SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

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, 2002
[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM TO

[ X ]

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

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002

[ ]

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.)

(Exact name of registrant as specified in its charter)


Washington (State or other jurisdiction of incorporation or organization)		91-1744587 (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 [ ]

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~~January 410, ~~2002~~2003, there were 90,734,386 shares outstanding of the Company’s Common Stock, par value $0.001 per share.

TABLE OF CONTENTS

PART 1 FINANCIAL INFORMATION
	ITEM 1: FINANCIAL STATEMENTS
		Condensed Consolidated Balance Sheets
		PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT’S STATEMENT AND NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
		Condensed Consolidated Statements of Cash Flows
		MANAGEMENT’S STATEMENT AND NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
	ITEM 5. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EXHIBIT 99.1

PART 1
FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets —– ~~August~~November 3130, 2002 and May 31, 2002

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) —– ~~First~~Second Quarters and Six Months Ended ~~August~~November 3130, 2002 and 2001.

Condensed Consolidated Statements of Cash Flow —– ~~First~~Six ~~Quarters~~Months Ended ~~August 31~~November 30, 2002 and 2001

Management’s Statement and Notes to Unaudited Condensed Consolidated Financial Statements —– ~~First~~Second Quarter and Six Months Ended ~~August~~November 3130, 2002

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets ~~August~~November 3130, 2002 and May 31, 2002 (Unaudited)

					August 31,				May 31,
				November 30,				May 31,
					2002				2002
Assets				2002				2002
Assets
Current assets:
Current assets:
		Cash		$	4,558,000				5,619,000
		Cash			$	3,342,000				5,619,000
		Accounts receivable, net			10,559,000				12,226,000
		Accounts receivable, net				12,543,000				12,226,000
		Inventories			19,936,000				19,606,000
		Inventories				19,786,000				19,606,000
		Deferred income taxes			—				118,000
		Deferred income taxes				125,000				118,000
		Prepaid expense and other current assets			1,909,000				463,000
		Prepaid expense and other current assets				1,871,000				463,000
			Total current assets		36,962,000				38,032,000
			Total current assets			37,667,000				38,032,000
Property, plant and equipment, net					22,361,000				23,315,000
Property, plant and equipment, net						23,055,000				23,315,000
Other assets:
Other assets:
		Goodwill, net			351,000				351,000
		Goodwill, net				351,000				351,000
		Patents, net			1,536,000				1,598,000
		Patents, net				1,567,000				1,598,000
		Deferred financing costs, net			1,042,000				1,147,000
		Deferred financing costs, net				1,095,000				1,147,000
		Other assets			180,000				226,000
		Other assets				202,000				226,000
			Total other assets		3,109,000				3,322,000
			Total other assets			3,215,000				3,322,000
				$	62,432,000				64,669,000
					$	63,937,000				64,669,000
	Liabilities and Stockholders’ Equity (Deficit)
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Current liabilities:
		Accounts payable		$	9,664,000				8,065,000
		Accounts payable			$	8,700,000				8,065,000
		Accrued liabilities			1,959,000				4,254,000
		Accrued liabilities				2,631,000				4,254,000
		Accrued interest			150,000				150,000
		Accrued interest				600,000				150,000
		Current portion of long-term debt			570,000				799,000
		Current portion of long-term debt				675,000				799,000
		Current portion of capital lease obligations			202,000				184,000
		Current portion of capital lease obligations				193,000				184,000
			Total current liabilities		12,545,000				13,452,000
			Total current liabilities			12,799,000				13,452,000
Long-term liabilities:
Long-term liabilities:
		Long-term debt, net of current portion			25,346,000				24,831,000
		Long-term debt, net of current portion				25,062,000				24,831,000
		Capital lease obligations, net of current portion			260,000				367,000
		Capital lease obligations, net of current portion				308,000				367,000
		Senior subordinated notes payable			25,739,000				25,739,000
		Senior subordinated notes payable				25,739,000				25,739,000
		Deferred income taxes			734,000				872,000
		Deferred income taxes				922,000				872,000
		Deferred rent and other			14,000				301,000
		Deferred rent and other				301,000				301,000
			Total liabilities		64,638,000				65,562,000
			Total liabilities			65,131,000				65,562,000
Series C convertible preferred stock					18,715,000				18,715,000
Series C convertible preferred stock						18,715,000				18,715,000
Stockholders’ equity (deficit):
Stockholders’ equity (deficit):
		Common stock			91,000				91,000
		Common stock				91,000				91,000
		Additional paid-in capital			87,070,000				87,070,000
		Additional paid-in capital				87,070,000				87,070,000
		Accumulated other comprehensive loss			(6,790,000	)			(8,389,000	)
		Accumulated other comprehensive loss				(6,924,000	)			(8,389,000	)
		Accumulated deficit			(101,292,000	)			(98,380,000	)
		Accumulated deficit				(100,146,000	)			(98,380,000	)
			Total stockholders’ equity (deficit)		(20,921,000	)			(19,608,000	)
			Total stockholders’ equity (deficit)			(19,909,000	)			(19,608,000	)
				$	62,432,000				64,669,000
					$	63,937,000				64,669,000

See accompanying notes to unaudited condensed consolidated financial statements.

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) ~~First~~Second Quarters and Six Months Ended ~~August~~November 3130, 2002 and 2001 (Unaudited)

				Quarters Ended	~~Quarters Ended~~							Six Months Ended
					August 31,				August 31,
				November 30,				November 30,				November 30,			November 30,
				2002	~~2002~~			2001	~~2001~~			2002			2001
Net sales				$	$16,453,000	~~16,056,000~~			21,579,000	~~23,429,000~~			32,509,000			45,008,000
Cost of sales					14,127,000	~~14,115,000~~			18,280,000	~~18,354,000~~			28,242,000			36,634,000
		Gross profit	~~Gross profit~~		2,326,000	~~1,941,000~~			3,299,000	~~5,075,000~~			4,267,000			8,374,000
Operating expenses					2,611,000	~~3,007,000~~			3,716,000	~~3,718,000~~			5,618,000			7,434,000
Income (loss) from operations					(285,000	~~(1,066,000~~)	)		(417,000	~~1,357,000~~)			(1,351,000	)		940,000
Other income (expense):
	Interest Income				38,000	~~26,000~~			33,000	~~8,000~~			64,000			41,000
	Interest Expense				(1,002,000	~~(972,000~~)	)		(4,423,000	~~(3,105,000~~)	)		(1,974,000	)		(7,528,000	)
	Other				60,000	~~12,000~~			(619,000	~~58,000~~)			72,000			(561,000	)
		Total other income (expense)	~~Total other income (expense)~~		(904,000	~~(934,000~~)	)		(5,009,000	~~(3,039,000~~)	)		(1,838,000	)		(8,048,000	)
Net loss before income tax benefit (expense)					(1,189,000	~~(2,000,000~~)	)		(5,426,000	~~(1,682,000~~)	)		(3,189,000	)		(7,108,000	)
Income tax benefit (expense)					43,000	~~234,000~~			(486,000	~~(362,000~~)	)		277,000			(848,000	)
Net loss					(1,146,000	~~(1,766,000~~)	)		(5,912,000	~~(2,044,000~~)	)		(2,912,000	)		(7,956,000	)
Other comprehensive loss:
Other comprehensive income (loss):
	Foreign currency translation				134,000	~~1,465,000~~			(444,000	~~582,000~~)			1,599,000			138,000
Comprehensive loss				$	$(1,012,000	~~(301,000~~)	)		(6,356,000	~~(1,462,000~~)	)		(1,313,000	)		(7,818,000	)
Net loss per share
	Basic			$	$(0.01	~~(0.02~~)	)		$(0.15	~~(0.05~~)	)		(0.03	)		(0.20	)
	Diluted				$(0.01	~~(0.02~~)	)		$(0.15	~~(0.05~~)	)		(0.03	)		(0.20	)
Shares used in computation of net loss per share:
	Basic				90,734,000	~~90,734,000~~			39,315,000	~~39,260,000~~			90,734,000			39,287,000
	Diluted				90,734,000	~~90,734,000~~			39,315,000	~~39,260,000~~			90,734,000			39,287,000

See accompanying notes to unaudited condensed consolidated financial statements.

PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows ~~First~~Six ~~Quarters~~Months Ended ~~August~~November 3130, 2002 and 2001 (Unaudited)

				Quarters Ended
				Six Months Ended
				August 31,			August 31,
				November 30,			November 30,
				2002			2001
Cash flow from operating activities:
		~~Net cash provided by (used in) operating activities~~	Net cash provided by (used in) operating activities	$	(1281,~~975,~~000	)	$	1823,~~398,~~000
Cash flow from investing activities:
	~~Acquisition of property, plant and equipment~~	Acquisition of property, plant and equipment			(~~248~~541,000	)		(~~878~~2,031,000	)
	~~Proceeds from sale of property, plant and equipment~~	Proceeds from sale of property, plant and equipment			14100,000			~~232~~73,000
		~~Net cash used in investing activities~~	Net cash used in investing activities		(~~234~~441,000	)		(~~646~~1,958,000	)
Cash flow from financing activities:
	~~Proceeds from long-term debt~~	Proceeds from long-term debt			—			3845,000
	~~Payments on long term debt and capital leases~~	Payments on long term debt and capital leases			(~~318~~597,000	)		(~~256~~533,000	)
	~~Sale of common stock, net of issuance costs~~	Sale of common stock, net of issuance costs			—			68,000
		Net cash provided by (used in) financing activities			(318,000	)		(150,000	)
			Net cash used in financing activities		(597,000	)		(420,000	)
Net increase (decrease) in cash					(2,527,000	)		602,000
Net decrease in cash					(1,319,000	)		(1,555,000	)
Effect of exchange rates on cash					~~250~~258,000			~~125~~73,000
Cash at beginning of period					5,619,000			4,095,000
Cash at end of period				$	34,~~342~~558,000		$	42,~~822~~613,000

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~~Second Quarter and Six Months Ended ~~August~~November 3130, 2002

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/A for the year ended May 31, 2002.

The results of operations for the quarter and six months ended ~~August~~November 3130, 2002 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~~November 3130, 2002 and 2001, 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~~November 3130, 2002 and 2001 were 4,954,852,965 and 10,800,391, respectively. The Company, however, does not have enough common shares reserved for issuance to accommodate the full exercise of all of its outstanding options, warrants, and convertible stock at this time.

(2) Inventories

Components of inventories are as follows:

		August 31,		May 31,
				May 31,
		2002		2002
		November 30, 2002		2002
Raw materials		$	3,~~525~~902,000	$	3,927,000
Work in progress			10,~~444~~236,000		10,085,000
Finished goods			5,~~817~~798,000		5,594,000
	Total	$	19,~~786~~936,000	$	19,606,000

(3) Going Concern

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

During the ~~three~~six months ended ~~August~~November 3130, 2002, cash used by operating activities was $1281,~~975,~~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. These initiatives include, but are not limited to, staff reductions, reduced product line offerings, selling of excess inventory, and general and administrative cost controls. In previous periods, the Company has also downsized, closed, or sold certain of its operations that had consistently produced negative cash flow. If the Company is not sufficiently successful in increasing cash provided by operating activities, it may need to sell additional common stock or other securities, 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 from operations, to sell additional common stock or other securities, or to sell its assets for amounts in excess of book value.

We were notified by one of our secured lenders that we are not in compliance with certain covenants of loans that are secured by a deed of trust on our headquarters building and other assets. Pursuant to a forbearance agreement dated December 19, 2002, our secured lender will forbear from declaring covenant defaults until the earlier of the date on which we regain compliance (thereby curing such covenant violations) or December 31, 2003.

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. For ease of comparison, discontinued or sold business units within the operational segments have been separated and identified as “Discontinued Divisions.”

~~Three months ended August 31, 2002~~7

								Corporate,
	U.S.		European			Discontinued		other and
	Operations		Operations			Divisions		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

~~Three~~Second ~~months~~quarter ended ~~August~~November 3130, ~~2001~~2002

Corporate,

U.S.

European

Discontinued

other and

Operations

Divisions

eliminations

Total

Net sales to customers

96,~~661~~755,000

129,~~800~~698,000

~~968,000~~—

—

2316,~~429~~453,000

Income (loss) from operations

21,~~613~~010,000

1(222,~~151,~~000

)

~~(690,000~~—

)

(1,~~717~~073,000

)

1(285,~~357,~~000

)

Identifiable assets

2623,~~888~~322,000

3532,~~065~~169,000

~~2,237,000~~—

126,~~906~~941,000

7762,~~096~~432,000

Capital expenditures

7218,000

~~713~~207,000

—

9368,000

~~878~~293,000

Depreciation and amortization

~~456~~400,000

490,000

~~55,000~~—

~~146~~113,000

1,~~147~~003,000

Interest income

—

813,000

—

—25,000

838,000

Interest expense

9244,000

~~954~~300,000

~~18,000~~—

2658,~~041,~~000

31,~~105~~002,000

Second quarter ended November 30, 2001


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

Net sales to customers	$	8,338,000		12,954,000		287,000			—			21,579,000
Income (loss) from operations		1,063,000		1,560,000		(1,895,000	)		(1,145,000	)		(417,000	)
Identifiable assets		28,354,000		35,298,000		353,000			10,062,000			74,067,000
Capital expenditures		136,000		943,000		—			74,000			1,153,000
Depreciation and amortization		431,000		506,000		44,000			148,000			1,129,000
Interest income		—		13,000		—			20,000			33,000
Interest expense		114,000		976,000		(13,000	)		3,346,000			4,423,000

Six months ended November 30, 2002


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

Net sales to customers	$	13,509,000		19,000,000			—		—			32,509,000
Income (loss) from operations		1,995,000		(1,069,000	)		—		(2,277,000	)		(1,351,000	)
Identifiable assets		23,322,000		32,169,000			—		6,941,000			62,432,000
Capital expenditures		106,000		367,000			—		68,000			541,000
Depreciation and amortization		800,000		980,000			—		239,000			2,019,000
Interest income		—		20,000			—		44,000			64,000
Interest expense		101,000		600,000			—		1,273,000			1,974,000

Six months ended November 30, 2001


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

Net sales to customers	$	17,999,000		25,754,000		1,255,000			—			45,008,000
Income (loss) from operations		3,676,000		2,711,000		(2,585,000	)		(2,862,000	)		940,000
Identifiable assets		28,354,000		35,298,000		353,000			10,062,000			74,067,000
Capital expenditures		208,000		1,656,000		—			167,000			2,031,000
Depreciation and amortization		887,000		996,000		99,000			294,000			2,276,000
Interest income		—		21,000		—			20,000			41,000
Interest expense		206,000		1,930,000		5,000			5,387,000			7,528,000

(5) 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~~November 3130, 2002

								GUARANTOR			NON-GUARANTOR
					PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
~~Assets~~				Assets
Current assets:
			Cash and cash equivalents		$	324,000		$	3,000		$	3,015,000		$	—		$	3,342,000
	Cash				$	662,000		$	3,000		$	3,893,000		$	—		$	4,558,000
	Accounts receivable, net		~~Accounts receivable, net~~			—			32,~~267~~924,000			97,~~289~~669,000			(1334,000	)		1210,~~543~~559,000
	Inventories		~~Inventories~~			—			1110,~~200~~553,000			89,~~586~~383,000			—			19,~~786~~936,000
	Other		~~Other~~			43,~~160~~221,000			95104,000			1,~~332~~359,000			(32,~~591~~775,000	)		1,~~996~~909,000
			Total current assets	~~Total current assets~~		43,~~484~~883,000			1413,~~565~~584,000			22,~~222~~304,000			(32,~~604~~809,000	)		3736,~~667~~962,000
Property, plant and equipment, net						4,~~773~~699,000			87,~~181~~797,000			109,~~101~~865,000			—			2322,~~055~~361,000
Other assets:
	Goodwill		~~Goodwill~~			—			351,000			—			—			351,000
	Investment in and loans to subsidiaries		~~Investment in and loans to subsidiaries~~			4241,~~594~~830,000			72,618,000			—			(~~115~~114,~~212~~448,000	)		—
	Other		~~Other~~			1,~~095~~042,000			1,~~769~~716,000			—			—			2,~~864~~758,000
			Total other assets	~~Total other assets~~		4342,~~689~~872,000			74,~~738~~685,000			—			(~~115~~114,~~212~~448,000	)		3,~~215~~109,000
			Total assets	~~Total assets~~	$	5251,~~946~~454,000		$	9796,~~484~~066,000		$	32,~~323~~169,000		$	(~~118~~117,~~816~~257,000	)	$	6362,~~937~~432,000
~~Liabilities and Stockholders’ Equity~~		Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		~~Accounts payable~~		$	3,~~012~~102,000		$	1,~~418~~075,000		$	45,~~283~~521,000		$	(1334,000	)	$	89,~~700~~664,000
	Current portion of long-term debt		~~Current portion of long-term debt~~			6661,000			~~609~~509,000			—			—			~~675~~570,000
	Other		~~Other~~			1520,~~193,~~000			1758,~~142,~~000			43,~~680~~808,000			(32,~~591~~775,000	)		32,~~424~~311,000
			Total current liabilities	~~Total current liabilities~~		43,~~271~~683,000			32,~~169~~342,000			89,~~963~~329,000			(32,~~604~~809,000	)		12,~~799~~545,000
Long-term liabilities:
	Long-term debt, net of current portion		~~Long-term debt, net of current portion~~			49,~~582~~977,000			1,~~219~~108,000			—			—			5051,~~801~~085,000
	Intercompany note and loan payable		~~Intercompany note and loan payable~~			—			7372,~~335~~810,000			36,957,000			(~~110~~109,~~292~~767,000	)		—
	Other		~~Other~~			~~287,000~~—			~~322~~274,000			~~922~~734,000			—			1,~~531~~008,000
			Total long-term liabilities	~~Total long-term liabilities~~		49,~~869~~977,000			74,~~876~~192,000			37,~~879~~691,000			(~~110~~109,~~292~~767,000	)		52,~~332~~093,000
Series C convertible preferred stock						18,715,000			—			—			—			18,715,000
Stockholders’ equity (deficit):
	Common stock		~~Common stock~~			91,000			56,139,000			33,709,000			(89,848,000	)		91,000
	Additional paid-in capital		~~Additional paid-in capital~~			87,070,000			—			—			—			87,070,000
	Accumulated other comprehensive loss		~~Accumulated other comprehensive loss~~			(6,~~924~~790,000	)		—			(6,~~924~~790,000	)		6,~~924~~790,000			(6,~~924~~790,000	)
	Accumulated deficit		~~Accumulated deficit~~			(~~100~~101,~~146~~292,000	)		(36,~~700~~607,000	)		(41,~~304~~770,000	)		78,~~004~~377,000			(~~100~~101,~~146~~292,000	)
			Total stockholders’ equity (deficit)	~~Total stockholders’ equity (deficit)~~		(1920,~~909~~921,000	)		19,~~439~~532,000			(14,~~519~~851,000	)		(4,~~920~~681,000	)		(1920,~~909~~921,000	)
			Total liabilities and stockholders’ equity (deficit)	~~Total liabilities and stockholders’ equity (deficit)~~	$	5251,~~946~~454,000		$	9796,~~484~~066,000		$	32,~~323~~169,000		$	(~~118~~117,~~816~~257,000	)	$	6362,~~937~~432,000

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
May 31, 2002

								GUARANTOR			NON-GUARANTOR
					PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
~~Assets~~				Assets
Current assets:
		Cash and cash equivalents			$	803,000		$	3,000		$	4,813,000		$	—		$	5,619,000
	Cash				$	803,000		$	3,000		$	4,813,000		$	—		$	5,619,000
	Accounts receivable, net	~~Accounts receivable, net~~				—			3,298,000			9,022,000			(94,000	)		12,226,000
	Inventories	~~Inventories~~				—			11,249,000			8,357,000			—			19,606,000
	Other	~~Other~~				3,717,000			159,000			298,000			(3,593,000	)		581,000
			Total current assets			4,520,000			14,709,000			22,490,000			(3,687,000	)		38,032,000
Property, plant and equipment, net						4,899,000			8,554,000			9,862,000			—			23,315,000
Other assets:
	Goodwill	~~Goodwill~~				—			351,000			—			—			351,000
	Investment in and loans to subsidiaries	~~Investment in and loans to subsidiaries~~				40,907,000			72,618,000			—			(113,525,000	)		—
	Other	~~Other~~				1,147,000			1,824,000			—			—			2,971,000
			Total other assets			42,054,000			74,793,000			—			(113,525,000	)		3,322,000
			Total assets		$	51,473,000		$	98,056,000		$	32,352,000		$	(117,212,000	)	$	64,669,000
~~Liabilities and Stockholders’ Equity~~		Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable	~~Accounts payable~~			$	1,849,000		$	1,844,000		$	4,466,000		$	(94,000	)	$	8,065,000
	Current portion of long-term debt	~~Current portion of long-term debt~~				65,000			734,000			—			—			799,000
	Other	~~Other~~				941,000			2,105,000			5,135,000			(3,593,000	)		4,588,000
			Total current liabilities			2,855,000			4,683,000			9,601,000			(3,687,000	)		13,452,000
Long-term liabilities:
	Long-term debt, net of current portion	~~Long-term debt, net of current portion~~				49,223,000			1,347,000			—			—			50,570,000
	Intercompany note and loan payable	~~Intercompany note and loan payable~~				—			72,223,000			36,957,000			(109,180,000	)		—
	Other	~~Other~~				288,000			380,000			872,000			—			1,540,000
			Total long-term liabilities			49,511,000			73,950,000			37,829,000			(109,180,000	)		52,110,000
Series C convertible preferred stock						18,715,000			—			—			—			18,715,000
Stockholders’ equity (deficit):
	Common stock	~~Common stock~~				91,000			56,139,000			33,709,000			(89,848,000	)		91,000
	Additional paid-in capital	~~Additional paid-in capital~~				87,070,000			—			—			—			87,070,000
	Accumulated other comprehensive loss	~~Accumulated other comprehensive loss~~				(8,389,000	)		—			(8,389,000	)		8,389,000			(8,389,000	)
	Accumulated deficit	~~Accumulated deficit~~				(98,380,000	)		(36,716,000	)		(40,398,000	)		77,114,000			(98,380,000	)
			Total stockholders’ equity (deficit)			(19,608,000	)		19,423,000			(15,078,000	)		(4,345,000	)		(19,608,000	)
			Total liabilities and stockholders’ equity (deficit)		$	51,473,000		$	98,056,000		$	32,352,000		$	(117,212,000	)	$	64,669,000

Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) For the Quarter Ended ~~August~~November 3130, 2002

						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
Net Sales			$	—		$	6,~~858~~949,000		$	9,~~302~~698,000		$	(~~104~~194,000	)	$	16,~~056~~453,000
Cost of Sales				—			5,~~158~~291,000			9,~~061~~030,000			(~~104~~194,000	)		14,~~115~~127,000
	Gross profit			—			1,~~700~~658,000			~~241~~668,000			—			12,~~941~~326,000
Operating expenses				1,~~199~~078,000			1,~~626~~548,000			1890,~~088,~~000			(~~906~~905,000	)		32,~~007~~611,000
	Income (loss) from operations			(1,~~199~~078,000	)		74110,000			(~~847~~222,000	)		~~906~~905,000			(1285,~~066,~~000	)
Other income (expense):
	Parent’s share of subsidiaries net loss			(~~890~~373,000	)		—			—			~~890~~373,000			—
	Interest expense			(~~916~~957,000	)		(~~356~~345,000	)		(300,000	)		600,000			(~~972~~1,002,000	)
	Other			1,~~239~~262,000			~~298~~328,000			713,000			(1,~~506~~505,000	)		3898,000
		Total other income (expense)		(~~567~~68,000	)		(5817,000	)		(~~293~~287,000	)		(16532,000	)		(~~934~~904,000	)
	Income (loss) before income taxes			(1,~~766~~146,000	)		1693,000			(1509,~~140,~~000	)		~~890~~373,000			(21,~~000~~189,000	)
Income tax benefit (expense)				—			—			~~234~~43,000			—			~~234~~43,000
	Net income (loss)			(1,~~766~~146,000	)		1693,000			(~~906~~466,000	)		~~890~~373,000			(1,~~766~~146,000	)
Other comprehensive income (loss)
Other comprehensive income (loss) Foreign currency translation, net of tax				134,000			—			134,000			(134,000	)		134,000
	Foreign currency translation, net of tax			1,465,000			—			1,465,000			(1,465,000	)		1,465,000
	Comprehensive income (loss)		$	(1,012,000	)	$	93,000		$	(332,000	)	$	239,000		$	(1,012,000	)
	Comprehensive income (loss)		$	(301,000	)	$	16,000		$	559,000		$	(575,000	)	$	(301,000	)

Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) For the Quarter Ended ~~August~~November 3130, 2001

							GUARANTOR	~~GUARANTOR~~			NON-GUARANTOR	~~NON-GUARANTOR~~
			PARENT	~~PARENT~~			SUBSIDIARIES	~~SUBSIDIARIES~~			SUBSIDIARIES	~~SUBSIDIARIES~~			ELIMINATIONS	~~ELIMINATIONS~~			CONSOLIDATED	~~CONSOLIDATED~~
Net Sales			$	$—	—		$	$8,783,000	~~10,829,000~~		$	$12,954,000	~~12,800,000~~		$	$(158,000	~~(200,000~~)	)	$	$21,579,000	~~23,429,000~~
Cost of Sales				—	—			7,959,000	~~7,666,000~~			10,479,000	~~10,888,000~~			(158,000	~~(200,000~~)	)		18,280,000	~~18,354,000~~
	Gross profit			—	—			824,000	~~3,163,000~~			2,475,000	~~1,912,000~~			—	—			3,299,000	~~5,075,000~~
Operating expenses				1,203,000	~~1,660,000~~			2,823,000	~~2,522,000~~			915,000	~~761,000~~			(1,225,000	~~(1,225,000~~)	)		3,716,000	~~3,718,000~~
	Income (loss) from operations			(1,203,000	~~(1,660,000~~)	)		(1,999,000	~~641,000~~)			1,560,000	~~1,151,000~~			1,225,000	~~1,225,000~~			(417,000	~~1,357,000~~)
Other income (expense):
Other income (expense)
	Parent’s share of subsidiaries net loss			(2,460,000	~~416,000~~)			—	—			—	—			2,460,000	~~(416,000~~	)		—	—
	Interest expense			(4,314,000	~~(2,984,000~~)	)		(1,065,000	~~(1,055,000~~)	)		(976,000	~~(954,000~~)	)		1,932,000	~~1,888,000~~			(4,423,000	~~(3,105,000~~)	)
	Other			2,065,000	~~2,184,000~~			494,000	~~986,000~~			12,000	~~9,000~~			(3,157,000	~~(3,113,000~~)	)		(586,000	~~66,000~~)
	Total other income (expense)	~~Total other income (expense)~~		(4,709,000	~~(384,000~~)	)		(571,000	~~(69,000~~)	)		(964,000	~~(945,000~~)	)		1,235,000	~~(1,641,000~~	)		(5,009,000	~~(3,039,000~~)	)
	Income (loss) before income taxes			(5,912,000	~~(2,044,000~~)	)		(2,570,000	~~572,000~~)			596,000	~~206,000~~			2,460,000	~~(416,000~~	)		(5,426,000	~~(1,682,000~~)	)
Income tax benefit (expense)				—	—			—	—			(486,000	~~(362,000~~)	)		—	—			(486,000	~~(362,000~~)	)
	Net income (loss)			(5,912,000	~~(2,044,000~~)	)		(2,570,000	~~572,000~~)			110,000	~~(156,000~~	)		2,460,000	~~(416,000~~	)		(5,912,000	~~(2,044,000~~)	)
Other comprehensive income (loss)
Other comprehensive income (loss) Foreign currency translation				(444,000	)			—				(444,000	)			444,000				(444,000	)
	Foreign currency translation, net of tax				592,000				—				592,000				(592,000	)			592,000
	Comprehensive income (loss)		$	(6,356,000	)		$	(2,570,000	)		$	(334,000	)		$	2,904,000			$	(6,356,000	)
	Comprehensive income (loss)			$	(1,452,000	)		$	572,000			$	436,000			$	(1,008,000	)		$	(1,452,000	)

Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of ~~Cash~~Operations ~~Flows~~and Comprehensive Income (Loss) For the ~~Quarter~~Six Months Ended ~~August~~November 3130, 2002

								GUARANTOR	~~GUARANTOR~~			NON-GUARANTOR	~~NON-GUARANTOR~~
				PARENT	~~PARENT~~			SUBSIDIARIES	~~SUBSIDIARIES~~			SUBSIDIARIES	~~SUBSIDIARIES~~			ELIMINATIONS	~~ELIMINATIONS~~			CONSOLIDATED	~~CONSOLIDATED~~
Cash flow from operating activities:
Net Sales				$	—			$	13,807,000			$	19,000,000			$	(298,000	)		$	32,509,000
			Net cash provided by (used in) operating activities		$	249,000			$	(336,000	)		$	(1,888,000	)		$	—			$	(1,975,000	)
Cost of Sales					—				10,449,000				18,091,000				(298,000	)			28,242,000
Cash flow from investing activities:
	Gross profit				—				3,358,000				909,000				—				4,267,000
	Acquisition of property, plant and equipment					—				(88,000	)			(160,000	)			—				(248,000	)
Operating expenses					2,277,000				3,174,000				1,978,000				(1,811,000	)			5,618,000
	Proceeds from sale of property, plant and equipment					—				14,000				—				—				14,000
	Income (loss) from operations				(2,277,000	)			184,000				(1,069,000	)			1,811,000				(1,351,000	)
	Investment in and loans to subsidiaries					(713,000	)			713,000								—				—
Other income (expense):
		Net cash provided by (used in) investing activities				(713,000	)			639,000				(160,000	)			—				(234,000	)
	Parent’s share of subsidiaries net loss				(1,263,000	)			—				—				1,263,000				—
Cash flow from financing activities:
	Interest expense				(1,873,000	)			(701,000	)			(600,000	)			1,200,000				(1,974,000	)
	Payments on long-term debt and capital leases					(15,000	)			(303,000	)			—				—				(318,000	)
	Other				2,501,000				626,000				20,000				(3,011,000	)			136,000
	Other changes, net					—				—				—				—				—
		Total other income (expense)			(635,000	)			(75,000	)			(580,000	)			(548,000	)			(1,838,000	)
		Net cash provided by (used in) financing activities				(15,000	)			(303,000	)			—				—				(318,000	)
	Income (loss) before income taxes				(2,912,000	)			109,000				(1,649,000	)			1,263,000				(3,189,000	)
	Net change in cash and cash equivalents					(479,000	)			—				(2,048,000	)			—				(2,527,000	)
Income tax benefit (expense)					—				—				277,000				—				277,000
Cash and cash equivalents at beginning of period						803,000				3,000				4,813,000				—				5,619,000
	Net income (loss)				(2,912,000	)			109,000				(1,372,000	)			1,263,000				(2,912,000	)
Effect of exchange rates on cash						—				—				250,000								250,000
Other comprehensive income (loss) Foreign currency translation, net of tax					1,599,000				—				1,599,000				(1,599,000	)			1,599,000
Cash and cash equivalents at end of period					$	324,000			$	3,000			$	3,015,000			$	—			$	3,342,000
	Comprehensive income (loss)			$	(1,313,000	)		$	109,000			$	227,000			$	(336,000	)		$	(1,313,000	)
Supplemental cash flow:
	Noncash operating expenses related to:
		Depreciation			$	126,000			$	369,000			$	490,000			$	—			$	985,000
		Amortization				—				31,000				—				—				31,000
	Cash paid during the period for:
		Interest			$	38,000			$	357,000			$	300,000			$	(600,000	)		$	95,000
		Income taxes				—				—				168,000				—				168,000

							GUARANTOR		~~GUARANTOR~~		NON-GUARANTOR		~~NON-GUARANTOR~~
			PARENT		~~PARENT~~		SUBSIDIARIES		~~SUBSIDIARIES~~		SUBSIDIARIES		~~SUBSIDIARIES~~		ELIMINATIONS		~~ELIMINATIONS~~		CONSOLIDATED		~~CONSOLIDATED~~
Cash flow from operating activities:
Net Sales			$	—			$	19,612,000			$	25,754,000			$	(358,000	)		$	45,008,000
			Net cash provided by (used in) operating activities		$	(844,000	)		$	421,000			$	1,821,000			$	—			$	1,398,000
Cost of Sales				—				15,625,000				21,367,000				(358,000	)			36,634,000
Cash flow from investing activities:
	Gross profit			—				3,987,000				4,387,000				—				8,374,000
	Acquisition of property, plant and equipment					(94,000	)			(71,000	)			(713,000	)			—				(878,000	)
Operating expenses				2,821,000				5,387,000				1,676,000				(2,450,000	)			7,434,000
	Proceeds from sale of property, plant and equipment					52,000				180,000				—				—				232,000
	Income (loss) from operations			(2,821,000	)			(1,400,000	)			2,711,000				2,450,000				940,000
	Investment in and loans to subsidiaries					313,000				(313,000	)			—				—				—
Other income (expense)
		Net cash provided by (used in) investing activities				271,000				(204,000	)			(713,000	)			—				(646,000	)
	Parent’s share of subsidiaries net loss			(2,086,000	)			—				—				2,086,000				—
Cash flow from financing activities:
	Interest expense			(7,298,000	)			(2,120,000	)			(1,930,000	)			3,820,000				(7,528,000	)
	Payments on long-term debt and capital leases					(73,000	)			(172,000	)			(11,000	)			—				(256,000	)
	Other			4,249,000				1,480,000				21,000				(6,270,000	)			(520,000	)
	Proceeds from sale of common stock, net					68,000				—				—				—				68,000
	Total other income (expense)			(5,135,000	)			(640,000	)			(1,909,000	)			(364,000	)			(8,048,000	)
	Other changes, net					38,000				—				—				—				38,000
	Income (loss) before income taxes			(7,956,000	)			(2,040,000	)			802,000				2,086,000				(7,108,000	)
		Net cash provided by (used in) financing activities				33,000				(172,000	)			(11,000	)			—				(150,000	)
Income tax benefit (expense)				—				—				(848,000	)			—				(848,000	)
	Net change in cash and cash equivalents					(540,000	)			45,000				1,097,000				—				602,000
	Net income (loss)			(7,956,000	)			(2,040,000	)			(46,000	)			2,086,000				(7,956,000	)
Cash and cash equivalents at beginning of period						1,134,000				3,000				2,958,000				—				4,095,000
Other comprehensive income (loss)
Effect of exchange rates on cash						—				—				125,000								125,000
	Foreign currency translation			138,000				—				138,000				(138,000	)			138,000
Cash and cash equivalents at end of period					$	594,000			$	48,000			$	4,180,000			$	—			$	4,822,000
	Comprehensive income (loss)		$	(7,818,000	)		$	(2,040,000	)		$	92,000			$	1,948,000			$	(7,818,000	)
Supplemental cash flow:
	Noncash operating expenses related to:
		Depreciation			$	146,000			$	494,000			$	490,000			$	—			$	1,130,000
		Amortization				—				17,000				—				—				17,000
	Cash paid during the period for:
		Interest			$	605,000			$	652,000			$	552,000			$	(1,084,000	)		$	725,000
		Income taxes				—				—				—				—				—

~~Inventories~~Pacific ~~consist~~Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the ~~following:~~Six Months Ended November 30, 2002

			August 31,				May 31,
								GUARANTOR			NON-GUARANTOR
			2002				2002
				PARENT				SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
Guarantor subsidiaries
Cash flow from operating activities:
	Raw materials		$	2,433,000			$	2,796,000
		Net cash provided by (used in) operating activities		$	120,000			$	410,000		$	(811,000	)	$	—		$	(281,000	)
	Work in progress			3,198,000				3,122,000
Cash flow from investing activities:
	Finished goods			5,569,000				5,331,000
	Acquisition of property, plant and equipment				(68,000	)			(106,000	)		(367,000	)		—			(541,000	)
			$	11,200,000			$	11,249,000
	Proceeds from sale of property, plant and equipment				25,000				75,000			—			—			100,000
Non-guarantor subsidiaries
	Investment in and loans to subsidiaries				(172,000	)			172,000			—			—			—
	Raw materials		$	1,092,000			$	1,131,000
		Net cash provided by (used in) investing activities			(215,000	)			141,000			(367,000	)		—			(441,000	)
	Work in progress			7,246,000				6,963,000
Cash flow from financing activities:
	Finished goods			248,000				263,000
	Payments on long-term debt and capital leases				(46,000	)			(551,000	)		—			—			(597,000	)
			$	8,586,000			$	8,357,000
	Other changes, net				—				—			—			—			—
		Net cash provided by (used in) financing activities			(46,000	)			(551,000	)		—			—			(597,000	)
	Net change in cash and cash equivalents				(141,000	)			—			(1,178,000	)		—			(1,319,000	)
Effect of exchange rates on cash					—				—			258,000			—			258,000
Cash at beginning of period					803,000				3,000			4,813,000			—			5,619,000
Cash at end of period				$	662,000			$	3,000		$	3,893,000		$	—		$	4,558,000
Supplemental cash flow:
	Noncash operating expenses related to:
		Depreciation		$	239,000			$	738,000		$	980,000		$	—		$	1,957,000
		Amortization			—				62,000			—			—			62,000
	Cash paid during the period for:
		Interest		$	974,000			$	101,000		$	1,400,000		$	(1,400,000	)	$	1,075,000
		Income taxes			—				—			168,000			—			168,000

Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Six Months Ended November 30, 2001


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED

CASH FLOW FROM OPERATING ACTIVITIES:
		Net cash provided by (used in) operating activities	$	(656,000	)	$	252,000		$	1,227,000		$	—		$	823,000
CASH FLOW FROM INVESTING ACTIVITIES:
	Acquisition of property, plant and equipment			(167,000	)		(208,000	)		(1,656,000	)		—			(2,031,000	)
	Proceeds from sale of property, plant and equipment			52,000			21,000			—			—			73,000
	Investment in and loans to subsidiaries			(275,000	)		—			—			275,000			—

		Net cash provided by (used in) investing activities		(390,000	)		(187,000	)		(1,656,000	)		275,000			(1,958,000	)
CASH FLOW FROM FINANCING ACTIVITIES:
	Payments on long-term debt and capital leases			(108,000	)		(316,000	)		(109,000	)		—			(533,000	)
	Proceeds from sale of common stock, net			68,000			—			—			—			68,000
	Other changes, net			65,000			255,000			—			(275,000	)		45,000

		Net cash provided by (used in) financing activities		25,000			(61,000	)		(109,000	)		(275,000	)		(420,000	)
	Net change in cash and cash equivalents			(1,021,000	)		4,000			(538,000	)		—			(1,555,000	)
Effect of exchange rates on cash				—			—			73,000			—			73,000
Cash at beginning of period				1,134,000			3,000			2,958,000			—			4,095,000

Cash at end of period			$	113,000		$	7,000		$	2,493,000		$	—		$	2,613,000

SUPPLEMENTAL CASH FLOW:
	Noncash operating expenses related to:
		Depreciation	$	294,000		$	952,000		$	996,000		$	—		$	2,242,000
		Amortization		—			34,000			—			—			34,000
	Cash paid during the period for:
		Interest	$	641,000		$	211,000		$	1,121,000		$	(1,101,000	)	$	872,000
		Income taxes		—			—			375,000			—			375,000

Inventories consist of the following:


		November 30,		May 31,
		2002		2002

Guarantor subsidiaries
	Raw materials	$	2,496,000	$	2,796,000
	Work in progress		2,559,000		3,122,000
	Finished goods		5,498,000		5,331,000

		$	10,553,000	$	11,249,000

Non-guarantor subsidiaries
	Raw materials	$	1,406,000	$	1,131,000
	Work in progress		7,677,000		6,963,000
	Finished goods		300,000		263,000

		$	9,383,000	$	8,357,000

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~~Some of 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~~ 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~~, however~~. AWe ~~comprehensive~~have included a more complete list of ~~additional~~ additional factors ~~has~~that ~~been~~could ~~included~~adversely impact our results of operations and our financial condition in our most recent Form 10-K/A filed via Edgar with the Securities and Exchange Commission on ~~September~~December 106, 2002, 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~~For ~~that we produce primarily for~~ the defense, electronics, telecommunications, energy and medical industries ~~include components~~we produce such components as hermetically sealed electrical and fiber optic connectors and instrument packages and ceramic capacitors, filters and feed-throughs. ~~Products~~ ~~that~~We wealso 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~~for the aerospace, transportation and medical device industries. Our customers include global leaders in all of these industries. We are ~~organized~~ 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 condensed 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 and when services are performed. In certain instances we recognize revenues from long-term, fixed-price contracts on the percentage of completion method measured by cost. Contract costs for long-term contracts include all direct material and labor costs related to contract performance. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined. Contract costs are

1719

~~direct material~~estimated ~~and~~at ~~labor~~the ~~costs~~beginning ~~related~~of toeach contract ~~performance.~~which ~~Provisions~~establishes ~~for~~ our estimated profitability ~~losses~~related onto ~~uncompleted~~the ~~contracts~~contract. Our initial estimates of cost are uncertain ~~made~~and inmay ~~the~~need ~~period~~to inbe ~~which losses~~revised ~~are~~due ~~determined.~~to ~~Changes~~changes in job performance, job conditions, ~~and estimated profitability, including those arising from~~ contract ~~penalty~~forfeiture provisions, and final contract settlements ~~may~~. ~~result~~Revisions ~~in revisions~~ to costs and income ~~and~~ are recognized in the period in which the revisions are determined. Profit incentives are included in revenue when their realization is reasonably assured. When formal customer approval is necessary, we defer revenue recognition until such approval is received. ~~Differences~~ Differences could result in changes to the amount and timing of the recorded revenues if we make different judgments or use different estimates.

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~~fair ~~realizable~~ value for work in progress and finished goods). We regularly ~~review~~ review inventory detail to determine whether a write-down is necessary. We ~~consider~~ consider various factors in making this determination, including recent sales ~~history~~ history and predicted trends, ~~industry~~as ~~market~~well ~~conditions~~as industry and general economic conditions. Differences could result in the amount orof 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 ~~exceed~~ 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 of timing 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. ~~The~~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.

1820

Results of Operations

Quarter Ended ~~August~~November 3130, 2002 Compared to Quarter Ended ~~August~~November 3130, 2001

Net Sales. Net sales decreased by $75.42 million, or 3124.61%, to $16.04 million for the quarter ended ~~August~~November 3130, 2002, from $2321.46 million for the quarter ~~ended~~ ~~August~~ended November 3130, 2001. This decrease was due to a number of factors including ~~the~~ the effects of our operational restructuring plan and various events that ~~affected~~ affected our markets. The European Operations contributed $9.37 million of net sales during the quarter ended ~~August~~November 3130, 2002, down $3.53 million from the $1213.80 million contributed during the quarter ended ~~August~~November 3130, 2001. Following the tragic events of September 11, the commercial aerospace market in the U.S. and Europe saw a significant decline. Boeing and Airbus have both announced substantial cuts in their planned commercial aircraft build rates. The decrease in net sales contributed by our European Aerospace Group is largely attributable to reduced, postponed, or cancelled orders from commercial aircraft manufacturers.

The U.S. Operations contributed $6.8 million to net sales during the quarter ended ~~August~~November 3130, 2002, down $31.8 million from $108.6 million contributed during the quarter ended ~~August~~November 3130, 2001. This decrease was primarily due to the reduction in orders from commercial aircraft manufacturers which was caused by the same market conditions experienced by the European Operations. ~~The~~We also ~~decrease~~experienced decreases in net sales ~~also~~because ~~relates~~of toour ~~divisions~~operational restructuring, in which we discontinued some operations that ~~have~~previously had been ~~discontinued.~~unprofitable or that had contributed only nominal profits. Those divisions collectively had contributed $1.0.3 million to net sales for the quarter ended ~~August~~November 3130, 2001, but did not contribute any net sales during the quarter ended ~~August~~November 3130, 2002.

Receivable collection periods, as calculated by dividing ending accounts receivable balances by annualized sales for the quarter multiplied by 360 days, ~~increased~~decreased to 7057.38 days for the quarter ended ~~August~~November 3130, 2002, from 6472.38 days for the quarter ended ~~August~~November 3130, 2001. This ~~increase~~decrease was primarily due to a ~~revenue~~concerted ~~decreases~~focus ~~during~~by ~~the~~management ~~first~~to ~~quarter~~increase ~~ended~~collection ~~August 31~~efforts, ~~2002~~primarily within the European Operations.

Gross Profit. Gross profit decreased by $31.20 million, or 6230.73%, to $12.93 million for the quarter ended ~~August~~November 3130, 2002, from $53.13 million for the quarter ended ~~August~~November 3130, 2001. As a percentage of net sales, gross profit decreased to 1214.1% for the quarter ended ~~August~~November 3130, 2002, from 2115.73% for the quarter ended ~~August~~November 3130, 2001. This decrease was due to the reduction in revenue associated with the commercial aerospace industry, while many of our costs are fixed.

Inventory turnover, as calculated by dividing annualized sales for the quarter by ending inventory, decreased to 3.3 turns for the quarter ended ~~August~~November 3130, 2002 from 4.30 turns for the quarter ended ~~August~~November 3130, 2001. The decrease was due to lower average sales volumes without a significant decrease in inventory levels.

Operating Expenses. Operating expenses decreased by $01.71 million, to $32.06 million for the quarter ended ~~August~~November 3130, 2002, from $3.7 million for the quarter ended ~~August~~November 3130, 2001. This decrease was primarily due to the disposition of our Engineering & Fabrication and Display Divisions. In an effort to reduce operating expenses further, asand ~~well~~to asincrease ~~increasing~~ our gross profit, we have significantly reduced our corporate overhead ~~including reduction~~by inreducing corporate executive salaries, eliminating several executive positions, and other headcount reductions. We have also reduced headcount at our operating facilities in the U.S. and in the U.K. We are in process of consolidating our manufacturing sites and have sold or are in process of selling excess machinery. We are also outsourcing certain operating functions along with implementing ~~lean~~ production processes we expect to be more efficient.

Interest Expense. Interest expense decreased by $23.14 million, or 6777.73%, to $1.0 million for the quarter ended ~~August~~November 3130, 2002, from $34.14 million for the quarter ended ~~August~~November 3130, 2001. This decrease ~~was due to our March 2002 debt~~ ~~restructuring.~~

1921

~~Other~~was ~~Income~~due ~~(Expense).~~to ~~Other~~our ~~income~~March ~~represents~~2002 ~~non-operational~~debt ~~income~~restructuring, ~~and expense~~which ~~for~~is ~~the~~detailed ~~quarter~~in ~~ended~~our ~~August 31,~~related and ~~2002,~~subsequent ~~primarily~~filings ~~interest~~with ~~income~~the Securities and Exchange Commission.

~~Provision~~Other ~~for~~ Income ~~Tax Benefit~~ (Expense). ~~Income~~Other ~~tax~~income ~~benefit~~represents non-operational income and expense for the quarter ended ~~August~~November 3130, 2002, ~~was~~primarily ~~derived~~interest ~~from~~income ~~taxable losses in our foreign~~and ~~subsidiaries,~~gain noon ~~provision~~the orsale ~~benefit~~of ~~was~~certain ~~recorded for U~~assets.~~S. income tax during~~ ~~the quarter.~~

~~Net~~Provision for Income Tax Benefit (~~Loss~~Expense). ~~Net~~Income ~~loss~~tax ~~decreased~~benefit ~~by $0.2 million to a net loss of $1.8 million~~ for the quarter ended ~~August~~November 3130, 2002, was derived from ataxable ~~net~~losses ~~loss~~in ofour ~~$2.0 million~~foreign ~~for~~subsidiaries, ~~the~~no ~~quarter~~provision ~~ended~~or ~~August 31,~~benefit ~~2001,~~was ~~due~~recorded tofor ~~the~~U.S. ~~factors~~income ~~listed~~tax ~~above~~during the quarter.

Net Income (Loss). Net loss decreased by $4.8 million to a net loss of $1.1 million for the quarter ended November 30, 2002, from a net loss of $5.9 million for the quarter ended November 30, 2001, due to the factors listed above, primarily reduced interest expense due to our March 2002 debt restructuring.

Six Months Ended November 30, 2002 Compared to Six Months Ended November 30, 2001

Net Sales. Net sales decreased by $12.5 million, or 27.8%, to $32.5 million for the six months ended November 30, 2002, from $45.0 million for the six months ended November 30, 2001. This decrease was due to a number of factors including the effects of our operational restructuring plan and various events that affected our markets. The European Operations contributed $19.0 million of net sales during the six months ended November 30, 2002, down $6.8 million from the $25.8 million contributed during the six months ended November 30, 2001. Following the tragic events of September 11, the commercial aerospace market in the U.S. and Europe saw a significant decline. Boeing and Airbus have both announced substantial cuts in their planned commercial aircraft build rates. The decrease in net sales contributed by our European Aerospace Group is largely attributable to reduced, postponed, or cancelled orders from commercial aircraft manufacturers.

The U.S. Operations contributed $13.5 million to net sales during the six months ended November 30, 2002, down $5.8 million from $19.3 million contributed during the six months ended November 30, 2001. This decrease was primarily due to the reduction in orders from commercial aircraft manufacturers which was caused by the same market conditions experienced by the European Operations. Some of the decrease in net sales also relates to divisions that have been discontinued. Those divisions collectively had contributed $1.3 million to net sales for the six months ended November 30, 2001, but did not contribute any net sales during the six months ended November 30, 2002.

Receivable collection periods, as calculated by dividing ending accounts receivable balances by annualized sales for the six months multiplied by 360 days, decreased to 58.5 days for the six months ended November 30, 2002, from 69.8 days for the six months ended November 30, 2001. This decrease was primarily due to a concerted focus by management to increase collection efforts, primarily within the European Operations.

Gross Profit. Gross profit decreased by $4.1 million, or 48.8%, to $4.3 million for the six months ended November 30, 2002, from $8.4 million for the six months ended November 30, 2001. As a percentage of net sales, gross profit decreased to 13.1% for the six months ended November 30, 2002, from 18.6% for the six months ended November 30, 2001. This decrease was due to the reduction in revenue associated with the commercial aerospace industry, while many of our costs are fixed.

Inventory turnover, as calculated by dividing annualized sales for the six months by ending inventory, decreased to 3.3 turns for the six months ended November 30, 2002 from 4.2 turns for the six months ended November 30, 2001. The decrease was due to lower average sales volumes without a significant decrease in inventory levels.

Operating Expenses. Operating expenses decreased by $1.8 million, to $5.6 million for the six months ended November 30, 2002, from $7.4 million for the six months ended November 30, 2001. This

decrease was primarily due to the disposition of our Engineering & Fabrication and Display Divisions. In an effort to reduce operating expenses further, as well as increasing our gross profit, we have significantly reduced our corporate overhead including reduction in corporate executive salaries, eliminating several executive positions, and other headcount reductions. We have also reduced headcount at our operating facilities in the U.S. and in the U.K. We are in process of consolidating our manufacturing sites and have sold or are in process of selling excess machinery. We are also outsourcing certain operating functions along with implementing production processes we believe will be more efficient.

Interest Expense. Interest expense decreased by $5.5 million, or 73.3%, to $2.0 million for the six months ended November 30, 2002, from $7.5 million for the six months ended November 30, 2001. This decrease was due to our March 2002 debt restructuring.

Other Income (Expense). Other income represents non-operational income and expense for the six months ended November 30, 2002, primarily interest income and gain on the sale of certain assets.

Provision for Income Tax Benefit (Expense). Income tax benefit for the six months ended November 30, 2002 was derived from taxable losses in our foreign subsidiaries, no provision or benefit was recorded for U.S. income tax during the six months ended November 30, 2002.

Net Income (Loss). Net loss decreased by $5.1 million to a net loss of $2.9 million for the six months ended November 30, 2002, from a net loss of $8.0 million for the six months ended November 30, 2001, due to the factors listed above, primarily lower interest expense due to our March 2002 debt restructuring.

Liquidity and Capital Resources

Cash used by operating activities was $2.0.3 million during the ~~three~~six months ~~ended~~ ~~August~~ended November 3130, 2002 compared to cash provided by operating activities of $10.48 million during the ~~three~~six months ended ~~August~~November 3130, 2001. The change in cash provided by operating activities was due to cash used for prepaid insurance premiums and cash used to pay down ~~accounts~~accrued ~~payable~~liabilities. Our future success as a a company will depend heavily on our ability to generate cash from operating activities. We are ~~focusing~~continuing to focus on cost reduction initiatives that ~~specifically~~ 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 decreased from $02.60 million during the ~~three~~six months ended ~~August~~November 3130, 2001 to $0.24 million during the ~~three~~six months ended ~~August~~November 3130, 2002. This decrease was due to lower 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 increased from $0.24 million during the ~~three~~six months ended ~~August~~November 3130, 2001 to cash used of $0.36 million during the ~~three~~six months ended ~~August~~November 3130, 2002. Cash used in financing activities was used for debt payments during the ~~three~~six months ended ~~August~~November 3130, 2002.

We translate the activity of our European Operations, whose functional currency is the British Pound Sterling, into USU.S. Dollars on a monthly basis. The ~~balance~~ 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~~ 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. We had not entered into any ~~hedging~~ hedging arrangements as of ~~August~~November 3130, 2002.

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, 2002 audited consolidated financial statements stated that we have suffered recurring losses from operations which ~~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.

2023

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.

Recent Accounting Pronouncements

In June 2001, the FASB issued 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 is required to adopt the provisions of SFAS No. 143 in the first quarter of fiscal year 2004. To accomplish this, the Company must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. The determination of fair value is complex and will require the Company to gather market information and develop cash flow models. Additionally, the Company will be required to develop processes to track and monitor these obligations. The adoption of this statement is not expected to have a material impact on the Company’s financial position or results of operations.

In ~~August,~~April ~~2001~~2002, the FASB issued SFAS No. ~~144~~145, ~~Accounting~~Rescission ~~for the Impairment or Disposal~~ of ~~Long-Lived~~FASB ~~Assets.~~Statements ~~SFAS~~ No. ~~144~~ 4, ~~addresses~~44, ~~financial accounting~~ and ~~reporting~~ ~~for~~64, ~~the~~Amendment ~~impairment or disposal~~ of ~~long-lived~~FASB ~~assets~~Statement No. 13, ~~This~~and ~~Statement~~Technical Corrections. ~~requires~~Among ~~that~~other ~~long-lived~~things, ~~assets~~this bestatement ~~reviewed~~rescinds ~~for~~FASB ~~impairment~~Statement ~~whenever~~No. 4, ~~events or~~Reporting ~~changes~~Gains inand ~~circumstances~~Losses ~~indicate~~from ~~that~~Extinguishment ~~the~~of ~~carrying~~Debt, ~~amount~~which ofrequired anall ~~asset~~gains ~~may not~~and belosses ~~recoverable.~~from ~~Recoverability~~early extinguishment of ~~assets~~debt to be ~~held~~aggregated and, ~~used~~if ~~is measured by a~~material, ~~comparison~~classified ofas ~~the carrying amount of~~ an ~~asset~~extraordinary toitem, ~~future~~ net ~~cash~~of ~~flows~~the ~~expected to~~related beincome ~~generated~~tax ~~by the asset~~effect. ~~If the carrying amount of an asset exceeds its~~As ~~estimated~~a ~~future cash flows~~result, anthe ~~impairment~~criteria ~~charge~~in isAPB ~~recognized~~Opinion byNo. 30, ~~the~~Reporting ~~amount by which~~ the ~~carrying~~Results ~~amount~~ of Operations ~~the~~– ~~asset~~Reporting ~~exceeds~~ the ~~fair~~Effects ~~value~~ of ~~the~~Disposal ~~asset. SFAS~~of ~~No. 144~~a ~~requires~~Segment ~~companies~~of toa ~~separately~~Business, ~~report~~and Extraordinary, ~~discontinued~~Unusual ~~operations~~ and ~~extends~~Infrequently ~~that~~Occurring ~~reporting~~Events toand aTransactions, ~~component of an entity that either has been~~will ~~disposed~~now ofbe ~~(by~~used ~~sale,~~to ~~abandonment,~~classify orthose ingains aand ~~distribution~~losses. toThe ~~owners)~~statement orbecame iseffective ~~classified as held~~ for ~~sale.~~us ~~Assets~~on toJune 1, be2002 ~~disposed~~for ofprospective ~~are~~transactions. ~~reported~~Additionally, atadoption ~~the lower~~ of the ~~carrying~~statement ~~amount~~requires orthat ~~fair~~the ~~value~~Company ~~less~~reclassify ~~costs~~gains topreviously ~~sell. The Company was~~reported ~~required~~for tothe ~~adopt~~years ~~SFAS~~ended ~~No.~~May ~~144~~31, on2000 ~~June 1,~~and 2002. ~~The~~related ~~adoption~~to ofdebt ~~this~~extinguishments ~~statement~~from ~~did~~extraordinary ~~not~~items ~~have~~to aincome ~~material~~from ~~impact~~continuing ~~on the Company’s financial position or results of~~ operations.

In ~~April~~June 2002, the FASB issued SFAS No. ~~145~~146, ~~Rescission~~Accounting offor ~~FASB~~Costs ~~Statements No.~~Associated 4,with ~~44,~~Exit ~~and~~or ~~64,~~Disposal ~~Amendment~~Activities. ofThis ~~FASB~~statement ~~Statement~~addresses ~~No. 13,~~financial accounting and ~~Technical~~reporting ~~Corrections. Among~~for ~~other~~costs ~~things,~~associated ~~this~~with ~~statement~~exit ~~rescinds~~or ~~FASB~~disposal ~~Statement No. 4, Reporting~~activities ~~Gains~~ and ~~Losses~~nullifies ~~from~~Emerging ~~Extinguishment~~Issues ofTask ~~Debt,~~Force ~~which~~(EITF) Issue ~~required~~No. 94-3, ~~all gains and~~Liability ~~losses~~Recognition ~~from~~for ~~early~~Certain ~~extinguishment~~Employee ofTermination ~~debt~~Benefits ~~to be aggregated~~ and, ifOther ~~material, classified~~Costs asto Exit an ~~extraordinary~~Activity ~~item,~~(including ~~net~~Certain ofCosts ~~the~~Incurred ~~related~~in ~~income~~a ~~tax effect~~Restructuring). AsThis astatement ~~result,~~requires ~~the~~that ~~criteria~~a inliability ~~APB~~for ~~Opinion~~a ~~No. 30,~~cost ~~Reporting~~associated ~~the~~with ~~Results~~an ofexit or ~~Operations~~disposal —activity ~~Reporting~~be ~~the~~recognized ~~Effects~~at offair ~~Disposal~~value ofwhen athe ~~Segment~~liability ofis ~~a Business, and~~incurred. ~~Extraordinary,~~The ~~Unusual~~Company ~~and Infrequently Occurring Events and Transactions,~~ will ~~now~~ be ~~used~~required to ~~classify~~adopt ~~those~~this ~~gains~~statement ~~and~~for ~~losses.~~exit ~~The~~or ~~statement became effective~~disposal ~~for~~activities usinitiated onafter ~~June~~December 131, 2002 ~~for prospective transactions~~. ~~Additionally,~~The ~~adoption of the statement requires that the~~ Company ~~reclassify~~is ~~gains previously reported~~currently ~~for~~assessing the ~~years~~impact ~~ended~~of ~~May 31,~~this ~~2000~~statement ~~and~~on ~~2002~~our ~~related~~results toof ~~debt~~operations, ~~extinguishments from~~financial ~~extraordinary items to income from continuing operations~~position.

~~In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated~~24 ~~with Exit or Disposal Activities. This statement addresses financial~~ accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. The Company will be required to adopt this statement for exit or disposal activities initiated after December 31, 2002. The Company is currently assessing the impact of this statement on our results of operations, financial position and cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year-end. The guarantor may not revise or restate its previous accounting for guarantees issued before the date of the Interpretation’s initial application to reflect the effect of the recognition and measurement provisions of the Interpretation. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The guidance on indirect guarantees of the indebtedness of others, which previously was included in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, continues to apply to financial statements for fiscal years ended after June 15, 1981. The Company is required to adopt the provisions of FASB Interpretation No. 45 for the quarter ending February 28, 2003. The adoption of this statement is not expected to have a material impact on the Company’s financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have financial instruments including debt obligations issued at a fixed rate which generally are 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. ~~The~~It ~~fair~~is ~~value~~not ofpracticable ~~such~~to ~~instruments~~estimate ~~approximates~~the ~~their face~~fair value, ~~except~~of ~~for~~ our long-term ~~senior~~debt ~~subordinated~~due ~~notes~~to ~~which~~our ~~have~~history ~~an estimated fair value~~ of ~~approximately~~losses ~~$15.0 million~~and ~~based~~debt ~~on current market indicators~~defaults, ~~such~~ asamong ~~prevailing interest rates~~other factors.

We are subject to foreign currency exchange rate risk relating to receipts from and payments to suppliers in ~~foreign~~currencies other than the functional currencies in which our business segments operate (the U.S. ~~Since~~Dollar ~~approximately~~and ~~58%~~the ofBritish Pound ~~our~~Sterling). Although we have significant foreign operations, transactions in currencies other than our functional currencies are ~~conducted~~not insignificant. We also do not have significant transactions between our U.S. and European Operations. Historically, we have not experienced significant foreign currency, ~~the~~transaction gains ~~exchange~~and ~~rate~~losses ~~risk~~and do not anticipate any significant foreign currency ~~could~~transaction begains ~~material.~~or ~~During~~losses in the ~~three~~future. ~~months~~Therefore, ~~ended~~we ~~August~~have not entered into any hedging or other transactions to manage our foreign currency exchange rate risk as of November 3130, 2002. However, wethe ~~incurred~~value of our assets, liabilities, ~~other~~revenue ~~comprehensive~~and ~~income~~expenses ~~relating~~may vary materially from one reporting period to athe ~~foreign~~next solely ~~currency~~as ~~translation~~a ~~gain~~result of varying exchange rates between the British Pound Sterling and the U.S. Dollar. For example, British Pound Sterling was worth $1.4625 on May 31,~~465~~ 2002 but one British Pound Sterling was worth $1.5553 on November 30,~~000~~ 2002. WeAs ~~have~~a ~~not~~result, ~~entered~~we ~~into~~incurred ~~any~~a ~~hedging~~positive ~~activity~~foreign ascurrency translation adjustment of ~~August~~$1,599,000 during the six months ended November 3130, 2002.

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~~ 31November 30, 2002, we had purchase commitments for raw materials aggregating approximately $01.75 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. ~~They~~Those executives have designed such controls to ensure that all ~~material~~ material information relating to Pacific Aerospace & Electronics, Inc. and its’ subsidiaries is made known to them by others within the organization.

On ~~October~~January 109, ~~2002~~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.

Since the completion of that evaluation, ~~there~~management ~~have~~has ~~been~~noted no significant ~~changes~~ changes in internal controls or in other factors that could significantly ~~affect~~ affect internal controls.

2226

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company is involved in legal proceedings relating to claims arising out of operations in the normal course of business. We are not aware of any material legal proceedings pending or threatened against the Company or any of its subsidiaries or properties.

On November 26, 2002 the Company filed a complaint in the United States District Court for the Eastern District of Washington against Edward Taylor, James Petri, their spouses, and RAAD Technologies, a Washington corporation. In the compliant we seek to enjoin the defendants from continuing infringement of certain intellectual property rights and against certain conduct we contend represents unfair competition. We also seek damages, attorney fees, court costs and other equitable relief.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) None.

(b) Dividend Payment Restrictions.

We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain any future earnings to fund the operations, and we do not anticipate paying dividends on our common stock in the foreseeable future. Our agreements with our senior secured lenders and the indenture governing our Subordinated Notes restrict our ability to pay dividends.

(c) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We were notified by one of our secured lenders that we are not in compliance with certain covenants of loans that are secured by a deed of trust on our headquarters building and other assets. Pursuant to a forbearance agreement dated ~~March~~December 1519, 2002, our secured lender will forbear from declaring ~~covenant~~ covenant defaults until the earlier of the date on which we regain compliance (thereby curing such covenant violations) or ~~May~~December 31, 2003.

ITEM 4 6. ~~SUBMISSION~~EXHIBITS OFAND ~~MATTERS~~REPORTS TOON ~~A VOTE OF SECURITY HOLDERS~~FORM 8-K

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~~Amendment of ~~Skagit~~Pacific ~~Engineering~~Aerospace & ~~Manufacturing~~Electronic, Inc. filed March 19, 2002.(31)
3.2		~~Bylaws~~Designation of ~~Skagit~~Rights ~~Engineering~~and Preferences for Series C Convertible Preferred Stock of Pacific Aerospace & ~~Manufacturing~~Electronics, Inc.~~, as amended.~~(31)
3.3		Articles of Amendment of Pacific Aerospace & Electronic, Inc. filed March 19, 2002. (1)
4.1		Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc.,
3.4		Designation of Rights and Preferences for Series C Convertible Preferred Stock of Pacific Aerospace & Electronics, Inc. (1)

2327

Exhibit
		Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association.(1)
Number		Description
4.2		Note Purchase Agreement dated as of March 25, 2002, , among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and FirstUnion National Bank, as collateral agent, relating to our 5% senior secured notes due 2007.(1)
4.1		Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association. (1)
4.3		Security Agreement dated as of March 25, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and FirstUnion National Bank, as collateral agent, relating to our 5% senior secured notes due 2007.(1)
10.1		Termination and Severance Agreement of Sheryl A. Symonds dated October 31, 2001.(3)
99.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002.(2)
10.2		Termination and Severance Agreement of Werner Hafelfinger dated February 27, 2002.(3)
10.3		Settlement Agreement with Herman Jones dated February 28, 2002.(3)
10.4		Consent executed by KeyBank National Association in favor of the Company and Pacific Coast Technologies, Inc. dated as of March 18, 2002. (1)
10.5		Forbearance Agreement executed by KeyBank National Association in favor of the Company dated as of March 15, 2002. (1)
10.6		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Headquarters building— 430 Olds Station Road). (1)
10.7		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Bonded Metals Division— 2249 Diamond Point Road, Sequim WA). (1)
10.8		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Cashmere Warehouse— 209 Mission Street, Cashmere, WA).(1)
10.9		Employment Agreement by and between Donald A. Wright and Pacific Aerospace & Electronics, Inc. dated March 19, 2002. (1)
10.10		Note Purchase Agreement by and among Pacific Aerospace & Electronics, Inc., the Initial Purchaser and First Union National Bank dated as of March 19, 2002. (1)
10.11		5.0% Senior Secured Note due May 1, 2007. (1)
10.12		Subsidiary Guaranty Agreement dated March 25, 2002, executed by Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., and Skagit Engineering & Manufacturing, Inc., in favor of the holders of 5% senior secured notes due 2007 and First Union National Bank, as Collateral Agent. (1)
10.13		Security Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., Skagit Engineering & Manufacturing, Inc., and First Union National Bank, as Collateral Agent. (1)
10.14		Stock Pledge Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., PA&E International, Inc. and First Union National Bank, as collateral agent.(1)
10.15		Exchange Agreement by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company’s 111/4% Senior Subordinated Notes due 2005, dated as of March 19, 2002. (1)

⁽¹⁾		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.
⁽²⁾		Submitted herewith.

Exhibit
Number		Description
10.16		Global 10% Senior Subordinated Pay-In-Kind Note due 2007. (1)
10.17		Subsidiary Guarantee dated March 19, 2002 executed by Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. in favor of the holders of 10% Senior Subordinated Pay-In-Kind Notes due 2007. (1)
10.18		Conversion Adjustment Agreement dated as of March 19, 2002, by and among Pacific Aerospace & Electronics, Inc., GSCP Recovery, Inc., GSC Recovery II, L.P., Alliance Capital Management L.P., M.W. Post Advisory Group L.L.C., William E. Simon & Sons Special Situation Partners II, L.P. and HBK Master Fund L.P. (1)
10.19		Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association. (2)
99.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002.

(1)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.
(2)		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998.
(3)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ending February 28, 2002.

b. Reports on Form 8-K.

(i) The Company filed a Current Report on Form 8-K on September 10, 2002, reporting its certifications of each of the Company’s Chief Executive Officer and its Chief Financial Officer as to the matters required by Rules 13a-14 and 15d-14.

2528

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.


		PACIFIC AEROSPACE & ELECTRONICS, INC


Date: January 14, 2003
		/s/ Donald A. Wright

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


Date: January 14, 2003
		/s/ Charles A. Miracle

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

Date: October 15, 2002		/s/ Donald A. Wright
		Donald A. Wright President and Chief Executive Officer (Principal Executive Officer)
Date: October 15, 2002		/s/ Charles A. Miracle
		Charles A. Miracle Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

CERTIFICATION

I, Donald A. Wright, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pacific Aerospace & Electronics, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: ~~October 15~~January 14, ~~2002~~2003

/s/ Donald A. Wright Donald A. Wright Chief Executive Officer

~~Donald A. Wright~~30 ~~Chief Executive Officer~~

CERTIFICATION

I, Charles A. Miracle, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pacific Aerospace & Electronics, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: ~~October 15~~January 14, ~~2002~~2003

/s/ Charles A. Miracle Charles A. Miracle Chief Financial Officer

~~Charles A. Miracle~~31 ~~Chief Financial Officer~~

EXHIBIT INDEX

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

Exhibit
Number		Description
3.1		Articles of ~~Incorporation~~Amendment of ~~Skagit~~Pacific ~~Engineering~~Aerospace & ~~Manufacturing~~Electronic, Inc. filed March 19, 2002.(31)
3.2		~~Bylaws~~Designation of ~~Skagit~~Rights ~~Engineering~~and Preferences for Series C Convertible Preferred Stock of Pacific Aerospace & ~~Manufacturing~~Electronics, Inc.~~, as amended.~~(31)
3.3		Articles of Amendment of Pacific Aerospace & Electronic, Inc. filed March 19, 2002. (1)
4.1		Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association.(1)
3.4		Designation of Rights and Preferences for Series C Convertible Preferred Stock of Pacific Aerospace & Electronics, Inc. (1)
4.2		Note Purchase Agreement dated as of March 25, 2002, , among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and FirstUnion National Bank, as collateral agent, relating to our 5% senior secured notes due 2007.(1)
4.1		Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association. (1)
4.3		Security Agreement dated as of March 25, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and FirstUnion National Bank, as collateral agent, relating to our 5% senior secured notes due 2007.(1)
10.1		Termination and Severance Agreement of Sheryl A. Symonds dated October 31, 2001.(3)
99.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002.(2)
10.2		Termination and Severance Agreement of Werner Hafelfinger dated February 27, 2002.(3)
10.3		Settlement Agreement with Herman Jones dated February 28, 2002.(3)
10.4		Consent executed by KeyBank National Association in favor of the Company and Pacific Coast Technologies, Inc. dated as of March 18, 2002. (1)
10.5		Forbearance Agreement executed by KeyBank National Association in favor of the Company dated as of March 15, 2002. (1)
10.6		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Headquarters building— 430 Olds Station Road). (1)
10.7		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Bonded Metals Division— 2249 Diamond Point Road, Sequim WA). (1)
10.8		Deed of Trust, Security Agreement And Fixture Filing With Assignment Of Leases And Rents by and among Pacific Aerospace & Electronics, Inc., Cashmere Manufacturing Co., Inc., Northwest Technical Industries, Inc., Land Title Company Of Chelan — Douglas County, Inc., and First Union National Bank (Cashmere Warehouse— 209 Mission Street, Cashmere, WA).(1)
10.9		Employment Agreement by and between Donald A. Wright and Pacific Aerospace & Electronics, Inc. dated March 19, 2002. (1)
10.10		Note Purchase Agreement by and among Pacific Aerospace & Electronics, Inc., the Initial Purchaser and First Union National Bank dated as of March 19, 2002. (1)
10.11		5.0% Senior Secured Note due May 1, 2007. (1)
10.12		Subsidiary Guaranty Agreement dated March 25, 2002, executed by Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., and Skagit Engineering & Manufacturing, Inc., in favor of the holders of 5% senior secured notes due 2007 and First Union National Bank, as Collateral Agent. (1)

⁽¹⁾		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.

⁽²⁾		Submitted herewith.

Exhibit
Number		Description
10.13		Security Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., Skagit Engineering & Manufacturing, Inc., and First Union National Bank, as Collateral Agent. (1)
10.14		Stock Pledge Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., PA&E International, Inc. and First Union National Bank, as collateral agent.(1)
10.15		Exchange Agreement by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company’s 111/4% Senior Subordinated Notes due 2005, dated as of March 19, 2002. (1)
10.16		Global 10% Senior Subordinated Pay-In-Kind Note due 2007. (1)
10.17		Subsidiary Guarantee dated March 19, 2002 executed by Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. in favor of the holders of 10% Senior Subordinated Pay-In-Kind Notes due 2007. (1)
10.18		Conversion Adjustment Agreement dated as of March 19, 2002, by and among Pacific Aerospace & Electronics, Inc., GSCP Recovery, Inc., GSC Recovery II, L.P., Alliance Capital Management L.P., M.W. Post Advisory Group L.L.C., William E. Simon & Sons Special Situation Partners II, L.P. and HBK Master Fund L.P. (1)
10.19		Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association. (2)
99.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, Section 906 of the Sarbanes-Oxley Act of 2002.

(1)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 3, 2002.
(2)		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998.
(3)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ending February 28, 2002.

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

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · PACIFIC AEROSPACE & ELECTRONICS INC