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

                                    FORM 10-K
                   FOR ANNUAL AND TRANSITION REPORTS PURSUANT
             TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

(Mark One)
[X]     ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
        EXCHANGE ACT OF 1934.
        For the year ended December 31, 1998

                                       OR

[  ]    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: 333-17305

                         International Knife & Saw, Inc.

             (Exact name of registrant as specified in its charter)

               Delaware                               57-0697252
     (State or other jurisdiction                  (I.R.S. Employer
                  of
            incorporation or                     Identification No.)
             organization)

             1299 Cox Avenue
            Erlanger, Kentucky                           41018
    (Address of registrant's principal                (Zip Code)
            executive offices)

Registrant's telephone number, including area code:  (606) 371-0333

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ x ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ].

         As of January 1, 1999,  there were 481,971  shares of the  registrant's
common  stock  outstanding,  all of  which  were  owned by an  affiliate  of the
registrant.

                    Documents incorporated by reference: None


<PAGE>


         Unless  otherwise  indicated,  industry and market data used throughout
this report are based on Company estimates which,  while believed by the Company
to be reliable,  have not been verified by independent sources. Unless otherwise
indicated  or  the  context  otherwise  requires,  references  to  "IKS"  or the
"Company"  are  to  International   Knife  &  Saw,  Inc.  and  its  consolidated
subsidiaries.

         The Private  Securities  Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward  looking  statements.  Certain matters  discussed in
this  filing  could be  characterized  as forward  looking  statements,  such as
statements  relating  to plans for future  expansion,  other  capital  spending,
financing  sources and  effects of  regulation  and  competition.  Such  forward
looking  statements  involve important risks and uncertainties  that could cause
actual results to differ materially from those expressed in such forward looking
statements.

                                     PART I
ITEM 1.  BUSINESS

General

        International   Knife  &  Saw,  Inc.  ("IKS"  or  the  "Company")  is  a
wholly-owned subsidiary of IKS Corporation, a Delaware corporation.  The Company
is a global leader in the  manufacturing,  servicing and marketing of industrial
and  commercial  machine  knives and saws,  operating in an estimated  worldwide
market of $1.0 billion. The Company's products, which are consumed in the normal
course of machine  operation and need  resharpening or replacement  many times a
year, are mounted in industrial  machines and are used in virtually  every facet
of cutting, slitting,  chipping and forming of materials. The Company serves the
following major market sectors:  (i) Wood (43% of 1998 net sales);  (ii) Paper &
Packaging  (40%);  (iii) Metal  (11%);  and (iv) Plastic & Recycling  (6%).  The
Company  believes that it has a leading  worldwide market share in each of these
market  sectors  and that there is no other  company  that  serves all four such
sectors.

         IKS traces its origins to 1814, when Klingelnberg Soehne was founded in
Germany as a textile and  hardware  trading  house.  Klingelnberg  Soehne  began
manufacturing  industrial  knives  and saws in the  early  1900s and by 1940 was
serving a variety of product  segments.  Klingelnberg  Soehne expanded its sales
into the North  American  market during the 1960s and  subsequently  established
manufacturing  and resharpening  operations  which were  complemented by several
strategic acquisitions. The Company was incorporated in 1979, and by 1991 it had
acquired the European and North  American  operations  of  Klingelnberg  Soehne.
Since 1991,  the Company has expanded its  resharpening  operations by adding an
additional 21 service centers, commenced operations in Asia, Australia and Latin
America  and  expanded  its   manufacturing   operations   by  acquiring   three
manufacturing operations.

The Recapitalization

         The Company issued $90 million in aggregate principal amount of 11 3/8%
Senior  Subordinated  Notes due 2006 (the  "Notes") on November 6, 1996 under an
Indenture,  dated as of November 6, 1996 (the  "Indenture"),  by and between the
Company and United States Trust Company of New York, as trustee.  The Notes were
issued   concurrently   with  the  consummation  of  a   recapitalization   (the
"Recapitalization")  of IKS Corporation.  Prior to the Recapitalization,  all of
the issued and outstanding  capital stock of IKS Corporation was held by members
of the  Klingelnberg  family and the Company's  issued and  outstanding  capital
stock was held  approximately  97% by IKS  Corporation and  approximately  3% by
certain executive officers of the Company (the "Existing Management Investors").

        The  Recapitalization  involved  the  following  transactions:  (i)  the
Existing  Management  Investors exchanged their holdings of capital stock issued
by the Company for capital stock of IKS  Corporation,  and the Company  became a
wholly-owned  subsidiary of IKS  Corporation;  (ii) IKS Corporation  amended its
charter to change its corporate name from "The Klingelnberg Corporation" to "IKS
Corporation"  and to authorize  three  classes of capital  stock,  consisting of
preferred stock (the "Corp.  Preferred Stock"),  voting common stock (the "Corp.
Class A Stock") and  non-voting  common  stock (the  "Corp.  Class B Stock" and,
together  with the Corp.  Class A Stock,  the "Corp

                                      I-1

<PAGE>

Common  Stock");   (iii)  the  issued  and  outstanding  capital  stock  of  IKS
Corporation   was   exchanged   for   a   recapitalization   distribution   (the
"Recapitalization  Distribution")  which  consisted of (a)  approximately  $86.6
million in cash and (b) Junior  Subordinated  Debentures of IKS Corporation (the
"Corp.  Debentures"),  Corp.  Preferred  Stock and Corp.  Class A Stock  with an
aggregate  value of  approximately  $9.4 million  issued to Arndt  Klingelnberg,
Diether  Klingelnberg  and John E.  Halloran;  (iv) John E.  Halloran and Thomas
Meyer,  together  with certain  other key  employees of the Company who were not
Existing Management Investors (the "New Management Investors" and, together with
the Existing Management Investors, the "Management Investors"), purchased Corp.
Debentures,  Corp.  Preferred Stock and Corp. Class A Stock from IKS Corporation
for  approximately  $1.3 million in cash; and (v) Citicorp  Venture Capital Ltd.
("CVC") purchased Corp. Debentures, Corp. Preferred Stock and Corp. Common Stock
from IKS Corporation for $14.3 million in cash.

         The gross proceeds to the Company from the sale of the Notes,  together
with the aggregate  investment of $15.6 million made in IKS  Corporation by John
E. Halloran,  Thomas Meyer,  the New Management  Investors and CVC in connection
with the  Recapitalization,  were used to (i)  finance  the cash  portion of the
Recapitalization   Distribution   (approximately  $86.6  million),   (ii)  repay
approximately  $11.4 million of outstanding  indebtedness  referred to below and
(iii)  pay  approximately  $4.5  million  of fees and  expenses  related  to the
transactions.

         In   connection   with  the   Recapitalization,   the  Company   repaid
approximately  $5.2 million of its existing  indebtedness and entered into a new
$20.0 million  revolving  credit  facility (the "Senior  Credit  Facility").  In
addition,  a German subsidiary of the Company repaid  approximately $6.2 million
of  existing  indebtedness  under  its term loan and  entered  into a new DM 7.5
million revolving credit facility (the "New German Credit Facility").

         In accordance with certain  provisions  contained in the  documentation
governing the Recapitalization,  the amount of the Recapitalization Distribution
was adjusted  upwards by  approximately  $2.8 million in March,  1997,  and such
amount was paid in cash by the Company to the recipients of the Recapitalization
Distribution.

Business Strategy

         The Company  believes that it can enhance its leading  market  position
through the continued  implementation of its business strategy.  Key elements of
this strategy include (i) maximizing  stable,  high margin end-user sales;  (ii)
increasing its global manufacturing, sourcing and marketing capabilities through
strategic  alliances;  (iii) growing its resharpening service center operations,
which  increases  direct  access to end-users and enables the Company to capture
both  resharpening  and  additional  replacement  business;  (iv)  expanding and
improving its product  offering;  (v) maintaining its focus on cost  improvement
opportunities;  and (vi)  continuing  to  evaluate  acquisitions  in the  highly
fragmented knife and saw industry. The Company is presently evaluating potential
acquisition  opportunities and as part of its strategy will continue to do so in
the future.  There can be no assurance that the Company will consummate any such
acquisitions or, if consummated, the timing thereof.

Products and Markets

         The Company  manufactures  and sells its  products in four major market
sectors  including  (i) Wood (43% of 1998 net  sales);  (ii)  Paper &  Packaging
(40%);  (iii) Metal  (11%);  and (iv)  Plastic & Recycling  (6%).  IKS offers an
extensive  variety of knives and saws which are mounted in  industrial  machines
and are sold across a wide customer base and over numerous industries throughout
the world.  The  Company's  knives and saws are consumed in the normal course of
machine operation and need resharpening or replacement many times per year.

Wood

         IKS believes it is the largest  manufacturer  of industrial wood knives
and saws with 1998 net  sales of  approximately  $65  million.  Industrial  wood
knives and saws are utilized in  applications  by companies  such as Weyerhauser
Co. and Louisiana  Pacific Corp. for sawing and chipping of lumber into specific
dimensional sizes for use in the housing industry;  by companies such as Georgia
Pacific  Corp.,  Union Camp Corp.  and Boise  Cascade  Corp.  for peeling  large
diameter  logs into veneer for use in the  production  of plywood,  paneling and
furniture;  and by companies  such as Scott Paper Co.,  Inc.  and  International
Paper Co., Inc. for the production of wood chips used

                                      I-2

<PAGE>


in their  pulp  mills to produce  fine  paper,  newsprint  and craft  paper.  In
addition, the Company's knives are used to cut wood into chips, used for fuel by
wood and coal  burning  power plants as well as  generating  power and steam for
large paper and pulp mills  worldwide.  Industrial  wood cutting knives and saws
are consumed in the normal  course of operation  and due to their rough  service
applications  generally need  resharpening  as often as every six to eight hours
and 50 times  over the life of the  product.  Wood  circular  and band  saws are
generally  resharpened  and  retensioned  every two weeks and replaced after two
years.

         As wood becomes more expensive,  the industry is increasingly cognizant
of the need for more effective tree  utilization  and reducing  material lost to
inefficient  sawing. As a result, the industry is trending toward engineered and
composite  materials made from  specially  sized wood chips leading to increased
sales of waferizer and flaker knives,  and wear parts. In the past,  plywood was
typically used in favor of engineered and composite materials.  However, plywood
requires the use of large  diameter logs as raw material,  leaving  considerable
waste on the forest  floor,  whereas  wafer board and oriented  strand board use
tighter tolerance waferizer and flaker knives to reduce smaller,  less expensive
raw material logs into  specifically  sized and shaped wood chips. The chips are
then  assembled  with  synthetic  binders  into  boards,  sheets  and  specialty
profiles, having properties superior to plywood or solid wood predecessors.  The
Company  believes that it is the leading North  American  manufacturer  of these
specialty  knives  and has the  ability  to grow  with this  rapidly  increasing
market.

         The Company is a leader in the  manufacture  of carbide  edger saws and
also one of the largest  providers of stock saws for the  secondary  industry in
North  America  as a result of its  purchase  of the  assets of the  Systi-Matic
Company  ("Systi-Matic") in April,  1997. Located near Seattle,  WA, Systi-Matic
represents one of the most modern precision wood saw manufacturing facilities in
the U.S.  Using  automated  equipment in  combination  with  skilled  craftsmen,
Systi-Matic produces extremely accurate saws used for primary wood, to mitre cut
wood  moldings for cabinet  making and  furniture  production.  State-of-the-art
laser cutting equipment provides  Systi-Matic with both extreme precision in the
manufacturing process and reduced costs due to automated production.

         The Company is also a leader in the  manufacture  of long  wood-peeling
and slicing veneer knives. Veneer knives are among the more difficult industrial
knives  to  manufacture  due to their  length  (up to six  meters)  and  quality
requirements.  IKS is one of only a  limited  number of  manufacturers  that can
produce such a knife.  As the market demands  higher quality veneer knives,  the
Company believes that its expertise in the design and manufacture of such knives
gives it a competitive advantage.

         The Company  increased  its presence in the wood saw  machinery  market
with its acquisition of the assets of Cascade/Southern Saw Corp.  ("Cascade") in
June, 1997. Located near Portland,  OR and in Hot Springs,  AR, Cascade provides
technical  assistance to the primary wood industry  particularly  in the area of
thin kerf sawing for yield and  productivity  improvements.  The highly trained,
experienced,  technical  sales  staff  provides  primary  wood end users  with a
valuable resource to improve their mills' performance, thereby creating mutually
beneficial long-term exclusive supplier  relationships for saws, saw maintenance
equipment, and supplies.

         The market for wood cutting knives and saws is growing in Latin America
and other  underdeveloped  regions as many of the nations in these regions begin
to export products further along the production cycle. As the Company expands in
these regions,  it believes that it will benefit from the increased  exportation
of finished products. The Company is also using its service center operations to
increase its sales, as more wood cutting  operations are outsourcing their knife
and saw servicing needs.

Paper & Packaging

         The Company believes it is the largest manufacturer of industrial paper
& packaging knives with 1998 net sales of approximately  $61 million.  Among the
Company's four major markets,  the paper & packaging knife market is the largest
and most diverse,  with the widest variety of cutting methods.  These knives are
used in  applications  by companies such as  Kimberly-Clark  Corp. and Proctor &
Gamble Co. for cutting and  perforating  tissue  paper and paper  towels and the
production of disposable diapers;  by companies such as Frito-Lay,  Inc. and M&M
Mars, Inc.

                                      I-3

<PAGE>


which  utilize Zig Zag knives to cut the top and bottom of snack food,  salt and
pepper and candy packages sold by convenience  stores and fast food chains;  and
by  companies  such as  Quebecor  Corp.,  Champion  International  Corp.  and RR
Donnelly & Sons Co.,  Inc. for cutting and trimming  paper in the  production of
copy paper,  books and business forms.  As a result of their many uses,  paper &
packaging knives  represent the largest category of the Company's  approximately
10,000 products with more than 2,500 paper & packaging  knife products  relating
to every aspect of paper & packaging manufacturing and converting.

         Paper  knives are made from a wide range of steel  grades,  from inlaid
carbon  steels to carbide.  Recent  trends in the paper  industry,  including an
increase in the use of recycled  fiber and a change in paper  chemistry  to more
abrasive alkaline additives, have required upgrades by paper producers to higher
quality,  more expensive knife materials and designs which are better suited for
more sophisticated and diverse cutting applications. As a result, the market for
industrial paper knives is experiencing price and margin expansion as higher-end
knives are  increasing in demand.  The Company has developed an expertise in the
manufacture  of these more  sophisticated  cutting  tools  which allow the paper
converter to run longer and produce better  quality cuts.  The Company  believes
that few of its competitors have the expertise to manufacture machine knives out
of the  more  expensive  materials,  which  gives  IKS a  competitive  edge  and
positions  it to offer  the most  complete  package  of new knife  products  and
services in the world paper market.

         The  Company  expanded  its  presence in the  printing  market with its
acquisition  of the assets of the Rolf Meyer  Company  ("Rolf  Meyer") in April,
1997.  Located in  northern  Germany,  Rolf Meyer,  over the past 30 years,  has
developed a reputation of being a leading  producer of high  precision  printing
press knives and spare parts. By acquiring Rolf Meyer's technical  expertise and
proprietary  machining  methods,  IKS has also been able to expand its precision
toothed knife  manufacturing  capabilities into the packaging and food industry,
growing markets for the IKS group.  Further plans call for expansion of the Rolf
Meyer  facility,  greatly  increasing  manufacturing  capacity to support  rapid
growth occurring by IKS' expansion in the North American  market.  The Company's
sales and marketing  staff has been expanded in the graphic arts area to include
market  specialists  from the industry  providing  valuable  consulting to major
graphic arts customers as part of the IKS supplier package.

         Industrial  paper knives are generally  consumed  rapidly in the normal
course of operation and can need  resharpening  as often as once per week and 50
times over the life of the  product.  The Company  has a strong  presence in the
knife servicing market in North America, capitalizing on the preference of users
of paper knives to outsource  their knife  servicing needs rather than resharpen
their knives  themselves.  Customers  often find that the  performance  of these
tools can be better  maintained if the sharpening is outsourced to  professional
service  shops  having  more  specialized   equipment  and  technically  trained
personnel.   The  Company   believes   that  it  has  the  largest   network  of
Company-owned,  strategically  located  service  shops  equipped  with  the  IKS
Hyperhone system,  which system maintains new knife  performance  throughout the
life of a tool  and is not  available  at most  other  independent  or  in-house
grinding  shops.  The  Company's  acquisitions  of three  strategically  located
service centers in Tennessee (2) and Wisconsin in the fourth quarter of 1997 and
one each in  Atlanta,  Chicago,  France  and the  Netherlands  in 1998,  further
strengthened its network of service shops.  These acquired shops focus primarily
on the graphic arts, printing and paper converting  industries.  Through Company
owned service facilities in strategic locations, IKS can offer customers a local
supply of consumable cutting tools as well as factory trained service facilities
to sharpen and maintain cutting tools for peak performance and productivity.  In
addition to Company owned service  centers,  the Company works very closely with
independently  owned  dealers and  regrind  shops.  The Company is  continuously
expanding  its paper knife  servicing  business by educating  paper mills on the
benefits of outsourcing their knife  resharpening needs to the Company's service
centers.

         The Company  believes  that the market for paper & packaging  knives is
strong  worldwide and is growing in Europe,  Latin America and Asia. The Company
should  benefit in Asia and Latin  America as consumer  markets in those regions
emerge and the use of packaged consumer products rapidly increases.  The Company
has expanded its  penetration  of the European  market to include  packaging and
food knives  previously  not  marketed in Europe  through the IKS  organization,
primarily  due to the  increased  capacities  in  precision  serrated  edge tool
products the Company  obtained when it acquired Rolf Meyer. The Company believes
that,  through  its  continued  emphasis  on  providing   specialized  technical
assistance, it will continue to grow in these markets.

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Metal

         The Company  believes it is the second  largest  manufacturer  of metal
knives with 1998 net sales of  approximately  $16 million.  The Company's  metal
knives are used by steel  processing  facilities  such as Heyco Corp.,  Edgecomb
Metals Co. and Allegheny Ludlum Corp. and metal products  manufacturers  such as
Deere & Co.  Inc.,  Caterpillar,  Inc.  and  Steelcase  Corp.;  in the  cutting,
shearing and  chopping of steel being  produced in steel mills used by companies
such as  Bethlehem  Steel Corp.,  Rouge Steel Co. and USX Corp.;  and in cutting
metal  sheets  and  slitting  strips  from  rolls of sheet  steel  processed  by
companies such as California Steel Corp. and Joseph T. Ryerson & Son, Inc.

         Steel circular slitter knives are highly accurate, requiring tolerances
of up  to  40  millionths  of  an  inch  for a  high  degree  of  precision  and
customization. There is a trend toward increased tensile strengths of metals and
maximizing the efficiency of metal slitting  machines.  This trend requires tool
technology that extends the normal  resharpening  cycle. The Company is a leader
in this field,  utilizing  fine-grained raw materials and triple-tempered vacuum
heat treatment  procedures to produce  finely lapped  surfaces which enable this
degree of precision.

         In setting up their steel slitting lines, the Company's customers order
knives  specifically  designed for the particular demands and characteristics of
each  production  line.  IKS  offers  expert  technical  and  computer  software
assistance  to  companies  setting up such a line.  The Company has  developed a
proprietary software package,  Slitting Assembly Very Easy (SAVE), which assists
customers  in choosing  and  setting up metal  slitting  knives.  The IKS (SAVE)
technology makes use of custom computer  software to guide the personnel setting
up the  arbor in the  selection  of the  individual  slitter  knife  and  spacer
combination to an exact  thickness,  assuring that, as the arbor is loaded,  the
accumulated  error is maintained near zero. The accuracy of this knife clearance
directly  affects the cut edge  quality of the steel  strip.  By  offering  this
technology, as well as personal technical assistance, the Company is an integral
part of the steel slitting knife purchasing process,  which the Company believes
increases the likelihood that a customer will choose an IKS product.

         Another  method the Company  utilizes to maintain its position with its
customers  of steel  slitting  knives is its focus on metal  knife  resharpening
centers. Metal knives are consumable and generally need resharpening as often as
once per week and as often as 100  times  over the life of a  product.  Although
most  users of  metal  knives  have  expertise  in  metalworking  and  typically
resharpen  their own  knives,  there is a trend  among steel mills in the United
States  to  outsource  their  resharpening  requirements  due to the  increasing
sophistication  and tolerance  required of metal knives.  IKS is capitalizing on
this  opportunity.  The market for industrial metal knives is dependent upon the
steel usage by numerous  industries  including the automotive industry and metal
and  consumer  product  manufacturers,   such  as  aluminum  can  and  appliance
manufacturers.

Plastic & Recycling

         The  Company  believes  it is the largest  manufacturer  of  industrial
plastic &  recycling  knives  with 1998 net sales of  approximately  $8 million.
Industrial  plastic  granulator  knives are used for the manufacture of plastic,
typically by companies such as Mobil Chemical  Corp. and I.C.I.  Americas,  Inc.
where pelletizing knives are used to cut plastic into small,  precise pieces for
processing;  by  companies  such as E.I.  DuPont de  Nemours & Co.  for  cutting
artificial  fibers;  by companies  such as Wellman Inc.  for  recycling  plastic
containers;  and by companies such as Waste Recovery Corp. for the environmental
recycling of styrofoam,  rubber and glass. The Company  manufactures  knives for
all of these uses, as well as related knives used to cut computer tape, foil and
film by companies such as Alcoa Aluminum Co. of America,  Inc. and Eastman Kodak
Co. and household products produced by Hasbro Corp. and Rubbermaid Inc.

         IKS is North  America's  largest  manufacturer  of  plastic  granulator
knives  and is also a  leader  in the  manufacture  of such  knives  in  Europe.
Although the current market for plastic  granulator  knives is relatively small,
the Company  believes it will grow  rapidly as the  machinery  that uses plastic
cutting   knives  is  adapted   for  an   increasing   number  of  cutting   and
recycling-related  applications.  The market for industrial  plastic  granulator
knives  is  currently  strong  in  Europe  as a result  of  government  mandated
recycling  programs  and is also growing in North  America due to the  increased
focus on the environment and recycling. There is a growing emphasis on recycling
with

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respect to reclaiming the reusable value of material in plastic,  rubber,  glass
and metal  products,  as well as with  respect to easing the  disposal  of urban
waste,  medical  waste,  aluminum  cans  and soda  bottles  in  accordance  with
environmental regulations.

         The Company is also is a leader in the  development  and  production of
knives used in the size  reduction and recycling of automobile  tires and glass.
The  Company  believes  the use of tire  granulating  knives  will  continue  to
increase as new uses are developed  for the  reprocessed  material.  The Company
believes  that the  recycling of copper and  aluminum  cable and wires will also
increase as fiber optic and  satellite  communication  technologies  become more
widespread. The Company manufactures the knives which are used in the granulator
systems used in recycling these materials and is thus well positioned to benefit
as demand for these products increases. Industrial plastic granulator knives are
consumed in the normal  course of machine  operation  and need  resharpening  as
often as once per month and as many a 15 times over the life of a product.  Most
users of industrial  plastic  granulator  knives do not service their own knives
and the  servicing  of such knives is also an important  area for the  potential
expansion of the Company's customer base.

Marketing and Distribution

         The  Company is the only  industrial  knife and saw  manufacturer  with
operations  in North  America,  Europe,  Asia,  Australia  and Latin America and
products sold in more than 75 countries.  Historically, the Company's sales have
been  principally in North America and Europe.  However the Company has recently
expanded  operations  into the emerging  markets of Asia and Latin America,  and
plans to continue its  international  growth,  entering new  geographic  markets
while broadening existing ones.

         The  Company  has one of the  largest  direct  salesforces  focused  on
industrial knives and saws.  Complementing the Company's knowledgeable worldwide
salesforce,  the Company has a  significant  staff of product  managers  who are
experts in their respective fields and are responsible for product  coordination
among the Company's  salespeople,  customers and manufacturing  operations.  The
Company concentrates its sales efforts on end-users, which represent 89% of 1998
net  sales,   through  its  direct   sales  force,   distributors,   agents  and
Company-owned and independent resharpening service centers. The remaining 11% of
the  Company's  net  sales  are  to  original  equipment  manufacturers  ("OEM")
manufacturers of cutting machines through its direct sales force.

         In order to  better  serve its  customers,  the  Company  strategically
places its  inventory  around the world to best suit  geographical  and customer
needs.  This  results in the  Company  being able to ship most  products  to the
end-users more rapidly than many of its  competitors and as a result the Company
is often able to command a premium price for its products.

         End-users  -- Direct  Salesforce  and  Company-Owned  Service  Centers.
Approximately  64% of the  Company's  1998 net sales  were  direct to  end-users
through the Company's salesforce and Company-owned service centers, representing
approximately  7,500 customer  accounts.  The Company  believes that it has been
successful  in  selling  to  end-users  because  of its large and  knowledgeable
salesforce, broad product offering, customer service, the strategic placement of
its inventory and its relationships with OEMs. The Company's salesforce develops
close working relationships with end-users, continually providing customers with
direct technical support,  offering advice about the types of knives,  materials
and specifications which would be appropriate for their specific machines.

         The  Company is  afforded  additional  direct  access to  end-users  by
providing   resharpening   services  to  end-users  of  both  its  own  and  its
competitors'  products  through its 21 service  centers,  fourteen in the United
States,  three in Canada, one in the Netherlands,  one in France, one in Mexico,
and one in Chile.  In addition to company  owned  service  centers,  the Company
works very closely in conjunction with a network of independently  owned dealers
and regrind  shops.  This  enables  the  Company to create even closer  customer
relationships  which  better  position it to be the first choice of the end-user
when a replacement is needed.  Since industrial  knives and saws are consumable,
and generally need  resharpening at least once per week and as often as 50 times
over the life of a product, resharpening revenues can be significantly in excess
of the cost of the product.

                                      I-6

<PAGE>


         The resharpening  service centers also act as distributors as they sell
replacement knives and saws. By owning and operating these service centers,  the
Company can replace  competitors'  products  with IKS  products,  including  IKS
products  that the  service  center may not have  previously  sold.  The Company
believes that the number of service  center users will continue to increase as a
result of an emerging trend toward  outsourcing  resharpening  operations.  This
outsourcing trend results from end-users  implementing  overhead  reductions and
requiring   expertise  in  resharpening   blades  that  are  increasingly   more
sophisticated  in materials  and design.  Such sales are  typically  high margin
sales  since  end-users  will pay a higher  price  for the  Company's  technical
support   resulting  in  greater   satisfaction.   In  1998,   the  Company  had
approximately $11.7 million in net sales from its resharpening operations.

         End-users -- Distributors and Independent Service Centers.  The Company
sells  approximately 25% of its net sales to end-users through  distributors and
independent  resharpening service centers. The Company's long term relationships
with these  distributors,  agents and independent  resharpening  service centers
complement  its  salesforce by providing the  opportunity  to access  additional
niche markets.  The Company will continue to utilize its distribution network to
expand its sales reach and carry the IKS products in their  inventory,  ready to
be sold to end-users.

         OEMs.  Approximately  11% of IKS' 1998 net  sales  were  directly  to a
variety of OEM manufacturers. The Company believes it is the leading supplier to
the OEM market,  placing the original knife or saw in the OEM machine, and has a
close  relationship  with  many  of  the  major  cutting  machine  manufacturers
worldwide.  The Company has developed and maintains these close relationships by
providing advice to OEM manufacturers  about the types of knives,  materials and
specifications  which would be appropriate  for their  particular  machines.  In
supplying over 350 OEMs, the Company's  market managers have an enhanced ability
to identify the needs of its customers and to coordinate the Company's technical
capabilities  with those needs.  As a result,  the Company  believes that it has
greater  opportunities  to place its products  into OEM machines and by doing so
provides itself with a competitive advantage in capturing the resultant end-user
replacement sales.

Strategic Alliances

         The   Company's   strategic   alliances   include   over  50   business
relationships  with suppliers of finished  industrial knives and saws throughout
the  world,  five  joint  ventures  and  several  strategic  relationships  with
independent  resharpening centers.  These alliances enable the Company to expand
its international presence, increase its product offerings and align itself with
local  entrepreneurs  in  international  markets where local market expertise is
needed while broadening its customer base with limited additional investment.

         Finished Goods Suppliers. The Company's relationships with suppliers of
finished goods are typically with small manufacturers  throughout the world. The
Company's  relationships  with finished goods suppliers allow it the flexibility
to  manufacture  or source a product  based  upon cost and  delivery  time,  the
quality of product  needed,  the region to be  supplied  and the  material to be
used. The more significant of these  relationships  provide the Company with the
exclusive or semi-exclusive  rights to market certain of its partners'  products
within the Company's  markets and allow the Company to purchase  finished  goods
for a relatively low cost and then resell these  products at attractive  margins
often using the Company's  trademarks and tradenames.  The Company generally has
at least two  suppliers  for most of the products it sources.  In addition,  the
loss of any  particular  supplier  would  not have a  material  effect  upon the
Company,  since the  Company  is able to  manufacture  substantially  all of the
products it sources.

         Joint Ventures.  The Company also maintains its international  presence
through joint ventures in Asia, Australia,  and Latin America. These include two
joint  ventures  which  commenced  operations  in January  1996 with the leading
industrial paper cutting machinery  manufacturer in China. The Company has a 51%
interest in both ventures.  The Company's partner in the China joint ventures is
Shanghai Printing and Packaging Machinery General  Corporation,  which currently
has  approximately  an 80% share of the  paper  knife  machine  market in China,
manufacturing cutting equipment which consumes the Company's paper knives. These
joint  ventures  sell  products  domestically  within China and IKS  exclusively
exports  these  products to the rest of the world,  providing the Company with a
relatively  low cost source of supply for resale to its  customers.  These joint
ventures  provide a distribution  network for the Company to import its products
from North America and Europe into the rapidly developing market in China as the
economy  expands and demands a greater  variety of cutting  tool  products.  The
Company's  other joint venture  interests are a 42.5%  interest in a distributor
and service center in Chile which had net

                                      I-7

<PAGE>


sales of approximately  $1.1 million in 1998, a 30% interest in a distributor in
the Philippines  which had net sales of approximately $.7 million in 1998, and a
45% interest in a distributor in Australia which had net sales of  approximately
$.6 million in 1998.

Raw Materials

         The Company has numerous suppliers of raw materials,  including over 20
raw material  suppliers of steel. IKS's steel purchase volume is typically large
enough to allow the Company to purchase steel  directly from steel mills,  which
results  in  reduced  raw  material  costs.   The  Company   believes  that  its
relationships  with all of its  steel  vendors  are  good.  The  Company  is not
dependent on any one of its suppliers for all of its raw materials.

         In 1995, the Company experienced an unexpected increase in the price of
tool steel because of an unusual  general  market price  increase which affected
the knife industry  worldwide.  This price escalation is attributable to a major
reduction in specialty  tool steel  production  resulting  from the closing of a
major  German  steel  mill and the  consolidation  of steel  producers  in Latin
America  and Europe  coupled  with a strong  demand for raw  materials  in North
America and Europe.  The resultant shortage in tool steel caused deliveries from
suppliers  to be extended  from nine months to fourteen  months.  As the Company
sells  primarily to end-users  which requires  prompt and timely  delivery,  the
Company  was forced to purchase  expensive  substitutes.  Due to the  unexpected
nature  of the price  increase,  the  Company  was not able to pass  along  this
increase to its customers on a timely basis.  The Company has taken  measures to
prevent such a  reoccurrence  by negotiating a 90-day fixed price term into most
of its sales  contracts  as opposed to the  previous  one year term,  increasing
prices on a more regular basis and expanding the number of its steel suppliers.

         In 1996 there was an increase in the number of suppliers of tool steel,
and prices for tool steel decreased from the 1995 levels.

Backlog Orders

         As of February 28, 1999, the dollar amount of backlog  orders  believed
by the Company to be firm totaled approximately $37 million. It is expected that
a  significant  portion of all such orders  will be filled  during  1999.  As of
February 28, 1998, the dollar amount of backlog orders totaled approximately $38
million.

Competition

         The industrial knife and saw market is highly  fragmented with numerous
participants.  The Company competes principally on the basis of price,  service,
delivery,  quality and technical  expertise.  The Company's  competitors vary in
each of the market  sectors  that the  Company  serves.  There is no one company
which  competes  with the  Company in all four of the market  sectors  which the
Company  serves and there is no one  company  which is  dominant  in any of such
market sectors. The Company believes that the reputation it has established over
its long  history  for  quality  products,  sales and  service  network  and its
in-depth product  knowledge  provide it with a competitive  advantage in all the
market sectors it serves.

Trademarks and Tradenames

         The Company  markets its products under certain  trademarks,  including
"IKS(TM)," "IKS  Klingelnberg,"  "Cascade Southern",  "Chromavan,"  "Chromalit,"
"Compaflex,"  "Compalloy,"  "Durapid,"  "Duritan,"  "Dynabloc(TM),"  "Dynapren,"
"Dynatherm," "KeyMatic",  "Klirit," "KSFmicroplan,"  "Novacrom(TM),"  "Novador,"
"QCP," "Quality Cut Knife Maintenance Program and Design," "Rolf Meyer", "SAVE,"
"Sawyer's  Choice,"  "Stop,"   "Surekut(TM),"   "Systi-Matic",   "Tecalloy(TM),"
"Tecnolite(TM),"   "Tungsten  Carbide  Quattro,"   "Diamond  Cut,"  "New  Wave,"
"Dialux," "Ultrid," and "Workalit." In addition,  the Company uses the following
tradenames:  American  Custom Metals;  Ban-Carb;  Buland;  Canadian Knife & Saw;
Diacarb;  AK Vander Wijngaart Beheer;  Diacarb  Stansvormen;  Mayemyton Trading;
Durakut; Econokut; Hannaco; Hyperhone; IKS de Mexico; IKS Shanghai; Kodiak; SPS;
Tuff-Tip; and Ultrakut.

                                      I-8

<PAGE>

Employees

         At December 31, 1998,  the Company had 1,475  full-time  employees.  Of
such  employees,  808 were located in North America,  328 were located in Europe
and 339 were  located in Asia.  The Company  considers  its  relations  with its
employees to be good.

         The Company's employees are primarily non-union. The Company's Bergisch
Born,  Germany facility,  its China facilities  (operated in connection with its
joint venture arrangements) and its Systi-Matic facility in Kirkland, Washington
are the only facilities which employ union workers.  The Company  estimates that
45 of its German  employees and 68 of its U.S employees are union  members.  The
majority of the 324 employees at the  facilities of the two China joint ventures
are part of a governmental  bargaining unit. The Company considers its relations
with the unions to be good.

Environmental and Regulatory Matters

         As  with  most  industrial  companies,  the  Company's  facilities  and
operations  are  required to comply  with and are  subject to a wide  variety of
federal,  state,  local and foreign  environmental  and worker health and safety
laws,  regulations  and  ordinances,  including  those related to air emissions,
wastewater  discharges and chemical and hazardous waste  management and disposal
("Environmental  Laws").  Certain  of these  Environmental  Laws hold  owners or
operators of land or businesses liable for their own and for previous owners' or
operators'  releases of  hazardous  or toxic  substances,  materials  or wastes,
pollutants  or  contaminants,   including   petroleum  and  petroleum  products.
Compliance with  Environmental  Laws also may require the acquisition of permits
or other  authorizations  for certain  activities  and  compliance  with various
standards or procedural  requirements.  The nature of the Company's  operations,
the long history of industrial uses at some of its current or former facilities,
and the  operations  of  predecessor  owners  or  operators  of  certain  of the
businesses  expose the Company to risk of  liabilities or claims with respect to
environmental  and worker health and safety  matters.  There can be no assurance
that material costs or liabilities  will not be incurred in connection with such
liabilities or claims.

         In  connection  with the  Recapitalization,  the  Company  obtained  an
indemnity for fines and penalties for violations of  Environmental  Laws and for
losses suffered by the Company with respect to certain environmental  conditions
occurring  prior to the  Recapitalization.  The  environmental  indemnities  are
subject to certain time limitations depending on the nature of the environmental
claim, a $15.0 million cap and, except for fines and penalties for violations of
Environmental Laws, a $2.5 million deductible. Based on the Company's experience
to date and the indemnities  obtained in connection  with the  Recapitalization,
the  Company   believes  that  the  future  cost  of  compliance  with  existing
Environmental Laws (or liability for known environmental  liabilities or claims)
should not have a material adverse effect on the Company's  business,  financial
condition or results of operations.  However,  future events, such as changes in
existing  laws  and  regulations  or  their  interpretation,  may  give  rise to
additional  compliance  costs or liabilities  that could have a material adverse
effect on the Company's business,  financial condition or results of operations.
Compliance  with more  stringent laws or  regulations,  as well as more vigorous
enforcement   policies  of   regulatory   agencies  or  stricter  or   different
interpretations  of existing laws, may require  additional  expenditures  by the
Company that may be material.

ITEM 2.  PROPERTIES

         The Company is headquartered in Erlanger, Kentucky, located a few miles
south of Cincinnati, Ohio. The Company currently owns or leases 30 facilities in
North America,  Europe,  Asia,  and Australia  that are used for  manufacturing,
distribution, sales, warehousing and service center activity.

                                      I-9

<PAGE>

         The  following  table  sets  forth the  location,  square  footage  and
principal functions of each of the Company's facilities.

<TABLE>
<CAPTION>
 

                        Location                    Approx. Sq. Ft.               Use
              ---------------------------------     ---------------  -------------------------

              <S>                                        <C>         <C>
              North American Facilities
                Florence, SC...................          106,600     Manufacturing/Service
                                                                     Center/Distribution/Sales
              Erlanger, KY (corporate
                   Headquarters)..............            99,700     Manufacturing/Service
                                                                     Center/Distribution/Sales
                Camden, AL.....................           44,700     Manufacturing/Service
                                                                     Center/Distribution/Sales
                McMinnville, OR................           55,000     Manufacturing/Service
                                                                     Center/Distribution/Sales
                Granby, Quebec*................           20,000     Manufacturing/Service
                                                                     Center/Distribution/Sales
                Langley, British Columbia......           19,200     Manufacturing/Service
                                                                     Center/Distribution/Sales
                Elmhurst, IL*..................           18,500     Service Center/Distribution/Sales
                Kirkland,WA *..................           30,000     Manufacturing/Service
                                                                     Center/Distribution/Sales
                Milwaukie, OR *................            8,600     Manufacturing/Service Center
                Hot Springs, AR................            6,700     Distribution/Sales
                Atlanta, GA *..................            3,900     Service Center/Distribution/Sales
                Appleton, WI *.................            5,000     Service Center/Distribution/Sales
                Nashville, TN *................            2,400     Service Center/Distribution/Sales
                Bangor, ME.....................           12,400     Service Center/Distribution/Sales
                Mississauga, Ontario*..........           11,800     Service Center/Distribution/Sales
                West Monroe, LA................            7,500     Service Center/Distribution/Sales
                Richmond, VA *.................            7,400     Service Center/Distribution/Sales
                Mexico City, Mexico*...........            3,500     Service Center/Distribution/Sales
                Statesboro, GA*................            2,700     Service Center/Distribution/Sales
              European Facilities
                Bargteheide, Germany...........           64,500     Manufacturing/Distribution/Sales
                Bergisch Born, Germany.........           56,000     Manufacturing/Distribution/Sales
                Geringswalde, Germany..........           30,700     Manufacturing
                Rotterdam,  the Netherlands....           23,700     Service Center/Distribution/Sales
                Palaiseau, France..............           17,200     Service Center/Distribution/Sales
              Asian Facilities
                Jakarta, Indonesia*............            2,700     Distribution/Sales
                Kuala Lumpur, Malaysia*........            1,000     Distribution/Sales
              Joint Venture Facilities
                Shanghai, China** (51%)........           32,000     Manufacturing/Distribution/Sales
               Coffs Harbour, Austrialia*(45%)             2,000     Distribution/Sales
               Concepcion, Chile (42.5%).......            3,700     Service Center/Distribution/Sales
               Manila, Philippines (30%).......            2,500     Distribution/Sales
</TABLE>

----------

* Leased.

** Facility owned, land leased.

        The Company believes that its facilities are suitable for its operations
and provide  sufficient  capacity  to meet the  Company's  requirements  for the
foreseeable future.

                                      I-10

<PAGE>

         The  Company  places  a  strong  emphasis  on  producing  high  quality
products.  The Company's European facility located in Bergisch Born, Germany has
been awarded ISO 9001 certification,  while its Erlanger,  Kentucky facility has
been  awarded  ISO 9002  certification  indicating  that these  facilities  have
achieved and sustained a high degree of quality and consistency  with respect to
their  production  systems.  The Company  believes that ISO  certification is an
increasingly important selling feature both domestically and internationally, as
it provides  evidence to  purchasers  that the  Company's  systems have achieved
specified standards and are being sustained.

ITEM 3. LEGAL PROCEEDINGS

         The Company is from time to time involved in legal proceedings  arising
in the ordinary course of business. The Company believes there is no outstanding
litigation  which  could have a material  impact on its  financial  position  or
results of operations.

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

         This item is not  applicable to the  registrant for this filing on Form
10-K.

                                      I-11

<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

         The  Company  is a wholly  owned  subsidiary  of IKS  Corporation.  The
Company's common equity is not publicly traded and, accordingly,  an established
market does not exist for such common equity.

         IKS Corporation has two classes of common equity outstanding as well as
two classes of preferred  stock.  As of March 1, 1999,  there were 38 holders of
IKS Corporation's outstanding  common equity.  In August and September 1997, IKS
Corporation  issued  11,319  shares of Class A Stock,  96 shares of Series A 12%
Cumulative  Compounding Preferred Stock and 96 shares of Series B 12% Cumulative
Compounding Preferred Stock to Participants for total consideration of $305,190.
During 1998, IKS  Corporation  issued 200 shares of Class A Stock,  24 shares of
Series A 12% Cumulative  Compounding  Preferred  Stock and 24 shares of Series B
12%  Cumulative   Compounding   Preferred  Stock  to   Participants   for  total
consideration  of $50,000.  The above  securities  were purchased  under certain
employee stock purchase  plans in reliance upon the exemptions  available  under
Section 4 (2) of the  Securities  Act of 1993,  as  amended,  and  Regulation  D
thereunder.  See "Item 12. Security  Ownership of Certain  Beneficial Owners and
Management."

         On November 6, 1996, IKS  Corporation  completed the  Recapitalization.
See "Item 1. Business - The  Recapitalization." As part of the Recapitalization,
the Company paid a special cash dividend of  approximately  $63.5 million to IKS
Corporation  to  finance,  in part,  the cash  portion  of the  Recapitalization
Distribution. See "Item 1. Business - The Recapitalization."

         The Notes were issued  pursuant to the Indenture,  which  prohibits the
Company  from  declaring or paying any  dividend or making any  distribution  on
account of the Company's equity interests unless certain conditions, as outlined
in the  Indenture,  exist  at the  time  of such  payment.  The  Company  is not
prohibited  from  declaring or paying  dividends in the form of capital stock of
the Company.

ITEM 6.  SELECTED FINANCIAL DATA

         The following table contains selected historical  financial data of the
Company as of and for each of the five years in the period  ended  December  31,
1998. The information contained in this table should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations",  and the Company's historical consolidated financial statements,
including the notes thereto, included elsewhere herein.

                                      II-1

<PAGE>

<TABLE>
<CAPTION>

                                                         Year Ended December 31
                                                         (dollars in thousands)
                                         1998         1997         1996         1995       1994
                                     ----------   -----------  -----------  ----------- --------
<S>                                  <C>          <C>          <C>          <C>         <C> 
Operating Data:                                                                          
Net sales                            $ 150,132    $ 142,265    $ 118,996    $ 107,030   $ 92,447
Cost of sales                          105,020       99,176       83,122       77,026     62,634
                                     ---------    ---------    ---------    ---------   --------
  Gross profit                          45,112       43,089       35,874       30,004     29,813
Selling, general and
  administrative expenses               30,299       27,681       23,952       19,734     19,241
                                     ---------    ---------    ---------    ---------   --------
  Operating income                      14,813       15,408       11,922       10,270     10,572
Interest expense, net                   12,006       11,687        3,245        1,416      1,727
Minority interest                           71          174         (271)           -          -
                                     ---------    ---------    ---------    ---------   --------
Income before income taxes               2,736        3,547        8,948        8,854      8,845
Provision for income taxes               1,146        1,499        2,924        3,606      3,663
                                     ---------    ---------    ---------    ---------   --------
Net income                           $   1,590    $   2,048    $   6,024    $   5,248   $  5,182
                                     =========    =========    =========    =========   ========

Other Data:                                                                              
EBITDA (1)                           $  20,803    $  20,027    $  17,055    $  14,687   $ 13,542
Net cash provided by operating
  activities                            10,694        7,282        9,999        2,963      6,902
Net cash used in investing
  activities                           (17,687)     (25,183)      (8,998)      (3,783)    (2,251)
Net cash provided by financing
  activities                             6,690        8,676          965        4,494        764
Depreciation and amortization (2)        5,620        5,145        4,596        3,786      3,522
Capital expenditures (3)                 9,320        7,734        8,157        4,663      3,383
Gross margin                              30.0%        30.3%        30.1%        28.0%      32.2%
EBITDA margin                             13.9%        14.1%        14.3%        13.7%      14.6%
EBITDA  including  LIFO charges
  and credits                        $  20,434    $  20,553    $  16,518    $  14,056   $ 14,094

Balance Sheet Data:                                                         
Working capital                      $  26,095    $  32,910     $  40,753    $ 32,564   $ 30,687
Total assets                           134,726      115,274       101,275      85,697     72,641
Debt (4)                               122,455      109,265       100,075      23,716     17,055
Shareholders' equity                   (18,093)     (19,607)      (19,644)     38,029     34,734

</TABLE>

     (1) EBITDA  is  defined  as   operating   income  plus   depreciation   and
         amortization  adjusted  to  exclude  LIFO  charges  (credits)  of $370,
         ($526),  $537,  $631 and ($552) for the years ended  December 31, 1998,
         1997, 1996, 1995 and 1994, respectively. EBITDA should not be construed
         as an  alternative to operating  income,  net income or cash flows from
         operating  activities  (as  determined  in  accordance  with  generally
         accepted  accounting  principles)  and  should not be  construed  as an
         indication of the Company's  operating  performance  or as a measure of
         liquidity.  See  "Item  7.  Management's  Discussion  and  Analysis  of
         Financial  Condition  and Results of  Operations."  The EBITDA  measure
         presented  by the Company may not be  comparable  to  similarly  titled
         measures reported by other companies.

     (2) Depreciation  and  amortization  as  presented  will  not  agree to the
         consolidated  statement of cash flows  because of the  amortization  of
         debt issuance costs reported below the operating income line.

     (3) 1998   includes   $2,172  of  capital   expenditures   related  to  the
         implementation  of a new  computer  system  (SAP)  and  related  system
         software.  1996 includes $1,524 of capital  expenditures related to the
         consolidation  of the Company's west coast operations and the expansion
         of the Cincinnati facility,  and $1,105 of capital expenditures related
         to the expansion of the China joint venture operations.

     (4) Debt includes  notes payable and current  portion of long-term debt and
         excludes capital lease obligations.

                                      II-2

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         The  following  discussion  should  be read  in  conjunction  with  the
Consolidated Financial Statements and related notes.

General

         The  Company is a global  leader in the  manufacturing,  servicing  and
marketing of industrial  and commercial  machine knives and saws.  Together with
its predecessor,  the Company has been manufacturing  knives and saws for nearly
100 years,  beginning in Europe and  expanding its presence to the United States
in the 1960s. The Company operates on an international  basis with facilities in
North  America,  Europe,  Asia and Latin  America and  products  sold in over 75
countries.  The  Company  offers a broad  range of  products,  used for  various
applications in numerous markets.

Presence outside the U.S.

         The Company's North American  operations  accounted for 71% of its 1998
net sales and operating  income.  The Company's other  international  operations
account for the  remainder  and are  located  primarily  in Europe,  25% of 1998
sales, and to a lesser extent in Asia.

         Historically,  the  Company  had  focused  its sales  efforts  in North
America  and Europe,  only  recently  establishing  itself in other areas of the
world and has  increased  sales in these other  markets from 1% in 1995 to 4% of
1998 net sales.  During  1994,  1995 and 1996,  the Company  entered  into joint
ventures to establish itself in these emerging markets.

         The Company's  operating results are subject to fluctuations in foreign
currency  exchange  rates as well as the  currency  translation  of its  foreign
operations into U.S.  dollars.  The Company  manufactures  products in the U.S.,
Germany,  Canada and China and exports  products to more than 75 countries.  The
Company's  foreign  sales,  the  majority of which occur in Canada and  European
countries,  are subject to exchange rate  volatility.  In addition,  the Company
consolidates German, Dutch, French, Canadian, Chinese and other Asian operations
and  changes  in  exchange  rates  relative  to the U.S.  dollar  have  impacted
financial results. As a result, a decline in the value of the dollar relative to
these other currencies can have a favorable  effect on the  profitability of the
Company  and an  increase  in the value of the dollar  relative  to these  other
currencies  can have a  negative  effect on the  profitability  of the  Company.
Comparing  exchange  rates for 1998 to 1997,  the  weaker  Canadian  Dollar  and
Indonesian  Rupiah had the  translation  effect of decreasing  1998 sales by $.7
million  and  $.3  million,  respectively, with  an  immaterial  impact  on 1998
operating  income.  To  mitigate  the  short-term  effect of changes in currency
exchange  rates  on the  Company's  foreign  currency  based  purchases  and its
functional  currency based sales,  the Company  occasionally  hedges by entering
into foreign  exchange and U.S.  dollar forward  contracts to hedge a portion of
its budgeted  (future) net foreign  exchange and U.S. dollar  transactions  over
periods ranging from one to six months.

         At December 31, 1998 the result of a hypothetical 10% adverse change in
foreign  currency  rates would not  significantly  impact the  Company's  future
results  of  operations,  cash flows or  financial  position.  This  calculation
assumes that each exchange rate would change in the same  direction  relative to
the U.S.  dollar.  In addition to the direct  effects of the changes in exchange
rates,  changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors'  products  become more or less  attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in the potential  change in sales levels or local
currency prices.

Results of Operations

         The following table sets forth the items in the Company's  consolidated
statements of income as percentages of its net sales for the periods indicated:

                                      II-3

<PAGE>

                                                   Year Ended December 31,
                                               1998         1997          1996
                                            ----------   ----------   ----------
Net sales..............................        100.0%       100.0%       100.0%
Cost of sales..........................        (70.0)%      (69.7)%      (69.9)%
                                            ----------   ----------   ----------
          Gross margin.................         30.0%        30.3%        30.1%
Selling, general and administrative
    expenses...........................        (20.2)%      (19.5)%      (20.1)%
                                            ----------   ----------   ----------
          Operating income.............          9.8%        10.8%        10.0%
Interest expense, net..................          8.0%         8.2%         2.7%
Minority Interest......................          0.0%         0.1%        (0.2)%
                                            ----------   ----------   ----------
          Income before income taxes...          1.8%         2.5%         7.5%
Provision for income taxes.............         (0.8)%       (1.1)%       (2.5)%
                                            ----------   ----------   ----------
          Net income...................          1.0%         1.4%         5.0%
                                            ==========   ==========   ==========


         As  used  in the  following  discussion  of the  Company's  results  of
operations,  (i) the term "gross profit" means the dollar difference between the
Company's net sales and cost of sales and (ii) the term "gross margin" means the
Company's gross profit divided by its net sales.

Year Ended December 31, 1998 Compared To Year Ended December 31, 1997

         Net  Sales:  Net sales  increased  5.5% to $150.1  million in 1998 from
$142.2 million in 1997,  primarily  attributable to 1998 and 1997  acquisitions,
significantly  offset by softness in the wood, paper and metal industries caused
by  pricing  pressures  from  Asian,   South  American,   Russian  and  domestic
competitors.  The Company  experienced sales  improvements in its North American
operations  (2.6%  to  $106.1  million)  compared  to  $103.4  million  in 1997,
primarily   attributable  to  the  above  mentioned  factors  and  the  negative
translation  effects  of a  weaker  Canadian  dollar  that  had  the  effect  of
decreasing  sales by $.7 million.  The Company  experienced  sales  improvements
(13.1% to $44.0  million) in its other  operations  compared to $38.9 million in
1997,  attributable to increased sales from the Buland and Diacarb  acquisitions
in the fourth  quarter of 1998 which  accounted  for about half of the increase,
and the Rolf Meyer  acquisition in the second quarter of 1997,  partially offset
by the factors noted above.

         Gross Profit:  Gross profit  increased to $45.1 million in 1998 up from
$43.1 million in 1997, primarily attributable to the 1998 and 1997 acquisitions,
significantly  offset by softness in the wood, paper and metal industries caused
by  pricing  pressures  from  Asian,   South  American,   Russian  and  domestic
competitors. Gross margin decreased slightly to 30.0% for 1998 compared to 30.3%
for 1997. The Company  experienced slight gross profit improvements in its North
American  operations  (.6% to $32.4  million) for 1998 compared to $32.2 million
for 1997,  although gross margin  declined to 30.5% from 31.2%.  The increase in
gross profit and slight decline in gross margin is  attributable  to the factors
noted above. The Company also experienced  gross profit  improvements  (16.5% to
$12.7  million) in its other  operations  for 1998 compared to $10.9 million for
1997, and gross margin increased to 28.9% from 28.0%. The gross profit and gross
margin  improvement was primarily due to the fourth quarter 1998 acquisitions of
Buland and Diacarb and the second quarter 1997 Rolf Meyer acquisition, partially
offset by the factors noted above.

         Selling,  General and  Administrative  Expenses:  Selling,  general and
administrative  ("SG&A")  expenses were $30.3 million for 1998 compared to $27.7
million  for 1997 and  increased  to 20.2% of sales  from 19.5% of sales for the
respective  periods.  The  increase  in  SG&A  expenses  was  primarily  due  to
acquisitions.

         Interest Expense,  net: Net interest expense increased to $12.0 million
in 1998 from $11.7 in 1997 due to an increase in borrowings primarily related to
the Diacarb and Buland  acquisitions in the fourth quarter of 1998, and the Rolf
Meyer acquisition in the second quarter of 1997.

         Income  Taxes:  The Company's  effective  tax rate remained  relatively
constant at 41.9% compared to 42.3% in 1997.

                                      II-4
<PAGE>

Year Ended December 31, 1997 Compared To Year Ended December 31, 1996

         Net Sales:  Net sales  increased  19.6% to $142.3  million in 1997 from
$119.0 million in 1996, primarily attributable to 1997 acquisitions. The Company
experienced sales improvements in its North American operations (23.4% to $103.4
million) compared to $83.8 million in 1996, primarily  attributable to increased
sales from the  Systi-Matic  and Cascade  acquisitions  in the second quarter of
1997 and the four service center acquisitions in the fourth quarter of 1997. The
Company  experienced  sales  improvements  (10.5% to $38.9 million) in its other
operations  compared  to  $35.2  million  in  1996,  primarily  attributable  to
increased  sales from the Rolf Meyer  acquisition in the second quarter of 1997,
partially offset by the negative translation effects of a weaker German Mark and
Indonesian  Rupiah. The effects of a weaker German Mark and Indonesian Rupiah in
1997 compared to 1996 rates  resulted in a translation  effect that reduced 1997
sales by $4.6 million and $.3 million, respectively.

         Gross Profit:  Gross profit  increased to $43.1 million in 1997 up from
$35.9 million in 1996,  primarily  attributable to the 1997 acquisitions.  Gross
margin  increased  slightly to 30.3% for 1997  compared  to 30.1% for 1996.  The
Company  experienced gross profit  improvements in its North American operations
(22.9% to $32.2  million) for 1997 compared to $26.2 million for 1996,  although
gross  margin  declined to 31.2% from  31.3%.  The  increase in gross  profit is
attributable to the 1997  acquisitions  while the slight decline in gross margin
is also  attributable to the 1997  acquisitions  and to the  introduction of new
products in 1997. The Company also experienced gross profit  improvements (12.4%
to $10.9 million) in its other  operations for 1997 compared to $9.7 million for
1996,  and  gross  margin  increased  to 28.0%  from  27.6%.  The  gross  profit
improvement  was  primarily  due to the second  quarter  Rolf Meyer  acquisition
offset by to the weaker German Mark and  Indonesian  Rupiah which had a negative
translation  effect  of $1.3  million  and $.1  million  on  1997  gross  profit
respectively.  The increase in gross margin was due  primarily to the Rolf Meyer
acquisition.

         Selling,  General  and  Administrative  Expenses:  SG&A  expenses  were
$27.7 million for 1997 compared to $24.0 million for 1996 and decreased to 19.5%
of sales from 20.1% of sales for the respective  periods.  The reduction in SG&A
expenses was primarily due to start up costs related to the  acquisition  of the
Chinese joint ventures in 1996 and the Company's  strategy of  controlling  SG&A
expenses in a period of sales growth.

         Interest Expense,  net: Net interest expense increased to $11.7 million
in 1997  from  $3.2 in 1996  due to the  issuance  of $90  million  of  Notes in
connection  with the  Recapitalization  in  November  1996,  and an  increase in
borrowings primarily related to the Rolf Meyer acquisition.

         Income  Taxes:  The Company's  provision for income taxes  decreased to
$1.5  million  for 1997 down  from $2.9  million  for 1996  while the  Company's
effective tax rate  increased to 42.3% from 32.7% for 1996.  The Company's  1996
effective tax rate was favorably  affected by increased profits in the Company's
European  operations  for which no tax  provision  was  recorded  because of the
availability of net operating loss carry forwards ("NOLs").  In 1997, due to the
minimal  amount of NOLs  available  ($65,000)  to  offset  European  income  and
additional non-U.S. losses for which no benefits are being recognized because it
is more  likely  than not that they will not be  realized  in  certain  non-U.S.
jurisdictions,  the 1997 effective tax rate exceeds the U.S.  statutory rate and
the prior year consolidated effective tax rate.

Liquidity and Capital Resources

         The  Company's  principal  capital  requirements  are to  fund  working
capital  needs,  to meet  required  debt and  interest  payments and to complete
planned   maintenance   and   expansion   expenditures.   Concurrent   with  the
Recapitalization,  the  Company  entered  into a  $20.0  million  senior  credit
facility and its German  subsidiary  entered into a DM 7.5 million senior credit
facility.  In the third  quarter  of 1997 and the fourth  quarter  of 1998,  the
Company's  German  subsidiary  entered into two additional DM 8.5 million senior
credit  facilities.  The  Company  anticipates  that its  operating  cash  flow,
together  with  available  borrowings of $15.2  million  under  existing  credit
facilities,  will be  sufficient to meet its capital  requirements.  The 11-3/8%
Notes  impose,  and other debt  instruments  of the Company may impose,  various
restrictions  and  covenants on the Company  which could  potentially  limit the
Company's ability to respond to market conditions,  to provide for unanticipated
capital  investments  or to take  advantage  of  business  opportunities.  As of
December 31, 1998, the Company's total long-term debt and shareholder's  deficit
were $110.5 million and $18.1 million, respectively.

                                      II-5

<PAGE>

         Net cash flow from  operations  aggregated  $10.7  million  for 1998 as
compared to $7.3 million for 1997. The increase was primarily  attributable to a
$2.7 million  decrease in working  capital  compared to 1997. Net cash flow from
operations  aggregated  $7.3  million for 1997 as compared to $10.0  million for
1996. The decrease was primarily  attributable to a $4.0 million decrease in net
income  offset by a $.4 million  increase  in working  capital and a $.4 million
increase in minority interest compared to 1996.

         Cash  used in  investing  activities  for 1998  was  $17.7  million  as
compared to $25.2 million for 1997 and $9.0 million for 1996.  The decreased use
of cash in 1998 compared to 1997 is primarily due to a $7.8 million  decrease in
purchases of operations net of cash acquired.  The increased use of cash in 1997
over 1996 was due to a $16.9 million increase in purchases of operations, net of
cash acquired.

         Cash  provided by  financing  activities  for 1998 was $6.7  million as
compared to $8.7 million for 1997 and $1.0 million for 1996.  The cash  provided
by  financing  activities  in 1998  primarily  represents a net increase of $7.5
million in notes payable and long term debt due primarily to the acquisitions of
Buland  and  Diacarb  in the fourth  quarter  of 1998,  offset by a $.8  million
decrease in amounts due to parent. The cash provided by financing  activities in
1997  primarily  represents a net increase of $9.2 million in notes  payable and
long-term debt due primarily to the purchase of Rolf Meyer in the second quarter
of 1997,  offset by a $.6 million  decrease  in amounts due to parent.  The cash
provided by financing  activities in 1996 primarily represents a net increase of
$72.4  million  in  notes  payable  and long-term  debt  due  primarily  to  the
Recapitalization,  offset by decreases in amounts due to parent of $2.4 million,
an increase  in debt  issuance  costs  related to the  Recapitalization  of $4.5
million,   and  a  dividend   payment  to  IKS   Corporation   as  part  of  the
Recapitalization of $64.7 million.

         The Company is currently  involved in active discussions with potential
acquisition candidates. If consummated,  the consideration for such acquisitions
would likely be funded from a  combination  of the  Company's  existing cash and
cash equivalent balances as well as its borrowing  availability under its senior
credit facilities.  However, any material acquisitions could require the Company
to obtain  additional  sources of financing.  There can be no assurance that the
Company will consummate any such  acquisitions  or, if  consummated,  the timing
thereof.

Impact of Recently Issued Accounting Standards

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities,  which is
required  to be adopted in fiscal  years  beginning  after  June 15,  1999.  The
statement  will require the Company to recognize any  derivatives on the balance
sheet at fair value.  The Company does not  anticipate  that the adoption of the
new  Statement  will have a  significant  effect on its  earnings  or  financial
position.

Year 2000

         The  Year  2000  problem  exists  because  many  computer  systems  and
applications  use  two-digit  fields to  designate a year.  As the century  date
change occurs,  date  sensitive  systems may recognize the year 2000 as 1900, or
not at all.  This  inability to  recognize  or properly  treat the year 2000 may
cause systems to process financial and operational information incorrectly.

         In 1996, the Company began to develop a plan to upgrade its information
systems to enable it to realize cost savings through centralization of functions
that would result in reductions  in working  capital items such as inventory and
accounts  receivable.  This plan also was  developed  to assess and resolve Year
2000 compliance issues potentially  affecting the Company,  both with respect to
internal  systems and systems on which the Company's  major vendors,  suppliers,
and distributors are reliant.  To date, the Company has completed the assessment
phase of its internal  information systems and an implementation plan to resolve
potential  problems has been developed.  The Company is currently in the process
of  converting,  modifying,  and upgrading its systems and software to Year 2000
compliant  systems and software,  as necessary.  The Company believes that about
75% of its  critical  systems are Year 2000  compliant,  and that the  remaining
critical systems will be compliant by May 1999.

         The Company has also  assessed the  embedded  systems that operate such
items as manufacturing,  phone, security,  heating and air conditioning systems.
This  assessment  was  completed by September 30, 1998.  Non-compliant  embedded
systems will be replaced or modified as necessary by May 1999.

                                      II-6

<PAGE>


         The Company has incurred  approximately $2.9 million in costs primarily
to upgrade its systems,  and to a lesser extent to address Year 2000 issues. The
Company  estimates costs associated with scheduled system upgrades for 1999 will
approximate  $1.7  million,  including  minor  upgrades  to  address  Year  2000
compliance issues. The Company  anticipates that it will be able to achieve Year
2000  compliance  with  respect to internal  systems and  software  and embedded
systems  and  does not  currently  anticipate  any  material  disruption  in its
business operations to achieve this goal.

         The Company has made inquiries and gathered information  regarding Year
2000 compliance exposures faced by its principal vendors and suppliers,  and its
major  dealers  and  distributors.  No major part or critical  operation  of any
segment  of the  Company's  business  is  reliant  on a  single  source  for raw
materials,  supplies,  or services,  and the Company has  multiple  distribution
channels for most of its products.  Based on our inquiries, the Company believes
that no critical  supplier,  vendor or distributor will be adversely affected or
experience business interruptions due to Year 2000 issues.  However, should this
occur,  the  Company  believes  it  will  be  able  to  find   cost-competitive,
alternative  sources for raw  materials,  supplies,  and  services  necessary to
continue production and distribution.

         The  costs  of the  project  and the  completion  dates  are  based  on
management's best estimates,  which were derived utilizing numerous  assumptions
of future events  including the availability of certain  resources,  third party
Year 2000  compliance  modification  plans,  and other factors.  There can be no
guarantee  that the  Company  will be  completely  successful  in its efforts to
address Year 2000 issues,  or that these  estimates  will be achieved and actual
results  could  differ  materially  from these  estimates.  The  Company  has no
contingency  plans in place in the event it does not  complete all phases of the
Year 2000  program.  The Company  plans to evaluate the status of  completion in
June, 1999 to determine whether such contingency  plans are necessary,  although
at this time the Company  knows of no reason its Year 2000  program  will not be
completed in a timely manner.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Information  required  by Item 7a is included in Item 7 on page II-3 of
this form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements
<TABLE>
<CAPTION>

                                                                                      Page
                                                                                      ----

     <S>                                                                              <C>
     Report of Independent Auditors.............................................      II-8
     Consolidated Balance Sheets as of December 31, 1998 and 1997...............      II-9
     Consolidated Statements of Income for the years ended
       December 31, 1998, 1997 and 1996.........................................      II-11
     Consolidated Statements of Changes in Shareholder's Equity (Deficit)
       for the years ended December 31, 1998, 1997 and 1996.....................      II-12
     Consolidated Statements of Cash Flows for the years ended
       December 31, 1998, 1997 and 1996.........................................      II-13
     Notes to Consolidated Financial Statements.................................      II-14
</TABLE>

                                      II-7

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
International Knife & Saw, Inc.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
International  Knife & Saw,  Inc. and  Subsidiaries  as of December 31, 1998 and
1997,   and  the  related   consolidated   statements  of  income,   changes  in
shareholder's  equity  (deficit),  and cash flows for each of the three years in
the period  ended  December  31, 1998.  Our audits also  included the  financial
statement  schedule  listed  in the  index  at Item  14(a)(2).  These  financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International  Knife & Saw, Inc. and Subsidiaries at December 31, 1998 and 1997,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 1998,  in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

                                                               ERNST & YOUNG LLP

Cincinnati, Ohio
February 26, 1999

                                      II-8

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

                           Consolidated Balance Sheets


                                                             December 31,
                                                          1998           1997
                                                        ----------------------
                                                            (in thousands)
Assets
Current assets:
   Cash and cash equivalents                            $  2,032      $  2,349
   Accounts receivable, trade, less allowances for
      doubtful accounts of $1,780 and $1,480              25,595        24,253
   Inventories                                            30,981        29,335
   Other current assets                                    2,964         3,738
                                                        ----------------------
Total current assets                                      61,572        59,675

Other assets:
   Goodwill                                               18,284        12,087
   Debt issuance costs                                     3,203         3,670
   Other noncurrent assets                                 2,307         2,356
                                                        ----------------------
                                                          23,794        18,113

Property, plant and equipment-net                         49,360        37,486

                                                        ======================
            Total assets                                $134,726      $115,274
                                                        ======================


See accompanying notes.

                                      II-9

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>

                                                                          December 31,
                                                                      1998           1997
                                                                  -----------------------------
                                                                         (in thousands)
<S>                                                               <C>             <C>    
Liabilities and shareholder's deficit
 Current liabilities:
   Notes payable                                                  $     12,667    $    5,683
   Current portion of long-term debt                                     2,555         2,218
   Accounts payable                                                      9,546         9,444
   Accrued liabilities                                                  10,958         8,859
   Due (from) to parent                                                   (249)          561
                                                                  -----------------------------
Total current liabilities                                               35,477        26,765

Long-term debt, less current portion                                   107,954       102,314
Other liabilities                                                        7,004         3,415
                                                                  -----------------------------
Total liabilities                                                      150,435       132,494

Minority interest                                                        2,384         2,387

Shareholder's deficit:
   Common stock,  no par value - authorized - 580,000
     shares;  issued - 526,904
     shares; outstanding - 481,971 shares                                    5             5
   Additional paid-in capital                                           10,153        10,153
   Retained deficit                                                    (22,508)      (24,098)
   Accumulated other comprehensive loss                                 (2,311)       (2,235)
   Treasury stock, at cost                                              (3,432)       (3,432)
                                                                  -----------------------------
Total shareholder's deficit                                            (18,093)      (19,607)

                                                                  -----------------------------
Total liabilities and shareholder's deficit                       $    134,726  $    115,274
                                                                  =============================

</TABLE>

See accompanying notes.

                                     II-10

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

                        Consolidated Statements of Income


                                                  Year Ended December 31,
                                            1998          1997           1996
                                         ---------------------------------------
                                        (in thousands, except per share amounts)

Net sales                                $ 150,132     $ 142,265     $ 118,996

Cost of sales                              105,020        99,176        83,122
                                         -------------------------------------
Gross profit                                45,112        43,089        35,874

Selling, general and administrative
  expenses                                  30,299        27,681        23,952
                                         -------------------------------------
Operating income                            14,813        15,408        11,922

Other expenses (income):
    Interest income                           (175)         (261)         (601)
    Interest expense                        12,181        11,948         3,846
    Minority interest                           71           174          (271)
                                         -------------------------------------
                                            12,077        11,861         2,974
                                         -------------------------------------
Income before income taxes                   2,736         3,547         8,948

Provision for income taxes                   1,146         1,499         2,924
                                         -------------------------------------
Net income                               $   1,590     $   2,048     $   6,024
                                         =====================================

Net income per common share              $    3.30     $    4.25     $   12.50

See accompanying notes.

                                     II-11

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

      Consolidated Statements of Changes in Shareholder's Equity (Deficit)


<TABLE>
<CAPTION>

                                                                                     Accumulated                       Total
                                                       Additional     Retained          Other                      Shareholder's
                                            Common       Paid-in      Earnings      Comprehensive     Treasury        Equity
                                            Stock        Capital      (Deficit)     Income (Loss)       Stock        (Deficit)
                                          ----------- -------------- ------------ ------------------ ------------ ----------------
                                                                              (in thousands)

<S>                                          <C>         <C>          <C>             <C>             <C>           <C>
Balance at December 31, 1995                 $   5       $  8,125     $  32,557       $    774        $ (3,432)     $   38,029
  Net income for the year                                                 6,024                                          6,024
  Foreign currency translation
    adjustments                                                                            (998)                          (998)
                                                                                                                      ------------
  Total comprehensive income                                                                                             5,026
  Goodwill adjustment                                       2,028                                                        2,028
  Cash dividends                                                        (64,727)                                       (64,727)
                                          ----------- -------------- ------------- ----------------- ------------ ----------------

Balance at December 31, 1996                     5         10,153       (26,146)          (224)         (3,432)        (19,644)
  Net income for the year                                                 2,048                                          2,048
  Foreign currency translation
    adjustments, net of tax of $53                                                      (2,011)                         (2,011)
                                                                                                                  ----------------
  Total comprehensive income                                                                                                37
                                          ----------- -------------- ------------- ----------------- ------------ ----------------

Balance at December 31, 1997                     5         10,153       (24,098)        (2,235)         (3,432)        (19,607)
  Net income for the year                                                 1,590                                          1,590
  Minimum pension liability adjustment                                                    (297)                           (297)
  Foreign currency translation
    adjustments, net of tax of $50                                                         221                             221
                                                                                                                  ----------------
  Total comprehensive income                                                                                             1,514
                                          ----------- -------------- ------------- ----------------- ------------ ----------------

Balance at December 31, 1998                 $   5       $ 10,153      $(22,508)      $ (2,311)(1)    $ (3,432)     $  (18,093)
                                          =========== ============== ============= ================= ============ ================

</TABLE>

(1) At December 31, 1998, accumulated  comprehensive income was a loss of $2,311
comprised  of net  foreign  currency  translation  adjustments  of $2,014  and a
minimum pension liability of $297.

See accompanying notes.

                                     II-12

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                 Year ended December 31,
                                                              1998          1997          1996
                                                          -----------------------------------------
                                                                      (in thousands)
<S>                                                       <C>            <C>           <C>    
Operating activities
Net income                                                $    1,590     $    2,048    $    6,024
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation and amortization                             6,087          5,606         4,680
     Deferred income taxes                                     1,032            699           181
     Loss (gain) on sale of property, plant and
       equipment                                                  89           (342)         (109)
     Minority interest in income (loss) of subsidiary             71            174          (271)
     Changes in operating assets and liabilities net
       of effects from purchases of operations:
         Accounts receivable                                   1,832         (1,526)         (990)
         Inventories                                            (336)           811           445
         Accounts payable                                       (502)         1,357        (1,819)
         Accrued liabilities                                      31         (2,478)        3,112
         Other                                                   800            933        (1,254)
                                                        -------------------------------------------
Net cash provided by operating activities                     10,694          7,282         9,999

Investing activities
Purchases of operations, net of cash acquired                 (9,418)       (17,198)         (282)
Purchases of property, plant and equipment                    (9,320)        (7,734)       (8,157)
Proceeds from sale of property, plant and equipment              349            411           166
Decrease (increase) in notes receivable and other
  assets                                                         702           (662)         (725)
                                                        -------------------------------------------
Net cash used in investing activities                        (17,687)       (25,183)       (8,998)

Financing activities
Decrease in amounts due to parent                               (810)          (559)       (2,431)
Increase in notes payable and long-term debt                  20,538         15,457        92,943
Repayment of notes payable and long-term debt                (13,042)        (6,257)      (20,509)
Cash received from investees                                       4             35           189
Debt issuance costs                                                -              -        (4,500)
Dividends paid                                                     -              -       (64,727)
                                                        -------------------------------------------
Net cash provided by financing activities                      6,690          8,676           965

Effect of exchange rate on cash and cash equivalents             (14)          (127)         (538)
                                                        -------------------------------------------

Increase (decrease) in cash and cash equivalents                (317)        (9,352)        1,428
Cash and cash equivalents at beginning of year                 2,349         11,701        10,273
                                                         ------------------------------------------
Cash and cash equivalents at end of year                $      2,032   $      2,349  $     11,701
                                                        ===========================================

</TABLE>

See accompanying notes.

                                     II-13

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements
                                 (in thousands)


1.  Significant Accounting Policies

Principles of Consolidation

The  consolidated  financial  statements  include the accounts of  International
Knife  &  Saw,  Inc.  and  its  majority-owned   subsidiaries  (the  "Company").
Investments in business entities in which the Company does not have control, but
has the ability to exercise  significant  influence over operating and financial
policies are accounted for by the equity method.  All  significant  intercompany
balances and transactions have been eliminated in consolidation.

Inventories

Inventories are stated at the lower of cost or market. Cost in the United States
is determined principally by use of the last-in, first-out method.  Subsidiaries
use the first-in, first-out method.

Property, Plant, and Equipment

Property, plant and equipment are stated at cost or, for assets acquired through
business   combinations,   at  fair  value  at  the  dates  of  the   respective
acquisitions.  Depreciation is computed by the straight-line method based on the
estimated useful lives of the assets. Depreciation expense includes amortization
of assets recorded under capitalized leases.

Amortization of Intangibles

Goodwill is being amortized over 10-40 years by the  straight-line  method.  The
carrying value of goodwill is periodically reviewed using estimated undiscounted
cash flows for the businesses acquired over the remaining  amortization periods.
Amortization  charged to earnings amounted to $633, $489 and $274 for 1998, 1997
and  1996,   respectively.   As  of  December  31,  1998,  accumulated  goodwill
amortization was $1,927.

Debt issuance  costs,  which  originated in 1996,  are being  amortized over the
ten-year life of the related debt by the straight-line  method.  Amortization of
debt issuance costs charged to earnings amounted to $467, $461 and $84 for 1998,
1997 and 1996,  respectively.  As of December 31, 1998, accumulated amortization
was $1,012.

Income Taxes

Deferred taxes are provided for accumulated  temporary  differences due to basis
differences for assets and  liabilities  for financial  reporting and income tax
purposes.   The  Company's   temporary   differences   are  due  to  accelerated
depreciation and amortization,  allowances for doubtful  accounts,  expenses not
currently deductible, and income not currently taxable.

                                     II-14

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)


1.  Significant Accounting Policies (continued)

Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less when purchased to be cash equivalents.

Revenue Recognition

Revenue from product sales is recognized when the product is shipped and revenue
from services is recognized  as the services are  performed.  Revenue is reduced
for estimated customer returns and allowances.

Dividend Payments

Dividend payments are restricted under the covenants of an indenture dated as of
November 6, 1996 between the Company and United States Trust Company of New York
in connection with the issuance of the $90,000 Senior Subordinated Notes.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Reclassification

Certain 1997 and 1996 amounts have been  reclassified  to conform to the current
year presentation.

Net Income Per Common Share

Net income per common  share is based on the weighted  average  number of common
shares  outstanding,  which amount has remained  unchanged at 481,971 shares for
1998,  1997 and 1996,  respectively.  The Company does not have any common stock
equivalents.

                                     II-15

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

1.  Significant Accounting Policies (continued)

Foreign Currency Translation

The  Company  maintains  the  accounting  records  and  prepares  the  financial
statements  of  its  foreign   subsidiaries  in  their   respective   functional
currencies. The accompanying financial statements,  which include the effects of
the consolidated results of operations of these companies, are expressed in U.S.
dollar  equivalents  in  accordance  with  Statement  of  Financial   Accounting
Standards  (SFAS)  No.  52,  Foreign  Currency  Translation.  It  should  not be
construed that the assets and liabilities  included at U.S.  dollar  equivalents
can  actually be realized in or  extinguished  by U.S.  dollars at the  exchange
rates used in  translation.  The gains and losses  resulting from the changes in
exchange  rates  from  year to year have been  reported  in other  comprehensive
income.  The effects on the statements of income of transaction gains and losses
is insignificant for all years presented.

Foreign Currency Forwards

To mitigate the short-term  effect of changes in currency  exchange rates on the
Company's  foreign  currency based  purchases and its functional  currency based
sales,  the Company  occasionally  hedges by entering into foreign  exchange and
U.S.  dollar  forward  contracts.  A forward  contract  obligates the Company to
exchange  predetermined  amounts of specified foreign currencies or U.S. dollars
at specified  exchange rates on specified dates or to make an equivalent foreign
currency or U.S.  dollar payment equal to the value of such exchange.  Discounts
or  premiums  (the  difference  between the spot  exchange  rate and the forward
exchange  rate at inception of the  contract) are accreted or amortized to other
operating expenses over the contract lives using the straight-line  method while
realized  and  unrealized  gains and losses  resulting  from changes in the spot
exchange rate (included those from open, matured, and terminated contracts), net
of related taxes, are included in the accumulated  other  comprehensive  loss in
shareholder's  equity (the deferral accounting method).  The related amounts due
to or from counterparties are included in other assets or other liabilities. The
unrecognized gains or losses were immaterial at year end.

Accounting Changes

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,  which is required
to be adopted in fiscal years  beginning after June 15, 1999. The Statement will
require the Company to recognize  any  derivatives  on the balance sheet at fair
value.  The Company does not  anticipate  that the adoption of the new Statement
will have a significant effect on its earnings or financial position.

                                     II-16

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

2.  Recapitalization Transaction

The Company is a wholly-owned subsidiary of IKS Corporation.

On  November  6,  1996,  IKS  Corporation   completed  a  recapitalization  (the
"Recapitalization").  Concurrent with the  Recapitalization,  the Company issued
$90,000 of  11-3/8%  Senior  Subordinated  Notes  ("Notes")  due 2006 to certain
qualified institutional buyers and other institutional  accredited investors. On
February 14, 1997,  the Company  completed a public  offering to exchange all of
the Notes for a like  principal  amount of new notes that are  identical  in all
material  respects to the Notes  except for certain  transfer  restrictions  and
registration rights relating to the Notes.

The  Recapitalization  involved  the  following  transactions:  (i) the existing
Company management investors exchanged their holdings of capital stock issued by
the Company  for  capital  stock of IKS  Corporation  and the  Company  became a
wholly-owned   subsidiary  of  IKS   Corporation   (IKS   Corporation   recorded
approximately $2,000 of goodwill on its purchase of this minority interest which
was in turn  pushed  down to the  Company);  (ii) IKS  Corporation  amended  its
charter to change its corporate  name from The  Klingelnberg  Corporation to IKS
Corporation  and to authorize  three  classes of capital  stock,  consisting  of
preferred  stock,  voting common stock and  non-voting  common stock;  (iii) the
issued and  outstanding  capital  stock of IKS  Corporation  was exchanged for a
recapitalization   distribution  (the  "Recapitalization   Distribution")  which
consisted  of (a)  approximately  $89,400  in cash and (b)  junior  subordinated
debentures,  preferred and common stock with an aggregate value of approximately
$9,400  issued to the previous  owners;  (iv)  existing and new IKS  Corporation
management  investors  purchased junior subordinated  debentures,  preferred and
common stock for approximately  $1,300 in cash, and (v) Citicorp Venture Capital
Ltd. ("CVC")  purchased  junior  subordinated  debentures,  preferred and common
stock of IKS Corporation for approximately $14,300 in cash.

The gross proceeds to the Company from the sale of the Notes,  together with the
aggregate  investment  of $15,600  made in IKS  Corporation  by existing and new
management investors and CVC in connection with the Recapitalization,  were used
to (i) finance the cash portion of the Recapitalization  Distribution (ii) repay
approximately  $11,400 in outstanding  indebtedness  referred to below and (iii)
pay approximately $4,500 of fees and expenses related to the notes issuance. The
amounts required for the Recapitalization Distribution were transferred from the
Company to IKS  Corporation  via a dividend of $63,500 and the  repayment  of an
intercompany loan of $10,800.

                                     II-17

<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                    (in thousands, except per share amounts)

2. Recapitalization Transaction (continued)

In connection with the Recapitalization, the Company repaid approximately $5,200
of its existing  indebtedness  and entered into a new $20,000  revolving  credit
facility.  In addition,  a German subsidiary of the Company repaid approximately
$6,200 of existing  indebtedness  under its term loan and entered  into a new DM
7,500 revolving credit facility.

3. Acquisitions

In November,  1998, the Company acquired from Lembo (Internationaal) B. V. ("the
Seller")  all  of  the  shares  of  A.K.  van  der  Wijngaart  Beheer  B.V.  and
subsidiaries  ("Diacarb").   Diacarb's  business  includes  the  regrinding  and
distribution  of industrial  knives in the  Netherlands,  Belgian and Luxembourg
markets.  Diacarb is also involved in the  manufacture of stansformen  (molds to
punch  holes) for the carton  industry.  Diacarb  is located in  Rotterdam,  the
Netherlands.  The purchase  price  consisted  of 12,000  Dutch  guilders in cash
(approximately  $6,250),  financed  from existing  lines of credit,  1,088 Dutch
guilders (approximately $567) in assumed debt, and a 5.0% promissory note to the
Seller for 5,000 Dutch guilders (approximately $2,605),  subject to post closing
adjustments.  The  promissory  note is payable in  installments  of 1,000  Dutch
guilders  (approximately  $521) on January 15,  2000,  and 2,000 Dutch  guilders
(approximately  $1,042)  on  January  15,  2001 and 2002.  The  acquisition  was
accounted  for  under  the  purchase  method.  Goodwill  totaled  $4,683 on this
acquisition.  The  following  table  sets  forth  certain  unaudited  pro  forma
financial  information  for the Company and assumes  Diacarb was purchased as of
the beginning of both years 1998 and 1997.

                                                   December 31,
                                               1998            1997
                                          -------------------------------
     Sales                                  $  155,651      $  148,967
     Net Income                             $    1,832      $    2,367
     Net Income per common share            $     3.80      $     4.91

In October,  1998,  the Company  executed an agreement to purchase the shares of
Buland S.A. ("Buland") for 10,000 French Francs  (approximately  $1,818) in cash
and 2,175  French  Francs  (approximately  $395) in  assumed  debt,  subject  to
post-closing  adjustments.  Headquartered  in France,  Buland is a reseller  and
regrinder of industrial  knives for the printing industry and reseller of rotary
and flexible  dies,  with annual sales of 36,000  French  Francs  (approximately
$6,545).  The  acquisition  was accounted for under the purchase  method and was
financed  from  borrowings  under  the  Company's   existing   revolving  credit
facilities. Additional consideration is contingent upon Buland achieving certain
annual  earnings  and  is  payable  in  2002.  Goodwill  totaled  $341  on  this
acquisition.

                                     II-18

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

3.  Acquisitions (continued)

In June and February, 1998, the Company completed the acquisitions of the assets
of  Valiquet,  Inc.,  Des  Plaines,  IL,  the  Atlanta,  GA  division  of K.S.W.
Corporation,  and Sheridan Saw Works,  Sheridan,  OR for approximately $1,200 in
cash, $29 in assumed debt, post closing contingent payments of $55 for achieving
certain annualized  earnings levels and promissory notes totaling $140 to two of
the  sellers,  subject  to  post-closing   adjustments.   These  service  center
acquisitions  were financed from available cash balances.  These operations have
historically  generated combined annual sales of approximately  $1,700, and were
accounted for under the purchase method.  Goodwill totaled approximately $835 on
these acquisitions.

In October and November,  1997, the Company completed acquisitions of the assets
of four strategically  located service centers for approximately  $1,300 in cash
and a $75  promissory  note  to one  of the  sellers,  subject  to  post-closing
adjustments.  The  acquisitions  were financed from available cash balances.  In
October,  the Company acquired Parker  Industrial Tool Company,  Nashville,  TN;
Stafford Grinding Services,  Chattanooga, TN; and B&W Industrial Grinding, Inc.,
Appleton,  WI. In November,  the Company acquired North Quabbin Saw Shop, Athol,
MA.  These  operations  have  historically  generated  combined  annual sales of
approximately  $1,400 and were  accounted for by the purchase  method.  Goodwill
totaled approximately $700 on these acquisitions.

In June, 1997, the Company  purchased the assets of  Cascade/Southern  Saw Corp.
("Cascade") for $2,300 in cash, subject to post-closing adjustments.  Located in
Milwaukie,  OR,  Cascade is a wood saw and wood saw machinery  distributor  with
annual sales of  approximately  $7,900.  The acquisition was accounted for under
the purchase method. Goodwill totaled $1,242 on this acquisition.

In April,  1997,  the Company  purchased the assets of Rolf Meyer Company ("Rolf
Meyer") for DM 8,200  (approximately  $4,700) in cash,  post-closing  contingent
payments of DM 658 (approximately  $400) for achieving certain earning levels of
which DM 405 (approximately $200) is included in accrued liabilities at December
31,  1998,  a  promissory  note  to  the  seller  in  the  amount  of  DM  4,300
(approximately  $2,500) and DM 400 (approximately $200) in assumed debt, subject
to post-closing adjustments.  Headquartered in Germany, Rolf Meyer is a producer
and specialist in knives and spare parts for the printing industry,  with annual
sales of approximately  DM 15,000  (approximately  $8,700).  The acquisition was
accounted for under the purchase method and was financed from  borrowings  under
the Company's existing  revolving credit facilities.  Goodwill totaled $2,500 on
this  acquisition.  Additional  consideration  of approximately DM 400 ($200) is
contingent  upon Rolf Meyer  achieving  certain  annual  earnings  levels and is
payable December 31, 2000.

                                     II-19
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

3.  Acquisitions (continued)

In April,  1997,  the Company  purchased the assets of  Systi-Matic  Company and
affiliated entities ("Systi-Matic") for $6,400 in cash, post-closing contingent
payments of $1,200 for achieving certain  annualized  earnings levels and $1,100
in assumed debt, subject to post-closing adjustments.  Headquartered in Seattle,
WA,  Systi-Matic  is the largest  U.S.  producer  of carbide  edger saws and the
largest  independent  provider of stock saws for the secondary industry in North
America  with  annual  sales  of  approximately  $18,000.  The  acquisition  was
accounted  for under the purchase  method and was financed from  available  cash
balances. Goodwill totaled approximately $4,280 on this acquisition.

The  consolidated   financial  statements  include  the  results  of  operations
generated by and financial  position of the above acquisitions from the dates of
acquisition.

4. Inventories

                                                       December 31,
                                                     1998            1997
                                              -------------------------------
     Finished goods                                  $ 20,373       $ 18,118
     Work in process                                    4,101          4,036
     Raw materials and supplies                         6,507          7,181
                                              -------------------------------
                                                     $ 30,981       $ 29,335
                                              ===============================

Inventories include approximately $16,220 in 1998 and $17,187 in 1997 determined
by the LIFO method.  If the cost of LIFO  inventories had been determined by the
FIFO method for financial  reporting,  they would have been approximately $3,412
and $3,042  higher  than the amounts  reported  at  December  31, 1998 and 1997,
respectively.

5. Property, Plant and Equipment-Net

                                                          December 31,
                                                      1998            1997
                                              ---------------------------------

     Land and land improvements                     $ 6,274         $ 4,119
     Buildings and leasehold improvements            16,826          13,385
     Machinery and equipment                         45,015          42,989
     Furniture and fixtures                           4,485           2,950
     Construction in progress                         3,729             217
     Motor vehicles                                   2,498           2,463
                                              ---------------------------------
                                                     78,827          66,123
      Less accumulated depreciation                  29,467          28,637
                                              ---------------------------------
                                                    $49,360         $37,486
                                              =================================

                                     II-20
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

5.  Property, Plant and Equipment-Net (continued)

Depreciation  expense was $4,987,  $4,656 and $4,322,  for 1998,  1997 and 1996,
respectively.  Depreciation is provided for on the straight-line method over the
following estimated useful lives:

         Land improvements: 15 years
         Buildings and leasehold improvements:  15 to 40 years
         Machinery and equipment:  5 to 10 years
         Furniture and fixtures:  10 years
         Motor vehicles:  3 to 5 years

6.  Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                           1998                1997
                                                                      -------------------------------------
<S>                                                                     <C>                   <C>    
     Notes payable:
       Notes payable on demand in German  Marks to a German  bank,  
         issued under revolving credit agreements, interest payable
         quarterly                                                      $     7,922           $   1,140
       Notes payable on demand in Chinese Yuan Renminbi to Chinese
         banks, issued under revolving credit agreements, interest
         payable monthly                                                      1,259               2,468
       Notes payable on demand in U.S. Dollars to a German bank,
         issued under revolving credit agreements, interest payable
         quarterly                                                            3,280               2,000
       Other                                                                    206                  75
                                                                    ----------------------------------------
                                                                        $    12,667          $    5,683
                                                                    ========================================
     Long-term debt:
       11-3/8% Senior Subordinated Notes due 2006                       $    90,000          $   90,000
       Notes payable in German Marks to a German bank                        12,830              10,371
       Notes payable in Chinese Yuan Renminbi to Chinese banks                2,989               1,777
       Capitalized lease obligations in U.S. dollars to a U.S. bank             721                 950
       Promissory note payable in German Marks to a
           former shareholder of the Rolf Meyer Company                         787               1,434
       Promissory note payable in Dutch Guilders to a
           former shareholder of the Diacarb Company                          2,682                   -
       Other                                                                    500                   -
                                                                    ----------------------------------------
                                                                            110,509             104,532
     Less current portion                                                     2,555               2,218
                                                                    ----------------------------------------
                                                                         $  107,954          $  102,314
                                                                    ========================================
</TABLE>
                                     II-21

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

6. Notes Payable and Long-Term Debt (continued)

Except for the 11-3/8%  notes,  the carrying  amount of the Company's  long-term
debt  approximates  fair value,  which is determined  using discounted cash flow
analysis based on the Company's  incremental borrowing rate for similar types of
financing  arrangements.  At year-end  1998, the fair value of the 11-3/8% notes
was $92,250.  Such amounts are based on recent trade prices  through  registered
securities brokers.

The 11-3/8% Notes are senior  subordinated  indebtedness  of the Company ranking
pari passu with all other existing and future senior  subordinated  indebtedness
of the Company.

The notes  payable of $12,830  have  maturities  that extend to 2011 at rates of
2.5%  to  6.05%.  Outstanding  borrowings  under  the  Company's  senior  credit
facilities  are included in long-term debt based on the  expectation  that these
borrowings will remain outstanding for more than one year. Land and buildings in
Germany with a net book value of $4,664 are pledged as collateral for the German
revolving credit agreements and the German bank notes payable.

The  notes  payable  of  $2,989  mature in 2003 at rates of 7.2% to 7.7% and are
non-recourse to the Company.  Plant and equipment in China with a net book value
of  approximately  $1,745 are pledged as  collateral  for the Chinese  revolving
credit agreements and the Chinese bank note payable.

The  capitalized  lease  obligations of $721 are for capital leases on equipment
that have maturities  that extend to 2001 at rates of 8.1% to 8.7%.  Included in
property, plant and equipment-net is equipment under capital lease of $625.

The promissory note payable to a former shareholder of the Rolf Meyer Company is
due on December 31, 1999 at an assumed rate of 5.0%,  and is in connection  with
the Rolf Meyer acquisition.

The  promissory  note  payable  to a former  shareholder  of  Diacarb  is due in
installments  of 1,000 Dutch  guilders in 2000 and 2,000 Dutch  Guilders in 2001
and 2002 at a rate of 5.0% in connection with the Diacarb acquisition.

At December 31, 1998,  the Company had  revolving  credit  facilities of $20,000
($15,188  unused),  DM 7,500 (all  used),  DM 8,500 (all used) and DM 8,500 (all
used). Fees for these revolving credit  arrangements were $24 in 1998 and $34 in
1997.

The short-term notes payable of $7,922  represent  short-term bank borrowings at
rates from 3.2% to 4.0%.

The short-term notes payable of $1,259 represent short-term bank borrowings at a
rate of 5.8% to 7.1%.

The short-term notes payable of $3,280  represent  short-term bank borrowings at
rates from 6.4% to 6.6%.


                                     II-22
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

6. Notes Payable and Long-Term Debt (continued)

At December 31, 1998,  amounts due as minimum payments under long-term debt were
as follows:
        1999                                                $    2,555
        2000                                                     2,947
        2001                                                     2,821
        2002                                                     2,691
        2003                                                     2,033
        Thereafter                                              97,462
                                                            ==========
                                                            $  110,509
                                                            ==========
Cash paid for  interest  amounted  to  $11,670,  $11,713 and $2,434 in the years
ended December 31, 1998, 1997 and 1996, respectively.

7. Accrued Liabilities

                                                            December 31,
                                                       1998             1997
                                                    --------------------------
Salaries, wages and bonuses                         $   2,097        $   1,428
Profit sharing and 401(k) plans                         1,078            1,213
Interest                                                1,419            1,375
Other employee related accruals                           930              698
Other                                                   5,434            4,145
                                                    --------------------------
                                                    $   10,958       $   8,859
                                                    ==========================
8. Income Taxes

IKS Corporation files a consolidated Federal income tax return that includes the
Company.  The current and  deferred  tax expense and benefit for the Company are
recorded  as if it  filed  on a  stand-alone  basis.  All  participants  in  the
consolidated  income tax return are separately liable for the full amount of the
taxes,  including penalties and interest,  if any, which may be assessed against
the consolidated  group. The current provision for United States income taxes is
recorded to the intercompany account with IKS Corporation.

Summarized in the following tables are the Company's income before income taxes,
its  provision for income  taxes,  the  components of the provision for deferred
income  taxes  and a  reconciliation  of the  U.S.  statutory  rate  to the  tax
provision rate.

Income Before Income Taxes                 Year ended December 31,
                                    1998              1997             1996
                             ------------------ --------------- ----------------
United States                  $    (705)         $   1,199        $   7,740
Non-U.S.                            3,441             2,348            1,208
                             ------------------ --------------- ----------------
                               $    2,736         $   3,547        $   8,948
                             ================== =============== ================

                                     II-23
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)
<TABLE>
<CAPTION>
8.  Income Taxes (continued)

Components of Deferred Tax Assets and Liabilities
                                                                                     December 31,
                                                                                  1998              1997
                                                                          ----------------- -----------------
<S>                                                                       <C>                <C>
Current deferred tax assets (liabilities):
    Inventories, primarily obsolescence and additional costs                                 
      inventoried for tax purposes                                          $      253        $      467
    Reserve for bad debts                                                         (432)              127
    Accrued employee benefits                                                      168               251
    Other                                                                           64               (28)
                                                                          ----------------- -----------------
    Total current deferred tax assets                                               53               817

Noncurrent deferred tax assets (liabilities):
    Property, plant, and equipment, primarily differences in
      depreciation methods                                                      (3,754)           (2,083)
    Deferred compensation                                                          157               166
    Goodwill, difference in amortization methods                                  (327)             (434)
    Other                                                                          (18)              112
                                                                          ----------------- -----------------
    Total noncurrent deferred tax liabilities                                   (3,942)           (2,239)
                                                                          ----------------- -----------------
Net deferred tax liabilities                                                $   (3,889)      $    (1,422)
                                                                          ================= =================
</TABLE>

<TABLE>
<CAPTION>
Provision for Income Taxes                                                 Year Ended December 31,
                                                                 --------------- -------------- --------------
                                                                      1998           1997           1996
                                                                 --------------- -------------- --------------
<S>                                                                <C>             <C>            <C> 
Current (benefit) provision
  Federal                                                          $  (562)        $   436       $  2,340
  State and local                                                        -              36            296
  Foreign                                                              676             328            107
                                                                 --------------- -------------- --------------
                                                                       114             800          2,743

Deferred provision (benefit)
  Federal                                                              321            (115)            45
  State and local                                                       28             (10)             4
  Foreign                                                              683             824            132
                                                                 --------------- -------------- --------------
                                                                     1,032             699            181
                                                                 --------------- -------------- --------------
                                                                   $ 1,146         $ 1,499       $  2,924
                                                                 =============== ============== ==============
</TABLE>

                                     II-24

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

8. Income Taxes (continued)

The  differences  between the provision and the amount  computed by applying the
statutory Federal income tax rate are as follows:
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                     1998           1997            1996
                                                                ----------------------------------------------

<S>                                                             <C>               <C>             <C>
Income before income taxes                                         $   2,736     $    3,547      $    8,948
                                                                ==============================================

Tax on above amount at 34%                                         $     930     $    1,206      $    3,042
State income tax, net of federal tax benefit                              28             36             195
Foreign tax rates different than U.S. statutory rate                     134            254            (538)
Foreign losses without tax benefit                                        56             90             335
Other, net                                                                (2)           (87)           (110)
                                                                ----------------------------------------------
Provision for income taxes                                         $   1,146     $    1,499      $    2,924
                                                                ==============================================
</TABLE>


In  1997  and  1996,  the  Company's   German   subsidiary   utilized  net  loss
carryforwards  to offset  current tax payable of  approximately  $65 and $1,029,
respectively.  In 1996 the  Company's  Canadian  subsidiary  utilized a net loss
carryforward to offset current tax payable of approximately $106.

Undistributed  earnings  of  foreign  subsidiaries  which  are  intended  to  be
indefinitely  reinvested aggregated  approximately $6,766 at the end of 1998. In
the event these earnings were to be repatriated,  foreign income tax credits and
deductions under existing U.S. federal income tax laws would offset a portion of
any additional U.S. tax liability.

9. Employee Benefit Plans

In 1997, the Company's tax qualified profit sharing plan was merged into the IKS
Corporation   401(k)   retirement  plan.  The  combined  plan  was  renamed  the
International  Knife & Saw, Inc.  401(k) and Profit  Sharing Plan. The Company's
Canadian  subsidiary  also has a profit sharing plan for its  employees.  Profit
sharing  contributions  are  determined  annually  by the  respective  Boards of
Directors.  Contributions  to the 401 (k) plan are equal to one-half of employee
contributions,  up to a  maximum  of 2% of an  employee's  annual  compensation,
subject to certain statutory limitations.

The expense for profit sharing  contributions  was $953 in 1998,  $1,095 in 1997
and $882 in 1996.  The  Company's  matching  contributions  to the  401(k)  plan
amounted to $368 in 1998, $249 in 1997 and $225 in 1996.

Included in other  liabilities are amounts for deferred  compensation  plans for
former  officers of $424 and $450 at December  31, 1998 and 1997,  respectively.
The plans  provide  for a maximum  payment of $25  annually  to each  officer or
beneficiary for a period of ten years commencing at retirement or death.


                                     II-25
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

9. Employee Benefit Plans (continued)

The Company's  German  subsidiaries  have pension  plans  covering a majority of
their  employees who qualify as to age and length of service.  Entrance into the
plan is at age 30 with defined benefits payable at age 65. Vesting  requirements
vary  depending  on  employment   category,   contracts  and  years  of  service
requirements  which range from five to fifteen years.  The following  table sets
forth the status of the Company's  defined pension plan for certain employees in
Germany.  Consistent with customary practice in Germany,  this plan has not been
funded. Benefit payments are funded from current operations



Change in benefit obligation                              December 31,
                                                      1998             1997
                                              ----------------- ----------------

Benefit obligation at beginning of year           $    1,413        $    1,445
Service cost                                              14                14
Interest cost                                             92                93
Actuarial losses                                          82               106
Loss/(gain) currency exchange rate                       112              (200)
Benefits paid                                            (44)              (45)
                                               ----------------- ---------------
Benefit obligations at end of year                $    1,669        $    1,413
                                               ================= ===============


Funded Status at Year-End                                     December 31,
                                                         1998             1997
                                              ----------------- ----------------
Projected benefit obligation                      $    1,669        $    1,413
Unrecognized net loss                                   (195)             (101)
Unrecognized net obligation                             (157)             (159)
Additional minimum liability                             335               246
                                              ---------------- ----------------
Accrued pension cost - 
  included in other liabilities                   $    1,652        $    1,399
                                              ================ ================

<TABLE>
<CAPTION>
Components of net periodic benefit costs                                      Year Ended December 31,
                                                                     1998         1997          1996
                                                                ----------------------------------------------

<S>                                                             <C>             <C>            <C> 
Service cost (benefits earned during the period)                   $     14     $     14      $     18
Interest cost on projected benefit obligation                            92           93           101
Net amortization and deferral                                            12           13            14
                                                                ----------------------------------------------
Net periodic benefit cost                                          $    118     $    120      $    133
                                                                ==============================================
</TABLE>

                                     II-26
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

9. Employee Benefit Plans (continued)
<TABLE>
<CAPTION>
Weighted-average actuarial assumptions                                             Year Ended December 31,
                                                                              1998          1997          1996
                                                                          -------------------------------------------

<S>                                                                       <C>              <C>            <C> 
Discount rate                                                                  6.5%         6.5%          7.0%
Rate of increase in future compensation levels                                 2.5%         2.0%          2.5%
</TABLE>

10. Related Parties

The consolidated  financial  statements  include the following  transactions and
balances with companies which had been under common  controlling  ownership with
the Company prior to the  Recapitalization.  Such  companies  are, and have been
since the  Recapitalization,  controlled  by a  minority  shareholder  and board
member of IKS Corporation.
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                        1998         1997          1996
                                                                    ----------------------------------------

<S>                                                                 <C>           <C>            <C> 
Other payables to affiliated companies                                $   (62)     $  (174)      $    (8)
Net interest expense                                                        -            -           404
Purchased administrative and manufacturing services                       712        1,015         1,450
Rental payments to related parties under capital lease                      -            -           259
</TABLE>


In July, 1996, the Company purchased  certain land and buildings  formerly under
capital  lease  with  related  parties  for  $5,564.  The price  was based  upon
appraisals by independent real estate appraisers. The Company recognized no gain
or loss on this transaction.

11. Operating Leases

Future minimum rentals required under operating leases are as follows:

Year ending December 31            Buildings        Other          Total
--------------------------------------------------------------------------------

1999                                $   479       $   114        $  593
2000                                    475           106           581
2001                                    461            65           526
2002                                    286            64           350
2003                                     69            27            96


Rent expense was $566 for 1998, $545 for 1997 and $592 for 1996.

                                     II-27

<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

12. Organization

The Company operates in one business  segment - industrial  knives and saws. The
Company manufactures,  markets and services primarily industrial knives and saws
internationally,  and its customers  include  distributors,  original  equipment
manufacturers  and customers  purchasing  replacement  parts and  services.  The
Company has a leading market share in each of the major sectors it serves: Paper
& Packaging;  Wood; Metal; and  Plastic/Recycling.  The Company's operations are
principally in the United States, Germany and Canada,  representing 62%, 23% and
8%  of  1998  net  sales,  respectively.  The  Company  plans  to  continue  its
international  growth.  As a result of the  Company's  broad  product  range and
numerous  applications,  no customer accounts for more than 3% of net sales. The
Company performs periodic credit evaluations of its customers and generally does
not require collateral.

Sales attributable to German and Canadian operations are based on external sales
generated by subsidiaries located in those countries

The following table summarizes the Company's United States, German, Canadian and
other operations.
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                            1998         1997           1996
--------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>
United States Operations:
  Net sales - Customers                               $   92,875    $   88,175    $    71,315
  Long Lived Assets                                       22,479        19,395         15,439

German Operations:
  Net sales - Customers                               $   34,762    $   30,675    $    27,376
  Long Lived Assets                                       14,457        11,974          8,103

Canadian Operations:
  Net sales - Customers                               $   12,644    $   14,639    $    12,331
  Long Lived Assets                                        1,078         1,288          1,507

Other Operations:
  Net sales - Customers                               $    9,851    $    8,776    $     7,974
  Long Lived Assets                                       11,898         5,344          4,169


Consolidated:
  Net sales                                           $   150,132  $   142,265    $   118,996
  Long Lived Assets                                        49,912       38,001         29,218

</TABLE>

                                     II-28
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                      (in thousands, except per share data)


13. Operating Results by Quarter (Unaudited)
<TABLE>
<CAPTION>
                                                  ------------------------------------------------------------
                                                                        Year ended 1998
                                                  ------------------------------------------------------------
                                                      Qtr 1           Qtr 2          Qtr 3          Qtr 4
                                                  --------------- -------------- -------------- --------------

<S>                                               <C>             <C>            <C>            <C>    
Sales                                             $    38,703     $    37,334    $    35,844    $    38,251

Gross profit                                           11,598          11,658         10,602         11,254

Net income                                                654             661            270              5

Net income per common share                              1.36            1.37            .56            .01


                                                  ------------------------------------------------------------
                                                                        Year ended 1997
                                                  ------------------------------------------------------------
                                                      Qtr 1           Qtr 2          Qtr 3          Qtr 4
                                                  --------------- -------------- -------------- --------------

Sales                                             $    30,508     $    37,396    $    37,172    $    37,189

Gross profit                                            9,614          11,080         10,896         11,499

Net income                                                522             488            297            741

Net income per common share                              1.08            1.01            .62           1.54
</TABLE>

                                     II-29

<PAGE>

                                     III-11
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE.

This item is not applicable to the registrant for this filing on Form 10-K.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain  information  with respect to the persons
who are members of the Board of Directors or executive  officers of the Company.
Directors serve for a term of one year or until their successors are elected and
qualified; officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
                Name                           Age                      Position
                ----                           ---                      --------

        <S>                                    <C>       <C>        
        John E. Halloran                        53       President, Chief Executive Officer and
                                                         Director
        Thomas W. G. Meyer                      42       Executive Vice President -- Europe and Asia
        William M. Schult                       37       Vice  President  --  Finance,   Chief  Financial
                                                         Officer, Treasurer and Secretary
        Richard L. Budke                        47       Vice  President-- General  Manager,  West Coast
                                                         Operations
        William R. Underhill                    49       Vice President-- Operations
        Paul A. Severt                          36       Vice President-- Financial Reporting/Controller
        David M. Hofmeister                     39       Chief Information Officer
        Jeffrey Hansel                          43       Vice President-- Sales and Marketing,
                                                         North America
        W. Rayburn Connell                      58       Vice President-- Service and Sales
                                                         Director, North America
        Diether Klingelnberg                    54       Director
        James A. Urry                           44       Director
        Michael A. Delaney                      44       Director
        Richard J. Puricelli                    52       Director
----------
</TABLE>

    John E.  Halloran,  President,  Chief  Executive  Officer and Director.  Mr.
Halloran has been President and Chief Executive Officer since March 1996 and had
served as  Executive  Vice  President  since  joining the  Company in 1992.  Mr.
Halloran served as Executive Vice President of Operations at Simonds  Industries
from 1989 to 1992 and as President of Michigan  Knife  Company from the time Mr.
Halloran founded it in 1974 until it was acquired by Simonds Industries in 1989.

    Thomas W. G. Meyer,  Executive  Vice President -- Europe and Asia. Mr. Meyer
has served as  Executive  Vice  President  since he joined the  Company in 1993.
Prior thereto, Mr. Meyer worked in the textile industry for ten years, including
service  as the head of  marketing  for  Barmag AG from 1988 until 1991 and as a
director of A. Monforts GmbH & Co., from 1991 until 1992.

    William M. Schult,  Vice  President  -- Finance,  Chief  Financial  Officer,
Treasurer and  Secretary.  Mr.  Schult  joined the Company as Vice  President --
Finance in July 1996.  Prior to joining the Company,  he served as Controller of
IKS Corporation since 1995 and in several capacities at Siemens Corporation from
1987 until 1995. 

                                     III-1
<PAGE>

Prior to that, Mr. Schult held various  accounting  and auditing  positions with
the Allen Group, Salomon Brothers and Coopers & Lybrand.

    Richard L. Budke, Vice President -- General Manager,  West Coast Operations.
Mr. Budke joined the Company in April 1997 when the Company purchased the assets
of the  Systi-Matic  Company.  Mr.  Budke held various  management  positions at
Systi-Matic  since 1973 and served as President and Chief Executive Officer from
1984 until the sale of Systi-Matic to the Company.

    William R. Underhill, Vice President -- Operations. Mr. Underhill joined the
Company in 1977 as Product Manager.  Mr. Underhill served in various capacities,
including purchasing agent and sales manager, from 1977 to 1990, and became Vice
President -- Operations in 1996.

    Paul A. Severt, Vice President -- Financial Reporting/Controller. Mr. Severt
joined the Company as Vice President - Financial  Reporting/Controller  in April
1997.  Prior to joining the  Company,  Mr.  Severt held various  accounting  and
auditing  positions  with Ernst & Young with which he was employed for 12 years.
David M.  Hofmeister - Chief  Information  Officer.  Mr.  Hofmeister  joined the
company  as Chief  Information  officer  in June  1997.  From 1984 to 1997,  Mr.
Hofmeister  worked  for  E.I.Du  Pont de  Nemours,  holding  various  management
positions in Du Pont's Consolidation Coal and Remington Arms subsidiaries. Prior
to working with Du Pont, Mr. Hofmeister  worked as a Management  Science Analyst
for the Gulf Oil Corporation.

    Jeffrey Hansel,  Vice President -- Sales and Marketing,  North America.  Mr.
Hansel  joined the Company in 1985 as a paper knife market  manager.  Mr. Hansel
became  Vice  President  -- Sales and  Marketing  in 1991.  Prior to joining the
Company,  from  1981  to  1985  Mr.  Hansel  was  President  of  General  Metals
Technologies  Corp.,  a  subsidiary  of C.B.  Manufacturing  with  which  he was
employed from 1979 to 1981 as a sales manager.

    W.  Rayburn  Connell,  Vice  President,  Service and Sales  Director,  North
America. Mr. Connell joined the Company in 1991 as Vice President -- Service and
Sales  Director.  From  1990 to 1991,  Mr.  Connell  was the  owner  of  Connell
Distribution and prior to that was the part owner of Austin Saw and Knife, which
the  Company  acquired  in 1991.  Between  1974 and 1990,  Mr.  Connell  was the
Company's sales manager.

    Diether Klingelnberg,  Director.  Mr. Klingelnberg served as Chief Executive
Officer of the Company until March 1996.  In addition,  he served as Chairman of
the Board and Chief  Executive  Officer of IKS  Corporation  from its  formation
until  consummation  of the  Recapitalization.  Mr.  Klingelnberg  is  currently
Managing Director of Klingelnberg  Beteiligungs-GmbH  and is a Director of Clark
Material Handling Company, Honsel AG, Oerlikon Geartec AG, Eickhoff GmbH and the
Alfred H. Schuette Company.

    James A. Urry, Director.  Mr. Urry has been with Citibank,  N.A. since 1981,
serving as a Vice  President  since 1986.  He has been a Vice  President  of CVC
since 1989. He is a Director of AmeriSource Health  Corporation,  CLARK Material
Handling   Company,   CORT  Business   Services   Corporation,   Hancor  Holding
Corporation, Airxcel, Inc., Palomar Technologies Corporation, York International
Corporation, and The Brunner Mond Group.

    Michael A. Delaney,  Director.  Mr. Delaney has been a Vice President of CVC
since 1989.  From 1986 through 1989, he was Vice  President of Citicorp  Mergers
and  Acquisitions.  Mr.  Delaney  is  a  Director  of  Aetna  Industries,  Inc.,
AmeriSource Health Corporation,  CLARK Material Handling Company,  CORT Business
Services   Corporation,   Delco  Remy   International,   Inc.,   Allied  Digital
Technologies,  Inc., Great Lakes Dock and Dredge Corporation,  GVC Holdings, JAC
Holdings,   Palomar   Technologies   Corporation,   SC  Processing,   Inc.,  MSX
International and Triumph Holdings, Inc.

    Richard  J.Puricelli,  Director.  Mr. Puricelli has been associated with JAC
Products  since  1995.  He became a Director in 1995 and  Chairman  in 1997.  As
Chairman,   he  is  responsible  for  the  company's   operations  that  produce
approximately $250 million in annual sales and employ approximately 1,500 people
in Europe and North America.  JAC Products is the leading supplier of roof racks
and related accessories to automobile OEMs. Mr. Puricelli is also Chairman and a
Director of FabriSteel Products, Inc.

                                     III-2
<PAGE>

Director Compensation and Arrangements

    With the exception of Mr. Puricelli,  who receives $4,000 per quarter, other
directors  of the  Company  do not  currently  receive  compensation  for  their
services as directors. Members of the Board of Directors are elected pursuant to
a Securities  Purchase and Holders  Agreement  (the  "Stockholders'  Agreement")
entered into in connection with the Recapitalization  among IKS, IKS Corporation
and its  stockholders.  Pursuant to the  Stockholders'  Agreement,  the Board of
Directors of the Company is composed at all times of five  directors as follows:
John E. Halloran (as long as he continues to serve as President of the Company);
one individual designated by Diether Klingelnberg, two individuals designated by
CVC; and one independent  director who shall be designated by CVC subject to the
right of holders of the majority of the  outstanding  shares of Holdings Class A
Stock to veto the election of any such independent director.

ITEM 11.  EXECUTIVE COMPENSATION.

    The  following   table  sets  forth  certain   information   concerning  the
compensation  received for services  rendered in 1998 by (i) the Company's Chief
Executive Officer and (ii) the four most highly  compensated  executive officers
of the Company  (other than the  individual  who served as the  Company's  Chief
Executive Officer) in office on December 31, 1998
<TABLE>
<CAPTION>
                                                     Summary Compensation Table
                                                         Annual Compensation
                                   --------------------------------------------------------------
                                                                                                        All Other
                                                       Salary           Bonus            Other         Compensation
    Name and Principal Position        Year              ($)             ($)              ($)               ($)
---------------------------------- ------------     ------------    ------------     ------------      ------------

<S>                                     <C>             <C>           <C>                <C>            <C>    
John E. Halloran..................      1998            220,000        70,000            26,268 (2)      11,661 (3)
President  and  Chief   Executive       1997            200,000        85,000            29,728 (2)      11,661 (3)
Officer                                 1996            200,000       102,000 (1)            --         213,711 (4)

Thomas W.G. Meyer.................      1998            184,600       165,430                --            --
Executive    Vice   President  --       1997            173,100       103,860                --            --
Europe and Asia                         1996            185,923       123,100 (1)            --            --

Richard L. Budke (5) .............      1998            145,000        30,000                --          11,231 (6)
Vice President-- General                1997            104,353        34,300                --           4,842 (7)
Manager, West Coast Operations          1996                 --            --                --            --

William M. Schult.................      1998            135,000        38,750                --          11,036 (8)
Vice President-- Finance, Chief         1997            127,000        45,000                --          11,302 (9)
Financial Officer, Treasurer and        1996            120,000        30,000 (1)        14,971 (10)     33,356 (11)
Secretary

William R. Underhill..............      1998            120,000        31,150                --          10,972 (12)
Vice President-- Operations             1997            111,000        36,200                --          10,567 (13)
                                        1996            101,000        24,521 (1)            --          10,224 (14)
</TABLE>

    (1)   Includes a supplemental bonus paid to Messrs, Halloran, Meyer, Schult
          and Underhill, paid in 1997.

    (2)   Paid by IKS Corporation. Represents additional compensation sufficient
          to permit Mr. Halloran to pay interest  payments to IKS Corporation on
          a loan made in the amount of income taxes incurred by Mr.  Halloran in
          connection  with  the  securities  received  by him  as a part  of the
          Recapitalization Distribution.

                                     III-3
<PAGE>


    (3)   Includes  $3,200 in Company  401(k)  contributions,  $8,000 in Company
          Profit  Sharing  Plan  contributions  and  $461  in  group  term  life
          insurance premiums.

    (4)   Includes $200,000 paid in connection with the Recapitalization, $3,000
          in Company 401(k) contributions, $8,250 in Company Profit Sharing Plan
          contributions  and $461 in group  term life  insurance  premiums,  and
          $2,000 as a director's fee, which was paid by IKS Corporation.

    (5)   Effective  April 9, 1997, Mr. Budke was named Vice President - General
          Manager, West Coast Operations.

    (6)   Includes  $2,900 in Company  401(k)  contributions,  $8,000 in Company
          Profit  Sharing  Plan  contributions  and  $331  in  group  term  life
          insurance premiums.

    (7)   Includes $4,775 in Company Profit Sharing Plan  contributions  and $67
          in group term life insurance premiums.

    (8)   Includes  $2,930 in Company  401(k)  contributions,  $8,000 in Company
          Profit  Sharing  Plan  contributions  and  $106  in  group  term  life
          insurance premiums.

    (9)   Includes  $3,200 in Company  401(k)  contributions,  $8,000 in Company
          Profit  Sharing  Plan  contributions  and  $102  in  group  term  life
          insurance premiums.

    (10)  Represents reimbursement of relocation expenses.

    (11)  Includes $25,000 paid in connection with the Recapitalization,  $8,250
          in Company  Profit Sharing Plan  contributions  and $106 in group term
          life insurance premiums.

    (12)  Includes  $2,728 in Company  401(k)  contributions,  $8,000 in Company
          Profit  Sharing  Plan  contributions  and  $244  in  group  term  life
          insurance   premiums.   

    (13)  Includes  $2,995 in Company  401(k)  contributions,  $7,360 in Company
          Profit  Sharing  Plan  contributions  and  $212  in  group  term  life
          insurance   premiums.   

    (14)  Includes  $2,647 in Company  401(k)  contributions,  $7,400 in Company
          Profit  Sharing  Plan  contributions  and  $177  in  group  term  life
          insurance premiums.


                                     III-4
<PAGE>

Employment Arrangements and Deferred Compensation Agreements

    Thomas  Meyer was  hired by IKS  Klingelnberg  GmbH as its  Chief  Executive
Officer  pursuant to an Employment  Agreement  effective  January 1, 1993 which,
following an extension  on December 17, 1998,  expires on December 31, 2003.  As
compensation,  Mr. Meyer receives a  predetermined  annual salary (DM 325,000 in
1998) and receives certain fringe benefits  including a bonus, an automobile and
insurance  coverage.  Following any termination of Mr. Meyer's  employment,  Mr.
Meyer will be  subject to a  non-competition  covenant  for up to two years,  in
exchange for payment in each year of an amount equal to one-half of Mr.  Meyer's
most recently agreed upon annual compensation.

    The Company entered into deferred  compensation and supplemental  retirement
agreements  with Edward J. Brent,  the Company's  former CFO, dated November 23,
1981. The agreements  provide for a supplemental  retirement  benefit payable at
age 65 equal to $250,000  payable in monthly  installments  over a period of ten
years with any remaining payments to become immediately due and payable upon the
death of the  employee.  Mr.  Brent  becomes  fully  vested  and may take  early
retirement without a reduction in benefits at age 62. If the employee dies while
employed by the Company, his designated  beneficiary will be entitled to a death
benefit of $25,000  per year for ten years.  In lieu of the  benefits  described
above the Company may at its sole discretion  accelerate the payment of benefits
to an employee or the employee's beneficiary,  if applicable. All benefits under
the agreements are forfeited if it is determined  that (i) the employee  engaged
in activity  adversely  affecting  the  interests  of the  Company,  or (ii) the
employee rendered services to any competitor of the Company.

401(k) and Profit Sharing Plan

    In 1997, the Company's tax qualified profit sharing plan was merged into the
IKS  Corporation  401(k)  retirement  plan.  The  combined  plan was renamed the
International  Knife & Saw,  Inc.  401(k) and Profit  Sharing  Plan.  All of the
Company's  domestic  non-unionized  employees are eligible to participate  after
completing  one year of service  and  attaining  age 20 1/2.  Subject to certain
statutory  limitations,  employees  may  contribute  up to 15  percent  of their
compensation to the plan on a pre-tax basis. The Company may make  discretionary
matching   contributions  equal  to  a  percentage  of  the  employees'  pre-tax
contributions.  However,  in determining  the amount of matching  contributions,
only employee pre-tax contributions up to four percent of compensation are taken
into account.  Employees are fully vested in their benefits under the plan after
two years of service.

    In addition to discretionary  matching  contributions on employees'  pre-tax
contributions,  the Company may also make profit  sharing  contributions.  These
contributions  are  allocated to the  accounts of the eligible  employees in the
same ratio that each eligible employee's  compensation for the year bears to the
total  compensation  of all  eligible  employees  for the year.  For  allocation
purposes, the compensation of any employee in excess of $160,000 is disregarded.
Employees are fully vested in their  benefits under the plan after five years of
service.  An employee may not receive a  distribution  of his benefits under the
plan until following his termination of employment.

Compensation Committee Interlocks and Insider Participation

    Each of the five current  members of the Company's  Board of Directors  also
serve on the compensation  committee.  See "Item 13. Certain  Relationships  and
Related  Transactions"  for disclosure with respect to certain  relationships of
the some of the members of the compensation committee and the Company.

    In the event that Messrs. Urry and Delaney are unwilling or unable to serve,
or otherwise cease to serve,  CVC shall be entitled to select their  replacement
on the Board of Directors.  In addition,  the Stockholders'  Agreement  provides
that Diether  Klingelnberg  or his  designated  representative  shall serve as a
director.

                                     III-5
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT.

    All of the  outstanding  capital stock of the Company is currently  owned by
IKS Corporation. The following table sets forth certain information with respect
to the beneficial  ownership of the Corp. Preferred Stock and Corp. Common Stock
by (i) each person or entity who owns five  percent or more  thereof,  (ii) each
director of the Company who is a stockholder,  (iii) the Chief Executive Officer
of  the  Company  and  the  other  executive  officers  named  in  the  "Summary
Compensation  Table"  above who are  stockholders,  and (iv) the  directors  and
executive officers of the Company as a group.  Unless otherwise  specified,  all
shares are directly held.

<TABLE>
<CAPTION>
                                                       Number and Percent of Shares
                                 ----------------------------------------------------------------------
                                          Holdings             Holdings               Holdings Class A       Holdings Class B
                                 Series A Preferred Stock  Series B Preferred Stock        Stock(1)                Stock(2)
                                 ------------------------  ------------------------   -----------------      ------------------

  Name of Beneficial Owner           Number    Percent      Number     Percent        Percent    Percent     Number     Percent
--------------------------         ---------  ---------    --------   ---------       --------   -------     ------     -------

<S>                                  <C>        <C>          <C>         <C>          <C>         <C>        <C>         <C>
Citicorp Venture Capital Ltd         8,241      68.7%        --          --           31,453      32.8%      11,234      76.5%
  399 Park Avenue
  New York, New York 10043

Arndt Klingelnberg.........           --         --          --          --           17,000      17.8%         --         --
  IKS Corporation
  1299 Cox Avenue
  Erlanger, KY 41018

Diether Klingelnberg.......           --         --          --          --           17,000      17.8%         --         --
  IKS Corporation
  1299 Cox Avenue
  Erlanger, KY 41018

John E. Halloran...........          600         5.0%        600        66.1%         10,556      11.0%         --         --
  IKS Corporation
  1299 Cox Avenue
  Erlanger, KY 41018

Thomas W.G. Meyer..........          240         2.0%        --           --           4,222       4.4%         --         --

William M. Schult..........           48         0.4%         48         5.3%            956       1.0%         --         --

W. Rayburn Connell.........           48         0.4%         48         5.3%            800       0.8%         --         --

William R. Underhill.......           24         0.2%         24         2.6%            600       0.6%         --         --

James A. Urry (3)..........           58         0.5%         --         --              221       0.2%         79        0.5%

Michael Delaney (3)........           58         0.5%         --         --              221       0.2%         79        0.5%

Richard  J. Puricelli......           41         0.3%         --         --              200       0.2%         --         -- 

All directors and executive
officers as a group 
(13 persons)(3)............        1,194         9.9%        797        87.8%          6,342      37.9%         157       1.1%
</TABLE>

    ----------

    (1)  Does not include shares of Corp. Class A Stock issuable upon conversion
         of Corp. Class B Stock. See "--- Corp. Common Stock" .

    (2)  Does not include shares of Corp. Class B Stock issuable upon conversion
         of Corp. Class A Stock. See "---Corp. Common Stock".

    (3)  Does not include shares  beneficially  held by CVC, which may be deemed
         beneficially  owned by Messrs.  Delaney and Urry.  Messrs.  Delaney and
         Urry disclaim beneficial ownership of shares held by CVC.

                                     III-6
<PAGE>

Corp. Common Stock

    The  Certificate  of  Incorporation  of IKS  Corporation  provides  that IKS
Corporation  may issue 400,000  shares of Corp.  Common Stock,  divided into two
classes  consisting of 200,000 shares of Corp.  Class A Stock and 200,000 shares
of Corp.  Class B Stock.  The holders of Corp. Class A Stock are entitled to one
vote for each share  held of record on all  matters  submitted  to a vote of the
stockholders. Except as required by law, the holders of Corp. Class B Stock have
no voting rights.  Under the Certificate of Incorporation of IKS Corporation,  a
holder of either  class of Corp.  Common  Stock  may  convert  any or all of his
shares into an equal number of shares of the other class of Corp.  Common Stock;
provided  that in the case of a conversion  from Corp.  Class B Stock,  which is
nonvoting, into Corp. Class A Stock, which is voting, the holder of shares to be
converted  would be permitted  under  applicable law to hold the total number of
shares of Corp.  Class A Stock  which would be held after  giving  effect to the
conversion.

Stockholders' Agreement

    In connection with the Recapitalization, the stockholders of IKS Corporation
entered into the Stockholders'  Agreement  containing  certain  agreements among
such stockholders with respect to the capital stock and corporate  governance of
IKS Corporation and the Company.

    The Stockholders'  Agreement contains certain provisions which, with certain
exceptions, restrict the ability of the stockholders from transferring any Corp.
Common Stock, Corp.  Preferred Stock or Corp.  Debentures except pursuant to the
terms of the Stockholders'  Agreement.  If holders of more than 50% of the Corp.
Common Stock  approve the sale of the Company,  each  stockholder  has agreed to
consent  to such  sale  and,  if such  sale  includes  the sale of  stock,  each
stockholder has agreed to sell all of such  stockholder's  Corp. Common Stock on
the terms and conditions  approved by holders of a majority of the Corp.  Common
Stock then outstanding.  In the event IKS Corporation proposes to issue and sell
(other than in a public  offering  pursuant  to a  registration  statement)  any
shares of Corp. Common Stock or any securities  containing  options or rights to
acquire any shares of Corp.  Common  Stock or any  securities  convertible  into
Corp. Common Stock to CVC or its affiliates, IKS Corporation must first offer to
each  of the  other  shareholders  a pro  rata  portion  of  such  shares.  Such
preemptive  rights are not applicable to the issuance of shares of Corp.  Common
Stock  upon the  conversion  of shares of one class of Corp.  Common  Stock into
shares of the other class.

    Pursuant  to the  Stockholders'  Agreement,  the Board of  Directors  of the
Company is composed at all times of five directors as follows:  John E. Halloran
(as long as he continues to serve as President of the Company);  one  individual
designated by Diether Klingelnberg,  two individuals  designated by CVC; and one
independent  director  who shall be  designated  by CVC  subject to the right of
holders of the majority of the outstanding shares of Corp. Class A Stock to veto
the election of any such independent director.

    The   Stockholders'   Agreement   also   provides  for  certain   additional
restrictions on transfer of shares acquired by members of management pursuant to
certain  employee  stock  purchase  plans  adopted  by IKS  Corporation  in 1997
("Incentive  Shares"),  including  the right of IKS  Corporation  to  repurchase
Incentive  Shares  held  by  a  member  of  management  (a  "Participant")  upon
termination of such Participant's  employment prior to 2001, at a formula price,
and the grant of a right of first  refusal  in favor of IKS  Corporation  in the
event a Participant  elects to transfer such  Incentive  Shares of Corp.  Common
Stock.

Registration Rights Agreement

    In  connection  with  their  entry  into the  Stockholders'  Agreement,  IKS
Corporation,  CVC and certain other stockholders of IKS Corporation entered into
a Registration  Rights Agreement (the "Corp.  Registration  Rights  Agreement").
Pursuant to the Corp. Registration Rights Agreement, upon the written request of
CVC, IKS  Corporation  has agreed to prepare and file a  registration  statement
with the  Commission  concerning the  distribution  of all or part of the shares
held by CVC and use its best  efforts to cause such  registration  statement  to
become effective.  If at any time IKS Corporation files a registration statement
for the Corp. Common Stock pursuant to a request by CVC or otherwise (other than
a  registration  statement  on  Form  S-8,  Form  S-4 or  any  similar  form,  a

                                     III-7
<PAGE>

registration  statement filed in connection with a share exchange or an offering
solely to IKS Corporation' employees or existing stockholders, or a registration
statement  registering  a unit  offering),  IKS  Corporation  will  use its best
efforts to allow the other parties to the Corp. Registration Rights Agreement to
have their  shares of Corp.  Common  Stock (or a portion of their  shares  under
certain  circumstances)  included in such offering of Corp.  Common Stock if the
registration  form  proposed  to be used may be used to  register  such  shares.
Registration expenses of the selling stockholders (other than underwriting fees,
brokerage  fees  and  transfer  taxes  applicable  to the  shares  sold  by such
stockholders   or  the  fees  and   expenses   of  any   accountants   or  other
representatives  retained  by a  selling  stockholder)  are  to be  paid  by IKS
Corporation.

Employee Stock Purchase Plans

    In 1997, IKS Corporation  adopted a Restricted Stock Plan, pursuant to which
Participants  were offered the opportunity to purchase Corp.  Class A Stock. The
Participants  were given the opportunity to acquire an aggregate of up to 10% of
the Corp. Class A Stock outstanding on a fully-diluted basis.

    Also in 1997, IKS Corporation adopted an Equity Investment Plan, pursuant to
which Participants were offered the opportunity to purchase Corp. Class A Stock,
Series A 12% Cumulative  Compounding  Preferred Stock, par value $.01 per share,
and Series B 12%  Cumulative  Compounding  Preferred  Stock,  par value $.01 per
share. The Participants were given the opportunity to acquire an aggregate of up
to 1,020 shares of Corp' Class A Stock, 122.4 shares of Series A Preferred Stock
and 122.4 shares of Series B Preferred Stock.

    Upon the  Participants'  purchase of securities  under the Restricted  Stock
Plan or the Equity  Investment  Plan (the  "Plans"),  such  Participants  became
subject  to the  terms  and  conditions  of  the  Stockholders'  Agreement.  See
"--Stockholders'  Agreement." In addition to the restrictions set forth above in
the discussion of the Stockholders  Agreement,  the Stockholders' Agreement also
provides the following  restrictions with respect to the  Participants:  (i) the
Incentive  Shares acquired by a Participant will be subject to repurchase by IKS
Corporation or its designee if such Participant's employment with the Company is
terminated  within five years after  acquiring such securities at formula prices
which vary based upon the time and  circumstance of such  termination,  (ii) IKS
Corporation  has a right of first  refusal  through such date on all  securities
acquired by a Participant pursuant to a Plan, and (iii) if holders of a majority
of Corp.  Class A Stock  approve a sale of IKS  Corporation,  Participants  will
consent to such sale.

Other

    In  connection  with  the  Recapitalization,   Arndt  Klingelnberg,  Diether
Klingelnberg and CVC entered into an agreement pursuant to which their ownership
percentages  of the  Corp.  Preferred  Stock  and the  Corp.  Debentures  may be
adjusted.  Upon the occurrence of certain  events,  their  respective  ownership
percentages of Corp.  Preferred  Stock and Corp.  Debentures will be adjusted so
that they will be pro rata with their respective ownership  percentages of Corp.
Common Stock.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    In connection  with the  Recapitalization,  IKS  Corporation  entered into a
letter agreement with Mr. Halloran  pursuant to which IKS Corporation  loaned to
Mr.  Halloran an amount equal to the income taxes which were  incurred by him in
respect  of the  securities  received  by him as a part of the  Recapitalization
Distribution. The loan is secured by a pledge of the securities and the recourse
to the Company for repayment of the loan is limited to the securities.  The loan
bears interest at the "applicable  federal rate" under the Internal Revenue Code
of 1986, as amended,  and the Company makes payments to Mr.  Halloran in amounts
sufficient to permit him to pay such interest payments.

    In  accordance  with  certain  provisions  contained  in  the  documentation
governing the Recapitalization,  the amount of the Recapitalization Distribution
was adjusted  upwards by  approximately  $2.8 million in March,  1997,  and such
amount was paid in cash by the Company to the recipients of the Recapitalization
Distribution.

                                     III-8
<PAGE>

                                      IV-5
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)   List of Financial Statements.

         -      Financial Data Schedule

         The following  Consolidated Financial Statements of the Company and the
         Report of  Independent  Auditors set forth on pages II-9 through  II-29
         and II-8, respectively, are incorporated by reference into this item 14
         of Form 10-K by item 8 hereof:

         -      Report of Independent Auditors
         -      Consolidated Balance Sheets as of December 31, 1998 and 1997.
         -      Consolidated Statements of Income for the Years Ended 
                    December 31, 1998, 1997 and 1996.
         -      Consolidated Statements of Changes in Shareholder's Equity 
                    (Deficit) for the years ended December 31, 1998,
                    1997 and 1996.
         -      Consolidated Statements of Cash Flows for the Years Ended 
                    December 31, 1998, 1997 and 1996.
         -      Notes to Consolidated Financial Statements.

(a)(2)   Financial Statement Schedule.

         Schedule  II -  Valuation  and  Qualifying  Accounts  and  Reserves  is
         attached hereto at page IV-5 and is incorporated by reference into this
         Item 14 of Form 10-K. No other financial  statement schedules have been
         filed herewith since they are either not required,  are not applicable,
         or the  required  information  is shown in the  consolidated  financial
         statements or related notes.

(a)(3)   Exhibits.


  Exhibit
     No.                                   Description
--------- ----------------------------------------------------------------------
     3.1  Restated  Certificate  of  Incorporation,  as amended,  of the Company
          (incorporated   by   reference   to  Exhibit  3.1  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     3.2  By-laws of the Company  (incorporated  by  reference to Exhibit 3.2 to
          the Company's  Registration  Statement on Form S-4,  Registration  No.
          333-17305)
     4.1  Indenture  dated as of November 6, 1996 between the Company and United
          States  Trust  Company  of  New  York,  as  Trustee  (incorporated  by
          reference to Exhibit 4.1 to the  Company's  Registration  Statement on
          Form S-4, Registration No. 333-17305)
     4.2  Registration  Rights  Agreement dated as of November 6, 1996 among the
          Company,  Schroder  Wertheim & Co.  Incorporated and Smith Barney Inc.
          (incorporated   by   reference   to  Exhibit  4.2  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     4.3  Form of 113/8% Senior Subordinated Notes due 2006 (included in Exhibit
          4.1)
     10.1 Purchase Agreement dated October 31, 1996 among the Company,  Schroder
          Wertheim & Co.  Incorporated  and Smith Barney Inc.  (incorporated  by
          reference to Exhibit 10.1 to the Company's  Registration  Statement on
          Form S-4, Registration No. 333-17305)
     10.2 Letter  Agreement dated October 8, 1996 between  Deutsche Bank and the
          Company  (incorporated  by reference to Exhibit 10.2 to the  Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.3 Letter  Agreement dated October 8, 1996 between  Deutsche Bank and IKS
          Klingelnberg  GmbH  (incorporated  by reference to Exhibit 10.3 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.4 Agreement and Plan of Recapitalization  dated September 17, 1996 among
          Citicorp Venture Capital Ltd., IKS Corporation"),  the stockholders of
          IKS Corporation and certain stockholders of the Company  (incorporated
          by reference to Exhibit 10.4 to the Company's  Registration  Statement
          on Form S-4, Registration No. 333-17305)
     10.5 Commercial  Lease Contract dated March 1, 1992 between Howard & Howard
          Real  Estate   Partnership   and  IKS   Service,   Inc.,   as  amended
          (incorporated   by  reference   to  Exhibit  10.5  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.6 Lease  dated  June 5, 1996  between  Century  Development  Co. and the
          Company  (incorporated  by reference to Exhibit 10.6 to the  Company's
          Registration Statement on Form S-4, Registration No.


<PAGE>

          333-17305)

     10.7 Lease dated July 21, 1995 between 1st American  Management  Co.,  Inc.
          and the Company  (incorporated  by  reference  to Exhibit  10.7 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.8 Lease  Agreement dated April 17, 1991 between Tate  Engineering,  Inc.
          and IKS Eastern Services,  Inc., as amended (incorporated by reference
          to Exhibit 10.8 to the Company's  Registration  Statement on Form S-4,
          Registration No. 333-17305)
     10.9 Offer to Lease dated October 25, 1995 between Sigma  Enterprises  Ltd.
          and IKS  Canadian  Knife & Saw  Ltd.  (incorporated  by  reference  to
          Exhibit  10.9 to the  Company's  Registration  Statement  on Form S-4,
          Registration No. 333-17305)
     10.10Industrial  Multiple  Tenancy  Lease dated June 14, 1995 between Geary
          Investments  Limited  "in  Trust"  and IKS  Canadian  Knife & Saw Ltd.
          (incorporated   by  reference  to  Exhibit   10.10  to  the  Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.11Lease dated March 12, 1992 between  Gestion W. & L. Choiniere Inc. and
          IKS Canadian Knife & Saw Ltd., as amended  (incorporated  by reference
          to Exhibit 10.11 to the Company's  Registration Statement on Form S-4,
          Registration No. 333-17305)
     10.12Joint Venture  Company  Contract dated  September 24, 1995 between IKS
          Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery
          General Corporation (incorporated by reference to Exhibit 10.12 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305) 
     10.13Joint Venture  Company  Contract dated  September 24, 1995 between IKS
          Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery
          General Corporation (incorporated by reference to Exhibit 10.13 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.14Letter  Agreement dated  September 23, 1997 between  Deutsche Bank and
          IKS  Klingelnberg  GmbH  (incorporated by reference to Exhibit 10.1 to
          the Company's  Quarterly Report on Form 10-Q, for the quarterly period
          ended September 30, 1997, Registration No. 333-17305)
     21.1 Subsidiaries of the Company
       27 Financial Data Schedule 

(b) Reports on Form 8-K

    A report on form 8-K dated  November 25, 1998,  and an amendment  thereto on
Form 8-K/A, were filed regarding the Company's acquisition of Diacarb from Lembo
Internationaal B.V.

                                      IV-2
<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                       INTERNATIONAL KNIFE & SAW, INC.

                                       By:____________________________________ 
                                          John E. Halloran
                                          President and Chief Executive Officer

                                       March 26, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on March 26, 1999.

      Signature                                 Title
--------------------------           ------------------------------------------


/s/ John E. Halloran                 President, Chief Executive
--------------------------           Officer and Director (Principal Executive
John E. Halloran                     Officer)

/s/ William M. Schult                Vice President-Finance, Chief Financial
--------------------------           Officer, Treasurer and Secretary (Principal
William M. Schult                    Financial and Accounting Officer)

/s/ Diether Klingelnberg             Director
--------------------------
Diether Klingelnberg

/s/ James A. Urry                    Director
-------------------------
James A. Urry




                                      IV-3
<PAGE>


          SUPPLEMENTAL  INFORMATION  TO BE FURNISHED WITH REPORTS FILED PURSUANT
          TO SECTION 15(d) OF THE ACT BY  REGISTRANTS  WHICH HAVE NOT REGISTERED
          SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

    The  registrant  has not sent the  following  to security  holders:  (i) any
annual report to security holders covering the registrant's last fiscal year; or
(ii) any proxy  statements,  forms of proxy or other proxy  soliciting  material
wither respect to any annual or other meeting of security holders.



                                      IV-4
<PAGE>

                                                                 SCHEDULE II

                         INTERNATIONAL KNIFE & SAW, INC.

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  COL. C                                 
                                                                  ------                                 
                                         COL. B                  ADDITIONS                                 COL. E
                                         ------                  ---------                 COL. D          -------
COL. A                                   BALANCE AT      CHARGED TO                        ------          BALANCE
------                                   BEGINNING       COSTS AND       OTHER             DEDUCTIONS      AT END
DESCRIPTION                              OF PERIOD       EXPENSES       DESCRIBE           DESCRIBE        OF PERIOD
-----------                              ----------      ----------     --------           ----------      ---------

<S>                                      <C>             <C>            <C>                <C>             <C>          
YEAR ENDED 1998
Allowance for doubtful accounts....      $    1,480      $    231        $  261(b)        $  164(c)        $ 1,780
                                                                                              28(a)

Allowance for inventory obsolescence          2,381            768         170(b)             50(a)          2,788
                                                                                             481(c)

YEAR ENDED 1997
Allowance for doubtful accounts....           1,500            297         116(b)            189(c)          1,480
                                                                                             244(a)

Allowance for inventory obsolescence          2,327            539         40(b)             185(a)          2,381
                                                                                             340(c)

YEAR ENDED 1996
Allowance for doubtful accounts....           1,105            612         6(a)              298(c)          1,500
                                                                           120(b)             45(a)

Allowance for inventory obsolescence          2,833            572                           127(a)          2,327
                                                                                             951(c)
</TABLE>

(a)     Represents foreign currency translation adjustments during the year.
(b)     Consists of reserves of subsidiaries purchased during the year.
(c)     Represents amounts charged against the reserves during the year.

                                      IV-5


<PAGE>


                                  EXHIBIT INDEX

 Exhibit
   No.                                  Description
 -------- ----------------------------------------------------------------------
     3.1  Restated  Certificate  of  Incorporation,  as amended,  of the Company
          (incorporated   by   reference   to  Exhibit  3.1  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     3.2  By-laws of the Company  (incorporated  by  reference to Exhibit 3.2 to
          the Company's  Registration  Statement on Form S-4,  Registration  No.
          333-17305)
     4.1  Indenture  dated as of November 6, 1996 between the Company and United
          States  Trust  Company  of  New  York,  as  Trustee  (incorporated  by
          reference to Exhibit 4.1 to the  Company's  Registration  Statement on
          Form S-4, Registration No. 333-17305)
     4.2  Registration  Rights  Agreement dated as of November 6, 1996 among the
          Company,  Schroder  Wertheim & Co.  Incorporated and Smith Barney Inc.
          (incorporated   by   reference   to  Exhibit  4.2  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     4.3  Form of 113/8% Senior Subordinated Notes due 2006 (included in Exhibit
          4.1)
     10.1 Purchase Agreement dated October 31, 1996 among the Company,  Schroder
          Wertheim & Co.  Incorporated  and Smith Barney Inc.  (incorporated  by
          reference to Exhibit 10.1 to the Company's  Registration  Statement on
          Form S-4, Registration No. 333-17305)
     10.2 Letter  Agreement dated October 8, 1996 between  Deutsche Bank and the
          Company  (incorporated  by reference to Exhibit 10.2 to the  Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.3 Letter  Agreement dated October 8, 1996 between  Deutsche Bank and IKS
          Klingelnberg  GmbH  (incorporated  by reference to Exhibit 10.3 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.4 Agreement and Plan of Recapitalization  dated September 17, 1996 among
          Citicorp Venture Capital Ltd., IKS Corporation"),  the stockholders of
          IKS Corporation and certain stockholders of the Company  (incorporated
          by reference to Exhibit 10.4 to the Company's  Registration  Statement
          on Form S-4, Registration No. 333-17305)
     10.5 Commercial  Lease Contract dated March 1, 1992 between Howard & Howard
          Real  Estate   Partnership   and  IKS   Service,   Inc.,   as  amended
          (incorporated   by  reference   to  Exhibit  10.5  to  the   Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.6 Lease  dated  June 5, 1996  between  Century  Development  Co. and the
          Company  (incorporated  by reference to Exhibit 10.6 to the  Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.7 Lease dated July 21, 1995 between 1st American  Management  Co.,  Inc.
          and the Company  (incorporated  by  reference  to Exhibit  10.7 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.8 Lease  Agreement dated April 17, 1991 between Tate  Engineering,  Inc.
          and IKS Eastern Services,  Inc., as amended (incorporated by reference
          to Exhibit 10.8 to the Company's  Registration  Statement on Form S-4,
          Registration No. 333-17305)
     10.9 Offer to Lease dated October 25, 1995 between Sigma  Enterprises  Ltd.
          and IKS  Canadian  Knife & Saw  Ltd.  (incorporated  by  reference  to
          Exhibit  10.9 to the  Company's  Registration  Statement  on Form S-4,
          Registration No. 333-17305)
     10.10Industrial  Multiple  Tenancy  Lease dated June 14, 1995 between Geary
          Investments  Limited  "in  Trust"  and IKS  Canadian  Knife & Saw Ltd.
          (incorporated   by  reference  to  Exhibit   10.10  to  the  Company's
          Registration Statement on Form S-4, Registration No. 333-17305)
     10.11Lease dated March 12, 1992 between  Gestion W. & L. Choiniere Inc. and
          IKS Canadian Knife & Saw Ltd., as amended  (incorporated  by reference
          to Exhibit 10.11 to the Company's  Registration Statement on Form S-4,
          Registration No. 333-17305)
     10.12Joint Venture  Company  Contract dated  September 24, 1995 between IKS
          Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery
          General Corporation (incorporated by reference to Exhibit 10.12 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.13Joint Venture  Company  Contract dated  September 24, 1995 between IKS
          Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery
          General Corporation (incorporated by reference to Exhibit 10.13 to the
          Company's   Registration  Statement  on  Form  S-4,  Registration  No.
          333-17305)
     10.14Letter  Agreement dated  September 23, 1997 between  Deutsche Bank and
          IKS  Klingelnberg  GmbH  (incorporated by reference to Exhibit 10.1 to
          the Company's  Quarterly Report on Form 10-Q, for the quarterly period
          ended   September  30,  1997,   Registration   No.   333-17305)
     21.1 Subsidiaries of the Company
     27   Financial Data Schedule