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

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2003

Commission File Number 0-2762

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

Michigan(State or other Jurisdiction of
Incorporation or Organization)
    
    38-1792842(I.R.S. Employer
Identification Number)1118 Centennial Way
Lansing, Michigan(Address of principal executive offices)
    
    48917(Zip Code)


Registrants Telephone Number, including area code:
    
    (517) 321-3130


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

Yes
þ
    
    No o


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

Yes o
    
    No þ


Indicate the number of shares outstanding for each of the issuers classes of
common stock, as of the latest practicable date.

Class
    
    Outstanding at October 31, 2003Common Stock
    
    3,101,195 shares




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TABLE OF CONTENTS



|                                             |                                                                                               |                                                 |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | Condensed Consolidated Balance Sheets          
|                                             |                                                                                               | Condensed Consolidated Statements of Operations
|                                             |                                                                                               | Condensed Consolidated Statements of Cash Flows
|                                             |                                                                                               | Notes to Consolidated Financial Statements     
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                             | Item 4. Disclosure Controls and Procedures                                                   
|PART II OTHER INFORMATION                   
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 2. Changes in Securities                                                                
|                                             | Item 3. Defaults Upon Senior Securities                                                      
|                                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                             | Item 5. Other Information                                                                    
|                                             | Item 6(a) Exhibits                                                                           
|                                             | Signatures                                                                                   
|Credit Agreement                            
|Subordination Agreement                     
|302 Certification of Chief Executive Officer
|302 Certification of Chief Financial Officer
|906 Certification of Chief Executive Officer
|906 Certification of Chief Financial Officer



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PART I
FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




CONDENSED CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries

September 30,
    
    
    March 31,2003
    
    
    2003(Unaudited)(in
thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    608
    
    
    $
    391Accounts and notes receivable, less allowance of
$199,000 ($150,000 at March 31, 2003)
    
    
    5,057
    
    
    
    7,173Accounts receivablerelated parties
    
    
    484
    
    
    
    502InventoryNote 9
    
    
    542
    
    
    
    176Prepaid expenses and other
    
    
    63
    
    
    
    227Total Current Assets
    
    
    6,754
    
    
    
    8,469Marketable SecuritiesLong TermNote 2
    
    
    28
    
    
    
    312Property & EquipmentLand
    
    
    446
    
    
    
    446Buildings
    
    
    6,168
    
    
    
    6,166Machinery, equipment, and fixtures
    
    
    28,629
    
    
    
    28,40135,243
    
    
    
    35,013Allowances for depreciation
    
    
    (13,827
    )
    
    
    (12,416
    )21,416
    
    
    
    22,597Other AssetsInvestments
    
    
    1,038
    
    
    
    1,157Notes and contracts receivable and other, less allowance
of $600,000
    
    
    681
    
    
    
    981Advances to affiliate
    
    
    3,008
    
    
    
    3,008Intangibles
    
    
    1,424
    
    
    
    1,424Non-current assets of discontinued operationsNote 11
    
    
    474
    
    
    
    4746,625
    
    
    
    7,044$
    34,823
    
    
    $
    38,422


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CONDENSED CONSOLIDATED BALANCE SHEETS  CONTINUED
Maxco, Inc. and Subsidiaries

September 30,
    
    
    March 31,2003
    
    
    2003(Unaudited)(in thousands)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesNotes payableNote 6
    
    $
    4,606
    
    
    $
    18,780Accounts payable
    
    
    4,112
    
    
    
    3,425Employee compensation
    
    
    1,382
    
    
    
    1,268Taxes, interest, and other liabilities
    
    
    3,062
    
    
    
    3,004Current maturities of long-term obligations
    
    
    3,814
    
    
    
    995Current liabilities of discontinued operationsNote 11
    
    
    286
    
    
    
    303Total Current Liabilities
    
    
    17,262
    
    
    
    27,775Long-Term Obligations, Less Current Maturities
    
    
    8,800
    
    
    
    1,113Stockholders EquityPreferred stock:Series Three: 10% cumulative redeemable, $60 face
value; 14,784 shares issues and outstanding
    
    
    678
    
    
    
    678Series Four: 10% cumulative redeemable, $51.50 face
value; 46,414 shares issues and outstanding
    
    
    2,390
    
    
    
    2,390Series Five: 10% cumulative redeemable, $120 face
value; 6,648 shares issues and outstanding
    
    
    798
    
    
    
    798Series Six: 10% cumulative callable, $160 face
value; 20,000 shares authorized, issued  none
    
    
    
    
    
    
    Common stock, $1 par value; 10,000,000 shares
authorized, 3,101,195 shares issued and outstanding
    
    
    3,101
    
    
    
    3,101Net unrealized losses
    
    
    (203
    )
    
    
    (298
    )Retained earnings
    
    
    1,997
    
    
    
    2,865Total Stockholders Equity
    
    
    8,761
    
    
    
    9,534$
    34,823
    
    
    $
    38,422


See notes to consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
(Unaudited)

Three Months Ended September 30,2003
    
    
    2002(in thousands, except per share data)Net sales
    
    $
    9,189
    
    
    $
    8,908Costs and expenses:Cost of sales and operating expenses
    
    
    6,070
    
    
    
    5,762Selling, general and administrative
    
    
    2,626
    
    
    
    2,788Depreciation and amortization
    
    
    702
    
    
    
    7539,398
    
    
    
    9,303Operating Loss
    
    
    (209
    )
    
    
    (395
    )Other income (expense)Investment and other loss
    
    
    (55
    )
    
    
    (1,598
    )Interest income
    
    
    37
    
    
    
    222Interest expense
    
    
    (470
    )
    
    
    (412
    )Loss From Continuing Operations Before Federal
Income Taxes and Equity in Loss of Affiliates
    
    
    (697
    )
    
    
    (2,183
    )Federal income tax benefit
    
    
    
    
    
    
    (727
    )Loss From Continuing Operations Before Equity in
Loss of Affiliates
    
    
    (697
    )
    
    
    (1,456
    )Equity in loss of affiliates, net of tax
    
    
    (90
    )
    
    
    (2,102
    )Loss From Continuing Operations
    
    
    (787
    )
    
    
    (3,558
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (1,666
    )Net Loss
    
    
    (787
    )
    
    
    (5,224
    )Less preferred stock dividends
    
    
    (102
    )
    
    
    (102
    )Net Loss Applicable to Common Stock
    
    $
    (889
    )
    
    $
    (5,326
    )Net Loss Per Common ShareBasic and DilutedContinuing operations
    
    $
    (0.29
    )
    
    $
    (1.18
    )Discontinued operations
    
    
    
    
    
    
    (0.54
    )$
    (0.29
    )
    
    $
    (1.72
    )


See notes to consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
(Unaudited)

Six Months Ended September 30,2003
    
    
    2002(in thousands except per share data)Net sales
    
    $
    18,762
    
    
    $
    17,834Costs and expenses:Cost of sales and operating expenses
    
    
    12,222
    
    
    
    11,137Selling, general and administrative
    
    
    5,435
    
    
    
    5,579Depreciation and amortization
    
    
    1,453
    
    
    
    1,51019,110
    
    
    
    18,226Operating Loss
    
    
    (348
    )
    
    
    (392
    )Other income (expense)Investment and other losses
    
    
    (340
    )
    
    
    (1,678
    )Gain on sale of assets
    
    
    912
    
    
    
    149Interest income
    
    
    74
    
    
    
    404Interest expense
    
    
    (873
    )
    
    
    (862
    )Loss From Continuing Operations Before Federal
Income Taxes and Equity in Loss of Affiliates
    
    
    (575
    )
    
    
    (2,379
    )Federal income tax benefit
    
    
    
    
    
    
    (809
    )Loss From Continuing Operations Before Equity in
Loss of Affiliates
    
    
    (575
    )
    
    
    (1,570
    )Equity in loss of affiliates, net of tax
    
    
    (90
    )
    
    
    (2,411
    )Loss From Continuing Operations
    
    
    (665
    )
    
    
    (3,981
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (1,661
    )Net Loss
    
    
    (665
    )
    
    
    (5,642
    )Less preferred stock dividends
    
    
    (204
    )
    
    
    (204
    )Net Loss Applicable to Common Stock
    
    $
    (869
    )
    
    $
    (5,846
    )Net Loss Per Common ShareBasic and DilutedContinuing operations
    
    $
    (0.28
    )
    
    $
    (1.35
    )Discontinued operations
    
    
    
    
    
    
    (0.54
    )$
    (0.28
    )
    
    $
    (1.89
    )


See notes to consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Maxco, Inc. and Subsidiaries
(Unaudited)

Six Months Ended September 30,2003
    
    
    2002(in thousands)Operating ActivitiesNet loss
    
    $
    (665
    )
    
    $
    (5,642
    )Loss from discontinued operations
    
    
    
    
    
    
    1,661Loss from continuing operations
    
    
    (665
    )
    
    
    (3,981
    )Advances to discontinued operations
    
    
    
    
    
    
    1,302Adjustments to reconcile net loss to net cash
provided by operating activities:Net gains on sale of assets
    
    
    (912
    )
    
    
    (149
    )Non-cash investment losses
    
    
    340
    
    
    
    1,678Depreciation and other non-cash items
    
    
    1,543
    
    
    
    1,879Changes in operating assets and liabilities
    
    
    3,029
    
    
    
    2,268Net Cash Provided By Operating Activities
    
    
    3,335
    
    
    
    2,997Investing ActivitiesProceeds from sale of assets
    
    
    939
    
    
    
    2,500Purchases of property and equipment
    
    
    (254
    )
    
    
    (163
    )Other
    
    
    (13
    )
    
    
    (25
    )Net Cash Provided By Investing Activities
    
    
    672
    
    
    
    2,312Financing ActivitiesNet proceeds from (repayments on) line of credit
    
    
    (1,737
    )
    
    
    35Net repayments on other debt obligations
    
    
    (2,053
    )
    
    
    (3,951
    )Net Cash Used In Financing Activities
    
    
    (3,790
    )
    
    
    (3,916
    )Increase in Cash and Cash Equivalents
    
    
    217
    
    
    
    1,393Cash and Cash Equivalents at Beginning of Period
    
    
    391
    
    
    
    345Cash and Cash Equivalents at End of Period
    
    $
    608
    
    
    $
    1,738Supplemental cash flow disclosure:Interest paid
    
    $
    696
    
    
    $
    672


See notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
September 30, 2003
(Unaudited)

NOTE 1  BASIS OF PRESENTATION
AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited, condensed, consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by accounting principles
generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation of the
results of the interim periods covered have been included. For further
information, refer to the consolidated financial statements and notes thereto
included in Maxcos annual report on Form 10-K for the year ended March 31,
2003.


The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year. Maxcos sales and
operating results have varied substantially from quarter to quarter. Net
sales are typically lower in the second and third quarters. The most
significant factors affecting these fluctuations are the seasonal buying
patterns of the Companys customers due to a customer changeover and the
reduced number of business days during the holiday season. In addition, the
timing of acquisitions or the occasional sale of corporate investments may
cause substantial fluctuations of operating results from quarter to quarter.
Maxco expects its net sales and operating results to continue to fluctuate
from quarter to quarter.

NOTE 2  MARKETABLE
SECURITIES

The Company classifies its investments in equity securities with readily
determinable fair values as securities available for sale under FASB 115,
Accounting for Certain Investments in Debt and Equity Securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of
stockholders equity. The Company recorded a charge of $57,000 in the
current quarter as an other than temporary impairment to the value of its
investment in Provant.


NOTE 3  EARNINGS PER
SHARE

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


Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002(in thousands, except per share data)NUMERATOR:Loss from continuing operations
    
    $
    (787
    )
    
    $
    (3,558
    )
    
    $
    (665
    )
    
    $
    (3,981
    )Income from discontinued operations
    
    
    
    
    
    
    (1,666
    )
    
    
    
    
    
    
    (1,661
    )Net loss
    
    
    (787
    )
    
    
    (5,224
    )
    
    
    (665
    )
    
    
    (5,642
    )Preferred stock dividends
    
    
    (102
    )
    
    
    (102
    )
    
    
    (204
    )
    
    
    (204
    )Numerator for basic and diluted earnings per share
loss available to common stockholders
    
    $
    (889
    )
    
    $
    (5,326
    )
    
    $
    (869
    )
    
    $
    (5,846
    )DENOMINATOR:Denominator for basic and diluted earnings per
shareweighted average shares
    
    
    3,101
    
    
    
    3,101
    
    
    
    3,101
    
    
    
    3,101BASIC AND DILUTED LOSS PER SHAREContinuing operations
    
    $
    (0.29
    )
    
    $
    (1.18
    )
    
    $
    (0.28
    )
    
    $
    (1.35
    )Discontinued operations
    
    
    
    
    
    
    (0.54
    )
    
    
    
    
    
    
    (0.54
    )$
    (0.29
    )
    
    $
    (1.72
    )
    
    $
    (0.28
    )
    
    $
    (1.89
    )


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NOTE 4  COMPREHENSIVE LOSS

The components of comprehensive loss for the three and six months ended
September 30, 2003 and 2002 are as follows:

Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002(in thousands)Net loss
    
    $
    (787
    )
    
    $
    (5,224
    )
    
    $
    (665
    )
    
    $
    (5,642
    )Unrealized gain (loss) on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Unrealized gain (loss) on swap agreement
    
    
    39
    
    
    
    (98
    )
    
    
    39
    
    
    
    (175
    )Comprehensive loss
    
    $
    (748
    )
    
    $
    (5,322
    )
    
    $
    (626
    )
    
    $
    (5,823
    )


The components of accumulated comprehensive loss, net of related tax at
September 30, 2003 and March 31, 2003 are as follows:

September 30,
    
    
    March 31,2003
    
    
    2003(in thousands)Unrealized loss on marketable securities
    
    $
    
    
    
    $
    (56
    )Unrealized loss on swap agreement
    
    
    (203
    )
    
    
    (242
    )$
    (203
    )
    
    $
    (298
    )


NOTE 5  INDUSTRY SEGMENT INFORMATION

The following summarizes Maxcos industry segment information:

September 30,
    
    
    March 31,2003
    
    
    2003(in
thousands)Identifiable Assets:Heat treating
    
    $
    27,405
    
    
    $
    30,203Assets of discontinued operations
    
    
    474
    
    
    
    474Corporate and other
    
    
    2,898
    
    
    
    3,580Investments and advances
    
    
    4,046
    
    
    
    4,165Total Identifiable Assets
    
    $
    34,823
    
    
    $
    38,422


Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2003
    
    
    2002
    
    
    2003
    
    
    2002(in thousands)Net Sales:Heat treating
    
    
    $
    9,145
    
    
    $
    8,892
    
    
    $
    18,718
    
    
    $
    17,785Corporate and other
    
    
    
    44
    
    
    
    16
    
    
    
    44
    
    
    
    49Total
Net Sales
    
    $
    9,189
    
    
    $
    8,908
    
    
    $
    18,762
    
    
    $
    17,834Operating Earnings (Loss):Heat treating
    
    
    $
    188
    
    
    $
    522
    
    
    $
    640
    
    
    $
    1,114Corporate and other
    
    
    
    (397
    )
    
    
    (917
    )
    
    
    (988
    )
    
    
    (1,506
    )Total Operating Earnings (Loss)
    
    $
    (209
    )
    
    $
    (395
    )
    
    $
    (348
    )
    
    $
    (392
    )Depreciation and Amortization Expense:Heat treating
    
    
    $
    693
    
    
    $
    740
    
    
    $
    1,436
    
    
    $
    1,480Corporate and other
    
    
    
    9
    
    
    
    13
    
    
    
    17
    
    
    
    30Total Depreciation and Amortization Expense
    
    $
    702
    
    
    $
    753
    
    
    $
    1,453
    
    
    $
    1,510Capital Expenditures:Heat treating
    
    
    $
    75
    
    
    $
    141
    
    
    $
    254
    
    
    $
    163Corporate and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Capital Expenditures
    
    $
    75
    
    
    $
    141
    
    
    $
    254
    
    
    $
    163


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Accounting policies of the business segments are consistent with those
described in the summary of significant accounting policies (see Note 1).

Identifiable assets are those assets that are used in Maxcos operations in
each industry segment. Corporate assets are principally cash, notes
receivable, investments, and corporate office properties.

Maxco has no significant foreign operations or export sales.

The nature of the Companys services may produce sales to one or a small
number of customers in excess of 10% of total sales in any one period. It is
possible that the specific customers reaching this threshold may change from
year to year. Loss of any one of these customers could have a material
impact on the Companys results of operations.

NOTE 6  DEBT

At September 30, 2003, the Company and its wholly owned subsidiary,
Atmosphere Annealing, were under forbearance agreements with their two
primary lenders representing approximately $10.5 million in outstanding debt.


Subsequent to September 30, 2003, Atmosphere Annealing reached an agreement
with a new lender to repay one of the lenders with which the Company and
Atmosphere Annealing were in default. The principal amount repaid was
approximately $8.1 million. The new facilities are comprised of a $6.0
million revolving credit facility, $6.4 million of term debt with a 5 year
amortization period, and $800,000 of term debt with a two year amortization
period. These facilities are secured by all of the assets of Atmosphere
Annealing.

The Company has an outstanding debt of $2.2 million due a lender that is in
default. This debt is subject to a forbearance agreement that expires in
April 2004 and has been classified as current in the accompanying financial
statements.

The Company has guaranteed various debt obligations of certain real estate
and other investments in an aggregate amount of approximately $4.4 million as
of September 30, 2003. Certain of the debt agreements related to its real
estate investments, which Maxco and others have guaranteed, are in default at
September 30, 2003. Extensions or forbearance agreements have been issued by
some of the respective lenders and the applicable entities are currently
working to liquidate the properties to satisfy the obligations. The Company
and one of the lenders have agreed to the process of foreclosure action and
the Companys exposure under the issue is limited to $100,000. The Company
does not believe that there is any unusual degree of risk related to these
guarantees because of sufficient underlying asset values supporting the
respective debt obligations. In October 2003, the Company was named as a
defendant in a certain action from a lender as a result of the Company being
a guarantor of a real estate investment. The claim in this action is $1.0
million; however, the Company believes that the value of the underlying
assets involved is sufficient to satisfy any potential judgment.

The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern. Due to current debt service
requirements, there is substantial doubt about the Companys ability to
operate as a going concern. The Companys ability to meet its short term and
long term debt service and other obligations (including compliance with
financial covenants) will be dependent upon its future operating performance
and the successful renegotiation of its credit facilities. These
dependencies will be subject to financial, business and other factors,
certain of which are beyond the Companys control, such as prevailing
economic conditions. There can be no assurance that the Company will be able
to secure additional financing on satisfactory terms or in the near future.
The Company believes that funds generated by its operations and funds
anticipated available under new facilities currently under negotiation will
be sufficient to finance short term capital needs, as well as to fund
existing operations for the foreseeable future. However, in the event that
the Company is unable to successfully negotiate its credit facilities, the
Company has long term equity investments that it is actively liquidating to
meet its debt service requirements.

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NOTE 7  FEDERAL INCOME TAXES

The Company did not recognize tax benefits on its losses during the current
quarter due to uncertainty on the realization of those benefits. As such,
the Company did not record income tax expense resulting in a variation from
the statutory rate of 34%.


NOTE 8  DIVIDENDS

Effective January 1, 2002, the Maxco Board of Directors suspended the payment
of dividends on all preferred stock. These dividend payments have been
accrued in the accompanying financial statements and totaled approximately
$815,000 at September 30, 2003.


NOTE 9  INVENTORIES

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


September 30,
    
    
    March 31,2003
    
    
    2003(in thousands)Raw materials
    
    $
    310
    
    
    $
    Work in progress
    
    
    232
    
    
    
    156Finished goods
    
    
    
    
    
    
    20$
    542
    
    
    $
    176


NOTE 10  SALE OF REAL ESTATE PORTFOLIO

Maxco has ownership interests ranging from 25-50% in primarily two LLCs
which have been involved in the development and ownership of real estate in
central Michigan. Effective January 1, 2000, a Master LLC (L/M Associates
II) was formed consisting of the majority of the stabilized buildings in
which Maxco and others had an ownership interest. At March 31, 2003 Maxcos
ownership interest in the Master LLC was approximately 31%. The other LLC
(L/M Associates) includes properties under development that are not fully
leased or individual properties not included in the Master LLC.


In early 2002, Maxco, as managing member of L/M Associates, which is the
managing member of L/M Associates II, began negotiations to sell
substantially all of the properties in the real estate portfolio of L/M
Associates II. In June 2002, L/M Associates II entered into an agreement to
sell the properties within the Master LLC to an outside investor. The
transaction was approved by more than 75% of the member interests in July
2002. This transaction was completed in January 2003. As part of this
transaction, L/M Associates agreed to reinvest a portion of its distributable
share of the proceeds to acquire approximately a 16% interest in the
acquiring entity. By agreement, this investment may be purchased prior to
July 2004 by a member of the acquiring entity. After July 2004, L/M
Associates has the ability to require the same member to purchase the
investment.

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

NOTE 11  DISCONTINUED OPERATIONS

Effective September 27, 2002, Maxco agreed to sell the business and
substantially all the assets (consisting principally of accounts receivable,
inventory and fixed assets) of Maxcos wholly owned subsidiary, Pak Sak
Industries, Inc. to Packaging Personified, Inc. and related parties. The
assets were purchased for cash and an assumption of certain liabilities. The
sale closed on November 27, 2002.


On November 14, 2002, Maxco completed an agreement to sell its wholly owned
subsidiary, Ersco Corporation to Contractor Supply Incorporated for cash and
retired certain other debt of Maxco in excess of the sale price resulting in
a note payable to the purchaser of approximately $4.0 million. The principal
balance of this note was reduced by $2.3 million in 2003 as the Company
assumed a liability of the purchaser.

The results of operations for these units have been reported separately as
discontinued operations in the consolidated statements of operations for the
periods ending September 30, 2002.

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NOTE 12  SALE OF LAND

On April 15, 2003, the Company sold land it had previously held for sale for
$1.0 million, the proceeds of which were primarily used to retire debt. This
transaction resulted in a gain of $910,000.


NOTE 13  NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation (FIN) 46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51, and in October
2003 issued a modification of FIN 46. This interpretation provides guidance
related to identifying variable interest entities (VIEs, previously known as
special purpose entities or SPEs) and determining whether such entities
should be consolidated. Certain disclosures are required if it is reasonably
possible that a company will consolidate or disclose information about a VIE
when it initially applies FIN 46. This interpretation must be applied
immediately to VIEs created or obtained after January 31, 2003. Since
January 31, 2003, the Company has not participated in the creation of, or
obtained a new variable interest in, any VIE. For those VIEs created or
obtained on or before January 31, 2003, the Company must apply the provisions
of FIN 46 in the third quarter of fiscal 2004. The Company has not
determined what impact adopting this standard will have on its financial
statements.


In April 2003 the FASB issued SFAS No. 149 which amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative discussed in paragraph 6(b) of SFAS No. 133, clarifies when a
derivative contains a financing component, amends the definition of an
underlying to conform to language used in FASB Interpretation No. 45, and
amends certain other existing pronouncements. This statement is effective
for contracts entered into or modified after June 30, 2003. It is not
expected that the provisions of Statement No. 149 will have a material impact
on the financial position or results of operations of the Company.

In May 2003 the FASB issued SFAS No. 150, which establishes standards for how
an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. It is to be implemented by reporting the cumulative effect of a
change in accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of the
interim period of adoption. There was no impact of adoption on the financial
statements of the Company.

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

MATERIAL CHANGES IN FINANCIAL CONDITION

Cash provided by operating activities amounted to $3.3 million for the six
months. Earnings, after non-cash adjustments, generated $306,000 while changes
in working capital components generated approximately $3.0 million.


Cash was generated by investing activities during the period as a result of the
sale of land that was owned by the Company. These proceeds were used primarily
to retire debt. The Companys heat treating segment purchased approximately
$254,000 of equipment during the period.

Net repayments on debt obligations amounted to $3.8 million for the six month
period.

At September 30, 2003, the Company and its wholly owned subsidiary, Atmosphere
Annealing, were under forbearance agreements with their two primary lenders
representing approximately $10.5 million in outstanding debt.

Subsequent to September 30, 2003, Atmosphere Annealing reached an agreement
with a new lender to repay one of the lenders with which the Company and
Atmosphere Annealing were in default. The principal amount repaid was
approximately $8.1 million. The new facilities are comprised of a $6.0 million
revolving credit facility, $6.4 million of term debt with a 5 year amortization
period, and $800,000 of term debt with a two year amortization period. These
facilities are secured by all of the assets of Atmosphere Annealing.

The Company has an outstanding debt of $2.2 million due a lender that is in
default. This debt is subject to a forbearance agreement that expires in April
2004 and has been classified as current in the accompanying financial
statements.

The Company has guaranteed various debt obligations of certain real estate and
other investments in an aggregate amount of approximately $4.4 million as of
September 30, 2003. Certain of the debt agreements related to its real estate
investments, which Maxco and others have guaranteed, are in default at
September 30, 2003. Extensions or forbearance agreements have been issued by
some of the respective lenders and the applicable entities are currently
working to liquidate the properties to satisfy the obligations. The Company
and one of the lenders have agreed to the process of foreclosure action and the
Companys exposure under the issue is limited to $100,000. The Company does
not believe that there is any unusual degree of risk related to these
guarantees because of sufficient underlying asset values supporting the
respective debt obligations. In October 2003, the Company was named as a
defendant in a certain action from a lender as a result of the Company being a
guarantor of a real estate investment. The claim in this action is $1.0
million; however, the Company believes that the value of the underlying assets
involved is sufficient to satisfy any potential judgment.

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

At September 30, 2003, the 2,240,605 shares of Integral Vision (formerly Medar)
common stock that Maxco owns had an aggregate market value of approximately
$471,000. Maxcos investment in Integral Vision is reflected in Maxcos
financial statements under the equity method for all periods presented, as the
Company owns greater than 20% of Integral Visions outstanding stock.

At September 30, 2003, the 2,837,089 shares of Provant common stock that Maxco
owns had an aggregate market value of approximately $28,000. On November 14,
2002 Maxco received 2,587,859 shares of Provant stock as part of the

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additional consideration to be received as one of the former shareholders of
Strategic Interactive, Inc. Maxcos investment in Provant is reflected in
Maxcos financial statements under the cost method as an available-for-sale
security as the Company owns less than 20% of Provants outstanding stock.

MATERIAL CHANGES IN RESULTS OF OPERATIONSThree Months Ended September 30, 2003 Compared to 2002
Net sales increased to $9.2 million compared to $8.9 million in last years
second quarter. Second quarter results reflect an operating loss of $209,000
compared to a loss of $395,000 for the comparable period in 2002. Net loss was
$787,000 or $.29 per share assuming dilution compared to last years net loss
of $5.2 million or $1.72 per share assuming dilution.

Sales and operating earnings for the three months ending September 30, 2003 and
2002 by the Companys heat treating and corporate and other segments were as
follows:

Three Months Ended
    
    
    Three Months EndedSeptember 30, 2003
    
    
    September 30, 2002Operating
    
    
    
    
    
    
    OperatingNet Sales
    
    
    Earnings (Loss)
    
    
    Net Sales
    
    
    Earnings (Loss)(in thousands)Heat treating
    
    $
    9,145
    
    
    $
    188
    
    
    $
    8,892
    
    
    $
    522Corporate and other
    
    
    44
    
    
    
    (397
    )
    
    
    16
    
    
    
    (917
    )$
    9,189
    
    
    $
    (209
    )
    
    $
    8,908
    
    
    $
    (395
    )


The increase in net sales at the Companys heat treating segment, Atmosphere
Annealing (Atmosphere), was due to increased business with Honda of America
Manufacturing, Inc. Partially offsetting this increase was a decrease in sales
to a customer who moved a portion of their heat treating requirements in-house
or to another vendor.

Consolidated gross profit (net sales less cost of sales and operating expenses)
was approximately $3.1 million for both periods. Gross margin (gross profit as
a percentage of net sales) decreased from 35% to 34%. Gross margin decreased
primarily as a result of the increased sales to Honda. By agreement, the
Company is required to purchase and bill Honda for the steel used in the heat
treating process resulting in lower margins. Atmosphere decreased their
operating expenses through reductions in the costs of labor ($176,000),
maintenance ($71,000), and shipping ($29,000).

Selling, general, and administrative and depreciation and amortization expenses
decreased to $2.6 million from $2.8 million in the prior year period.
Increases in health and general insurances ($314,000) at Atmosphere were offset
by lower employee ($100,000), legal ($49,000) and financing costs ($261,000) at
corporate.

As a result of the above, operating loss decreased to a loss of approximately
$209,000 from a loss of $395,000 in last years comparable period.

Investment and other loss decreased from a loss of $1.6 million to a loss of
$55,000. The Company recorded a charge of $1.3 million in the prior year
quarter as an other than temporary impairment to the value of its investment in
Provant.

Interest income decreased to $37,000 from $222,000. In fiscal 2003, the
Company ceased the recording of interest income on certain notes when it was
determined that any further amount would be uncollectible. The carrying value
of the notes and accrued interest were adjusted in fiscal 2003 to estimated
realizable values.

In the current quarter, the Company recorded $90,000 in equity in earnings of
affiliates to adjust its investment in Integral Vision to an estimated
realizable amount. Equity in loss of affiliates was $2.1 million in the prior
year period.

Six Months Ended September 30, 2003 Compared to 2002
Net sales increased to $18.8 million compared to $17.8 million in last years
comparable period. Results from this period reflect an operating loss of
$348,000 compared to a loss of $392,000 for the comparable period in 2002. Net
loss was $665,000 or $.28 per share assuming dilution compared to last years
net loss of $5.6 million or $1.89 per share assuming dilution.

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Sales and operating earnings for the six months ending September 30, 2003 and
2002 by the Companys heat treating and corporate and other segments were as
follows:

Six Months Ended
    
    
    Six Months EndedSeptember 30, 2003
    
    
    September 30, 2002Operating
    
    
    
    
    
    
    OperatingNet Sales
    
    
    Earnings (Loss)
    
    
    Net Sales
    
    
    Earnings (Loss)(in thousands)Heat treating
    
    $
    18,718
    
    
    $
    640
    
    
    $
    17,785
    
    
    $
    1,114Corporate and other
    
    
    44
    
    
    
    (988
    )
    
    
    49
    
    
    
    (1,506
    )$
    18,762
    
    
    $
    (348
    )
    
    $
    17,834
    
    
    $
    (392
    )


The increase in net sales at the Companys heat treating segment, Atmosphere
Annealing (Atmosphere), was due to increased business with Honda of America
Manufacturing, Inc. Partially offsetting this increase was a decrease in sales
to a customer who moved a portion of their heat treating requirements in-house
or to another vendor.

Consolidated gross profit (net sales less cost of sales and operating expenses)
decreased to $6.5 million from $6.7 million. Gross margin (gross profit as a
percentage of net sales) decreased from 38% to 35%. The decrease in heat
treating sales to a customer who moved a portion of their heat treating
requirements in-house or to another vendor was the primary reason that gross
profit declined from the prior year. Gross margin decreased primarily as a
result of the increased sales to Honda. By agreement, the Company is required
to purchase and bill Honda for the steel used in the heat treating process
resulting in lower margins. Atmosphere decreased their operating expenses
through reductions in the costs of labor ($290,000), maintenance ($109,000),
equipment rental ($103,000), and shipping ($73,000).

Selling, general, and administrative and depreciation and amortization expenses
decreased to $5.4 million from $5.6 million in the prior year period.
Increases in health and general insurances ($303,000) at Atmosphere were offset
by lower employee ($174,000), legal ($37,000) and financing costs ($275,000) at
corporate.

As a result of the above, operating loss decreased to a loss of approximately
$348,000 from a loss of $392,000 in last years comparable period.

Investment and other losses improved from a loss of $1.7 million to a loss of
$340,000. The Company recorded charges totaling $1.4 in the prior year period
as an other than temporary impairment to the value of its investment in
Provant.

Interest income decreased to $74,000 from $404,000. In fiscal 2003, the
Company ceased the recording of interest income on certain notes when it was
determined that any further amount would be uncollectible. The carrying value
of the notes and accrued interest were adjusted in fiscal 2003 to estimated
realizable values.

Gain on sale of assets includes $910,000 for a gain on sale of land in the
current period and $149,000 for gains on sales of buildings in the prior year
period.

In the current period, the Company recorded $90,000 in equity in earnings of
affiliates to adjust its investment in Integral Vision to an estimated
realizable amount. Equity in loss of affiliates was $2.4 million in the prior
year period.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys variable interest expense is sensitive to changes in the general
level of United States interest rates. While approximately $2.1 million of
Maxcos debt carries a fixed rate of interest, the Company entered into an
interest rate swap agreement based on a notional amount of $5.0 million to
manage its exposure to interest rate changes. The swap involves the exchange
of fixed and variable interest payments without changing the notional principal
amount. The Company had total outstanding variable rate short and long term
borrowings of $10.8 million at September 30, 2003. A 1% increase from the
prevailing interest rates at September 30, 2003 on the unhedged variable rate
portion of the Companys short and long-term borrowings would increase interest
expense on an annualized basis by approximately $80,000 based on principal
balances at September 30, 2003.




ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
The Companys Chief Executive Officer and Chief Financial Officer believe
Maxcos disclosure controls and procedures, as defined in Securities Exchange
Act Rules 13a-15(e) and 15d-15(e), are effective. This conclusion was reached
after an evaluation of these controls and procedures as of September 30, 2003.

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PART II

OTHER INFORMATION

Item 1. Legal ProceedingsIn October 2003, the Company was named as a defendant in a certain
action from a lender as a result of the Company being a guarantor of
a real estate investment. The Companys exposure in this action is
$1.0 million; however, the Company believes that the value of the
underlying asset involved is sufficient to satisfy any potential
judgment.Item 2. Changes in SecuritiesNoneItem 3. Defaults Upon Senior SecuritiesNoneItem 4. Submission of Matters to a Vote of Security HoldersNoneItem 5. Other InformationThe Board of Directors of the Company has set the date for the
Companys annual meeting of shareholders for January 13, 2004. Any
proposals which shareholders of the Company intend to present at the
that annual meeting must be received by the Company by December 5,
2003, for inclusion in the Companys proxy statement and proxy form
for that meeting. In cases where a shareholder does not seek to have
their proposal included in the Companys proxy materials, no proposal
will be considered timely for submission at the next annual meeting
unless it is received by the Company by December 10, 2003 and, in
such case, the Companys Proxy will provide the management proxies
with discretionary authority to vote on such proposal without any
discussion of the matter in the Proxy Statement. Proposals should be
directed to the attention of Investor Relations at the offices of the
Company, 1118 Centennial Way, Lansing, Michigan 48917.


Item 6(a)
    
    Exhibits3
    
    Restated Articles of Incorporation are hereby incorporated from
Form 10-Q dated February 13, 1998.3.1
    
    By-laws are hereby incorporated by reference from Form S-4 dated
November 4, 1991 (File No. 33-43855).4.2
    
    Resolution establishing Series Three Preferred Shares is hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).4.3
    
    Resolution authorizing the redemption of Series Two Preferred
Stock and establishing Series Four Preferred Stock and the terms
of the subordinated notes is hereby incorporated by reference from
Form 10-Q dated February 14, 1997.4.4
    
    Resolution establishing Series Five Preferred Shares is hereby
incorporated by reference from Form 10-K dated June 5, 1997.


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4.5
    
    Resolution establishing Series Six Preferred Shares is hereby
incorporated by reference from Form 10-K dated June 23, 1999.10.1
    
    Incentive stock option plan adopted August 15, 1983, including the
amendment (approved by shareholders August 25, 1987) to increase
the authorized shares on which options may be granted by two
hundred fifty thousand (250,000), up to five hundred thousand
(500,000) shares of the common stock of the company is hereby
incorporated by reference from the registrants annual report on
Form 10-K for the fiscal year ended March 31, 1988.10.9
    
    Asset purchase agreement  Wright Plastic Products, Inc. is hereby
incorporated by reference from Form 10-Q dated November 14, 1996.10.10
    
    Amended and restated loan agreement between Comerica Bank and
Maxco, Inc. dated September 30, 1996 is hereby incorporated by
reference from Form 10-Q dated November 14, 1996.10.11
    
    Asset purchase agreement for the purchase of Atmosphere Annealing,
Inc. is hereby incorporated by reference from Form 8-K dated
January 17, 1997.10.13
    
    Loan agreement between Michigan Strategic Fund and Atmosphere
Annealing, Inc. is hereby incorporated by reference from Form 10-Q
dated February 13, 1998.10.14
    
    Loan agreement between LAM Funding, L.L.C. and borrower including
Guaranty-Maxco, Inc. is hereby incorporated by reference from Form
10-Q dated February 13, 1998.10.15
    
    First Amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated August 1, 1997, is hereby
incorporated by reference from Form 10-K dated June 24, 1998.10.16
    
    Second amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated June 24, 1998 is hereby
incorporated by reference from Form 10-K dated June 24, 1998.10.17
    
    Third amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated September 24, 1998, is hereby
incorporated by reference from Form 10-Q dated November 12, 1998.10.18
    
    Maxco, Inc. 1998 Employee Stock Option Plan is hereby incorporated
by reference from Form 10-Q dated November 12, 1998.10.19
    
    Fourth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated June 22, 1999, is hereby
incorporated by reference from Form 10-K dated June 23, 1999.10.20
    
    Fifth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated September 1, 1999 is hereby
incorporated by reference from Form 10-Q dated November 12, 1999.10.21
    
    Sixth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated July 12, 2000 is hereby
incorporated by reference from Form 10-K dated July 14, 2000.10.22
    
    Seventh amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated January 11, 2000 is hereby
incorporated by reference from Form 10-Q dated February 14, 2001.10.23
    
    Eighth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated March 19, 2001 is hereby
incorporated by reference from Form 10-K dated July 13, 2001.10.24
    
    Ninth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated October 1, 2001 is hereby
incorporated by reference from Form 10-Q dated February 19, 2002.


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10.25
    
    Tenth amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated February 19, 2002 is hereby
incorporated by reference from Form 10-K dated July 16, 2002.10.26
    
    Financing arrangements among Comerica Bank, Maxco, Inc., Ersco
Corporation, Pak Sak Industries, Inc., and Max A. Coon dated
November 8, 2002 is hereby incorporated by reference from Form
10-Q dated November 25, 2002.10.27
    
    Financing arrangements among Comerica Bank, Maxco, Inc., Pak Sak
Industries, Inc., and Max A. Coon dated November 13, 2002 is
hereby incorporated by reference from Form 10-Q dated November 25,
2002.10.28
    
    Assignment agreement among Comerica Bank, Contractor Supply
Incorporated, Maxco, Inc., Ersco Corporation, Pak Sak, Inc., Max
A. Coon, and Ambassador Steel Corporation dated November 13, 2002
is hereby incorporated by reference from Form 10-Q dated November
25, 2002.10.29
    
    Obligor assignment agreement among Contractor Supply Incorporated,
Maxco, Inc., and Ersco Corporation dated November 14, 2002 is
hereby incorporated by reference from Form 10-Q dated November 25,
2002.10.30
    
    Stock purchase agreement between Ersco Corporation, Maxco, Inc.,
and Contractor Supply Incorporated dated November 14, 2002 is
hereby incorporated by reference from Form 10-Q dated November 25,
2002.10.31
    
    Asset Purchase Agreement between Pak Sak Industries, Inc., Maxco,
Inc., P-S Business Acquisition, Inc., and P&D Real Estate, LLC and
Packaging Personified, Inc. dated September 27, 2002 is hereby
incorporated by reference from Form 10-Q dated February 14, 2003.10.32
    
    First Amendment to Asset Purchase Agreement between Pak Sak
Industries, Inc., Maxco, Inc., P-S Business Acquisition, Inc., and
P&D Real Estate, LLC and Packaging Personified, Inc. dated October
30, 2002 is hereby incorporated by reference from Form 10-Q dated
February 14, 2003.10.33
    
    Second Amendment to Asset Purchase Agreement between Pak Sak
Industries, Inc., Maxco, Inc., P-S Business Acquisition, Inc., and
P&D Real Estate, LLC and Packaging Personified, Inc. dated
November 25, 2002 is hereby incorporated by reference from Form
10-Q dated February 14, 2003.10.34
    
    Credit Agreement between Atmosphere Annealing, Inc. and Huntington
National Bank dated November 18, 2003.10.35
    
    Subordination Agreement between Maxco, Inc., Atmosphere Annealing,
Inc. and Comerica Bank and Huntington National Bank dated November
18, 2003.31.1
    
    Certification of Chief Executive Officer of periodic report
pursuant to Rule 13a-15(e) or Rule 15d-15(e)31.2
    
    Certification of Chief Financial Officer of periodic report
pursuant to Rule 13a-15(e) or Rule 15d-15(e)32.1
    
    Certification of Chief Executive Officer of periodic report
pursuant to 18 U.S.C. § 1350.32.2
    
    Certification of Chief Financial Officer of periodic report
pursuant to 18 U.S.C. § 1350.Item 6(b)
    
    Reports on Form 8-KNone


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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.

MAXCO, INC.Date:
    November 19, 2003
    
    /s/ VINCENT SHUNSKYVincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)


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Exhibit Index

Exhibit Number
    
    Description10.34
    
    Credit Agreement between Atmosphere Annealing, Inc. and Huntington
National Bank dated November 18, 2003.10.35
    
    Subordination Agreement between Maxco, Inc., Atmosphere Annealing,
Inc. and Comerica Bank and Huntington National Bank dated November
18, 2003.31.1
    
    Certification of Chief Executive Officer of periodic report
pursuant to Rule 13a-15(e) or Rule 15d-15(e).31.2
    
    Certification of Chief Financial Officer of periodic report
pursuant to Rule 13a-15(e) or Rule 15d-15(e).32.1
    
    Certification of Chief Executive Officer of periodic report
pursuant to 18 U.S.C. § 1350.32.2
    
    Certification of Chief Financial Officer of periodic report
pursuant to 18 U.S.C. § 1350.


19