##### Table of Contents






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

FORM 10-K

þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2003ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 classNONE
    
    Name of each exchange on which registeredNONE


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 o

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. o

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

Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of May 31, 2003: $6,174,215.

At May 31, 2003, there were 3,101,195 outstanding shares of Registrants common
stock.

Documents Incorporated By Reference

NONE










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|                                                                                             |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|ITEM 1 - BUSINESS                                                                           
|ITEM 2 - PROPERTIES                                                                         
|ITEM 3 - LEGAL PROCEEDINGS                                                                  
|ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                
|ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS              
|ITEM 6 - SELECTED FINANCIAL DATA                                                            
|ITEM 7-MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        
|ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                                         
|ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                                      
|ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                
|ITEM 11  EXECUTIVE COMPENSATION                                                            
|ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                    
|ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                    
|ITEM 14. CONTROLS AND PROCEDURES                                                            
|ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                   
|SIGNATURES                                                                                  
|CERTIFICATION                                                                               
|LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES                              
|Subsidiaries                                                                                
|Consent of Independent Auditors-Ernst & Young LLP                                           
|Consent of Independent Auditors                                                             
|906 Certification of Chief Executive Officer                                                
|906 Certification of Chief Financial Officer                                                



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MAXCO, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

ITEM
    
    
    
    PAGE1
    
    Business
    
    
    32
    
    Properties
    
    
    53
    
    Legal Proceedings
    
    
    54
    
    Submission of Matters to a Vote of Security Holders
    
    
    55
    
    Market for Registrants Common Equity and Related Shareholder Matters
    
    
    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
    
    
    148
    
    Financial Statements and Supplemental Data
    
    
    149
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    1410
    
    Directors and Executive Officers of the Registrant
    
    
    1511
    
    Executive Compensation
    
    
    1612
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    2013
    
    Certain Relationships and Related Transactions
    
    
    2114
    
    Controls and Procedures
    
    
    2115
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    22Signatures
    
    
    24Certifications
    
    
    25List of Financial Statements and Financial Statement Schedules
    
    
    28


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PART I




ITEM 1 - BUSINESS
Maxco, Inc. (the Company) 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: a registered investor advisory firm;
a registered broker-dealer of securities that is primarily focused on the
trading of fixed income investments over the Internet; a company offering a
business-to-business vertical web portal designed to bring solution-seekers
together with solution-providers; a limited partnership that has equity
investments in companies focused on the information technology,
telecommunications, and medical technology markets; two technology-related
businesses; and one energy-related business.

During the year ended March 31, 2003, Maxco sold its wholly owned subsidiary,
Ersco Corporation and sold the business and substantially all of the assets of
its wholly owned subsidiary, Pak Sak Industries, Inc. Additionally, Maxcos
unconsolidated real estate affiliate, L/M Associates II, sold a significant
portion of its portfolio. The Company reduced the carrying amount of its
remaining investment in real estate by $4.7 million and recorded a charge to
income to recognize a $3.3 million decline in the value of certain other
investments. Maxco received additional consideration as final payment from the
sale of Strategic Interactive (Maxcos former 45% owned affiliate sold to
Provant, Inc. in October 1998) in the form of cash and Provant stock.

HEAT TREATINGAtmosphere 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. Inventories of this segment represent 100% of
Maxcos total inventories at March 31, 2003. In addition to pickup and
delivery of consigned inventory by its customers, Atmosphere maintains its own
trucks, which are in operation 24 hours a day throughout the Midwest to insure
prompt pickup and delivery.

The heat-treating industry is competitive with over 250 heat treaters in
Michigan, Ohio, and Indiana. Atmosphere specializes in high volume, low
priced, 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 higher priced 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. Sales to a single or a few
customers are significant to this segment. This segment accounted for 100% of
consolidated net sales for the years ended March 31, 2003, 2002, and 2001.

INVESTMENT IN REAL ESTATE
Maxco has ownership interests ranging from 25-50% 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, 2003 Maxcos ownership
interest in the Master LLC was approximately 31%. The other LLC (L/M
Associates) includes properties under development that are not fully leased or
individual properties not included in the Master LLC.

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 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

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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. By agreement, this investment may be repurchased prior
to July 2004 by a member of the acquiring entity. After July 2004, L/M
Associates has the ability to require the same member to repurchase the
investment. Approximately $18.2 million of Maxcos guarantees on its real
estate debt were eliminated as a result of the sale of the Master LLC
properties.

Impairment charges totaling $4.7 million were recognized during the year to
reduce the carrying value of the Companys investment in real estate to the
estimated realizable value.

Additionally, the Company is actively pursuing the liquidation of the remaining
portion of Maxcos real estate investments.

Maxco also has an investment in Nilson Builders, a residential home builder, as
well as LandEquities, which was previously engaged in the construction,
leasing, and space planning for its clients including the L/M company
portfolios. These entities have been discontinued and their assets are
currently being liquidated.

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 24%
interest in Integral Vision, Inc. (formerly Medar, Inc.), a company that
develops, manufactures, and markets microprocessor-based process monitoring and
control systems related to optical inspection for use in industrial
manufacturing environments; a one-third interest in Blasen Brogan Asset
Management Company, a registered investor advisory firm; approximately a 12%
direct (36% indirect) interest in Phoenix Financial Group, LTD and its
subsidiary Cambridge Group Investments, LTD (dba Bondpage.com), a registered
broker-dealer of securities that is primarily focused on the trading of fixed
income investments over the Internet; a 50% equity interest in Foresight
Solutions, Inc., a developer of accounting and business software for small to
medium size businesses; and a 50% interest in Robinson Oil Company, LLC, which
is in the business of acquiring and developing oil and gas interests.

Maxcos equity interest is less than 20% in the following companies and
consequently is accounted for using the cost method: approximately 6% of the
common stock of MYOEM.COM, a company offering a business-to-business vertical
web portal designed to bring solution-seekers together with solution-providers;
and a 16% interest in Vertical VC, a limited partnership that has equity
investments in companies focused on the information technology,
telecommunications, and medical technology markets.

The Company recorded an impairment charge of $3.3 million related to its
investments in Integral Vision, Foresight Solutions, Inc., MYOEM.COM, and
Vertical VC in 2003.

In November 1999, Maxco began accounting for its investment in Provant, Inc.
common stock as securities available for sale as defined by FASB 115.
Consequently, the securities are carried at market value with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders
equity. In 2003 and 2002 the Company recognized previously unrealized losses
on its investment in Provant as other than temporary impairments in its
statement of operations of $1.4 million and $3.1 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. At March 31,
2003, the unrealized loss on Provant stock was approximately $56,000 net of
tax.

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 12 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

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any one of these customers could have a material impact on the Companys
results of operations. 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. Amounts due from these customers represented
41.8% of the respective outstanding trade receivable balance at March 31, 2003.
For the year ended March 31, 2002 sales to Honda of America Manufacturing,
Inc. and GM Powertrain represented 20.1% and 15.7% of consolidated sales,
respectively. Amounts due from these customers represented 37.5% of the
respective outstanding trade receivable balance at March 31, 2002. For the
year ended March 31, 2001 sales to Honda of America Manufacturing, Inc. and GM
Powertrain represented 14.8% and 20.7% of consolidated sales, respectively.

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, 2003, Maxco and its wholly owned subsidiaries employed
approximately 280 full time employees.

EXPORT SALES AND FOREIGN OPERATIONS
The Company and its operating subsidiaries had no foreign operations or
material export sales during the years ended March 31, 2003, 2002, or 2001.




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,
2003. The Company considers its facilities to be in good operating condition.

LOCATION
    
    APPROXIMATE SIZE
    
    OWNED/LEASED
    
    USEHEAT TREATINGAtmosphere Annealing,
Inc.Lansing, MI
    
    145,000
    
    sq ft
    
    Leased
    
    Plant and administrative officesLansing, MI
    
    58,000
    
    sq ft
    
    Leased
    
    Heat treating plantCanton, OH
    
    160,000
    
    sq ft on 8 acres
    
    Owned(A)
    
    Heat treating plantN. Vernon, IN
    
    88,000
    
    sq ft on 6 acres
    
    Owned(A)
    
    Heat treating plantCORPORATEMaxco, Inc.Lansing, MI
    
    7,200
    
    sq ft on 1.9 acres
    
    Owned(A)
    
    Executive officesThornapple Township, MI
    
    150
    
    acres
    
    Owned(B)
    
    Held for investmentEaton Rapids, MI
    
    9,300
    
    sq ft on 1.5 acres
    
    Owned
    
    Leased to Axson, N.A.Sparta, MI
    
    78,000
    
    sq ft on 2.5 acres
    
    Owned(A)
    
    Leased to Packaging Personified, Inc.


(A)Subject to a mortgage(B)Property was sold subsequent to March 31, 2003

Expiration dates of leases relative to the Companys principal properties range
from 2003 to 2016. Leases expiring within 12 months are expected to be renewed
at substantially the same terms as the present leases.




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 AND RELATED SHAREHOLDER MATTERS
Maxcos common stock trades on the Nasdaq SmallCap Market under the symbol
MAXC. The approximate number of record and beneficial holders of Maxcos
common stock at May 31, 2003 was 500.

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

YEAR
    
    QUARTER ENDED
    
    HIGH
    
    LOW2001
    
    March 31
    
    
    9.50
    
    
    5.25June 30
    
    
    7.75
    
    
    5.52September 30
    
    
    7.03
    
    
    4.66December 31
    
    
    7.00
    
    
    2.702002
    
    March 31
    
    
    7.37
    
    
    4.16June 30
    
    
    6.44
    
    
    4.84September 30
    
    
    6.00
    
    
    4.31December 31
    
    
    7.16
    
    
    4.402003
    
    March 31
    
    
    6.50
    
    
    1.53


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

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ITEM 6 - SELECTED FINANCIAL DATA

Year Ended March 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands, except per share data)Net sales (3)
    
    $
    36,827
    
    
    $
    34,696
    
    
    $
    39,560
    
    
    $
    40,700
    
    
    $
    36,042Loss on investment (1)
    
    
    (9,320
    )
    
    
    (3,103
    )
    
    
    (1,362
    )
    
    
    (860
    )
    
    
    Income (loss) before equity in net income
(loss) of affiliates and discontinued
operations (3)
    
    
    (10,474
    )
    
    
    (1,299
    )
    
    
    (1,697
    )
    
    
    (508
    )
    
    
    822Equity in net income (loss) of affiliates,
net of tax
    
    
    (614
    )
    
    
    (528
    )
    
    
    (2,098
    )
    
    
    278
    
    
    
    (395
    )Income (loss) from discontinued operations (3)
    
    
    (1,737
    )
    
    
    (2,674
    )
    
    
    (1,010
    )
    
    
    546
    
    
    
    361Net income (loss)
    
    
    (12,825
    )
    
    
    (4,501
    )
    
    
    (4,805
    )
    
    
    316
    
    
    
    788Net income (loss) per sharediluted
Continuing operations
    
    
    (3.71
    )
    
    
    (0.72
    )
    
    
    (1.35
    )
    
    
    (0.20
    )
    
    
    0.01Discontinued operations (3)
    
    
    (0.56
    )
    
    
    (0.86
    )
    
    
    (0.33
    )
    
    
    0.17
    
    
    
    0.11Net income (loss) per share (2)
    
    $
    (4.27
    )
    
    $
    (1.58
    )
    
    $
    (1.68
    )
    
    $
    (0.03
    )
    
    $
    0.12


At March 31:2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands)Total assets
    
    $
    38,422
    
    
    $
    87,038
    
    
    $
    97,450
    
    
    $
    102,222
    
    
    $
    85,430Assets of discontinued operations (3)
    
    
    474
    
    
    
    29,252
    
    
    
    38,428
    
    
    
    39,786
    
    
    
    29,035Long-term obligations (net of
    
    
    1,113
    
    
    
    11,380
    
    
    
    10,606
    
    
    
    18,004
    
    
    
    20,021current obligations)Working capital (deficit)
    
    
    (19,306
    )
    
    
    (16,846
    )
    
    
    (15,250
    )
    
    
    (10,695
    )
    
    
    8,550


NOTES



|(1) |  | Includes the following charges for impairment of the Companys
investments:
|--- |  | ---------------------------------------------------------------------------

Year Ended March 31,2003
    
    2002
    
    2001
    
    2000(in thousands)Provant
    
    $
    1,360
    
    
    $
    3,103
    
    
    $
    
    
    
    $
    Real estate
    
    
    4,698
    
    
    
    
    
    
    
    
    
    
    
    Foresight Solutions
    
    
    2,790
    
    
    
    
    
    
    
    
    
    
    
    Integral Vision
    
    
    122
    
    
    
    
    
    
    
    1,362
    
    
    
    Vertical VC
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    MYOEM.COM
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    Axson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860$
    9,320
    
    
    $
    3,103
    
    
    $
    1,362
    
    
    $
    860




|(2) |  | Net income (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 12 to
the audited consolidated financial statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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 OPERATIONSCRITICAL 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.

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. Transactions with equity affiliates are in the ordinary course of
business and are conducted on an arms-length basis. Certain investments in
equity affiliates and other activities may be between related parties and are
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.

The Companys policy has been to advance funds to its equity holdings as
operating cash is required. As of March 31, 2003, the Company has advances to
its affiliates totaling $3.0 million.

In addition, the Company has provided the guarantee of various debt obligations
of certain real estate and other investments in an aggregate amount of
approximately $5.1 million as of May 31, 2003 ($40.0 million at May 31, 2002).
Certain of the debt agreements related to its real estate investments, which
Maxco and other guarantors have guaranteed, are in default at March 31, 2003.
Extensions or forbearance agreements have been issued by some of the respective
banks and the applicable entities are currently working to liquidate the
properties to satisfy the requirements of the lenders. L/M Associates and
Maxco, and other interested parties, have reached an agreement with the lender
for final resolution of the matter. As a result, Maxcos guarantee exposure
under the issue is limited to $100,000. The Company is hopeful that the
properties will be sold or refinanced prior to the completion of any
foreclosure action. The Company does not believe that there is any unusual
degree of risk related to these guarantees because of sufficient underlying
asset values supporting the respective debt obligations.

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

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 $4.7 million in 2003 related to other than temporary impairment.
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 $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.

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Revenue Recognition
The Company recognizes revenue from product sales upon transfer of title, which
is upon shipment. An estimate of reserves is recorded for anticipated returns
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. 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,
2003 and represented 3% of total assets. Amortization expense for the years
ended March 31, 2003, 2002, and 2001 was $30,000, $277,000, and $434,000,
respectively.

During 2003, 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).

The following table presents net loss and net loss per share information as if
goodwill were no longer amortized as of April 1, 2000:

Year Ended March 31,2003
    
    2002
    
    2001(in thousands, except per share data)Net loss
    
    $
    (12,825
    )
    
    $
    (4,342
    )
    
    $
    (4,568
    )Net loss per common
sharebasic and diluted
    
    $
    (4.27
    )
    
    
    (1.53
    )
    
    $
    (1.60
    )


RESULTS OF OPERATIONS
The following is a discussion of the major elements relating to Maxcos
financial and operating results for 2003 compared with 2002, and 2002 compared
with 2001. The comments that follow should be read in conjunction with Maxcos
Consolidated Financial Statements and related notes, 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.

2003 versus 2002
Net sales increased to $36.8 million in 2003 compared to $34.7 million in 2002.
Operating loss was $534,000 in 2003 compared to a loss of $9,000 for the
comparable period in 2002. Net loss was $12.8 million, a loss of $13.2 million
after preferred dividends, or a loss of $4.27 per share assuming dilution
compared to last years net loss of $4.5 million, a loss of $4.9 million after
preferred dividends, or a loss of $1.58 per share assuming dilution.

9



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##### Table of Contents



Sales and operating earnings for the years ending March 31, 2003 and 2002 by
the Companys heat treating and corporate and other segments were as follows:

Year Ended
    
    Year EndedMarch 31, 2003
    
    March 31, 2002Operating
    
    
    
    
    
    OperatingEarnings
    
    
    
    
    
    EarningsNet Sales
    
    (Loss)
    
    Net Sales
    
    (Loss)(in thousands)Heat treating
    
    $
    36,740
    
    
    $
    2,147
    
    
    $
    34,364
    
    
    $
    2,482Corporate and other
    
    
    87
    
    
    
    (2,681
    )
    
    
    332
    
    
    
    (2,491
    )


The increase in net sales at the heat treating segment was due to increased
business with Honda of America Manufacturing, Inc. Offsetting this increase
was a decrease in sales to a customer who moved a portion of their heat
treating requirements in-house or to another vendor. The decrease in revenue
at corporate was due to a reduction in rental income of $257,000 from the prior
year as a result of the sale of two buildings in the first quarter.

Consolidated gross profit (net sales less cost of sales and operating expenses)
decreased $660,000 to $13.5 million from $14.2 million. Consolidated gross
margin (gross profit as a percentage of net sales) decreased to 36.7% from
40.9%. The decrease in heat treating sales to a customer who moved a portion
of their heat treating requirements in-house or to another vendor was the
primary reason that gross profit declined in 2003. Reductions in the costs of
labor, natural gas, and shipping totaling $788,000 were offset by higher
maintenance costs of $559,000. 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. Contributing to the decline in gross profit and
gross margin was the reduction in rental income of $257,000 described above.

Selling, general, and administrative (SG&A) expenses increased $277,000 or
2.5% to $11.3 million from $11.0 million. Fees charged by a primary lender of
approximately $138,000 and costs associated with efforts to secure alternative
financing totaling $248,000 were the principal reasons for the increase in
SG&A. Corporate expenses for outside services were reduced by $93,000. SG&A
expenses for the Companys heat-treating segment were comparable to the prior
year.

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

Depreciation and amortization expense decreased $263,000 to $2.9 million from
$3.2 million primarily due to the discontinuation of the amortization of
goodwill and the reduced depreciation resulting from the sale of the two
buildings.

Investment and interest income was higher in the prior year primarily due to
the Company receiving $273,000 from a fund demutualization in that period.

Gains on the sale of investments decreased $2.7 million from a gain in 2002 of
$2.4 million to a loss of $265,000 in 2003. In 2003, the Company recorded a
charge of $265,000 to adjust a note receivable to a realizable amount. In
fiscal 2002 the Company recognized income of $2.0 million representing Maxcos
remaining share of the additional consideration to be received as one of the
former shareholders of Strategic Interactive, Inc. (Maxcos former 45% owned
affiliate sold to Provant, Inc. in October 1998). The payment was made to the
Company in cash and common stock in fiscal 2003. The Company also recognized a
gain of approximately $422,000 on the sale of its investment in Mid-State
Industrial Services, Inc. in 2002.

Interest expense decreased 9% to $1.9 million from $2.1 million. A reduction
in interest expense due to lower borrowing levels was partially offset by
penalty interest charged by a primary lender.

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

Year Ended March 31,2003
    
    2002(in thousands)Provant
    
    $
    1,360
    
    
    $
    3,103Real estate
    
    
    4,698
    
    
    
    Foresight Solutions
    
    
    2,790
    
    
    
    Integral Vision
    
    
    122
    
    
    
    Vertical VC
    
    
    250
    
    
    
    MYOEM.COM
    
    
    100
    
    
    
    $
    9,320
    
    
    $
    3,103


10



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##### Table of Contents



Equity in net income (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
$614,000, net of tax, for the year ended March 31, 2003, compared to a loss of
$528,000, net of tax, for the prior year comparable period.

Due to the uncertainty of future realization of deferred tax assets, a
valuation allowance of $3.0 million was recorded in 2003 resulting in a
variation from the statutory rate of 34%.

2002 versus 2001
Net sales decreased to $34.7 million in 2002 compared to $39.6 million in 2001.
Operating loss was $9,000 in 2002 compared to earnings of $382,000 for the
comparable period in 2001. Net loss was $4.5 million, a loss of $4.9 million
after preferred dividends, or a loss of $1.58 per share assuming dilution
compared to the prior years net loss of $4.8 million, a loss of $5.2 million
after preferred dividends, or a loss of $1.68 per share assuming dilution.

Sales and operating earnings for the years ending March 31, 2002 and 2001 by
the Companys heat treating and corporate and other segments were as follows:

March 31, 2002
    
    March 31, 2001Operating
    
    
    
    
    
    OperatingEarnings
    
    
    
    
    
    EarningsNet Sales
    
    (Loss)
    
    Net Sales
    
    (Loss)(in thousands)Heat treating
    
    $
    34,364
    
    
    $
    2,482
    
    
    $
    39,229
    
    
    $
    3,670Corporate and other
    
    
    332
    
    
    
    (2,491
    )
    
    
    331
    
    
    
    (3,289
    )


The decrease in net sales at the heat treating segment was due to a slowdown in
production experienced by its automotive customers.

Consolidated gross profit (net sales less cost of sales and operating expenses)
decreased $909,000 to $14.2 million from $15.1 million. Consolidated gross
margin (gross profit as a percentage of net sales) increased to 40.9% from
38.1%. Although gross margin improved for the Companys heat treating segment
as a result of cost cutting measures, gross profit decreased primarily due to
the lower sales volume.

Selling, general, and administrative (SG&A) expenses decreased $940,000 or
7.9% to $11.0 million from $11.9 million. SG&A expenses for the corporate
segment decreased approximately $215,000 as a result of reduced employee costs.
Additionally, the Company took charges amounting to approximately $456,000 in
the prior year to adjust certain notes receivable and the carrying value of a
building held for sale to realizable amounts. SG&A expenses for the Companys
heat-treating segment decreased $230,000 as a result of reduced employee
levels.

Depreciation and amortization expense increased $422,000 to $3.2 million from
$2.8 million primarily due to additions of property and equipment at the
Companys heat treating segment.

As a result of the facts discussed above, operating profit decreased $391,000
to a loss of $9,000 from profit of $382,000.

Investment and interest income was higher in the current year primarily due to
the Company receiving $273,000 from a mutual fund demutualization.

Gains on the sale of investments increased $1.8 million from $675,000 to $2.4
million. In fiscal 2002 the Company recognized income of $2.0 million
representing Maxcos remaining share of the additional consideration to be
received as one of the former shareholders of Strategic Interactive, Inc.
(Maxcos former 45% owned affiliate sold to Provant, Inc. in October 1998).
The payment was made to the Company in cash and common stock in fiscal 2003.
The Company also recognized a gain of approximately $422,000 on the sale of its
investment in Mid-State Industrial Services, Inc. in 2002. In fiscal 2001 the
Company recognized income of $675,000 representing Maxcos guaranteed share of
the additional consideration to be received as one of the former shareholders
of Strategic Interactive, Inc.

Interest expense decreased 27% to $2.1 million from $2.9 million. This was
primarily the result of reduced borrowing levels.

11



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##### Table of Contents



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

Year Ended March 31,2002
    
    2001(in thousands)Provant
    
    $
    3,103
    
    
    $
    Integral Vision
    
    
    
    
    
    
    1,362$
    3,103
    
    
    $
    1,362


Equity in net income (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, net of tax,
was $528,000 for the year ended March 31, 2002, compared to a loss of $2.1
million for the prior year comparable period. This was primarily the result of
the Companys investment in Integral Vision, Inc. For Maxcos fiscal year
ended March 31, 2001, its proportionate share of Integral Visions net loss,
net of tax, totaled $1.3 million.

The Companys effective tax rate varied from the statutory rate of 34% due to
certain expenses, which are not deductible for tax purposes.

LIQUIDITY AND SOURCES OF CAPITAL
Operating activities for 2003 generated $2.3 million in cash. Earnings, after
non-cash adjustments, generated $898,000 of that amount. Changes in net
working capital generated approximately $2.8 million. Advances to operations
that were discontinued in the third quarter used $1.5 million.

Overall, the Companys working capital deficit (defined as current assets less
current liabilities) increased from $16.8 million at March 31, 2002 to $19.3
million at March 31, 2003. The Company had $14.5 million of its debt
classified as short term at March 31, 2003 due to forbearance agreements
reached with two principal lenders which expire in 2003. The Company is
currently pursuing other financing options.

The aggregate principal maturities of long-term debt are approximately $995,000
in 2004, $767,000 in 2005, and $346,000 thereafter.

The Company generated approximately $11.6 million in cash from investing
activities. Specifically, during the year, the Company received $7.7 million
in cash from the sale of its wholly owned subsidiaries Ersco Corporation and
Pak Sak Industries. The Company generated approximately $2.5 million from the
sale of two buildings. The Company received $1.1 million in cash representing
the cash portion of the additional consideration received as one of the former
shareholders of Strategic Interactive, Inc. (Maxcos former 45% owned affiliate
sold to Provant, Inc. in October 1998).

Net cash used in financing activities during the year amounted to $13.8
million. Repayments of long-term and short-term obligations were $18.3
million. In connection with the sale of Ersco Corporation, the acquiring
company retired certain other Maxco debt in excess of the sale price resulting
in a note payable to the acquiring company of approximately $4.1 million. At
March 31, 2003 the Companys heat treating segment, Atmosphere Annealing
(Atmosphere), had a $4 million line of credit facility. This facility is
secured by their assets. The amount that can be borrowed under this facility
is dependent on certain accounts receivable levels at Atmosphere. At March 31,
2003, based on these specific collateral levels, Atmosphere could borrow up to
$4.0 million under its line of credit, approximately all of which was borrowed.
The line is under forbearance which expires in July 2003.

Maxcos heat treating segment occupies facilities and uses equipment under
operating lease agreements requiring annual rental payments approximating
$493,000 in 2004, $185,000 in 2005, $121,000 in 2006, $55,000 in 2007, and
$55,000 in 2008 for a total commitment aggregating $909,000.

At March 31, 2003, the 2,240,605 shares of Integral Vision (formerly Medar)
common stock that Maxco owns had an aggregate market value of approximately
$560,000. Maxcos investment in Integral Vision is reflected in Maxcos
financial statements under the equity method for all periods presented as the
Company owns greater than 20% of Integral Visions outstanding stock.

At March 31, 2003, the 2,837,089 shares of Provant common stock that Maxco owns
had an aggregate market value of approximately $312,000. Maxcos investment in
Provant is reflected in Maxcos financial statements as an available-for-sale
security.

Subsequent to March 31, 2003 the Company sold land for $1.0 million, the
proceeds of which were primarily used to retire debt.

12



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##### Table of Contents



The Companys ability to meet its short term and long term debt service and
other obligations (including compliance with financial covenants) will be
dependent upon its future operating performance and the successful
renegotiation of its credit facilities. These dependencies will be subject to
financial, business and other factors, certain of which are beyond the
Companys control, such as prevailing economic conditions. There can be no
assurance that the Company will be able to secure additional financing on
satisfactory terms or in the near future. The Company believes that funds
generated by its operations and anticipated funds available under other credit
facilities will be sufficient to finance short term capital needs, as well as
to fund existing operations for the foreseeable future. However, in the event
that the Company is unable to successfully renegotiate its credit facilities,
the Company has long term equity investments that it is actively liquidating 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, 2003. 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 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 EndedFiscal 2002
    
    Fiscal 20036/30/01
    
    9/30/01
    
    12/31/01
    
    3/31/02
    
    6/30/02
    
    9/30/02
    
    12/31/02
    
    3/31/03(in thousands, except per share data)Net Sales (3)
    
    $
    9,121
    
    
    $
    8,843
    
    
    $
    8,183
    
    
    $
    8,548
    
    
    $
    8,926
    
    
    $
    8,908
    
    
    $
    8,701
    
    
    $
    10,292Gross profit (3)
    
    
    3,476
    
    
    
    3,652
    
    
    
    3,245
    
    
    
    3,808
    
    
    
    3,551
    
    
    
    3,146
    
    
    
    3,296
    
    
    
    3,529Gains on sale of investments (1)
    
    
    
    
    
    
    
    
    
    
    2,447Loss on investment (2)
    
    
    
    
    
    
    
    
    
    
    (3,103
    )
    
    
    
    
    
    
    (80
    )
    
    
    (4,280
    )
    
    
    
    
    
    
    (4,960
    )Equity in net income (loss) of affiliates, net of tax
    
    
    87
    
    
    
    (73
    )
    
    
    (22
    )
    
    
    (520
    )
    
    
    (309
    )
    
    
    (122
    )
    
    
    (76
    )
    
    
    (107
    )Income (loss) from discontinued operations(3)
    
    
    282
    
    
    
    9
    
    
    
    (783
    )
    
    
    (2,182
    )
    
    
    5
    
    
    
    (1,666
    )
    
    
    151
    
    
    
    (227
    )Net income (loss)
    
    
    404
    
    
    
    (282
    )
    
    
    (1,651
    )
    
    
    (2,973
    )
    
    
    (418
    )
    
    
    (5,224
    )
    
    
    (572
    )
    
    
    (6,611
    )Net income (loss) per common
sharediluted:Continuing operations
    
    $
    0.01
    
    
    $
    (0.12
    )
    
    $
    (0.32
    )
    
    $
    (0.29
    )
    
    $
    (0.17
    )
    
    $
    (1.18
    )
    
    $
    (0.27
    )
    
    $
    (2.09
    )Discontinued operations (3)
    
    
    0.09
    
    
    
    
    
    
    
    (0.25
    )
    
    
    (0.70
    )
    
    
    
    
    
    
    (0.54
    )
    
    
    0.05
    
    
    
    (0.07
    )$
    0.10
    
    
    $
    (0.12
    )
    
    $
    (0.57
    )
    
    $
    (0.99
    )
    
    $
    (0.17
    )
    
    $
    (1.72
    )
    
    $
    (0.22
    )
    
    $
    (2.16
    )




|(1) |  | Includes $2.0 million of additional consideration as one of the former
shareholders of Strategic Interactive, Inc. (Maxcos former 45% owned
affiliate sold to Provant, Inc. in October 1998) and a gain of $422,000 on
the sale of the Companys investment in Mid-State Industrial Services,
Inc. in the quarter ended December 31, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Quarter Ended12/31/01
    
    6/30/03
    
    9/30/03
    
    3/31/03(in thousands)Provant
    
    $
    (3,103
    )
    
    $
    (80
    )
    
    $
    (1,280
    )
    
    $
    Real estate
    
    
    
    
    
    
    
    
    
    
    (3,000
    )
    
    
    (1,698
    )Foresight Solutions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,790
    )Integral Vision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122
    )Vertical VC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )MYOEM.COM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )$
    (3,103
    )
    
    $
    (80
    )
    
    $
    (4,280
    )
    
    $
    (4,960
    )




|(3) |  | In accordance with FASB Statement No. 144, the Company reclassified its
results from operations for discontinued operations. See Note 12 to the
audited consolidated financial statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

13



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##### Table of Contents



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 a customer changeover 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.

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 permitted by competition, the Company has offset these higher costs
through selective price increases.

NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of
the Interpretation are applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002. The
Company has not guaranteed any new obligations subsequent to December 31, 2002.
In addition, the Company has provided additional disclosures in the
accompanying financial statements.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15, 2002, and
are included in the notes to the financial statements included in this Form
10-K.




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. Some of the Companys interest expense
is fixed through long-term borrowings to mitigate the impact of such potential
exposure. Additionally, the Company entered into an interest rate swap
agreement based on a notional amount of $5.0 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 long-term and short-term borrowings of
$14.8 million at March 31, 2003. A 1% increase from the prevailing interest
rates at March 31, 2003 on the unhedged variable rate portion of the Companys
long-term and short-term borrowings would increase interest expense by $117,000
based on principal balances at March 31, 2003.

The Companys heat treating segment experiences fluctuations in the price of
natural gas used in the heat treating process. These price fluctuations are
passed on to the customers as practicable.




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
None

14



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##### Table of Contents



PART III




ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished concerning the nominees, all of whom
have been nominated by the Board of Directors and are presently Directors of
the Company.

DIRECTORSPresent Position with the Company and Principal
    
    
    
    
    
    Served as Director ofName
    
    Occupation
    
    Age
    
    Maxco SinceMax A. Coon
    
    Director, President and Chairman of
the Board of MAXCO, INC.
    
    
    68
    
    
    1969Eric L. Cross
    
    Director, Executive Vice President and Secretary of
MAXCO, INC.
    
    
    60
    
    
    1972Sanjeev 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.
    
    
    45
    
    
    2003Charles J. Drake
    
    Director of MAXCO, INC., Chairman and Chief
Executive Officer of Integral Vision, Inc., a Farmington
Hills, Michigan based manufacturer of micro-processor
based inspection systems of which Maxco owns 25%
    
    
    63
    
    
    1982Joel 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.
    
    
    64
    
    
    1985Richard G. Johns
    
    Director and Vice President of MAXCO, Inc.
    
    
    59
    
    
    1990David A. Layton
    
    Director of MAXCO, INC. and President of Layton &
Richardson, P.C., a Lansing, Michigan based accounting
firm.
    
    
    63
    
    
    2001Samuel O. Mallory
    
    Director of MAXCO, INC., Investor
    
    
    70
    
    
    2002Vincent Shunsky
    
    Director, Vice President of Finance and Treasurer of
MAXCO, INC.
    
    
    54
    
    
    1983


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

Sanjeev Deshpande was appointed as President of Atmosphere Annealing, Inc. in
January 2000. Prior to that time, Mr. Deshpande served as Vice President of
Atmosphere Annealing, Inc.

Messrs. Coon, Shunsky, Mallory, and Drake are also Directors of Integral
Vision, Inc. (formerly, Medar, Inc.), a 25% owned investment of Maxco, Inc.
whose stock is traded on the Over the Counter Bulletin Board under the symbol
INVI.

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

The Board of Directors has established a Compensation Committee whose members
during the year ended March 31, 2003 were Max A. Coon and David A. Layton. The
Compensation Committee is also responsible for administering the Companys
Stock Option Plan, including designating the recipients and terms of specific
option grants. The Compensation Committee met one time during the fiscal year
to establish compensation levels for the Executive Officers, and to authorize
the levels and timing of bonuses. The Company does not have a standing
nominating committee.

15



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##### Table of Contents



Audit Committee Report.
The board of directors has adopted a Charter to govern the operations of its
Audit Committee. A copy of this Charter was included as an exhibit to the
Companys proxy statement for the year ended March 31, 2001. The Charter
requires that, effective June 14, 2001, the Audit Committee shall comprise at
least three directors, each of whom are independent of management and the
Company, which is defined to mean that they have no relationship that may
interfere with the exercise of their independence from management and the
Company.

For the year ended March 31, 2003 the board of directors appointed an Audit
Committee whose members were Joel I. Ferguson, David R. Layton, and Michael P.
Smorch (Mr. Smorch did not stand for re-election to the board). For the period
beginning August 27, 2002, the board of directors appointed Joel I. Ferguson,
David R. Layton, and Samuel O. Mallory to the Audit Committee. The Audit
Committee oversees the Companys financial reporting process on behalf of the
board of directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the committee
reviewed the audited financial statements to be included in the Companys
Annual Report with management including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.

The committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of the Companys accounting principles and
such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the committee has
discussed with the independent auditors the auditors independence from
management and the Company including the matters in the written disclosures
required by the Independence Standards Board.

The committee discussed with the Companys independent auditors the overall
scope and plans for their respective audits. The committee meets with the
independent auditors, with and without management present, to discuss the
results of the examinations, their evaluations of the Companys internal
controls, and the overall quality of the Companys financial reporting. The
committee held 4 meetings during the year ended March 31, 2003.

In reliance on the reviews and discussions referred to above, the committee
recommended to the board of directors (and the board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended March 31, 2003 for filing with the Securities and Exchange
Commission.



| | Joel I. Ferguson
David A. Layton
Samuel O. Mallory
| | --------------------------------------------------

During the last fiscal year there were a total of three meetings of the Board
of Directors. Messrs. Ferguson and Layton attended less than 75% of the
meetings.

Director Compensation
The Directors of the Company are paid $100 per meeting attended. Fees are not
paid to Directors for attendance at committee meetings.

The following table sets forth information concerning the Executive Officers of
the Company:

EXECUTIVE OFFICERSName
    
    Present Position with the Company and Principal Occupation
    
    AgeMax A. Coon
    
    President, Chairman of the Board, and Director of MAXCO, INC
    
    68Eric L. Cross
    
    Executive Vice President, Secretary, and Director of MAXCO, INC
    
    60Richard G. Johns
    
    Vice President and Director of MAXCO, Inc.
    
    59Vincent Shunsky
    
    Vice President of Finance, Treasurer, and Director of MAXCO, INC
    
    54


All of the foregoing Officers of the Company have been engaged in the principal
occupations specified above for the previous five years.




ITEM 11  EXECUTIVE COMPENSATIONCompensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors (the Committee)
consisted of Max A. Coon and David A. Layton for the year ended March 31, 2003.
Although the presence of Mr. Coon on the Committee, as Chief Executive Officer
of the

16



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##### Table of Contents



Company, could be considered to present a conflict of interest, Mr. Coons
input is considered very important and he has agreed to abstain from voting on
any matter related to his own compensation.

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, 2003, the following measures of Company performance were selected:
net sales, 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.

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
The Company has two 401(k) Employee Savings Plans covering substantially all
employees of the Company. The 401(k) plans are cash or deferred plans 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 plans do not contain established
termination dates and it is not anticipated that they will be terminated at any
time in the foreseeable future.

17



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##### Table of Contents



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, 2003.

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, 2003 was $200,000 of which
approximately $67,000 was deferred. No bonus was paid to Mr. Coon for 2003.

Significant factors in establishing Mr. Coons compensation were his strategic
and overall management direction of the Company and his position and long
service to the Company.

The Compensation CommitteeMax A. Coon
David A. Layton


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 four other executive officers whose compensation
exceeded $100,000:

Annual Compensation
    
    Long Term CompensationOtherAnnual
    
    
    
    
    
    All OtherName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Comp (1)
    
    Options
    
    Comp (2)Max A. Coon
    
    
    2003
    
    
    
    200,000
    (3)
    
    
    0
    
    
    
    300
    
    
    
    0
    
    
    
    3,600Chief Executive Officer
    
    
    2002
    
    
    
    200,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,5002001
    
    
    
    250,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,800Eric L. Cross
    
    
    2003
    
    
    
    150,000
    
    
    
    0
    
    
    
    300
    
    
    
    0
    
    
    
    3,300Executive Vice President
    
    
    2002
    
    
    
    150,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,3002001
    
    
    
    150,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,300Richard G. Johns
    
    
    2003
    
    
    
    125,000
    
    
    
    0
    
    
    
    300
    
    
    
    0
    
    
    
    2,750Vice President
    
    
    2002
    
    
    
    125,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    2,2102001
    
    
    
    125,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    2,310Vincent Shunsky
    
    
    2003
    
    
    
    150,000
    
    
    
    25,000
    
    
    
    300
    
    
    
    0
    
    
    
    3,550Vice President of Finance
    
    
    2002
    
    
    
    150,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,3002001
    
    
    
    150,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    3,300




|(1) |  | Represents director fees
|--- |  | ------------------------



|(2) |  | Represents the Companys 20% 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 deferred payment of his salary beginning December 2002.
|--- |  | -------------------------------------------------------------------

18



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##### Table of Contents



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, 2003. All of the options
held by the named individuals are presently exercisable.

Number of
    
    Value ofUnexercised Options
    
    Unexercised OptionsName and Principal Position
    
    at Fiscal Year End
    
    at Fiscal Year EndMax A. Coon
    
    
    0
    
    
    
    0Chief Executive OfficerEric L. Cross
    
    
    42,500
    
    
    
    0Executive Vice PresidentRichard G. Johns
    
    
    22,500
    
    
    
    0Vice PresidentVincent Shunsky
    
    
    42,500
    
    
    
    0Vice President of Finance


Equity Compensation Plan Information
The following table summarizes information as of March 31, 2003 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.

Number of SecuritiesRemaining Available for FutureIssuance Under the StockNumber of Securities to be
    
    Weighted Average Exercise
    
    Option Plan (ExcludingIssued Upon Exercise of
    
    Price of Outstanding
    
    Securities Reflected in ColumnPlan Category
    
    Outstanding Options
    
    Options
    
    A)Executive Compensation
Plans Approved by Security Holders
    
    
    155,000
    
    
    $
    7.77
    
    
    
    470,000


Compliance with Reporting Requirements
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.
Reports on Form 3 were not timely filed on behalf of Messrs. Deshpande and
Mallory upon their appointment as directors of the Company. All reports
required to be filed to report the aforementioned events were filed as of June
30, 2003.

19



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##### Table of Contents






ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following Table sets forth certain information as of May 31, 2003, 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 Nominee and by all
Directors and Officers of the Company as a group.

Amount and Nature
        of Beneficial OwnershipSole Voting
      
      Shared Votingand Investment
      
      and Investment
      
      % ofName of Beneficial Owner
      
      Title of Class
      
      Power
      
      Power
      
      ClassMax A. Coon (1)
      
      Common Stock
      
      
      878,456
      
      
      
      107,070
      (2)
      
      
      31.8
      %Series
          Three Preferred Stock
      
      
      114
      
      
      
      3,240
      (3)
      
      
      22.7
      %Series
          Four Preferred Stock (4)
      
      
      7,000
      
      
      
      
      
      
      
      15.1
      %Series
          Five Preferred Stock (4)
      
      
      3,816
      
      
      
      
      
      
      
      57.4
      %Eric L. Cross
      
      Common
          Stock
      
      
      168,775
      (5)
      
      
      88,583
      (6)
      
      
      8.2
      %Sanjeev Deshpande
      
      Common
          Stock
      
      
      40,000
      (7)
      
      
      
      
      
      
      1.3
      %Charles J. Drake
      
      Common Stock
      
      
      0
      
      
      
      
      
      
      
      *Joel I. Ferguson
      
      Common Stock
      
      
      5,000
      
      
      
      
      
      
      
      *Richard G. Johns
      
      Common Stock
      
      
      115,160
      (8)
      
      
      
      
      
      
      3.7
      %David R. Layton
      
      Common
          Stock
      
      
      0
      
      
      
      
      
      
      
      *Samuel O. Mallory
      
      Common Stock
      
      
      22,200
      
      
      
      
      
      
      
      *Vincent Shunsky
      
      Common Stock
      
      
      118,392
      (9)
      
      
      88,583
      (10)
      
      
      6.6
      %Series
          Three Preferred Stock
      
      
      30
      
      
      
      
      
      
      
      *All Directors and Officers as a
      
      Common Stock
      
      
      1,347,983
      (11)
      
      
      173,736
      (12)
      
      
      46.8
      %group, including the above,
      
      Series
          Three Preferred Stock
      
      
      144
      
      
      
      3,240
      
      
      
      22.9
      %(9 persons)
      
      Series
          Four Preferred Stock (4)
      
      
      7,000
      
      
      
      
      
      
      
      15.1
      %Series
          Five Preferred Stock (4)
      
      
      3,816
      
      
      
      
      
      
      
      57.4
      %Andrew S. Zynda (13)
      
      Common
          Stock
      
      
      327,740
      
      
      
      15,000
      
      
      
      11.1
      %Series
          Four Preferred Stock (4)
      
      
      10,000
      
      
      
      
      
      
      
      21.5
      %ROI Capital Management, Inc. (14)
      
      Common
          Stock
      
      
      805,098
      
      
      
      
      
      
      
      26.0
      %Dimensional Fund Advisors, Inc. (15)
      
      Common
          Stock
      
      
      174,800
      
      
      
      
      
      
      
      5.6
      %




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



|(1) |  | Mr. Coons address is 1118 Centennial Way, Lansing, Michigan.
|--- |  | -------------------------------------------------------------



|(2) |  | Represents 18,487 shares owned by Mr. Coons immediate family, 55,250
shares held jointly with Mr. Cross and Mr. Shunsky, and a proportionate
share of 100,000 shares held by a general partnership in which Mr. Coon is
a 1/3 partner.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Represents shares owned by a charitable foundation of which Mr. Coon is one
of the trustees.
|--- |  | --------------------------------------------------------------------------------------------



|(4) |  | Series Four and Series Five Preferred Stock are both nonvoting.
|--- |  | ---------------------------------------------------------------



|(5) |  | Includes options to purchase 42,500 shares.
|--- |  | -------------------------------------------



|(6) |  | Includes 55,250 shares held jointly with Mr. Coon and Mr. Shunsky and a
proportionate share of 100,000 shares held by a general partnership in
which Mr. Cross is a 1/3 partner.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) |  | Includes options to purchase 20,000 shares.
|--- |  | -------------------------------------------



|(8) |  | Includes options to purchase 22,500 shares.
|--- |  | -------------------------------------------



|(9) |  | Includes options to purchase 42,500 shares.
|--- |  | -------------------------------------------



|(10) |  | Represents 55,250 shares held jointly with Mr. Coon and Mr. Cross and a
proportionate share of 100,000 shares held by a general partnership in
which Mr. Shunsky is a 1/3 partner.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) |  | Includes options to purchase 107,500 shares.
|---- |  | --------------------------------------------



|(12) |  | Includes 8,421 shares owned by Maxco, Inc. 401(k) Employees Savings Plan
of which Messrs. Coon, Shunsky, and Cross are Trustees.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------



|(13) |  | Mr. Zyndas address is Box 113, Corwin
Road, Williamston, MI 48895.
|---- |  | -------------------------------------------------------------------

20



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##### Table of Contents





|(14) |  | Information obtained from Schedule 13D dated April 8, 2003 and Form 4s
filed with the Securities and Exchange Commission and sent to the Company
pursuant to Section 13(d) of the Securities Exchange Act of 1934. The
address of ROI Capital Management, Inc. is 17 E. Sir Francis Drake Blvd.,
Suite 225, Larkspur, CA 94939.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) |  | Information obtained from Schedule 13G dated February 3, 2003, filed with
the Securities and Exchange Commission and sent to the Company pursuant to
Section 13(d) of the Securities Exchange Act of 1934. The address of
Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSRelationship with Independent Public Accountants
The firm of Ernst & Young LLP served as auditors for the Company for the fiscal
year ended March 31, 2003. The Company periodically evaluates its external
audit requirements and will make a decision based on cost, response time, and
quality of services available. A representative of Ernst & Young LLP is
expected to be present at the Annual Meeting of Shareholders and will be
available to respond to appropriate questions, and will have the opportunity to
make a statement if they desire to do so.

During the year ended March 31, 2003, Ernst & Young LLP billed the Company for
its services as follows:

Audit Fees:$81,575 for aggregate fees billed for professional services
rendered for the audit of the Companys annual financial statements for the
year ended March 31, 2003 and the reviews of the financial statements included
in the Companys quarterly reports filed with the Securities and Exchange
Commission during the year.

During the year ended March 31, 2002, Ernst & Young LLP billed the Company for
its services as follows:

Audit Fees.$113,500 for aggregate fees billed for professional services
rendered for the audit of the Companys annual financial statements for
the year ended March 31, 2002 and the reviews of the financial statements
included in the Companys quarterly reports filed with the Securities and
Exchange Commission during the year.

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 Ernst & Young LLP. The Company did not have pre-approval
policies and procedures in 2003 or 2002. The Audit Committee is in the process
of revising its charter to comply with the mandates of the Sarbanes-Oxley Act
of 2002 and related new and pending rules and regulations of the Securities and
Exchange Commission. Those revisions will include the required pre-approval
policies and procedures for 2004 and subsequent years. The Audit Committee
expects to complete those revisions in the near future.




ITEM 14. 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-14(c) and
15d-14(c)) as of a date within 90 days before the filling date of 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 not been any significant changes in the Companys internal controls
or in other factors that could significantly affect these controls subsequent
to the date of their evaluation. There were no significant deficiencies or
material weakness, and therefore no corrective actions were taken.

21



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##### Table of Contents



PART IV




ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(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 Number |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3              |  | Restated Articles of Incorporation
        are hereby incorporated by reference from Form 10-Q dated February 13,
        1998.                                                                                                                                                                                                                                                                                                                                                     
|3.1            |  | By-laws are hereby incorporated
        by reference from Form S-4 dated November 4, 1991 (File No. 33-43855).                                                                                                                                                                                                                                                                                                                                                                      
|4.2            |  | Resolution establishing Series Three
        Preferred Shares is hereby incorporated by reference from Form S-4
        dated November 4, 1991 (File No. 33-43855).                                                                                                                                                                                                                                                                                                                 
|4.3            |  | Resolution authorizing the
        redemption of Series Two Preferred Stock, establishing Series Four
        Preferred Stock and the terms of the subordinated notes is hereby incorporated
        by reference from Form 10-Q dated February 14, 1997.                                                                                                                                                                                                                           
|4.4            |  | Resolution establishing Series Five
        Preferred Shares is hereby incorporated by reference from Form 10-K
        dated June 5, 1997.                                                                                                                                                                                                                                                                                                                                         
|4.5            |  | Resolution establishing Series Six
        Preferred Shares is hereby incorporated by reference from Form 10-K
        dated June 23, 1999.                                                                                                                                                                                                                                                                                                                                         
|10.1           |  | Incentive stock option plan
        adopted August 15, 1983, including the amendment (approved by shareholders
        August 25, 1987) to increase the authorized shares on which options
        may be granted by two hundred fifty thousand (250,000), up to five hundred
        thousand (500,000) shares of the common stock of the company is hereby
        incorporated by reference from the annual report on Form 10-K for the
        fiscal year ended March 31, 1988.
|10.9           |  | Asset Purchase Agreement 
        Wright Plastic Products, Inc. is hereby incorporated by reference from
        registrants Form 10-Q dated November 14, 1996.                                                                                                                                                                                                                                                                                                                    
|10.10          |  | Amended and restated loan
        agreement between Comerica Bank and Maxco, Inc. dated September 30,
        1996, is hereby incorporated by reference from registrants Form 10-Q
        dated November 14, 1996.                                                                                                                                                                                                                                                                 
|10.11          |  | Asset purchase agreement for
        the purchase of Atmosphere Annealing, Inc. is hereby incorporated by reference
        from registrants Form 8-K dated January 17, 1997.                                                                                                                                                                                                                                                                                                       
|10.12          |  | Asset Purchase Agreement 
        Axson North America Inc. is hereby incorporated by reference from registrants
        Form 10-Q dated February 14, 1997.                                                                                                                                                                                                                                                                                                                         
|10.13          |  | Loan agreement between Michigan
        Strategic Fund and Atmosphere Annealing, Inc. is hereby incorporated by
        reference from registrants Form 10-Q dated February 13, 1998.                                                                                                                                                                                                                                                                                               
|10.14          |  | Loan agreement between LAM
        Funding, L.L.C. and borrower including Guaranty-Maxco, Inc. is hereby
        incorporated by reference from registrants Form 10-Q dated February 13,
        1998.                                                                                                                                                                                                                                                                              
|10.15          |  | First Amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        August 1, 1997, is hereby incorporated by reference from Form 10-K
        dated June 24, 1998.                                                                                                                                                                                                                                                                  
|10.16          |  | Second amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        June 24, 1998, is hereby incorporated by reference from Form 10-K
        dated June 24, 1998.                                                                                                                                                                                                                                                                  
|10.17          |  | Third amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        September 24, 1998, is hereby incorporated by reference from Form 10-Q
        dated November 12, 1998.                                                                                                                                                                                                                                                          
|10.18          |  | Maxco, Inc. 1998 Employee
        Stock Option Plan is hereby incorporated by reference from Form 10-Q
        dated November 12, 1998.                                                                                                                                                                                                                                                                                                                                             
|10.19          |  | Fourth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        June 22, 1999 is hereby incorporated by reference from Form 10-K
        dated June 23, 1999.                                                                                                                                                                                                                                                                   
|10.20          |  | Fifth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        September 1, 1999 is hereby incorporated by reference from Form 10-Q
        dated November 12, 1999.                                                                                                                                                                                                                                                            
|10.21          |  | Sixth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        July 12, 2000 is hereby incorporated by reference from Form 10-K
        dated July 14, 2000.                                                                                                                                                                                                                                                                    
|10.22          |  | Seventh amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        January 11, 2000 is hereby incorporated by reference from Form 10-Q
        dated February 14, 2001.                                                                                                                                                                                                                                                           

22



---



##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23 |  | Eighth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        March 19, 2001 is hereby incorporated by reference from Form 10-K
        dated July 13, 2001.                                                                                                      
|10.24 |  | Ninth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        October 1, 2001 is hereby incorporated by reference from Form 10-Q
        dated February 19, 2002.                                                                                                  
|10.25 |  | Tenth amendment to amended
        and restated loan agreement between Comerica Bank and Maxco, Inc. dated
        February 19, 2002 is hereby incorporated by reference from Form 10-K
        dated July 16, 2002.                                                                                                    
|10.26 |  | Financing arrangements among
        Comerica Bank, Maxco, Inc., Ersco Corporation, Pak Sak Industries, Inc.,
        and Max A. Coon dated November 8, 2002 is hereby incorporated by
        reference from Form 10-Q dated November 25, 2002.                                                                        
|10.27 |  | Financing arrangements among
        Comerica Bank, Maxco, Inc., Pak Sak Industries, Inc., and Max A. Coon
        dated November 13, 2002 is hereby incorporated by reference from
        Form 10-Q dated November 25, 2002.                                                                                          
|10.28 |  | Assignment agreement among
        Comerica Bank, Contractor Supply Incorporated, Maxco, Inc., Ersco Corporation,
        Pak Sak, Inc., Max A. Coon, and Ambassador Steel Corporation dated November
        13, 2002 is hereby incorporated by reference from Form 10-Q dated
        November 25, 2002.              
|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.
|21    |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                          
|23    |  | Consent of Independent Auditors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).                                                                                                                                          
|23.1  |  | Consent of Independent Auditors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).                                                                                                                       
|99.1  |  | Certification of Chief Executive
        Officer pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350, as adopted).                                                                                                                                                                       
|99.2  |  | Certification of Chief Financial Officer pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350, as adopted).                                                                                                                                                                               



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------
|   
|    |  | None                
|   
|(c) |  | Exhibits            



| |  |  | Subsidiaries of the Registrant                              
| | - |  | ------------------------------------------------------------
|
| |  |  | Consent of Independent AuditorsErnst & Young LLP           
|
| |  |  | Consent of Independent AuditorsMoore Stephens Doeren Mayhew
|
| |  |  | Certification of Chief Executive Officer                    
|
| |  |  | Certification of Chief Financial Officer                    



|(d) |  | Financial Statement Schedules
|--- |  | -----------------------------



| |  | The response to this portion of Item 15 is submitted as a separate section of
this report.
| |  | ------------------------------------------------------------------------------------------

23



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##### Table of Contents






SIGNATURES

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

|                   |  |                                                         
|------------------ |  | --------------------------------------------------------
|Date June 30, 2003 |  | MAXCO, INC.                                             
|                   |  |                                                         
|                   |  | By /S/ VINCENT SHUNSKY                                  
|                   |  |                                                         
|                   |  | Vincent Shunsky, Vice President of Finance 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       |  | June 30, 2003 |  | President (Principal Executive Officer) and Director  
|                      |  |               |  |                                                       
|Max A. Coon           |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ VINCENT SHUNSKY   |  | June 30, 2003 |  | Vice President of Finance and Treasurer (Principal    
|                      |  |               |  | Financial and Accounting
        Officer) and Director
|Vincent Shunsky       |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ ERIC L. CROSS     |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Eric L. Cross         |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ CHARLES J. DRAKE  |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Charles J. Drake      |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ JOEL I. FERGUSON  |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Joel I. Ferguson      |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ RICHARD G. JOHNS  |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Richard G. Johns      |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ DAVID R. LAYTON   |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|David R. Layton       |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ SANJEEV DESHPANDE |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Sanjeev Deshpande     |  | Date          |  |                                                       
|                      |  |               |  |                                                       
|/S/ SAMUEL O. MALLORY |  | June 30, 2003 |  | Director                                              
|                      |  |               |  |                                                       
|Samuel O. Mallory     |  | Date          |  |                                                       

24



---



##### Table of Contents






CERTIFICATION

I, Max A. Coon, certify that:

1.     I have reviewed this annual report on Form 10-K of Maxco, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|      |  |               |  |                        
|----- |  | ------------- |  | -----------------------
|Date: |  | June 30, 2003 |  |                        
|      |  |               |  |                        
|      |  |               |  | /s/ Max A. Coon        
|      |  |               |  |                        
|      |  |               |  | Max A. Coon            
|      |  |               |  | Chief Executive Officer

25



---



##### Table of Contents



CERTIFICATION

I, Vincent Shunsky, certify that:

1.     I have reviewed this annual report on Form 10-K of Maxco, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|      |  |               |  |                        
|----- |  | ------------- |  | -----------------------
|Date: |  | June 30, 2003 |  |                        
|      |  |               |  |                        
|      |  |               |  | /s/ Vincent Shunsky    
|      |  |               |  |                        
|      |  |               |  | Vincent Shunsky        
|      |  |               |  | Chief Financial Officer

26



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##### Table of Contents



ANNUAL REPORT ON FORM 10-K

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

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULE

YEAR ENDED MARCH 31, 2003

MAXCO, INC.

LANSING, MICHIGAN

27



---



##### Table of Contents



FORM 10-KITEM 15(a)(1) AND (2)

MAXCO, INC. AND SUBSIDIARIES




LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following consolidated financial statements of Maxco, Inc. and subsidiaries
are included in Item 8:

|                                                                                           |  |  |    | 
|------------------------------------------------------------------------------------------ |  |  | -- | 
|Report of Independent Auditors                                                             |  |  | 29 | 
|Consolidated balance sheetsMarch 31, 2003 and 2002                                        |  |  | 30 | 
|Consolidated statements of operationsYears ended March 31, 2003, 2002, and 2001           |  |  | 31 | 
|Consolidated statements of stockholders equityYears ended March 31, 2003, 2002, and 2001 |  |  | 32 | 
|Consolidated statements of cash flowsYears ended March 31, 2003, 2002, and 2001           |  |  | 33 | 
|Notes to consolidated financial statementsMarch 31, 2003                                  |  |  | 34 | 

The following consolidated financial statement schedule of Maxco, Inc. and subsidiaries is included in Item 14(d):

|                                                           |  |  |    | 
|---------------------------------------------------------- |  |  | -- | 
|Schedule IIValuation and qualifying accounts and reserves |  |  | 44 | 

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



| |  | Financial statements of the Registrants significant unconsolidated affiliate
(Integral Vision, Inc.) are hereby incorporated by reference from the
Integral Vision, Inc. Form 10-K for the year ended December 31, 2002, as
filed with the Securities and Exchange Commission (SEC File Number 0-12728).
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Maxco, Inc. and
subsidiaries as of March 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders equity, and cash flows for each of the
three years in the period ended March 31, 2003. Our audits also included the
financial statement schedule listed in the index at item 15(a). These
financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The financial statements of
Integral Vision, Inc. (formerly Medar, Inc.), (a corporation in which the
Company has approximately a 24% interest) as of December 31, 2002 and 2001 and
for the three years in the period 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 audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

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

29



---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES

March
31,2003
      
      2002(in
thousands)**ASSETS****Current
          Assets**Cash
          and cash equivalents
      
      $
      391
      
      
      $
      345Accounts
          receivable, less allowance of $150,000 in 2003 and $143,000 in 2002
      
      
      7,173
      
      
      
      7,520Accounts
          receivable, related parties
      
      
      502
      
      
      
      464Note
          receivableshort-term
      
      
      
      
      
      
      2,700InventoriesNote
          1
      
      
      176
      
      
      
      356Prepaid
          expenses and other
      
      
      227
      
      
      
      550Income
          taxes receivable and deferred taxesNote 7
      
      
      
      
      
      
      4,506Current
          assets of discontinued operationsNote 12
      
      
      
      
      
      
      15,223**Total
          Current Assets**
      
      
      8,469
      
      
      
      31,664**Marketable
          SecuritiesLong TermNote 1**
      
      
      312
      
      
      
      145**Property
          and Equipment**Land
      
      
      446
      
      
      
      491Buildings
      
      
      6,166
      
      
      
      9,033Machinery,
          equipment, and fixtures
      
      
      28,401
      
      
      
      28,26435,013
      
      
      
      37,788Allowances
          for depreciation
      
      
      (12,416
      )
      
      
      (10,252
      )22,597
      
      
      
      27,536**Other
          Assets**InvestmentsNote
          8
      
      
      1,157
      
      
      
      6,018Notes
          and contracts receivable and other, less allowance of $600,000 in 2003
          and $335,000 in 2002
      
      
      981
      
      
      
      865Advances
          to affiliate
      
      
      3,008
      
      
      
      3,008Note
          receivablerelated party, less allowance of $956,000 in 2001
      
      
      
      
      
      
      2,349IntangiblesNote
          1
      
      
      1,424
      
      
      
      1,424Non-current
          assets of discontinued operationsNote 12
      
      
      474
      
      
      
      14,0297,044
      
      
      
      27,693$
      38,422
      
      
      $
      87,038**LIABILITIES
          AND STOCKHOLDERS EQUITY****Current
          Liabilities**Notes
          payableNote 3
      
      $
      18,780
      
      
      $
      10,478Accounts
          payable
      
      
      3,425
      
      
      
      2,880Employee
          compensation
      
      
      1,268
      
      
      
      1,346Taxes,
          interest, and other liabilities
      
      
      3,004
      
      
      
      2,034Current
          maturities of long-term obligations
      
      
      995
      
      
      
      2,663Current
          liabilities of discontinued operationsNote 12
      
      
      303
      
      
      
      29,109**Total
          Current Liabilities**
      
      
      27,775
      
      
      
      48,510**Long-Term
          Obligations, less current maturitiesNote 3**
      
      
      1,113
      
      
      
      11,380**Deferred
          Income TaxesNote 7**
      
      
      
      
      
      
      1,983**Non-Current
          Liabilities of Discontinued OperationsNote 12**
      
      
      
      
      
      
      2,178**Stockholders
          EquityNotes 4 and 5**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
      
      
      
      
      
      
      Common
          stock, $1 par value; 10,000,000 shares authorized, 3,101,195 shares
          issued and outstanding
      
      
      3,101
      
      
      
      3,101Accumulated
          other comprehensive loss
      
      
      (298
      )
      
      
      (78
      )Retained
          earnings
      
      
      2,865
      
      
      
      16,098**Total
          Stockholders Equity**
      
      
      9,534
      
      
      
      22,987$
      38,422
      
      
      $
      87,038


See notes to consolidated financial statements.

30



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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES

Year
Ended March 31,2003
      
      2002
      
      2001***(in thousands,
        except per share data)*****Net
          sales**
      
      $
      36,827
      
      
      $
      34,696
      
      
      $
      39,560**Costs
          and expenses:**Cost
          of sales and operating expenses
      
      
      23,305
      
      
      
      20,514
      
      
      
      24,469Selling,
          general, and administrative
      
      
      11,256
      
      
      
      10,979
      
      
      
      11,919Gain
          on sale of buildings
      
      
      (149
      )
      
      
      
      
      
      
      Depreciation
          and amortization
      
      
      2,949
      
      
      
      3,212
      
      
      
      2,79037,361
      
      
      
      34,705
      
      
      
      39,178**Operating
          Earnings (Loss)**
      
      
      (534
      )
      
      
      (9
      )
      
      
      382**Other
          income (expense):**Investment
          and interest income
      
      
      714
      
      
      
      887
      
      
      
      727Gain
          (loss) on sale of investmentsNote 8
      
      
      (265
      )
      
      
      2,447
      
      
      
      675Interest
          expense
      
      
      (1,944
      )
      
      
      (2,096
      )
      
      
      (2,864
      )Loss
          on investmentNote 8
      
      
      (9,320
      )
      
      
      (3,103
      )
      
      
      (1,362
      )(10,815
      )
      
      
      (1,865
      )
      
      
      (2,824
      )**Loss
          Before Federal Income Taxes, Equity in Net Loss of Affiliates, and Discontinued
          Operations**
      
      
      (11,349
      )
      
      
      (1,874
      )
      
      
      (2,442
      )Federal
          income tax benefitNote 7
      
      
      (875
      )
      
      
      (575
      )
      
      
      (745
      )**Loss
          Before Equity in Net Loss of Affiliates and Discontinued Operations**
      
      
      (10,474
      )
      
      
      (1,299
      )
      
      
      (1,697
      )Equity
          in net loss of affiliates, net of taxNotes 2, 7, and 8
      
      
      (614
      )
      
      
      (528
      )
      
      
      (2,098
      )**Loss
          from Continuing Operations**
      
      
      (11,088
      )
      
      
      (1,827
      )
      
      
      (3,795
      )Loss from discontinued operations, net of taxNote 12
      
      
      (1,737
      )
      
      
      (2,674
      )
      
      
      (1,010
      )**Net
          Loss**
      
      
      (12,825
      )
      
      
      (4,501
      )
      
      
      (4,805
      )Less
          preferred stock dividends
      
      
      (408
      )
      
      
      (408
      )
      
      
      (408
      )**Net
          Loss Applicable to Common Stock**
      
      $
      (13,233
      )
      
      $
      (4,909
      )
      
      $
      (5,213
      )**Net
          Loss Per ShareBasic and DilutedNote 11**Continuing
          operations
      
      $
      (3.71
      )
      
      $
      (0.72
      )
      
      $
      (1.35
      )Discontinued
          operations
      
      
      (0.56
      )
      
      
      (0.86
      )
      
      
      (0.33
      )$
      (4.27
      )
      
      $
      (1.58
      )
      
      $
      (1.68
      )


See notes to consolidated financial statements.

31



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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
MAXCO, INC. AND SUBSIDIARIES



|                                                                            |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   |         |   |  |   |         |         |  
|--------------------------------------------------------------------------- | ------------------------ |  | ------------- |  | --------- | - | ------ |  | ------------- | - | -------------- |  | ----------------- | - | ------ | - |  | - | ------- | - |  | - | ------- | ------- | -
|                                                                            |                          |  | Number of     |  |           |   |        |  |               |   |                |  | Accumulated Other |   |        |   | 
|                                                                            |                          |  | Common Shares |  | Preferred |   | Common |  | Comprehensive |   | Retained       |  |                  
|                                                                            |                          |  | Outstanding   |  | Stock     |   | Stock  |  | Income (Loss) |   | Earnings       |  | Totals           
|                                                                           
|                                                                            |                          |  |               |  |           |   |        |  |               |   | (in thousands) |  |                   |   |        |   |  |   |        
|Balances at April 1, 2000                                                   |                          |  | 3,101         |  |           | $ | 3,866  |  |               | $ | 3,101          |  |                   | $ | (877   | ) |  | $ | 26,220  |   |  | $ | 32,310  |        
|Net loss for the year                                                       |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   | (4,805  | ) |  |   | (4,805  | )      
|Net unrealized loss on marketable
securities, net     of taxes of $135,000  |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   | (263   | ) |  |   |         |   |  |   | (263    | )      
|                                                                            |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   | 
|                                                                            | Total Comprehensive Loss |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   |         |   |  |   |         | (5,068  | )
|                                                                           
|Preferred stock dividends                                                   |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   | (408    | ) |  |   | (408    | )      
|Balances at March 31, 2001                                                  |                          |  | 3,101         |  |           |   | 3,866  |  |               |   | 3,101          |  |                   |   | (1,140 | ) |  |   | 21,007  |   |  |   | 26,834  |        
|Net loss for the year                                                       |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   | (4,501  | ) |  |   | (4,501  | )      
|Net unrealized loss on marketable
securities, net      of taxes of $465,000 |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   | (901   | ) |  |   |         |   |  |   | (901    | )      
|Realized loss on marketable
securities, net of     taxes of $1,056,000      |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   | 2,047  |   |  |   |         |   |  |   | 2,047   |        
|Unrealized loss on swap agreement                                           |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   | (84    | ) |  |   |         |   |  |   | (84     | )      
|                                                                            |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   | 
|                                                                            | Total Comprehensive Loss |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   |         |   |  |   |         | (3,439  | )
|                                                                           
|Preferred stock dividends                                                   |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   | (408    | ) |  |   | (408    | )      
|Balances at March 31, 2002                                                  |                          |  | 3,101         |  |           |   | 3,866  |  |               |   | 3,101          |  |                   |   | (78    | ) |  |   | 16,098  |   |  |   | 22,987  |        
|Net loss for the year                                                       |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   |        |   |  |   | (12,825 | ) |  |   | (12,825 | )      
|Net unrealized loss on marketable
securities, net     of taxes of $29,000   |                          |  |               |  |           |   |        |  |               |   |                |  |                   |   | (56    | ) |  |   |         |   |  |   | (56     | )      
|Realized income 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   |   |  | $ | 9,534   |        
|                                                                           

See notes to consolidated financial statements.

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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXCO, INC. AND SUBSIDIARIES

|                                                    |                                                                                 |                                              |                                                |         |                      |        |        |        |                |        |        |        |       |       |  
|--------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------- | ------- | -------------------- | ------ | ------ | ------ | -------------- | ------ | ------ | ------ | ----- | ----- | -
|                                                    |                                                                                 |                                              |                                                |         | Year Ended March 31, |       
|                                                    |                                                                                 |                                              |                                                |         | 2003                 |        |        | 2002   |                |        | 2001   |       
|                                                   
|                                                    |                                                                                 |                                              |                                                |         |                      |        |        |        | (in
thousands) |        |        |        |       |      
|Operating Activities                                |                                                                                 |                                              |                                                |         |                      |        |        |        |                |        |        |       
|                                                    | Net loss                                                                        |                                              | $                                              | (12,825 | )                    |        | $      | (4,501 | )              |        | $      | (4,805 | )    
|                                                    | Loss from discontinued operations                                               |                                              |                                                | 1,737   |                      |        |        | 2,674  |                |        |        | 1,010  |      
|                                                   
|                                                    | Loss from continuing operations                                                 |                                              |                                                | (11,088 | )                    |        |        | (1,827 | )              |        |        | (3,795 | )    
|                                                    | Advances (to) from discontinued operations                                      |                                              |                                                | (1,485  | )                    |        |        | 4,994  |                |        |        | 6,225  |      
|                                                    | Adjustments to reconcile net loss to net cash provided
by operating activities: |                                              |                                                |         |                      |        |        |        |                |        |        |        |      
|                                                    |                                                                                 | Depreciation                                 |                                                |         | 2,919                |        |        |        | 2,935          |        |        |        | 2,394 |      
|                                                    |                                                                                 | Amortization                                 |                                                |         | 30                   |        |        |        | 277            |        |        |        | 397   |      
|                                                    |                                                                                 | Equity in net loss of affiliates             |                                                |         | 614                  |        |        |        | 528            |        |        |        | 2,098 |      
|                                                    |                                                                                 | Deferred federal income taxes                |                                                |         | (1,013               | )      |        |        | 293            |        |        |        | (745  | )    
|                                                    |                                                                                 | (Gain) loss on sale of investments           |                                                |         | 265                  |        |        |        | (2,447         | )      |        |        | (675  | )    
|                                                    |                                                                                 | Gain on sale of buildings                    |                                                |         | (149                 | )      |        |        |               |        |        |        |      |      
|                                                    |                                                                                 | Loss on investments                          |                                                |         | 9,320                |        |        |        | 3,103          |        |        |        | 1,362 |      
|                                                    |                                                                                 | Changes in operating assets and liabilities: |                                                |         |                      |        |        |        |                |        |        |        |       |      
|                                                    |                                                                                 |                                              | Accounts receivable                            |         |                      | (2,417 | )      |        |                | (787   | )      |        |       | 178   |  
|                                                    |                                                                                 |                                              | Inventories                                    |         |                      | 180    |        |        |                | 360    |        |        |       | (175  | )
|                                                    |                                                                                 |                                              | Income tax refunds                             |         |                      | 4,635  |        |        |                |       |        |        |       |      |  
|                                                    |                                                                                 |                                              | Prepaid expenses and other                     |         |                      | (428   | )      |        |                | (1,596 | )      |        |       | (170  | )
|                                                    |                                                                                 |                                              | Accounts payable and other current liabilities |         |                      | 871    |        |        |                | (1,548 | )      |        |       | 3,000 |  
|                                                   
|Net Cash Provided by Operating Activities           |                                                                                 |                                              | 2,254                                          |         |                      |        | 4,285  |        |                |        | 10,094 |       
|Investing Activities                                |                                                                                 |                                              |                                                |         |                      |        |        |        |                |        |        |       
|                                                    | Sale of businesses                                                              |                                              |                                                | 7,723   |                      |        |        |       |                |        |        |       |      
|                                                    | Sale of buildings                                                               |                                              |                                                | 2,496   |                      |        |        |       |                |        |        |       |      
|                                                    | Purchases of property and equipment                                             |                                              |                                                | (531    | )                    |        |        | (572   | )              |        |        | (6,463 | )    
|                                                    | Sale of investments                                                             |                                              |                                                | 326     |                      |        |        | 750    |                |        |        | 1,143  |      
|                                                    | Payments received on notes receivable                                           |                                              |                                                | 1,080   |                      |        |        | 591    |                |        |        |       |      
|                                                    | Net proceeds from marketable securities                                         |                                              |                                                |        |                      |        |        |       |                |        |        | 2,530  |      
|                                                    | Investment in affiliates                                                        |                                              |                                                |        |                      |        |        |       |                |        |        | (272   | )    
|                                                    | Other                                                                           |                                              |                                                | 513     |                      |        |        | 94     |                |        |        | 487    |      
|                                                   
|Net Cash Provided by (Used in) Investing Activities |                                                                                 |                                              | 11,607                                         |         |                      |        | 863    |        |                |        | (2,575 | )     
|Financing Activities                                |                                                                                 |                                              |                                                |         |                      |        |        |        |                |        |        |       
|                                                    | Net proceeds from (repayments on) lines of credit                               |                                              |                                                | 471     |                      |        |        | (500   | )              |        |        | (5,300 | )    
|                                                    | Repayments on other debt obligations                                            |                                              |                                                | (18,349 | )                    |        |        | (4,833 | )              |        |        | (2,966 | )    
|                                                    | Dividends paid on preferred stock                                               |                                              |                                                |        |                      |        |        | (306   | )              |        |        | (408   | )    
|                                                    | Proceeds from other debt obligations                                            |                                              |                                                | 4,063   |                      |        |        |       |                |        |        | 1,473  |      
|                                                   
|Net Cash Used in Financing Activities               |                                                                                 |                                              | (13,815                                        | )       |                      |        | (5,639 | )      |                |        | (7,201 | )     
|                                                   
|Increase (Decrease) in Cash                         |                                                                                 |                                              | 46                                             |         |                      |        | (491   | )      |                |        | 318    |       
|Cash at Beginning of Year                           |                                                                                 |                                              | 345                                            |         |                      |        | 836    |        |                |        | 518    |       
|                                                   
|Cash at End of Year                                 |                                                                                 | $                                            | 391                                            |         |                      | $      | 345    |        |                | $      | 836    |       
|                                                   
|Supplemental cash flow disclosure:                  |                                                                                 |                                              |                                                |         |                      |        |        |        |                |        |        |       
|                                                    | Interest paid                                                                   |                                              | $                                              | 1,677   |                      |        | $      | 2,061  |                |        | $      | 2,732  |      
|                                                   

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES

March 31, 2003

NOTE
1  SIGNIFICANT ACCOUNTING POLICIES 

Nature of Business: Maxco, Inc. (the Company) 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: a registered
investor advisory firm; a registered broker-dealer of securities that is
primarily focused on the trading of fixed income investments over the Internet;
a company offering a business-to-business vertical web portal designed to bring
solution-seekers together with solution-providers; a limited partnership that
has equity investments in companies focused on the information technology,
telecommunications, and medical technology markets; two technology-related
businesses; and one 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.
Due to current debt service requirements, there is substantial doubt about the
Companys ability to operate as a going concern. The Companys ability to meet
its short term and long term debt service and other obligations (including
compliance with financial covenants) will be dependent upon its future
operating performance and the successful renegotiation of its credit
facilities. These dependencies will be subject to financial, business and
other factors, certain of which are beyond the Companys control, such as
prevailing economic conditions. There can be no assurance that the Company
will be able to secure additional financing on satisfactory terms or in the
near future. The Company believes that funds generated by its operations and
anticipated funds available under other credit facilities will be sufficient to
finance short term capital needs, as well as to fund existing operations for
the foreseeable future. However, in the event that the Company is unable to
successfully renegotiate its credit facilities, the Company has long term
equity investments that it is actively liquidating 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.

Use of Estimates: The preparation of 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 financial statements and accompanying notes. Actual results could
differ from those estimates.

Reclassifications: Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 2003.

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

Receivables: Trade accounts receivable represent amounts due from customers in
the 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.

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

2003
      
      2002(in
thousands)Raw
          materials
      
      $
      
      
      
      $
      196Work
          in progress
      
      
      156
      
      
      
      160Finished
          goods
      
      
      20
      
      
      
      $
      176
      
      
      $
      356


Marketable Securities: Marketable securities are classified in accordance with
FASB 115 as securities available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders equity. The amortized cost
of securities in this category is adjusted for amortization of

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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.

In November 1999, Maxco began accounting for its investment in Provant, Inc.
common stock as securities available for sale as defined by FASB 115.
Consequently, the securities are carried at market value with the unrealized
gains and losses net of tax, reported as a separate component of stockholders
equity. In 2003 and 2002, the Company realized losses on its investment in
Provant common stock as an other than temporary impairment in its statement of
operations of $1.4 million and $3.1 million, respectively. At March 31, 2003,
the unrealized loss on this investment was approximately $56,000 net of tax.

Advances to Affiliates: The Company has advanced amounts to its real estate
investment holding. These advances are unsecured and bear interest. As of
March 31, 2003, the Company has advances to these affiliates totaling $3.0
million.

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
FASB Statement No. 109, Accounting for Income Taxes(FAS 109), which requires
the use of the liability method in accounting for income taxes. Under FAS 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.

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, 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,
2003 and represented 3% of total assets. Amortization expense for the years
ended March 31, 2003, 2002, and 2001 was $30,000, $277,000, and $434,000,
respectively.

During 2003, 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).

The following table presents net loss and net loss per share information as if
goodwill were no longer amortized as of April 1, 2000:

**Year Ended
        March 31,****2003**
      ****
      **2002**
      ****
      **2001***(in thousands,
        except per share data)*Net
          loss
      
      $
      (12,825
      )
      
      $
      (4,342
      )
      
      $
      (4,568
      )Net
          loss per common
          sharebasic and diluted
      
      $
      (4.27
      )
      
      
      (1.53
      )
      
      $
      (1.60
      )


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

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

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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. The
interest rate swap agreement is designated with the principal balance and term
of a specific debt obligation. This agreement involves the exchange of amounts
based on a fixed interest rate for amounts based on variable interest rates
over the life of the agreement without an exchange of the notional amount upon
which the payments are based. The swap agreement was in a loss position of
$242,000 at March 31, 2003.

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, 2003,
accumulated other comprehensive loss consisted of the unrealized loss on
marketable securities and the market value of the interest rate swap agreement.

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 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 FASB Statement No. 123,
Accounting for Stock-Based Compensation, as amended by FASB Statement No.
148, Accounting for Stock-Based CompensationTransition and Disclosure.
There is no difference between the accompanying income statement following APB
No. 25 and the pro forma income statement following SFAS 123.

New Financial Accounting Pronouncements:
In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of
the Interpretation are applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002. The
Company has not guaranteed any new obligations subsequent to December 31, 2002.
In addition, the Company has provided additional disclosures in the
accompanying financial statements.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15, 2002, and
are included in the notes to the financial statements included in this Form
10-K.

NOTE 2  INVESTMENT IN INTEGRAL VISION, INC. (FORMERLY MEDAR, INC.)
At March 31, 2003, Maxco owned 2,240,605 shares of Integral Visions common
stock (aggregate market value of $560,000), representing approximately 24% of
Integral Visions total common stock outstanding.

During the quarter ended September 30, 1997, the Company participated in a
private placement by Integral Vision of $7.0 million of subordinated
debentures. Maxco purchased $750,000 of these debentures representing 10.7% of
the total placed. Maxco also received warrants to purchase 150,000 shares of
Integral Vision stock with a current conversion price of $5.19, which were all
outstanding and exercisable at March 31, 2003. In connection with this
transaction, Maxco also purchased 150,000 shares of previously unissued
Integral Vision stock at $5.00 per share. Maxco received payment on June 30,
1999 of the balance due on subordinated debentures of $750,000. In a separate
transaction, Maxco purchased $120,000 of Integral Vision debentures all of
which were outstanding as of March 31, 2003. In connection with this
transaction, Maxco received warrants to purchase 240,000 shares of Integral
Vision stock with a current conversion price of $0.25 per share, all of which
were outstanding and exercisable at March 31, 2003. Maxcos investment in
Integral Vision is accounted for under the equity method for all periods
presented.

In accordance with APB 18, the Company recorded charges of $122,000 and $1.4
million in 2003 and 2001, respectively, to recognize declines in the value of
its investment in Integral Vision that were deemed other than temporary. The
charges are included in loss on investment for the years ended March 31, 2003
and 2001. Integral Vision had a net loss for the year

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ended March 31, 2003 of approximately $1.9 million, a net loss of $6.8 million
in 2002, and net income of $8.0 million in 2001.

Maxcos equity share of Integral Visions losses for the years ended March 31,
2003, 2002 and 2001 were approximately $456,000, $182,000 and $2.0 million
respectively, and are recorded net of deferred tax for these periods in equity
in net income (loss) of affiliates, along with the equity results of other 50%
or less owned affiliates accounted for under the equity method. For the years
ended March 31, 2003, 2002, and 2001, Integral Visions sales were $1.7
million, $2.0 million and $5.0 million, respectively.

NOTE 3  DEBT
At March 31, 2003 the Companys heat treating segment, Atmosphere Annealing
(Atmosphere), had a $4 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, 2003, based on these specific collateral levels, Atmosphere could
borrow up to $4.0 million under its line of credit, approximately all of which
was borrowed. The line is under forbearance which expires in July 2003.

Under the terms of its bond agreements, Atmosphere must make monthly deposits
into sinking funds, the balance of which is used annually to reduce the
principal amount owed on the bonds. The balance in the sinking funds was
approximately $318,000 at March 31, 2003.

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

2003
      
      2002*(in thousands)*Tax
          exempt revenue bonds (variable interest rate)
      
      $
      
      
      
      $
      2,927Taxable
          revenue bonds (fixed interest rate of 5.34%)
      
      
      
      
      
      
      3,594Mortgage
          notes payable (various interest rates ranging up to 9.0%)
      
      
      
      
      
      
      882Equipment
          purchase contracts and capitalized lease obligations (various interest
          rates)
      
      
      109
      
      
      
      4,333Subordinated
          debt (fixed interest rate of 10%)
      
      
      1,999
      
      
      
      2,3072,108
      
      
      
      14,043Less
          current maturities
      
      
      995
      
      
      
      2,663$
      1,113
      
      
      $
      11,380


At March 31, 2003, the Company classified $14.5 million of its debt as short
term. Forbearance agreements have been reached with two principal lenders
which expire in 2003. The Company is currently pursuing other financing
options.

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.

The Companys weighted average short-term borrowing rate was 6.2% and 6.3% at
March 31, 2003 and 2002, respectively.

In December 1998, Maxco entered into a swap agreement with a notional amount of
approximately $5.0 million converting its variable rate taxable revenue bonds
to a fixed rate of 5.34%, which matures in December 2005. The swap agreement
was in a loss position of $242,000 at March 31, 2003.

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 $995,000 in 2004, $767,000 in 2005, and
$346,000 thereafter.

The Company has guaranteed various debt obligations of certain real estate and
other investments in an aggregate amount of approximately $5.1 million as of
May 31, 2003 ($40.0 million at May 31, 2002). Certain of the debt agreements
related to its real estate investments, which Maxco and other guarantors have
guaranteed, are in default at March 31, 2003. Extensions or forbearance
agreements have been issued by some of the respective banks and the applicable
entities are currently working to liquidate the properties to satisfy the
requirements of the lenders. L/M Associates and Maxco, and other interested
parties, have reached an agreement with the lender for final resolution of the
matter. As a result, Maxcos guarantee exposure under the issue is limited to
$100,000. The Company is hopeful that the properties will be sold or
refinanced prior to the completion of any foreclosure action. The Company does
not believe that there is any unusual degree of risk related to these
guarantees because of sufficient underlying asset values supporting the
respective debt obligations.

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NOTE 4  PREFERRED STOCK
Maxco may issue up to 100,000 shares of preferred stock with terms determined
by Maxcos Board of Directors.

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

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

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

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

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 $612,000 at
March 31, 2003, or $.20 per common share.

NOTE 5  STOCK OPTIONS
Under the terms of Maxcos incentive common stock option plan, options for the
purchase of up to 500,000 shares of common stock may be granted and options are
exercisable upon grant.

There were 155,000 stock options outstanding and exercisable at March 31, 2003
with a weighted average price of $7.77 per share and an exercise
price ranging from $7.00 to $8.00. There were no options granted during the
years ended March 31, 2003 and 2002. In 2001, there were 20,000 options granted at $7.00 per share. 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 FASB Statement No. 123, Accounting for
Stock-Based Compensation, as amended by FASB Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure.

Pro forma information regarding net income and earnings per share is required by FAS 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 FAS 123. The Company has determined that the difference between the as reported net loss and loss per share and the pro forma net loss and net loss per share as if the options
were accounted for under FAS 123 was immaterial for all periods presented.

NOTE 6  EMPLOYEE SAVINGS PLAN
Company contributions charged to operations under the employee savings plans
were approximately $160,000, $167,000, and $196,000 for the years ended March
31, 2003, 2002 and 2001, respectively.

NOTE 7  FEDERAL INCOME TAXES
The provision (benefit) for federal income taxes consists of the following:

**Year Ended
        March 31,****2003**
      ****
      **2002**
      ****
      **2001****(in thousands)**Current
          benefit
      
      $
      
      
      
      $
      (868
      )
      
      $
      Deferred
          expense (benefit)
      
      
      (875
      )
      
      
      293
      
      
      
      (745
      )(875
      )
      
      
      (575
      )
      
      
      (745
      )Deferred
          amount allocated to equity in income of affiliates
      
      
      (316
      )
      
      
      (273
      )
      
      
      (1,081
      )Amount
          allocated to discontinued operations
      
      
      (890
      )
      
      
      (1,385
      )
      
      
      (548
      )$
      (2,081
      )
      
      $
      (2,233
      )
      
      $
      (2,374
      )


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

**Year Ended
        March 31,****2003**
      ****
      **2002**
      ****
      **2001**(in thousands)Income
          taxes computed at United States statutory rate (34%)
      
      $
      (3,859
      )
      
      $
      (637
      )
      
      $
      (830
      )Valuation
          allowance
      
      
      3,006
      
      
      
      
      
      
      
      Other
      
      
      (22
      )
      
      
      62
      
      
      
      85$
      (875
      )
      
      $
      (575
      )
      
      $
      (745
      )


Federal income taxes paid by Maxco were $150,000 in 2001. No federal income
taxes were paid in 2003 or 2002.

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, 2003, the Company has a net operating
loss (NOL) carryforward of $2.1 million which expires in 2023.

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:

**2003**
      ****
      **2002*****(in thousands)*****Deferred
          Tax Liabilities:**Depreciation
      
      $
      2,562
      
      
      $
      3,523Additional
          consideration on sale of investment
      
      
      
      
      
      
      918Other
      
      
      
      
      
      
      9**Total
          Deferred Tax Liabilities**
      
      
      2,562
      
      
      
      4,450Deferred
          Tax Assets:Net
          operating loss carryforward
      
      
      714
      
      
      
      Allowance
          for doubtful accounts
      
      
      255
      
      
      
      258Marketable
          securities
      
      
      1,546
      
      
      
      1,052Net
          cumulative unrealized equity losses
      
      
      2,587
      
      
      
      948Other
      
      
      466
      
      
      
      863**Total
          Deferred Tax Assets**
      
      
      5,568
      
      
      
      3,121**Valuation
          Allowance for Deferred Tax Assets**
      
      
      3,006
      
      
      
      **Net
          Deferred Tax Assets**
      
      
      2,562
      
      
      
      3,121**Net
          Deferred Tax Assets (Liabilities)**
      
      $
      
      
      
      $
      (1,329
      )


In 2003, the Company recorded a deferred tax asset valuation allowance due to
the uncertainty in the ultimate realization of its deferred tax assets.

Deferred tax assets and liabilities are recorded in the consolidated balance
sheets at March 31 as follows:

2003
      
      2002(in thousands)**Assets:**Income
          taxes receivable and deferred taxes
      
      $
      
      
      
      $
      654Deferred
          income taxes
      
      
      
      
      
      
      
      
      
      
      654**Liabilities:**Deferred
          income taxes
      
      
      
      
      
      
      1,983**Net
          Deferred Assets (Liabilities)**
      
      $
      
      
      
      $
      (1,329
      )


NOTE 8  OTHER INVESTMENTS
Real Estate:
Maxco has ownership interests ranging from approximately 25  50% in primarily
two LLCs (L/M Associates and L/M Associates II) which have been involved in
the development and ownership of real estate in central Michigan. In early

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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 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. By agreement, this
investment may be repurchased prior to July 2004 by a member of the acquiring
entity. After July 2004, L/M Associates has the ability to require the same
member to repurchase the investment.

Additionally, the Company is actively pursuing the liquidation of the
remaining portion of Maxcos real estate investments.

Maxco also has an investment in Nilson Builders, a residential home builder,
as well as LandEquities, which was previously engaged in the construction,
leasing, and space planning for its clients including the L/M company
portfolios. These entities have been discontinued and their assets are
currently being liquidated.

In 2003, the Company reduced the carrying amount of its remaining investment
in real estate by $4.7 million due to its current negotiations with potential
buyers and other current market information.

Technology Related:
In addition to its investment in Integral Vision, Inc., the Company has an
equity interest in two other technology related businesses. 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 recognized a
charge of approximately $1.4 million in other income (expense) in 2003 to
recognize the decline in the fair value of its investment. In 2002, the
Company recorded a charge of $3.1 million to recognize a previously unrealized
decline in the fair value of its investment in Provant, Inc. that was deemed
other than temporary.

The Company has 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.

Energy Related:
Maxco has a 50% interest in Robinson Oil Company, LLC, which is in the
business of acquiring and developing oil and gas interests.

Other:
Maxco has a one-third interest in Blasen Brogan Asset Management Company, a
registered investor advisory firm.

The Company had a 50% equity interest in and agreed to finance certain debt of
Mid-State Industrial Services, Inc., which is in the business of selling,
leasing, and servicing lift trucks. In December 2001, Maxco sold its interest
in Mid-State 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.

Maxco has a 12% direct (36% indirect) equity interest in Phoenix Financial
Group, LTD and its subsidiary Cambridge Group Investments, LTD (dba
Bondpage.com), a registered broker-dealer of securities that is primarily
focused on the trading of fixed income investments over the Internet.

The Company has an approximately 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 adjust its investment to
estimated fair value.

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 adjust its investment to
estimated fair value.

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

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

Year Ended March 31,2003
      
      2002
      
      2001***(in thousands)***Provant
      
      $
      1,360
      
      
      $
      3,103
      
      
      $
      Real
          estate
      
      
      4,698
      
      
      
      
      
      
      
      Foresight
          Solutions
      
      
      2,790
      
      
      
      
      
      
      
      Integral
          Vision
      
      
      122
      
      
      
      
      
      
      
      1,362Vertical
          VC
      
      
      250
      
      
      
      
      
      
      
      MYOEM.COM
      
      
      100
      
      
      
      
      
      
      
      $
      9,320
      
      
      $
      3,103
      
      
      $
      1,362


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

**Real Estate**
      ****
      **Technology
        Related**
      ****
      **Energy Related
        and Other****March 31,**
      ****
      ****
      ****
      ****
      ****
      **March 31,**
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **March 31,**
      ****
      ******2003**
      ****
      **2002**
      ****
      **2001**
      ****
      **2003**
      ****
      **2002**
      ****
      **2001**
      ****
      **2003**
      ****
      **2002**
      ****
      **2001*****(in thousands)***Condensed
          income statement information:Net
          sales
      
      $
      79,882
      
      
      $
      18,317
      
      
      $
      30,379
      
      
      $
      2,191
      
      
      $
      3,357
      
      
      $
      6,095
      
      
      $
      2,292
      
      
      $
      7,200
      
      
      $
      12,775Gross
          margin
      
      
      16,227
      
      
      
      14,308
      
      
      
      16,058
      
      
      
      1,004
      
      
      
      (1,520
      )
      
      
      (188
      )
      
      
      2,204
      
      
      
      2,907
      
      
      
      4,631Net
          income (loss)
      
      
      5,574
      
      
      
      (625
      )
      
      
      (768
      )
      
      
      (2,600
      )
      
      
      (7,310
      )
      
      
      (9,302
      )
      
      
      
      
      
      
      435
      
      
      
      685Condensed
          balance sheet information:Current
          assets
      
      $
      9,951
      
      
      $
      20,008
      
      
      
      
      
      
      $
      215
      
      
      $
      786
      
      
      
      
      
      
      $
      713
      
      
      $
      745Non-current
          assets
      
      
      30,409
      
      
      
      102,212
      
      
      
      
      
      
      
      1,053
      
      
      
      1,560
      
      
      
      
      
      
      
      513
      
      
      
      598$
      40,360
      
      
      $
      122,220
      
      
      
      
      
      
      $
      1,268
      
      
      $
      2,346
      
      
      
      
      
      
      $
      1,226
      
      
      $
      1,343Current
          liabilities
      
      $
      36,738
      
      
      $
      62,368
      
      
      
      
      
      
      $
      2,609
      
      
      $
      3,192
      
      
      
      
      
      
      $
      156
      
      
      $
      118Non-current
          liabilities
      
      
      4,309
      
      
      
      54,897
      
      
      
      
      
      
      
      5,700
      
      
      
      4,060
      
      
      
      
      
      
      
      162
      
      
      
      123Minority
          interest
      
      
      245
      
      
      
      1,254
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      Stockholders
          equity
      
      
      (932
      )
      
      
      3,701
      
      
      
      
      
      
      
      (7,041
      )
      
      
      (4,906
      )
      
      
      
      
      
      
      908
      
      
      
      1,102$
      40,360
      
      
      $
      122,220
      
      
      
      
      
      
      $
      1,268
      
      
      $
      2,346
      
      
      
      
      
      
      $
      1,226
      
      
      $
      1,343


NOTE 9  CONTINGENCIES AND COMMITMENTS
Maxco and certain operating subsidiaries occupy facilities and use equipment
under operating lease agreements requiring annual rental payments approximating
$493,000 in 2004, $185,000 in 2005, $121,000 in 2006, $55,000 in 2007, and
$55,000 in 2008 for a total commitment aggregating $909,000. Rent expense
charged to operations, including short-term leases, aggregated $643,000 in
2003, $687,000 in 2002, and $750,000 in 2001.

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 10  INDUSTRY SEGMENT INFORMATION
The following summarizes Maxcos industry segment information:

**2003**
      
      **2002**
      
      **2001**(in thousands)**Net
          Sales:**Heat
          treating
      
      $
      36,740
      
      
      $
      34,364
      
      
      $
      39,229Corporate
          and other
      
      
      87
      
      
      
      332
      
      
      
      331**Total
          Net Sales**
      
      $
      36,827
      
      
      $
      34,696
      
      
      $
      39,560**Operating
          Earnings (Loss)**Heat
          treating
      
      $
      2,147
      
      
      $
      2,482
      
      
      $
      3,670Corporate
          and other
      
      
      (2,681
      )
      
      
      (2,491
      )
      
      
      (3,288
      )**Total
          Operating Earnings (Loss)**
      
      $
      (534
      )
      
      $
      (9
      )
      
      $
      382**Identifiable
          Assets:**Heat
          treating
      
      $
      29,589
      
      
      $
      31,444
      
      
      $
      34,714Corporate
          and other
      
      
      4,194
      
      
      
      17,316
      
      
      
      13,076Investments
          and advances
      
      
      4,165
      
      
      
      9,026
      
      
      
      11,232Discontinued
          operations
      
      
      474
      
      
      
      29,252
      
      
      
      38,428**Total
          Identifiable Assets**
      
      $
      38,422
      
      
      $
      87,038
      
      
      $
      97,450**Depreciation
          and Amortization Expense:**Heat
          treating
      
      $
      2,901
      
      
      $
      2,930
      
      
      $
      2,375Corporate
          and other
      
      
      48
      
      
      
      282
      
      
      
      415**Total
          Depreciation and Amortization Expense**
      
      $
      2,949
      
      
      $
      3,212
      
      
      $
      2,790**Capital
          Expenditures:**Heat
          treating
      
      $
      531
      
      
      $
      572
      
      
      $
      6,455Corporate
          and other
      
      
      
      
      
      
      
      
      
      
      8**Total
          Capital Expenditures**
      
      $
      531
      
      
      $
      572
      
      
      $
      6,463


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 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, 2003 sales to
Honda of America Manufacturing, Inc. and GM Powertrain represented 27.2% and
17.3% of consolidated sales, respectively. Amounts due from these customers
represented 41.8% of the respective outstanding trade receivable balance at
March 31, 2003. For the year ended March 31, 2002 sales to Honda of America
Manufacturing, Inc. and GM Powertrain represented 20.1% and 15.7% of
consolidated sales, respectively. Amounts due from these customers represented
37.5% of the respective outstanding trade receivable balance at March 31, 2002.
For the year ended March 31, 2001 sales to Honda of America Manufacturing,
Inc. and GM Powertrain represented 14.8% and 20.7% of consolidated sales,
respectively.

42



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NOTE 11  EARNINGS PER SHARE

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

|                                                                                                              |                                             |   |                                              |         |      |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | - | -------------------------------------------- | ------- | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                                              |                                             |   | Year Ended March
        31,                
|                                                                                                              |                                             |   | 2003                                         |         | 2002 |   | 2001  
|                                                                                                              |                                            
|                                                                                                              |                                             |   | (in thousands except per
        share data)
|                                                                                                             
|Numerator:                                                                                                    |                                             |   |                                              |         |      |   |        |        |   |   |        |       
|                                                                                                              | Loss
          from continuing operations   |   | $                                            | (11,088 | )    |   | $      | (1,828 | ) |   | $      | (3,795 | )
|                                                                                                              | Loss
          from discontinued operations |   |                                              | (1,737  | )    |   |        | (2,673 | ) |   |        | (1,010 | )
|                                                                                                             
|                                                                                                              | Net
          Loss                          |   |                                              | (12,825 | )    |   |        | (4,501 | ) |   |        | (4,805 | )
|                                                                                                              | Preferred
          stock dividends         |   |                                              | (408    | )    |   |        | (408   | ) |   |        | (408   | )
|                                                                                                             
|Numerator
          for basic and diluted earnings per share loss available to common
          stockholders |                                             | $ | (13,233                                      | )       |      | $ | (4,909 | )      |   | $ | (5,213 | )     
|                                                                                                              |                                             |   |                                              |         |      |   |        |        |   |   |        |       
|Denominator:                                                                                                  |                                             |   |                                              |         |      |   |        |        |   |   |        |       
|Denominator
          for basic and diluted earnings per share weighted average shares                       |                                             |   | 3,101                                        |         |      |   | 3,101  |        |   |   | 3,101  |       
|                                                                                                              |                                             |   |                                              |         |      |   |        |        |   |   |        |       
|Basic
          and Diluted Loss Per Share                                                                    |                                             |   |                                              |         |      |   |        |        |   |   |        |       
|Continuing
          operations                                                                               |                                             | $ | (3.71                                        | )       |      | $ | (0.72  | )      |   | $ | (1.35  | )     
|Discontinued
          operations                                                                             |                                             |   | (0.56                                        | )       |      |   | (0.86  | )      |   |   | (0.33  | )     
|                                                                                                             
|                                                                                                              |                                             | $ | (4.27                                        | )       |      | $ | (1.58  | )      |   | $ | (1.68  | )     
|                                                                                                             

NOTE 12 - 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.
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. Goodwill at Ersco totaled $579,000 as of the date of sale.

Sales and operating earnings for Ersco and Pak Sak for the years ended March
31, 2003, 2002, and 2001 were as follows:

|                        |                   |   |                              |        |      |                |         |        |   |   |         |         |  
|----------------------- | ----------------- | - | ---------------------------- | ------ | ---- | -------------- | ------- | ------ | - | - | ------- | ------- | -
|                        |                   |   | Year Ended March
        31,
|                        |                   |   | 2003 (A)                     |        | 2002 |                | 2001   
|                       
|                        |                   |   |                              |        |      | (in thousands) |         |        |   |  
|                       
|Net
          sales:    |                   |   |                              |        |      |                |         |        |   |   |         |        
|                        | Ersco             |   | $                            | 61,421 |      |                | $       | 88,823 |   |   | $       | 102,501 |  
|                        | Pak
          Sak |   |                              | 8,051  |      |                |         | 13,033 |   |   |         | 15,255  |  
|                        |                   | $ | 69,472                       |        |      | $              | 101,856 |        |   | $ | 117,756 |        
|                       
|Pre-tax
          loss: |                   |   |                              |        |      |                |         |        |   |   |         |        
|                        | Ersco             |   | $                            | (2,056 | )    |                | $       | (3,752 | ) |   | $       | (1,233  | )
|                        | Pak
          Sak |   |                              | (576   | )    |                |         | (307   | ) |   |         | (324    | )
|                       
|                        |                   | $ | (2,632                       | )      |      | $              | (4,059  | )      |   | $ | (1,557  | )      
|                       



|(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 FASB Statement 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.

NOTE 13  SUBSEQUENT EVENT
On April 15, 2003, the Company sold land it had previously held for sale for
$1.0 million, the proceeds of which were primarily used to retire debt.

43



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##### Table of Contents



MAXCO, INC. AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

(in thousands)

|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |       | 
|------------------------------ | ------------------------------------ | ----------------------------------------- |  | ------------ | ----- | --------------- |  | ---------- | ----- | ------------- |  | ---------- | ------ |  |  | - | -------- |  |  | - | ----- | 
|                              
|Column A                       |                                      | Column B                                  |  | Column C     |       | Column D        |  | Column E   |       | Column F     
|                              
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  | Additions  |        |  |  |  
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |  
|                               |                                      |                                           |  | Balance at   |       | Charged to      |  | Charged to |       | Deductions-   |  | Balance at
|Description                    |                                      | Beginning of                              |  | Costs        |       | Other
Accounts- |  | Describe   |       | End of Period
|                               |                                      | Period                                    |  | and Expenses |       | Describe        |  |            |       |              
|                              
|Accounts
          Receivable: |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2003: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  | $            | 143   |                 |  | $          | 7     |               |  | $          |       |  |  | $ |         |  |  | $ | 150   | 
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2002: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  |              | 177   |                 |  |            | 24    |               |  |            |       |  |  |   | 58(A)    |  |  | $ | 143   | 
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2001: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  |              | 193   |                 |  |            | (11   | )             |  |            |       |  |  |   | 5(A)     |  |  | $ | 177   | 
|                              
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|Notes
          Receivable:    |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2003: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  | $            | 1,291 |                 |  | $          | 521   |               |  | $          |       |  |  | $ | 1,212(A) |  |  | $ | 600   | 
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2002: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  |              | 335   |                 |  |            | 290   |               |  |            | 666(B) |  |  |   |         |  |  | $ | 1,291 | 
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2001: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Allowance
          for doubtful accounts |  |              |      |                 |  |            | 335   |               |  |            |       |  |  |   |         |  |  | $ | 335   | 
|                              
|                               |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|Income
          Tax Assets:   |                                      |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |  
|                               | Year
          ended March 31, 2003: |                                           |  |              |       |                 |  |            |       |               |  |            |        |  |  |   |          |  |  |   |      
|                               |                                      | Valuation
          allowance             |  | $            |      |                 |  | $          | 3,006 |               |  | $          |       |  |  | $ |         |  |  | $ | 3,006 | 
|                              



|(A) |  | Represents uncollectible accounts written off, less recoveries.    
|--- |  | -------------------------------------------------------------------
|   
|(B) |  | Represents a reclass from the prior year from contingent liability.

44



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##### Table of Contents



MAXCO, INC.
ANNUAL REPORT ON FORM 10-K

EXHIBIT INDEX

| |  |             |  |                                                                                                                                                                         
| |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit No. |  | Description                                                                                                                                                             
| |  |             |  |                                                                                                                                                                         
| |  | 21          |  | Subsidiaries of the Registrant                                                                                                                                          
| |  |             |  |                                                                                                                                                                         
| |  | 23          |  | Consent of Independent Auditors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)           
| |  |             |  |                                                                                                                                                                         
| |  | 23.1        |  | Consent of Independent Auditors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)
| |  |             |  |                                                                                                                                                                         
| |  | 99.1        |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002                       
| |  |             |  |                                                                                                                                                                         
| |  | 99.2        |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002