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

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended July 1, 2000

OR

|/ / | 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 /x/  No / /

|                                     |  | Outstanding as of
July 6, 2000
|------------------------------------ |  | ------------------------------
|Class A Common Stock, $.01 par value |  | 4,381,782                     
|Class 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 Six Months Ended July 1, 2000 and July 3, 1999

(Dollars In Thousands, Except Per Share Data)
(Unaudited)

|                                                            |                         | Three Months Ended                                                           |        | Six Months Ended |       
|----------------------------------------------------------- | ----------------------- | ---------------------------------------------------------------------------- | ------ | ---------------- | ------
|
|Net sales                                                   |                         | $                                                                            | 71,887 |                  | $     
|Cost of sales                                               |                         |                                                                              | 61,669 |                  |       
|                                                            |                         |                                                                              |        |                  |       
|Gross profit                                                |                         |                                                                              | 10,218 |                  |       
|                                                            |                         |                                                                              |        |                  |       
|Operating expenses                                          |                         |                                                                              |        |                  |       
|                                                            | Selling expenses        |                                                                              |        | 1,652            |       
|                                                            | Administrative expenses |                                                                              |        | 5,635            |       
|                                                            |                         |                                                                              |        |                  |       
|                                                            |                         | Total operating expenses                                                     |        |                  | 7,287 
|                                                            |                         |                                                                              |        |                  |       
|                                                            |                         | Operating income (loss)                                                      |        |                  | 2,931 
|                                                            |                         |                                                                              |        |                  |       
|Other income (expense)                                      |                         |                                                                              |        |                  |       
|                                                            | Interest expense        |                                                                              |        | (2,730           | )     
|                                                            | Other                   |                                                                              |        | 329              |       
|                                                            |                         |                                                                              |        |                  |       
|                                                            |                         | Total other income (expense)                                                 |        |                  | (2,401
|                                                            |                         |                                                                              |        |                  |       
|                                                            |                         | Income (loss) before income taxes and cumulative effect of accounting change |        |                  | 530   
|Income taxes                                                |                         |                                                                              | 210    |                  |       
|                                                            |                         |                                                                              |        |                  |       
|Income (loss) before cumulative effect of accounting change |                         |                                                                              | 320    |                  |       
|Cumulative effect of accounting change                      |                         |                                                                              |       |                  |       
|                                                            |                         |                                                                              |        |                  |       
|Net income (loss)                                           |                         |                                                                              | 320    |                  |       
|Dividends and accretion of discount on preferred shares     |                         |                                                                              | (229   | )                |       
|                                                            |                         |                                                                              |        |                  |       
|Net income (loss) available to common shareholders          |                         | $                                                                            | 91     |                  | $     
|                                                            |                         |                                                                              |        |                  |       
|Earnings (loss) per common share                            |                         |                                                                              |        |                  |       
|                                                            | Basic                   |                                                                              | $      | 0.02             |       
|                                                            |                         |                                                                              |        |                  |       
|                                                            | Diluted                 |                                                                              | $      | 0.02             |       
|                                                            |                         |                                                                              |        |                  |       
|Weighted average number of common shares                    |                         |                                                                              |        |                  |       
|                                                            | Basic                   |                                                                              |        | 4,564,167        |       
|                                                            |                         |                                                                              |        |                  |       
|                                                            | Diluted                 |                                                                              |        | 4,662,996        |       
|                                                            |                         |                                                                              |        |                  |       

See accompanying notes to condensed consolidated financial statements.

1

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MORTON INDUSTRIAL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

July 1, 2000 and December 31, 1999

(Dollars in Thousands)

|                                                                           |                                                                                                              | July 1, 2000         |         | December 31, 1999                    |       
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------------- | ------- | ------------------------------------ | ------
|
|ASSETS                                                                     |                                                                                                             
|Current Assets                                                             |                                                                                                              |                      |         |                                      |       
|                                                                           | Cash                                                                                                         |                      | $       |                                     |       
|                                                                           | Accounts, notes and other receivables, less allowance for doubtful accounts of $664 in 2000 and $320 in 1999 |                      |         | 31,689                               |       
|                                                                           | Inventories                                                                                                  |                      |         | 25,898                               |       
|                                                                           | Prepaid expenses                                                                                             |                      |         | 3,135                                |       
|                                                                           | Refundable income taxes                                                                                      |                      |         | 63                                   |       
|                                                                           | Deferred income taxes                                                                                        |                      |         | 1,320                                |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              | Total current assets |         |                                      | 62,105
|                                                                           |                                                                                                              |                      |         |                                      |       
|Property, plant and equipment, net of accumulated depreciation             |                                                                                                              |                      | 55,669  |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Other, primarily goodwill, at amortized cost                               |                                                                                                              |                      | 11,367  |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Deferred income taxes                                                      |                                                                                                              |                      | 3,758   |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              | $                    | 132,899 |                                      | $     
|                                                                           |                                                                                                              |                      |         |                                      |       
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                             |                                                                                                             
|Current Liabilities                                                        |                                                                                                              |                      |         |                                      |       
|                                                                           | Outstanding checks in excess of bank balance                                                                 |                      | $       | 3,862                                |       
|                                                                           | Current installments of long-term debt                                                                       |                      |         | 8,743                                |       
|                                                                           | Accounts payable                                                                                             |                      |         | 32,038                               |       
|                                                                           | Accrued expenses                                                                                             |                      |         | 6,976                                |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              |                      |         | Total current liabilities            |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Long term debt, excluding current installments, and notes payable to banks |                                                                                                              |                      | 78,146  |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Other                                                                      |                                                                                                              |                      | 302     |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              |                      |         | Total liabilities                    |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Redeemable preferred stock                                                 |                                                                                                              |                      | 5,806   |                                      |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|Stockholders' Equity (Deficit)                                             |                                                                                                              |                      |         |                                      |       
|                                                                           | Class A common stock                                                                                         |                      |         | 44                                   |       
|                                                                           | Class B common stock                                                                                         |                      |         | 2                                    |       
|                                                                           | Additional paid-in capital                                                                                   |                      |         | 20,018                               |       
|                                                                           | Retained deficit                                                                                             |                      |         | (23,038                              | )     
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              |                      |         | Total stockholders' equity (deficit) |       
|                                                                           |                                                                                                              |                      |         |                                      |       
|                                                                           |                                                                                                              | $                    | 132,899 |                                      | $     
|                                                                           |                                                                                                              |                      |         |                                      |       

See
accompanying notes to condensed consolidated financial statements.

2

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|                                                 |                                                                                       | 2000         |                                                     | 1999   |      
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------ | --------------------------------------------------- | ------ | -----
|Net cash provided by operating activities        |                                                                                       | $            | 3,788                                               |        | $    
|                                                 |                                                                                       |              |                                                     |        |      
|Cash flows from investing activities             |                                                                                       |              |                                                     |        |      
|                                                 | Capital expenditures                                                                  |              |                                                     | (3,393 | )    
|                                                 | Increase in intangible assets                                                         |              |                                                     | (219   | )    
|                                                 | Proceeds from sale of business unit                                                   |              |                                                     | 1,115  |      
|                                                 | Worthington Custom Plastics, Inc. acquisition, net of estimated adjustment due seller |              |                                                     |       |      
|                                                 | Other                                                                                 |              |                                                     |       |      
|                                                 |                                                                                       |              |                                                     |        |      
|                                                 |                                                                                       |              | Net cash used in investing activities               |        |      
|                                                 |                                                                                       |              |                                                     |        |      
|Cash flows from financing activities             |                                                                                       |              |                                                     |        |      
|                                                 | Net borrowings (repayments) under revolving credit facility                           |              |                                                     | 2,960  |      
|                                                 | Cash received on exercised options                                                    |              |                                                     | 37     |      
|                                                 | Proceeds from issuance of preferred stock                                             |              |                                                     |       |      
|                                                 | Principal payments on long-term debt                                                  |              |                                                     | (7,027 | )    
|                                                 | Proceeds from issuance of long-term debt                                              |              |                                                     |       |      
|                                                 | Increase (decrease) in checks issued in excess of bank balance                        |              |                                                     | 2,739  |      
|                                                 | Other                                                                                 |              |                                                     |       |      
|                                                 |                                                                                       |              |                                                     |        |      
|                                                 |                                                                                       |              | Net cash provided by (used in) financing activities |        |      
|                                                 |                                                                                       |              |                                                     |        |      
|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     |                                                     | $      | 5,365
|                                                 |                                                                                       |              |                                                     |        |      
|                                                 |                                                                                       | Income taxes |                                                     | $      |     
|                                                 |                                                                                       |              |                                                     |        |      

See
accompanying notes to condensed consolidated financial statements.

3

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## 

MORTON INDUSTRIAL GROUP, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  For the Three Months and Six Months Ended July 1, 2000 and July
 3, 1999 (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 construction, agricultural, and industrial original equipment manufacturers located primarily in the Midwestern and Southeastern United States.

(2)  Interim Financial Data.

The Condensed Consolidated Financial Statements at July 1, 2000, and July 3, 1999, and for the three months and six months then ended are
unaudited and reflect all adjustments, consisting of normal recurring accruals 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 July 1, 2000, and July 3, 1999, there were 64 shipping days. For both the six months ended July 1, 2000 and July 3, 1999, there were 129 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 for the year ended December 31, 1999.

Certain
amounts presented in prior years' financial statements have been reclassified to conform to the current year presentation.

(3)The Company's inventory, in thousands of dollars, as of July 1, 2000, and December 31, 1999, is summarized as follows:

July 1, 2000

December 31, 1999Raw materials, purchased parts and
manufactured components

$
12,418

$
8,646Work-in-process


3,342


2,818Finished goods


10,384


11,39626,144


22,860Less allowance for obsolescence


(246
)

(440
)$
25,898

$
22,420


(4)In April 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities" which requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 was effective for fiscal years beginning after
December 15, 1998, with initial application reported as the cumulative effect of a change in accounting principle. Accordingly, adoption of the statement resulted in a cumulative effect charge
of $1,074, net of state income tax benefits, in the first six months of 1999.

4

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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 July 1, 2000 |        | Quarter Ended July 3, 1999 |          
|------------------------------------------------------ |  | -------------------------- | ------ | -------------------------- | ---------
|
|Basic income (loss) available to common shareholders   |  | $                          | 91,000 |                            | 4,564,167
|                                                       |  |                            |        |                            |          
|Effect of dilutive securities, stock options           |  |                            |        |                            | 98,829   
|                                                       |  |                            |        |                            |          
|Diluted income (loss) available to common shareholders |  |                            |        |                            | 4,662,996
|                                                       |  |                            |        |                            |          

|                                                       |  | Six Months Ended July 1, 2000 |         | Six Months Ended July 3, 1999 |          
|------------------------------------------------------ |  | ----------------------------- | ------- | ----------------------------- | ---------
|
|Basic income (loss) available
to common shareholders   |  | $                             | 944,000 |                               | 4,534,294
|                                                       |  |                               |         |                               |          
|Effect of dilutive securities, stock options           |  |                               |         |                               | 126,011  
|                                                       |  |                               |         |                               |          
|Diluted income (loss) available
to common shareholders |  |                               |         |                               | 4,660,305
|                                                       |  |                               |         |                               |          

The first six months, 1999 net (loss) includes a cumulative effect of accounting change, net of state income tax benefit, of $(1,074). The
following table reflects the six month impact on basic (loss) per share of the cumulative effect of accounting change:

(Loss) before cumulative effect of accounting change

$
(.83
)Cumulative effect of accounting change


(.26
)Net (loss)

$
(1.09
)


(6) Segment Reporting.

The Company has 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 construction, agricultural and industrial equipment industry. The contract plastic fabrication segment provides full-service vacuum formed and
injected-molded parts and sub-assemblies for

5

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the construction, agricultural and industrial equipment industry. The following segment data is for the quarters ended July 1, 2000 and July 3, 1999:

Contract Metal
Fabrication

Contract Plastic
Fabrication

TotalQuarter Ended July 1, 2000Revenues from external customers

$
41,832

$
30,055

$
71,887Segment operating income


2,906


25


2,931Quarter Ended July 3, 1999Revenues from external customers

$
26,374

$
33,697

$
60,071Segment operating income


434


(812
)

(378
)


Contract Metal
Fabrication

Contract Plastic
Fabrication

TotalSix Months Ended July 1, 2000Revenues from external customers

$
82,790

$
62,191

$
144,981Segment operating income


6,624


597


7,221Six Months Ended July 3, 1999Revenues from external customers

$
53,306

$
46,124

$
99,430Segment operating income


1,527


(1,056
)

471


6

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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, 1999. The analysis of results of
operations compares the quarters and six months ended July 1, 2000 and July 3, 1999.

RESULTS OF OPERATIONS

SECOND QUARTER, 2000 VERSUS SECOND QUARTER, 1999

Our net revenues for the second quarter, 2000 were $71.9 million compared to $60.1 million for the second quarter of 1999, an increase of
$11.8 million, or 19.6%. The revenue increase results primarily from seasonal demand and new projects during the first six months for our sheet metal fabricated components used in construction
and industrial equipment. Some of our major customers are shifting their demand more toward the first six months of the calendar year. Also, the agricultural markets are slowly starting to stabilize.
The demand for our plastics components was consistent from quarter to quarter.

Our
sales to Deere & Company and Caterpillar Inc., were approximately 51% and 45% of our revenues for the second quarters, 2000 and 1999, respectively. Revenues from
these customers increased approximately 37% over the same period in 1999.

Our
gross profits for the second quarter, 2000 increased by approximately $3.9 million, an increase of 60.5%, versus the same three months in 1999. The overall gross profit
percentage increased from 10.6% for the second quarter of 1999 to 14.2% for the second quarter of 2000. The increase in gross profit dollars and percentage resulted primarily from the increase in
volume described above, partially offset by increased overtime and outsourcing costs that resulted from our customers shifting their demand into the first six months of the year.

Our
selling and administrative expenses for the second quarter, 2000 amounted to $7.3 million, or 10.1% of net sales compared to $6.7 million, or 11.2% of net sales for
the second quarter of 1999. The reduced percentage was largely the result of the greater increase in net revenue.

Our
interest expense for the second quarter, 2000 was $2.7 million, an increase of $0.7 million compared to the second quarter of 1999. This increase was due primarily
to higher rates of interest incurred in 2000 compared to 1999.

For
the second quarter of 2000, we provided $0.2 million of income taxes on pre-tax income of $0.5 million. The effective rate was approximately 40%. For the second
quarter of 1999, we recognized no income benefit on pre-tax loss of $2.4 million. Our additional net operating loss carryforward created in the second quarter of 1999 was offset by an increase
in the valuation allowance with no impact on the deferred tax assets.

FIRST SIX MONTHS, 2000 VERSUS FIRST SIX MONTHS, 1999

Our net revenues for the first six months, 2000 were $145.0 million compared to $99.4 million for the first six months of 1999, an increase of
$45.6 million, or 45.8%. We concluded an acquisition during the second quarter of 1999 that has provided incremental revenue during the first six months of 2000 of approximately $19.0 million.
A revenue increase of approximately $26.6 million from the facilities owned in the first six months of both years resulted primarily from a seasonal demand and new projects during the first six
months for our sheet metal fabricated components used in construction and industrial equipment. Some of our major customers are shifting their demand more toward the first six months of the calendar
year.

7

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Our sales to Deere & Company and Caterpillar Inc., were approximately 50% and 59% of the Company's revenues for the first six months, 2000 and 1999, respectively.
Revenues from these customers increased approximately 25% over the same period in 1999.

Our
gross profits for the first six months, 2000 increased by approximately $9.0 million, an increase of 74.6%, versus the same six months in 1999. The overall gross profit
percentage increased from 12.1% for the first six months of 1999 to 14.5% for the first six months of 2000. The favorable gross profit increase resulted primarily from the volume increase, partially
offset by increased overtime and outsourcing costs that resulted from our customers shifting their demand into the first six months of the year.

Our
selling and administrative expenses for the first six months, 2000 amounted to $13.8 million, or 9.5% of net sales compared to $11.5 million, or 11.6% of net sales
for the first six months of 1999. The increase is due primarily to the additional 31/2 months of operations related to the April, 1999 Worthington acquisition. The reduced
percentage was largely the result of the greater increase in net revenue.

Our
interest expense for the first six months, 2000 was $5.3 million, an increase of $1.8 million compared to the first six months of 1999. This increase was due
primarily to higher average amounts of outstanding debt in the second quarter as a result of the April, 1999 Worthington acquisition and higher interest rates.

For
the first six months of 2000, we provided for $0.9 million of income taxes on pre-tax income of $2.2 million. The effective tax rate was approximately 38.8%. For the
first six months of 1999, we recognized no income benefit on a pre-tax loss of $3.1 million. Our additional net operating loss carryforward created in the first six months of 1999 was offset by
an increase in the valuation allowance with no impact on the deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Our consolidated working capital at July 1, 2000 was $10.5 million compared to $9.8 million at December 31, 1999, an increase in
working capital of approximately $0.7 million.

We
have two separate credit facilities. The first facility is with Harris Trust and Savings Bank (Harris), and serves the company's operations other than the operations acquired from
Worthington Custom Plastics, Inc. (Worthington). The second facility, with General Electric Capital Corporation (GECC), serves the operations acquired from Worthington during the second
quarter, 1999. These facilities are separate and provide financing for the named operations. The two credit facilities are separately secured by the assets of the operations they support.

On
May, 28, 1998, we entered into a credit agreement with Harris, as Agent. The credit agreement was a $90 million facility with the following components; (i) a
$35 million secured revolving credit facility with a $10 million sub limit for letters of credit; (ii) a $25 million secured term loan that matures 5 years from the date of
the credit agreement closing; and (iii) a $30 million secured term loan that matures 7 years from the date of the credit agreement closing. Both term loans fully amortize over
their respective terms with quarterly payments. The interest rates on the loans vary from 1% to 3.75% above the lender's prime rate. We used the proceeds under the facility to refinance the then
existing indebtedness, to finance the acquisitions, and for general corporate purposes.

We
have entered into three amendments to the original credit agreement. The third amendment, dated January 30, 2000, provides for a maximum amount of borrowing under the
secured revolving credit facility of $19,000,000. The amount of availability is calculated using a borrowing base of qualified accounts receivable and inventory. As of July 1, 2000, we had
additional availability of approximately $4.0 million under the Harris facility. We are paying this lender a fee of .125% per month based upon the amount of the revolving credit commitment and
the balance of the term loans. Under the terms of the third amendment, we must issue to the lenders warrants for our Class A common stock equal to no more than

8

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4.99% of our outstanding Class A and Class B common stock as of January 30, 2000, if this credit facility is not retired by September 20, 2000.

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 $9.4 million and a termination date of May 31, 2003. The second agreement has a notional principal amount of $14.6 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 has the unilateral right to cancel both agreements as of
June 30, 2001.

Our
sources of funds to meet near term liquidity requirements for the businesses not acquired from Worthington will be the cash flows from operations, the Harris line of credit, and
management of working capital to reflect current levels of operations. We believe that these sources will be adequate through the end of the current fiscal year and beyond.

Our
separate financing arrangements for the operations acquired from Worthington are described below.

On
April 15, 1999, we entered into a financing agreement with GECC. The agreement contains a 41/2 year secured revolving credit facility with maximum
availability of $24 million and a $26 million secured term loan with a 41/2 year term. The amount of availability is based upon a borrowing base of qualified accounts
receivable and inventory. Both of the facilities bear interest at variable interest rates based on the prime rate, plus variable margins. We also incur a fee based upon a certain percentage of the
unused revolving credit facility. The term loan facility amortizes quarterly throughout its term. We must also prepay certain amounts from the sale of assets, the issuance of new equity capital and
from "excess cash flow", as defined in the agreement.

As
of July 1, 2000, we had additional availability of $3.6 million, under the GECC credit facility. We believe that the agreement with GECC will provide the necessary
term and revolving financing, and along with cash flows from operations, will provide the necessary levels of liquidity for the operations acquired from Worthington through the end of the current
fiscal year and beyond.

As
part of the financing for the Worthington acquisition, 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 (see Part II, Item 1 of this Form 10-Q).

We
are reviewing various methods of adjusting the Company's capital structure to better reflect its current business organization. Actions may include the issuance of subordinated
debt, the issuance of preferred stock and the consolidation of our two senior credit facilities.

We
incurred $3.4 million of capital expenditures during the first six months of 2000, primarily for purchases of manufacturing equipment. We estimate that our capital
expenditures in 2000 will total approximately $6.0 million, of which $2.5 million will be for additional production equipment and the remaining $3.5 million will be for normal
replacement of equipment.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June, 1998, the Financial Accounting Standards Board issued Statement No. 133,Accounting for Derivative Instruments and
Hedging Activities. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or financial position. In June, 1999, the

9

---

Financial Accounting Standards Board issued Statement No. 137 amending the effective date of Statement No. 133 to January 1, 2001.

FORWARD LOOKING STATEMENTS

"Safe Harbor" Statement Under The Private Securities Legislation Reform Act Of 1995: This Form 10-Q 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 annual 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to interest rate changes primarily as a result of its line 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 its objectives, the Company has entered into two separate financing agreements, as described more fully in Item 2 above, for term loans and revolving credit facilities. The
Company has also entered into two interest rate swap agreements, as required by its Harris 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 is limited to 5.875% on half of the
Company's $37.9 million term loans.

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

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 1, 2000, Worthington Industries, Inc. (Worthington) filed suit (in the United States District Court for the Southern District of Ohio,
Eastern Division) related to our 1999 acquisition of the non-automotive plastics business from Worthington. Worthington claims that it is owed additional amounts under the sales agreement and a
related service agreement, and that it is owed dividends on the preferred stock that it received. We believe that certain warranties and representations made by Worthington at the time of acquisition
have been breached and that amounts claimed by Worthington are not due. We have filed a counterclaim against Worthington related to these matters. Management believes that we will prevail in this
litigation and does not anticipate any material impact on earnings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Morton Industrial Group, Inc., held its Annual Meeting on June 13, 2000 to:



The
results of the shareholders' votes on each of these matters appear in the following tables.

Election of Directors:

For

Withheld

TotalWilliam D. Morton

4,563,989

45,405

4,609,394Fred W. Broling

4,563,989

45,405

4,609,394Alfred R. Glancy III

4,563,813

45,581

4,609,394Mark W. Mealy

4,563,989

45,405

4,609,394Willem F.P. de Vogel

4,563,816

45,578

4,609,394


Ratification of Selection of Independent Auditor:

For

Against

Abstained

TotalKPMG LLP

4,605,396

2,836

1,162

4,609,394


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



None

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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:
August 2, 2000

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