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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 June 30, 2005
 Commission
File Number 0-2762
 MAXCO, INC.
 (Exact Name of Registrant as Specified in its Charter)
 Michigan
    
    38-1792842(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)1118 Centennial WayLansing, Michigan
    
    48917(Address of principal executive offices)
    
    (Zip Code)
   þ  ̈
   ̈ þ
  Class
    
    Outstanding at July 31, 2005Common Stock
    
    3,446,995 shares
   1




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MAXCO, INC.
 INDEX TO QUARTERLY REPORT ON FORM 10-Q
  
 PAGEPart I  Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    5Consolidated Statement of Stockholders Equity
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16Part II  Other InformationItem 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    19Certifications
    
    
    20Certification of Chief Executive Officer to Rule 13a-15(e)Certification of Chief Financial Officer to Rule 13a-15(e)Certification of Chief Executive Officer to 18 U.S.C. Section 1350Certification of Chief Financial Officer to 18 U.S.C. Section 1350
  2




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PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries
 June 30,2005
    
    March 31,(Unaudited)
    
    2005(in thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,401
    
    
    $
    1,781Restricted cashNote 3
    
    
    750
    
    
    
    Accounts and notes receivable, less allowance of
$150,000 ($128,000 at March 31, 2005)
    
    
    6,458
    
    
    
    6,605InventoriesNote 9
    
    
    646
    
    
    
    534Prepaid expenses and other
    
    
    405
    
    
    
    223Total Current Assets
    
    
    9,660
    
    
    
    9,143Property and EquipmentNote 1Land
    
    
    564
    
    
    
    437Buildings
    
    
    8,192
    
    
    
    5,997Machinery, equipment, and fixtures
    
    
    30,634
    
    
    
    30,05239,390
    
    
    
    36,486Allowances for depreciation
    
    
    (19,880
    )
    
    
    (18,018
    )19,510
    
    
    
    18,468Other AssetsInvestments
    
    
    1,014
    
    
    
    878Notes and contracts receivable and other
    
    
    761
    
    
    
    996Real estate investments held for sale
    
    
    1,427
    
    
    
    1,850Real estate held for sale
    
    
    3,275
    
    
    
    Accounts receivable, related partiesNote 11
    
    
    407
    
    
    
    407Intangibles
    
    
    1,424
    
    
    
    1,4248,308
    
    
    
    5,555$
    37,478
    
    
    $
    33,166
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CONDENSED CONSOLIDATED BALANCE SHEETS  CONTINUED
Maxco, Inc. and Subsidiaries
 June 30,2005
    
    March 31,(Unaudited)
    
    2005(in thousands)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesNotes payableNote 6
    
    $
    4,067
    
    
    $
    2,091Accounts payable
    
    
    4,816
    
    
    
    3,870Employee compensation
    
    
    1,666
    
    
    
    1,711Incentive compensation
    
    
    825
    
    
    
    650Taxes, interest, and other liabilities
    
    
    3,899
    
    
    
    3,850Current maturities of long-term obligations
    
    
    5,142
    
    
    
    4,959Total Current Liabilities
    
    
    20,415
    
    
    
    17,131Long -Term Obligations, Less Current MaturitiesNotes 1
and 6
    
    
    7,856
    
    
    
    7,070Total Liabilities
    
    
    28,271
    
    
    
    24,201Stockholders 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
    
    
    
    
    
    
    3,866
    
    
    
    3,866Common stock, $1 par value; 10,000,000 shares
authorized, 3,446,995 shares issued and outstanding
    
    
    3,447
    
    
    
    3,447Accumulated other comprehensive loss
    
    
    (23
    )
    
    
    (38
    )Retained earnings
    
    
    1,917
    
    
    
    1,690Total Stockholders Equity
    
    
    9,207
    
    
    
    8,965$
    37,478
    
    
    $
    33,166
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
(Unaudited)
 Three Months Ended June 30,2005
    
    2004(in thousands, except per share data)Net Sales
    
    $
    11,448
    
    
    $
    11,367Costs and Expenses:Cost of sales and operating expenses
    
    
    7,114
    
    
    
    7,370Selling, general and administrative
    
    
    2,900
    
    
    
    2,778Depreciation and amortization
    
    
    752
    
    
    
    74410,766
    
    
    
    10,892Operating Earnings
    
    
    682
    
    
    
    475Other Income (Expense)Investment, interest, and other income (loss), net
    
    
    (2
    )
    
    
    135Gain on sale of assets
    
    
    2
    
    
    
    1Interest expense
    
    
    (353
    )
    
    
    (407
    )Net Income
    
    
    329
    
    
    
    204Less preferred stock dividends
    
    
    (102
    )
    
    
    (102
    )Net Income Applicable to Common Stock
    
    $
    227
    
    
    $
    102Net Income Per Common ShareBasic and Diluted
    
    $
    0.07
    
    
    $
    0.03
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Maxco, Inc. and Subsidiaries
(Unaudited)
 Number ofCommon
    
    
    
    
    
    
    
    
    
    AccumulatedShares
    
    Preferred
    
    Common
    
    Comprehensive
    
    RetainedOutstanding
    
    Stock
    
    Stock
    
    Loss
    
    Earnings
    
    Totals(in thousands, except number of common shares outstanding)Balances at April 1, 2005
    
    
    3,446,995
    
    
    $
    3,866
    
    
    $
    3,447
    
    
    $
    (38
    )
    
    $
    1,690
    
    
    $
    7,721Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329
    
    
    
    329Unrealized gain on swap agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102
    )
    
    
    (102
    )Balances at June 30, 2005
    
    
    3,446,995
    
    
    $
    3,866
    
    
    $
    3,447
    
    
    $
    (23
    )
    
    $
    1,917
    
    
    $
    9,207
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Maxco, Inc. and Subsidiaries
(Unaudited)
 Three Months Ended June 30,2005
    
    2004(in thousands)Operating
ActivitiesNet income
    
    $
    329
    
    
    $
    204Adjustments to reconcile net income to net cash
provided by operating activities:Loss on investment
    
    
    30
    
    
    
    Net gains
    
    
    (2
    )
    
    
    (1
    )Depreciation and amortization
    
    
    752
    
    
    
    744Changes in operating assets and liabilities
    
    
    734
    
    
    
    948Net Cash Provided By Operating Activities
    
    
    1,843
    
    
    
    1,895Investing ActivitiesCollections on notes receivable
    
    
    116
    
    
    
    993Purchases of property and equipment
    
    
    (582
    )
    
    
    (131
    )Purchase of subsidiaries
    
    
    (342
    )
    
    
    Other
    
    
    42
    
    
    
    16Net Cash (Used In) Provided By Investing Activities
    
    
    (766
    )
    
    
    878Financing ActivitiesProceeds from new debt obligation
    
    
    
    
    
    
    2,700Net proceeds from (repayments on) line of credit
    
    
    379
    
    
    
    (941
    )Net repayments on other debt obligations
    
    
    (1,086
    )
    
    
    (3,751
    )Net Cash Used In Financing Activities
    
    
    (707
    )
    
    
    (1,992
    )Increase in Cash and Cash Equivalents
    
    
    370
    
    
    
    781Cash and Cash Equivalents at Beginning of Period
    
    
    1,781
    
    
    
    78Cash and Cash Equivalents at End of Period
    
    $
    2,151
    
    
    $
    859Supplemental cash flows disclosure:Interest paid
    
    $
    310
    
    
    $
    183
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
June 30, 2005
 NOTE 1  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
      NOTE 2  EARNINGS PER SHARE
  Three Months Ended June 30,2005
    
    2004(in thousands, except per share data)NUMERATOR:Net income
    
    
    329
    
    
    
    204Preferred stock dividends
    
    
    (102
    )
    
    
    (102
    )Numerator for basic and diluted earnings per
shareincome available to common stockholders
    
    $
    227
    
    
    $
    102DENOMINATOR:Denominator for basic and diluted earnings per
shareweighted average shares
    
    
    3,447
    
    
    
    3,101BASIC AND DILUTED EARNINGS PER SHARE
    
    $
    0.07
    
    
    $
    0.03
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NOTE 3  RESTRICTED CASH
  NOTE 4  COMPREHENSIVE INCOME
  Three Months EndedJune 30,2005
    
    2004(in thousands)Net income
    
    $
    329
    
    
    $
    204Unrealized gain on swap agreement
    
    
    15
    
    
    
    64Comprehensive income
    
    $
    344
    
    
    $
    268
  NOTE 5  INDUSTRY SEGMENT INFORMATION
  June 30,
    
    March 31,2005
    
    2005(in thousands)Identifiable Assets:Heat treating
    
    $
    28,201
    
    
    $
    27,081Corporate and other
    
    
    6,836
    
    
    
    3,357Investments and advances
    
    
    2,441
    
    
    
    2,728Total Identifiable Assets
    
    $
    37,478
    
    
    $
    33,166
 Three Months EndedJune 30,2005
    
    2004(in thousands)Net Sales:Heat treating
    
    $
    11,448
    
    
    $
    11,367Corporate and other
    
    
    
    
    
    
    Total Net Sales
    
    $
    11,448
    
    
    $
    11,367Operating Earnings (Loss):Heat treating
    
    $
    1,306
    
    
    $
    963Corporate and other
    
    
    (624
    )
    
    
    (488
    )Total Operating Earnings (Loss)
    
    $
    682
    
    
    $
    475Depreciation and Amortization Expense:Heat treating
    
    $
    745
    
    
    $
    736Corporate and other
    
    
    7
    
    
    
    8Total Depreciation and Amortization Expense
    
    $
    752
    
    
    $
    744Capital Expenditures:Heat treating
    
    $
    575
    
    
    $
    131Corporate and other
    
    
    7
    
    
    
    Total Capital Expenditures
    
    $
    582
    
    
    $
    131
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NOTE 6  DEBT
    June 30,
    
    March 31,2005
    
    2005(in thousands)Short term obligations:Notes payable (various interest rates)
    
    $
    1,516
    
    
    $
    1,554Mortgage notes payable (prime +3%)
    
    
    1,634
    
    
    
    Revolving line of credit (LIBOR + 2.0%)
    
    
    917
    
    
    
    537$
    4,067
    
    
    $
    2,091Long term obligations:Term notes (various variable interest rates)
    
    $
    4,252
    
    
    $
    4,930Mortgage notes payable (various variable interest rates)
    
    
    5,907
    
    
    
    4,962Equipment purchase contracts and capitalized lease
obligations (various interest rates)
    
    
    1,451
    
    
    
    1,791Subordinated debt (fixed rate of 10.00%)
    
    
    346
    
    
    
    346Other amounts due on real estate held for sale
    
    
    1,042
    
    
    
    12,998
    
    
    
    12,029Less current maturities
    
    
    5,142
    
    
    
    4,959$
    7,856
    
    
    $
    7,070
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NOTE 7  FEDERAL INCOME TAXES
  NOTE 8  PREFERRED STOCK DIVIDENDS
  NOTE 9  INVENTORIES
  June 30,
    
    March 31,2005
    
    2005(in thousands)Raw materials
    
    $
    498
    
    
    $
    329Work in progress
    
    
    100
    
    
    
    157Finished goods
    
    
    48
    
    
    
    48$
    646
    
    
    $
    534
 NOTE 10  REAL ESTATE INVESTMENT (DISCONTINUED AND HELD FOR SALE)
  NOTE 11  ACCOUNTS RECEIVABLE AND PAYABLERELATED PARTIES
   11




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NOTE 12  RECENT ACCOUNTING PRONOUNCEMENTS
     12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES
  Principles of Consolidation and Transactions With Affiliates
   13




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Investments and Marketable Securities
  Revenue Recognition
  Goodwill, Intangible and Other Long-Lived Assets
   14




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Derivative Financial Instruments
  MATERIAL CHANGES IN FINANCIAL CONDITION
        RESULTS OF OPERATIONS
 Three Months Ended June 30, 2005 Compared to 2004
  15




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Three Months Ended
    
    Three Months EndedJune 30, 2005
    
    June 30, 2004Operating
    
    
    
    
    
    OperatingNet Sales
    
    Earnings (Loss)
    
    Net Sales
    
    Earnings (Loss)(in thousands)Heat treating
    
    $
    11,448
    
    
    $
    1,306
    
    
    $
    11,367
    
    
    $
    963Corporate and other
    
    
    
    
    
    
    (624
    )
    
    
    
    
    
    
    (488
    )$
    11,448
    
    
    $
    682
    
    
    $
    11,367
    
    
    $
    475
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
  16




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PART II
 OTHER INFORMATION
 
   
   
   
   
   
  3
    
    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, 1997.4.5
    
    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, 1988.10.11
    
    Asset purchase agreement for the purchase of Atmosphere Annealing, Inc. is hereby
incorporated by reference from Form 8-K dated January 17, 1997.
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10.12
    
    Asset Purchase Agreement  Axson North America Inc. is hereby incorporated by reference from
registrants Form 10-Q dated February 14, 1997.10.18
    
    Maxco, Inc. 1998 Employee Stock Option Plan is hereby incorporated by reference from Form
10-Q dated November 12, 1998.10.29
    
    Obligor assignment agreement among Contractor Supply Incorporated, Maxco, Inc., and Ersco
Corporation dated November 14, 2002 is hereby incorporated by reference from Form 10-Q dated
November 25, 2002.10.30
    
    Stock purchase agreement between Ersco Corporation, Maxco, Inc., and Contractor Supply
Incorporated dated November 14, 2002 is hereby incorporated by reference from Form 10-Q dated
November 25, 2002.10.31
    
    Asset Purchase Agreement between Pak Sak Industries, Inc., Maxco, Inc., P-S Business
Acquisition, Inc., and P&D Real Estate, LLC and Packaging Personified, Inc. dated September
27, 2002 is hereby incorporated by reference from Form 10-Q dated February 14, 2003.10.32
    
    First Amendment to Asset Purchase Agreement between Pak Sak Industries, Inc., Maxco, Inc.,
P-S Business Acquisition, Inc., and P&D Real Estate, LLC and Packaging Personified, Inc. dated
October 30, 2002 is hereby incorporated by reference from Form 10-Q dated February 14, 2003.10.33
    
    Second Amendment to Asset Purchase Agreement between Pak Sak Industries, Inc., Maxco, Inc.,
P-S Business Acquisition, Inc., and P&D Real Estate, LLC and Packaging Personified, Inc. dated
November 25, 2002 is hereby incorporated by reference from Form 10-Q dated February 14, 2003.10.34
    
    Credit Agreement between Atmosphere Annealing, Inc. and Huntington National Bank dated
November 18, 2003 is hereby incorporated by reference from Form 10-Q dated November 19, 2003.10.35
    
    Subordination Agreement between Maxco, Inc., Atmosphere Annealing, Inc. and Comerica Bank
and Huntington National Bank dated November 18, 2003 is hereby incorporated by reference from
Form 10-Q dated November 19, 2003.10.36
    
    Incentive agreement between Sanjeev Deshpande and Maxco, Inc. dated April 20, 2004 is hereby
incorporated by reference from Form 10-K dated July 13, 2004.10.37
    
    Business Loan Agreement between Capitol National Bank and Maxco, Inc. dated May 28, 2004 is
hereby incorporated by reference from Form 10-K dated July 13, 2004.31.1
    
    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.
 18




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MAXCO, INC.Date:  August 18, 2005
    /s/ VINCENT SHUNSKYVincent Shunsky, Vice President-Financeand Treasurer (Principal Financial and
Accounting Officer) 19




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Exhibit Index
 Exhibit No.
    
    DescriptionExhibit 31.1
    
    Certification of Chief Executive Officer of periodic report pursuant to Rule 13a-15(e) or
Rule 15d-15(e).Exhibit 31.2
    
    Certification of Chief Financial Officer of periodic report pursuant to Rule 13a-15(e) or
Rule 15d-15(e).Exhibit 32.1
    
    Certification of Chief Executive Officer of periodic report pursuant to 18 U.S.C. §1350.Exhibit 32.2
    
    Certification of Chief Financial Officer of periodic report pursuant to 18 U.S.C. §1350.
 20