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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, 2002

Commission File Number 0-2762

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

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          No           

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

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PART I

FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries

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See notes to consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries

See notes to consolidated financial statements

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

See notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
June 30, 2002
(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, 2002.

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 third and fourth quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s customers due to inclement weather 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.

	Certain other amounts in the consolidated financial statements have been reclassified to conform to the current presentation.

NOTE 2— INVENTORIES

	The major classes of inventories, at the dates indicated were as follows:

NOTE 3— 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 decline in the market value of Provant, Inc. common stock ($79,000 since March 31, 2002) has been recorded in investment and interest income for the quarter ended June 30, 2002 as the Company continued to deem this decline as other than temporary.

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NOTE 4— INVESTMENT IN INTEGRAL VISION, INC. (FORMERLY MEDAR, INC.)

The following table summarizes the operating results of Integral Vision, Inc., Maxco’s 24% owned affiliated company:

NOTE 5— EARNINGS PER SHARE

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

NOTE 6— COMPREHENSIVE INCOME

The components of comprehensive income for the three months ended June 30, 2002 and 2001 are as follows:

	The components of accumulated comprehensive income, net of related tax at June 30, 2002 and March 31, 2002 are as follows:

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NOTE 7— INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:

	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, export sales, or inter-segment sales.

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NOTE 8 — DEBT

The Company is currently in default of financial covenants required by one of its lenders. A forbearance agreement, which expires in less than one year, has been reached with another lender. As such, the outstanding balance on the borrowings with these lenders, $36.0 million at June 30, 2002, has been classified as current in the accompanying financial statements. There are ongoing negotiations with the lenders to amend their agreements and obtain any necessary waivers of default.

The Company has guaranteed various debt obligations of certain real estate investments of its less than majority owned entities in the aggregate amount of approximately $39.3 million as of June 30, 2002. Certain of the debt agreements are currently in default. Forbearance agreements have been issued by two of the respective banks and the applicable entities are currently working with the lenders to rectify the default issues. However, efforts to negotiate a forbearance agreement with one of the lenders, representing $12.5 million in loans guaranteed by Maxco and other guarantors, have currently stalled and the lender has delivered a Demand for Payment and Notice of Intent to Commence Foreclosure. The Company remains hopeful that negotiations with the lender will be successful or alternatively, the properties will be sold or refinanced. The Company believes that the agreement to sell its investment in L/M Associates II will significantly reduce the debt obligations it has guaranteed (see Note 13). 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.

The accompanying financial statements have been prepared on the basis that the Company will continue 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, 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 available under its credit 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 renegotiate its credit facilities, the Company has long term equity investments that could be liquidated within a year to meet its short term and long term debt service requirements and fund operating cash flows.

NOTE 9— FEDERAL INCOME TAXES

The Company’s effective tax rate varied from the statutory rate of 34% due to certain expenses, which are not deductible for tax purposes. Due to enacted changes in the tax law, the Company will carry back its net operating loss incurred in 2002 against the Company’s taxable income in 1997. As a result, the Company had a $2.0 million income tax receivable at June 30, 2002.

NOTE 10— 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 $306,000 at June 30, 2002.

NOTE 11— NEW FINANCIAL ACCOUNTING PRONOUNCEMENT

Effective April 1, 2002, the Company adopted SFAS No. 142 which resulted in the discontinuance of amortization of goodwill and indefinite-lived intangible assets that were recorded in connection with previous business combinations.

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Under SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed for impairment annually (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001.

During fiscal 2003, the Company will complete the first of the required impairment tests of goodwill and indefinite lived intangible assets under this statement. The Company has not determined the effect on the financial statements of potential impairment of adopting SFAS No. 142.

	The following table presents net income (loss) and net income (loss) per share information as if goodwill were no longer amortized as of April 1, 2001:

NOTE 12— INVESTMENT IN PROVANT, INC.

The Company has recorded $2.7 million in income representing its remaining share of the additional consideration to be received as one of the former shareholders of Strategic Interactive, Inc. (Maxco’s former 45% owned affiliate sold to Provant, Inc. in October 1998). The payment was to be made to the Company in cash, common stock, or a combination of both, at Provant’s option, in July 2002. Provant has proposed an extension of the payment date which Management is currently reviewing. An initial review of the proposal indicates that approximately $500,000 would not be collected within twelve months and consequently has been classified as long term.

NOTE 13— SUBSEQUENT EVENT

Maxco has an ownership interest 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 had an ownership interest. At March 31, 2002 Maxco’s ownership interest in the Master LLC was approximately 31%. The other LLC (L/M Associates) includes buildable sites on developed land, properties 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, began negotiations to sell the real estate portfolio of L/M Associates II, of which L/M Associates is the manager. 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. A preliminary closing occurred in August 2002. The transaction is expected to be completed by September 30, 2002.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
June 30, 2002

MATERIAL CHANGES IN FINANCIAL CONDITION
Cash used in operating activities amounted to $2.6 million for the quarter. Individual working capital component levels increased over the March 31, 2002 level, primarily from the increased sales activity by the Company’s construction supplies unit (Ersco) over the traditional slower fourth quarter of the prior year.

Cash was generated by investing activities during the quarter as a result of the sale of two buildings that were owned by the Company. These proceeds were used to retire the debt associated with the buildings.

Net proceeds from lines of credit were used primarily to fund the increase in working capital components.

At June 30, 2002, the Company classified certain of its borrowings as short term due to the Company being in default of certain covenants. A forbearance agreement has been reached with one of the lenders. There are ongoing negotiations with the lenders to amend their agreements and obtain any necessary waivers of default.

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, 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 available under the existing credit 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 renegotiate its credit facilities, the Company has liquid long term equity investments that could be used to meet its short term and long term debt service requirements and fund operating cash flows.

At June 30, 2002, the 2,240,605 shares of Integral Vision (formerly Medar) common stock that Maxco owns had an aggregate market value of approximately $762,000 ($358,000 at August 9, 2002). 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 June 30, 2002, the 249,230 shares of Provant common stock that Maxco owns had an aggregate market value of approximately $57,000 ($37,000 at August 9, 2002). 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.

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MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 Compared to 2001

Net sales decreased to $38.8 million compared to $44.6 million in last year’s first quarter. First quarter results reflect operating earnings of $489,000 compared to $1.2 million for the comparable period in 2001. Net loss was $418,000 or $.17 per share assuming dilution compared to last year’s net income of $404,000 or $.10 per share assuming dilution.

Sales and operating earnings for the three months ending June 30, 2002 and 2001 by each of the company’s segments were as follows:

The decrease in sales from the prior year first quarter at the Company’s construction supplies unit (Ersco) was due to weak commercial market conditions, increased competition, and the closing of an underperforming branch. Sales at the Company’s heat treating and packaging products units were comparable to the prior year first quarter.

Consolidated gross profit (net sales less cost of sales and operating expenses) decreased to $8.0 million or 20.6% of sales from $9.1 million or 20.5% of sales. The decrease in gross profit was primarily the result of the reduced sales at Ersco.

Selling, general, and administrative expenses (SG&A) were comparable to the prior year period.

The Company realized a gain of approximately $149,000 on the sale of two buildings that occurred during the quarter.

Depreciation and amortization expense for the three months ended June 30, 2002 decreased primarily as a result of the sale of buildings that were owned by the Company and, as a result of adopting FAS 142, the discontinuance of amortization of goodwill.

As a result of the above, operating earnings decreased to approximately $489,000 from $1.2 million in last year’s comparable period.

Net interest expense decreased from the prior year quarter due to lower borrowings and a reduction in the average interest rates associated with these borrowings.

Equity in earnings (loss) of affiliates decreased approximately $396,000 from earnings of $87,000 to a loss of $309,000.

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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 $3.6 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 $35.9 million at June 30, 2002. A 1% increase from the prevailing interest rates at June 30, 2002 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 $324,000 based on principal balances at June 30, 2002.

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PART II

OTHER INFORMATION

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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.

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Exhibit Index