PACIFIC AEROSPACE & ELECTRONICS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2003


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 0-26088

PACIFIC AEROSPACE & ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)


Washington		91-1744587
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

430 Olds Station Road, Third Floor, Wenatchee, Washington 98801
(Address of Principal Executive Offices; Zip Code)

509-667-9600
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes No X

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to distribution of securities under a plan confirmed by court. Yes No

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 15, 2003, there were 24,815,859 shares outstanding of the Company’s Common Stock, par value $0.001 per share.

TABLE OF CONTENTS


PART 1
	ITEM 1: 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. CONTROLS AND PROCEDURES.
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART 1

FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets – August 31, 2003 and May 31, 2003

Condensed Consolidated Statements of Operations and Comprehensive Loss – First Quarters Ended August 31, 2003 and 2002.

Condensed Consolidated Statements of Cash Flow – First Quarters Ended August 31, 2003 and 2002

Management’s Statement and Notes to Unaudited Condensed Consolidated Financial Statements – First Quarter Ended August 31, 2003

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
August 31, 2003 and May 31, 2003
(Unaudited)


					August 31,			May 31,
					2003			2003

				Assets
Current assets:
		Cash			$	1,021,000			1,948,000
		Accounts receivable, net				11,050,000			13,492,000
		Inventories				15,815,000			16,457,000
		Prepaid expense and other current assets				2,470,000			569,000

			Total current assets			30,356,000			32,466,000

Property, plant and equipment, net						20,631,000			21,635,000

Other assets:
		Goodwill, net				351,000			351,000
		Patents, net				1,442,000			1,473,000
		Deferred financing costs, net				900,000			960,000
		Other assets				139,000			208,000

			Total other assets			2,832,000			2,992,000

					$	53,819,000			57,093,000

	Liabilities and Stockholders’ Deficit
Current liabilities:
		Accounts payable			$	8,634,000			9,178,000
		Accrued liabilities				1,929,000			2,381,000
		Accrued interest				846,000			396,000
		Line of credit				894,000			1,030,000
		Current portion of long-term debt				311,000			395,000
		Current portion of capital lease obligations				156,000			145,000

			Total current liabilities			12,770,000			13,525,000
Long-term liabilities:
		Long-term debt, net of current portion				27,008,000			26,503,000
		Capital lease obligations, net of current portion				90,000			143,000
		Senior subordinated notes payable				25,739,000			25,739,000
		Deferred income taxes				894,000			930,000
		Deferred rent and other				—			12,000

			Total liabilities			66,501,000			66,852,000

Stockholders’ deficit:
		Common stock				25,000			25,000
		Additional paid-in capital				105,844,000			105,844,000
		Accumulated other comprehensive loss				(6,413,000	)		(5,506,000	)
		Accumulated deficit				(112,138,000	)		(110,122,000	)

			Total stockholders’ deficit			(12,682,000	)		(9,759,000	)

					$	53,819,000			57,093,000

See accompanying notes to unaudited condensed consolidated financial statements.

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
First Quarters Ended August 31, 2003 and 2002
(Unaudited)


				Quarters Ended

				August 31,			August 31,
				2003			2002

Net sales				$	14,686,000			16,056,000
Cost of sales					12,821,000			14,115,000

			Gross profit		1,865,000			1,941,000
Operating expenses					2,889,000			3,007,000

Loss from operations					(1,024,000	)		(1,066,000	)

Other income (expense):
		Interest Income			18,000			26,000
		Interest Expense			(1,161,000	)		(972,000	)
		Other			152,000			12,000

			Total other income (expense)		(991,000	)		(934,000	)

Net loss before income tax benefit					(2,015,000	)		(2,000,000	)
Income tax benefit					—			234,000

Net loss					(2,015,000	)		(1,766,000	)
Other comprehensive income (loss):
	Foreign currency translation				(907,000	)		1,465,000

Comprehensive loss				$	(2,922,000	)		(301,000	)

Net loss per share
		Basic		$	(0.08	)	$	(3.89	)
		Diluted		$	(0.08	)	$	(3.89	)
Shares used in computation of net loss per share:
		Basic			24,779,209			453,670
		Diluted			24,779,209			453,670

See accompanying notes to unaudited condensed consolidated financial statements.

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
First Quarters Ended August 31, 2003 and 2002
(Unaudited)


			Quarters Ended

			August 31,			August 31,
			2003			2002

Cash flow from operating activities:
		Net cash used in operating activities	$	(264,000	)	$	(1,975,000	)

Cash flow from investing activities:
	Acquisition of property, plant and equipment			(330,000	)		(248,000	)
	Proceeds from sale of property, plant and equipment			68,000			14,000

		Net cash used in investing activities		(262,000	)		(234,000	)

Cash flow from financing activities:
	Net repayments under line of credit			(136,000	)		—
	Proceeds from long-term debt			19,000			—
	Payments on long term debt and capital leases			(191,000	)		(318,000	)

		Net cash used in financing activities		(308,000	)		(318,000	)

Net decrease in cash				(834,000	)		(2,527,000	)
Effect of exchange rates on cash				(93,000	)		250,000
Cash at beginning of period				1,948,000			5,619,000

Cash at end of period			$	1,021,000		$	3,342,000

Supplemental cash flow information:
	Cash paid during the quarter for interest		$	100,000		$	95,000

See accompanying notes to unaudited condensed consolidated financial statements.

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT’S STATEMENT AND
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

First Quarter Ended August 31, 2003

Management’s Statement

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions and, in the opinion of management, contain all adjustments necessary to fairly present information therein. All significant intercompany transactions have been eliminated in consolidation. These results have been determined on the basis of accounting principles generally accepted in the United States of America applied consistently with those used in the preparation of the Company’s annual financial statements.

Certain information and footnote disclosures normally included in audited annual financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended May 31, 2003.

The results of operations for the quarter ended August 31, 2003 are not necessarily indicative of the results to be expected or anticipated for the full fiscal year.

(1) Net Loss Per Share

Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed on the basis of the weighted average number of common shares outstanding, using the “if-converted” method for convertible preferred stock, and for outstanding stock options and warrants, using the “treasury stock” method. As the Company had a net loss for the periods ended August 31, 2003 and 2002, basic and diluted net loss per share are the same.

The total number of anti-dilutive common stock equivalents related to options, warrants and convertible preferred stock as of August 31, 2003 and 2002 were 98,117 and 24,774,265, respectively.

All share and per share information has been retroactively adjusted for the effect of the reverse stock split described in note 5 to these unaudited condensed consolidated financial statements.

(2) Inventories

Components of inventories are as follows:


		August 31,		May 31,
		2003		2003

Raw materials		$	2,693,000	$	3,206,000
Work in progress			8,608,000		8,389,000
Finished goods			4,514,000		4,862,000

	Total	$	15,815,000	$	16,457,000

(3) Going Concern

The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern.

During the three months ended August 31, 2003, cash used in operating activities was $264,000. The Company’s future success will depend heavily on its ability to generate cash from operating activities and to meet its obligations as they become due. The Company is focusing on initiatives that specifically address the need to increase cash provided by operating activities. Some of these initiatives include, but are not limited to possible staff reductions, reduced product line offerings, selling of excess inventory, and general and administrative cost controls. The Company has also downsized, closed, or sold certain of its divisions that produced negative cash flow from operations. If the Company is not sufficiently successful in increasing cash provided by operating activities, it may need to sell additional common stock or sell assets outside of the ordinary course of business in order to meet its obligations. There is no assurance that the Company will be able to achieve sufficient cash flows from operations, sell additional common stock, or sell its assets for amounts at or in excess of book value.

In February 2003, we entered into a revolving invoice funding facility with a national bank. Under the facility we may borrow up to 80% of acceptable domestic United States accounts receivable, up to a maximum amount of $3,000,000. The facility is secured by all domestic United States accounts receivable and all domestic United States inventories. The facility bears interest at the bank’s prime rate plus 5.0% and expires in February 2004. There was $894,000 borrowed under this facility at August 31, 2003.

We are not in compliance with certain covenants relating to loans made by KeyBank in an aggregate principal amount of approximately $1.6 million (at August 31, 2003) that are secured by a deed of trust on our headquarters building and improvements on another Company building. As of August 31, 2003, approximately $1.1 million of the principal amount of the loan secured by our headquarters building remained outstanding and $555,000 of the loan secured by improvements on the other building remained outstanding. Under the agreements governing the KeyBank loans, we are required to maintain a minimum debt service coverage ratio and a maximum debt to worth ratio, which we have not maintained. Pursuant to a forbearance agreement dated June 25, 2003, KeyBank agreed to forbear from declaring covenant defaults until we regain compliance (thereby curing such covenant violations) or December 31, 2004.

We are also not in compliance with a covenant of the Senior Notes in an aggregate principal amount of approximately $24.9 million, net of original issue discount, at August 31, 2003. Under the loan agreement governing the Senior Notes, we are required to meet certain minimum EBITDA levels which we have not achieved. Pursuant to a forbearance agreement dated October 14, 2003, the Senior Noteholders agreed to forbear from declaring covenant default until we regain compliance (thereby curing such covenant violation) or September 1, 2004.

The Company’s ability to obtain additional cash if and when needed could have a material adverse effect on its financial position, results of operations and its ability to continue in existence. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(4) Segment Information and Concentration of Risk

The Company operates in two segments, U.S. Operations and European Operations. The Company’s chief operating decision maker, the Company’s chief executive officer, regularly reviews operating results, assesses performance and makes decisions about resources to be allocated at this level (U.S. Operations and European Operations) and not on any of the underlying divisions or business units that comprise these two segments. Presented below is the Company’s operational segment information. All operational segments identified as “U.S. Operations” and “Corporate” are located within the U.S. while the operations and assets of the “European Operations” segment are located within the United Kingdom. Identifiable assets are those assets used in the Company’s operations in each segment, and do not include advances or loans between the business segments. Corporate assets are identified below, and no allocations were necessary for assets used jointly by the segments.

Three months ended August 31, 2003


						Corporate,
	U.S.		European			other and
	Operations		Operations			eliminations			Total

Net sales to customers	$	4,560,000		10,126,000			—			14,686,000
Income (loss) from operations		397,000		(297,000	)		(1,124,000	)		(1,024,000	)
Identifiable assets		17,646,000		29,356,000			6,817,000			53,819,000
Capital expenditures		24,000		275,000			31,000			330,000
Depreciation and amortization		358,000		527,000			84,000			969,000
Interest income		—		—			18,000			18,000
Interest expense		35,000		300,000			826,000			1,161,000

Three months ended August 31, 2002


						Corporate,
	U.S.		European			other and
	Operations		Operations			eliminations			Total

Net sales to customers	$	6,754,000		9,302,000			—			16,056,000
Income (loss) from operations		985,000		(847,000	)		(1,204,000	)		(1,066,000	)
Identifiable assets		24,853,000		32,323,000			6,761,000			63,937,000
Capital expenditures		88,000		160,000			—			248,000
Depreciation and amortization		400,000		490,000			126,000			1,016,000
Interest income		—		7,000			19,000			26,000
Interest expense		57,000		300,000			615,000			972,000

5) Conversion of Series C Convertible Preferred Stock and Reverse Stock Split

On January 27, 2003, following approval by a majority of our shareholders, we increased the number of our authorized shares of common stock from 100,000,000 to 20,000,000,000 shares without affecting per share par value. Upon the increase in authorized shares the holders of all of our Series C Convertible Preferred Stock converted their preferred shares into 4,865,819,000 shares of common stock. On the same day, following approval by a majority of our shareholders, we completed a 1 for

200 reverse split of our outstanding shares of common stock, as well as a proportionate reduction in our shares of authorized but un-issued common stock. At February 28, 2003, as a result of the reverse split, we had 100,000,000 authorized shares of common stock with 24,779,209 common shares outstanding.

(6) Consolidating Condensed Financial Statements

The following financial statements present consolidating condensed financial information of the Company for the indicated periods. The Company’s senior subordinated notes have been guaranteed by all of the Company’s wholly owned U.S. subsidiaries. The guarantor subsidiaries have fully and unconditionally guaranteed this debt on a joint and several basis. This debt is not guaranteed by the Company’s foreign subsidiaries, which consist of Aeromet and two related holding companies. There are no significant contractual restrictions on the distribution of funds from the guarantor subsidiaries to the parent corporation. The consolidating condensed financial information is presented in lieu of separate financial statements and other disclosures of the guarantor subsidiaries, as management has determined that such information is not material to investors.

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
August 31, 2003


								GUARANTOR			NON-GUARANTOR
					PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

			Assets
Current assets:
		Cash and cash equivalents			$	624,000		$	1,000		$	396,000		$	—		$	1,021,000
		Accounts receivable, net				—			2,436,000			8,618,000			(4,000	)		11,050,000
		Inventories				—			6,645,000			9,170,000						15,815,000
		Other				4,448,000			29,000			1,584,000			(3,591,000	)		2,470,000

				Total current assets		5,072,000			9,111,000			19,768,000			(3,595,000	)		30,356,000
Property, plant and equipment, net						4,437,000			6,606,000			9,588,000			—			20,631,000
Other assets:
		Goodwill				—			351,000			—			—			351,000
		Investment in and loans to subsidiaries				33,878,000			72,566,000			—			(106,444,000	)		—
		Other				900,000			1,581,000			—			—			2,481,000

				Total other assets		34,778,000			74,498,000			—			(106,444,000	)		2,832,000

				Total assets	$	44,287,000		$	90,215,000		$	29,356,000		$	(110,039,000	)	$	53,819,000

	Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
		Accounts payable			$	3,184,000		$	735,000		$	4,719,000		$	(4,000	)	$	8,634,000
		Line of credit				894,000			—			—			—			894,000
		Current portion of long-term debt				65,000			246,000			—						311,000
		Other				1,147,000			979,000			4,396,000			(3,591,000	)		2,931,000

				Total current liabilities		5,290,000			1,960,000			9,115,000			(3,595,000	)		12,770,000
Long-term liabilities:
		Long-term debt, net of current portion				51,679,000			1,068,000			—			—			52,747,000
		Intercompany note and loan payable				—			73,935,000			36,957,000			(110,892,000	)		—
		Other				—			90,000			894,000			—			984,000

				Total long-term liabilities		51,679,000			75,093,000			37,851,000			(110,892,000	)		53,731,000
Stockholders’ equity (deficit):
		Common stock				25,000			56,139,000			33,709,000			(89,848,000	)		25,000
		Additional paid-in capital				105,844,000			—			—			—			105,844,000
		Accumulated other comprehensive loss				(6,413,000	)		—			(6,413,000	)		6,413,000			(6,413,000	)
		Accumulated deficit				(112,138,000	)		(42,977,000	)		(44,906,000	)		87,883,000			(112,138,000	)

				Total stockholders’ equity (deficit)		(12,682,000	)		13,162,000			(17,610,000	)		4,448,000			(12,682,000	)

				Total liabilities and stockholders’ equity (deficit)	$	44,287,000		$	90,215,000		$	29,356,000		$	(110,039,000	)	$	53,819,000

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
May 31, 2003


								GUARANTOR			NON-GUARANTOR
					PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

			Assets
Current assets:
		Cash and cash equivalents			$	817,000		$	2,000		$	1,129,000		$	—		$	1,948,000
		Accounts receivable, net				—			3,063,000			10,429,000			—			13,492,000
		Inventories				—			6,916,000			9,541,000			—			16,457,000
		Other				3,374,000			30,000			456,000			(3,291,000	)		569,000

				Total current assets		4,191,000			10,011,000			21,555,000			(3,291,000	)		32,466,000
Property, plant and equipment, net						4,530,000			6,941,000			10,164,000			—			21,635,000
Other assets:
		Goodwill				—			351,000			—			—			351,000
		Investment in and loans to subsidiaries				36,620,000			72,618,000			—			(109,238,000	)		—
		Other				960,000			1,681,000			—			—			2,641,000

				Total other assets		37,580,000			74,650,000			—			(109,238,000	)		2,992,000

				Total assets	$	46,301,000		$	91,602,000		$	31,719,000		$	(112,529,000	)	$	57,093,000

	Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
		Accounts payable			$	2,594,000		$	691,000		$	5,893,000		$	—		$	9,178,000
		Line of credit				1,030,000			—			—			—			1,030,000
		Current portion of long-term debt				74,000			321,000			—			—			395,000
		Other				1,222,000			946,000			4,045,000			(3,291,000	)		2,922,000

				Total current liabilities		4,920,000			1,958,000			9,938,000			(3,291,000	)		13,525,000
Long-term liabilities:
		Long-term debt, net of current portion				51,140,000			1,102,000			—			—			52,242,000
		Intercompany note and loan payable				—			74,835,000			36,957,000			(111,792,000	)		—
		Other				—			155,000			930,000			—			1,085,000

				Total long-term liabilities		51,140,000			76,092,000			37,887,000			(111,792,000	)		53,327,000
Stockholders’ equity (deficit):
		Common stock				25,000			56,139,000			33,709,000			(89,848,000	)		25,000
		Additional paid-in capital				105,844,000			—			—			—			105,844,000
		Accumulated other comprehensive loss				(5,506,000	)		—			(5,506,000	)		5,506,000			(5,506,000	)
		Accumulated deficit				(110,122,000	)		(42,587,000	)		(44,309,000	)		86,896,000			(110,122,000	)

				Total stockholders’ equity (deficit)		(9,759,000	)		13,552,000			(16,106,000	)		2,554,000			(9,759,000	)

				Total liabilities and stockholders’ equity (deficit)	$	46,301,000		$	91,602,000		$	31,719,000		$	(112,529,000	)	$	57,093,000

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss)
For the Quarter Ended August 31, 2003


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

Net Sales			$	—		$	4,566,000		$	10,126,000		$	(6,000	)	$	14,686,000
Cost of Sales				—			3,187,000			9,640,000			(6,000	)		12,821,000

	Gross profit			—			1,379,000			486,000			—			1,865,000
Operating expenses				1,113,000			1,434,000			783,000			(441,000	)		2,889,000

	Income (loss) from operations			(1,113,000	)		(55,000	)		(297,000	)		441,000			(1,024,000	)
Other income (expense):
	Parent’s share of subsidiaries net loss			(987,000	)		—			—			987,000			—
	Interest expense			(1,126,000	)		(335,000	)		(300,000	)		600,000			(1,161,000	)
	Other			1,211,000			—			—			(1,041,000	)		170,000

		Total other income (expense)		(902,000	)		(335,000	)		(300,000	)		546,000			(991,000	)

	Income (loss) before income taxes			(2,015,000	)		(390,000	)		(597,000	)		987,000			(2,015,000	)
Income tax benefit (expense)				—			—			—			—			—

	Net income (loss)			(2,015,000	)		(390,000	)		(597,000	)		987,000			(2,015,000	)
Other comprehensive income (loss) Foreign currency translation				(907,000	)		—			(907,000	)		907,000			(907,000	)

	Comprehensive income (loss)		$	(2,922,000	)	$	(390,000	)	$	(1,504,000	)	$	1,894,000		$	(2,922,000	)

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss)
For the Quarter Ended August 31, 2002


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

Net Sales			$	—		$	6,858,000		$	9,302,000		$	(104,000	)	$	16,056,000
Cost of Sales				—			5,158,000			9,061,000			(104,000	)		14,115,000

	Gross profit			—			1,700,000			241,000			—			1,941,000
Operating expenses				1,199,000			1,626,000			1,088,000			(906,000	)		3,007,000

	Income (loss) from operations			(1,199,000	)		74,000			(847,000	)		906,000			(1,066,000	)
Other income (expense):
	Parent’s share of subsidiaries net loss			(890,000	)		—			—			890,000			—
	Interest expense			(916,000	)		(356,000	)		(300,000	)		600,000			(972,000	)
	Other			1,239,000			298,000			7,000			(1,506,000	)		38,000

		Total other income (expense)		(567,000	)		(58,000	)		(293,000	)		(16,000	)		(934,000	)

	Income (loss) before income taxes			(1,766,000	)		16,000			(1,140,000	)		890,000			(2,000,000	)
Income tax benefit (expense)				—			—			234,000			—			234,000

	Net income (loss)			(1,766,000	)		16,000			(906,000	)		890,000			(1,766,000	)
Other comprehensive income (loss)
	Foreign currency translation			1,465,000			—			1,465,000			(1,465,000	)		1,465,000

	Comprehensive income (loss)		$	(301,000	)	$	16,000		$	559,000		$	(575,000	)	$	(301,000	)

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Quarter Ended August 31, 2003


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS		CONSOLIDATED

Cash flow from operating activities:
		Net cash provided by (used in) operating activities	$	(1,511,000	)	$	1,612,000		$	(365,000	)	$	—	$	(264,000	)
Cash flow from investing activities:
	Acquisition of property, plant and equipment			(31,000	)		(24,000	)		(275,000	)		—		(330,000	)
	Proceeds from sale of property, plant and equipment			35,000			33,000			—			—		68,000
	Investment in and loans to subsidiaries			1,470,000			(1,470,000	)		—			—		—

		Net cash provided by (used in) investing activities		1,474,000			(1,461,000	)		(275,000	)		—		(262,000	)
Cash flow from financing activities:
	Net repayments under line of credit			(136,000	)		—			—			—		(136,000	)
	Proceeds from long-term debt			19,000			—			—			—		19,000
	Payments on long-term debt and capital leases			(39,000	)		(152,000	)		—			—		(191,000	)

		Net cash provided by (used in) financing activities		(156,000	)		(152,000	)		—			—		(308,000	)
	Net change in cash			(193,000	)		(1,000	)		(640,000	)		—		(834,000	)
Effect of exchange rates on cash				—			—			(93,000	)		—		(93,000	)
Cash at beginning of period				817,000			2,000			1,129,000					1,948,000

Cash at end of period			$	624,000		$	1,000		$	396,000		$	—	$	1,021,000

Supplemental cash flow:
	Cash paid during the period for:
		Interest	$	65,000		$	35,000		$	—		$	—	$	100,000

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Quarter Ended August 31, 2002


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

Cash flow from operating activities:
		Net cash provided by (used in) operating activities	$	249,000		$	(336,000	)	$	(1,888,000	)	$	—		$	(1,975,000	)
Cash flow from investing activities:
	Acquisition of property, plant and equipment			—			(88,000	)		(160,000	)		—			(248,000	)
	Proceeds from sale of property, plant and equipment			—			14,000			—			—			14,000
	Investment in and loans to subsidiaries			(713,000	)		713,000						—			—

		Net cash provided by (used in) investing activities		(713,000	)		639,000			(160,000	)		—			(234,000	)
Cash flow from financing activities:
	Payments on long-term debt and capital leases			(15,000	)		(303,000	)		—			—			(318,000	)
	Other changes, net			—			—			—			—			—

		Net cash provided by (used in) financing activities		(15,000	)		(303,000	)		—			—			(318,000	)
	Net change in cash			(479,000	)		—			(2,048,000	)		—			(2,527,000	)
Effect of exchange rates on cash				—			—			250,000			—			250,000
Cash at beginning of period				803,000			3,000			4,813,000						5,619,000

Cash at end of period			$	324,000		$	3,000		$	3,015,000		$	—		$	3,342,000

Supplemental cash flow:
	Cash paid during the period for:
		Interest	$	38,000		$	357,000		$	300,000		$	(600,000	)	$	95,000
		Income taxes		—			—			168,000			—			168,000

Inventories consist of the following:


		August 31,		May 31,
		2003		2003

Guarantor subsidiaries
	Raw materials	$	1,496,000	$	1,686,000
	Work in progress		1,733,000		1,760,000
	Finished goods		3,416,000		3,470,000

		$	6,645,000	$	6,916,000

Non-guarantor subsidiaries
	Raw materials	$	1,197,000	$	1,520,000
	Work in progress		6,875,000		6,629,000
	Finished goods		1,098,000		1,392,000

		$	9,170,000	$	9,541,000

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Preliminary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. Actual results could differ materially from those projected in the forward-looking statements set forth in this report. The factors that may cause results to differ materially from those projected include the overall economic decline in the aerospace industry due to both the recent economic downturn and the September 11 attacks, and the Company’s dependence on the success of its European Operations. Additional factors may also cause results to differ materially from those projected. A comprehensive list of additional factors has been included in our most recent Form 10-K filed via Edgar with the Securities and Exchange Commission on August 22, 2003, under the heading entitled “Risk Factors.” We urge you to read such information and the Company’s other recent filings with the Commission in detail. Information contained in this quarterly report was prepared by management based on the best information available to it as of the date of filing of this report, and management does not plan to update forward-looking statements to reflect new events or changing circumstances occurring after this report was filed.

Overview

Pacific Aerospace & Electronics, Inc. is an engineering and manufacturing company with operations in the United States and the United Kingdom. We design, manufacture and sell components and subassemblies used in technically demanding environments. Products that we produce primarily for the defense, electronics, telecommunications, energy and medical industries include components such as hermetically sealed electrical and fiber optic connectors, instrument packages and ceramic capacitors, filters and feed-throughs. Products that we produce primarily for the aerospace, transportation, and medical industries include machined, cast, and formed metal parts and subassemblies, using aluminum, titanium, magnesium, and other metals. Our customers include global leaders in all of these industries. We are organized into two operational groups: U.S. Operations and European Operations.

Critical Accounting Estimates and Policies

The discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including revenue recognition, the allowance for doubtful accounts, sales returns and allowances, the salability and recoverability of inventory, impairment of long-lived assets, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions, and such variations may be adverse.

We recognize revenue primarily when products are shipped to customers, title has transferred and when services are performed.

We must make estimates of the collectability of accounts receivable. We analyze historical sales returns, allowances, write-offs, changes in our internal credit policies and customer concentrations when evaluating the adequacy of our allowance for doubtful accounts, sales returns and allowances. Differences may result in the amount and timing of expenses for any period if we make different judgments or use different estimates.

We value inventories at the lower of cost, primarily determined by the first-in, first-out method, or market (replacement cost for raw materials and net realizable value for work in progress and finished goods). We regularly review inventory detail to determine whether a write-down is necessary. We consider various factors in making this determination, including recent sales history and predicted trends, industry market conditions and general economic conditions. Differences could result in the amount and timing of write-downs for any period if we make different judgments or use different estimates.

We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. Cash flows expected to be generated by an asset are estimated based upon historical cash flows from the asset, current and expected market conditions related to products produced by the asset and the asset’s disposal value. Those estimates may not be accurate if actual market conditions or disposal values are different than expected. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value of an asset is estimated to be the present value of its expected future cash flows. Present value of expected future cash flows is dependent upon identifying the appropriate interest rate to use in the calculation commensurate with the risks involved. We determine the appropriate interest rate for the calculation based upon the rate that would be required for a similar investment with like risks for the assets being evaluated. We report assets to be disposed of at the lower of the carrying amount or fair value less costs to sell. Differences could result in the amount or timing of write-downs for any period if we make different judgments or use different estimates.

We follow the asset and liability method of accounting for income taxes. Under the asset and liability method of accounting for income taxes, deferred tax assets and liabilities are recognized based on the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Differences could result in the amount and timing of our provision for income taxes for any period if we make different judgments or use different estimates.

The Company operates in two segments, U.S. Operations and European Operations. This is based on the fact that the Company’s chief operating decision maker, the Company’s chief executive officer, regularly reviews operating results, assesses performance and makes decisions about resources to be allocated at this level (U.S. Operations and European Operations) and not on any of the underlying divisions or business units that comprise these two segments.

Results of Operations

Quarter Ended August 31, 2003 Compared to Quarter Ended August 31, 2002

Net Sales. Net sales decreased by $1.4 million, or 8.7%, to $14.7 million for the quarter ended August 31, 2003, from $16.1 million for the quarter ended August 31, 2002. This decrease was due to a number of factors including the effects of our operational restructuring plans and various events that affected our markets. The European Operations contributed $10.1 million of net sales during the quarter ended August 31, 2003, up $0.8 million from the $9.3 million contributed during the quarter ended August 31, 2002. This increase was due to a small increase in tooling orders related to new Airbus aircraft models and due to higher average U.S. dollar to British pound exchange rates.

The U.S. Operations contributed $4.6 million to net sales during the quarter ended August 31, 2003, down $2.2 million from $6.8 million contributed during the quarter ended August 31, 2002. This decrease was primarily due to the sale of our U.S. Operations’ Boeing Statement of Work to an independent third party in January, 2003.

Receivable collection periods, as calculated by dividing ending accounts receivable balances by annualized sales for the quarter multiplied by 360 days, decreased to 67.7 days for the quarter ended August 31, 2003, from 70.3 days for the quarter ended August 31, 2002. This decrease was primarily due to collection efforts by management, primarily in our European Operations, during the first quarter ended August 31, 2003.

Gross Profit. Gross profit remained virtually unchanged at $1.9 million for the quarters ended August 31, 2002 and 2003. As a percentage of net sales, gross profit increased to 12.7% for the quarter ended August 31, 2003, from 12.1% for the quarter ended August 31, 2002. This increase was due to our effort to reduce production costs at our manufacturing facilities.

Inventory turnover, as calculated by dividing annualized sales for the quarter by ending inventory, increased to 3.7 turns for the quarter ended August 31, 2003 from 3.3 turns for the quarter ended August 31, 2002. The increase was primarily due to the write-down and sale of inventory associated with our U.S. Operations’ Boeing Statement of Work in January 2003.

Operating Expenses. Operating expenses decreased by $0.1 million, to $2.9 million for the quarter ended August 31, 2003, from $3.0 million for the quarter ended August 31, 2002. This decrease was primarily due to our effort to reduce operating expenses through reductions in corporate executive salaries, eliminating several executive positions, and other headcount reductions.

Interest Expense. Interest expense increased by $0.2 million, or 20.0%, to $1.2 million for the quarter ended August 31, 2003, from $1.0 million for the quarter ended August 31, 2002. This increase was primarily due to the increased original issue discount amortization on our $36.0 million face value senior secured notes.

Other Income (Expense). Other income represents non-operational income and expense for the quarter ended August 31, 2003, and consists primarily of the change in value of our interest rate swap instrument.

Provision for Income Tax Benefit (Expense). Income tax benefit for the quarter ended August 31, 2002 was derived from taxable losses in our foreign subsidiaries. No provision or benefit was recorded for U.S. or U.K. income tax during the quarter ended August 31, 2003.

Net Loss. Net loss increased by $0.2 million to a net loss of $2.0 million for the quarter ended August 31, 2003, from a net loss of $1.8 million for the quarter ended August 31, 2002, due to the factors listed above, primarily the increase in interest expense.

Liquidity and Capital Resources

Cash used by operating activities was $0.3 million during the three months ended August 31, 2003 compared to cash used by operating activities of $2.0 million during the three months ended August 31, 2002. The change in cash used by operating activities was due primarily to increased accounts receivable collections during the quarter ended August 31, 2003. Our future success as a company will depend heavily on our ability to generate cash from operating activities. We are focusing on cost reduction initiatives that specifically address the need to increase cash provided by operating activities. Some of these initiatives include staff reductions, reduced product line offerings, selling of excess inventory, and general and administrative cost controls.

Cash used in investing activities increased from $0.2 million during the three months ended August 31, 2002 to $0.3 million during the three months ended August 31, 2003. This increase was due to higher amounts of investment in manufacturing equipment and manufacturing facility improvements. We currently do not have any material commitments for capital equipment purchases.

Cash used in financing activities remained unchanged at $0.3 million during the three months ended August 31, 2003 and 2002. Cash used in financing activities was used primarily for line of credit and other debt payments during the three months ended August 31, 2003.

We translate the activity of our European Operations, whose functional currency is the British Pound Sterling, into U.S. Dollars on a monthly basis. The balance sheet of the European Operations is translated using the exchange rate as of the date of the balance sheet, and for purposes of the statement

of operations and statement of cash flows we use the weighted average exchange rate for the period. As a result, the value of our assets, liabilities, revenue, and expenses may vary materially from one reporting period to the next solely as a result of varying exchange rates.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, our independent auditors in their report accompanying our May 31, 2003 audited consolidated financial statements stated that we have suffered recurring losses from operations and had a net capital deficiency that raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If we are not sufficiently successful in generating cash from operating activities, we may need to sell additional common stock or other securities, or we may need to sell assets outside the ordinary course of business. Current market conditions, coupled with our current stock price, may pose difficulties in closing a securities offering on acceptable terms, or at all. Moreover, if we need to dispose of assets outside of the ordinary course of business to generate cash, we may not be able to realize the carrying value of those assets upon liquidation. If we are unable to generate the necessary cash, we could be unable to continue operations.

There was no significant change in our contractual commitments since May 31, 2003.

Subsequent Event

On September 18, 2003, we filed with the Securities and Exchange Commission a Schedule 13E-3 and a related preliminary proxy statement as part of our plan to become a privately held company. As disclosed in those filings, we currently intend to carry out a 1-for-11,000 reverse stock split to allow us to “go private.” We also intend to pay to our shareholders the fair market value for fractional shares resulting from the reverse split in accordance with Washington State law. Our current intent is to reduce our shareholder base to well below 300, thereby allowing us to terminate our registration under the Securities Exchange Act of 1934 and relieve us of the costs of being a public company, including the costs of filing annual and quarterly reports with the Securities and Exchange Commission, but our board of directors may elect to abandon or alter the terms of the reverse stock split and the going private transaction at any time prior to consummation. If the company does go private, there will no longer be any public trading market for our securities. We are currently awaiting comments from the Securities and Exchange Commission on our Schedule 13E-3 and preliminary proxy on file.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The Company has adopted the provisions of SFAS No. 143 during the first quarter of fiscal year 2004. The

adoption of this statement did not have a material impact on the Company’s consolidated financial position or results of operations.

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF 00-21, Revenue Arrangements with Multiple Deliverables, with respect to determining when and how to allocate revenue from sales with multiple deliverables. The EITF 00-21 consensus provides a framework for determining when and how to allocate revenue from sales with multiple deliverables based on a determination of whether the multiple deliverables qualify to be accounted for as separate units of accounting. The consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect that the adoption of this consensus will have a material impact on the Company’s consolidated results of operations or financial position.

In January 2003, the FASB issued Interpretation 46, “Consolidation of Variable Interest Entities.” In general, interpretation 46 requires a variable interest entity (as defined) to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FASB Interpretation 46 applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise obtains an interest after that date. The Company does not expect that the adoption of this interpretation will have a material impact on the Company’s consolidated financial statements as a whole.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have financial instruments that are subject to interest rate risk, primarily debt obligations issued at a fixed rate. Our fixed-rate debt obligations are generally not callable until maturity and therefore market fluctuations in interest rates will not affect our earnings for the period. Based upon this fact, we do not consider the market risk exposure for interest rates to be material. It is not practicable to estimate the fair value of our long-term debt due to our history of losses and debt defaults, among other factors. In addition, we have an interest rate swap with a notional value of $1,614,000 and which has a recorded fair value liability of $194,000 at August 31, 2003. The interest rate swap does not qualify for hedge accounting. We do not believe a 10% change in interest rates would have a material effect on the fair value of this instrument.

We are subject to foreign currency exchange rate risk relating to receipts from and payments to suppliers in currencies other than the functional currencies in which our business segments operate (the U.S. Dollar and the British Pound Sterling). Although we have significant foreign operations, transactions in currencies other than our functional currencies have historically not been significant, however they have been increasing. We also do not have significant transactions between our U.S. and European Operations. Historically, we have not experienced material foreign currency transaction gains and losses and do not anticipate any material foreign currency transaction gains or losses in the future. However, due to the increasing amounts of transactions in currencies other than our functional currency, in August 2003, we entered into a foreign currency derivative instrument that gives us the option but not the obligation to sell U.S. Dollars and buy British Pound Sterling at a specified strike price on various delivery dates from September 2003 through May 2004. The option to sell U.S. Dollars and buy British Pound Sterling at the specified strike price becomes an obligation if the spot exchange rate drops below a certain barrier rate during any of the window periods. The derivative does not qualify for hedge accounting treatment. The derivative had an immaterial fair market value at August 31, 2003.

The value of our assets, liabilities, revenue and expenses may vary materially from one reporting period to the next solely as a result of varying exchange rates between the British Pound Sterling and the U.S. Dollar. For example, British Pound Sterling was worth $1.6393 on May 31, 2003 but one British Pound Sterling was worth $1.5773 on August 31, 2003. As a result, we incurred a negative foreign currency translation adjustment of $907,000 during the quarter ended August 31, 2003.

We are exposed to commodity price fluctuations through purchases of aluminum, titanium, and other raw materials. We enter into certain supplier agreements that guarantee quantity and price of the applicable commodity to limit the exposure to commodity price fluctuations and availability concerns. At August 31, 2003, we had purchase commitments for raw materials aggregating approximately $1.3 million. This amount relates to a titanium supply agreement with a fixed price.

ITEM 4. CONTROLS AND PROCEDURES.

Our executive officers, including our Chief Executive Officer and Chief Financial Officer, are responsible for establishing and maintaining disclosure controls and procedures for Pacific Aerospace & Electronics, Inc and its subsidiaries. Those executives have designed such controls to ensure that all material information relating to Pacific Aerospace & Electronics, Inc. and its subsidiaries is made known to them by others within the organization.

As of August 31, 2003, our executive officers completed an evaluation of our disclosure controls and procedures and have determined them to be functioning properly and effectively. They did not discover

any significant deficiencies or material weaknesses within the controls and procedures that required modification.

There were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during our first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are involved in legal proceedings relating to claims arising out of operations in the normal course of business.

On November 26, 2002, we filed a lawsuit in the U.S. District Court for the Eastern District of Washington against certain former employees, RAAD Technologies, Inc., and certain of RAAD’s control persons and agents, for misappropriation of trade secrets and breach of contract. We moved for and, on June 20, 2003, the court granted a preliminary injunction, restraining certain of defendants’ business activities. On October 10, 2003, the court granted our motion for summary judgment on the breach of contract claims and asked us to submit a proposal for a permanent injunction against the defendants.

On February 18, 2003, RAAD Technologies, Inc. filed a lawsuit against us in the U.S. District Court for Western District of Washington (RAAD Technologies, Inc., v. Pacific Aerospace & Electronics, Inc.) seeking a ruling that one of RAAD’s products does not infringe our patents. This lawsuit was dismissed on August 12, 2003.

Other than as described above, the Company is not aware of any suits or proceedings that, if decided adversely to the Company, would have a material adverse effect upon the Company or its assets.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) None.

(b) Not applicable.

(d) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

from declaring covenant defaults until we regain compliance (thereby curing such covenant violations) or December 31, 2004.

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

None.

ITEM 5. OTHER INFORMATION

None.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits.

The following documents are filed as exhibits to this Quarterly Report:


Exhibit
Number		Description
3.1		Articles of Incorporation of Pacific Aerospace & Electronics, Inc. (1)
3.2		Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (2)
3.3		Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (3)
3.4		Articles of Amendment of Pacific Aerospace & Electronics, Inc. filed March 19, 2002. (4)
3.5		Designation of Rights and Preferences for Series C Voting Convertible Preferred Stock of Pacific Aerospace and Electronics, Inc. (4)
3.6		Bylaws of Pacific Aerospace & Electronics, Inc., as amended. (5)
31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). (6)
31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). (6)
32.1		Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. (6)
32.2		Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. (6)

(1)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger.

(2)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering.

(3)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ending May 31, 1998.

(4)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.

(5)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ending August 31, 2000.

(6)		Filed herewith.

b. Reports on Form 8-K.

None.

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.


		PACIFIC AEROSPACE & ELECTRONICS, INC

Date: October 15, 2003		/s/ Donald A. Wright

		Donald A. Wright
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: October 15, 2003		/s/ Charles A. Miracle

		Charles A. Miracle
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX

The following documents are filed as exhibits to this Quarterly Report:


Exhibit
Number		Description

3.1		Articles of Incorporation of Pacific Aerospace & Electronics, Inc. (1)
3.2		Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (2)
3.3		Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (3)
3.4		Articles of Amendment of Pacific Aerospace & Electronics, Inc. filed March 19, 2002. (4)
3.5		Designation of Rights and Preferences for Series C Voting Convertible Preferred Stock of Pacific Aerospace and Electronics, Inc. (4)
3.6		Bylaws of Pacific Aerospace & Electronics, Inc., as amended. (5)
31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). (6)
31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). (6)
32.1		Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. (6)
32.2		Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. (6)

(1)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger.

(2)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering.

(3)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ending May 31, 1998.

(4)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.

(5)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ending August 31, 2000.

(6)		Filed herewith.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents