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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended September 28, 2002
|OR                                               
|o                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD FROM
 TO               

COMMISSION FILE NUMBER 0-13198

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MORTON INDUSTRIAL GROUP, INC.(Exact name of registrant as specified in its charter)

|Georgia(State or other jurisdiction of
Incorporation or organization) |  | 38-0811650(IRS Employer Identification No.)
|--------------------------------------------------------------------- |  | -------------------------------------------

1021 W. Birchwood, Morton, Illinois 61550(Address of principal executive offices) (309) 266-7176(Registrant's telephone number, including area code)

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Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Outstanding as of
November 4, 2002Class A Common Stock, $.01 par value

4,460,547Class B Common Stock, $.01 par value

200,000


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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MORTON INDUSTRIAL GROUP, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        For the Three and Nine Months Ended September 28, 2002 and September 29, 2001        (Dollars In Thousands, Except Per Share Data)        (Unaudited)

|                                                      |                         | Three Months Ended                                                    |        | Nine Months Ended |       
|----------------------------------------------------- | ----------------------- | --------------------------------------------------------------------- | ------ | ----------------- | ------
|
|
|Net sales                                             |                         | $                                                                     | 49,866 |                   | $     
|Cost of sales                                         |                         |                                                                       | 46,137 |                   |       
|                                                      |                         |                                                                       |        |                   |       
|Gross profit                                          |                         |                                                                       | 3,729  |                   |       
|                                                      |                         |                                                                       |        |                   |       
|Operating expenses                                    |                         |                                                                       |        |                   |       
|                                                      | Selling expenses        |                                                                       |        | 1,113             |       
|                                                      | Administrative expenses |                                                                       |        | 5,390             |       
|                                                      |                         |                                                                       |        |                   |       
|                                                      |                         | Total operating expenses                                              |        |                   | 6,503 
|                                                      |                         |                                                                       |        |                   |       
|                                                      |                         | Operating income (loss)                                               |        |                   | (2,774
|                                                      |                         |                                                                       |        |                   |       
|Other income (expense)                                |                         |                                                                       |        |                   |       
|                                                      | Interest expense        |                                                                       |        | (1,839            | )     
|                                                      | Other                   |                                                                       |        | (34               | )     
|                                                      |                         |                                                                       |        |                   |       
|                                                      |                         | Total other income (expense)                                          |        |                   | (1,873
|                                                      |                         |                                                                       |        |                   |       
|                                                      |                         | Loss before income taxes                                              |        |                   | (4,647
|Income taxes                                          |                         |                                                                       |       |                   |       
|                                                      |                         |                                                                       |        |                   |       
|                                                      |                         | Net loss before cumulative effect of a change in accounting principle |        |                   | (4,647
|Cumulative effect of a change in accounting principle |                         |                                                                       |       |                   |       
|                                                      |                         |                                                                       |        |                   |       
|Net loss                                              |                         |                                                                       | (4,647 | )                 |       
|Accretion of discount on preferred shares             |                         |                                                                       | (331   | )                 |       
|                                                      |                         |                                                                       |        |                   |       
|Net income (loss) available to common shareholders    |                         | $                                                                     | (4,978 | )                 | $     
|                                                      |                         |                                                                       |        |                   |       
|Earnings (loss) per common share                      |                         |                                                                       |        |                   |       
|                                                      | Basic                   |                                                                       | $      | (1.06             | )     
|                                                      |                         |                                                                       |        |                   |       
|                                                      | Diluted                 |                                                                       | $      | (1.06             | )     
|                                                      |                         |                                                                       |        |                   |       
|Weighted average number of common shares              |                         |                                                                       |        |                   |       
|                                                      | Basic                   |                                                                       |        | 4,660,547         |       
|                                                      |                         |                                                                       |        |                   |       
|                                                      | Diluted                 |                                                                       |        | 4,660,547         |       
|                                                      |                         |                                                                       |        |                   |       

See
accompanying notes to condensed consolidated financial statements.

2

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS        September 28, 2002 and December 31, 2001        (Dollars in thousands)
    (Unaudited)

|                                                          |                                                                                                  | September 28, 2002                   |        | December 31, 2001 |        
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------ | ------ | ----------------- | -------
|Assets                                                    |                                                                                                 
|Current assets:                                           |                                                                                                  |                                      |        |                   |        
|                                                          | Trade accounts receivable, less allowance for doubtful accounts of $347 in 2002 and $381 in 2001 |                                      | $      | 17,282            |        
|                                                          | Inventories                                                                                      |                                      |        | 21,160            |        
|                                                          | Prepaid expenses                                                                                 |                                      |        | 3,759             |        
|                                                          | Income taxes recoverable                                                                         |                                      |        | 1,473             |        
|                                                          | Deferred income taxes                                                                            |                                      |        |                  |        
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | Total current assets                 |        |                   | 43,674 
|                                                          |                                                                                                  |                                      |        |                   |        
|Property, plant, and equipment, net                       |                                                                                                  |                                      | 42,775 |                   | 46,437 
|Intangible assets, at cost, less accumulated amortization |                                                                                                  |                                      | 2,866  |                   | 10,353 
|Deferred income taxes                                     |                                                                                                  |                                      | 2,654  |                   | 4,148  
|Other assets                                              |                                                                                                  |                                      | 960    |                   | 1,086  
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | $                                    | 92,929 |                   | 106,517
|                                                          |                                                                                                  |                                      |        |                   |        
|Liabilities and Stockholders' Equity (Deficit)            |                                                                                                 
|Current liabilities:                                      |                                                                                                  |                                      |        |                   |        
|                                                          | Outstanding checks in excess of bank balance                                                     |                                      | $      | 2,860             |        
|                                                          | Current installments of long-term debt                                                           |                                      |        | 78,803            |        
|                                                          | Accounts payable                                                                                 |                                      |        | 29,988            |        
|                                                          | Accrued expenses                                                                                 |                                      |        | 8,970             |        
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | Total current liabilities            |        |                   | 120,621
|                                                          |                                                                                                  |                                      |        |                   |        
|Long-term debt, excluding current installments            |                                                                                                  |                                      | 1,966  |                   | 73,870 
|Other liabilities                                         |                                                                                                  |                                      | 280    |                   | 280    
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | Total liabilities                    |        |                   | 122,867
|                                                          |                                                                                                  |                                      |        |                   |        
|Redeemable preferred stock                                |                                                                                                  |                                      | 8,276  |                   | 7,343  
|                                                          |                                                                                                  |                                      |        |                   |        
|Stockholders' equity (deficit):                           |                                                                                                  |                                      |        |                   |        
|                                                          | Class A common stock                                                                             |                                      |        | 45                |        
|                                                          | Class B common stock                                                                             |                                      |        | 2                 |        
|                                                          | Additional paid-in capital                                                                       |                                      |        | 20,895            |        
|                                                          | Retained deficit                                                                                 |                                      |        | (59,156           | )      
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | Total stockholders' equity (deficit) |        |                   | (38,214
|                                                          |                                                                                                  |                                      |        |                   |        
|                                                          |                                                                                                  | $                                    | 92,929 |                   | 106,517
|                                                          |                                                                                                  |                                      |        |                   |        

See accompanying notes to condensed consolidated financial statements.

3

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES        Condensed Consolidated Statements of Stockholders' Equity (Deficit)        For the Nine Months Ended September 28, 2002    
   (Dollars in thousands)        (Unaudited)

|                            |                                           | Class A
common stock |        | Class B
common stock |    |   |         |   |   |   |  
|--------------------------- | ----------------------------------------- | -------------------- | ------ | -------------------- | -- | - | ------- | - | - | - | -
|
|Balance, December 31, 2001  |                                           | 4,400,850            |        | $                    | 44 |   | 200,000 |   | $ | 2 |  
|                            | Net loss                                  |                      |       |                      |    |  |         |  |   |   | 
|                            | Stock options exercised                   |                      | 59,697 |                      |    | 1 |         |  |   |   | 
|                            | Accretion of discount on preferred shares |                      |       |                      |    |  |         |  |   |   | 
|                            |                                           |                      |        |                      |    |   |         |   |   |   |  
|Balance, September 28, 2002 |                                           | 4,460,547            |        | $                    | 45 |   | 200,000 |   | $ | 2 |  
|                            |                                           |                      |        |                      |    |   |         |   |   |   |  

See
accompanying notes to condensed consolidated financial statements.

4

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MORTON INDUSTRIAL GROUP, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW        For the Nine Months Ended September 28, 2002 and September 29, 2001    
(Dollars In Thousands)        (Unaudited)

|                                                 |                                                                | 2002                                                |       | 2001   |       
|------------------------------------------------ | -------------------------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------
|Net cash provided by operating activities        |                                                                | $                                                   | 3,585 |        | $     
|                                                 |                                                                |                                                     |       |        |       
|Cash flows from investing activities             |                                                                |                                                     |       |        |       
|                                                 | Proceeds from sale of machinery and equipment                  |                                                     |       | 257    |       
|                                                 | Capital expenditures                                           |                                                     |       | (3,014 | )     
|                                                 | Increase in intangible assets                                  |                                                     |       |       |       
|                                                 |                                                                |                                                     |       |        |       
|                                                 |                                                                | Net cash used in investing activities               |       |        | (2,757
|                                                 |                                                                |                                                     |       |        |       
|Cash flows from financing activities             |                                                                |                                                     |       |        |       
|                                                 | Net borrowings (repayments) under revolving credit facility    |                                                     |       | 4,596  |       
|                                                 | Increase (decrease) in checks issued in excess of bank balance |                                                     |       | (1,185 | )     
|                                                 | Increase in financing fees                                     |                                                     |       | (1,412 | )     
|                                                 | Principal payments on long-term debt                           |                                                     |       | (2,840 | )     
|                                                 | Cash received on exercised options                             |                                                     |       | 13     |       
|                                                 |                                                                |                                                     |       |        |       
|                                                 |                                                                | Net cash provided by (used in) financing activities |       |        | (828  
|                                                 |                                                                |                                                     |       |        |       
|Net increase in cash                             |                                                                |                                                     |      |        |       
|Cash at beginning of period                      |                                                                |                                                     |      |        |       
|                                                 |                                                                |                                                     |       |        |       
|Cash at end of period                            |                                                                | $                                                   |      |        | $     
|                                                 |                                                                |                                                     |       |        |       
|Supplemental disclosure of cash flow information |                                                                |                                                     |       |        |       
|                                                 | Cash paid during the period for:                               |                                                     |       |        |       
|                                                 |                                                                | Interest                                            |       | $      | 4,732 
|                                                 |                                                                |                                                     |       |        |       
|                                                 |                                                                | Income taxes                                        |       | $      |      
|                                                 |                                                                |                                                     |       |        |       

See accompanying notes to condensed consolidated financial statements.

5

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        For the Three and Nine Months Ended September 28, 2002 and
September 29, 2001        (Dollars in Thousands, except per share data)        (Unaudited)

(1)  Nature of Business.

The Company, operating through its subsidiaries, is a contract manufacturer and supplier of high-quality fabricated sheet metal and plastic components
and subassemblies for industrial, construction, agricultural, and recreational vehicle original equipment manufacturers located primarily in the Midwestern and Southeastern United States.

(2)  Interim Financial Data.

The Condensed Consolidated Financial Statements at September 28, 2002, and for the three and nine months ended September 28, 2002 and
September 29, 2001, are unaudited and reflect all adjustments, consisting of normal recurring accruals and other adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, operating results, and cash flows for the interim periods indicated. The Company's fiscal quarters end on a Saturday (nearest to a quarter end) except for the
fourth quarter which ends on December 31. For both the quarters ended September 28, 2002 and September 29, 2001, there were 63 shipping days. For the nine months ended
September 28, 2002, there were 189 shipping days, and for the nine months ended September 29, 2001, there were 190 shipping days. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year. The condensed consolidated financial statements should be read in connection with the consolidated financial statements
and notes thereto, together with management's discussion and analysis of financial condition and results of operations of Morton Industrial Group, Inc. contained in the Company's Annual Report
on Form 10-K/A for the year ended December 31, 2001, as filed on November 5, 2002.

On
November 1, 2002, three of the Company's subsidiaries, Morton Custom Plastics, LLC (MCP, LLC), Morton Holdings, LLC (Holdings), the immediate parent of MCP, LLC, and Morton
Lebanon Kentucky IBRB, LLC (Kentucky), a subsidiary of Holdings, filed for protection as debtors-in-possession under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware (the "Chapter 11 Proceeding").

The
Chapter 11 Proceeding relates only to the plastics business that was acquired from Worthington Industries, Inc. in 1999. The Company and its subsidiaries involved in the
metals fabrication business and the Iowa plastics business are not parties to the Chapter 11 Proceeding, and the Company expects that those businesses will continue in business in the ordinary course.

For
a further discussion of the Chapter 11 Proceeding, including the disposition of the MCP, LLC business, see Notes 7 and 9 below.

(3)  Restatement of Financial Statements

Based on a review of its accounting policies, the Company determined that its interest rate swap instruments did not qualify for hedge accounting, as was
previously reported. Related to accounting for its interest rate swap instruments, a restatement has been made that had the effect of increasing its other expense $405 and $740 for the three months
and nine months ended September 29, 2001, respectively. The condensed consolidated financial statements as of and for the three and nine months

6

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ended September 29, 2001 and notes thereto included in this report on Form 10-Q have been restated to include the effect of the correction of these errors, as follows:

Three Months Ended
September 29, 2001
As Previously
Reported

Three Months Ended
September 29, 2001
As RestatedOther income (expense)

$
14

$
(391
)Total other expense


(2,317
)

(2,722
)Net loss


(1,217
)

(1,622
)Loss available to common shareholders per shareBasic and diluted

$
(0.33
)
$
(0.41
)


Nine Months Ended
September 29, 2001
As Previously
Reported

Nine Months Ended
September 29, 2001
As RestatedOther income (expense)

$
63

$
(677
)Total other expense


(7,244
)

(7,984
)Net loss


(2,306
)

(3,046
)Loss available to common shareholders per shareBasic and diluted

$
(0.67
)
$
(0.84
)


(4)  Inventory.

The Company's inventory, in thousands of dollars, as of September 28, 2002, and December 31, 2001, is summarized as follows:

September 28, 2002

December 31, 2001Raw materials, purchased parts and manufactured components

$
9,147

$
9,273Work-in-process


5,148


4,807Finished goods


6,865


7,821$
21,160

$
21,901


7

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(5)  Earnings Per Share.

The following reflects the reconciliation of the numerators and denominators of the earnings per share and the earnings per share assuming dilution computations:

|                                                          |  | Quarter Ended September 28, 2002 |        | Quarter Ended September 29, 2001
(Restated) |          
|--------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------------------- | ---------
|
|Basic loss available to common shareholders               |  | $                                | (4,978 | )                                           | 4,660,547
|Effect of dilutive securities, stock options and warrants |  |                                  |       |                                             |         
|Diluted loss available to common shareholders             |  | $                                | (4,978 | )                                           | 4,660,547

|                                                          |  | Nine Months Ended September 28, 2002 |         | Nine Months Ended September 29, 2001
(Restated) |          
|--------------------------------------------------------- |  | ------------------------------------ | ------- | ----------------------------------------------- | ---------
|
|Basic loss available to common shareholders               |  | $                                    | (17,283 | )                                               | 4,631,027
|Effect of dilutive securities, stock options and warrants |  |                                      |        |                                                 |         
|Diluted loss available to common shareholders             |  | $                                    | (17,283 | )                                               | 4,631,027

At
September 28, 2002 and September 29, 2001, 238,548 and 307,504 options and warrants, respectively, were excluded from the computation of diluted earnings per share due to their
anti-dilutive effect.

(6)  Segment Reporting.

Prior to December 31, 2001, the Company presented two reportable segments, contract metal fabrication and contract plastic fabrication. The contract metal
fabrication segment provides full service fabrication of parts and sub-assemblies for the industrial, construction, agricultural and recreational vehicle equipment industry. The contract
plastic fabrication segment provides full-service vacuum formed and injected-molded parts and sub-assemblies for the construction, agricultural and industrial equipment
industry.

Due
to the need to closely monitor liquidity and compliance with debt covenants, the Company has changed its internal financial reports. Accordingly, effective December 31, 2001,
the Company is presenting segment data based upon the results of operations by applicable credit facility. The Company's two separate credit facilities are described in more detail in these footnotes
and in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

8

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The
following segment data, in thousands of dollars, is for the quarters and nine months ended September 28, 2002 and September 29, 2001:

|                                                      |  | Harris Trust &
Savings Bank
Credit Facility |         | General Electric
Capital Corp.
Credit Facility |   | Total  |  
|----------------------------------------------------- |  | ------------------------------------------- | ------- | ---------------------------------------------- | - | ------ | -
|Quarter Ended September 28, 2002                      |  |                                             |         |                                                |   |        |  
|Revenues from external customers                      |  | $                                           | 33,045  |                                                | $ | 16,821 |  
|Segment operating income (loss)                       |  |                                             | 31      |                                                |   | (2,805 | )
|Interest expense                                      |  |                                             | 1,157   |                                                |   | 682    |  
|Quarter Ended September 29, 2001                      |  |                                             |         |                                                |   |        |  
|Revenues from external customers                      |  | $                                           | 33,937  |                                                | $ | 18,436 |  
|Segment operating income                              |  |                                             | 1,023   |                                                |   | 77     |  
|Interest expense                                      |  |                                             | 1,777   |                                                |   | 554    |  
|Nine Months Ended September 28, 2002                  |  |                                             |         |                                                |   |        |  
|Revenues from external customers                      |  | $                                           | 107,026 |                                                | $ | 52,062 |  
|Segment operating income (loss)                       |  |                                             | 3,386   |                                                |   | (5,460 | )
|Interest expense                                      |  |                                             | 3,586   |                                                |   | 1,884  |  
|Cumulative effect of a change in accounting principle |  |                                             | (8,118  | )                                              |   | 0      |  
|Nine Months Ended September 29, 2001                  |  |                                             |         |                                                |   |        |  
|Revenues from external customers                      |  | $                                           | 126,482 |                                                | $ | 62,013 |  
|Segment operating income (loss)                       |  |                                             | 5,186   |                                                |   | (248   | )
|Interest expense                                      |  |                                             | 5,368   |                                                |   | 1,939  |  

(7)  Debt.

The Company (the registrant) and its subsidiary, Morton Custom Plastics, LLC (MCP, LLC) have two separate credit facilities. The Company's facility is with Harris
Trust and Savings Bank, as Agent (Harris). This credit facility finances the Company's corporate operations, as well as its contract metal fabrication operations in Illinois, North Carolina and South
Carolina and its contract plastics fabrication operations in Iowa. MCP, LLC's facility was with General Electric Capital Corporation (GECC). This credit facility has financed MCP, LLC's contract
plastic fabrication operations in North Carolina, South Carolina and Kentucky, but is not available to MCP, LLC during the Chapter 11 Proceeding.

The
two credit facilities are separately secured by the assets of the operations they support. The Company (the registrant) has no liability on the indebtedness of MCP, LLC to GECC, and
there are no cross-default provisions that would affect any of the registrant's credit facilities with Harris Trust and Savings Bank, as Agent, relating to the contract metal fabrication operations in
Illinois, North Carolina, and South Carolina and the contract plastics operation in Iowa.

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

In
connection with MCP, LLC's Chapter 11 Proceeding, MCP, LLC, Holding and Kentucky entered into a debtor-in-possession financing arrangement with GECC (the "DIP
financing") under which GECC is providing financing for MCP, LLC and Kentucky following the Bankruptcy Court's approval of DIP financing of up to $2,500. The DIP financing agreement is attached as
Exhibit 99.1 to this Form 10-Q. The DIP financing will also allow MCP, LLC and Kentucky to use the cash generated by their operations during the Chapter 11 Proceeding. The
DIP financing will be secured by a first priority security interest in MCP, LLC's and Kentucky's assets. Funding under the DIP financing is limited to specified percentages of MCP, LLC's and
Kentucky's eligible accounts receivable, finished goods

9

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inventory and raw materials. The DIP financing bears interest at GECC's prime rate plus two percent (2%). The Company and its metal fabrication and Iowa plastics operation do not secure and do not
have any liability for the DIP financing. For further information about MCP, LLC's Chapter 11 Proceeding, see Note 9 to the unaudited financial statements included in this periodic
report on Form 10-Q.

Warrant

In conjunction with MCP, LLC's amended and restated credit facility, MCP, LLC issued to GECC a warrant to purchase 70% ("Warrant Ownership Percentage") of the
outstanding ownership interests (on a fully diluted basis) of MCP, LLC. This warrant relates only to Morton Custom Plastics, LLC and does not relate to either the Class A or Class B
Common Stock of Morton Industrial Group, Inc. The Warrant Ownership Percentage shall be reduced to 35% if the loan is repaid in full before March 25, 2004.

At
any time on or after the occurrence of (i) the scheduled maturity date, (ii) an event of default (which has occurred and is continuing), or (iii) the date of
indefeasible prepayment in full of the loans and cancellation of letters of credit and permanent reduction of revolving loan commitment to zero ("Trigger Events"), the holder has the right to require
MCP, LLC to purchase all or any part of the warrant ("Put Feature"). MCP, LLC also has the right to repurchase all, but not less than all, of the outstanding warrant and equity interests of the holder
subsequent to a Trigger Event ("Call Feature"). The Put Feature and Call Feature each have a purchase price equal to the greater of the applicable floor price and the fair market value as determined
in good faith by the board and subject to approval by the holder. The initial floor price is $500, increasing to $4,000 by the debt maturity date in August, 2006 and to $13,000 at the warrant
expiration date in March, 2012.

10

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The warrant is accounted for under EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." Since the
warrant can be settled for cash at the holder's option, it was recorded as a liability and as a discount on the related debt at its estimated fair value, at the date of issue, of $135. This instrument
is to be adjusted to fair value each period with a corresponding charge or credit to earnings. The fair value of the warrant was estimated using a multiple of projected EBITDA, less total debt. No
value was assigned to the "Put Feature" at this time. The estimated value of this instrument could change significantly in the future based on changes in projected EBITDA or the estimated value of the
"Put Feature".

As
of the date of filing of this Form 10-Q, no rights under the warrant have been exercised, although events of default have occurred. See "Liquidity and Capital
Resources" for additional information about the two credit agreements. See also Part II, Item 3, "Defaults Upon Senior Securities" of this report on Form 10-Q.

(8)  Goodwill and Transition Adjustment.

The Company adopted Financial Accounting Standards Board Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), effective
January 1, 2002, and recorded a non-cash transition charge of $8,118, or a $1.76 loss per share, for impairment of goodwill.

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

The
following table presents earnings (loss) before the cumulative effect of a change in accounting principle for the three and nine months ended September 28, 2002 as compared to
the prior year periods after adjustment for goodwill amortization:

|                                                    |                       | Three months ended |   | Nine months ended |  
|--------------------------------------------------- | --------------------- | ------------------ | - | ----------------- | -
|
|
|
|Net loss available to common stockholders           |                       |                    |   |                   |  
|                                                    | As reported           |                    | $ | (4,978            | )
|                                                    | Goodwill amortization |                    |   |                   |  
|                                                    | Adjusted              |                    | $ | (4,978            | )
|Net loss per share available to common stockholders |                       |                    |   |                   |  
|                                                    | As reported           |                    | $ | (1.06             | )
|                                                    | Goodwill amortization |                    |   |                   |  
|                                                    | Adjusted              |                    | $ | (1.06             | )

(9)  Chapter 11 Proceeding of MCP, LLC

On November 1, 2002, MCP, LLC, Holdings and Kentucky filed as debtors-in-possession under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Before filing, MCP, LLC and Kentucky had negotiated the terms of an agreement for sale of substantially all of their
assets to Wilbert, Inc., pursuant to an Asset Purchase Agreement. Under the
agreement, Wilbert, Inc. will also assume the liabilities of MCP, LLC and Kentucky under certain of their contracts and leases. MCP, LLC also arranged for the DIP financing described in
Note 7 above.

11

---

The
sale of MCP, LLC's and Kentucky's assets will proceed in accordance with Section 363 of the United States Bankruptcy Code. The Bankruptcy Court must approve the sale
procedures that will permit Wilbert, Inc. and other potential purchasers to bid on MCP, LLC's and Kentucky's assets. If Wilbert, Inc. is the successful bidder, the sale will be subject
to the Asset Purchase Agreement. If another bidder is successful, MCP, LLC and that bidder will enter into an agreement of sale similar to the Asset Purchase Agreement. The Bankruptcy Court must
approve the sale before it closes. If a bidder other than Wilbert, Inc. is the successful bidder and closes the purchases of all of the assets of MCP, LLC and Kentucky, Wilbert, Inc.
will be entitled to receive from MCP, LLC and Kentucky expense reimbursement up to $195 and a break up fee of $500. The Company expects that the sale of MCP, LLC's and Kentucky's assets will close in
approximately 2-3 months absent any unforeseen developments. As a result of the sale, the registrant will receive no proceeds.

Based
on MCP, LLC's filing under Chapter 11, the Company will not include MCP, LLC's results in its consolidated financial statements subsequent to November 1, 2002.
Operating information for the entities subject to the Chapter 11 filing is presented in Note 6 under the heading "General Electric Capital Corp. Credit Facility." Summary balance sheet
information for those entities at September 28, 2002 is as follows:

Current assets

$
15,478Total assets


30,825Current liabilities


44,594Total liabilities


48,198Members' (deficit)


(17,373
)


12

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis describes changes in the Company's financial condition since December 31, 2001. The analysis of results of operations
compares the quarters and nine months ended September 28, 2002 and September 29, 2001:

RESULTS OF OPERATIONS

THIRD QUARTER, 2002 VERSUS THIRD QUARTER, 2001

Our net revenues for the third quarter, 2002 were $49.9 million compared to $52.4 million for the third quarter of 2001, a decrease of
$2.5 million, or 4.8%. The sales decrease resulted primarily from decreased demand by existing customers and the soft status of the general economy.

Our
sales to Deere & Company and Caterpillar Inc., were approximately 56.2% and 54.0% of our revenues for the third quarters, 2002 and 2001, respectively. Revenues from
these customers remained approximately the same compared to the same period in 2001.

Our
gross profits for the third quarter, 2002 decreased by approximately $2.8 million, a decrease of 42.9%, versus the same period in 2001. The overall gross profit percentage
decreased to 7.5% for the third quarter of 2002 from 12.5% for the third quarter of 2001. The decrease in gross profit dollars and percentage results from the decrease in sales and related increased
amounts of manufacturing variances.

Our
selling and administrative expenses for the third quarter, 2002 amounted to $6.5 million, or 13.0% of net sales compared to $5.4 million, or 10.4% of net sales for the
third quarter of 2001. The percentage increase related to the decrease in sales. The $1.1 million increase in expenses related to, among other factors, professional fees related to assisting
MCP, LLC with working capital management.

Our
interest expense was $1.8 million for the third quarter of 2002, compared with $2.3 million for the third quarter of 2001. Although our overall debt level has increased
slightly from a year ago, decreases in the average interest rates for the comparable quarters has significantly reduced interest expense.

Our
other income (expense) was $(34) thousand for the third quarter of 2002, compared with other expense of $(391) thousand for the third quarter of 2001, primarily due to an
unrealized gain of $88 thousand on the Company's interest rate swap instrument during 2002 versus an unrealized loss of $405 thousand for the third quarter of 2001.

For
the third quarter of 2002, we did not provide a tax benefit on the pre-tax loss of $4.6 million. The impact on the net operating loss carryforward was offset by
changes in the valuation allowance with no impact on the net deferred tax assets. For the third quarter of 2001, we did not provide a tax benefit on the pre-tax loss of
$1.6 million. The impact on the net operating loss carryforward was offset by changes in the valuation allowance with no impact on the net deferred tax assets.

In
accordance with SFAS No. 142, the Company has not amortized goodwill during the third quarter of 2002. Goodwill amortization totaled $95 thousand for the third quarter
of 2001. Had goodwill not been amortized during 2001, net earnings (loss) available to common stockholders for the quarter ended September 29, 2001 would have been $(1.8) million, or $(0.39)
per share.

FIRST NINE MONTHS, 2002 VERSUS FIRST NINE MONTHS, 2001

Our net revenues for the first nine months of 2002 were $159.3 million compared to $188.5 million for the first nine months of 2001, a decrease of
$29.2 million, or 15.5%. The sales decrease resulted primarily from decreased demand by existing customers and the soft status of the general economy.

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Our
sales to Deere & Company and Caterpillar Inc., were approximately 57.5% and 56.0% of our revenues for the first nine months of 2002 and 2001, respectively. Revenues
from these customers for the first nine months decreased approximately 17.2% from the first nine months in 2001 due to their manufacturing cutbacks.

Our
gross profits for the first nine months of 2002 decreased by approximately $5.8 million, a decrease of 25.2%, versus the same nine months in 2001. The overall gross profit
percentage decreased to 10.8% for the first nine months of 2002 from 12.2% for the first nine months of 2001. The decrease in gross profit dollars and percentage results from the decrease in sales and
related increased amounts of manufacturing variances.

Our
selling and administrative expenses for the first nine months of 2002 was $19.3 million compared to $18.1 million for the first nine months of 2001, or 12.1% and 9.6%
of net sales, respectively. The percentage increase is related to an increase in expenses, related to among other factors, professional fees related to assisting MCP, LLC with working capital
management.

Our
interest expense was approximately $5.5 million for the first nine months of 2002, compared to $7.3 million for the first nine months of 2001. Although our overall debt
level has increased slightly from a year ago, decreases in the average interest rates for the comparable quarters has significantly reduced interest expense.

Our
other income was $133 thousand for the nine months ended September 28, 2002, compared with other expense of $677 thousand for the nine months ended
September 29, 2001, primarily due to an unrealized gain of $258 thousand on the Company's interest rate swap instrument during 2002 versus an unrealized loss of $740 thousand for
the nine months ended September 29, 2001.

During
the first nine months of 2002, the Company recorded a tax benefit of $1,473 as it determined that it would be able to recover taxes paid in previous years under the
five-year carryback provisions of theJobs Creation and Worker Assistance Act of 2002.The amounts recovered relate primarily to
pre-acquisition taxes paid by acquired subsidiaries. Additionally, the Company recognized an income tax expense of $2,294 during the nine months ended September 28, 2002, related to
an increase in the valuation allowance for deferred tax assets. Net deferred tax assets were decreased to reflect lower anticipated utilization of income tax net operating loss carryforwards,
primarily due to the Chapter 11 filing and Asset Purchase Agreement for MCP, LLC. For the first nine months of 2001, we did not provide a tax benefit on the pre-tax loss of
$3.0 million. The impact on the net operating loss carryforward was offset by changes in the valuation allowance with no impact on the net deferred tax assets.

In
accordance with SFAS No. 142, the Company has not amortized goodwill during the first nine months of 2002. Goodwill amortization totaled $285 thousand for the first nine
months of 2001. Had goodwill not been amortized during 2001, net earnings (loss) available to common stockholders for the nine months ended September 29, 2001 would have been $(3.5) million, or
$(0.78) per share.

LIQUIDITY AND CAPITAL RESOURCES

Our consolidated working capital deficit at September 28, 2002 was a deficit of $76.9 million compared to a deficit of $1.5 million at
December 31, 2001, a decrease in working capital of approximately $75.4 million. The decrease in working capital relates primarily to the reclassification from long-term debt
to current maturities of long-term debt those amounts owed by MCP, LLC to GECC, as well as those amounts owed to Harris Trust and Savings Bank.

MCP,
LLC is in default of certain covenants of its credit facility with GECC. As discussed in Note 7 above, MCP, LLC and GECC have entered into the DIP financing in connection
with MCP, LLC's bankruptcy, which provides working capital for MCP, LLC.

14

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The
amounts due to Harris Trust and Savings Bank, As Agent, have been reclassified as current because of their maturity date of July 1, 2003. The Company presently expects to
refinance its credit facility with Harris Trust and Savings Bank, as Agent, in January, 2003. There can be no assurances that the Company will be able to conclude an acceptable refinancing of its
credit facility at that time.

The
Company (the registrant) and its subsidiary, Morton Custom Plastics, LLC (MCP, LLC) have two separate credit facilities. The Company's facility is with Harris Trust and Savings Bank,
as Agent (Harris). This credit facility finances the Company's corporate operations, as well as its contract metal fabrication operations in Illinois, North Carolina and South Carolina and its
contract plastics fabrication operations in Iowa. MCP, LLC's facility had been with GECC. This credit facility had financed MCP, LLC's contract plastic fabrication operations in North Carolina, South
Carolina and Kentucky. The DIP financing now provides financing for these operations.

As
previously reported on Form 8-K filed with the Securities and Exchange Commission on October 15, 2002, prior to the commencement of the Chapter 11
Proceeding, MCP, LLC entered into a series of forbearance agreements with GECC, the last of which has terminated.

The
two credit facilities are separately secured by the assets of the operations they support. The Company (the registrant) has no liability on the indebtedness of MCP, LLC to GECC, and
there are no cross-default provisions that would affect any of the registrant's credit facilities with Harris Trust and Savings Bank, as Agent, relating to the contract metal fabrication operations in
Illinois, North Carolina, and South Carolina and the contract plastics operation in Iowa. Similarly, the DIP financing is secured only with assets of MCP, LLC and not the Company or its metals
fabrication or Iowa plastics business. There is no cross-default between the DIP financing and facilities with Harris Trust and Savings Bank, as Agent. For other information about the DIP financing,
see Note 7 to the unaudited condensed consolidated financial statements included in this periodic report on Form 10-Q.

The Harris Trust and Savings Bank Credit Facility

In February, 2002, the Company entered into an amended and restated secured revolving credit facility with Harris Trust and Savings Bank, as Agent (Harris). The
revolving credit agreement permits the Company to borrow up to a maximum of $21,000,000. The agreement requires payment of a quarterly commitment fee of .50% per annum of the average daily unused
portion of the revolving credit facility. Interest is due monthly and is based on LIBOR plus 4.0% (totaling 6.25% at September 28, 2002). We,
alternatively, could select an interest rate of bank prime plus 1.5%. The amount available under the revolving credit facility is limited to 85% of qualified accounts receivable, 50% of eligible
inventory, plus $2,500,000 of other assets (increased to $5,000,000 in an amendment dated August 14, 2002). The revolving credit agreement expires July 1, 2003. At September 28,
2002, the Company had $18,300,000 outstanding and $1,321,000 available under its Harris revolving credit facility.

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In February, 2002, the Company entered into an amended and restated secured term loan arrangement with Harris for a term loan of $32,965,000. This term loan is amortized monthly with
principal payments ranging from $235,000 to $500,000 and the balance of $24,930,000 due July 1, 2003. Interest is due monthly and is based upon LIBOR plus 4.0% (totaling 6.25% at
September 28, 2002). We, alternatively, could select an interest rate of bank prime plus 1.5%. These Harris debt agreements have maturity dates of July 1, 2003. The Company intends to
obtain loans to refinance the debt from other sources by the end of the term of this arrangement, which may not be available on acceptable terms and conditions. Failure to do so could have a material
adverse effect on the Company's operations.

In
August, 2002, the Company entered into the first amendment to the February, 2002 amended and restated credit agreement. Under this amendment, the amount of other assets included in
the determination of borrowing availability under the revolving credit facility was increased from $2,500,000 to $5,000,000; the Company agreed to retain and has engaged an independent third-party to
assist in exploring refinancing opportunities; the Company will pay an amendment fee of $300,000; and the expiration date of the Harris warrants described below was extended until December 31,
2004.

The
Company, on September 20, 2000, issued warrants, to Harris Trust and Savings Bank, as Agent, to purchase an aggregate number of shares of its Class A common stock equal
to the greater of (a) 4.99% of the total outstanding shares of Class A and Class B common stock, calculated at the time of exercise, exclusive of certain shares issued as employee
or director compensation or pursuant to the warrants, or (b) 238,548 shares. The warrants are exercisable at an exercise price of $.01 per share.

In
connection with these Harris loans, we have granted the lender a first lien on all of the Company's accounts receivable, inventory, equipment and various other assets, except for the
assets of MCP, LLC and Kentucky. These Harris debt agreements, which finance the contract metal fabrication and the Iowa contract plastic fabrication locations, contain restrictions on capital
expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. The agreements also impose various financial covenants.
Under the terms of this credit facility, no amounts have been available for payment of dividends.

In
connection with the Harris financing, we have two fixed interest rate swap agreements with a commercial bank (the "counter party"). The first agreement has a notional principal amount
of $3.5 million and a termination date of May 31, 2003. The second agreement has a notional principal amount of $14.0 million and a termination date of June 30, 2003. The
notional principal amount declines over the term of both agreements based upon a defined amortization schedule. The counter party waived its unilateral right to cancel both agreements as of
June 30, 2001. As described in Item 3 below,
these agreements are intended to limit the effects of interest rate increases on half of the Company's floating rate term debt with Harris.

Historically,
we have met our near term liquidity requirements for our businesses financed by Harris with cash flow from operations, the Harris line of credit, and management of our
working capital to reflect current levels of operations. The national economic slowdown, which our reduced revenues reflect, has increased pressure on these sources of liquidity. The new Harris
revolving credit facility and term loans replaced existing credit facilities and did not provide additional availability. However, the repayment and fee terms were modified, and the
short-term principal payments and fees were reduced. We anticipate that the amended and restated agreements with Harris will assist the Company (not including MCP, LLC) in meeting its
liquidity requirements through the term of these agreements.

The General Electric Capital Corporation Credit Facility

In March, 2002, to restructure the financing related to the MCP, LLC operations, MCP, LLC entered into an amended and restated revolving credit facility and an
amended and restated senior

16

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credit facility with its existing lender, General Electric Capital Corp. (GECC). MCP, LLC (beginning September 18, 2002) entered into a series of forbearance agreements related to its defaults
under the amended and restated revolving agreement that are described in more detail below. No forbearance agreement remains in effect, but MCP, LLC entered into DIP financing with GECC to provide
working capital during MCP, LLC's Chapter 11 Proceeding.

The
March, 2002 revolving credit facility allowed for borrowings up to a maximum of $10,000,000. Of the amount available under the revolver, $1,000,000 was held back as a reserve for
discretionary use approved by the lender. The amount available under the revolving credit facility was generally limited to 85% of qualified accounts receivable and 60% of eligible inventory, absent
an event of default and acceleration of the debt maturity. Absent a default and acceleration, the revolving credit agreement was to expire on August 30, 2006. As of October 31, 2002,
immediately before MCP, LLC's Chapter 11 filing, there was no additional availability under the revolving credit facility and no availability under the discretionary reserve. MCP, LLC will not
be able to draw upon the revolving credit facility or the discretionary reserve during the Chapter 11 Proceeding.

The
March, 2002 senior credit facility included three term loans with initial balances of $10 million (Term A), $7 million (Term B) and $5 million (Term C),
respectively. Absent an event of default and acceleration of the debt, the maturity date on the new senior credit facility was August 30, 2006.

The
loans under the March, 2002 facility remain secured by a first priority security interest in all of MCP, LLC's assets, including, but not limited to, accounts receivable,
inventories, leaseholds, fixed assets, intangible assets and tradenames. The GECC agreement contained restrictions on capital
expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. The agreement also imposed various financial covenants.
Under the terms of this credit facility, no amounts have been available for payment of dividends.

The
interest on the revolving credit facility, Term A and Term B is LIBOR plus 450 basis points, with a LIBOR floor of 3%. The default rate varies from
7.25%-7.50% on the Term A, Term B and revolving credit facility loans and is 13% on the Term C loan; these rates were in effect prior to the beginning of MCP, LLC's
Chapter 11 Proceeding. The Company, alternatively, could select an Index rate. Interest is to be paid monthly on these loans. MCP, LLC, in default of its credit agreement, has not made interest
payments due August 1, September 1 and October 1, 2002. The interest on Term C is 13% payment-in-kind. Unpaid interest on Term C is due at
maturity; the accrued interest on Term C is included in the notes payable balance.

The
principal on Term A and Term B amortizes quarterly in various amounts beginning on September 30, 2002 for Term A and June 30, 2002 for Term B. MCP, LLC, in default of
its credit agreement, has not made principal payments due on September 30, 2002.

The
total principal amount of indebtedness in default under all of the GECC facilities is approximately $30,487,000, and as of November 1, 2002, the total accrued and unpaid
interest on those facilities is approximately $640,000.

Historically,
MCP, LLC has met its near term liquidity requirements for its businesses financed by GECC with cash flow from operations, the GECC line of credit, and management of its
working capital to reflect current levels of operations. The national economic slowdown, which MCP, LLC's reduced revenues reflect, increased pressure on these sources of liquidity. MCP, LLC has been
unable to meet its obligations for principal and interest payments as described above, nor has it been able to meet certain financial covenants under the GECC credit facility. A level of
short-term liquidity continues to be provided from operations and working capital management. In connection with the Chapter 11 Proceeding, MCP, LLC and GECC have agreed on the terms of
the DIP financing, certain terms of which are described in Note 7 to the unaudited financial statements included in this periodic report on Form 10-Q. The Bankruptcy Court
has approved the interim DIP financing. MCP, LLC

17

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expects that the DIP financing and the cash collateral thereunder (i.e., the cash generated by operations during the Chapter 11 Proceeding), will contribute to the MCP, LLC's liquidity
requirements prior to the sale of the business.

Warrant

In conjunction with the March, 2002 credit facility, MCP, LLC issued to GECC a common stock warrant to purchase 70% ("Warrant Ownership Percentage") of the
outstanding ownership interests (on
a fully diluted basis) of MCP, LLC. This warrant relates only to MCP, LLC and does not relate to either the Class A or Class B Common Stock of Morton Industrial Group, Inc. The
Warrant Ownership Percentage shall be reduced to 35% if the loan is repaid in full before March 25, 2004. If adjusted EBITDA for the year ending December 31, 2003, as defined in the
agreement, is at least $8,000,000 and the Warrant Ownership Percentage has not already been reduced, the Warrant Ownership Percentage shall be reduced to 51%.

At
any time on or after the occurrence of (i) the scheduled maturity date, (ii) an event of default (which has occurred and is continuing), or (iii) the date of
indefeasible prepayment in full of the loans and cancellation of letters of credit and permanent reduction of revolving loan commitment to zero ("Trigger Events"), the holder has the right to require
the Company to purchase all or any part of the warrant ("Put Feature"). The Company also has the right to repurchase all, but not less than all, of the outstanding warrant and equity interests of the
holder subsequent to a Trigger Event ("Call Feature"). The Put Feature and Call Feature each have a purchase price equal to the greater of the applicable floor price and the fair market value as
determined in good faith by the board and subject to approval by the holder. The initial floor price is $500,000, increasing to $4,000,000 by the debt maturity date in August, 2006 and to $13,000,000
at the warrant expiration date in March, 2012.

The
warrant is accounted for under EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." Since the
warrant can be settled for cash at the holder's option, it is recorded as a liability and as a discount on the related debt at its estimated fair value of $135,000. This instrument will be adjusted to
fair value each period with a corresponding charge or credit to earnings. The fair value of the warrant was estimated using a multiple of projected EBITDA, less total debt. No value was assigned to
the "Put Feature" at this time. The estimated value of this instrument could change significantly in the future based on changes in projected EBITDA or the estimated value of the "Put Feature".

As
of the date of filing of this Form 10-Q, no rights under the warrant have been exercised, although an event of default has occurred.

Preferred Stock

As part of the financing for the 1999 acquisition of MCP, LLC, we issued 10,000 shares of redeemable preferred stock, which we must redeem in April, 2004 at
$1,000 per share plus any dividends accrued since April 15, 1999. The $10 million face value preferred stock was recorded at its fair value of $4.25 million. We are accreting the
discount over a five-year period using the effective yield method. Dividends are payable in kind at the rate of 8% per annum. We believe that certain provisions of the agreement with
Worthington preclude the payment of dividends, and no dividends have been accrued in 2000, 2001 or 2002. There are current legal proceedings related to certain Worthington matters.

Capital Expenditures

We incurred $3.0 million of capital expenditures during the first nine months of 2002, primarily for the update and purchase of manufacturing equipment.

18

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We
estimate that our capital expenditures in 2002 will total approximately $4.0 million, of which $1.0 million will be for new production equipment and the remaining
$3.0 million will be for normal replacement items.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board recently issued Statement No. 143, Accounting for Asset Retirement Obligations that establishes accounting
standards for the recognition and measurement of obligations associated with the retirement of tangible assets. The effective date of Statement No. 143 is January 1, 2003. The Financial
Accounting Standards Board also recently issued No. 146, Accounting for Costs Associated with Exit or Disposal Activities, that addresses financial accounting and reporting for costs associated
with exit or disposal activities. The effective date of Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not
expect the adoption of these Statements to have a significant effect on its results of operations or its financial position.

In
April 2002, the Financial Accounting Standards Board issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and FASB Statement No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This
Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provision of this Statement related to the rescission of Statement
4 are applicable in fiscal years beginning after May 15, 2002. Early application is encouraged. The provisions of this Statement related to Statement 13 are effective for transactions occurring
after May 15, 2002, with early application encouraged. All other provisions of this Statement are effective for financial statements issued on or after May 15, 2002, with early
application encouraged. Management is evaluating the effect of this statement on the Company's results of operations and financial position.

FORWARD LOOKING STATEMENTS

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

19

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to interest rate changes primarily as a result of our lines of credit and long-term debt used for maintaining liquidity, funding
capital expenditures, and expanding our operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower overall
borrowing costs. To achieve our objectives, we entered into two separate financing agreements with a group of banks and another lender. Both financing arrangements contain term loans and revolving
credit facilities. Interest is based on a benchmark rate plus an applicable variable margin. We have also entered into two interest rate swap agreements, as required by one of our bank financing
arrangements, to limit the effect of increases in the interest rates on half of its floating rate term debt. Under the swap agreements, which expire May 31, 2003 to June 30, 2003, a
LIBOR-equivalent interest rate component of the interest rate are adjusted to 5.875% on half of the Company's $29.9 million term loans.

The
Company does not enter into interest rate transactions for speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed within the last ninety days under the supervision and with the participation the Company's management, including the Chairman and
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness and design of operations of the Company's disclosure controls and and procedures. Based on that evaluation, and
subject to the matters described in the following paragraphs of this Item 4, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were
effective as of September 28, 2002, with appropriate adjustments to the financial statements for the MCP, LLC subsidiary for the matters described below. There have been no significant changes
in the Company's internal controls or in other factors, outside of MCP, LLC, that could significantly affect internal controls subsequent to September 28, 2002.

As
disclosed in the August 14, 2002 Form 12b-25 filing with the Securities and Exchange Commission, based on certain allegations of accounting improprieties at
MCP, LLC, the Company's Audit Committee planned to conduct a formal inquiry into the accounting practices at MCP, LLC. The Audit Committee subsequently retained independent accountants and counsel to
assist in conducting the inquiry. Although the Company understands that the Audit Committee's counsel and auditors have delivered reports to it, the Company has not received copies. The Chairman of
the Audit Committee has advised the Company, however, that a letter describing the Committee's findings and recommendations is being prepared for delivery to the Company in the near future.

The
Company expects that the recommendations of the Audit Committee will lead to the Company's initiating corrective actions with respect to internal controls at MCP, LLC. The timing of
the Section 363 sale of the assets of MCP, LLC and Kentucky in the Chapter 11 Proceeding will determine the extent to which any such corrective actions become effective during the
remaining period of MCP, LLC's and Kentucky's operations as subsidiaries of the Company.

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no significant changes in the status of the Worthington Industries, Inc. suit referenced in the Company's Form 10-K for
2000 filed with the Securities and Exchange Commission on April 2, 2001. The portion of this litigation that involved MCP, LLC as a defendant will be subject to the automatic stay of MCP, LLC's
Chapter 11 Proceeding.

As
described in the Company's Form 10-K/A for the year ended December 31, 2001, Victory Lane Productions, LLC filed suit against MCP, LLC. That trial was
scheduled to begin November 4, 2002, but was stayed under the automatic stay arising under the Chapter 11 Proceeding.

Refer
to Note 9, Chapter 11 Proceeding of MCP, LLC, in the accompanying financial statements regarding a filing by MCP, LLC under Chapter 11 of the United States Bankruptcy
Code.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As discussed in Note 7 to the unaudited financial statements in this periodic report on Form 10-Q and in the liquidity discussion in
"Management's Discussion and Analysis of Financial Condition and Results of Operations," MCP, LLC is in default under its March 2002 revolving and term credit facilities with GECC. The defaults
occurred under financial payment and other covenants. The principal amount of the indebtedness in default totals $30,487,000 at November 12, 2002. Plastics has not paid interest on its debt
under the March 2002, credit facilities since August 1, 2002, and accrued unpaid interest totals $721,400 on November 12, 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibits

|11.  |  | The computation can be determined from this report                                                          
|---- |  | ------------------------------------------------------------------------------------------------------------
|99.1 |  | Senior Secured, Super-Priority Debtor-in-Possession Credit Agreement                                        
|99.2 |  | Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.3 |  | Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(B)  Reports
on Form 8-K.

Form 8-K
filed on October 15, 2002 describing credit facility covenant defaults and forbearance agreements with the lender of Morton Custom Plastics, LLC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

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

Dated: November 12, 2002

I,
William D. Morton, as Chairman and Chief Executive Officer of Morton Industrial Group, Inc., certify that:



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|/s/WILLIAM D. MORTONWilliam D. MortonChairman and Chief Executive Officer |  | 
|------------------------------------------------------------------------- |  | 



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|/s/THOMAS D. LAUERMANThomas D. LauermanVice President of FinanceNovember 12, 2002 |  | 
|--------------------------------------------------------------------------------- |  | 

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