
            56Unrealized
                gain on swap agreement
            
            
            
            
            
            
            
            
            
            
            
            70
            
            
            
            
            
            70Total
                Comprehensive Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,405
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (408
            )
            
            (408
            )**Balances
                at March 31, 2004**
            
            
            3,101
            
            
            3,866
            
            
            3,101
            
            
            (172
            )
            
            926
            
            
            7,721Net
                income for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            134
            
            
            134Unrealized
                gain on swap agreement
            
            
            
            
            
            
            
            
            
            
            
            134
            
            
            
            
            
            134Total
                Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            268Conversion
                of debt to common stock
            
            
            346
            
            
            
            
            
            346
            
            
            
            
            
            1,038
            
            
            1,384Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (408
            )
            
            (408
            )**Balances
                at March 31, 2005**
            
            
            3,447
            
            $
            3,866
            
            $
            3,447
            
            $
            (38
            )
            $
            1,690
            
            $
            8,965


See
      notes
      to consolidated financial statements.




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          to Table of Contents**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**MAXCO,
      INC. AND SUBSIDIARIES**


**Year
                  Ended March 31,****2005**
              
              **2004**
              
              **2003*****(in
                  thousands)*****Operating
                  Activities**Net
                  income (loss)
              
              $
              134
              
              $
              (1,531
              )
              $
              (12,825
              )Loss
                  from discontinued operations
              
              
              —
              
              
              —
              
              
              1,737Income
                  (loss) from continuing operations
              
              
              134
              
              
              (1,531
              )
              
              (11,088
              )Advances
                  to discontinued operations
              
              
              —
              
              
              —
              
              
              (1,485
              )Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
              
              
              2,926
              
              
              2,879
              
              
              2,919Amortization
                  of deferred financing costs
              
              
              —
              
              
              20
              
              
              30Equity
                  in net loss of affiliates
              
              
              —
              
              
              321
              
              
              614Deferred
                  federal income tax benefit
              
              
              —
              
              
              —
              
              
              (875
              )(Gain)
                  loss on sale of investments
              
              
              —
              
              
              (1,340
              )
              
              265(Gain)
                  loss on sale of property and equipment
              
              
              8
              
              
              72
              
              
              (149
              )Loss
                  on investments
              
              
              610
              
              
              1,115
              
              
              9,320Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              315
              
              
              (370
              )
              
              (2,417
              )Inventories
              
              
              (126
              )
              
              (232
              )
              
              180Income
                  tax refunds
              
              
              —
              
              
              —
              
              
              4,635Prepaid
                  expenses and other
              
              
              206
              
              
              (202
              )
              
              (566
              )Accounts
                  payable and other current liabilities
              
              
              725
              
              
              1,576
              
              
              871**Net
                  Cash Provided by Operating Activities**
              
              
              4,798
              
              
              2,308
              
              
              2,254**Investing
                  Activities**Sale
                  of businesses
              
              
              —
              
              
              —
              
              
              7,723Sale
                  of property and equipment
              
              
              57
              
              
              400
              
              
              2,496Purchases
                  of property and equipment
              
              
              (1,042
              )
              
              (698
              )
              
              (531
              )Sale
                  of investments
              
              
              —
              
              
              1,179
              
              
              326Collections
                  of notes receivable
              
              
              1,013
              
              
              99
              
              
              1,080Other
              
              
              51
              
              
              119
              
              
              513**Net
                  Cash Provided by Investing Activities**
              
              
              79
              
              
              1,099
              
              
              11,607**Financing
                  Activities**Net
                  proceeds from (repayments on) lines of credit
              
              
              (2,015
              )
              
              (1,419
              )
              
              471Proceeds
                  from other debt obligations
              
              
              5,513
              
              
              6,881
              
              
              4,063Repayments
                  on other debt obligations
              
              
              (6,672
              )
              
              (9,182
              )
              
              (18,349
              )**Net
                  Cash Used in Financing Activities**
              
              
              (3,174
              )
              
              (3,720
              )
              
              (13,815
              )Increase
                  (Decrease) in Cash and Cash Equivalents
              
              
              1,703
              
              
              (313
              )
              
              46Cash
                  and Cash Equivalents at Beginning of Year
              
              
              78
              
              
              391
              
              
              345Cash
                  and Cash Equivalents at End of Year
              
              $
              1,781
              
              $
              78
              
              $
              391Supplemental
                  cash flows disclosure:Interest
                  paid
              
              $
              1,655
              
              $
              1,601
              
              $
              1,677


See
      notes
      to consolidated financial statements.






-34-
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          to Table of Contents**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**MAXCO,
      INC. AND SUBSIDIARIES**





**Year
      Ended March 31, 2005**





**NOTE
      1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




Nature
      of Business :  Maxco,
      Inc. (Maxco) is a Michigan corporation incorporated in 1946. Maxco currently
      operates in the heat-treating business segment through Atmosphere Annealing
      Inc., a production metal heat-treating service company. Maxco also has
      investments in real estate and investments representing less than majority
      interests in the following businesses: a registered broker-dealer of securities
      that is primarily focused on the trading of fixed income investments; a
      developer, manufacturer and marketer of microprocessor-based process monitoring
      and inspection systems for use in industrial manufacturing environments; and
      an
      energy-related business.





Financial
      Statement Presentation :  The
      accompanying financial statements have been prepared on the basis that the
      Company will continue as a going concern which contemplates the realization
      of
      assets and the satisfaction of liabilities in the normal course of business.
      Although there is concern about the Company’s ability to operate as a going
      concern due to current debt service requirements and recurring losses,
      management believes it has substantially reduced the risk as debt previously
      in
      default has been refinanced and the Company’s exposures relative to outstanding
      guarantees have been significantly reduced. The Company’s ability to meet its
      short term and long term debt service and other obligations (including
      compliance with financial covenants) will continue to be dependent upon its
      future operating performance. This dependency will be subject to financial,
      business and other factors, certain of which, such as prevailing economic
      conditions, are beyond the Company’s control. The Company believes that funds
      generated by its operations, funds available under its credit facilities, and
      funds that could be available under other credit facilities will be sufficient
      to finance near term capital needs, as well as to fund existing operations
      for
      the reasonably foreseeable future. Additionally the Company has long term equity
      investments that could be liquidated to meet its debt service
      requirements.





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
      unconsolidated investments are accounted for under the equity method.
      Investments in less than 20% owned affiliates are accounted for under the cost
      method with the exception of Integral Vision, Inc., which continues to be
      accounted for under the equity method because of Maxco’s representation on
      Integral Vision, Inc.’s Board of Directors.





Use
      of
      Estimates :  The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States requires management to make
      estimates and assumptions that affect the amounts reported in the consolidated
      financial statements and accompanying notes. Actual results could differ from
      those estimates. Significant estimates include the allowance for doubtful
      accounts receivable, the valuation of equity method investments, and the fair
      value less costs to sell of real estate investments held-for-sale.





Reclassifications :  Certain
      items in the prior year consolidated financial statements have been reclassified
      to conform with the presentation used in 2005.





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. Approximately $1.4 million of the
      Company’s cash balance at March 31, 2005 exceeded insured FDIC
      limits.




Receivables :
      Trade
      accounts receivable represent amounts due from customers in the automotive
      industry, primarily in the mid-western United States. The Company does not
      require collateral or other security to support outstanding accounts
      receivable.





Allowance
      for Uncollectible Accounts Receivable :
      Accounts receivable have been reduced by an allowance for amounts that may
      become uncollectible in the future. This estimated allowance is based primarily
      on management’s evaluation of the financial condition of the customer and
      historical experience. The following table summarizes changes in the allowance
      for uncollectible accounts receivable:


**Year
                Ended March 31,****2005**
            
            **2004**
            
            **2003***(in
                thousands)*Beginning
                balance
            
            $
            134
            
            $
            150
            
            $
            143Charged
                to costs and expenses
            
            
            186
            
            
            12
            
            
            7Deductions(A)
            
            
            (192
            )
            
            (28
            )
            
            —Ending
                balance
            
            $
            128
            
            $
            134
            
            $
            150







(A)
            Represents
                uncollectible accounts written off, less
                recoveries





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


**2005**
            
            **2004***(in
                thousands)*Raw
                materials
            
            $
            329
            
            $
            174Work
                in progress
            
            
            157
            
            
            190Finished
                goods
            
            
            48
            
            
            44$
            534
            
            $
            408




The
      Company ordinarily does not take title to the customer parts received for
      processing; accordingly, such parts are not included in these consolidated
      financial statements.





Marketable
      Securities :
      Marketable securities are classified in accordance with Statement of Financial
      Accounting Standards No. 115 (“SFAS 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.





Maxco
      accounts for its investment in Provant, Inc. common stock as securities
      available for sale as defined by SFAS 115. Consequently, the securities are
      carried at fair value with the unrealized gains and losses net of tax, reported
      as a separate component of stockholders’ equity. In 2004 and 2003, the Company
      recognized losses on its investment in Provant common stock as an other than
      temporary impairment in the statements of operations of $366,000 and $1.4
      million, respectively.





Real
      Estate Investments Held For Sale :
      The
      Company has ownership interests in affiliated entities that hold commercial
      real
      estate. In addition, the Company has made cash advances, which are unsecured
      and
      bear interest, to these affiliates. The Company has implemented a plan to
      liquidate these investments and their underlying real estate holdings. The
      Company accounts for these real estate investments as held-for-sale in these
      consolidated financial statements. The carrying amount of $1.9 million and
      $2.2
      million at March 31, 2005 and 2004, respectively, represents the Company’s
      portion of the fair value, net of estimated costs to sell, of these real estate
      interests.





Properties
      and Depreciation :
      Property and equipment are stated on the basis of cost and include expenditures
      for new facilities, 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 for financial reporting purposes, including amortization of
      capitalized leases, is computed by the straight-line method based on the useful
      lives or lease terms of the assets (10 to 40 years for buildings and 3 to 10
      years for equipment).





Federal
      Income Taxes :
      The
      Company accounts for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”), which requires the use of the liability method in accounting for income
      taxes. Under SFAS 109, deferred tax assets and liabilities are measured based
      on
      differences between the financial reporting and tax bases of assets and
      liabilities using enacted tax rates and laws that will be in effect when
      differences are expected to reverse. The effect on deferred tax assets and
      liabilities of a change in tax rates is recognized in income in the period
      that
      includes the enactment date. A valuation allowance is provided for net deferred
      tax assets if it is more likely than not that these items will either expire
      before the Company is able to realize their benefit, or future deductibility
      is
      uncertain.





Allowance
      for Uncollectible Notes Receivable :
      Notes
      receivable have been reduced by an allowance for amounts that may become
      uncollectible in the future. This estimated allowance is based primarily on
      management’s evaluation of the financial condition of the debtor and historical
      experience. The following table summarizes changes in the allowance for
      uncollectible notes receivable:


**Year
                Ended March 31,****2005**
            
            **2004**
            
            **2003***(in
                thousands)*Beginning
                balance
            
            $
            350
            
            $
            600
            
            $
            1,291Charged
                to costs and expenses
            
            
            —
            
            
            —
            
            
            521Deductions(A)
            
            
            (350
            )
            
            (250
            )
            
            (1,212
            )Ending
                balance
            
            $
            —
            
            $
            350
            
            $
            600





(A)
            Represents
                uncollectible accounts written off, less
                recoveries






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Intangibles :
      Effective April 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
      Intangible Assets", ("SFAS No. 142") which resulted in the discontinuance of
      amortization of goodwill and indefinite-lived intangible assets that were
      recorded in connection with previous business combinations. Goodwill and other
      long-lived assets are reviewed by management for impairment whenever events
      or
      changes in circumstances indicate the carrying amounts may not be recoverable.
      If management believes impairment may exist, an assessment is performed. This
      assessment consists of comparing the estimated undiscounted future cash flows
      with the carrying amount of the long-lived assets. If the undiscounted future
      cash flows are less than the carrying amounts of the long-lived assets, the
      Company adjusts the carrying amount of the long-lived assets to their estimated
      fair value. Fair value is determined by anticipated future cash flows discounted
      at a rate commensurate with the risk involved. All of the Company’s goodwill is
      related to the heat treating segment. Goodwill totaled approximately $1.4
      million at March 31, 2005 and 2004.





During
      2005, the Company performed the impairment tests of its goodwill and
      indefinite-lived intangible assets required by SFAS No. 142. The Company's
      tests
      indicated that the fair value of its heat treating segment, which was determined
      by using discounted cash flows and market multiples, exceeded the carrying
      value. As a result, the Company did not record an impairment charge for this
      segment in the accompanying financial statements. The Company will continue
      to
      perform an impairment review on an annual basis (or more frequently if
      impairment indicators arise).





Revenue
      Recognition :
      The
      Company recognizes service revenue and revenue from product sales upon transfer
      of title, which is upon shipment. An estimate of reserves is recorded, if
      material, for anticipated reworks and credit memos which will be issued on
      sales
      recognized to date.





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





Shipping
      and Handling Costs :
      The
      Company recognizes shipping and handling costs as a component of cost of sales
      and operating expenses in the statement of operations.





Interest
      Rate Swap :
      The
      Company entered into an interest rate swap agreement to modify the interest
      characteristics of certain of its outstanding debt. 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 interest rate swap
      agreement is designated with the principal balance and term of a specific debt
      obligation. Since the Company applies hedge accounting pursuant to SFAS 133,
      as
      amended, changes in the fair value of the swap are reported as a component
      of
      other comprehensive loss.





Fair
      Value Disclosure :  The
      carrying amounts of certain financial instruments such as cash and cash
      equivalents, accounts receivable, marketable securities, and accounts payable
      approximate their fair values.





Comprehensive
      Loss :
      The
      Company displays comprehensive loss in the Consolidated Statements of
      Stockholders’ Equity. At March 31, 2005, accumulated other comprehensive loss
      consisted only of the fair value of the interest rate swap
      agreement.





Common
      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. Under APB 25, because the exercise price of the Company’s employee
      common stock options equals the market price of the underlying stock on the
      date
      of grant, no compensation expense is recognized. The Company has elected to
      adopt only the disclosure provisions of SFAS No. 123, “Accounting for
      Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for
      Stock-Based Compensation—Transition and Disclosure.”  There
      is
      no difference between the accompanying statements of operations following APB
      No. 25 and the pro forma results following SFAS 123.





New
      Financial Accounting Pronouncements :


In
      December 2003, the Financial Accounting Standards Board (FASB) issued Financial
      Interpretation No. (FIN) 46-R *"Consolidation
      of Variable Interest Entities"* .
      This
      standard clarifies the application of Accounting Research Bulletin No. 51,
      " *Consolidated
      Financial Statements"* and
      addresses consolidation by business enterprises of variable interest entities,
      more commonly known as " *Special
      Purpose Entities"* or
      "SPE's." ** FIN
      46-R
      requires existing unconsolidated variable interest entities' interests to be
      consolidated by their primary beneficiaries if the entities do not effectively
      disperse risk among the parties involved. FIN 46-R also enhances the disclosure
      requirements related to variable interest entities. The interpretation is
      effective with respect to interests in variable interest entities created after
      January 31, 2003. For interests in variable interest entities created before
      February 1, 2003, the interpretation applies to the first interim or annual
      reporting period beginning after December 15, 2003. The Company reviewed the
      requirements of FIN 46-R and concluded that the provisions of FIN 46-R were
      not
      applicable to the Company. Accordingly, it is not expected that the provisions
      of FIN 46-R would have a material impact on financial position, results of
      operations, or cash flows of the Company.




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In
      November 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 151 *Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4* .
      SFAS
      151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility
      expense, freight, handling costs and wasted materials (spoilage) be recognized
      as current period charges. It also requires that allocation of fixed production
      overheads to the costs of conversion be based on the normal capacity of the
      production facilities. SFAS 151 is effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. The Company does not believe that
      the adoption of SFAS 151 will have a material impact on its results of
      operations or financial position.





In
      December, 2004 the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 123R which will require the Company to
      measure the cost of employee services received in exchange for an award of
      common stock options as compensation expense in the statement of income using
      a
      fair value method. The Company will begin reporting these costs by the end
      of
      fiscal 2006. The effect of implementing this new accounting standard has not
      been determined at this time, but is not expected to impact reported earnings
      per share in amounts significantly different from the pro forma results
      historically reported.





In
      December 2004, the FASB issued SFAS 153 *Exchanges
      of Nonmonetary Assets, and Amendment of APB Opinion No.* 29.
      The
      guidance in APB Opinion No. 29, *Accounting
      for Nonmonetary Transactions* ,
      is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. The guidance in APB Opinion
      No.
      29, however, included certain exceptions to the principle. SFAS 153 amends
      APB
      Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary exchanges of nonmonetary assets that do not have commercial
      substance. A nonmonetary exchange has commercial substance if the future cash
      flows of the entity are expected to change significantly as a result of the
      exchange. SFAS 153 is effective for nonmonetary asset exchanges in fiscal
      periods beginning after June 15, 2005. The Company does not believe that the
      adoption of SFAS 153 will have a material impact on its results of operations
      or
      financial position.





**NOTE
      2 - ACCOUNTS RECEIVABLE AND PAYABLE—RELATED PARTIES**




Accounts
      receivable, related parties consists primarily of unsecured cash advances to
      officers, stockholders, and affiliates. Certain of the amounts are non-interest
      bearing. The ultimate settlement of the balances is generally expected to be
      made in cash, although not necessarily within the next year.




Vincent
      Shunsky, Vice President, is indebted to the Company in the principal amount
      of
      approximately $127,000. The indebtedness was incurred at various times prior
      to
      April 2002 for the purchase of affiliate company stock and personal use. This
      debt carries interest rates up to 8%. As of March 31, 2005 the amount
      outstanding was approximately $172,000 including accrued interest. In October
      2004 the Company entered into a Retention Agreement with Mr. Shunsky to provide
      him with a bonus of $200,000 to retain his services until at least March 31,
      2006. Should he leave the employ of the Company prior to that date the bonus
      must be repaid. The Company is expensing the bonus ratably during the retention
      period.





In
      June
      2003, the Company assumed a lease with CJC Leasing, a limited liability company
      in which Company President Max A. Coon is a member, from Contractor Supply
      Incorporated, the purchaser of the Company’s formerly wholly owned subsidiary,
      Ersco Corporation. At March 31, 2005 the amount owed to CJC Leasing was
      approximately $1.6 million.





Included
      in accounts payable is $107,000 and $128,000 at March 31, 2005 and 2004,
      respectively, which are due to entities in which Mr. Coon has an
      interest.





**NOTE
      3 - INVESTMENT IN INTEGRAL VISION, INC.**




At
      March
      31, 2005, Maxco owned 2,240,605 shares of Integral Vision’s common stock
      (aggregate market value of $3.7 million), representing approximately 15% of
      Integral Vision’s total common stock outstanding.





In
      1997
      Maxco received warrants to purchase 150,000 shares of Integral Vision stock
      with
      a then conversion price of $6.86. Pursuant to the 1997 Note and Warrant Purchase
      agreement, these warrants have been re-priced based on subsequent warrant
      issues. As a result, through June 30, 2005, Maxco had the right to purchase
      up
      to 551,133 shares of the Integral Vision’s common stock at $1.86 per share.
      Maxco did not exercise any of these warrants which then expired on that date.
      In
      April 2005, Maxco converted $95,684 of notes receivable from Integral Vision
      into 127,578 restricted shares of Integral Vision common stock. Maxco’s
      investment in Integral Vision is accounted for under the equity method for
      all
      years presented.




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Maxco
      had
      advanced Integral Vision $138,855 in 2001 to permit Integral Vision to meet
      its
      obligations. This loan was evidenced by a written document and provided for
      interest at the rate of prime plus 0.5%. Integral Vision repaid this obligation
      to Maxco in April 2005.





Additionally,
      Maxco provides consulting services to Integral Vision. These services include
      assistance with financial statement preparation, compliance with governmental
      filing requirements, and assistance with certain financing arrangements.
      Integral Vision and Maxco have agreed on terms for payment to Maxco for these
      services. The services for the period ended March 31, 2005 were satisfied on
      April 20, 2005 by the issuance of 42,000 shares of unregistered common stock
      in
      Integral Vision which represented $70,000 of service income recorded in fiscal
      2005. Effective April 1, 2005, Integral Vision will pay Maxco $8,750 per month
      for each month such services are rendered.





In
      accordance with APB 18, the Company recorded a charge of $122,000 in 2003 to
      recognize a decline in the value of its investment in Integral Vision that
      was
      deemed other than temporary. The charges are included in loss on investment
      for
      the year ended March 31, 2003. Integral Vision had net losses of approximately
      $2.3 million, $2.2 million, and $1.9 million for the twelve months ended March
      31, 2005, 2004, and 2003.





Maxco's
      equity share of Integral Vision's losses for the year ended March 31, 2003
      was
      approximately $456,000, and is recorded net of deferred tax for that period
      in
      equity in net income (loss) of affiliates. At March 31, 2003 and September
      30,
      2003, the Company adjusted the carrying value of its investment in Integral
      Vision, Inc. to its estimated fair value as the Company determined that the
      investment was impaired. Since management’s estimate of the fair value of this
      investment at March 31, 2005 has not changed, the Company has not recognized
      any
      further gain or loss on the investment since September 30, 2003. For the twelve
      months ended March 31, 2005, 2004, and 2003, Integral Vision's sales were $2.0
      million, $322,000 and $1.7 million, respectively.





**NOTE
      4 - DEBT**




At
      March
      31, 2005 the Company’s heat treating segment, Atmosphere Annealing (Atmosphere),
      had a $6 million line of credit facility. This facility is secured by
      Atmosphere’s assets. The amount that can be borrowed under this facility is
      dependent on certain accounts receivable levels at Atmosphere. At March 31,
      2005, based on these specific collateral levels, Atmosphere could borrow up
      to
      $4.0 million under its line of credit, approximately $537,000 of which was
      borrowed. The line matures in August 2005 and as such is recorded as current
      in
      the accompanying financial statements.





A
      summary
      of the Company’s debt obligations as of March 31 is as follows:


**2005**
              
              **2004*****(in
                  thousands)*****Short
                  term obligations:**Notes
                  payable (various interest rates)
              
              $
              1,554
              
              $
              2,333Revolving
                  line of credit (LIBOR1+
                  2.0%)
              
              
              537
              
              
              2,5522,091
              
              
              4,885**Long
                  term obligations:**Term
                  notes (various variable interest rates)
              
              $
              4,930
              
              $
              4,268Mortgage
                  note payable (prime1plus 1.75%)
              
              
              4,962
              
              
              2,670Equipment
                  purchase contracts and capitalized
                lease
                  obligations (various interest rates)
              
              
              1,791
              
              
              4,581Subordinated
                  debt (fixed rate of 10.00%)
              
              
              346
              
              
              2,02512,029
              
              
              13,544Less
                  current maturities
              
              
              4,959
              
              
              2,064$
              7,070
              
              $
              11,480
 
 1At
                  March 31, 2005 the London Interbank Offered Rate (LIBOR) was 2.88%
                  and the
                  prime rate was 5.750%.




On
      November 14, 2002, Maxco completed an agreement to sell its wholly owned
      subsidiary, Ersco Corporation to Contractor Supply Incorporated for cash and
      retired certain other debt of Maxco in excess of the sale price resulting in
      a
      short term note payable to the purchaser of approximately $4.1 million. In
      June
      2003 the Company agreed to assume a lease from Contractor Supply Incorporated
      and as a result, reduced the amount owed to Contractor Supply Incorporated
      by
      $2.3 million and the Company has recorded the $2.3 million obligation to the
      leasing company as a long term obligation in the accompanying financial
      statements. In February 2005, Maxco agreed to issue 250,000 shares of common
      stock valued at $4 per share to Contractor Supply Incorporated to further reduce
      the Company’s obligation to Contractor Supply Incorporated. As a result, the
      outstanding principal balance due Contractor Supply Incorporated at March 31,
      2005 was $1.2 million.




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In
      November 2003, Atmosphere Annealing reached an agreement with a new financial
      institution to repay a lender with which the Company and Atmosphere Annealing
      had previously been in default. The principal amount repaid was approximately
      $8.1 million. The new facilities are comprised of a $6.0 million revolving
      credit facility, $6.4 million of term debt with a 5 year amortization period,
      and $800,000 of term debt with a two year amortization period. These facilities
      are secured by all of the assets of Atmosphere Annealing.





During
      the year ended March 31, 2005, the Company reached an agreement with a new
      financial institution to repay lenders with which the Company was in default.
      The principal amount repaid was approximately $2.3 million. The new debt
      facility of $2.7 million requires interest only payments and matures in June
      2006. The remaining proceeds of approximately $400,000 were used for working
      capital requirements. Maxco is in the process of negotiating an agreement to
      sell its corporate office building. The proceeds from the sale will be used
      to
      reduce the debt facility to $1.95 million.





The
      Company’s weighted average short-term borrowing rate was 7.0% and 5.4% at March
      31, 2005 and 2004, respectively.





Maxco
      entered into a swap agreement with a notional amount of approximately $2.7
      million. The swap agreement was in a loss position of $38,000 and $172,000
      at
      March 31, 2005 and 2004, respectively.





Notes
      and
      contracts payable are generally collateralized by assets purchased with proceeds
      of the borrowings. The aggregate principal maturities of long-term debt are
      approximately $5.0 million in 2006, $3.1 million in 2007, $1.7 million in 2008,
      $825,000 in 2009, $261,000 in 2010, and $1.1 million thereafter.





Maxco
      has
      provided the guarantee of various debt obligations of certain real estate and
      other investments in an aggregate amount of approximately $2.0 million as of
      March 31, 2005. Certain of the debt agreements related to its real estate
      investments, which Maxco and other guarantors have guaranteed, are in default
      at
      March 31, 2005. An extension has been issued by one of the banks and the
      applicable entities are currently working to liquidate the properties to satisfy
      the requirements of the lenders. The Company does not believe that there is
      any
      unusual degree of risk related to the guarantees because of sufficient
      underlying asset values supporting the respective debt obligations.





In
      addition to the $2.0 million mentioned above, the Company has recorded in the
      accompanying financial statements amounts that had been previously identified
      as
      guarantees. The amounts so recorded aggregated approximately $249,000 as of
      March 31, 2005.





Subsequent
      to March 31, 2005, Maxco purchased an entity which owns two buildings from
      L/M
      Associates, an affiliate, and, beginning in June 2005, will be including in
      its
      consolidation the operations of the buildings and vacant land. The debt
      associated with this transaction is approximately $1.8 million which was
      previously identified as guaranteed debt. In addition, a purchase agreement
      is
      currently being negotiated for the sale to an outside party of an additional
      real estate parcel which will eliminate the remaining guarantee.





**NOTE
      5 - 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 pays 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.




Effective
      January 1, 2002, the Maxco Board of Directors suspended the payment of dividends
      on all preferred stock. These dividend payments have been accrued in the
      accompanying financial statements and totaled approximately $1.4 million at
      March 31, 2005, or $.41 per common share.




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**NOTE
      6 - COMMON 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. Any such options are
      immediately exercisable upon grant.




There
      were 132,500 stock options outstanding and exercisable at March 31, 2005 with
      a
      weighted average price of $7.74 per share and an exercise price ranging from
      $7.00 to $8.00. There were no options granted during the years ended March
      31,
      2005, 2004, or 2003. The weighted average remaining contractual life of the
      outstanding options is approximately four years.




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. 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. The Company has elected to adopt
      only the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based
      Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based
      Compensation - Transition and Disclosure.”




Pro
      forma
      information regarding net income and earnings per share is required by SFAS
      123
      and has been determined as if the Company had accounted for its employee stock
      options granted subsequent to September 30, 1995 under the fair value method
      of
      SFAS 123. The Company has determined that there is no difference between the
      reported net loss and loss per share and the pro forma net loss and net loss
      per
      share if the options were accounted for under SFAS 123 for all periods
      presented.





**NOTE
      7 - EMPLOYEE SAVINGS PLANS**




Company
      contributions charged to operations under the employee savings plans were
      approximately $178,000, $145,000, and $160,000 for the years ended March 31,
      2005, 2004, and 2003, respectively.





**NOTE
      8 - FEDERAL INCOME TAXES**




The
      benefit for federal income taxes consists of the following
      components:


**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)***Current
                benefit
            
            $
            —
            
            $
            —
            
            $
            —Deferred
                benefit
            
            
            —
            
            
            —
            
            
            (875
            )—
            
            
            —
            
            
            (875
            )Deferred
                amount allocated to equity in
              income
                of affiliates
            
            
            —
            
            
            —
            
            
            (316
            )Amount
                allocated to discontinued operations
            
            
            —
            
            
            —
            
            
            (890
            )$
            —
            
            $
            —
            
            $
            (2,081
            )




The
      reconciliation of the income tax benefit computed at the United States federal
      statutory tax rate to income tax expense (benefit) reported in these financial
      statements is as follows:


**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)***Income
                tax expense (benefit) computed at United States statutory rate
                (34%)
            
            $
            45
            
            $
            (521
            )
            $
            (3,859
            )Increase
                (reduction) in valuation allowance
            
            
            (169
            )
            
            517
            
            
            3,006Other
            
            
            124
            
            
            4
            
            
            (22
            )$
            —
            
            $
            —
            
            $
            (875
            )




No
      federal income taxes were paid in 2005, 2004, or 2003.





Due
      to
      enacted changes in the tax law, the Company carried back its net operating
      losses at March 31, 2001 and 2002 against the Company’s taxable income in 1997.
      As a result, the Company had a $3.9 million income tax receivable at March
      31,
      2002. Maxco received $4.6 million in federal income tax refunds in 2003. As
      of
      March 31, 2005, the Company has net operating loss (NOL) carryforwards of $7.3
      million, $7.1 million of which expires in 2023 with the remaining $372,000
      expiring in 2024.




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During
      fiscal 2005, the Company utilized approximately $2.8 million of NOL
      carryforwards, which led to an income tax benefit of $169,000 resulting from
      the
      reversal of the deferred income tax valuation allowance. In
      2004
      and 2003, the Company recorded deferred tax asset valuation allowances of
      $517,000 and $3.0 million, respectively, due to the uncertainty in the ultimate
      realization of its deferred tax assets. The following table summarizes changes
      in the deferred tax valuation allowance:


**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)***Beginning
                balance
            
            $
            3,523
            
            $
            3,006
            
            $
            —Charged
                (credited) to costs and expenses
            
            
            (169
            )
            
            517
            
            
            3,006Ending
                balance
            
            $
            3,354
            
            $
            3,523
            
            $
            3,006





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:


****
            
            **2005**
            
            **2004*****(in
                thousands)*****Deferred
                Tax Liabilities:**Depreciation
            
            $
            2,424
            
            $
            2,577**Total
                Deferred Tax Liabilities**
            
            
            2,424
            
            
            2,577**Deferred
                Tax Assets:**Net
                operating loss carryforwards
            
            
            2,498
            
            
            3,460Allowance
                for doubtful accounts
            
            
            51
            
            
            164Marketable
                securities
            
            
            1,101
            
            
            996Net
                cumulative unrealized impairment losses
            
            
            1,874
            
            
            1,415Other
            
            
            254
            
            
            65**Total
                Deferred Tax Assets**
            
            
            5,778
            
            
            6,100**Valuation
                Allowance for Deferred Tax Assets**
            
            
            3,354
            
            
            3,523**Net
                Deferred Tax Assets**
            
            
            2,424
            
            
            2,577**Net
                Deferred Tax Assets (Liabilities)**
            
            $
            —
            
            $
            —





**NOTE
      9 - OTHER INVESTMENTS**




Real
      Estate (Discontinued and Held For Sale) :


Maxco
      has
      ownership interests ranging from 31-50% in primarily two LLC’s which have been
      involved in the development and ownership of real estate in central Michigan.
      Effective January 1, 2000, a Master LLC (L/M Associates II) was formed
      consisting of the majority of the stabilized buildings in which Maxco and others
      had an ownership interest. At March 31, 2005 Maxco’s effective ownership
      interest in the Master LLC was approximately 31%. The other LLC (L/M Associates)
      includes properties that are not fully leased or individual properties not
      included in the Master LLC. These real estate investments are discontinued
      and
      Maxco is actively pursuing their liquidation.





In
      early
      2002, Maxco, as managing member of L/M Associates, which is the managing member
      of L/M Associates II, began negotiations to sell substantially all of the
      properties in the real estate portfolio of L/M Associates II. In June 2002,
      L/M
      Associates II entered into an agreement to sell substantially all of the
      properties within the Master LLC to an outside investor. The transaction was
      approved by more than 75% of the member interests in July 2002. This transaction
      was completed in January 2003. As part of this transaction, L/M Associates
      agreed to reinvest a portion of its distributable share of the proceeds to
      acquire approximately a 16% interest in the acquiring entity. Pursuant to the
      agreement, in July 2004, L/M Associates exercised its option to require the
      managing member to repurchase its 16% interest. To date this requirement has
      not
      been satisfied and L/M Associates intends to aggressively pursue other
      collection remedies.





At
      March
      31, 2005 Maxco had guarantees related to its real estate investments of $2.0
      million. Any real risks on guarantees that Maxco has estimated would be required
      to be paid by Maxco have been recorded in the accompanying financial statements
      and Maxco’s investment has been adjusted to the net realizable value of the
      remaining assets. Impairment charges totaling $350,000 were recognized during
      the year ended March 31, 2005 to further reduce the carrying value of the
      Company’s investment in real estate to its estimated fair value less costs to
      sell.




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Subsequent
      to March 31, 2005, Maxco purchased an entity which owns two buildings from
      L/M
      Associates and, beginning in June 2005, will be including in its consolidation
      the operations of the buildings and vacant land. The debt associated with this
      transaction is approximately $1.8 million which was previously identified as
      guaranteed debt. In addition, a purchase agreement is currently being negotiated
      for the sale to an outside party of an additional real estate parcel which
      will
      eliminate the remaining debt guarantee.




Technology
      Related :


In
      addition to its investment in Integral Vision, Inc., the Company has an equity
      interest in another technology related business. In October 1998, Provant,
      Inc.
      acquired 100% of the stock of Strategic Interactive. Maxco received cash and
      approximately 249,000 shares of Provant, Inc. common stock in exchange for
      its
      45% equity interest in Strategic Interactive. The sale also included an earn-out
      provision. Maxco recognized a total of $2.7 million as its remaining share
      of
      the additional consideration to be paid to the former shareholders of Strategic
      Interactive in 2002. A portion of the payment representing approximately $1.6
      million was paid on November 14, 2002 in the form of Provant common stock.
      The
      remaining portion of the payment, approximately $1.1 million, was received
      in
      January 2003. Maxco recorded impairment charges of approximately $366,000 and
      $1.4 million in other income (expense) in 2004 and 2003, respectively, to
      recognize declines in the fair value of its investment that was deemed other
      than temporary. On March 11, 2004 Provant completed the sale of substantially
      all of its remaining assets.





The
      Company had a 50% equity interest in Foresight Solutions, Inc., a developer
      of
      accounting and business software for small to medium size businesses. In 2003,
      the Company recorded an impairment charge of $2.8 million to adjust its
      investment to estimated fair value. The assets of Foresight Solutions, Inc.
      were
      sold in June 2004.





Energy
      Related :


Maxco
      has
      a 50% interest in Robinson Oil Company, LLC (“Robinson”), which is in the
      business of acquiring and developing oil and gas interests. An impairment charge
      of $260,000 was recognized during the year ended March 31, 2005 to reduce the
      carrying value of the Company’s investment in Robinson to its estimated fair
      value.





Other :


Maxco
      has
      a 36% equity interest in Phoenix Financial Group, LTD and its subsidiary
      Cambridge Group Investments, LTD, dba Bondpage.com (“Cambridge”), a registered
      broker-dealer of securities that is primarily focused on the trading of fixed
      income investments over the Internet.





The
      Company has approximately a 6% interest in 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. In 2003, the Company recorded
      an impairment charge of $100,000 to write off this investment.





The
      Company has a 16% equity interest in Vertical VC, a limited partnership that
      has
      equity investments in companies focused on the information technology,
      telecommunications, and medical technology markets. In 2003, the Company
      recorded an impairment charge of $250,000 to write off this
      investment.





In
      summary, the Company recorded the following charges to recognize declines in
      the
      value of its investments that were deemed other than temporary:


**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)***Robinson
                Oil
            
            $
            260
            
            $
            —
            
            $
            —Real
                estate
            
            
            350
            
            
            749
            
            
            4,698Provant
            
            
            —
            
            
            366
            
            
            1,360Foresight
                Solutions
            
            
            —
            
            
            —
            
            
            2,790Integral
                Vision
            
            
            —
            
            
            —
            
            
            122Vertical
                VC
            
            
            —
            
            
            —
            
            
            250MYOEM.COM
            
            
            —
            
            
            —
            
            
            100$
            610
            
            $
            1,115
            
            $
            9,320




A
      significant portion of these adjustments were recorded during the fourth quarter
      of each of these fiscal years, and in total served to increase the net loss
      per
      share by $0.19, $0.36, and $3.01 in 2005, 2004, and 2003,
      respectively.




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The
      composition of the net carrying value of non-real estate related investments
      is
      summarized as follows:


**March
                31,******
            
            **2005**
            
            **2004*****(in
                thousands)***Cambridge
            
            $
            576
            
            $
            576Integral
                Vision
            
            
            211
            
            
            211Robinson
            
            
            91
            
            
            351$
            878
            
            $
            1,138


The
      combined results of operations and financial position of the Company’s
      unconsolidated affiliates not held for sale or disposal are summarized
      below:





**Real
                Estate**
            
            **Technology
                Related**
            
            **Energy
                Related and Other****March
                31,**
            
            **March
                31,**
            
            **March
                31,******
            
            **2003**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)***Condensed
                income statement information:Net
                sales
            
            $
            79,882
            
            $
            1,972
            
            $
            322
            
            $
            2,191
            
            $
            4,426
            
            $
            3,866
            
            $
            2,292Gross
                margin
            
            
            16,227
            
            
            506
            
            
            (123
            )
            
            1,004
            
            
            4,426
            
            
            3,778
            
            
            2,204Net
                income (loss)
            
            
            5,574
            
            
            (2,284
            )
            
            (2,181
            )
            
            (2,600
            )
            
            50
            
            
            294
            
            
            —Condensed
                balance sheet information:Current
                assets
            
            $
            9,951
            
            $
            737
            
            $
            539
            
            $
            215
            
            $
            992
            
            $
            1,055
            
            $
            713Non-current
                assets
            
            
            30,409
            
            
            160
            
            
            337
            
            
            1,053
            
            
            558
            
            
            682
            
            
            513$
            40,360
            
            $
            897
            
            $
            876
            
            $
            1,268
            
            $
            1,550
            
            $
            1,737
            
            $
            1,226Current
                liabilities
            
            $
            36,738
            
            $
            2,949
            
            $
            2,970
            
            $
            2,609
            
            $
            243
            
            $
            366
            
            $
            156Non-current
                liabilities
            
            
            4,309
            
            
            2,369
            
            
            1,645
            
            
            5,700
            
            
            40
            
            
            162
            
            
            162Minority
                interest
            
            
            245
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stockholders'
                equity
            
            
            (932
            )
            
            (4,421
            )
            
            (3,739
            )
            
            (7,041
            )
            
            1,267
            
            
            1,209
            
            
            908$
            40,360
            
            $
            897
            
            $
            876
            
            $
            1,268
            
            $
            1,550
            
            $
            1,737
            
            $
            1,226





**NOTE
      10 - CONTINGENCIES AND COMMITMENTS**




Maxco
      and
      certain operating subsidiaries occupy facilities and use equipment under
      operating lease agreements requiring annual rental payments approximating
      $464,000 in 2006, $215,000 in 2007, $198,000 in 2008, $164,000 in 2009, and
      $138,000 in 2005 for a total commitment aggregating $1.2 million. Rent expense
      charged to operations, including short-term leases, aggregated $445,000 in
      2005,
      $422,000 in 2004, and $643,000 in 2003.





In
      April
      2004 the Company entered into an incentive agreement with the President of
      its
      wholly-owned subsidiary Atmosphere Annealing, Inc. The agreement provides for
      compensation to the officer based on the increased value, as defined, of the
      subsidiary by March 31, 2006. The incentive is equal to 1% of the first $25
      million in value plus 10% above that base amount. Any incentive so earned is
      payable by Maxco, Inc. in cash assuming a sale by March 31, 2006. If no such
      sale occurs by that date, at the option of Maxco the incentive is payable in
      cash or its equivalent in stock of Atmosphere Annealing, Inc. held by Maxco.
      As
      party to the agreement, Maxco, Inc. is recognizing incentive compensation
      expense on a pro-rata basis under the terms of the agreement. The amount accrued
      during the year ended March 31, 2005 was $650,000.





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 on its
      financial statements.




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**NOTE
      11 - INDUSTRY SEGMENT INFORMATION**




The
      following summarizes Maxco’s industry segment information:





****
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands)*****Net
                Sales:**Heat
                treating
            
            $
            45,364
            
            $
            40,754
            
            $
            36,740Corporate
                and other
            
            
            —
            
            
            44
            
            
            87**Total
                Net Sales**
            
            $
            45,364
            
            $
            40,798
            
            $
            36,827**Operating
                Earnings (Loss)**Heat
                treating
            
            $
            4,202
            
            $
            2,137
            
            $
            2,147Corporate
                and other
            
            
            (2,199
            )
            
            (1,968
            )
            
            (2,681
            )**Total
                Operating Earnings (Loss)**
            
            $
            2,003
            
            $
            169
            
            $
            (534
            )**Identifiable
                Assets:**Heat
                treating
            
            $
            27,081
            
            $
            29,472
            
            $
            29,589Corporate
                and other
            
            
            3,357
            
            
            2,671
            
            
            4,147Investments
                and advances
            
            
            2,728
            
            
            3,338
            
            
            4,165Discontinued
                operations
            
            
            —
            
            
            —
            
            
            474**Total
                Identifiable Assets**
            
            $
            33,166
            
            $
            35,481
            
            $
            38,375**Depreciation
                and Amortization Expense:**Heat
                treating
            
            $
            2,900
            
            $
            2,865
            
            $
            2,901Corporate
                and other
            
            
            26
            
            
            34
            
            
            48**Total
                Depreciation and Amortization Expense**
            
            $
            2,926
            
            $
            2,899
            
            $
            2,949**Capital
                Expenditures:**Heat
                treating
            
            $
            1,041
            
            $
            698
            
            $
            531Corporate
                and other
            
            
            1
            
            
            —
            
            
            —**Total
                Capital Expenditures**
            
            $
            1,042
            
            $
            698
            
            $
            531




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.





The
      nature of the Company’s heat treating services may produce sales to one or a
      small number of customers in excess of 10% of total sales in any one year. The
      Company’s base of customers is concentrated among original equipment
      manufacturers as well as Tier I and Tier II suppliers in North America. The
      loss
      of business from a major customer, the discontinuance of particular vehicle
      models or a change in regulations or auto consumer preferences could materially
      adversely affect the Company. In addition, certain of the Company’s customers
      have suffered financial distress, which may materially adversely impact the
      Company as well in terms of the potential for lost revenue and/or uncollectible
      accounts receivable. It
      is
      possible that the specific customers reaching this threshold may change from
      year to year. Loss of any one of these customers could have a material impact
      on
      the Company’s results of operations. For the year ended March 31, 2005 sales to
      Honda of America Manufacturing, Inc. and GM Powertrain represented 33.3% and
      10.7% of consolidated sales, respectively. Amounts due from these customers
      represented 31% of the respective outstanding trade receivable balance at March
      31, 2005. For the year ended March 31, 2004 sales to Honda of America
      Manufacturing, Inc. and GM Powertrain represented 38.3% and 14.3% of
      consolidated sales, respectively. Amounts due from these customers represented
      43.0% of the respective outstanding trade receivable balance at March 31, 2004.
      For the year ended March 31, 2003 sales to Honda of America Manufacturing,
      Inc.
      and GM Powertrain represented 27.2% and 17.3% of consolidated sales,
      respectively.




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**NOTE
      12 - INCOME (LOSS) PER SHARE**




The
      following table sets forth the computation of basic and diluted income (loss)
      per share:


**Year
                Ended March 31,******
            
            **2005**
            
            **2004**
            
            **2003*****(in
                thousands except per share data)*****Numerator:**Income
                (loss) from continuing operations
            
            $
            134
            
            $
            (1,531
            )
            $
            (11,088
            )Loss
                from discontinued operations
            
            
            —
            
            
            —
            
            
            (1,737
            )Net
                income (loss)
            
            
            134
            
            
            (1,531
            )
            
            (12,825
            )Preferred
                stock dividends
            
            
            (408
            )
            
            (408
            )
            
            (408
            )**Numerator
                for basic and diluted earnings per share—loss available to common
                stockholders**
            
            $
            (274
            )
            $
            (1,939
            )
            $
            (13,233
            )**Denominator:****Denominator
                for basic and diluted earnings per share--weighted average
                shares**
            
            
            3,132
            
            
            3,101
            
            
            3,101**Basic
                and Diluted Loss Per Share**Continuing
                operations
            
            $
            (0.09
            )
            $
            (0.63
            )
            $
            (3.71
            )Discontinued
                operations
            
            
            —
            
            
            —
            
            
            (0.56
            )$
            (0.09
            )
            $
            (0.63
            )
            $
            (4.27
            )




**NOTE
      13 -- DISCONTINUED OPERATIONS**




Effective
      September 27, 2002, Maxco agreed to sell the business and substantially all
      the
      assets (consisting principally of accounts receivable, inventory and fixed
      assets) of Maxco’s wholly owned subsidiary, Pak Sak Industries, Inc. to
      Packaging Personified, Inc. and related parties. The assets were purchased
      for
      cash and an assumption of certain liabilities. The Company adjusted the carrying
      value of Pak Sak to the sale price resulting in a pre-tax charge of $540,000
      to
      discontinued operations in the second quarter of fiscal 2003. The sale closed
      on
      November 27, 2002.





On
      November 14, 2002, Maxco completed an agreement to sell its wholly owned
      subsidiary Ersco Corporation to Contractor Supply Incorporated for cash and
      the
      retirement of certain other debt of Maxco in excess of the sale price resulting
      in a note payable to the purchaser of approximately $4.1 million. The Company
      adjusted the carrying value of Ersco to the estimated sale price resulting
      in a
      pre-tax charge of $2.0 million to discontinued operations in the second quarter
      of fiscal 2003. Goodwill at Ersco totaled $579,000 as of the date of
      sale.





Sales
      and
      operating earnings for Ersco and Pak Sak for the year ended March 31, 2003
      were
      as follows:


**Year
                Ended****March
                31,****2003****(A)*****(in
                thousands)***Net
                sales:Ersco
            
            $
            61,421Pak
                Sak
            
            
            8,051$
            69,472Pre-tax
                loss:Ersco
            
            $
            (2,056
            )Pak
                Sak
            
            
            (576
            )$
            (2,632
            )





(A)
            Results
                for the year ended March 31, 2003 are through the respective dates
                of sale
                and include adjustments to the sales
                price.





Effective
      April 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment
      or Disposal of Long-Lived Assets.” The results of operations for these units
      have been reported separately as discontinued operations in the consolidated
      statements of operations for the current and prior periods.




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**NOTE
      14 - SUBSEQUENT EVENTS**




Maxco
      provides consulting services to Integral Vision. These services include
      assistance with financial statement preparation, compliance with governmental
      filing requirements, and assistance with certain financing arrangements.
      Integral Vision and Maxco have agreed on terms for payment to Maxco for these
      services. The services for the six months ended March 31, 2005 was satisfied
      on
      April 20, 2005 by the issuance of 42,000 shares of unregistered common stock
      in
      Integral Vision. Effective April 1, 2005, Integral Vision will pay Maxco $8,750
      per month for each month such services are rendered.




Maxco
      had
      advanced Integral Vision $138,855 in 2001 to permit Integral Vision to meet
      its
      obligations. This loan was evidenced by a written document and provided for
      interest at the rate of prime plus 0.5%. Integral Vision repaid this obligation
      to Maxco in April 2005.





In
      1997
      Maxco received warrants to purchase 150,000 shares of Integral Vision stock
      with
      a then conversion price of $6.86. Pursuant to the 1997 Note and Warrant Purchase
      agreement, these warrants were re-priced based on subsequent warrant issues.
      As
      a result, through June 30, 2005, Maxco had the right to purchase up to 551,133
      shares of the Integral Vision’s common stock at $1.86 per share. Maxco did not
      exercise any of these warrants which then expired on that date.





In
      April
      2005, Maxco converted $95,684 of notes receivable from Integral Vision into
      127,578 restricted shares of Integral Vision common stock.





Subsequent
      to March 31, 2005, the Company acquired BCGW, Inc. ("BCGW"), the entity that
      owns the buildings the Company currently leases in Lansing, Michigan. Max A.
      Coon’s spouse was a 25% shareholder of BCGW. At March 31, 2004, the Company owed
      BCGW $1.6 million on an outstanding loan obligation which carried an interest
      rate of 10%. In May 2004 Atmosphere retired that obligation; Atmosphere and
      BCGW
      entered into an agreement whereby BCGW agreed to accept as payment in full
      the
      remaining outstanding balance less a discount of approximately $94,000. The
      amount the Company charged to rent expense related to the two buildings leased
      from BCGW totaled approximately $253,000 and $373,000 for the years ended March
      31, 2005 and 2004, respectively. The interest on the debt to BCGW was charged
      to
      interest expense in the accompanying financial statements and totaled $3,000
      and
      $181,000 for the years ended March 31, 2005 and 2004, respectively.





Subsequent
      to March 31, 2005, Maxco purchased an entity which owns two buildings from
      L/M
      Associates and, beginning in June 2005, will be including in its consolidation
      the operations of the buildings and vacant land.




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**MAXCO,
      INC.**


**ANNUAL
      REPORT ON FORM 10-K**





**EXHIBIT
      INDEX**


Exhibit
                No.
            
            Description21
            
            Subsidiaries
                of the
                Registrant23.1
            
            Consent
                of Independent Registered Public
                Accounting Firm—Rehmann Robson (Form S-8 filed June 2, 1992 - File No.
                33-48351 and Form S-8 filed November 19, 1998 - File No.
                333-67539)23.2
            
            Consent
                of Independent Registered Public
                Accounting Firm—Ernst & Young LLP (Form S-8 filed June 2, 1992 - File
                No. 33-48351 and Form S-8 filed November 19, 1998 - File No.
                333-67539)23.3
            
            Consent
                of Independent Registered Public
                Accounting Firm—Moore Stephens Doeren Mayhew (Form S-8 filed June 2, 1992
                - File No. 33-48351 and Form S-8 filed November 19, 1998 - File No.
                333-67539)31.1
            
            Certification
                of Chief Executive Officer of
                periodic report pursuant to Rule 13a-15(e) or Rule
                15d-15(e).31.2
            
            Certification
                of Chief Financial Officer of
                periodic report pursuant to Rule 13a-15(e) or Rule
                15d-15(e).32.1
            
            Certification
                of Chief Executive Officer of
                periodic report pursuant to 18 U.S.C. §1350.32.2
            
            Certification
                of Chief Financial Officer of
                periodic report pursuant to 18 U.S.C.
§1350.







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