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, 2000

                                       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:  (859) 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, 2001, 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. 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 (44% of 2000 net sales);
(ii) Paper & Packaging  (36%);  (iii) Metal (16%);  and (iv) Plastic & Recycling
(4%). 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 has  undergone  two  leadership  changes over the past two year period.
Following CEO  departures in May,  1999 and again in April,  2000,  the Board of
Directors of the Company established an executive committee comprised of Messrs.
William M. Schult,  Executive  Vice  President - CFO,  Treasurer and  Secretary;
Bradley H. Widmann, Vice President - Operations for the Americas; and Jeffrey H.
Welday, Vice President - Sales and Marketing for the Americas. This committee is
responsible  for all  North  American  operations  of the  Company  and  reports
directly to the Board of Directors. Thomas W.G. Meyer, Executive Vice President,
Europe and Asia,  continued in his role with  responsibility  over those regions
and also reports directly to the Board of Directors.

     Deteriorating  results in the Company's North American  operations over the
past two years,  primarily  attributable to leadership changes at the Company in
1999 and  2000,  as well as an  increasingly  softening  market,  have more than
offset improved results in the Company's European  operations.  For example,  in
2000,  excluding  non-recurring  one-time charges,  the Company's North American
operations  accounted  for  approximately  57%  of net  sales  and  incurred  an
operating  loss of $1.8  million,  while its European  operations  accounted for
approximately  38% of net sales and 95% of the Company's  operating  income.  In
1998, the Company's North American operations accounted for approximately 71% of
net  sales  and  70% of the  Company's  operating  income,  while  its  European
operations accounted for approximately 25% and 25%, respectively.

     The Company  incurred net losses of  approximately  $15.5  million and $3.4
million in the years ended December 31, 2000 and 1999, respectively, as compared
to net income of approximately $1.6 million in the year ended December 31, 1998.
In  addition,  the  Company  generated  negative  cash flow from  operations  of
approximately  $4.5 million during the year ended December 31, 2000, as compared
to positive cash flow from  operations of  approximately  $6.9 million and $10.7
million  during  the years  ended  December  31,  1999 and  1998,  respectively.
Continuing  adverse market conditions and their negative effect on the Company's
cash flow,  coupled with limited  liquidity,  are likely to impede the Company's
ability to make interest  payments of approximately  $5.1 million on each of May
15 and November 15, 2001 under the Company's 11 3/8% Senior  Subordinated  Notes
due 2006 (the "Subordinated Notes").

                                      I-1
<PAGE>

     These  matters  raise  substantial  doubt  about the  Company's  ability to
continue as a going concern.  As a result,  the Company has retained Jefferies &
Company,  Inc.  to begin a process to address  the  Company's  highly  leveraged
capital  structure.  The  Company  expects  Jefferies  to assist the  Company in
developing  alternatives in connection with a restructuring  of its Subordinated
Notes. While the Company believes that there are certain alternatives  available
to the Company, there can be no assurance that the Company will be successful in
implementing  any  such   alternatives  or  that  any  such   alternatives,   if
implemented,  will enable the Company to meet its obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Recapitalization

     The  Company   issued  $90  million  in  aggregate   principal   amount  of
Subordinated 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 Subordinated 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.

     Subsequent  to  the  Recapitalization,  all  of the  Company's  issued  and
outstanding  capital stock has been held by IKS Corporation.  IKS  Corporation's
issued and  outstanding  capital stock is held  approximately  50.4% (on a fully
diluted  basis) by Citicorp  Venture  Capital,  Ltd. and  co-investors  ("CVC"),
approximately 30% by certain Luxembourg holding companies  (formerly held by the
Klingelnberg  family)  and  approximately  19.6% by certain  current  and former
members of management of the Company.

Business Strategy

     The Company  believes  that it can retain and  improve its market  position
through the  continued  and renewed  commitment  to 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)  focusing  on  strategically
identified  product  lines;  (iv)  maintaining  its  focus  on cost  improvement
opportunities through continued rationalization of its factories; and (v) taking
advantage of its purchasing  strength and leveraging both the cost and inventory
management aspects of its supply chain.

Products and Markets

     The  Company  manufactures  and sells its  products  in four  major  market
sectors  including  (i) Wood (44% of 2000 net  sales);  (ii)  Paper &  Packaging
(36%);  (iii) Metal  (16%);  and (iv)  Plastic & Recycling  (4%).  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 2000 net sales of  approximately  $71 million.  Industrial wood knives
and saws are utilized in  applications  by companies such as Weyerhauser Co. and
Louisiana  Pacific Corp. for sawing logs into specific  dimensional sized lumber
for use in the housing  industry;  by companies  such as Georgia  Pacific Corp.,
Willamette  Industries  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 Fletcher  Challenge and International  Paper Co., Inc. for the
production  of wood  chips  used 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.

                                      I-2
<PAGE>

     As timber 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.  Wafer board and oriented
strand board use tight 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  which require more expensive  large diameter logs as raw material.
The Company believes that it is the leading North American manufacturer of these
specialty knives.

     The Company is a leader in the  manufacture  of carbide  edger saws.  Using
automated  equipment  in  combination  with  skilled  craftsmen,   IKS  produces
extremely  accurate  saws  used for the  primary  wood  market  to cut logs into
dimensional finished lumber and panel boards.

     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 has a strong  presence in the wood saw  machinery  market.  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.

Paper & Packaging

     The  Company  believes  it is the  largest  manufacturer  and  supplier  of
industrial  paper & packaging  knives with 2000 net sales of  approximately  $58
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.,  Fort  James 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. 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 World, International Paper 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  converting  knives are made from a wide range of steel grades,  from
carbon  steels to inlaid high speed  steels and  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.
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, 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 has a strong  presence in the printing  market and a reputation
of being a leading  producer of high  precision  printing press knives and spare
parts.   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.

     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
believes that,

                                      I-3
<PAGE>

through its continued  emphasis on providing  specialized  technical  assistance
resulting in added value, it will continue to grow in these markets.

Metal

     The Company believes it is the second largest  manufacturer of metal knives
with 2000 net sales of approximately $25 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.

     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.

     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 one of the largest  manufacturers of industrial
plastic &  recycling  knives  with 2000 net sales of  approximately  $7 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.

     The market for industrial  plastic granulator knives is currently strong in
Europe as a result of government mandated recycling programs. There is a growing
emphasis on recycling  with 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  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.

Marketing and Distribution

     The  Company  is the  only  industrial  knife  and  saw  manufacturer  with
operations in North America,  Europe,  Asia, and Latin America and products sold
in  more  than  75  countries.  Historically,  the  Company's  sales

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<PAGE>

have been  principally  in North America and Europe;  in the past five years the
Company has  expanded  operations  into the  emerging  markets of Asia and Latin
America.

     The  Company  has  one  of the  largest  direct  sales  forces  focused  on
industrial knives and saws.  Complementing the Company's knowledgeable worldwide
salesforce,  the Company has a significant  staff of market managers and product
specialists 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 2000 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  ("OEMs") 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.

     End-users  --  Direct   Salesforce  and   Company-Owned   Service  Centers.
Approximately  66% of the  Company's  2000 net sales  were  direct to  end-users
through the Company's salesforce and Company-owned service centers, representing
in excess of 10,000  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 believes its competitive position will strengthen with this distribution
channel as many  large  end-users  consolidate  and reduce  their  vendor  base,
requiring the technical support and wide breadth of product the Company offers.

     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  fourteen  service  centers,  seven 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.

     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.

     End-users -- Distributors  and  Independent  Service  Centers.  The Company
sells  approximately 23% 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
complements  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' 2000 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

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<PAGE>

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, four
joint ventures and several strategic relationships with independent resharpening
centers.  These  alliances  enable  the  Company  to  expand  its  international
presence,  increase its product offerings,  maintain a cost competitive position
on its broad base of  products  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 and Latin  America.  These  include  two joint
ventures in China which commenced  operations in 1996. The Company increased its
interest  from 51% to 80% in 1999 in both Chinese  joint  ventures.  These joint
ventures sell products  domestically  within China and IKS  exclusively  exports
these  products to most of 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 sales of approximately $1.2 million in
2000 and a 30% interest in a distributor in the Philippines  which had net sales
of approximately $.6 million in 2000.

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.  This
advantage along with the Company's  continued efforts to leverage its purchasing
strength  and  consolidate  its  supplier  base  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.

Backlog Orders

     As of February 28, 2001, the dollar amount of backlog  orders,  believed by
the Company to be firm totaled  approximately $35.5 million. It is expected that
a  significant  portion of all such orders  will be filled  during  2001.  As of
February  29, 2000 the dollar  amount of backlog  orders  totaled  approximately
$34.7 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.  No single company  competes
with the
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Company in all four of the market  sectors that the Company serves and no single
company is dominant in any of such market sectors. The Company believes that the
reputation it has established  over its long history for quality  products,  its
sales and service network and its in-depth product  knowledge  combined with its
end-users' supplier reduction programs,  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,"  "Durakut,"  "Durapid,"  "Duritan,"   "Dynabloc(TM),"
"Dynapren,"    "Dynatherm,"     "Hyperhone(TM),"    "Klirit,"    "KSFmicroplan,"
"Novacrom(TM),"  "Novador,"  "QCP," "Quality Cut Knife  Maintenance  Program and
Design,"   "Rolf   Meyer",   "SAVE,"   "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; Ultrakut; and Boehler Miller Messer und Saegen.

Employees

     At December 31, 2000, the Company had 1,594  full-time  employees.  Of such
employees, 706 were located in North America, 589 were located in Europe and 299
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 Austrian facilities,  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 50 of its German employees, 213 of its Austrian and 77 of
its U.S  employees are union  members.  The majority of the 281 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.

     Based on the Company's  experience to date,  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.

                                       I-7
<PAGE>

     ITEM 2.  PROPERTIES

     The Company is  headquartered  in Erlanger,  Kentucky,  located a few miles
south of Cincinnati, Ohio. The Company currently owns or leases 25 facilities in
North America, Europe, and Asia, that are used for manufacturing,  distribution,
sales,  warehousing  and service  center  activity.  The Company also leases two
facilities  in North  America  that are idle;  the Company is actively  pursuing
alternatives for these two leased facilities.

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

                                  Approx.
            Location              Sq. Ft.          Use
            --------            ----------         ---
  North American Facilities      106,600      Manufacturing/Service
    Florence, SC                              Center/Distribution/Sales
    Erlanger, KY (corporate       99,700      Manufacturing/Service
       Headquarters)                          Center/Distribution/Sales
    Camden, AL..................  44,700      Manufacturing/Service
                                              Center/Distribution/Sales
    McMinnville, OR.............  55,000      Manufacturing/
                                              Distribution/Sales
    Granby, Quebec*.............  20,000      Manufacturing/Service
                                              Center/Distribution/Sales
    Langley, British Columbia...  19,200      Manufacturing/Service
                                              Center/Distribution/Sales
    Kirkland, WA *..............  30,000      Manufacturing/Service
                                              Center/Distribution/Sales
    Milwaukie, OR*..............   8,600      Idle. Former Manufacturing/
                                              Service Center
    Hot Springs, AR.............   6,700      Distribution/Sales
    Appleton, WI*...............   5,000      Idle. Former 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
    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
    Waidhofen, Austria* ........ 152,800      Manufacturing/Distribution/Sales
    Traismauer, Austria*........  37,700      Manufacturing/Distribution/Sales
    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** (80%).....  32,000      Manufacturing/Distribution/Sales
    Concepcion, Chile (42.5%)...   3,700      Service Center/Distribution/Sales
   Manila, Philippines (30%)....   2,500      Distribution/Sales

*  Leased.
** Facility owned, land leased

                                       I-8

<PAGE>

     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.

     The Company places a strong  emphasis on producing  high quality  products.
The  Company's  European  facilities  located in  Bergisch  Born,  Germany,  and
Waidhofen  and  Traismauer,  Austria have 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-9
<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, 2001,  there were 32 holders of IKS
Corporation's  outstanding common equity. During 2000, IKS Corporation issued 40
shares  of  Class  A  Common  Stock,  4.8  shares  of  Series  A 12%  Cumulative
Compounding   Preferred  Stock  and  4.8  shares  of  Series  B  12%  Cumulative
Compounding  Preferred Stock to a Director for total  consideration  of $10,000.
The above  securities  were  issued  and sold 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."

     Since the  consummation of the  Recapitalization,  the Company has not paid
any  dividends  because the Indenture  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,
2000. 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)
                                       2000             1999              1998            1997             1996
                                   -----------      -----------      -----------      -----------      -----------
<S>                                <C>              <C>              <C>              <C>              <C>
Operating Data:
Net sales                            $ 160,917        $ 153,133        $ 150,891        $ 142,974        $ 119,441
Cost of sales                          120,388          108,477          105,779           99,885           83,567
                                     ---------        ---------        ---------        ---------        ---------
Gross profit                            40,529           44,656           45,112           43,089           35,874

Selling, general and administrative
  expenses                              40,026           34,517           30,299           27,681           23,952
                                     ---------        ---------        ---------        ---------        ---------
Operating income                           503           10,139           14,813           15,408           11,922
Interest expense, net                   13,031           12,354           12,006           11,687            3,245
Minority interest                          157              295               71              174             (271)
                                     ---------        ---------        ---------        ---------        ---------
(Loss) income before income taxes      (12,685)          (2,510)           2,736            3,547            8,948
Provision for income taxes               2,844              880            1,146            1,499            2,924
                                     ---------        ---------        ---------        ---------        ---------
Net (loss) income                    $ (15,529)       $  (3,390)       $   1,590        $   2,048        $   6,024
                                     =========        =========        =========        =========        =========
Net (loss) income per common share   $  (32.22)       $   (7.03)       $    3.30        $    4.25        $   12.50

Other Data:
EBITDA (1)                           $   8,230        $  16,893        $  20,803        $  20,027        $  17,055
 Net cash (used) provided by            (4,534)           6,889           10,694            7,282            9,999
  operating  activities
Net cash used in investing
  activities                            (5,747)          (5,497)         (17,687)         (25,183)          (8,998)
Net cash provided (used) by
  financing activities                  12,010           (1,332)           6,690            8,676              965
Depreciation and amortization (2)        7,307            6,360            5,620            5,145            4,596
Capital expenditures (3)                 6,921            6,019            9,320            7,734            8,157
Gross margin                             25.2%            29.2%            29.9%            30.1%            30.0%
EBITDA margin                             5.1%            11.0%            13.8%            14.0%            14.3%
EBITDA including LIFO charges
  and credits                        $   7,810        $  16,499        $  20,434        $  20,553        $  16,518

Balance Sheet Data:
Working capital                      $  12,286        $  28,869        $  26,095        $   32,91        $  40,753
Total assets                           126,391          127,618          101,275          134,975          115,274
Debt (4)                               128,357          114,957          122,455          109,265          100,075
Shareholder's deficit                  (39,654)         (22,846)         (18,093)         (19,607)         (19,644)

</TABLE>


(1) EBITDA is defined as operating  income plus  depreciation  and  amortization
    adjusted to exclude LIFO charges (credits) of $420, $394, $370,  ($526), and
    $537 for the years ended  December  31,  2000,  1999,  1998,  1997 and 1996,
    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  accounting  principles  generally  accepted  in the United
    States)  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 with amounts in
    the consolidated statement of cash flows because of the amortization of debt
    issuance costs reported below the operating income line.

(3) 1998 included $2,172 of capital  expenditures  related to the implementation
    of a new computer  system (SAP) and related system  software.  1996 included
    $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 Chinese 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 approximately 57% of
its 2000 net sales. The Company's other international operations account for the
remainder  and are located  primarily in Europe  (approximately  38% of 2000 net
sales), and to a lesser extent in Asia.

     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,  Austria,  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,  Austrian,  Canadian,  Mexican,
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 2000 to 1999, the
weaker German Mark, Austrian Schilling,  Dutch Guilder, and French Franc had the
translation  effect of  decreasing  2000 net sales by $5.2,  $2.9,  $.8, and $.5
million,  respectively,  with a combined  $.7  million  negative  impact on 2000
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  enters 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 fifteen months.

     At December  31, 2000 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 and 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.

                                      II-3
<PAGE>

Results of Operations

     IKS has  undergone  two  leadership  changes over the past two year period.
Following CEO  departures in May,  1999 and again in April,  2000,  the Board of
Directors of the Company established an executive committee comprised of Messrs.
William M. Schult,  Executive  Vice  President - CFO,  Treasurer and  Secretary;
Bradley H. Widmann, Vice President - Operations for the Americas; and Jeffrey H.
Welday, Vice President - Sales and Marketing for the Americas. This committee is
responsible  for all  North  American  operations  of the  Company  and  reports
directly to the Board of Directors. Thomas W.G. Meyer, Executive Vice President,
Europe and Asia,  continued in his role with  responsibility  over those regions
and also reports directly to the Board of Directors.

     Deteriorating  results in the Company's North American  operations over the
past two years,  primarily  attributable to leadership changes at the Company in
1999 and 2000,  as well as a softening  market,  have more than offset  improved
results in the Company's European  operations.  For example, in 2000,  excluding
non-recurring   one-time  charges,   the  Company's  North  American  operations
accounted for  approximately  57% of net sales and incurred an operating loss of
$1.8 million,  while its European operations  accounted for approximately 38% of
net sales and 95% of the  Company's  operating  income.  In 1998,  the Company's
North American  operations  accounted for approximately 71% of net sales and 70%
of the Company's operating income,  while its European operations  accounted for
approximately 25% and 25%, respectively.

     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:


                                                   Year Ended December 31,
                                              2000         1999         1998
                                            -------      -------      -------

 Net sales..............................     100.0%       100.0%       100.0%
 Cost of sales..........................     (74.8)%      (70.8)%      (70.1)%
                                          ----------   ----------   ----------
     Gross margin.......................      25.2%        29.2%        29.9%
 Selling, general and administrative
      expenses..........................     (24.9)%      (22.5)%      (20.1)%
                                          ----------   ----------   ----------
     Operating income..................         .3%         6.7%         9.8%
 Interest expense, net..................       8.1%         8.1%         8.0%
 Minority interest......................       0.1%         0.2%         0.0%
                                          ---------    ---------    ---------
     (Loss) income before income taxes..      (7.9)%       (1.6)%        1.8%
 Provision for income taxes.............      (1.8)%       (0.6)%       (0.8)%
                                          ----------   ----------   ----------
           Net (loss) income............      (9.7)%       (2.2)%        1.0%
                                          ==========   ==========   =========


     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, 2000 Compared To Year Ended December 31, 1999

     Net Sales:  Net sales  increased 5.1% to $160.9 million in 2000 from $153.1
million in 1999  primarily  attributable  to the  acquisition  of Boehler Miller
Messer und Saegen GmbH  ("BMMS") in January 2000,  significantly  offset by poor
results in North America primarily  attributable to two leadership  changes over
the past two year period,  market softness and the strengthening dollar relative
to the European currencies.  The Company experienced net sales reductions in its
North American  operations (8.8% to $91.4 million) and sales improvements in its
other operations (31.4% to $69.5 million) in 2000 compared to the same period in
1999.

                                      II-4
<PAGE>

     Gross  Profit:  Gross profit  decreased  9.2% to $40.5 million in 2000 from
$44.7  million  in 1999.  Excluding  the  effect  of the  non-recurring  charges
discussed  in Note 11 to the  consolidated  financial  statements,  gross profit
would have been $41.0 million in 2000.  Gross margin  decreased to 25.2% in 2000
compared to 29.2% in 1999 primarily  attributable to the factors noted above and
the  second  quarter  non-recurring   charges.   Excluding  the  second  quarter
non-recurring  charges, gross margin for 2000 would have been 25.5%. The Company
experienced  gross profit  declines in its North American  operations  (26.7% to
$19.8 million) in 2000 compared to 1999,  while gross margin also  significantly
declined  to 21.7%  from  26.9%.  Excluding  the  second  quarter  non-recurring
charges,  the North American  operations decline in gross profit would have been
24.8% to $20.3 million in 2000. The decrease in gross profit and gross margin is
attributable to the factors noted above.  The Company  experienced  gross profit
improvements  (16.9% to $20.7 million) in its other  operations in 2000 compared
to 1999 while  gross  margin  decreased  to 29.8% from 33.5%.  The gross  profit
increase and gross margin  decline was primarily due to the BMMS  acquisition in
January 2000.

     Selling,  General  and  Administrative   Expenses:   Selling,  general  and
administrative  ("SG&A")  expenses were $40.0 million for 2000 compared to $34.5
million for 1999. The increase, net of the second quarter non-recurring charges,
is primarily  attributable to the BMMS acquisition.  SG&A expenses  increased to
24.9% of net sales from 22.5% of net sales for the respective periods. Excluding
the second quarter non-recurring  charges, SG&A expenses would have increased to
23.6% of net sales in 2000.

     Interest Expense,  net: Net interest expense increased to $13.0 million for
2000 compared to $12.4 million for 1999 due to an increase in borrowings related
to the BMMS acquisition in January 2000 and increased  working capital needs due
to the decline in net sales in North America.

     Income Taxes:  Due to pre-tax losses in the United States in 2000 for which
no related  current tax benefits  were  recorded in  accordance  with income tax
accounting  rules,  and as a result of  pre-tax  income in the  Company's  other
operations  for which  related  tax  provisions  were  recorded,  the Company is
reporting a consolidated provision for income tax on a consolidated pre-tax loss
of $12.7  million.  Due to  pre-tax  losses in the  United  States in 1999,  the
Company did not fully  realize the related  current tax  benefits in  accordance
with income tax accounting  rules. This resulted in a consolidated tax provision
for income tax on a consolidated  pre-tax loss of $2.5 million.  The significant
change in income taxes from 1999 is due to the above  factors and the  recording
of a portion of tax benefits  related to the pre-tax losses in the United States
in 1999, but not in 2000.


Year Ended December 31, 1999 Compared To Year Ended December 31, 1998

     Net Sales:  Net sales  increased 1.5% to $153.1 million in 1999 from $150.9
million  in 1998.  The  Company  experienced  net  sales  declines  in its North
American operations (6.3% to $100.2 million) compared to $106.9 million in 1998,
primarily attributable to a leadership change in May 1999 and to a lesser extent
due to pricing  pressures from Asian,  South  American and domestic  competitors
that led to a loss of business in the major market  sectors the Company  serves.
The Company  experienced net sales improvements  (20.2% to $52.9 million) in its
other operations  compared to $44.0 million in 1998,  primarily  attributable to
acquisitions  of Buland S.A.  ("Buland") and A.K. van der Wijngaart  Beheer B.V.
("Diacarb") in the fourth quarter of 1998.

     Gross Profit: Gross profit decreased slightly to $44.7 million in 1999 from
$45.1 million in 1998.  Gross margin also  decreased  slightly to 29.2% for 1999
compared to 29.9% in 1998.  The Company  experienced a  significant  decrease in
gross profit in its North American  operations  (16.7% to $27.0 million) in 1999
compared  to $32.4  million  in 1998,  while  gross  margin  also  significantly
declined to 26.9% from 30.3%.  The  decrease in gross profit and gross margin is
attributable  to the factors noted above.  The Company  experienced  significant
gross profit  improvements  (39.4% to $17.7 million) in its other  operations in
1999  compared to $12.7 million in 1998,  while gross margin also  significantly
increased to 33.5% from 28.9%. The gross profit and gross margin improvement was
primarily due to the fourth quarter 1998 acquisitions of Buland and Diacarb.

     Selling,  General and  Administrative  Expenses:  SG&A  expenses were $34.5
million for 1999  compared to $30.3  million for 1998 and  increased to 22.5% of
net sales from 20.1% of net sales for the respective periods. The

                                      II-5
<PAGE>

increase  in  SG&A  expenses  was  primarily  due  to  the  Diacarb  and  Buland
acquisitions  and to a  lesser  extent  due to  reorganization  costs  in  North
America.

     Interest  Expense,  net: Net interest expense increased to $12.4 million in
1999 from  $12.0  million in 1998 due to an  increase  in  borrowings  primarily
related to the Diacarb and Buland acquisitions in the fourth quarter of 1998 and
increased  working  capital  needs  due to the  decrease  in net  sales in North
America.

     Income Taxes:  Due to pre-tax losses in the United States in 1999 for which
the Company did not fully realize the related current tax benefits in accordance
with  income tax  accounting  rules,  and as a result of  pre-tax  income in the
Company's  other   operations  for  which  the  Company   recorded  related  tax
provisions,  the Company has recorded a consolidated provision for income tax on
a consolidated  pre-tax loss of $2.5 million.  The Company's  effective tax rate
was 41.9% in 1998.  The  significant  change in income taxes from 1998 is due to
the above  factors  and  significant  changes  in income  contributions  for the
Company's operations in certain tax jurisdictions.

Liquidity and Capital Resources

     The Company's  principal  capital  requirements are to fund working capital
needs,  to meet required debt payments and to complete  planned  maintenance and
expansion  expenditures.  In the past,  the  Company's  operating  cash flow and
available borrowings under the Company's  multi-currency  credit facilities have
been sufficient to enable the Company to meet its working capital  requirements,
debt  service  requirements  and  capital  expenditure  requirements.   However,
deteriorating  results in the Company's North American  operations over the past
two years,  primarily  attributable to leadership changes at the Company in 1999
and 2000 as well as a softening  market,  have more than offset improved results
in the  Company's  European  operations.  The  Company  incurred  net  losses of
approximately  $15.5  million and $3.4  million in the years ended  December 31,
2000 and 1999,  respectively,  as compared to net income of  approximately  $1.6
million in the year ended December 31, 1998. In addition,  the Company generated
negative cash flow from operations of approximately $4.5 million during the year
ended  December 31, 2000, as compared to positive  cash flow from  operations of
approximately $6.9 million and $10.7 million during the years ended December 31,
1999 and 1998,  respectively.  Continuing  adverse  market  conditions and their
negative effect on the Company's cash flow, coupled with limited liquidity,  are
likely  to  impede  the  Company's   ability  to  make   interest   payments  of
approximately  $5.1  million on each of May 15 and  November  15, 2001 under the
Company's 11-3/8% Senior Subordinated Notes due 2006 (the "Subordinated Notes").

     The Company is highly  leveraged.  As of December 31, 2000,  the  Company's
total long-term debt and stockholder's deficit were approximately $112.3 million
and  $39.7  million,  respectively.  The  Company's  consolidated  debt  service
obligations  in 2001 are  expected to be in excess of $12.0  million,  including
approximately  $10.2  million of interest  payments  due under the  Subordinated
Notes. The Company does not have any significant capital expenditure commitments
in 2001 that cannot be deferred;  however,  deferral of planned  maintenance and
expansion  expenditures  may  negatively  impact the  Company's  operations.  At
December 31, 2000, the Company had  approximately  $9.0 million  available under
its  multi-currency  credit  facilities.  However,  certain  provisions  of  the
Company's  German  credit  facilities  limit the flow of cash from the Company's
wholly owned German  subsidiary,  IKS  Klingelnberg  GmbH, and its  consolidated
subsidiaries to the Company.  Such provisions  include  covenants  requiring the
maintenance of a minimum equity in IKS  Klingelnberg  GmbH and its  consolidated
subsidiaries equal to 30% of total asset value. As a result,  U.S.  availability
was limited to approximately $4.3 million at December 31, 2000. In January 2001,
a U.S.  lender withdrew a $1.5 million working capital line that further reduced
U.S.  availability  to  approximately  $2.8  million.  At  March 9,  2001,  U.S.
availability  under credit facilities  totaled  approximately  $1.3 million.  In
addition, the Company had approximately $.7 million cash on hand in the U.S. The
Company's North American operations continue to generate negative cash flow from
operations.

     These  matters  raise  substantial  doubt  about the  Company's  ability to
continue as a going concern.  As a result,  the Company has retained Jefferies &
Company,  Inc.  to begin a process to address  the  Company's  highly  leveraged
capital  structure.  The  Company  expects  Jefferies  to assist the  Company in
developing  alternatives

                                      II-6
<PAGE>

in connection with a restructuring of its Subordinated  Notes. While the Company
believes that there are certain alternatives available to the Company, there can
be no assurance  that the Company will be  successful in  implementing  any such
alternatives  or that any such  alternatives,  if  implemented,  will enable the
Company to meet its obligations.

     In response to market  conditions and as a part of its market strategy,  in
2000 the  Company  sold six  service  centers  in the U.S.  The sales  generated
approximately  $1.3 million in cash and  eliminated  the negative cash flow that
these  service  centers  were  generating.  The  Company  does not  foresee  any
additional  sales of service  centers in 2001,  but does  expect a tax refund of
approximately  $1.1  million in the first  quarter  of 2001.  The  Company  also
expects to generate cash of approximately  $1.5 million in the fourth quarter of
2001 from the  planned  sale of a building as part of the  Company's  continuing
rationalization  of its manufacturing  operations.  In addition,  the Company is
pursuing aggressive cost cutting programs.

     Net  cash  flow  used by  operations  aggregated  $4.5  million  in 2000 as
compared to cash  provided of $6.9 million for 1999.  The decrease was primarily
attributable  to a $12.1  million  decrease  in net  income  and a $1.7  million
increase in working capital compared to 1999, offset by the $2.0 million loss on
the disposition of businesses in 2000. Net cash flow from operations  aggregated
$6.9  million in 1999 as compared to $10.7  million in 1998.  The  decrease  was
primarily attributable to a $5.0 million decrease in net income offset by a $0.9
million decrease in working capital and additional depreciation and amortization
of $0.7 million compared to 1998.

     Cash used in investing  activities  in 2000 was $5.7 million as compared to
$5.5  million  in 1999.  Cash  used in  investing  activities  for 1999 was $5.5
million as  compared  to $17.7  million  in 1998.  The  decrease  in use of cash
compared  to 1998 was  primarily  attributable  to a $8.8  million  decrease  in
purchases of operations,  net of cash acquired,  and a $3.3 million  decrease in
capital expenditures.

     Cash provided in financing activities in 2000 was $12.0 million as compared
to cash used of $1.3 million in 1999 and cash  provided of $6.7 million in 1998.
The cash  provided in 2000 is  primarily  due to increased  borrowings  of $10.8
million,  primarily attributable to the BMMS acquisition,  and increased working
capital needs offset by a decrease in amounts due to parent of $1.1 million. The
1999 use of cash is primarily due to repayments of $.9 million due to parent and
$.5 million net payments of notes payable and long-term debt.

Impact of Recently Issued Accounting Standards

     In June,  1998, the Financial  Accounting  Standards  Board issued SFAS No.
133,  Accounting  for Derivative  Instruments  and Hedging  Activities,  and its
amendments  Statements  137,  Accounting for Derivative  Instruments and Hedging
Activities - Deferral of the Effective  Date of FASB  Statement No. 133 and 138,
Accounting for Certain  Derivative  Instruments and Certain  Hedging  Activities
issued in June 1999 and June 2000,  respectively  (collectively  referred  to as
Statement 133), which was required to be adopted in fiscal years beginning after
June 15, 2000. The Statement  required the Company to recognize any  derivatives
on the balance sheet at fair value. The Company adopted this new Statement as of
January 1, 2001.  The  adoption  of this  Statement  did not have a  significant
effect on the Company's earnings or financial position.


     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.

                                      II-7
<PAGE>


     ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                          Page

Report of Independent Auditors........................................... II-9
Consolidated Balance Sheets as of December 31, 2000 and 1999............. II-10
Consolidated Statements of Income for the years ended
  December 31, 2000, 1999 and 1998....................................... II-12
Consolidated Statements of Changes in Shareholder's Deficit
  for the years ended December 31, 2000, 1999 and 1998................... II-13
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998....................................... II-14
Notes to Consolidated Financial Statements............................... II-15

                                      II-8
<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, 2000 and
1999,   and  the  related   consolidated   statements  of  income,   changes  in
shareholder's  deficit, and cash flows for each of the three years in the period
ended  December  31, 2000.  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  auditing  standards  generally
accepted in the United States.  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, 2000 and 1999,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2000,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  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.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that International  Knife & Saw, Inc. and subsidiaries will continue as
a going  concern.  As more  fully  described  in Note 2, the  Company  is highly
leveraged  and has incurred  recurring  net losses and  generated  negative cash
flows from operations in the current year, which raises  substantial doubt about
the Company's  ability to continue as a going  concern.  (Management's  plans in
regard to these matters are also described in Note 2.) The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


                                                        ERNST & YOUNG LLP

Cincinnati, Ohio
March 8, 2001

                                      II-9
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

                           Consolidated Balance Sheets



                                                              December 31,
                                                          2000           1999
                                                  ------------------------------
                                                               (in thousands)
Assets
Current assets:
   Cash and cash equivalents                           $  3,392       $  1,862
   Accounts receivable, trade, less allowances
      for doubtful accounts of $2,428 and $1,856         24,223         25,620
   Inventories                                           29,526         27,922
   Due from parent                                           34          1,159
   Other current assets                                   2,898          2,759
                                                 ------------------------------
Total current assets                                     60,073         59,322

Other assets:
   Goodwill                                              14,773         17,015
   Debt issuance costs                                    2,271          2,736
   Other noncurrent assets                                2,478          2,163
                                                 ------------------------------
                                                         19,522         21,914

Property, plant and equipment-net                        46,796         46,382

                                                  ==============================
            Total assets                          $  126,391         $  127,618
                                                  ==============================

See accompanying notes.

                                     II-10
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

                           Consolidated Balance Sheets


                                                              December 31,
                                                          2000           1999
                                                      --------------------------
                                                             (in thousands)
Liabilities and shareholder's deficit
Current liabilities:
   Notes payable                                      $   19,208     $   4,362
   Current portion of long-term debt                       4,027         2,465
   Accounts payable                                       10,807        13,007
   Accrued liabilities                                    13,745        10,619
                                                      --------------------------
Total current liabilities                                 47,787        30,453

Long-term debt, less current portion                     108,321       112,391
Other liabilities                                          8,865         6,557
                                                      --------------------------
Total liabilities                                        164,973       149,401

Minority interest                                          1,072         1,063

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
   Accumulated deficit                                   (41,427)      (25,898)
   Accumulated other comprehensive loss                   (4,953)       (3,674)
   Treasury stock, at cost                                (3,432)       (3,432)
                                                      --------------------------
Total shareholder's deficit                              (39,654)      (22,846)
                                                      --------------------------
     Total liabilities and shareholder's deficit      $  126,391       127,618
                                                      ==========================

See accompanying notes.

                                     II-11
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

                        Consolidated Statements of Income



                                                   Year Ended December 31,
                                                2000        1999         1998
                                       -----------------------------------------
                                        (in thousands, except per share amounts)

Net sales                                    $ 160,917    $ 153,133   $ 150,891

Cost of sales                                  120,388      108,477     105,779
                                           -------------------------------------
Gross profit                                    40,529       44,656      45,112

Selling, general and administrative
  expenses                                      40,026       34,517      30,299
                                           -------------------------------------
Operating income                                   503       10,139      14,813

Other expenses (income):
    Interest income                               (179)        (141)       (175)
    Interest expense                            13,210       12,495      12,181
    Minority interest                              157          295          71
                                           -------------------------------------
                                                13,188       12,649      12,077
                                           -------------------------------------
Income (loss) before income taxes              (12,685)      (2,510)      2,736

Provision for income taxes                       2,844          880       1,146
                                           =====================================
Net income (loss)                          $   (15,529)   $  (3,390)   $  1,590
                                           =====================================

Net income (loss) per common share         $    (32.22)   $   (7.03)   $  3.30

See accompanying notes.

                                     II-12
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

           Consolidated Statements of Changes in Shareholder's Deficit

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                        Additional                       Other                         Total
                                             Common      Paid-in      Accumulated    Comprehensive     Treasury    Shareholder's
                                             Stock       Capital        Deficit      (Loss) Income      Stock         Deficit
                                           ----------- ------------- --------------- --------------- ------------- ---------------
                                                                               (in thousands)
<S>                                        <C>          <C>           <C>             <C>              <C>          <C>

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 expense of $50                                                 221                             221
                                                                                                                      ----------
  Total comprehensive income                                                                                              1,514
                                            ----------   ----------    ----------     ----------       ----------     ----------

Balance at December 31, 1998                     5         10,153        (22,508)        (2,311)         (3,432)        (18,093)
  Net loss for the year                                                   (3,390)                                        (3,390)
  Minimum pension liability adjustment                                                      222                             222
  Foreign currency translation
     adjustments, net of tax expense of $17                                              (1,585)                         (1,585)
                                                                                                                       --------
  Total comprehensive loss                                                                                               (4,753)
                                            --------      --------       --------       --------        --------      ----------

Balance at December 31, 1999                     5         10,153        (25,898)        (3,674)         (3,432)        (22,846)
  Net loss for the year                                                  (15,529)                                       (15,529)
  Minimum pension liability adjustment                                                       32                              32
  Foreign currency translation
     adjustments, net of tax benefit of $18                                              (1,311)                         (1,311)
                                                                                                                       ----------
  Total comprehensive loss                                                                                              (16,808)
                                            ----------   ----------    ----------     ----------       ----------     ----------

Balance at December 31, 2000                $    5       $ 10,153     $  (41,427)     $  (4,953)(A)   $  (3,432)       $(39,654)
                                            ==========   ==========   ===========     ==========      ===========      ==========

</TABLE>

(A) At December 31, 2000,  accumulated other comprehensive  income was a loss of
$4,953 comprised of net foreign currency translation adjustments of $4,910 and a
minimum pension liability of $43.

See accompanying notes.

                                     II-13
<PAGE>


                International Knife & Saw, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

                                                       Year ended December 31,
                                                     2000        1999      1998
                                                     ----        ----      ----
                                                           (in thousands)
Operating activities
Net (loss) income                                   $(15,529)  $(3,390) $ 1,590
Adjustments to reconcile net (loss) income to
 net cash (used) provided by operating activities:
   Depreciation and amortization                       7,773     6,827    6,087
   Loss on disposition of businesses                   1,981      --       --
   Deferred income taxes                               1,113       432    1,032
   Loss on sale of property, plant and equipment          85        51       89
   Minority interest in income of subsidiary             157       295       71
   Changes in operating  assets and  liabilities
     net of effects from purchases of operations:
    Accounts receivable                                3,323    (1,164)   1,832
    Inventories                                        2,376     1,936     (336)
    Accounts payable                                  (3,895)    1,078     (502)
    Accrued liabilities                               (1,936)    1,393       31
    Other                                                 18      (569)     800
                                                    ----------------------------
Net cash (used) provided by operating activities      (4,534)    6,889   10,694

Investing activities
Purchases of operations, net of cash acquired           (956)     (650)  (9,418)
Purchases of property, plant and equipment            (6,921)   (6,019)  (9,320)
Proceeds from sale of property, plant and equipment      999       578      349
Proceeds from disposition of businesses                1,290       --       --
Increase (decrease) in notes receivable and other       (159)      594      702
assets
                                                    ----------------------------
Net cash used in investing activities                 (5,747)   (5,497) (17,687)

Financing activities
Increase (decrease) in amounts due to parent           1,125      (910)    (810)
Increase in notes payable and long-term debt          34,466    20,175   20,538
Repayment of notes payable and long-term debt        (23,632)  (20,631) (13,042)
Cash received from investees                              51        34        4
                                                    ----------------------------
Net cash provided (used) by financing activities      12,010    (1,332)   6,690

Effect of exchange rate on cash and cash equivalents    (199)     (230)     (14)
                                                    ----------------------------

Increase (decrease) in cash and cash equivalents       1,530      (170)    (317)
Cash and cash equivalents at beginning of year         1,862     2,032    2,349
                                                    ============================
Cash and cash equivalents at end of year            $  3,392   $ 1,862  $ 2,032
                                                    ============================

See accompanying notes.

                                     II-14
<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 $705, $731, and $633 for 2000, 1999
and  1998,   respectively.   As  of  December  31,  2000,  accumulated  goodwill
amortization was $3,474.

Debt issuance  costs,  which  originated in 1996,  are being  amortized over the
ten-year life of the related debt.  Amortization  of debt issuance costs charged
to  earnings  amounted  to  $466,  $467  and  $467  for  2000,  1999  and  1998,
respectively. As of December 31, 2000, accumulated amortization was $1,945.

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-15
<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,  title has
passed and all  significant  obligations  of the Company have been satisfied 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 11 3/8% Senior Subordinated Notes
due 2006 (the "Subordinated Notes").

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  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 1999 and 1998 amounts have been  reclassified  to conform to the current
year presentation.

Net (Loss) Income Per Common Share

Net (loss)  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 2000,  1999,  and 1998,  respectively.  The Company does not have any common
stock equivalents.

                                     II-16
<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 (including those from open,  matured,  and terminated  contracts),
net of related taxes, are included in the accumulated other  comprehensive  loss
in shareholder's  deficit (the deferral accounting method).  The related amounts
due  to  or  from  counter  parties  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, and its amendments
Statements 137,  Accounting for Derivative  Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 and 138, Accounting for
Certain  Derivative  Instruments and Certain Hedging  Activities  issued in June
1999 and June 2000,  respectively  (collectively  referred to as Statement 133),
which was required to be adopted in fiscal years  beginning after June 15, 2000.
The Statement  required the Company to recognize any  derivatives on the balance
sheet at fair value.  The Company  adopted  this new  Statement as of January 1,
2001.  The adoption of this  Statement did not have a significant  effect on the
Company's earnings or financial position.

                                     II-17
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

1.   Significant Accounting Policies (continued)

In September 2000, the Emerging  Issues Task Force ("EITF")  reached a consensus
on Issue 00-10,  "Accounting for Shipping and Handling Fees and Costs." The EITF
requires  all  shipping  and  handling  amounts  billed to a customer  in a sale
transaction to be classified as revenue. The EITF also states that a company may
not net the  shipping  and  handling  costs  against the  shipping  and handling
revenues in the financial statements.  Accordingly, the Company has restated net
sales and cost of sales for the  years  ended  December  31,  1999 and 1998,  by
reclassifying   shipping  and   handling   costs   totaling   $2,045  and  $759,
respectively,  from net sales to cost of sales. Additional shipping and handling
costs totaling $3,329, $3,143 and $2,936 for 2000, 1999 and 1998,  respectively,
are  included  in  selling,  general,  and  administrative  expenses.  Net sales
disclosed  in Note 14 for each of the first three  quarters of 2000 and for each
of the quarters of 1999 have been restated from amounts  previously  reported to
comply with EITF 00-10. Net sales amounts disclosed in Note 13 for 1999 and 1998
have also been restated.

2.  Going Concern

The accompanying  consolidated  financial statements have been prepared assuming
the Company will continue as a going concern. The Company incurred net losses of
approximately  $15.5  million and $3.4  million in the years ended  December 31,
2000 and 1999,  respectively,  as compared to net income of  approximately  $1.6
million in the year ended December 31, 1998. In addition,  the Company generated
negative cash flow from operations of approximately $4.5 million during the year
ended  December 31, 2000, as compared to positive  cash flow from  operations of
approximately $6.9 million and $10.7 million during the years ended December 31,
1999 and 1998,  respectively.  Continuing  adverse  market  conditions and their
negative effect on the Company's cash flow, coupled with limited liquidity,  are
likely  to  impede  the  Company's   ability  to  make   interest   payments  of
approximately  $5.1  million on each of May 15 and  November  15, 2001 under the
Company's Subordinated Notes.

The Company is highly  leveraged.  As of December 31, 2000, the Company's  total
long-term debt and stockholder's  deficit were approximately  $112.3 million and
$39.7 million, respectively. The Company's consolidated debt service obligations
in 2001 are expected to be in excess of $12.0 million,  including  approximately
$10.2 million of interest payments due under the Subordinated Notes. The Company
does not have any  significant  capital  expenditure  commitments  in 2001  that
cannot be  deferred;  however,  deferral of planned  maintenance  and  expansion
expenditures  may negatively  impact the Company's  operations.  At December 31,
2000,  the  Company  had   approximately   $9.0  million   available  under  its
multi-currency credit facilities.  However,  certain provisions of the Company's
German credit  facilities limit the flow of cash from the Company's wholly owned
German subsidiary,  IKS Klingelnberg GmbH, and its consolidated  subsidiaries to
the Company.  Such provisions  include covenants  requiring the maintenance of a
minimum equity in IKS Klingelnberg GmbH and its consolidated  subsidiaries equal
to 30% of total  asset  value.  As a result,  U.S.  availability  was limited to
approximately  $4.3 million at December 31, 2000. In January 2001, a U.S. lender
withdrew a $1.5 million working  capital line that reduced U.S.  availability to
approximately  $2.8 million.  At March 9, 2001, U.S.  availability  under credit
facilities  totaled  approximately  $1.3 million.  In addition,  the Company had
approximately  $.7 million cash on hand in the U.S. The Company's North American
operations continue to generate negative cash flow from operations.

                                     II-18
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

2.  Going concern (continued)

These matters raise substantial doubt about the Company's ability to continue as
a going concern. As a result, the Company has retained Jefferies & Company, Inc.
to begin a process to address the Company's highly leveraged capital  structure.
The Company expects  Jefferies to assist the Company in developing  alternatives
in connection with a restructuring of its Subordinated  Notes. While the Company
believes that there are certain alternatives available to the Company, there can
be no assurance  that the Company will be  successful in  implementing  any such
alternatives  or that any such  alternatives,  if  implemented,  will enable the
Company to meet its obligations.

In response to market  conditions and as a part of its market strategy,  in 2000
the  Company  sold  six  service   centers  in  the  U.S.  The  sale   generated
approximately  $1.3 million in cash and  eliminated  the negative cash flow that
these  service  centers  were  generating.  The  Company  does not  foresee  any
additional  sales of service  centers in 2001,  but does  expect a tax refund of
approximately  $1.1 million in the first quarter of 2001 and expects to generate
cash of  approximately  $1.5 million in the fourth quarter of 2001 from the sale
of a building resulting from the Company's  rationalization of its manufacturing
operations.  In  addition,  the  Company is  pursuing  aggressive  cost  cutting
programs.

3.  Acquisitions

In January 2000, the Company's German  subsidiary  acquired all of the shares of
Boehler  Miller  Messer und  Saegen  GmbH  ("BMMS").  BMMS is  headquartered  in
Waidhofen,  Austria.  The purchase price consisted of 13,300 Austrian Schillings
(approximately  $956)  in  cash,  net of  cash  acquired,  and  63,000  Austrian
Schillings (approximately $4,530) in assumed debt. The Company's lines of credit
were increased in order to finance the cash payment. Additional consideration is
contingent  upon BMMS achieving  certain annual earnings and would be payable in
2002. BMMS produces knives,  saws and ground flats for the wood, paper and metal
industries  with  annual  sales of  approximately  300,000  Austrian  Schillings
(approximately  $21,600).  The  acquisition was accounted for under the purchase
method. There was no goodwill on this acquisition.

In November,  1999,  the Company  acquired an additional 29% interest in its two
Chinese joint venture  companies,  Shanghai IKS Lida Mechanical  Blade Co., Ltd.
and Shanghai IKS Mechanical Blade Co., Ltd. for approximately  $1,100. There was
no goodwill recorded on this acquisition.

In  November,  1998,  the  Company  acquired  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

                                     II-19
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

3. Acquisitions (continued)

4.5%  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.
Accordingly,  at December 31, 2000, 4,000 Dutch Guilders  (approximately $2,084)
remains to be paid. The acquisition was accounted for under the purchase method.
Goodwill totaled $4,683 on this acquisition.

In October,  1998,  the Company  executed an agreement to purchase the shares of
Buland S.A.  ("Buland") for 8,700 French Francs  (approximately  $1,560) 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  $558  on  this
acquisition.

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.

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

                                     II-20
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

4. Inventories

                                                     December 31,
                                               2000              1999
                                               ----              ----

     Finished goods                         $18,275            $17,120
     Work in process                          4,795              5,088
     Raw materials and supplies               6,456              5,714
                                            =======            =======
                                            $29,526            $27,922
                                            =======            =======

Inventories include approximately $11,537 in 2000 and $14,285 in 1999 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 $4,226
and $3,806  higher  than the amounts  reported  at  December  31, 2000 and 1999,
respectively.


5. Property, Plant and Equipment-Net

                                                          December 31,
                                                     2000               1999
                                                   -------            -------

Land and land improvements                         $ 6,000            $ 5,784
Buildings and leasehold improvements                15,420             16,875
Machinery and equipment                             54,494             50,119
Furniture and fixtures                               4,729              4,020
Construction in progress                             1,574                740
Motor vehicles                                       1,967              2,432
                                                -----------        -----------
                                                    84,184             79,970
 Less accumulated depreciation                      37,388             33,588
                                                   =======            =======
                                                   $46,796            $46,382
                                                   =======            =======


Depreciation expense, including depreciation for assets under capital lease, was
$6,602, $5,629 and $4,987, for 2000, 1999 and 1998,  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 12 years
         Furniture and fixtures:  10 years
         Motor vehicles:  3 to 5 years

                                     II-21
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

6. Notes Payable and Long-Term Debt

<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                           2000                1999
                                                                    ----------------------------------------
<S>                                                                     <C>                 <C>
Notes payable:
  Note payable on demand in German  Marks to a German  bank,
    issued  under revolving credit agreements, interest
    payable quarterly                                                    $ 5,499             $ 1,347
  Notes payable on demand in Chinese Yuan Renminbi to Chinese
    banks, issued under revolving credit agreements, interest
    payable monthly                                                        2,125               1,765
  Note payable on demand in U.S. Dollars to a German bank,
    issued under revolving credit agreements, interest payable
    quarterly                                                              8,719               1,250

  Note payable on demand in U.S. Dollars to a U.S. bank                    1,500                  -

  Note payable on demand in Austrian Schillings to an Austrian bank        1,365                  -
                                                                         -------             -------
                                                                         $19,208             $ 4,362
                                                                         =======             =======
Long-term debt:
  11-3/8% Senior Subordinated Notes due 2006                             $90,000             $90,000
  Notes payable in German Marks to a German bank                          14,559              16,399
  Notes payable in Chinese Yuan Renminbi to Chinese Banks                  1,017               1,680
  Capitalized lease obligations to U.S. lenders                            3,199               4,261
  Promissory notes payable in Austrian Schillings to an
    Austrian bank                                                          1,746                   -
  Promissory note payable in Dutch Guilders to a
    former shareholder of the Diacarb Company                              1,792               2,414
  Other                                                                       35                 102
                                                                    ---------------------------------
                                                                         112,348             114,856
Less current portion                                                       4,027               2,465
                                                                    =================================
                                                                        $108,321            $112,391
                                                                    =================================

</TABLE>

                                     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)

Except  for  the  Subordinated  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  2000,  the  fair  value of the
Subordinated Notes was approximately  $39,600.  Such amounts are based on recent
trade prices through registered securities brokers.

The  Subordinated  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 $14,559  have  maturities  that extend to 2011 at rates of
2.5%  to  5.91%.  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 $7,888 are pledged as collateral for the German
revolving credit agreements and the German bank notes payable.

The  notes  payable  of  $1,017  mature  in  2003  at a rate  of  9.3%  and  are
non-recourse to the Company.

The capitalized  lease obligations of $3,199 are for capital leases on equipment
that have maturities that extend to 2004 at rates of 6.99% to 8.7%.  Included in
property, plant and equipment-net is equipment under capital lease of $3,255.

The notes payable of $1,746 have maturities that extend to 2006 at rates of 2.5%
to 5.4%.

The promissory note payable to a former  shareholder of Diacarb of $1,792 is due
in  installments  of 2,000 Dutch  guilders in 2001 and 2002 at a rate of 4.5% in
connection with the Diacarb acquisition.

At December 31, 2000, the Company had committed  global,  multi-currency  credit
facilities totaling approximately $39,258. Unused committed lines of credit from
these facilities  available to the U.S. and German operations totaled $4,281 and
$4,742,  respectively,  for a consolidated  availability of $9,023,  compared to
$16,801 at December 31, 1999.  In January  2001, a U.S.  bank  withdrew a $1,500
working capital line that reduced the Company's  unused committed  amount.  Fees
for these revolving credit arrangements were $20 in 2000 and $22 in 1999.

The short-term note payable of $5,499  represents  short-term bank borrowings at
rates from 5.6% to 5.7%.

The short-term notes payable of $2,125 represent short-term bank borrowings at a
rate of 5.8% to 7.6% and are non-recourse to the Company.

The short-term note payable of $8,719 represents short-term bank borrowings at a
rate of 7.9%.

                                     II-23
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

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

The short-term note payable of $1,500 represents short-term bank borrowings at a
rate of 9.5%.

The short-term note payable of $1,365 represents short-term bank borrowings at a
rate of 2.8%.

At December 31, 2000,  amounts due as minimum payments under long-term debt were
as follows:

        2001                                               $          4,027
        2002                                                          4,191
        2003                                                          5,117
        2004                                                          2,084
        2005                                                          1,819
        Thereafter                                                   95,110
                                                           --------------------
                                                           $        112,348
                                                           ====================


Cash paid for interest  amounted to $12,357,  $12,097,  and $11,670 in the years
ended December 31, 2000, 1999 and 1998, respectively.

7. Accrued Liabilities

                                                        December 31,
                                                   2000             1999
                                             -----------------------------------

Salaries, wages and bonuses                     $      3,044     $      2,157
Profit sharing and 401(k) plans                          846              809
Interest                                               1,408            1,322
Other employee related accruals                        1,357            1,397
Other                                                  7,090            4,934
                                             ===================================
                                                $     13,745     $     10,619
                                             ===================================


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 (benefit) for United States income
taxes is recorded to the intercompany account with IKS Corporation.

                                      II-24
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

8.  Income Taxes (continued)

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

Income (Loss) Before Income Taxes                   Year ended December 31,
                                                 2000         1999         1998
                                             --------     --------     --------
United States                                $(16,792)    $ (7,287)    $   (705)
Non-U.S                                         3,441
                                                             4,107        4,777
                                             ========     ========     ========
                                             $(12,685)    $ (2,510)    $  2,736
                                             ========     ========     ========


Components of Deferred Tax Assets and Liabilities
                                                                December 31,
                                                               2000        1999
                                                            ---------  ---------
Current deferred tax assets (liabilities):
    Inventories, primarily obsolescence and
      additional costs inventoried for tax purposes          $   767    $   559
    Reserve for bad debts                                       (220)      (366)
    Accrued employee benefits                                    486        292
    Other                                                        337        166
                                                             -------    -------
    Total current deferred tax assets                          1,370        651

Noncurrent deferred tax assets (liabilities):
    Net operating loss carryforwards                           8,607      2,545
    Property, plant and equipment, primarily differences
      in Depreciation methods                                 (3,969)    (4,028)
    Deferred compensation                                        128        143
    Goodwill, difference in amortization methods                (600)      (523)
    Other                                                        117        (21)
                                                             -------    -------
    Total noncurrent deferred tax assets (liabilities):        4,283     (1,884)
    Less valuation allowance                                  (8,654)    (1,490)
                                                             -------    -------
    Total net noncurrent deferred tax liabilities             (4,371)    (3,374)
                                                             -------    -------
Net deferred tax liabilities                                 $(3,001)   $(2,723)
                                                             =======    =======

                                     II-25
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

8. Income Taxes (continued)

Provision (benefit) for Income Taxes               Year Ended December 31,
                                             2000          1999         1998
                                         -----------    ----------   -----------
Current (benefit) provision
  Federal                                   $  --         $  --         $  (562)
  State and local                               300          (219)         --
  Foreign                                     1,431         1,504           676
                                            -------       -------       -------
                                              1,731         1,285           114

Deferred provision (benefit)
  Federal                                       969          (909)          321
  State and local                                86            (6)           28
  Foreign                                        58           510           683
                                            -------       -------       -------
                                              1,113          (405)        1,032
                                            =======       =======       =======
                                            $ 2,844       $   880       $ 1,146
                                            =======       =======       =======

The  differences  between the provision and the amount  computed by applying the
statutory Federal income tax rate are as follows:

                                                     Year Ended December 31,
                                                 2000         1999       1998
                                              ----------------------------------

Income (loss) before income taxes              $(12,685)   $ (2,510)   $  2,736
                                               ========    =========   =========

Tax (benefit) provision on above amount
  at 34%                                       $ (4,313)   $   (853)   $    930
Change in valuation allowance                     7,164       1,490        --
State income tax (benefit) provision,
  net of federal tax impact
                                                    198        (225)         28
Foreign tax rates different than U.S.
  statutory rate                                     30         387         134
Foreign losses without tax benefit                   49          69          56
Other, net                                         (284)         12          (2)
                                               ---------   ---------   ---------
Provision for income taxes                     $  2,844    $    880    $  1,146
                                               ========    =========   =========

At year-end  2000,  the Company's  U.S.  operations  had net loss carry forwards
aggregating  $23,263  which begin to expire in 2019.  The Company has recorded a
deferred  tax  asset  of  $8,607  related  to the net loss  carryforwards  and a
corresponding full valuation allowance related to its U.S. deferred tax assets.

                                     II-26
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

8. Income Taxes (continued)

Undistributed  earnings  of  foreign  subsidiaries  which  are  intended  to  be
indefinitely reinvested aggregated  approximately $11,759 at the end of 2000. 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

The Company has profit sharing plans for its U.S. and Canadian employees. Profit
sharing  contributions  are  determined  annually  by the  respective  Boards of
Directors.  The Company also has a 401(k) plan for its U.S.  employees.  Company
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 $636 in 2000, $560 in 1999, and
$953 in 1998. The Company's  matching  contributions to the 401(k) plan amounted
to $287 in 2000, $285 in 1999, and $368 in 1998.

Included in other  liabilities are amounts for deferred  compensation  plans for
former  officers of $345 and $387 at December  31, 2000 and 1999,  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.

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,
                                                    2000             1999
                                              ----------------- ----------------

Benefit obligation at beginning of year          $    1,503        $    1,736
Service cost                                             20                23
Interest cost                                            88               100
Actuarial gains                                         (25)              (60)
Currency exchange rate gain                             (99)             (248)
Benefits paid                                          (41)              (48)
                                              ================= ================
Benefit obligation at end of year               $    1,446        $    1,503
                                              ================= ================

                                      II-27
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

9. Employee Benefit Plans (continued)

Funded status at year-end                                 December 31,
                                                      2000             1999
                                                ---------------   --------------
Projected benefit obligation                      $    1,446      $    1,503
Unrecognized net loss                                    (75)           (108)
Unrecognized net obligation                             (150)           (177)
Additional minimum liability                             193             252
                                                ===============   ==============
Accrued pension cost - included in
  other liabilities                               $    1,414      $    1,470
                                                ===============   ==============


Components of net periodic benefit costs                 Year Ended December 31,
                                                         2000     1999     1998
                                                         ----     ----     ----

Service cost                                             $ 20     $ 24     $ 14
Interest cost on projected benefit obligation              88      100       92
Net amortization and deferral                              14       19       12
                                                         ====     ====     ====
Net periodic benefit cost                                $122     $143     $118
                                                         ====     ====     ====


Weighted-average actuarial assumptions                  Year Ended December 31,
                                                         2000     1999     1998
                                                         ----     ----     ----
Discount rate                                             6.5%     6.5%     6.5%
Rate of increase in future compensation levels            2.5%     2.5%     2.5%


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.
                                                             December 31,
                                                       2000      1999       1998
                                                   -----------------------------

Other payables to affiliated companies                  $ (42)   $ (35)   $ (62)
Purchased administrative and manufacturing services       590      670      712


                                     II-28
<PAGE>


                International Knife & Saw, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                                 (in thousands)

11. Disposition of Businesses and Other Non-recurring Charges

The operating  loss for 2000 includes  second quarter  non-recurring  charges of
$2,600,  comprised  primarily  of a $1,981  loss on the sale of certain  service
centers and $449 in severance costs related  primarily to the resignation of the
Company's former CEO.

In May and June, 2000 the Company  completed the sale of six service centers for
a combined selling price of $1,480,  comprised of $1,290 in cash and a $190 note
receivable.  These service centers were located in Illinois,  Wisconsin, Oregon,
Virginia,  Tennessee and Georgia.  The decision to sell the service  centers was
made in order to redeploy assets to the Company's strategic core initiatives.

On April 25, 2000, P. Daniel Miller, the Company's  President and CEO, submitted
his  resignation to the Board of Directors of the Company.  As of that date, the
Board of  Directors  established  an  executive  committee  comprised of Messrs.
William M.  Schult,  Executive  Vice  President-CFO,  Treasurer  and  Secretary;
Bradley H. Widmann, Vice President - Operations for the Americas; and Jeffrey H.
Welday,  Vice President of Sales and Marketing for the Americas.  This committee
is  responsible  for all North  American  operations  of the Company and reports
directly to the Board of Directors. Thomas W.G. Meyer, Executive Vice President,
Europe and Asia,  continued in his role with  responsibility  over those regions
and also reports directly to the Board of Directors.


12. Operating Leases

Future minimum rentals required under operating leases are as follows:



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

2001                         $     481         $      29        $     510
2002                               334                20              354
2003                                96                 6              102
2004                                22                 2               24
2005                                 9                 1               10


Rent expense was $705 for 2000, $553 for 1999 and $566 for 1998.

                                     II-29
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

13. 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 Austria, representing 49%, 21% and
12% of  2000  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 4% of net sales. The
Company performs periodic credit evaluations of its customers and generally does
not require collateral.

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

The following table summarizes the Company's United States, German, Austrian and
other operations.

                                                  Year Ended December 31,
                                              2000          1999          1998
--------------------------------------      --------      --------      --------
United States Operations:
  Net sales - Customers                     $ 79,564      $ 87,476      $ 93,601
  Long Lived Assets                           19,607        22,111        22,479

German Operations:
  Net sales - Customers                     $ 34,210      $ 35,757      $ 34,762
  Long Lived Assets                           12,624        13,428        14,457

Austrian Operations:
  Net sales - Customers                     $ 18,850      $   --        $   --
  Long Lived Assets                            4,450          --            --

Other Operations:
  Net sales - Customers                     $ 28,293      $ 29,900      $ 22,528
  Long Lived Assets                           10,617        11,452        12,976

Consolidated:
 Net sales - Customers                      $160,917      $153,133      $150,891
  Long Lived Assets                           47,298        46,991        49,912

                                     II-30
<PAGE>

                International Knife & Saw, Inc. and Subsidiaries

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

14. Operating Results by Quarter (Unaudited)

                                   ---------------------------------------------
                                                       2000
                                   ---------------------------------------------
                                      Qtr 1      Qtr 2       Qtr 3       Qtr 4
                                     --------   --------   ---------   ---------

Net sales                           $ 44,512    $ 42,055    $ 37,652   $ 36,698

Gross profit                          12,254      10,473       9,836      7,966

Net loss                              (1,117)     (4,781)     (2,334)    (7,297)

Net loss per common share              (2.32)      (9.92)      (4.84)    (15.14)


                                    --------------------------------------------
                                                       1999
                                    --------------------------------------------
                                      Qtr 1      Qtr 2       Qtr 3       Qtr 4
                                     --------   --------   ---------   ---------

Net sales                           $ 39,767    $ 37,785    $ 37,980   $ 37,601

Gross profit                          11,660      10,346      11,174     11,476

Net income (loss)                        116        (804)       (289)    (2,413)

Net income (loss) per common share       .24       (1.67)       (.60)     (5.00)


                                     II-31
<PAGE>

                                    PART III



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

None.

     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.

         Name            Age                  Position
         ----            ---                  --------

Thomas W. G. Meyer       44       Executive Vice President-- Europe and Asia
William M. Schult        39       Executive Vice President-- Chief Financial
                                   Officer, Treasurer and Secretary
Bradley H. Widmann       54       Vice President-- Operations/Americas
Jeffrey H. Welday        48       Vice President-- Sales and Marketing/Americas
W. Randolph Underhill    51       Vice President-- Operations
Paul A. Severt           38       Vice President-- Financial
                                  Reporting/Controller
David M. Hofmeister      41       Chief Information Officer
W. Rayburn Connell       60       Vice President -- Service and Sales
                                  Director, North America
Diether Klingelnberg     56       Director
James A. Urry            46       Director
Michael A. Delaney       46       Director


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

     Bradley H.  Widmann,  Vice  President -  Operations/Americas.  Mr.  Widmann
joined the Company in  November  1999 as Vice  President -  Operations/Americas.
From 1996 - 1999,  he headed the global  supply chain  management  for Magnetek,
Inc.  Prior to working with Magnetek,  Inc., Mr. Widmann held senior  operations
positions  with  Textron,  Inc.,  Gould,  Inc. and General  Electric Co. in both
aerospace and commercial products industries.

                                     III-1
<PAGE>

     Jeffrey H.  Welday,  Vice  President  - Sales and  Marketing/Americas.  Mr.
Welday  joined  the  Company  in  March  of 2000 as  Vice  President  Industrial
Division.  He was  promoted  to Vice  President  - Sales and  Marketing  of both
Industrial  and Wood  Products in April 2000.  From 1992 - 2000,  he managed the
sales  and  marketing  organization  for the  Consumable  Products  Division  of
Cincinnati Milacron, Inc., a global manufacturer of Machine Tools and Industrial
Products.

     W. Randolph 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.

     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,  Chairman  of  Oerlikon
Geartec AG and Eickhoff GmbH.

     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  Intersil   Corporation,   Hancor  Holding
Corporation,   Airxcel,   Inc.,  Palomar   Technologies   Corporation  and  York
International Corporation.

     Michael A. Delaney,  Director. Mr. Delaney has been a Vice President of CVC
since 1989. Mr. Delaney is a Director of AmeriSource Health  Corporation,  Clark
Material Handling Company, Chip PAC Inc., Delco Remy International,  Inc., Great
Lakes  Dock  and  Dredge  Corporation,   GVC  Holdings,  JAC  Holdings,  Palomar
Technologies  Corporation,  Paper Pak Products,  Inc., SC Processing,  Inc., MSX
International and Triumph Holdings, Inc.

                                     III-2
<PAGE>

Director Compensation and Arrangements

     With the exception of Mr.  Richard J.  Puricelli,  who received  $4,000 per
quarter prior to his resignation effective February 26, 2001, 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:
the president of the Company,  which  position  remained  vacant after April 25,
2000;  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 (defined below) 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 2000 by (i) each  person who
served as the Company's Chief  Executive  Officer during 2000 and, (ii) the four
most  highly  compensated  executive  officers  of the  Company  (other than the
individuals who served as the Company`s  Chief  Executive  Officer) in office on
December 31, 2000.

<TABLE>
<CAPTION>
                                                             Summary Compensation Table

                                                                 Annual Compensation
                                     ----------------------------------------------------------------------------
                                                                                                        All Other
                                                       Salary           Bonus            Other        Compensation
    Name and Principal Position          Year            ($)             ($)              ($)              ($)
----------------------------------   ------------   ------------    ------------     ------------    -------------
<S>                                  <C>            <C>             <C>              <C>             <C>

P. Daniel Miller (1)                    2000           350,000           --               --          3,602(2)
Former President and Chief              1999           216,705        302,400             --         12,646(3)
Executive  Officer                      1998              --             --               --            --


Thomas W.G. Meyer                       2000           180,811        139,942             --            --
Executive  Vice President-- Europe      1999           201,251        159,006             --            --
and Asia                                1998           184,600        165,430             --            --


William M. Schult                       2000           191,700         47,925             --          3,065(4)
Executive Vice President--              1999           155,954         97,336             --          7,899(5)
Chief Financial Officer,                1998           135,000         38,750             --         11,036(6)
Treasurer and Secretary

Bradley H.  Widmann                     2000           175,000         43,750             --          1,836
Vice President -- Operations/Americas   1999            23,558            --              --             --
                                        1998              --              --              --             --

Jeffrey H. Welday                       2000           114,692         24,850           25,021          739
Vice  President-Sales & Marketing/      1999              --              --              --             --
Americas                                1998              --              --              --             --

</TABLE>



                                     III-3
<PAGE>

     (1) Mr. Miller's employment with the company terminated effective April 25,
         2000.

     (2) Includes $3,400 in Company 401(k)  contributions and $202 in group term
         life insurance premiums.

     (3) Includes $5,418 in Company Profit Sharing Plan contributions, $7,154 in
         car allowance, and $74 in group term life insurance premiums.

     (4) Includes $2,979 in Company 401(k) contributions,  and $86 in group term
         life insurance premiums.

     (5) Includes $4,818 in Company Profit Sharing Plan contributions, $2,911 in
         Company  401(k)  plan  contributions,  and  $170  in  group  term  life
         insurance premiums.

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

     (7) Includes $1,615 in Company 401(k)  contributions and $221 in group term
         life insurance premiums.

     (8) Mr. Welday received a sign-on bonus when he joined the Company.

     (9) Includes  $655 in Company  401(k)  contributions  and $84 in group term
         life insurance premiums

Employment Arrangements and Deferred Compensation Agreements

     P. Daniel Miller was hired by the Company as President and Chief  Executive
Officer  pursuant  to  an  Employment  Agreement  effective  May  24,  1999.  As
compensation,  Mr. Miller  received a predetermined  annual salary  ($350,000 in
2000).  Following the termination of Mr. Miller's  employment on April 25, 2000,
Mr. Miller  continued and will continue to receive  severance  payments equal to
his annual salary through April 24, 2001.

     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 400,000 in
2000) 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.

     William M. Schult was hired by IKS  Corporation  pursuant to an  Employment
Agreement  effective  August 16, 1995. He joined the Company in 1996. Mr. Schult
was  promoted to Chief  Financial  Officer on November 6, 1996 and to  Executive
Vice  President on October 15, 1999.  As  compensation,  Mr.  Schult  receives a
predetermined  annual  salary  ($191,700  in 2000) and receives  certain  fringe
benefits including a bonus, an automobile, and insurance coverage. Following any
termination  of Mr.  Schult's  employment,  Mr.  Schult  will  be  subject  to a
non-competition  covenant for one year.  The Company or Mr. Schult may terminate
this employment agreement upon six months written notice.

     Bradley H. Widmann was hired by the Company as Vice  President - Operations
pursuant to an Employment  Agreement  effective  November 1999. As compensation,
Mr.  Widmann  receives a  predetermined  annual  salary  ($175,000  in 2000) and
receives  certain  fringe  benefits  including a bonus and  insurance  coverage.
Following any  termination  of Mr.  Widmann's  employment,  Mr.  Widmann will be
subject to a  non-competition  covenant for one year.  The Company may terminate
this employment agreement upon six months written notice.

     Jeffrey H. Welday was hired by the Company as Vice  President -  Industrial
Division  pursuant to an Employment  agreement  effective March 2000. Mr. Welday
was  promoted to Vice  President - Sales and  Marketing  on April 25,  2000.  As
compensation,  Mr. Welday  receives a predetermined  annual salary  ($142,000 in
2000) and

                                     III-4
<PAGE>

receives  certain fringe benefits  including a one-time sign-on bonus, an annual
performance  bonus and  insurance  coverage.  Following any  termination  of Mr.
Welday's  employment,  Mr. Welday will be subject to a non-competition  covenant
for one year.  The Company may  terminate  this  employment  agreement  upon six
months written notice.

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 $170,000 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 four current  members of the Company's  Board of Directors also
serves 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 IKS  Corporation's  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.  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

                                          Corp.                 Corp.               Corp. Class A            Corp. Class B
                                Series A Preferred Stock  Series B Preferred Stock      Stock(2)                  Stock(3)
Name of Beneficial Owner (1)       Number      Percent      Number     Percent     Percent    Percent        Number     Percent
----------------------------       ------      -------      ------     -------     -------    -------        ------     -------
<S>                                <C>         <C>          <C>        <C>         <C>        <C>            <C>        <C>

Citicorp Venture Capital Ltd        8,241        69.0%        --          --        31,453     35.3.%        11,234       76.5%
399 Park Avenue
New York, New York 10043

Haulux, AG                            5          0.04%       5           0.5%       17,040     19.1%          --            --
Centre Etoile
5,bd de la Foire
B.P. 351
L-2013 Luxembourg

Dualux, AG                          --            --          --           --       17,000     19.1%          --            --
Centre Etoile
5,bd de la Foire
B.P. 351
L-2013 Luxembourg

John E. Halloran                    600         5.0%         600         68.5%       5,000      5.6%          --            --
19 Jenkins Farm Way
Simpsonville, SC 29680

Thomas W.G. Meyer                   242         2.0%          2           0.3%       4,534      5.1%          --            --

William M. Schult                    48         0.4%          48          5.5%         956      1.1%          --            --

James A. Urry (4)                    58         0.5%          --           --          221      0.2%          79          0.5%

Michael Delaney (4)                  58         0.5%          --           --          221      0.2%          79          0.5%

All directors and executive
officers as a group                 519         4.3%         163         18.6%      24,798     27.8%         157          1.1%
(9 persons) (4)

</TABLE>


----------

     (1) Unless  otherwise  indicated,  the address of each  shareholder  listed
         above is 1299 Cox Avenue, Erlanger, KY 41018.

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

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

     (4) 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 Junior  Subordinated  Debentures of IKS
Corporation  (the  "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:  the President of
the Company, which position remained vacant after April 25, 2000; 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 Securities and Exchange  Commission  concerning the distribution of all
or part of the  shares  held by CVC and use  its  best  efforts  to  cause  such

                                     III-7
<PAGE>

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 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

     None

                                     III-8
<PAGE>

                                    PART IV

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

(a)(1)   List of Financial Statements.

         The following  Consolidated Financial Statements of the Company and the
         Report of  Independent  Auditors set forth on pages II-9 through  II-31
         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, 2000 and 1999.
         -    Consolidated Statements of Income for the years ended December 31,
              2000, 1999 and 1998.
         -    Consolidated Statements of Changes in Shareholder's Deficit for
              the years ended December 31, 2000, 1999 and 1998.
         -    Consolidated Statements of Cash Flows for the years ended
              December 31, 2000, 1999 and 1998.
         -    Notes to Consolidated Financial Statements.

(a)(2)   Financial Statement Schedule.

         Schedule  II -  Valuation  and  Qualifying  Accounts  and  Reserves  is
         attached hereto at page IV-6 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.

                                      IV-1
<PAGE>

(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 Registra-
           tion  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  stock-
           holders  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)

                                      IV-1

<PAGE>

10.10      Industrial  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)
10.11      Lease 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)
10.12      Joint 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)
10.13      Joint 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)
10.14      Letter  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)
10.15      Summary  of  Permitted  Indebtedness,  Commitments from Banks, and
           Availability at September 30, 2000 (incorporated by reference to
           Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q, for the
           quarterly  period  ended March 31, 2000, Registration No. 333-17305)
10.16      Letter  agreement  dated November 16, 1998 between Deutsche Bank and
           IKS Klingelnberg GmbH (incorporated by reference to Exhibit 10.16 to
           the Company's Quarterly Report on Form 10-Q, for the quarterly period
           ended June 30, 2000, Registration No. 333-17305)
10.17      Letter  agreement  dated  January 19, 1999 between Deutsche  Bank and
           the  Company  (incorporated  by reference  to  Exhibit 10.17 to  the
           Company's Quarterly  Report on Form 10-Q, for the quarterly  period
           ended June 30, 2000, Registration No. 333-17305)
10.18      Letter agreement  dated  May 12, 1999  between Deutsche Bank and the
           Company (incorporated by reference  to Exhibit 10.18 to the Company's
           Quarterly  Report on Form 10-Q, for the quarterly period ended
           June 30, 2000, Registration No. 333-17305)
10.19      Letter  agreement  dated  March 16,  2000  between Deutsche Bank and
           IKS Klingelnberg GmbH (incorporated by reference to Exhibit 10.19 to
           the Company's  Quarterly  Report on Form 10-Q, for the


                                      IV-2
<PAGE>

           quarterly period ended June 30, 2000, Registration No. 333-17305)
10.20      Security Agreement dated December 11, 2000 between Deutsche Bank and
           the  Company  (incorporated  by reference to Exhibit 10.20 to the
           Company's Current Report on Form  8-K, Registration  No. 333-17305)
10.21      First   Amendment  to  Security  Agreement  dated January 24,  2001
           between  Deutsche  Bank and the Company (incorporated  by  reference
           to  Exhibit 10.21 to the Company's Current Report on Form 8-K,
           Registration No. 333-17305)
10.22      Letter agreement dated December 11, 2000 between Deutsche Bank and
           the Company
21.1       Subsidiaries of the Company


(b)        Reports on Form 8-K.               None.

                                      IV-3
<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:   /s/  William M. Schult
                                 ---------------------------------------------
                                 William M. Schult
                                    Executive Vice President - Chief
                                    Financial Officer, Treasurer and Secretary
                                    (Principal Financial and Accounting
                                    Officer, and Executive Committee Member)


                                    March 12, 2001

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 12, 2001.

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


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

/s/ Bradley H. Widmann           Vice President- Operations/Americas and
Bradley H. Widmann               Executive Committee Member

/s/ Jeffrey H. Welday            Vice President- Sales & Marketing/
Jeffrey H. Welday                Americas and Executive Committee Member

/s/ Diether Klingelnberg         Director
Diether Klingelnberg

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

                                      IV-4
<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-5
<PAGE>
                                  SCHEDULE II
                         INTERNATIONAL KNIFE & SAW, INC.

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>

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

<S>                                     <C>              <C>                 <C>                <C>               <C>
YEAR ENDED 2000
Allowance for doubtful accounts         $   1,856        $    1,013 $        $    202(b)        $ 572(a)           2,428
                                                                                                   71(c)

Allowance for inventory obsolescence        2,118             2,083               655(b)          835(a)           3,898
                                                                                  123(c)

YEAR ENDED 1999
Allowance for doubtful accounts             1,780             1,005                 --            575(a)           1,856
                                                                                                  354(c)

Allowance for inventory obsolescence        .........         1,001                 --          1,438(a)           2,118
                                                                                                  233(c)

YEAR ENDED 1998
Allowance for doubtful accounts             1,480               231               261(b)          164(a)           1,780
                                                                                                   28(c)

Allowance for inventory obsolescence        ..........          768               170(b)          481(a)           2,788
                                                                                                   50(c)
</TABLE>



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

                                      IV-6
<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 Registra-
         tion  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 Com-
         pany'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)
10.10    Industrial  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)
10.11    Lease 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)
10.12    Joint 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)
10.13    Joint 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)

<PAGE>

10.14   Letter 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)
10.15    Summary of  Permitted  Indebtedness,  Commitments from Banks,  and
         Availability  at September  30, 2000  (incorporated by reference to
         Exhibit 10.15 to the Company's  Quarterly  Report on Form 10-Q, for the
         quarterly  period  ended March 31, 2000, Registration No. 333-17305)
10.16    Letter  agreement dated November 16, 1998 between Deutsche   Bank  and
         IKS Klingelnberg GmbH (incorporated  by reference  to Exhibit  10.16 to
         the Company's  Quarterly Report on Form 10-Q, for the quarterly period
         ended  June  30,  2000, Registration No. 333-17305)
10.17    Letter agreement  dated January 19, 1999 between Deutsche  Bank and the
         Company  (incorporated  by reference  to  Exhibit  10.17  to  the
         Company's Quarterly Report on Form 10-Q, for the quarterly period ended
         June 30, 2000, Registration No. 333-17305)
10.18    Letter  agreement dated May 12,  1999  between Deutsche  Bank and the
         Company  (incorporated  by reference  to  Exhibit  10.18  to  the
         Company's Quarterly  Report on Form 10-Q, for the quarterly period
         ended June 30, 2000, Registration No. 333-17305)
10.19    Letter  agreement  dated March 16, 2000 between  Deutsche  Bank and IKS
         Klingelnberg  GmbH  (incorporated  by reference to Exhibit 10.19 to the
         Company's Quarterly Report on Form 10-Q, for the quarterly period ended
         June 30, 2000, Registration No. 333-17305)
10.20    Security  Agreement  dated December 11, 2000 between  Deutsche Bank and
         the  Company  (incorporated  by  reference  to  Exhibit  10.20  to  the
         Company's Current Report on Form 8-K, Registration No. 333-17305)
10.21    First  Amendment to Security  Agreement  dated January 24, 2001 between
         Deutsche  Bank and the Company  (incorporated  by  reference to Exhibit
         10.21 to the Company's  Current  Report on Form 8-K,  Registration  No.
         333-17305)
10.22    Letter  agreement dated December 11, 2000 between Deutsche Bank and the
         Company
21.1     Subsidiaries of the Company


<PAGE>


                                                               EXHIBIT 21.1
                                  Subsidiaries


                Name                                            Jurisdiction
                ----                                            ------------

Hannaco Knives & Saws, Inc.                                 Delaware
IKS Canadian Knife & Saw Ltd.                               Canada
IKS Klingelnberg GmbH                                       Germany
    IKS Klingelnberg Asia Pte. Ltd.                         Singapore
    IKS Klingelnberg Far East GmbH                          Germany
         Shanghai IKS Lida Mechanical Blade Co. Ltd.        China
         Shanghai IKS Mechanical Blade Co. Ltd.             China
         IKS Knives & Saws (M) Sdn. Bhd.                    Malaysia
         PT. IKS Knife & Saw Indonesia                      Indonesia
    IKS Messerfabrik Geringswalde GmbH                      Germany
    Rolf Meyer GmbH                                         Germany
    A.K. van der Wijngaart Beheer B.V.                      the Netherlands
         Diacarb B.V.                                       the Netherlands
         A.K. van der Wijngaart B.V.                        the Netherlands
         Mayemyton Trading B.V.                             the Netherlands
         Diacarb Stansvormen v.o.f.                         the Netherlands
    Buland S.A.                                             France
    Boehler Miller Messer und Saegen GmbH                   Austria
IKS Mexican Holdings S.A. de C.V.                           Mexico
    International Knife and Saw de Mexico S.A. de C.V.      Mexico
International Knife and Saw Trading Corporation             U.S. Virgin Islands
P.T. Bevenmas Jaya                                          Indonesia


<PAGE>



                                                                   Exhibit 10.22


Translation of Letter from Deutsche Bank to International Knife & Saw, Inc.
C/O IKS Klingelnberg GmbH

December 11, 2000

Dear Mr. Meyer, Dear Mr. Schult:

We refer to our telephone  discussion of December 7, 2000, in which you informed
us that the  refinancing  you were trying to obtain  through U.S. banks will not
occur.

We confirm to you, that within the  framework of General  Conditions  (AGB),  we
will  continue  to make  available  to you a line of credit in the  amount of US
$13,000,000 (in words: thirteen million US dollars). This line of credit is open
ended, assuming economic and financial conditions remain the same.

As we have already made clear in our  previous  correspondence,  the agreed upon
covenants have been violated. As discussed in the meantime,  you will now pledge
the following to us:

     o    All inventories and all accounts receivable and all existing rights
          thereto, and
     o    All shares in IKS Klingelnberg GmbH, Remscheid, Germany

The details of these  pledges will be agreed upon in separate  contracts.  Costs
incurred in  connection  with filing and  perfecting  our liens must be borne by
you.

In this connection you confirm to us, that the  subsidiaries of IKS Klingelnberg
GmbH Remscheid are not being sold or pledged to third parties.

The  agreements  from  September  21, 2000 and October  17, 2000  regarding  the
maintenance of the equity ratios and shareholder  relationship of  International
Knife & Saw, Inc. with IKS Klingelnberg GmbH continues to remain in effect.

In addition, we reserve the right, in accordance with the previous and currently
in-effect  agreements,  to  demand  additional  collateral  in the form of fixed
assets.  You hereby  confirm to us that you will give us security  interests  in
these assets upon demand.

Drawdowns may occur in increments of at least $500,000 at Interbank rates plus a
margin  of 2% per year.  We will  also  charge a  commitment  fee on the  unused
portion of the line equal to 0.25% per year, due and payable at the end of every
calendar quarter.

In  consideration  of the statutory  regulations,  in  particular  ss. 18 of the
(German) credit law, you will inform us in the future, as in the past, about the
economic and financial  condition of International  Knife & Saw, Inc. on a stand
alone and consolidated basis, and of IKS Klingelnberg GmbH and its subsidiaries,
by sending us audited financial statements within 6 months after the fiscal year
end as well as appropriate interim numbers (quarterly reports).


<PAGE>


Every amount that is to be paid on the basis of this  agreement  must be made in
its  entirety  and without the  deduction  of any type of  withholding  taxes at
source.  Such taxes are taxes,  fees and public payments of any kind,  which are
deducted from payments made in accordance  with the contract,  either in Germany
or the U.S.  If such taxes are  legally  required,  you must pay the  additional
amount  required,  in order that the  payment we receive  after such  deductions
corresponds to the full amount, that we would have received, if such a deduction
had not been required.

This loan agreement and all rights and obligations  existing as a result thereof
are in  accordance  with German law.  The court of  jurisdiction  is  Wuppertal,
Germany.

Please  indicate  your  legally  binding  agreement  with  the  content  of this
commitment by signing the enclosed copy and sending it back to us.

We look forward to continuing a cooperative and trustworthy relationship.

Regards,
Deutsche Bank AG
Remscheid Branch
Signed by Mr. Wolff and Mr. Jakobi


Agreed to and signed by William M. Schult, CFO of International Knife &
Saw, Inc.