<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 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 333-62759

                             SIMONDS INDUSTRIES INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                           05-0484518
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

           135 Intervale Road, Fitchburg, MA                      01420
(Address of registrant's principal executive offices)           (Zip Code)

       Registrant's telephone number, including area code: (978) 343-3731

        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 (ss.229.405) of this chapter) 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].

Aggregate market value of the voting and non-voting common equity held by
non-affiliates area of the registrant: 0

Number of shares outstanding of the registrant's voting and non-voting common
stock, as of March 15, 2000: 68,391.48 and 7,897.45, respectively.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<PAGE>   2


                                     PART I

ITEM 1. BUSINESS.

GENERAL

     Simonds Industries Inc. and its subsidiaries ("Simonds" or the "Company")
is a leading global manufacturer and marketer of high quality industrial cutting
tools. With facilities in North America and Europe, the Company sells its
products into three end user markets: metal (48% of 1999 net sales), wood (42%),
and paper (10%). Management believes the Company holds a number one, two or
three share position in each of the markets it serves. See Note 10 to the
Consolidated Financial Statements included in Item 8 for financial information
with respect to the Company's industry end user markets and foreign and domestic
operations and export sales.

     The Company manufactures saw blades, files, knives and steel rule that,
when mounted on industrial machinery, cut, shape, bend and perforate metal, wood
and paper. In addition, the Company manufactures and distributes machinery,
including a complete line of filing room equipment used primarily in saw mills.
The Company's more than 25,000 products are used in a wide variety of industrial
applications. The products are consumable and require replacement many times per
year. More than 85% of the Company's net sales are derived from sales of
replacement products for use in the aftermarket.

PRODUCTS AND MARKET

     Simonds produces an array of world-class industrial cutting tools for a
wide variety of end user markets.

                                     - 2 -
<PAGE>   3


     Metal Cutting Products

     The Company's metal cutting products primarily include metal band saw
blades and files for use in industrial/commercial applications. In addition, the
Company manufactures and markets other products for similar applications.

     BAND SAW BLADES. Management believes that Simonds is the second largest
manufacturer of metal band saw blades both globally and in North America.
Management believes the Company markets the world's most technologically
advanced and complete metal band saw blade product line with three broad
varieties distributed for portable and stationary band saws. The three varieties
include bi-metal, carbide tip and carbon blades sold under brand names including
Extra Heavy Set(R) (EHS), EPIC(R), Si-Clone(R), Bundle Band(R), Si-Namic(R),
Copperhead Port-A-Band, and XL. These products are used on a variety of OEM
vertical and horizontal machines which are generally used in cut off,
profile/contour and friction cutting applications. In cut-off applications, the
Company's products cut steel and non-ferrous bars from long to shorter lengths
which are ultimately used in finished steel products. This type of cutting is
most often found in steel mills, steel warehouses and manufacturing plants.
Profile/contour cutting involves the Company's narrower width blades, usually
one-half inch or less, which are used to saw arcs or curves in a wide variety of
materials ranging from sheet metal to tool steel, plastics and wood. Friction
cutting is a method of removing seams and other size overages created by metal
casting using a silicon carbon steel bandsaw blade, running at extremely high
speeds.

     The Company's metal band products have a large number of industrial
applications. The largest consumers of these products include the automotive,
construction, home appliance and aerospace industries. Other important end user
markets, particularly in the United States, include specialty manufacturers,
maintenance shops, tool and die shops, machine shops, metal fabricators,
aluminum foundries and steel service centers. Purchasing criteria vary by end
user market but generally center around performance, durability and speed,
resulting in effective cost per cut. Management believes the Company provides
the highest quality products resulting in the most effective cost per cut.

     FILE PRODUCTS. Management believes that Simonds is the second largest
manufacturer of industrial file products in North America and the third largest
worldwide. The Company's files are precision hand tools made from forged,
hardened steel, and are generally used to debur and shape metals and wood. These
files are also used to sharpen many types of cutting blades. In general, the
Company sells its file products under various brand names, including Red
Tang(R), Black Maxi-Sharp(R), Ralston and SI. The Company believes the Simond's
name itself is widely recognized by industrial/commercial users as a leader in
the manufacture of high quality files.

     The Company's files are sold into two primary end user markets: industrial
and consumer. Industrial end users include machinists, millwrights, welders,
gunsmiths, plumbers, electricians, tool and die makers, watchmakers, automobile
body repair and manufacturing as well as many non-ferrous end user applications
such as filing copper, brass and aluminum. The consumer end user market, a
growing area for the Company, primarily consists of do-it-yourself users. The
Company manufactures a rapidly expanding line of files which are sold to retail
chains and specialty suppliers under private label brand names. In addition,
there are several niche commercial markets, such as the farrier and formica
markets, that are also important to the Company. Purchasing criteria vary by end
user market but generally center around product availability, design,
performance, durability, and price.

                                     - 3 -

<PAGE>   4

     Wood Cutting Products

     The Company believes it is the North American leader in the manufacture of
wood cutting products. The Company offers a broad array of wood cutting tools,
including bandsaw blades, wood cutting knives, bits and shanks for inserted
tooth saws, large diameter circular saws, and holesaws. The Company's products
are generally used to cut and shape logs into dimensional lumber and chip lumber
for the pulp and paper industry. In addition, the Company manufactures and sells
a complete line of filing room equipment used primarily in saw mills.

     The Company markets its cutting and sawing tools and associated products to
the primary wood industry, including saw mills, pulp mills, wood pallet
producers and plywood, wafer board, and particle board plants. Purchasing
criteria vary by end user market but generally center around performance,
durability, and effective costs per cut.

     Paper Products

     The Company is a leading producer of precision steel rules used primarily
in the die making and packaging industries. Manufactured from hardened and
beveled steel, rule products are used to fold, cut and perforate paper,
cardboard and other packaging materials in addition to stamping and bending
various types and grades of sheet metal. The Company's paper products include
flat, rotary and perforated steel rule. Rule products purchasing criteria vary
by end user but generally center around performance, durability and cost.

MARKETING, SALES AND DISTRIBUTION

     The Company's products are marketed and sold worldwide through an extensive
distributor base serviced by its subsidiaries located in the United States,
Canada, Germany, Spain and the United Kingdom. More than 85% of the Company's
sales are through its extensive independent distributor base. Direct end user
shipments and agent channels are also employed by the Company as dictated by
private label programs, specific geographic markets, industry practice and
competition. The Company employs separate independent distributors for its
metal, wood and paper products in North America and internationally. The
Company's marketing and sales functions are divided geographically between North
America and the rest of the world.

     The Company's distribution effort is comprised of three major components:
(i) independent distributors, (ii) the Company's field sales force, and (iii)
the Company's customer service representatives.

     The Company's sales and distribution network encompasses approximately
3,800 metal products, 1,300 wood products and 200 paper products distributors in
North America and 1,300 metal products, 150 wood products and 200 paper products
distributors internationally. These distributors include mill supply houses, saw
shops, catalog houses, OEMs, welding suppliers and other manufacturers. The
Company offers extensive training, service, and technical support to its
distributors.

                                     - 4 -

<PAGE>   5

     The Company's independent distributors are supported by 34 metal product
and 33 wood product representatives in North America and 8 metal product
representatives internationally. The Company's field sales professionals provide
technical service, in-house formal training and on-going field training to both
distributors and end users.

     The Company's 22 customer service representatives in North America and
eight internationally are a critical element of the Company's distribution
network and service leadership. By responding to and processing many orders from
different points and providing tailored, real-time service, this group provides
a user-friendly interface with the network of distributors and end users. Each
distributor and field sales professional is assigned a customer service
representative who is trained in service techniques and product knowledge.

     Steel rule products are marketed through the direct sales force of the
Company's subsidiary, W. Notting Limited ("Notting") and independent specialized
distributors. In addition to this effort, the Company maintains a team of
customer service representatives to market the rule products to smaller
accounts.

     The Company distributes private label products directly to retailers and
industrial products marketers through a dedicated private label sales manager,
supported by the Company's customer service organization.

     The Company distributes certain industrial products through its wholly
owned subsidiary, Strongridge Limited, ("Strongridge") located in Brampton,
Ontario, Canada. Since its acquisition in 1996, Strongridge has been operating
as a separate division with a separate identity in the industrial market place.
The primary focus of Strongridge has been to sell metal products to the small
and mid-size industrial and contractor distributors. Weld centers and warehouse
locations in Ontario, Canada, Texas, Ohio, California, North Carolina and
Georgia provide local service support to these distributors.

RAW MATERIALS

     The primary raw material for the Company's products is specialty steel. The
Company does not believe it is substantially dependent on any single supplier.
However, Theis Precision Steel Corporation provides approximately 50% of the
Company's domestic metal bandsaw steels. The Company's agreements with its
suppliers generally are for a period of one year, with prices, in some
instances, subject to adjustment.

     In order to take advantage of volume price discounts, the Company pursues a
"primary" sourcing strategy through which most of the Company's strip steel is
purchased. Designated "primary" sources of steel inventory are supported by
identified secondary sources of raw materials. Each production facility is
responsible for coordinating and executing the materials for their respective
inventory needs. A purchasing manager at each facility oversees these purchases.

EMPLOYEES

     At January 1, 2000, the Company had 912 full-time employees. Of such
employees, 706 were located in the United States, 46 were located in Canada, 95
were located in Germany, 10 were located in Spain and 55 were located in the
United Kingdom. The Company considers its relations with these employees to be
good.

                                     - 5 -

<PAGE>   6

     The Fitchburg and Newcomerstown facilities employ members of the United
Steel Workers of America ("USWA") Union. Their contracts with the USWA expire in
2000 and 2001, respectively. The Company considers its relations with the unions
to be good.

COMPETITION

     The cutting tool market is highly fragmented with numerous participants.
The Company is a leader in the global cutting tools market and is consistently
among the top three competitors in metal cutting saw blade, file, wood cutting
product and rule product market. Competition is principally on the basis of
price, service, delivery, quality and technical expertise. The Company's
competitors vary in each of the market sectors it serves. There is no one
company which competes with the Company in all three of the market sectors
served by the Company and there is no one company which is dominant in any of
such market sectors. The Company believes that its reputation over its long
history for quality products, extensive sales and service network and its
in-depth product knowledge provide it with a competitive advantage in all of the
market sectors it services.

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

     In 1992, the Company's property in Ashburnham, Massachusetts, was
identified as having groundwater contamination. The Company has been indemnified
from such liability by prior owners. In 1999, $2.0 million was disbursed from
escrow for remediation of contamination; $1.0 million was spent and there is
$1.0 million recorded in other current liabilities for existing remediation
contracts entered into in 1999. Management believes the remaining $0.7 million
held in escrow will be sufficient to cover the remaining environmental
liabilities, although there can be no assurance that such amounts will be
sufficient. In addition, environmental issues were previously identified at the
Company's Fitchburg, Massachusetts, and Newcomerstown, Ohio, properties which
have since been remediated. However, the state of Ohio has not yet issued its
certification to that effect with respect to the Newcomerstown site. The prior
owner has agreed to indemnify the Company for any post-closure care expenses at
the Newcomerstown site.

                                     - 6 -

<PAGE>   7

ITEM 2.  PROPERTIES.

     The following table provides information on the Company's facilities and
the products produced at these locations.

<TABLE>
<CAPTION>
                           PRODUCT                                      OWNED/     SIZE
     LOCATION               GROUP     PRODUCT TYPES                     LEASED   (SQ. FT)
    --------------------------------------------------------------------------------------
<S>                         <C>       <C>                               <C>      <C>
     FITCHBURG, MA          Metal     * Weld Edged Bandsaw  Blades      Owned    401,000
                                      * Carbide Tipped Bandsaw Blades
                                      * Carbon Bandsaw Blades

                            Wood      * Bits & Shanks
                                      * Red Streak(R) Bandsaw Blades
                                      * Holesaws

                            Paper     * Perforating
                                      * Flat
                                      * Rotary

     BIG RAPIDS, MI         Wood      * Circular Saws                   Owned    127,500
                                      * Knives
                                      * Inserted Tooth Saws

     NEWCOMERSTOWN, OH      Metal     * Files                           Owned    208,000

     SPRINGFIELD, OR        Wood      * Wide Bandsaw Blades             Owned     28,400

     PORTLAND,  OR          Wood      * Filing Room Equipment           Owned     40,000

     CORONA, CA             Paper     * Perforating Rule                Leased    42,100

     TOTTENHAM, UK          Paper     * Flat Rule                       Owned     30,000
                                      * Perforating Rule

     BARCELONA, SPAIN       Paper     * Rule                            Leased     4,040

     SPANGENBERG, GERMANY   Metal     * Carbon Bandsaw Blades           Owned     57,000
                                      * Bi-Metal Bandsaw Blades
                                      * Hacksaw Blades

     BRAMPTON, ONTARIO      Metal     * Carbon Bandsaw Blades           Owned     20,800
                                      * Bi-Metal Bandsaw Blades
                                      * Portable Tools
</TABLE>

ITEM 3. LEGAL PROCEEDINGS.

     The Company is party to a lawsuit that was litigated in China involving a
Chinese joint venture established by the Company's predecessor. Management
believes the lawsuit to be without merit. In addition, the Company is a party to
other lawsuits arising in the normal course of business. In the opinion of
management, the final resolutions of these lawsuits are not expected to
materially affect the financial condition or results of operations of the
Company.

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

Not applicable.

                                     - 7 -

<PAGE>   8

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     There is no established public trading market for the Company's common
stock. The Company's voting common stock is held by approximately 40 holders and
its non-voting common stock is held by approximately 2 holders.

     The Company has not paid any dividends on its capital stock since its
inception. The Company currently intends to retain future earnings, if any, for
use in the operation and expansion of its business. The Company does not
anticipate paying any cash dividends in the foreseeable future. The Company's
debt agreements restrict the ability of the Company and certain of its
subsidiaries to pay dividends.

ITEM 6. SELECTED FINANCIAL DATA.

     The selected consolidated operating and balance sheet data for and as of
the years ended December 28, 1996, December 27, 1997, January 2, 1999, and
January 1, 2000 are derived from the Company's audited consolidated financial
statements. The selected consolidated operating and balance sheet data as of and
for the five month period ended May 26, 1995, and the seven months ended
December 30, 1995 are derived from the Predecessor's or the Company's audited
consolidated financial statements, as applicable. The following selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto (see Item 8. Financial Statements and
Supplementary Data) and the information contained in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.


                                     - 8 -
<PAGE>   9

<TABLE>
<CAPTION>
                                                                                        (In Thousands)
                                                              Predecessor                               Company
                                                              -----------  ------------------------------------------------------
                                                               5 Months     7 Months      Fiscal    Fiscal     Fiscal     Fiscal
                                                                 Ended       Ended         Year      Year       Year       Year
                                                               5/26/1995   12/30/1995      1996      1997       1998       1999
                                                               ---------   ----------    -------   --------   --------   --------
<S>                                                            <C>          <C>         <C>        <C>        <C>        <C>
Operating Data:
                 Net Sales                                     $42,212      $58,932     $98,661    $114,182   $126,296   $127,496
                 Cost of Goods Sold                             30,102       41,353      69,828      78,798     86,750     88,392
                                                               -------      -------     -------    --------   --------   --------
                      Gross Profit                              12,110       17,579      28,833      35,384     39,546     39,104
                 Selling, General and Administrative Expense     7,418       10,176      17,135      21,149     24,230     25,753
                 Special compensation expense                    7,920           --          --          --      4,541         --
                                                               -------      -------     -------    --------   --------   --------
                      Operating Income (loss)                   (3,228)       7,403      11,698      14,235     10,775     13,351
                 Interest Expense                                  650        2,880       4,399       4,963      7,900     10,948
                 Other expense (income) net                       (276)        (208)        245         520        554       (249)
                                                               -------      -------     -------    --------   --------   --------
                      Income (Loss) Before Income Taxes         (3,602)       4,731       7,054       8,752      2,321      2,652
                 Income Taxes                                   (1,387)       1,856       3,071       3,751        955      1,218
                                                               -------      -------     -------    --------   --------   --------
                      Income (loss) before
                      extraordinary item                        (2,215)       2,875       3,983       5,001      1,366      1,434
                 Extraordinary item-Write-off of deferred
                 financing cost related to refinanced
                 indebtedness, net of tax benefit of $374           --           --          --          --       (529)        --
                                                               -------      -------     -------    --------   --------   --------
                      Net Income (Loss)                        $(2,215)     $ 2,875     $ 3,983    $  5,001   $    837   $  1,434
                                                               =======      =======     =======    ========   ========   ========
Other Data:
                 EBITDA from operations (1)                    $ 6,109      $ 8,673     $14,026    $ 17,299   $ 19,187   $ 17,715
                 Depreciation and amortization                   1,498        1,500       2,712       3,459      5,176      4,879
                 Capital expenditures                              745        1,895       3,638       3,708      4,348      4,364
                 Ratio of earnings to fixed charges (2)             --         2.6x        2.5x        2.7x       1.3x       1.2x

Balance Sheet Data:
                 Working Capital                               $16,033      $21,786     $22,209    $ 21,651   $ 35,796   $ 35,282
                 Total Assets                                   62,413       77,728      82,620      95,343    118,239    118,287
                 Total Debt                                     14,899       46,809      46,175      51,692    104,010    102,858
                 Shareholders' equity (deficit)                 24,608       13,185      17,198      21,615    (12,680)   (12,245)
</TABLE>

     (1)  EBITDA is defined as operating income plus depreciation, amortization
          (other than amortization of debt discount and deferred financing
          costs) and special compensation expense. The Company believes that
          EBITDA provides additional information for determining its ability to
          meet debt service requirements. EBITDA does not represent and should
          not be considered as an alternative to net income or cash flow from
          operations as determined by generally accepted accounting principles,
          and EBITDA does not necessarily indicate whether cash flow will be
          sufficient to meet cash requirements.

     (2)  For purposes of calculating this ratio, "income" consists of income
          before provision for income taxes and fixed charges. "Fixed charges"
          consist of interest expense and the estimated interest portion of
          rental payments on operating leases. Such income was insufficient to
          cover fixed charges by approximately $2,100 for the five months ended
          May 26, 1995.



<PAGE>   10

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

                             (Dollars in Thousands)

     The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto, as well as the selected financial
information, all appearing elsewhere herein.

GENERAL

     In July 1998, Simonds and its subsidiaries issued $100 million of 10-1/4%
Senior Subordinated Notes due 2008 (the "Notes"). Proceeds from the Notes were
primarily used for the repayment of indebtedness, the acquisition of treasury
stock, and the buyout of all outstanding stock options and warrants. The Company
concurrently entered into a new Senior Credit Facility with a commercial lender
that provides $30 million availability. Borrowings under the Senior Credit
Facility are available for permitted acquisitions and working capital, including
letters of credit. The Senior Credit Facility is secured by first priority liens
on all tangible and intangible personal property and real property assets of the
Company and its subsidiaries. All of the foregoing transactions are herein
referred to collectively as the "Recapitalization." For additional information
with respect to this Recapitalization, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 13. Certain
Relationships and Related Transactions.

     Simonds has been in continuous operation selling cutting tools for over 166
years. Since 1996, the Company has completed four acquisitions, including the
bit and shank product line of Pacific Hoe Company in January 1997, Armstrong
Manufacturing Company ("Armstrong") in August 1997, Notting on May 5, 1998, and
the holesaw product line of Andersen Products Inc. in October 1999. The
Company's results of operations for the periods 1997-1999 reflect the impact of
all of the above mentioned acquisitions. In particular, the Company benefited
from five months of operations of Armstrong in 1997 and full years in 1998 and
1999, and eight months of Notting operations in 1998 and a full year in 1999,
two months of Andersen Products in 1999.


<PAGE>   11

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      Percentage of Net Sales
                                                                        Year Ended December
                                                                    1997        1998        1999
                                                                   ------      ------      ------
<S>                                                                 <C>         <C>         <C>
Net sales                                                           100.0 %     100.0 %     100.0 %
Cost of goods sold                                                   69.0        68.7        69.3
                                                                    -----       -----       -----

           Gross profit                                              31.0        31.3        30.7
Selling, general and administrative expense                          18.5        22.8        20.2
                                                                    -----       -----       -----

           Operating income                                          12.5         8.5        10.5

Interest expense                                                      4.3         6.3         8.6
Other expense (income), net                                           0.5         0.4        (0.2)
                                                                    -----       -----       -----
           Income before income taxes                                 7.7         1.8         2.1

Income taxes                                                          3.3         0.7         1.0
                                                                    -----       -----       -----

           Income before extraordinary item                           4.4         1.1         1.1
Extraordinary item-
    Write-off of deferred financing cost related to refinanced
         indebtedness, net of tax benefit of $374                      --        (0.4)         --
                                                                    -----       -----       -----

           Net Income                                                 4.4 %       0.7 %       1.1 %
                                                                    =====       =====       =====
</TABLE>


Year Ended January 1, 2000 Compared To Year Ended January 2, 1999

     Net Sales: Net sales for the year ended January 1, 2000 were $127,496, or a
1.0% increase from fiscal 1998 net sales of $126,296. An increase in net sales
of $3,678 was attributable to the inclusion of Notting net sales for the full
year of 1999 versus 8 months of 1998. This was offset by lower sales volume of
core products in the North American and European markets. Overall sales in 1999
were negatively impacted by deterioration in the value of the British pound and
the German mark when compared to 1998 by approximately $400 and $600,
respectively.

     Gross Profit Margin: The cost of sales increased by $1,642 as a result of
higher sales volume. Gross profit margin dropped .6% to 30.7% in 1999 primarily
as a result of unfavorable manufacturing variances resulting from lower
productions levels in reaction to decreased demand and inventory reductions in
excess of plan.

     Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.2% in 1999 and 22.8%
for 1998. The lower level of expenses in 1999 as compared to 1998 was primarily
due to a one time compensation charge in July 1998 of $4,541 from the repurchase
of options relating to the Recapitalization. This was partly offset by a full
year's expenses of Notting in 1999 versus 8 months in 1998.

     Operating Income: As a result of the foregoing, operating income increased
$2,576 in 1999 from the prior year.

                                     - 11 -

<PAGE>   12

     Interest Expense: Interest expense was higher in 1999 due to the
Recapitalization of the Company in July 1998. The Recapitalization constituted
retiring most of the Company's debt and replacing it with $100,000 of notes
bearing an annual interest rate of 10.25%.

     Income Taxes: The Company's effective tax rate increased to 45.9% in 1999
from 41.1% for 1998. The effective tax rates differed from the statutory U.S.
rate primarily due to non-deductible expenses which include amortization of
goodwill and business meals and entertainment. The rate was also effected by
higher foreign income taxes on foreign source income and state tax provisions.

     Extraordinary Item: As part of the debt retirement in 1998, deferred
financing costs of $903 were written off with a related tax benefit of $374,
which resulted in an extraordinary loss of $529.

     Net Income: As a result of the aforementioned factors, net income increased
71.3% to $1,434 for 1999 from $837 for 1998.

Year Ended January 2, 1999 Compared To Year Ended December 27, 1997

     Net Sales: Net Sales for the twelve months ended January 2, 1999 were
$126,296, or a 10.6% increase from 1997 of $114,182. The increase in net sales
was primarily attributable to the inclusion of $6,185 W. Notting Ltd. net sales
and the inclusion of Armstrong Manufacturing Co. net sales for the entire year
of 1998 ($5,735). U.S. operations were up 2.7%, but mostly offset by lower sales
from Canadian operations due in large part to a significantly weaker Canadian
dollar in 1998.

     Gross Profit Margin: The cost of sales increased by $7,952 as a result of
higher sales volume. Gross profit margin improved .3% to 31.3% in 1998 primarily
as a result of favorable raw material prices for Red Streak(R) bands, carbide
tips, and the majority of the Company's knife steel along with higher production
levels without significant increases in fixed expenses.

     Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 22.8% for 1998 and 18.5%
in 1997. The higher level of expenses in 1998 as compared to 1997 was primarily
due to the addition of Armstrong and Notting in 1998 and a one time compensation
charge in July 1998 of $4,541 from the repurchase of options relating to the
Recapitalization.

     Operating Income: As a result of the foregoing, operating income decreased
$3,460 in 1998 from the prior year.

     Interest Expense: Interest expense was higher in 1998 due to the
Recapitalization of the Company in July. The Recapitalization constituted
retiring most of the Company's debt and replacing it with $100,000 of notes
bearing an annual interest rate of 10.25%.

     Income Taxes: The Company's effective tax rate decreased to 41.1% for 1998
from 42.9% in 1997. The effective tax rates differed from the statutory U.S.
rate primarily due to state income tax provisions and nondeductible
amortization.

     Extraordinary Item: As part of the debt retirement in 1998, deferred
financing costs of $903 were written off with a related tax benefit of $374,
which resulted in an extraordinary loss of $529.

                                     - 12 -

<PAGE>   13

     Net Income: As a result of the aforementioned factors, net income decreased
83.3% to $837 for 1998 from $5,001 for 1997.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal capital requirements are to fund working capital
needs, meet required debt payments, and to complete planned maintenance and
manufacturing improvements.

     During 1997, 1998 and 1999, net cash provided by operations was $13,046,
$9,113 and $6,508, respectively. During 1997, 1998 and 1999, net cash used in
investing activities was $17,304, $9,747 and $5,884, respectively, consisting
primarily of capital expenditures and acquisitions. In 1997, approximately
$13,700 was used for the acquisitions of Armstrong and the bit and shank product
line of Pacific Hoe Company. In 1998, roughly $5,500 was used to acquire
Notting, a manufacturer of rule products. In 1999, approximately $1,600 was used
to acquire specific assets of Andersen Products Inc. During 1997, 1998 and 1999,
net cash provided by (used in) financing activities was $4,299, $8,978, and
($1,205), respectively.

     The Company's Senior Credit Facility provides a $30,000 line of credit to
meet acquisition and expansion needs as well as seasonal working capital and
general corporate requirements. This credit line was undrawn as of January 1,
2000. Borrowings under the Senior Credit Facility bear interest at a fluctuating
rate based on, at the Company's option, either the lender's alternate base rate,
as defined, or LIBOR plus the applicable margin. A commitment fee calculated
based upon the unused portion of the revolving credit facility is payable
quarterly in arrears.

     The Company believes that future cash flows from operations, together with
the borrowings available under the Senior Credit Facility will provide the
Company with sufficient liquidity and financial resources to finance its growth
and satisfy its working capital requirements for the foreseeable future. The
Company may not be able to generate sufficient cash flows from operations to pay
the entire principal amount of the Notes when due in 2008. In such event, the
Company would be required to refinance the Notes. However, there can be no
assurance that the Company will be able to obtain financing on acceptable terms.

SEASONALITY

     Historically, the Company's business has not been subject to seasonality in
any material respect. The Company's third quarter, which includes July through
September, is typically lower due to customers' and plant vacation shutdowns.

INFLATION

     Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through operating efficiencies, there can be no assurance that
the Company will be able to offset any future inflationary cost increases
through similar efficiencies.

                                     - 13 -

<PAGE>   14

TRANSITION TO THE EURO

     Although the Euro was successfully introduced on January 1, 1999, the
legacy currencies of the 11 countries participating will continue to be used as
legal tender through January 1, 2002. Thereafter, the legacy currencies will be
cancelled and Euro bills and coins will be used in the participating countries.

     Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the Euro, as well as conversion of bank accounts and other
treasury and cash management activities.

     The Company continues to address these transition issues and does not
expect the transition to the Euro to have a material effect on the results of
operations or financial condition of the Company.

YEAR 2000

     The Company developed plans to address the possible exposure related to the
impact of the Year 2000 problem ("Y2K") on its computer systems and key service
providers. The Company aggressively monitored the transition of its computer
systems into 2000 and is pleased with the results. Minor exceptions were noted
and corrected quickly. Management will continue to monitor computer systems
throughout 2000 as a normal course of business, paying particular attention to
the remaining critical Y2K dates.

FORWARD LOOKING STATEMENTS; RISKS AND UNCERTAINTIES

     Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. The Company cautions that a number of
important factors could cause actual results for fiscal 2000 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company. Such statements contain a number of risks and
uncertainties including, but not limited to, the Company's substantial leverage,
the restrictions imposed by the terms of its indebtedness, the subordination
provisions of the Notes and the related guarantees, the risks of international
operations, the Company's dependence on specialty steels, its reliance on
limited sources of supply and certain industries, its acquisition strategy and
environmental matters. The Company cannot assure that it will be able to
anticipate or respond timely to changes which could adversely affect its
operating results in one or more fiscal quarters. Results of operations in any
past period should not be considered indicative of results to be expected in
future periods.

     The above risks and uncertainties inherent in the Company's business are
set forth in detail below. However, this section does not discuss all possible
risks and uncertainties to which the Company is subject, nor can it be assumed
necessarily that there are no other risks and uncertainties which may be more
significant to the Company.

                                     - 14 -

<PAGE>   15

     SUBSTANTIAL LEVERAGE

     As of January 1, 2000, the Company had $102,858 of consolidated
indebtedness and consolidated stockholders' deficit of $12,245.

     The Company's indebtedness has several important consequences including,
but not limited to, the following: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service requirements on its
indebtedness and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, refinancing other indebtedness or general
corporate purposes may be impaired; (iii) the Company's leverage may increase
its vulnerability to economic downturns and limit its ability to withstand
competitive pressures; and (iv) the Company's ability to capitalize on
significant business opportunities may be limited.

     The Company's ability to make payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes, based on current circumstances, that the
Company's cash flow, together with available borrowings under the Senior Credit
Facility, will be sufficient to permit the Company to meet its operating
expenses and to service its debt requirements as they become due. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and there will be no
material adverse developments in its business, liquidity or capital
requirements. If the Company is unable to service its indebtedness, it will be
forced to adopt an alternative strategy that may include actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all.

     RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS

     The Indenture restricts the ability of the Company and certain of its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments or investments, consummate
certain asset sales, enter into certain transactions with affiliates, incur
liens, or merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of their assets.
In addition, the Senior Credit Facility contains other and more restrictive
covenants. The Senior Credit Facility requires the Company to maintain specified
financial ratios and satisfy certain financial tests. The Company's ability to
meet such financial ratios and tests may be affected by events beyond its
control, and there can be no assurance that the Company will meet such tests. A
breach of any of these covenants could result in an event of default under the
Senior Credit Facility. In an event of default under the Senior Credit Facility,
the lenders thereunder could elect to declare all amounts borrowed, together
with accrued interest, to be immediately due and payable and the lenders under
the Senior Credit Facility could terminate all commitments thereunder. If such
indebtedness were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay such indebtedness and the Notes.

                                     - 15 -

<PAGE>   16

     SUBORDINATION OF NOTES AND GUARANTEES

     The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Company, including all
amounts owing or guaranteed under the Senior Credit Facility. The Guarantees of
the Notes by certain subsidiaries are similarly subordinated to Guarantor Senior
Debt. Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or a Guarantor,
assets of the Company or such Guarantor will be available to pay obligations on
the Notes or Guarantees only after all Senior Debt of the Company or Guarantor
Senior Debt of such Guarantor, as applicable, has been paid in full, and there
can be no assurance that there will be sufficient assets to pay amounts due on
any or all of the Notes. In addition, neither the Company nor any Guarantor may
pay principal, premium, interest or other amounts on account of the Notes or any
Guarantee in the event of a payment default (or, with respect to a non-payment
default on Designated Senior Debt (as defined), for a specified period) in
respect of Senior Debt. As of January 1, 2000, the Company and the Guarantor had
no Senior Debt and Guarantor Senior Debt outstanding. In addition, the Notes are
effectively subordinated in right of payment to all liabilities, including
indebtedness, of subsidiaries of the Company which are not Guarantors. As of
January 1, 2000, such subsidiaries had approximately $23,800 of total
liabilities, including approximately $2,900 of indebtedness.

     RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

     The Company operates manufacturing, sales and service facilities in
Germany, the United Kingdom, Spain and Canada. In fiscal 1999, sales of its
products in foreign countries accounted for approximately 32% of the Company's
net sales. As a result, the Company is subject to risks associated with
operation in foreign countries, including fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
dollars or remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and other
payments by foreign subsidiaries, hyperinflation in certain foreign countries
and imposition or increase of investment, subjection to certain foreign labor
laws and other restrictions by foreign governments. Fluctuations in currency
exchange rates have had an impact on the Company's operations in the past, and
historically the Company has hedged some of its foreign currency risks. No
assurance can be given that the risks associated with operating in foreign
countries will not have a material adverse effect on the Company in the future.

     DEPENDENCE ON SPECIALTY STEELS; RELIANCE ON LIMITED SOURCES OF SUPPLY

     The principal raw material used by the Company is specialty steels. The
Company relies on limited sources for its supply of specialty steels. The loss
of any such source, or any major disruption in such source's business or failure
by it to meet the Company's needs on a timely basis could cause shortages in the
Company's supply of specialty steels that could have a material adverse effect
on the Company's business and financial condition.

     The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors beyond the control of the Company, including
general economic conditions, labor costs, molybdenum and chrome costs,
competition, import duties, tariffs and currency exchange rates. If the Company
is unable to pass some or all of future steel price increases to its customers,
the Company could be materially and adversely affected.

                                     - 16 -

<PAGE>   17

     RELIANCE ON METAL PROCESSING AND WOOD INDUSTRIES

     Demand for the Company's metal and wood products generally follows
movements in the metal processing and primary wood industries. The metal
processing and primary wood industries are both cyclical in nature and are
affected by global and national economic conditions. A material change in either
industry or general economic conditions could have a material adverse effect on
the Company's business and financial condition.

     ACQUISITION STRATEGY

     The Company has pursued and intends to continue to pursue acquisitions as
an important component of its strategy. No assurance can be given that in the
future other suitable acquisition candidates can be acquired on acceptable terms
or that future acquisitions, if completed, will be successful. Future
acquisitions by the Company could result in the incurrence of additional debt
and contingent liabilities which could materially adversely affect the Company's
business, operating results and financial condition. The success of any
completed acquisition will depend on the Company's ability to integrate
effectively the acquired business into the Company's. The process of integrating
acquired businesses may involve numerous risks, including difficulties in the
assimilation of operations and products, the diversion of management's attention
from other business concerns and the potential loss of key employees of the
acquired businesses.

     ENVIRONMENTAL MATTERS

     The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and waste
materials. While the Company believes that it is currently in material
compliance with those laws and regulations, there can be no assurance that the
Company will not incur significant costs to remediate violations thereof or to
comply with changes in existing laws and regulations (or the enforcement
thereof). Such costs could have a material adverse effect on the Company's
business, financial condition or results of operations.

     CHANGE OF CONTROL

     Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Notes will have the right to require the Company to repurchase
all or a portion of such holder's Notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. However, the Company's ability to repurchase the Notes
upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. In addition, the
occurrence of a Change of Control will constitute an Event of Default under the
Senior Credit Facility. The Senior Credit Facility will prohibit the purchase of
the Notes unless and until such time as the indebtedness under the Senior Credit
Facility is paid in full. There can be no assurance that the Company will have
the financial resources to repay amounts due under the Senior Credit Facility,
or to repurchase or redeem the Notes. If the Company fails to repurchase all of
the Notes tendered for purchase upon the occurrence of a Change of Control, such
failure will constitute an Event of Default under the Indenture.

                                     - 17 -

<PAGE>   18

     FRAUDULENT CONVEYANCE CONSIDERATIONS

     Under the applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if the Company or any Guarantor, at
the time it issues the Notes or incurs a Guarantee, as the case may be, (a)(i)
was or is insolvent or rendered insolvent by reason of such issuance or
incurrence, as the case may be, (ii) was or is engaged in a business or
transaction for which the assets remaining with the Company or such Guarantor,
as the case may be, constituted unreasonably small capital or (iii) intended or
intends to incur, or believed or believes that it would incur, debt beyond its
ability to pay such debts as they mature and (b) received or receives less than
reasonably equivalent value or fair consideration, the obligations of the
Company under the Notes or such Guarantor under its Guarantee, as the case may
be, could be avoided or claims in respect of the Notes or such Guarantee, as the
case may be, could be subordinated to all other debts of the Company or such
Guarantor, as the case may be. Among other things, a legal challenge of the
Notes or a Guarantee, as the case may be, on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Company or such Guarantor, as the
case may be, as a result of the issuance of the Notes or the incurrence of a
Guarantee, as the case may be. To the extent that the Notes or any Guarantee was
a fraudulent conveyance or held unenforceable for any other reason, the holders
of the Notes would cease to have any claim in respect of the Company, in the
case of the Notes, or in respect of a Guarantor whose Guarantee was avoided or
held unenforceable. In such event, the claims of the holders of the Notes would
be subject to the prior payment of all liabilities of the Company, in the case
of the Notes, or the Guarantor whose Guarantee was avoided. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy the claims of the holders of the Notes relating to any avoided
portion of the Notes or a Guarantee.

     The Guarantor has agreed to contribute to the obligation under a Guarantee
of the Notes. Further, the Guarantee provides that it is limited to an amount
that would not render the Guarantor thereunder insolvent. The Company believes
that it and the Guarantor received equivalent value at the time the indebtedness
was incurred under the Notes and the Guarantees. In addition, the Company
believes that neither it nor the Guarantor was or will be insolvent or was or
will be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital and that neither it nor the Guarantor
intended or will intend to incur debts beyond its ability to pay such debts as
they mature. Since each of the components of the question of whether the Notes
or a Guarantee is a fraudulent conveyance is inherently fact based and fact
specific, there can be no assurance that a court passing on such questions would
agree with the Company.

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

     The Company is exposed to market risk from changes in foreign currency
exchange rates, as the Company entered into foreign forward exchange contracts
effective for fiscal year 1999. The Company did not enter into these contracts
for trading purposes. They were entered into to manage and reduce the impact of
changes in foreign currency exchange rates although a portion of these contracts
does not qualify for hedge accounting. Accordingly, the contracts were marked to
market at the end of each accounting period. All contracts expired in December
1999 and as of January 1, 2000 there were no contracts in place. (See Note 12 to
the Consolidated Financial Statements.)

                                     - 18 -

<PAGE>   19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 14).

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

     Not applicable.

                                     - 19 -
<PAGE>   20



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The following table sets forth certain information with respect to the
directors and 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
-----------------   ----   -----------------------------------------------------
Ross B. George       67    Director and Chairman of the Board

Raymond J. Martino   45    President, Chief Executive Officer and Director

Roland Richard       58    Vice President - Sales and Marketing, Wood Products

James Palmer         58    Vice President - Sales and Marketing, Metal Products

Peter Hopper         49    Vice President - Product Development

Ron Owens            55    Senior Vice President - Manufacturing

Habib Y. Gorgi       43    Director

Gregory M. Barr      34    Director

     Ross George: Mr. George was President, Chief Operating Officer and member
of the Board of Directors since 1988 and was made Chief Executive Officer in
1995. As of September 1999, Mr. George became Chairman of the Board.

     Raymond Martino: Mr. Martino has been Chief Executive Officer and President
since September 1999 and is a member of the Board of Directors of Simonds. Mr.
Martino formerly held the positions of President - Stanley Fastening Systems,
President Stanley Door Systems and President of Stanley Home Decor, divisions of
The Stanley Works.

     Roland Richard: Mr. Richard has been Vice President of Sales and Marketing
- Wood Products since 1991. He previously held the position of Director of
Corporate Development from 1989 to 1991 and was Corporate Sales Manager of the
acquired Michigan Knife Company from 1987 to 1989.

     James Palmer: Mr. Palmer has been Vice President of Sales and Marketing for
Metal Products since 1995. He was Vice President of Sales of Milford Products
for 10 years. Mr. Palmer joined Milford Products in 1982.

                                     - 20 -

<PAGE>   21

     Peter Hopper: Mr. Hopper has been Vice President of Product Development
since 1996. He has held positions of increasing responsibility with Crucible
Specialty Metals from 1976 to 1983. He held research, metallurgy and quality
control positions with Milford Products Corporation from 1983 to 1991. From 1991
to 1996 he served in various product development and design positions with
Milwaukee Electric Tool Corporation.

     Ron Owens: Mr. Owens joined Simonds in 1998 as Vice President of Business
Development and was promoted to Senior Vice President of Manufacturing in
November of 1998. In 1990 Mr. Owens formed "SAWELL, INC.", a manufacturing
business that produced jigsaw and recip blades for their own brands, as well as
private label product for all major brands. Black and Decker purchased "SAWELL,
INC." in late 1994 and Mr. Owens was President of the subsidiary until October
1996.

     Habib Gorgi: Mr. Gorgi has been a member of the Board of Directors since
1995. Since 1995, Mr. Gorgi has been President of each of (i) Fleet Ventures
Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general partner of
Fleet Equity Partners VI, L.P., and (iii) Silverado III, Corp., the general
partner of Silverado III, L.P., the general partner of Chisholm Partners III,
L.P. Mr. Gorgi is also managing general partner of Kennedy Plaza Partners.

     Gregory Barr: Mr. Barr has been a member of the Board of Directors since
October 1999. Mr. Barr joined Fleet Equity Partners in 1994. Mr. Barr's previous
work experience was at McKinsey and Company where he worked as a management
consultant in a variety of Industries. Formerly, Mr. Barr worked at Goldman,
Sachs & Company in the Investment Banking Division. He received a BA from
Wesleyan University and an MBA from the Harvard Business School.

                                     - 21 -

<PAGE>   22

ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

     The following table sets forth all cash compensation earned in 1999 and
1998 by the Company's Chief Executive Officer and each of the four most highly
compensated executive officers whose remuneration exceeded $100,000 (the "Named
Executives").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                               LONG
                                                                               TERM
                                                ANNUAL COMPENSATION         COMPENSATION
                                           ---------------------------  --------------------
                                                                        SECURITIES
                                                                          UNDER-      ALL
                                                                          LYING      OTHER
                                                                         OPTIONS    COMPEN-
                                    YEAR    SALARY     BONUS   OTHER(1)    SARs    SATION(2)
                                    ----    ------     -----   --------    ----    ---------
<S>                                 <C>    <C>        <C>       <C>       <C>      <C>
Ross George                         1999   $250,112        -    $29,979   671.13   $ 22,768
Chairman of the Board               1998   $272,580        -    $28,774   351.13   $753,256
Former CEO and President

Joseph Sylvia                       1999   $176,649        -    $28,742       -    $ 11,414
Former Executive Vice President     1998   $185,820        -    $30,026   222.45   $493,120
and CFO

Raymond Martino                     1999   $132,820        -    $ 7,949    4,450   $ 32,672
Chief Executive Officer, President

James Palmer                        1999   $140,233   $ 1,759   $13,045      275   $  9,897
Vice President - Sales, Metal       1998   $129,260   $ 1,759   $12,809       -    $347,834
Products

Roland Richard                      1999   $126,379   $13,853   $13,850      275   $ 10,273
Vice President - Sales &            1998   $121,518   $13,853   $12,809       -    $132,863
Marketing, Wood Products

Ronald Owens                        1999   $142,133        -    $ 4,829      275   $  8,225
Senior Vice President -             1998   $ 90,462        -    $10,811       -    $  2,609
Manufacturing

Peter Hopper                        1999   $ 94,367        -    $15,996      100   $  6,109
Vice President - Product            1998   $ 90,738   $40,088   $15,297       -    $182,355
Development
</TABLE>
(1)  Consists of amounts reimbursed during the year for the payment of taxes
     relating to company vehicles, tax preparation and club memberships.

(2)  Consists of the Company's contributions to (1) the 401(k) Plan in 1998
     ($5,000 each for all executives listed above except Mr. Martino, $0, and
     Mr. Owens, $0) and in 1999 (Messrs. George and Sylvia, $5000; Mr. Martino,
     $2,235, Mr. Palmer, $3,855; Mr. Richard, $4,207, Mr. Owens, $3,164, and Mr.
     Hopper, $2,831) and (2) the Profit Sharing Plan in 1998 ($4,800 each for
     all executives listed above except Mr. Martino, $0, Mr. Owens, $0, and Mr.
     Hopper, $3,925) and in 1999 (Messrs. George and Sylvia, $4,800; Mr.
     Martino, $3,110; Mr. Palmer, $4,260; Mr. Richard, $4,207, and Mr. Owens,
     $3,164, and Mr. Hopper, $2,831) and; (3) group insurance payments in 1998
     (Mr. George, $23,583; Mr. Sylvia, $3,399, Mr. Palmer, $2,945, Mr. Richard,
     $3,084, Mr. Owens $2,609, and Mr. Hopper $811) and in 1999 (Mr. George,
     $12,968; Mr. Sylvia, $1,614; Mr. Martino, $425, Mr. Palmer, $1,782; Mr.
     Richard, $1,859, Mr. Owens, $1,897, and Mr. Hopper, $447) and (4) buyout of
     options in 1998 (Mr. George $719,873; Mr. Sylvia $479,921, Mr. Palmer
     $335,089; Mr. Richard $119,979, Mr. Owens, $0, and Mr. Hopper, $172,619)
     and (5) relocation expenses in 1999 (Mr. Martino, $26,902).

                                     - 22 -

<PAGE>   23

Options

     The following table sets forth certain information relating to option
grants in the year ended January 1, 2000 to the individuals named in the Summary
Compensation Table above.

<TABLE>
<CAPTION>
                                                Option/SAR Grants in Last Fiscal Year
                                                          Individual Grants
                           ------------------------------------------------------------------------

                           Number of      % of Total
                           Securities     Options/SARs
                           Underlying      Granted to     Exercise or                    Grant Date
                          Options/SARs    Employees in     Base Price     Expiration      Present
         Name              granted (1)    Fiscal Year        ($/Sh)          Date        Value (4)
---------------------    --------------  --------------  -------------  --------------  ------------
<S>                        <C>               <C>           <C>           <C>             <C>
Ross George (3)              320              4%           $467.32       12/31/2008      $ 97.50

Joseph Sylvia                 --             --                 --               --           --

Raymond Martino (2)        4,450             51%           $458.52        9/30/2009      $131.92

James Palmer (3)             275              3%           $467.32       12/31/2008      $ 97.50

Roland Richard (3)           275              3%           $467.32       12/31/2008      $ 97.50

Ron Owens (3)                275              3%           $467.32       12/31/2008      $ 97.50

Peter Hopper (3)             100              1%           $467.32       12/31/2008      $ 97.50
</TABLE>

     (1) None of the options granted were options with tandem SARs and no
free-standing SARs were granted.

     (2) These options were granted to Raymond Martino on October 1, 1999. The
options vest as follows: 1,450 on February 29, 2000, and 1,000 each on February
28, 2001, 2002, and 2003.

     (3) These options were granted to the named executives on January 1, 1999.
One third of the options vest on January 1 for each of the years 1999, 2000, and
2001.

     (4) Based on the Black-Scholes option pricing model. The use of this model
should not be construed as an endorsement of its accuracy at valuing options.
The actual value, if any, an executive may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised, so
there is no assurance the actual value realized will be at or near the value
estimated by the Black-Scholes model. The estimated values under that model are
based on the following assumptions:

<TABLE>
<CAPTION>
                                     Raymond Martino     Others
                                     ---------------     ------
<S>                                  <C>                 <C>
         Stock price                 $470.07             $467.32
         Exercise price              $458.52             $467.32
         Expected option term        5 years             5 years
         Stock price volatility      0                   0
         Dividend yield              0                   0
         Risk-free interest rate     6.09%               4.68%
</TABLE>

                                     - 23 -

<PAGE>   24

     The following table sets forth certain information with respect to
unexercised options to purchase the Company's Common Stock granted to the
individuals named in the Summary Compensation Table above. No options were
exercised in 1999 by such individuals.

                             FY - END OPTION VALUES

<TABLE>
<CAPTION>
                    NO. OF SECURITIES UNDERLYING          VALUE OF UNEXERCISED IN-THE-MONEY
                   UNEXERCISED OPTIONS AT FY-END                OPTIONS AT FY-END (1)
                 ----------------------------------       ----------------------------------
NAME             EXERCISABLE          UNEXERCISABLE       EXERCISABLE          UNEXERCISABLE
----             -----------          -------------       -----------          -------------
<S>                 <C>                  <C>               <C>                  <C>
Ross George         564.46                 106.67          $8,997.54            $ 1,700.27

Joseph Sylvia         -                     -                  -                     -

Raymond Martino       -                  4,450.00              -                $70,933.00

James Palmer        183.33                  91.67          $1,309.00            $   654.50

Roland Richard      183.33                  91.67          $1,309.00            $   654.50

Ron Owens           183.33                  91.67          $1,309.00            $   654.50

Peter Hopper         66.67                  33.33          $  476.00            $   238.00
</TABLE>


(1) Based on the difference between the fair market value of the securities
underlying the options and the exercise or base price of the options at fiscal
year-end.

Employment Contracts

     The Company has an employment agreement with the Chairman of the Board,
which expires September 15, 2000, at which time the Chairman intends to retire.
The Company also has employment agreements with key executive management. The
agreement with the President/Chief Executive Officer provides for twelve months'
severance on termination by the Company at any time without cause and
termination by the employee upon at least thirty (30) days' prior written
notice. No severance is provided if the Company terminates for cause or if the
employee terminates for no good reason. The non-competition provisions apply
during the term of the agreements and provide a two-year non-competition period
beginning on the date of termination. In addition, the Company has employment
agreements with all vice presidents, providing for at least twelve (12) months'
written notice prior to termination by the Company without cause (thirty days
with cause) and ninety (90) days' prior written notice by the employee. Annual
salary reviews are done by the Board of Directors.

                                     - 24 -

<PAGE>   25

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

     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) by each person known to the Company
to own more than 5% of the Company's Common Stock and (ii) by each director of
the Company, each of the executive officers of the Company listed under
"Management" and the directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                  SHARES BENEFICIALLY OWNED (1)
                                                 --------------------------------
                                                 NUMBER OF SHARES      % OF CLASS
                                                 ----------------      ----------
<S>                                                  <C>                  <C>
Fleet Venture Resources, Inc. (2)                    22,073.18            31.0
Fleet Equity Partners VI, L.P. (2)                    9,459.93            13.3
Chisholm Partners III, L.P. (2)                       7,998.35            11.2
Kennedy Plaza Partners                                  460.25             *
The Private Market Fund, L.P.                         8,723.72            12.3
Ross George                                           6,348.69             8.9
Joseph Sylvia                                         4,039.08             5.7
Robert Deedrick                                         436.19             *
Roland Richard                                        1,090.46             1.5
James Palmer                                            381.66             *
Harry Rogers                                          1,090.46             1.5
Peter Hopper                                            163.57             *
F.A. DeVilling                                          218.09             *
Ron Owens                                                   --              --
Habib Gorgi                                          39,991.71            56.2
Gregory Barr                                         39,991.71            56.2

All directors and executive officers as a group,
  including the above named persons                  53,759.91            75.5
</TABLE>

*Less than 1%

(1)  As used in this table, beneficial ownership means the sole or shared power
     to vote, or to direct the voting of, a security or the sole or shared power
     to dispose, or direct the disposition of, a security, and includes options
     and warrants exercisable within 60 days.

(2)  Fleet Venture Resources, Inc. ("FVR"), Fleet Equity Partners VI, L.P.
     ("FEP"), Chisholm Partners III ("Chisholm") and Kennedy Plaza Partners
     ("Kennedy") are affiliated entities. As a result, they may be deemed to
     have shared voting and investment power of the shares held by each of the
     other entities. FVR and FEP are also affiliates of FleetBoston Financial
     Group, Inc. ("FBF"). As a result, FBF may be deemed to have shared voting
     and investment power of the shares held by such entities. Mr. Gorgi is
     President of FVR and of the corporate general partners of FEP and Chisholm,
     and a general partner of Kennedy. As a result, he may be deemed to have
     shared voting and investment power of the shares held by such entities. Mr.
     Barr is Vice President of FVR and of the corporate general partners of FEP
     and Chisholm, and a general partner of Kennedy. As a result, he may be
     deemed to have shared voting and investment power of the shares held by
     such entities. Messrs. Gorgi and Barr disclaim beneficial ownership for all
     shares held directly by these entities, except for the extent of their
     pecuniary interest therein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Pursuant to the Recapitalization (i) the Company repurchased certain of its
outstanding equity securities for an aggregate purchase price of $58.3 million
(or $458.52 per share of Common Stock and equivalents) (the "Recapitalization
Consideration"), (ii) the Company issued new shares of voting and non-voting
Common Stock to certain existing stockholders and new investors with aggregate
proceeds to the Company of $18.8 million (or $458.52 per share) (the "New
Shares"), (iii) the Company issued certain warrants and options to certain
existing stockholders and new investors, and (iv) certain of the Company's
existing stockholders retained voting Common Stock with an aggregate value
(based on per share value of $458.52) of approximately $16.2 million (the
"Retained Shares").

                                     - 25 -

<PAGE>   26

     Fleet (i) received approximately $39.0 million of the Recapitalization
Consideration, (ii) purchased approximately $7.8 million of the New Shares and
(iii) retained approximately $9.6 million of the Retained Shares. In addition,
Fleet received (a) warrants to purchase 2,180.93 shares of Common stock at a
price of $458.52 per share and (b) warrants to purchase 1,357.73 shares of
Common Stock at a price of $458.52 per share which will be exercisable in full
upon the occurrence of a sale of the Company or an initial public offering of
its stock ("Liquidity Events") if Fleet does not earn a specified return on its
cash investment in the Company.

     Management of the Company (i) received approximately $16.0 million of the
Recapitalization Consideration, (ii) purchased approximately $0.3 million of the
New Shares and (iii) retained approximately $6.4 million of the Retained Shares.
Messrs. George, Sylvia, and Richard (or members of their respective families)
received approximately $6.7 million, $3.1 million, and $1.2 million,
respectively, of such Recapitalization Consideration. Mr. Palmer purchased
approximately $0.2 million of such New Shares, and Messrs. George, Sylvia, and
Richard retained approximately $3.8 million, $2.1 million, and $0.5 million,
respectively, of such Retained Shares. In addition, Messrs. George and Sylvia
were granted options to purchase 351.13 and 222.45 shares, respectively, of
Common Stock at a price of $458.52 per share.

     First Union Investors, Inc., an affiliate of First Union Capital Partners,
one of the initial purchasers of the Notes, and First Union National Bank, the
principal lender under the Senior Credit Facility, acquired 3,373.75 voting and
7,530.90 non-voting New Shares for approximately $5 million and also received
warrants to purchase 391.57 shares of Common Stock at a price of $458.52 per
share which will be exercisable in full upon the occurrence of certain Liquidity
Events if the holder does not earn a specified return on its cash investment in
the Company. The Private Market Fund, L.P. received warrants to purchase 313.26
shares of Common Stock at a price of $458.52 per share which will be exercisable
in full upon the occurrence of certain Liquidity Events if the holder does not
earn a specified return on its cash investment in the Company.

                                     - 26 -
<PAGE>   27


                                     PART IV

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

(a)  The consolidated balance sheets as of January 2, 1999 and January 1, 2000
     and the related consolidated statements of operations, cash flows,
     shareholders' equity (deficit), and financial statement schedule for each
     of the three years in the period ended January 1, 2000 are filed as part of
     this report:

                                     - 27 -
<PAGE>   28

(1)  Financial Statements

                             SIMONDS INDUSTRIES INC.
                           CONSOLIDATED BALANCE SHEETS
                      (In Thousands, except share amounts)

<TABLE>
<CAPTION>
                                          ASSETS                                      January 2,     January 1,
                                          ------                                         1999           2000
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>
CURRENT ASSETS:
       Cash                                                                           $   9,298      $   8,383
       Accounts receivable, net of reserves of $992 and $993                             16,250         17,400
       Inventories (Note 3)                                                              27,226         26,650
       Other current assets                                                               3,208          3,162
       Refundable income taxes                                                            1,157          1,037
                                                                                      ---------      ---------
                  Total current assets                                                   57,139         56,632

PROPERTY, PLANT AND EQUIPMENT:
       Land                                                                               2,332          2,300
       Buildings and improvements                                                        12,118         10,684
       Machinery and equipment                                                           27,009         32,126
       Construction-in-progress                                                           1,296            314
                                                                                      ---------      ---------
                                                                                         42,755         45,424

       Less- Accumulated depreciation                                                     8,370         11,585
                                                                                      ---------      ---------
                  Net property, plant and equipment                                      34,385         33,839

OTHER ASSETS:
       Goodwill, net of accumulated amortization of $1,581 and $2,223                    21,765         22,308
       Deferred financing costs, net of accumulated amortization of $252 and $764         4,389          3,900
       Other, including buildings held for resale at January 1, 2000                        561          1,608
                                                                                      ---------      ---------
                  Total other assets                                                     26,715         27,816
                                                                                      ---------      ---------
                  Total assets                                                        $ 118,239      $ 118,287
                                                                                      =========      =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
       Overdraft facilities                                                           $     149      $     190
       Revolving credit loans and notes payable                                           1,613            321
       Current portion of long-term debt                                                     35             14
       Accounts payable                                                                   6,783          6,871
       Accrued payroll and employee benefits                                              3,953          4,034
       Accrued interest                                                                   5,011          5,153
       Other accrued liabilities                                                          1,351          2,739
       Currently deferred income taxes                                                    2,448          2,028
                                                                                      ---------      ---------
             Total current liabilities                                                   21,343         21,350

LONG-TERM DEBT, net of current portion (Note 5)                                         102,362        102,523

DEFERRED INCOME TAXES                                                                     4,939          4,808

OTHER NONCURRENT LIABILITIES (Note 4)                                                     2,275          1,851

COMMITMENTS AND CONTINGENCIES (Note 6)                                                       --             --

SHAREHOLDERS' EQUITY:
       Common stock, $.01 par value-
             Authorized - 200,000 shares
             Issued and outstanding - 76,333 and 76,289                                       1              1
       Capital in excess of par value                                                   (24,405)       (24,405)
       Retained earnings                                                                 12,696         14,130
       Additional minimum pension liability, net of $58 tax effect                           --           (135)
       Cumulative translation adjustment                                                   (907)        (1,715)
       Treasury stock, at cost                                                              (65)          (121)
                                                                                      ---------      ---------
                  Total shareholders' equity (deficit)                                  (12,680)       (12,245)
                                                                                      ---------      ---------
                  Total liabilities and shareholders' equity                          $ 118,239      $ 118,287
                                                                                      =========      =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                     - 28 -
<PAGE>   29

<TABLE>
<CAPTION>
                                                         SIMONDS INDUSTRIES INC.
                                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                                              (In Thousands)

                                                            Year Ended December
                                                   ---------------------------------------
                                                      1997          1998           1999
                                                    --------     ---------      ---------
                                                   (52 Weeks)    (53 Weeks)     (52 Weeks)
<S>                                                 <C>          <C>            <C>
Net sales                                           $114,182     $ 126,296      $ 127,496
Cost of goods sold                                    78,798        86,750         88,392
                                                    --------     ---------      ---------

           Gross profit                               35,384        39,546         39,104

Selling, general and administrative expense           21,149        28,771         25,753
                                                    --------     ---------      ---------

           Operating income                           14,235        10,775         13,351

Other expenses:
  Interest expense, net                                4,963         7,900         10,948
  Other, net                                             520           554           (249)
                                                    --------     ---------      ---------

           Income before income taxes                  8,752         2,321          2,652

Provision for income taxes                             3,751           955          1,218
                                                    --------     ---------      ---------
           Income before
                extraordinary item                     5,001         1,366          1,434

Extraordinary item-
   Write-off of deferred financing cost related
   to refinanced indebtedness, net of tax
   benefit of $374                                        --          (529)            --
                                                    --------     ---------      ---------

           Net income                               $  5,001     $     837      $   1,434
                                                    ========     =========      =========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                     - 29 -
<PAGE>   30

<TABLE>
<CAPTION>
                                                                     SIMONDS INDUSTRIES INC.
                                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                          (In Thousands)

                                                                            YEAR ENDED
                                                              -----------------------------------
                                                              DECEMBER 27,   JANUARY 2,   JANUARY 1,
                                                                 1997          1999         2000
                                                              ===================================
<S>                                                           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                  $  5,001      $    837      $ 1,434
  Adjustment to reconcile net income to
    net cash provided by operating activities:
      Depreciation and amortization                              3,459         5,176        4,879
      Gain on asset sales                                          (16)          (48)         (17)
      Provision for deferred
         income taxes                                              258           249        1,061
      Changes in assets and liabilities, net
        of acquisitions:
        Accounts receivable                                       (927)        2,692       (1,150)
        Inventories                                              2,902          (952)       1,125
        Income tax refunds receivable                               40        (1,056)         120
        Other current and noncurrent assets                        602           326         (254)
        Accounts payable                                          (346)          355          (37)
        Accrued expenses                                         2,297         1,527          (94)
        Other non-current liabilities                             (224)            7         (559)
                                                              -----------------------------------

      Net cash provided by operating
        activities                                              13,046         9,113        6,508
                                                              -----------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of property and equipment                    107            72           53
   Purchases of equipment                                       (3,708)       (4,348)      (4,364)
   Acquisition of Pacific Hoe Company Assets                    (5,578)           --           --
   Acquisition of Armstrong Manufacturing
        net of cash acquired of $875                            (8,125)           --           --
   Acquisition of W. Notting Ltd.,
        net of cash acquired of $51                                 --        (5,471)          --
   Acquisition of Anderson Holesaw Assets                           --            --       (1,573)
                                                              -----------------------------------

      Net cash (used in) investing activities                  (17,304)       (9,747)      (5,884)
                                                              -----------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net change in overdrafts                                       (539)         (100)          41
   Net (uses) proceeds under revolving credit                   (1,445)        3,789       (1,292)
   Proceeds from issuance of long-
      term debt-net of issuance costs                            7,700        98,063          161
   Principal payments of long-term debt                         (1,312)      (57,751)         (21)
   Issuance of common stock                                         33        18,833           --
   Stock redemption                                                 --       (53,791)          --
   Purchase of treasury stock                                       --           (65)         (56)
   Other                                                          (138)           --          (38)
                                                              -----------------------------------

     Net cash provided by (used in) financing activities         4,299         8,978       (1,205)
                                                              -----------------------------------

EFFECT OF EXCHANGE RATE ON CASH                                    (41)         (301)        (334)
                                                              -----------------------------------

NET INCREASE (DECREASE) IN CASH                                     --         8,043         (915)

CASH AT BEGINNING OF PERIOD                                      1,255         1,255        9,298
                                                              -----------------------------------

CASH AT END OF PERIOD                                         $  1,255      $  9,298      $ 8,383
                                                              ===================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                     - 30 -
<PAGE>   31

<TABLE>
<CAPTION>
                                                                          SIMONDS INDUSTRIES INC.
                                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                 For the years ended December 27, 1997, January 2, 1999 and January 1, 2000
                                                                    (In thousands, except share amounts)

                                                                                  ACCUMULATED
                                                          CAPITAL                    OTHER                  TOTAL
                                   COMMON      COMMON    IN EXCESS     RETAINED  COMPREHENSIVE  TREASURY SHAREHOLDERS' COMPREHENSIVE
                                   SHARES      STOCK      OF PAR       EARNINGS      ITEMS       STOCK  EQUITY (DEFICIT)  INCOME
                                   ------      -----      ------       --------      -----       -----  ----------------  ------
<S>                               <C>           <C>      <C>           <C>         <C>          <C>        <C>           <C>
Balance at December 27, 1996       148,037      $ 1      $ 10,520      $ 6,858     $  (181)     $   0      $ 17,198           --
   Exercise of stock options           334       --            33           --          --         --            33           --
   Net Income                           --       --            --        5,001          --         --         5,001      $ 5,001
   Foreign Currency
    Translation Adjustment              --       --            --           --        (617)        --          (617)        (617)

                                    ------      ---      --------      -------     -------      -----      --------      -------
Balance at December 27, 1997       148,371        1        10,553       11,859        (798)         0        21,615      $ 4,384
                                                                                                                         =======
   Issuance of Common Stock         41,073        1        18,832           --          --         --        18,833           --
   Net Income                           --       --            --          837          --         --           837      $   837
   Foreign Currency
    Translation Adjustment              --       --            --           --        (109)        --          (109)        (109)
   Stock Redemption               (112,777)      (1)      (53,790)          --          --         --       (53,791)          --
   Acquisition of Treasury            (334)      --            --           --          --        (65)          (65)          --

                                    ------      ---      --------      -------     -------      -----      --------      -------
Balance at January 2, 1999          76,333        1       (24,405)      12,696        (907)       (65)      (12,680)     $   728
                                                                                                                         =======
   Net Income                           --       --            --        1,434          --         --         1,434      $ 1,434
   Foreign Currency
   Translation Adjustment               --       --            --           --        (808)        --          (808)        (808)
   Additional minimum pension
   Liability, net of $58 tax
    effects                             --       --            --           --        (135)        --          (135)        (135)
   Acquisition of Treasury             (44)      --            --           --          --        (56)          (56)          --

                                    ------      ---      --------      -------     -------      -----      --------      -------
Balance at January 1, 2000          76,289      $ 1      $(24,405)     $14,130     $(1,850)     $(121)     $(12,245)     $   491
                                    ======      ===      ========      =======     =======      =====      ========      =======
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     - 31 -
<PAGE>   32

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Effective June 11, 1998, SI Holding Corporation changed its name to Simonds
     Industries Inc., and merged with its wholly owned operating subsidiary,
     Simonds Industries Inc. (Simonds or the Company), a Delaware corporation
     which manufactures and is a worldwide distributor of industrial cutting
     tools. The primary products manufactured by Simonds include metal band and
     wood saws, industrial knives and rules, files and band saw equipment.
     Simonds' principal manufacturing operations are located in Fitchburg,
     Massachusetts; Newcomerstown, Ohio; Big Rapids, Michigan; Corona and Santa
     Fe Springs, California; Portland and Springfield, Oregon and Spangenberg,
     Germany. Simonds also has sales subsidiaries in the United Kingdom, Canada,
     and Spain.

     (a)  Principles of Consolidation

          The accompanying consolidated financial statements include the
          accounts of Simonds Industries Inc. and its subsidiaries. All material
          intercompany transactions and balances have been eliminated in
          consolidation. Certain amounts in prior year financial statements have
          been reclassified to conform to the current year's presentation.

     (b)  Disclosures About Fair Value of Financial Instruments

          The carrying amounts of cash, accounts receivable and accounts payable
          approximate fair value because of their short-term nature. At January
          1, 2000, the fair value of long-term indebtedness was approximately
          $20,000,000 lower than the amount on the Company's consolidated
          balance sheet based on market quotations. (See Note 5.)

     (c)  Use of Estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenues
          and expenses during the reporting periods. Actual results could differ
          from those estimates.

     (d)  Fiscal Year

          The Company's fiscal year ends on the Saturday closest to December 31.
          As a result, the years ended December 27, 1997, January 2, 1999 and
          January 1, 2000 include 52, 53, and 52 weeks, respectively.

     (e)  Inventories

          Approximately 55% and 57% of inventories January 2, 1999 and January
          1, 2000, respectively, are valued at the lower of cost (last-in,
          first-out (LIFO) method) or market. All other inventories are valued
          at the lower of cost (first-in, first-out (FIFO) method) or market.
          Inventory costs include labor and manufacturing overhead. Obsolete,
          damaged and excess inventories are carried at net realizable value,
          with consideration given to obsolescence risks for excess stock.
          Writedowns are charged to expense in the period in which the
          conditions giving rise to writedowns are first recognized. The Company
          did not incur material writedowns in any of the periods presented in
          the accompanying consolidated financial statements

                                     - 32 -

<PAGE>   33

     (f)  Property, Plant and Equipment

          Depreciation is computed using the straight-line method based on the
          following estimated useful lives:

                                                ESTIMATED USEFUL LIVES

          Buildings and improvements                 20-40 years
          Machinery and equipment                    3-12 years
          Furniture and fixtures                       8 years

          Maintenance and repairs are expensed as incurred. Depreciation expense
          was approximately $2,400,000, $3,100,000 and $3,500,000 for the years
          ended December 27, 1997, January 2, 1999, and January 1, 2000,
          respectively.

     (g)  Goodwill

          Goodwill represents the cost in excess of fair value of the net assets
          of companies acquired in purchase transactions. Goodwill is being
          amortized on a straight-line method over 40 years. Amortization
          charged to operations amounted to $489,000, $561,000 and $636,000 for
          years ended December 27, 1997, January 2, 1999, and January 1, 2000,
          respectively. At each balance sheet date, the Company evaluates the
          realizability of goodwill based on expectations of non-discounted cash
          flows and operating income for each subsidiary having a material
          goodwill balance. Based on its most recent analysis, the Company
          believes that no material impairment of goodwill exists at January 1,
          2000.

     (h)  Foreign Currency Translation

          The assets and liabilities of the Company's foreign subsidiaries are
          translated at year-end rates of exchange, and statement of operations
          accounts are translated at weighted average rates of exchange. The
          resulting translation adjustments are excluded from net income and are
          accumulated as a separate component of shareholders' equity. Foreign
          currency transaction gains and losses are included in income or
          expense in the period in which the transaction occurs.

          Foreign currency transaction losses (gains) included in the
          determination of results for the periods ended December 27, 1997,
          January 2, 1999, and January 1, 2000 were approximately $537,000,
          $682,000, and ($197,000), respectively.

     (i)  Sales Recognition

          The Company recognizes sales upon the shipment of its products net of
          applicable provisions for discounts and allowances. Estimated future
          warranty obligations related to certain products are provided by
          charges to operations in the period in which the related revenue is
          recognized. The Company did not incur material warranty costs in any
          of the periods presented in the accompanying financial statements.

                                     - 33 -

<PAGE>   34

     (j)  Income Taxes

          The Company accounts for its income taxes under the provisions of
          Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
          for Income Taxes. SFAS No. 109 utilizes the liability method, and
          deferred taxes are determined based on the estimated future tax
          effects of differences between the financial statement and tax bases
          of assets and liabilities at currently enacted tax laws and rates.

     (k)  Recent Accounting Pronouncements

          In June 1998, the Financial Accounting Standards Board (FASB) issued
          SFAS No. 133, Accounting for Derivative Instruments and Hedging
          Activities. This statement establishes accounting and reporting
          standards requiring that every derivative instrument (including
          certain derivative instruments embedded in other contracts) be
          recorded in the balance sheet as either an asset or liability measured
          at its fair value. The statement requires that changes in the
          derivative's fair value be recognized currently in earnings unless
          specific hedge accounting criteria are met. Special accounting for
          qualifying hedges allows a derivative's gains and losses to offset
          related results on the hedged item in the income statement, and
          requires that a company must formally document, designate and assess
          the effectiveness of transactions that receive hedge accounting. SFAS
          No. 133 as amended by SFAS No. 137, Accounting for Derivative
          Instruments and Hedging Activities - Deferral of the Effective Date of
          FASB Statement No. 133, is effective for fiscal years beginning after
          June 15, 2000. SFAS No. 133 cannot be applied retroactively. SFAS No.
          133 must be applied to (a) derivative instruments and (b) certain
          derivative instruments embedded in hybrid contracts that were issued,
          acquired or substantially modified after December 31, 1998 (and, at
          the Company's election, before January 1, 1999). The Company does not
          expect that the adoption of this statement will have a material impact
          on the Company's financial position or results of operations.

          The Securities and Exchange Commission released Staff Accounting
          Bulletin (SAB) No. 101 Revenue Recognition In Financial Statements, on
          December 3, 1999. This SAB provides additional guidance on the
          accounting for revenue recognition, including both broad conceptual
          discussions as well as certain industry-specific guidance. The Company
          is in the process of accumulating the information necessary to
          quantify the potential impact, if any, of this new guidance. The
          guidance is effective for the first quarter of fiscal 2000 and would
          be adopted by recording the effect of any prior revenue transaction
          affected as a "cumulative effect of change in accounting principle" as
          of January 2, 2000.

                                     - 34 -

<PAGE>   35

(2)  ACQUISITIONS AND RECAPITALIZATION

     Acquisitions

     On January 27, 1997, the Company purchased certain assets, mainly inventory
     and equipment, for $5,578,000 from Pacific Hoe. Purchase price in excess of
     fair value of assets acquired, $3,831,000, is being amortized on a
     straight-line basis over 40 years.

     On August 1, 1997, the Company acquired 100% of the outstanding stock of
     Armstrong Manufacturing Company ("Armstrong,"), for $9,000,000, which
     includes cash acquired of $875,000. The acquisition has been accounted for
     as a purchase, with the purchase price in excess of the fair value of net
     assets acquired, $3,601,000, being amortized on a straight-line basis over
     40 years. Results of operations of Armstrong are included in the
     accompanying consolidated financial statements subsequent to August 1,
     1997.

     On May 8, 1998, the Company acquired 100% of the outstanding stock of W.
     Notting Limited ("Notting") for approximately $6,718,000, of which
     $5,471,000 was paid in cash with additional financing from the Company's
     revolving credit facility; the balance was in the form of a term Promissory
     Note to the sellers bearing interest at 8.5% and was repaid April 30, 1999.
     The acquisition was accounted for as a purchase and the purchase price has
     been allocated based on the fair market value of the underlying assets and
     liabilities. In accordance with EITF 95-3, the purchase price allocation
     reflects accruals of approximately $500,000 for lease contracts on
     facilities that are being closed; $300,000 for severance pay accruals for
     24 employees to be terminated; and $300,000 for other reorganization
     expenses. At January 1, 2000, the remaining accruals were $325,000 for
     lease contracts on facilities; $280,000 for severance pay; and $125,000 for
     other reorganization expenses. As of January 1, 2000, 6 employees of the 24
     had been terminated. The remaining 18 were terminated by February 29, 2000.
     Additionally, approximately $1,000,000 in property, plant and equipment was
     reclassified to other assets for buildings held for resale. Buildings are
     stated at fair market value. Goodwill totaled $2,857,000 on this
     acquisition and is being amortized on a straight-line basis over 40 years.
     The consolidated financial statements include the results of operations of
     Notting subsequent to the date of acquisition.

     On October 19, 1999, the Company purchased certain assets, mainly
     inventory, machinery, equipment, technical drawings and information,
     customer lists and all other assets used by Anderson Products Division of
     Wilton Corporation for $1,573,000. Purchase price in excess of fair value
     of assets acquired, $700,000, is being amortized on a straight-line basis
     over 40 years.

     Recapitalization

     In July 1998, the Company issued $100 million of 10-1/4% Senior
     Subordinated Notes due 2008 (the "Notes")(see Note 5). Proceeds from the
     Notes were primarily used for the repayment of indebtedness, the
     acquisition of treasury stock, and the buyout of all outstanding stock
     options and warrants. The buyout of stock options resulted in a pre-tax
     compensation charge of approximately $4,500,000 recorded in July 1998,
     included in selling, general and administrative expense. The Company
     concurrently entered into a new Senior Credit Facility with a commercial
     lender that provides $30 million availability (see Note 5). All of the
     foregoing transactions are herein referred to collectively as the
     "Recapitalization."

                                     - 35 -

<PAGE>   36

     Pursuant to the Recapitalization (i) the Company repurchased certain of its
     outstanding equity securities for an aggregate purchase price of $58.3
     million (or $458.52 per share of Common Stock and equivalents), (ii) the
     Company issued new shares of voting and non-voting Common Stock to certain
     existing stockholders and new investors with aggregate proceeds to the
     Company of $18.8 million (or $458.52 per share), (iii) the Company issued
     certain warrants and options to certain existing stockholders and new
     investors, and (iv) certain of the Company's existing stockholders retained
     voting Common Stock with an aggregate value (based on per share value of
     $458.52) of approximately $16.2 million.

(3)  INVENTORIES

     Inventories at January 2, 1999 and January 2, 2000 were as follows (in
     thousands):

<TABLE>
<CAPTION>
                                                     1998        1999
<S>                                                <C>         <C>
                  Raw materials                    $ 5,323     $ 4,967
                  Work-in-process                    7,341       6,429
                  Finished goods                    14,562      15,254
                                                   -------     -------

                             Total inventories     $27,226     $26,650
                                                   =======     =======
</TABLE>

     U.S. inventories of $15,153,000 and $15,296,000 at January 2, 1999 and
     January 1, 2000, respectively, were valued using the LIFO method. The
     replacement cost of these inventories was higher by approximately $527,000
     and $344,000 in 1998 and 1999, respectively.

(4)  RETIREMENT PLANS

     The Company has a combined defined-contribution profit sharing and 401(k)
     retirement plan covering all domestic salaried and certain hourly
     employees. Contributions to the profit sharing plan are determined by the
     Board of Directors. The cost of this plan was approximately $399,000,
     $518,000 and $538,000 for the fiscal years ended December 27, 1997, January
     2, 1999, and January 1, 2000, respectively. In the 401(k) portion of the
     plan, the Company matches at a rate of 50% on the first 6% of an employee's
     salary contribution. Company 401(k) matching contributions amounted to
     approximately $302,000, $400,000 and $409,000 for the fiscal years ended
     December 27, 1997, January 2, 1999 and January 1, 2000, respectively.

     Notting also has a defined contribution 401(k) retirement plan in effect
     during 1998 and 1999. In this Plan the Company matches 100% for the first
     4% of an employee's salary contribution. The Company's 401(k) matching
     contributions amounted to approximately $20,000 and $26,000, for the years
     ended January 2, 1999 and January 1, 2000, respectively.

     Certain of the Company's hourly employees participate in a union-sponsored,
     multiemployer defined-contribution retirement plan. The cost of this plan
     was approximately $392,000, $418,000 and $400,000 for the fiscal years
     ended December 27, 1997, January 2, 1999 and January 1, 2000, respectively.
     Contributions are based on wages earned and are paid monthly to the pension
     administrator.

     All other domestic hourly employees are covered by a defined-contribution
     plan. Contributions are based on a union contract as a percentage of wages
     earned and are paid annually. The cost of this plan was approximately
     $151,000, $154,000 and $140,000 for the fiscal years ended December 27,
     1997, January 2, 1999 and January 1, 2000, respectively.

                                     - 36 -

<PAGE>   37

     In connection with the acquisition of Armstrong, the Company acquired a
     defined benefit plan to cover all employees of Armstrong. The defined
     benefit plan was frozen as of December 27, 1997. The fair value of plan
     assets exceeded the projected benefit obligation for services rendered as
     of December 27, 1997. The plan was terminated effective April 30, 1998. On
     January 28, 1999 the plan received a favorable determination from the
     Internal Revenue Service (IRS) and Pension Benefit Guarantee Corporation
     (PBGC). All Participants of this plan were eligible to participate in the
     Company's 401(k) retirement plan, effective January 1, 1998 based on
     eligibility, as defined.

     In addition to the defined benefit plan, employees of Armstrong are also
     covered under a profit sharing plan. The plan merged with the Company's
     401(k) retirement plan effective January 1, 1998. Contributions to the
     Armstrong profit sharing plan are determined by the Board of Directors. The
     cost of this plan was approximately $260,000 in 1997.

     Certain foreign employees are covered under defined-contribution plans.
     Total costs for these plans amounted to approximately $148,000, $120,000
     and $106,000, for the fiscal years December 27, 1997, January 2, 1999 and
     January 1, 2000, respectively.

     Certain employees of one of Simonds' subsidiaries, Wespa Metallsagenfabrik
     Simonds Industries Gmbh ("Wespa"), are covered by an unfunded pension plan.
     In addition, certain employees of Notting are also covered by a defined
     benefit plan.

     The amount of accrued pension liability is included in the accompanying
     consolidated balance sheets in accrued payroll and employee benefits and
     other noncurrent liabilities. The following table sets forth the funded
     status and the amount recognized for the defined benefit plans of the
     foreign subsidiaries Wespa and Notting, which was acquired May 5, 1998, in
     the Company's accompanying consolidated balance sheets at January 2, 1999,
     and January 1, 2000:

<TABLE>
<CAPTION>
                                                       1998             1999
                                                   -----------      -----------
<S>                                                <C>              <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year            $ 1,356,705      $ 4,009,328
Obligations from an acquisition                      1,823,976               --
Service Cost                                            70,564          120,822
Interest Cost                                          166,124          205,621
Actuarial loss                                         582,450         (236,640)
Effect of the change in foreign currency
     exchange rates                                     87,452         (173,875)
Benefits paid                                          (77,943)        (515,150)
                                                   -----------      -----------
Benefit obligation at end of year                    4,009,328        3,410,106
                                                   -----------      -----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year              --        1,910,250
Plan Assets from an acquisition                      1,827,760               --
Actual return on plan assets                            55,275          139,536
Plan participants' contribution                         10,725           16,780
Effect of the change in foreign currency
     exchange rates                                     16,490          (50,449)
Benefits Paid                                               --         (434,738)
                                                   -----------      -----------
Fair value of plan assets at end of year             1,910,250        1,581,379
                                                   -----------      -----------

Funded Status                                        2,099,078        1,828,727
Unrecognized net actuarial gain (loss)                (395,196)        (243,036)
                                                   -----------      -----------
Accrued benefit cost                               $ 1,703,882      $ 1,585,691
                                                   ===========      ===========
</TABLE>

                                     - 37 -

<PAGE>   38

     Amounts recognized in the accompanying balance sheets consists of:
<TABLE>
<CAPTION>
                                                 1998           1999
                                              ----------     ----------
<S>                                           <C>            <C>
     Accrued benefit cost                     $1,703,882     $1,585,691
     Additional minimum pension liability             --        193,000
                                              ----------     ----------

     Accrued benefits liability               $1,703,882     $1,778,691
                                              ==========     ==========
</TABLE>


     The following table breaks out the components of net pension expense for
     the years ending December 27, 1997, January 2, 1999, and January 1, 2000:

<TABLE>
<CAPTION>
                                             1997           1998           1999
                                          ---------      ---------      ---------
<S>                                       <C>            <C>            <C>
     Service Cost                         $  17,953      $  70,564      $ 103,109
     Interest Cost                           87,755        166,124        113,832
     Expected return on plan assets              --        (84,810)      (138,863)
     Recognized Actuarial gain (loss)            --         (4,756)        31,918
     Members contributions                   (3,699)       (10,725)       (16,780)
                                          ---------      ---------      ---------
     Net periodic benefit cost            $ 102,009      $ 136,397      $ 202,718
                                          =========      =========      =========
</TABLE>

     The primary assumptions used in determining related obligations of the
     plans are shown below:

<TABLE>
<CAPTION>
                                             1997     1998         1999
                                            ------  --------     --------
<S>                                          <C>    <C>          <C>
     WEIGHTED-AVERAGE ASSUMPTIONS
     Discount rate                           6.5%   5.0-6.5%     5.5-6.5%
     Expected return on plan assets           --      6.5%         6.5%
     Rate of compensation increase           6.5%   4.0-6.5%     4.5-6.5%
</TABLE>



                                     - 38 -
<PAGE>   39

(5)  DEBT

Debt consists of the following at January 2, 1999 and January 1, 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                                                  January 2,   January 1,
                                                                                     1999         2000
                                                                                   --------     --------
<S>                                                                                <C>          <C>
Line of credit facility for German Subsidiary with First Union National Bank       $  2,362     $  2,523
up to approximately $2,832, interest payable quarterly at EURIBOR (3.18% at
January 1, 2000) plus 1.25% terminating on October 1, 2003, payable in
Deutschmarks

Line of credit facilities for Notting with Banco Sabadell and Banco Popular              62          135
of Spain, bearing interest at 5.07% and 5.75% and terminating on April 1, 2001
and May 17, 2000, respectively, payable in Spanish Pesetas

Two term loans payable by Notting to National Westminster Bank on June 30,              390          200
2000 and September 30, 2000, bearing interest at 8.75% and 9.5%, payable in
British Pounds

Notes payable to Notting shareholders, issued May 8, 1998, interest payable           1,196            0
semi-annually at 8.5%, matured April 30, 1999, secured by a guarantee of the
Company, paid in British Pounds

Senior Subordinated Notes issued July 8, 1998, and maturing July 1, 2008,           100,000      100,000
interest payable semi-annually at 10.25%

                                                                                   --------     --------
                                                                                    104,010      102,858
Less-current maturities                                                               1,648          335
                                                                                   --------     --------
                                                                                   $102,362     $102,523
                                                                                   ========     ========
</TABLE>

     In July 1998, the Company issued $100,000,000 of Senior Subordinated Notes.
     The Notes are due in 2008, but may be redeemed on or after July 1, 2003 at
     specified premium prices. Proceeds from the Notes were primarily used for
     the repayment of approximately $53.1 million of indebtedness, the
     acquisition of treasury stock, and the buyout of all outstanding stock
     options and warrants.

     The repayment of the indebtedness resulted in an extraordinary charge of
     approximately $500,000, net of tax benefit, recorded in July 1998 to write
     off unamortized debt discount and deferred financing costs.

                                     - 39 -

<PAGE>   40

     Financing costs relating to the issuance of the Notes was $4,190,000 and is
     being amortized over the term of the debt.

     The indenture governing the Notes restricts, among other things, the
     incurrence of additional indebtedness, the payment of dividends and the
     making of certain other restricted payments, mergers, consolidations and
     sale of assets (all as defined in the Indenture).

     Upon the occurrence of a Change of Control (as defined in the Indenture),
     each holder of Notes will have the right to require the Company to
     repurchase all or a portion of such holder's Notes at a price in cash equal
     to 101% of the aggregate principal amount thereof, plus accrued and unpaid
     interest, if any, to the date of repurchase. However, the Company's ability
     to repurchase the Notes upon a Change of Control may be limited by the
     terms of then existing contractual obligations of the Company and its
     subsidiaries. In addition, the occurrence of a Change of Control will
     constitute an event of default under the Senior Credit Facility. The Senior
     Credit Facility will prohibit the purchase of the Notes unless and until
     such time as the indebtedness under the Senior Credit Facility is paid in
     full. There can be no assurance that the Company will have the financial
     resources to repay amounts due under the Senior Credit Facility, or to
     repurchase or redeem the Notes. If the Company fails to repurchase all of
     the Notes tendered for purchase upon the occurrence of a Change of Control,
     such failure will constitute an Event of Default under the Indenture.

     The Company concurrently entered into a new Senior Credit Facility with a
     commercial lender that provides $30,000,000 availability, undrawn as of
     January 1, 2000. Borrowings under the Senior Credit Facility are available
     for permitted acquisitions and working capital, including letters of
     credit.

     The Senior Credit Facility is secured by first priority liens on all
     tangible and intangible personal property and real property assets of the
     Company and its subsidiaries.

     The Senior Credit Facility expires in 2003, unless extended. The interest
     rate per annum applicable to the Senior Credit Facility is, at the
     Company's option, either LIBOR or the greater of the prime rate or the
     overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375%
     depending on the Company's financial leverage (the "Applicable Margin").
     The Company is required to pay certain fees in connection with the Senior
     Credit Facility, including a commitment fee of 0.50% initially and
     thereafter at a per annum rate equal to the Applicable Margin on the
     unutilized portion of the facility.

     As part of the Senior Credit Facility the Company is required to comply
     with certain covenants. At January 1, 2000 the Company was required to
     maintain a fixed charge coverage ratio of greater or equal to 1.0 to 1.0, a
     net leverage ratio less than or equal to 5.5 to 1.0, and an interest
     coverage ratio of greater than or equal to 1.65 to 1.0. At January 1, 2000
     the Company was in compliance with all covenants.

                                     - 40 -

<PAGE>   41

     The following is a summary of maturities of all of the Company's debt
     obligations due after January 1, 2000 (in thousands):

<TABLE>
<CAPTION>
                  FISCAL YEAR                        AMOUNT
<S>                                                <C>
                  2000                             $     335
                  2001                                     -
                  2002                                     -
                  2003                                 2,523
                  2004                                     -
                  Thereafter                         100,000
                                                   ---------
                                                   $ 102,858
                                                   =========
</TABLE>

(6)  COMMITMENTS AND CONTINGENCIES

     (a)  Commitments under Operating Leases

          Certain of the Company's operations are conducted from facilities
          rented under operating leases that expire over the next 10 years. The
          Company also has operating leases covering certain office equipment.
          Substantially all leases provide for the Company to pay operating
          expenses in addition to basic rent. Rent expense was approximately
          $710,000, $916,000 and $1,016,000 for the fiscal years ended December
          27, 1997, January 2, 1999 and January 1, 2000, respectively.

          Future minimum annual rentals on non-cancelable leases in effect at
          January 1, 2000, which have initial or remaining terms of more than
          one year, are as follows:

<TABLE>
        FISCAL YEAR                     AMOUNT
<S>                                  <C>
        2000                         $   570,000
        2001                             483,000
        2002                             426,000
        2003                             315,000
        2004                             296,000
        Thereafter                       506,000
                                     -----------
                                     $ 2,596,000
                                     ===========
</TABLE>

     (b)  Litigation

          The Company is party to a lawsuit that was litigated in China
          involving a Chinese joint venture, established by the Company's
          predecessor. Company management believes the lawsuit to be without
          merit. In addition, the Company is a party to other lawsuits that
          arose in the normal course of business. In the opinion of management,
          the final resolutions of these lawsuits are not expected to materially
          affect the financial condition or results of operations of the
          Company.

          In 1992, the Company's property in Ashburnham, Massachusetts, was
          identified as having groundwater contamination. The Company has been
          indemnified from such liability by prior owners. In 1999, $2.0 million
          was disbursed from escrow for remediation of contamination; $1.0
          million was spent and there is $1.0 million recorded in other current
          liabilities for existing remediation contracts entered into in 1999.
          Management believes the remaining $0.7 million held in escrow will be
          sufficient to cover the remaining environmental liabilities, although
          there can be no assurance that such amounts will be sufficient.

                                     - 41 -

<PAGE>   42

     (c)  Employment Contracts

               The Company has an employment agreement with the Chairman of the
          Board, which expires September 15, 2000, at which time the Chairman
          intends to retire. The Company also has employment agreements with key
          executive management. The agreements with the President/Chief
          Executive Officer and the future Chief Financial Officer provide for
          twelve months' severance on termination by the Company at any time
          without cause and termination by the employee upon at least thirty
          (30) days' prior written notice. No severance is provided if the
          Company terminates for cause or if the employee terminates
          voluntarily. In addition, the Company has employment agreements with
          all vice presidents, providing for at least twelve months' written
          notice prior to termination by the Company without cause (thirty days
          with cause) and ninety (90) days' prior written notice by the
          employee.

(7)  INCOME TAXES

     Components of income before income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
                                YEAR         YEAR         YEAR
                                ENDED        ENDED        ENDED
                             DECEMBER 27,  JANUARY 2,   JANUARY 1,
                                1997         1999         2000
<S>                            <C>          <C>          <C>
          Domestic             $6,441       $  852       $  566
          Foreign               2,311        1,469        2,086
                               ------       ------       ------
                     Total     $8,752       $2,321      $2,652
                               ======       ======       ======
</TABLE>

     The provision for income taxes consists of the following components for the
     periods ended (in thousands):

<TABLE>
<CAPTION>
                                                  YEAR ENDED
                                                DECEMBER 27, 1997
                                           -------------------------
                                           CURRENT  DEFERRED   TOTAL
<S>                                       <C>        <C>     <C>
           Domestic-
              Federal                     $ 2,153    $ 57    $ 2,210
              State                           487      18        505

           Foreign                            853     183      1,036
                                          -------   -----    -------

                      Total               $ 3,493    $ 258   $ 3,751
                                          =======    =====   =======
</TABLE>


                                     - 42 -
<PAGE>   43

                                         YEAR ENDED
                                       JANUARY 2, 1999
                                       ---------------
                                CURRENT    DEFERRED      TOTAL

 Domestic-
    Federal                     $   154    $    186    $    340
    State                            80          14          94
 Foreign                            472          49         521
                                -------    --------    --------
            Total               $   706    $    249    $    955
                                =======    ========    ========



                                         YEAR ENDED
                                       JANUARY 1, 2000
                                       ---------------
                                 CURRENT    DEFERRED      TOTAL


 Domestic-
    Federal                     $   (345)   $    677    $    332
    State                           (141)        220          79
 Foreign                             643         164         807
                                --------    --------    --------
            Total               $    157    $  1,061    $  1,218
                                ========    ========    ========



     An income tax rate reconciliation of the difference between actual and
     statutory effective tax rates is as follows (in thousands):


                                     YEAR             YEAR             YEAR
                                    ENDED            ENDED            ENDED
                                 DECEMBER 27,     DECEMBER 27,     DECEMBER 27,
                                     1997            1999              2000

Provision for income taxes at
 the federal statutory rate      $      2,976     $        789     $        902

State taxes, net of federal
 tax effect                               552               62               52

Goodwill amortization not
 deductible or tax purposes               166              141              174

Foreign taxes                              89                6               56

Other, net                                (32)             (43)              34
                                 ------------      -----------     ------------
Recorded provision               $      3,751      $       955     $      1,218
                                 ============      ===========     ============

     Deferred taxes are recorded based on the differences between the financial
     statement and tax bases of assets and liabilities. The tax effect of the
     temporary differences that give rise to a significant portion of deferred
     tax liabilities is as follows at January 2, 1999 and January 1, 2000 (in
     thousands):


                                      -43-
<PAGE>   44


                                                   1998                1999
Tax assets-
   Reserves and accruals not yet
     deductible for tax purposes                 $(1,541)             $ (890)
                                                 -------              ------
Tax liabilities-
   Property-basis differences                      4,958               4,802
   Inventory-basis differences                     2,744               2,143
   Other current assets-basis differences            865                 907
   Other                                             361                (126)
                                                 -------              ------
           Total tax liabilities                   8,928               7,726
                                                 -------              ------
           Net tax liabilities                   $ 7,387              $6,836
                                                 =======              ======

Net deferred tax liabilities are included in the accompanying consolidated
balance sheets in deferred income taxes and currently deferred income taxes.

(8)     STOCK OPTION PLANS

        On July 25, 1995, the Board of Directors of the Company approved the
        Stock Incentive Plan (the Plan) for key executives, management and
        employees. The Company has reserved 9,568 shares of the Company's common
        stock for issuance under the Plan. All stock options were exercised in
        July 1998 in conjunction with the issuance of the Notes. The buyout of
        stock options resulted in a pretax compensation charge of approximately
        $4,500,000 recorded in July 1998.

        In July 1998, the Company adopted the Amended and Restated 1998 Stock
        Incentive Plan pursuant to which key employees (including officers who
        are also directors of the Company) will be eligible for discretionary
        awards of stock options at the discretion of the Board of Directors. The
        terms and prices of options will be at the discretion of the Board. Key
        officers were granted options in July 1998 to purchase 573.58 shares of
        Common Stock at a price of $458.52 per share. The options to purchase
        222.45 of these shares were cancelled in 1999. Additional options were
        granted under this Plan in 1999 to purchase 8,735 shares.


                                      -44-
<PAGE>   45

Stock option activity for the period December 28, 1996 through January 1, 2000
is summarized below:


<TABLE>
<CAPTION>
                                    TOTAL SHARES          WEIGHTED         WEIGHTED
                                                           AVERAGE       AVERAGE FAIR
                                                          EXERCISE         VALUE OF
                                                            PRICE          OPTIONS
                                                                           GRANTED
<S>                                    <C>                <C>             <C>
Outstanding, December 28, 1996         37,104.19          $332.08
   Granted                                500.00           113.28         $ 59.06
   Canceled                              (366.00)          100.00
   Exercised                             (334.00)          100.00
                                      ----------          -------

Outstanding, December 27, 1997         36,904.19          $333.52
   Canceled                              (200.00)          100.00
   Purchased                          (36,704.19)          334.79
   Granted                                573.58           458.52         $109.37
                                      ----------          -------

Outstanding, January 2, 1999              573.58          $458.52
   Granted                              8,735.00           462.84         $97.50-$131.92
   Canceled                              (497.45)          463.38
                                      ----------          -------

Outstanding, January 1, 2000            8,811.13          $462.53
                                      ==========          =======

Options exercisable                     3,024.45          $466.30
                                      ==========          =======
</TABLE>




     The Company has elected to account for its stock-based compensation plans
     under APB Opinion 25. No accounting recognition is given to stock options
     with exercise prices equal to fair market value on the grant date until the
     options are exercised, at which time the proceeds are credited to the
     shareholders' equity accounts. For options with an exercise price less than
     fair market value on the grant date, the amount that the fair market value
     exceeds the exercise price is charged to compensation expense over the
     period the options vest. Had compensation cost for these plans been
     determined consistent with SFAS No. 123, the Company's net income would not
     have been materially different from amounts reported.

     The fair value of each option grant is estimated on the date of the grant
     using the Black-Scholes option pricing model with the following assumptions
     used:

                                   1997          1998         1999
                                   -------------------------------------
Risk-free interest rate            6.62%         5.45%        4.68-6.09%
Expected life                      10 years      5 years      5 years
Expected volatility                0%            0%           0%
Expected dividend yield            0%            0%           0%


                                      -45-

<PAGE>   46


     In addition, in July 1998 the Company issued warrants to certain
     non-employee shareholders to purchase an aggregate of 4,377.81 shares of
     common stock at a price of $458.52 per share. Warrants for 2,180.93 shares
     were exercisable immediately. Warrants for 2,196.88 shares are exercisable
     only if the Company is either sold or closes an initial public offering of
     its common stock, and the warrant holders do not receive certain minimum
     returns on their investment in the Company's common stock.

(9)  SUPPLEMENTAL CASH FLOW DISCLOSURE

     Cash payments for interest and income taxes and certain noncash
     transactions were as follows for the following periods (in thousands):


                                         YEAR           YEAR           YEAR
                                        ENDED          ENDED          ENDED
                                     DECEMBER 27,    JANUARY 2,     JANUARY 1,
                                         1997           1999           2000
                                     ------------    ----------     ----------

Interest paid                           $4,429         $3,393         $10,456

Income taxes paid                        2,733          2,499             890

Liabilities assumed in acquisitions      7,879          5,273              --


(10) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF CREDIT
     RISK

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting operating segments of
business enterprise. The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. Operating segments are
components of an enterprise which are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the President,
Chief Executive Officer of the Company. The Company has identified its
reportable operating business segment as industrial cutting tools and related
machinery, based on how the business is strategically managed.

The Company's cutting tool business segment consists of metal (48% of 1999 net
sales), wood (42%), and paper (10%) cutting products. The cutting tool business
segment is managed as a single strategic unit which derives its revenues
primarily from sales to privately owned distributors throughout the world.

No single customer accounts for 10% or more of consolidated net sales. Foreign
net sales are attributed based on the location of the Company's subsidiary
responsible for the sale. The following information by geographic area is
presented for 1997, 1998 and 1999.


                                      -46-
<PAGE>   47

        For the year ended December 27, 1997 (in thousands):


<TABLE>
<CAPTION>
                                            Transfers      Income
                           Net Sales to      between       Before
                           Unaffiliated     Geographic     Income     Long-Lived
                            Customers         Areas        Taxes        Assets
                           ------------     ----------     -------    ----------
<S>                         <C>             <C>            <C>          <C>
Geographic areas:
   Domestic Operations      $  75,903       $ 13,954       $11,538      $24,680
   Canadian Operations         17,172             74         1,151          624
   German Operations           13,831            474         1,155        4,037
   UK Operations                7,276             83           391          315
                            ---------       --------       -------      -------
                              114,182         14,585        14,235       29,656
   Unallocated                     --        (14,585)         (544)          --
   Interest Expense                --             --        (4,963)          --
   Interest Income                 --             --            24           --
                            ---------       --------       -------      -------
Consolidated Totals         $ 114,182       $     --       $ 8,752      $29,656
                            =========       ========       =======      =======

   For the year ended January 2, 1999 (in thousands):


                                            Transfers      Income
                           Net Sales to      between       Before
                           Unaffiliated     Geographic     Income     Long-Lived
                            Customers         Areas        Taxes        Assets
                           ------------     ----------     -------    ----------
Geographic areas:
   Domestic Operations      $  85,089       $ 14,858       $ 9,324      $27,435
   Canadian Operations         16,038            325           304          629
   German Operations           14,789            320           763        3,960
   UK & Spanish Operations     10,380            640           384        2,361
                            ---------       --------       -------      -------
                              126,296         16,143        10,775       34,385
   Unallocated                     --        (16,143)         (554)          --
   Interest Expense                --             --        (8,039)          --
   Interest Income                 --             --           139           --
                            ---------       --------       -------      -------
Consolidated Totals         $ 126,296       $     --       $ 2,321      $34,385
                            =========       ========       =======      =======

   For the year ended January 1, 2000 (in thousands):



                                            Transfers      Income
                           Net Sales to      between       Before
                           Unaffiliated     Geographic     Income     Long-Lived
                            Customers         Areas        Taxes        Assets
                           ------------     ----------     -------    ----------
Geographic areas:
   Domestic Operations      $  86,242       $ 12,898       $11,720      $28,698
   Canadian Operations         16,891            163           496          661
   German Operations           13,316            312           524        3,240
   UK & Spanish Operations     11,047            986           611        1,240
                            ---------       --------       -------      -------
                              127,496         14,359        13,351       33,839
   Unallocated                     --        (14,359)          249           --
   Interest Expense                --             --       (11,103)          --
   Interest Income                 --             --           155           --
                            ---------       --------       -------      -------
Consolidated Totals         $ 127,496       $     --       $ 2,652      $33,839
                            =========       ========       =======      =======
</TABLE>

                                      -47-

<PAGE>   48

(11) SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS, AND
     NON-GUARANTORS

The Company's wholly-owned domestic subsidiaries guarantee, on a senior
subordinated basis, the Notes, jointly and severally. The guarantor subsidiaries
data below includes combining financial statements of Armstrong, which was
acquired in August 1997, and Simonds Holding Company. The non-guarantor
subsidiaries' data below includes combining financial statements of Wespa
(German Operations), Simonds Industries Ltd. and Simonds UK Holding Ltd. (UK
Operations), and Simonds Industries Inc. (Canadian Operations). Separate
financial statements of the guarantor subsidiaries have not been presented
because management believes that such financial statements are not material to
investors. In addition, the Senior Credit Facility is guaranteed on a full and
unconditional basis by all guarantors. The following data summarizes the
consolidating results of the Company on the equity method of accounting for the
following periods presented:


                             SIMONDS INDUSTRIES INC.
                          CONSOLIDATING BALANCE SHEET
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                    AS OF JANUARY 2, 1999
                                                            -----------------------------------------------------------------------
                                                               PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                            ---------       ----------   ------------------------------------------
<S>                                                         <C>             <C>             <C>                  <C>    <C>
          ASSETS
CURRENTS ASSETS:
    Cash ...............................................    $   8,602       $     209       $    487             --     $   9,298
    Accounts receivable ................................        7,705             714          7,831             --        16,250
    Intercompany accounts receivable ...................        2,015             626            383         (3,024)           --
    Inventories:
       Raw materials ...................................        2,930             372          2,021             --         5,323
       Work in progress ................................        5,614             289          1,438             --         7,341
       Finished goods ..................................        5,316             758          8,835           (347)       14,562
    Other current assets ...............................        3,464              78            823             --         4,365
                                                            ---------       ---------       --------       --------     ---------
          Total current assets .........................       35,646           3,046         21,818         (3,371)       57,139
                                                            ---------       ---------       --------       --------     ---------
Net property, plant and equipment ......................       23,896           2,527          7,962             --        34,385
OTHER ASSETS:
    Investment in subsidiaries .........................       40,817           7,555             --        (48,372)           --
    Intercompany loan receivable .......................           --          23,163             --        (23,163)           --
    Other assets .......................................       19,903           4,108          2,704             --        26,715
                                                            ---------       ---------       --------       --------     ---------
          Total assets .................................    $ 120,262       $  40,399       $ 32,484       $(74,906)    $ 118,239
                                                            =========       =========       ========       ========     =========
          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES ....................................    $  14,301       $     464       $  9,600       $ (3,022)    $  21,343
LONGTERM DEBT, net of current
    portion.............................................      100,000              --          2,362             --       102,362
INTERDIVISION LONG-TERM
    DEBT................................................       15,145              --          8,018        (23,163)           --
OTHER NONCURRENT
    LIABILITIES ........................................        3,496             638          3,080             --         7,214
SHAREHOLDERS' EQUITY (DEFICIT) .........................      (12,680)         39,297          9,424        (48,721)      (12,680)
                                                            ---------       ---------       --------       --------     ---------
    Total liabilities and shareholders'
       equity (deficit) ................................    $ 120,262       $  40,399       $ 32,484       $(74,906)    $ 118,239
                                                            =========       =========       ========       ========     =========
</TABLE>


                                      -48-

<PAGE>   49





                             SIMONDS INDUSTRIES INC.
                          CONSOLIDATING BALANCE SHEET
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                    AS OF JANUARY 1, 2000
                                                            -----------------------------------------------------------------------
                                                              PARENT        GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                            ---------       ----------   --------------  ------------  ------------
<S>                                                         <C>             <C>            <C>              <C>          <C>
         ASSETS
CURRENT ASSETS:
    Cash ...............................................    $   7,159       $    340       $     884             --     $   8,383
    Accounts receivable ................................        8,245          1,228           7,927             --        17,400
    Intercompany accounts receivable ...................        1,563          1,271           1,215         (4,049)           --
    Inventories:
       Raw materials ...................................        2,999            183           1,785             --         4,967
       Work in progress ................................        5,300            259             870             --         6,429
       Finished goods ..................................        5,926            629           8,984           (285)       15,254
    Other current assets ...............................        3,524             79             596             --         4,199
                                                            ---------       --------        --------       --------     ---------
          Total current assets .........................       34,716          3,989          22,261         (4,334)       56,632
                                                            ---------       --------        --------       --------     ---------
Net property, plant and equipment ......................       24,515          3,035           6,289             --        33,839
OTHER ASSETS:
    Investment in subsidiaries .........................       43,638          5,939              --        (49,577)           --
    Intercompany loan receivable .......................           --         25,420              --        (25,420)           --
    Other assets .......................................       19,288          3,843           4,685             --        27,816
                                                            ---------       --------       ---------       --------     ---------
          Total assets .................................    $ 122,157       $ 42,226       $  33,235       $(79,331)    $ 118,287
                                                            =========       ========       =========       ========     =========
          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES ....................................    $  15,275       $  1,075       $   8,922       $ (3,922)    $  21,350
LONGTERM DEBT, net of current
    portion ............................................      100,000             --           2,523             --       102,523
INTERDIVISION LONGTERM
    DEBT ...............................................       15,145             --          10,275        (25,420)           --
OTHER NONCURRENT
    LIABILITIES ........................................        3,982            638           2,039             --         6,659
SHAREHOLDERS' EQUITY (DEFICIT) .........................      (12,245)        40,513           9,476        (49,989)      (12,245)
                                                            ---------       --------       ---------       --------     ---------
    Total liabilities and shareholders'
       equity ..........................................    $ 122,157       $ 42,226       $  33,235       $(79,331)    $ 118,287
                                                            =========       ========       =========       ========     =========
</TABLE>


 <TABLE>
<CAPTION>
                                                                                    SIMONDS INDUSTRIES INC.
                                                                             CONSOLIDATING STATEMENTS OF OPERATIONS
                                                                                         (In Thousands)

                                                                            TWELVE MONTHS ENDED DECEMBER 27, 1997
                                                             --------------------------------------------------------------------
                                                              PARENT      GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                             --------     ----------   --------------  ------------  ------------

<S>                                                            <C>            <C>           <C>           <C>            <C>
Net sales                                                    $ 86,060        $ 3,797         $38,910       $(14,585)     $114,182
Cost of goods sold                                             60,635          2,401          30,298        (14,536)       78,798
                                                             --------        -------         -------       --------      --------
           Gross profit                                        25,425          1,396           8,612            (49)       35,384

Selling, general and administrative expense                    14,329            938           5,882             --        21,149
                                                             --------        -------         -------       --------      --------
           Operating income                                    11,096            458           2,730            (49)       14,235

Other expenses (income):
  Interest expense                                              6,140            205             739         (2,121)        4,963
  Interest income                                                  --         (1,826)           (295)         2,121            --
  Other, net                                                      362            139              19             --           520
  Equity in earnings of subsidiaries                           (2,402)        (1,231)             --          3,633            --
                                                             --------        -------         -------       --------      --------
           Income before income taxes                           6,996          3,171           2,267         (3,682)        8,752

Provision for income taxes                                      1,995            720           1,036             --         3,751
                                                             --------        -------         -------       --------      --------
           Net income                                        $  5,001        $ 2,451         $ 1,231       $ (3,682)     $  5,001
                                                             ========        =======         =======       ========      ========
</TABLE>


                                      -49-

<PAGE>   50


 <TABLE>
<CAPTION>
                                                                        SIMONDS INDUSTRIES INC.
                                                                 CONSOLIDATING STATEMENTS OF OPERATIONS
                                                                             (In Thousands)

                                                                     TWELVE MONTHS ENDED JANUARY 2, 1999
                                                     ---------------------------------------------------------------------
                                                      PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                     --------      ----------   --------------  ------------  ------------

<S>                                                  <C>            <C>           <C>            <C>            <C>
Net sales                                            $ 88,388       $ 9,532       $ 43,662       $(15,286)      $ 126,296
Cost of goods sold                                     61,223         6,361         34,410        (15,244)         86,750
                                                     --------       -------       --------       --------       ---------
           Gross profit                                27,165         3,171          9,252            (42)         39,546

Selling, general and administrative expense            18,667         2,504          7,600             --          28,771
                                                     --------       -------       --------       --------       ---------
           Operating income                             8,498           667          1,652            (42)         10,775

Other expenses (income):
  Interest expense                                      9,184           470          1,084         (2,699)          8,039
  Interest income                                        (120)       (2,426)          (292)         2,699            (139)
  Other, net                                              636           126           (208)            --             554
  Equity in earnings of subsidiaries                   (2,176)         (657)            --          2,833              --
                                                     --------       -------       --------       --------       ---------
           Income before income taxes                     974         3,154          1,068         (2,875)          2,321

Provision (benefit) for income taxes                     (392)          936            411             --             955
                                                     --------       -------       --------       --------       ---------
           Income before
                extraordinary item                      1,366         2,218            657         (2,875)          1,366

Extraordinary item-
   Write-off of deferred financing cost related
   to refinanced indebtedness, net of tax
   benefit of $374                                       (529)           --             --             --            (529)
                                                     --------       -------       --------       --------       ---------
           Net income                                $    837       $ 2,218       $    657       $ (2,875)      $     837
                                                     ========       =======       ========       ========       =========
</TABLE>



 <TABLE>
<CAPTION>
                                                                           SIMONDS INDUSTRIES INC.
                                                                    CONSOLIDATING STATEMENTS OF OPERATIONS
                                                                                (In Thousands)

                                                                        TWELVE MONTHS ENDED JANUARY 1, 2000
                                                    ----------------------------------------------------------------------
                                                     PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                    --------      ----------   --------------  ------------  -------------

<S>                                                 <C>            <C>            <C>            <C>            <C>
Net sales                                            $ 84,930      $ 10,746       $ 44,965       $(13,145)      $ 127,496
Cost of goods sold                                     60,209         6,834         34,555        (13,206)         88,392
                                                     --------      --------       --------       --------       ---------
           Gross profit                                24,721         3,912         10,410             61          39,104

Selling, general and administrative expense            15,123         2,686          7,944             --          25,753
                                                     --------      --------       --------       --------       ---------
           Operating income                             9,598         1,226          2,466             61          13,351

Other expenses (income):
  Interest expense                                     12,271           432          1,349         (2,949)         11,103
  Interest income                                        (139)       (2,695)          (270)         2,949            (155)
  Other, net                                             (332)          145            (62)            --            (249)
  Equity in earnings of subsidiaries                   (2,980)         (871)            --          3,851              --
                                                     --------      --------       --------       --------       ---------
           Income before income taxes                     778         4,215          1,449         (3,790)          2,652

Provision (benefit) for income taxes                     (656)        1,296            578             --           1,218
                                                     --------      --------       --------       --------       ---------
           Net income                                $  1,434      $  2,919       $    871       $ (3,790)      $   1,434
                                                     ========      ========       ========       ========       =========
</TABLE>


                                      -50-

<PAGE>   51

 <TABLE>
<CAPTION>
                                                                            SIMONDS INDUSTRIES INC.
                                                                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                                                                                 (In Thousands)

                                                                      TWELVE MONTHS ENDED DECEMBER 27, 1997
                                                    ----------------------------------------------------------------------
                                                     PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                    --------      ----------   --------------  ------------  -------------
<S>                                                 <C>            <C>           <C>           <C>           <C>
Net cash provided by operating
  activities:                                       $  7,385       $ 1,644       $ 3,342       $   675       $ 13,046

Cash flows from investing activities:
  Proceeds from asset sales                               65            37             4             1            107
  Purchase of equipment                               (3,074)          (18)         (616)           --         (3,708)
  Acquisitions                                       (13,703)       (8,125)           --         8,125        (13,703)
                                                    --------       -------       -------       -------       --------
      Net cash (used in) investing activities        (16,712)       (8,106)         (612)        8,126        (17,304)

Cash flows from financing activities:
  Change in overdraft                                   (488)           --           (51)           --           (539)
  Net proceeds from revolving credit facility             --          (536)         (909)           --         (1,445)
  Proceeds from issuance of long-term debt-
       net of issuance cost                            7,700            --            --            --          7,700
  Principal payments of long-term debt                  (722)           --          (733)          143         (1,312)
  Intercompany loans                                      --           452          (452)           --             --
  Issuance of common stock                                33         9,000            (1)       (8,999)            33
  Purchase of treasury stock
  Stock Redemption
  Dividends (paid) received                            2,269        (2,269)           --            --             --
  Other                                                 (138)           --            --            --           (138)
                                                    --------       -------       -------       -------       --------
  Net cash (used in)/provided by financing
    activities                                         8,654         6,647        (2,146)       (8,856)         4,299

  Effect of Foreign Exchange                              --            --           (96)           55            (41)
                                                    --------       -------       -------       -------       --------
Increase (decrease) in cash                             (673)          185           488            --             --

Cash at beginning of the period                          698             3           554            --          1,255
                                                    --------       -------       -------       -------       --------
Cash at end of the period                           $     25       $   188       $ 1,042            --       $  1,255
                                                    ========       =======       =======       =======       ========
</TABLE>


                                      -51-

<PAGE>   52

 <TABLE>
<CAPTION>
                                                                            SIMONDS INDUSTRIES INC.
                                                                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                                                                                 (In Thousands)

                                                                      TWELVE MONTHS ENDED JANUARY 2, 1999
                                                    ---------------------------------------------------------------------
                                                     PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                    --------      ----------   --------------  ------------  ------------
<S>                                                 <C>            <C>           <C>           <C>            <C>
Net cash provided by operating
  activities:                                       $  3,726       $ 1,569       $ 2,622       $  1,196       $  9,113

Cash flows from investing activities:
  Proceeds from asset sales                                4            --            68             --             72
  Purchase of equipment                               (3,899)         (168)         (281)            --         (4,348)
  Acquisitions                                        (5,471)       (5,471)       (5,471)        10,942         (5,471)
                                                    --------       -------       -------       --------       --------
      Net cash (used in) investing activities         (9,366)       (5,639)       (5,684)        10,942         (9,747)

Cash flows from financing activities:
  Change in overdraft                                   (246)           --           146             --           (100)
  Net  proceeds from revolving credit facility         7,065            --        (3,276)            --          3,789
  Proceeds from issuance of long-term debt-
       net of issuance cost                           95,420            --         2,643             --         98,063
  Principal payments of long-term debt               (56,684)           --        (1,067)            --        (57,751)
  Intercompany loans                                      --          (641)        6,112         (5,471)            --
  Issuance of common stock                            18,833         6,722            --         (6,722)        18,833
  Purchase of treasury stock                             (65)           --            --             --            (65)
  Stock Redemption                                   (53,791)           --            --             --        (53,791)
  Dividends (paid) received                            3,685        (1,990)       (1,695)            --             --
                                                    --------       -------       -------       --------       --------
  Net cash provided by financing activities           14,217         4,091         2,863        (12,193)         8,978

  Effect of Foreign Exchange                              --            --          (356)            55           (301)
                                                    --------       -------       -------       --------       --------
Increase (decrease) in cash                            8,577            21          (555)            --          8,043

Cash at beginning of the period                           25           188         1,042             --          1,255
                                                    --------       -------       -------       --------       --------
Cash at end of the period                           $  8,602       $   209       $   487             --       $  9,298
                                                    ========       =======       =======       ========       ========
</TABLE>


                                      -52-


<PAGE>   53
 <TABLE>
<CAPTION>
                                                                           SIMONDS INDUSTRIES INC.
                                                                    CONSOLIDATING STATEMENTS OF CASH FLOWS
                                                                                (In Thousands)

                                                                     TWELVE MONTHS ENDED JANUARY 1, 2000
                                                   ---------------------------------------------------------------------
                                                    PARENT       GUARANTORS   NON-GUARANTORS  ELIMINATIONS  CONSOLIDATED
                                                   --------      ----------   --------------  ------------  ------------
<S>                                                <C>           <C>             <C>             <C>           <C>
Net cash provided by operating
  activities:                                      $ 1,317       $ 2,381         $   246         $ 2,564       $ 6,508

Cash flows from investing activities:
  Proceeds from asset sales                             30            --              23              --            53
  Purchase of equipment                             (2,724)         (777)           (863)             --        (4,364)
  Acquisitions                                      (1,573)           --              --              --        (1,573)
                                                   -------       -------         -------         -------       -------
      Net cash (used in) investing activities       (4,267)         (777)           (840)             --        (5,884)

Cash flows from financing activities:
  Change in overdraft                                   --            --              41              --            41
  Net (uses) from revolving credit facility             --            --          (1,292)             --        (1,292)
  Proceeds from issuance of long-term debt-
       net of issuance cost                             --            --             161              --           161
  Principal payments of long-term debt                  --            --             (21)             --           (21)
  Intercompany loans                                    --        (2,257)          2,257              --            --
  Issuance of common stock                              --         2,385               2          (2,387)           --
  Purchase of treasury stock                           (56)           --              --              --           (56)
  Stock Redemption                                      --            --              --              --
  Dividends (paid) received                          1,601        (1,601)             --              --
  Other                                                (38)           --              --              --           (38)
                                                   -------       -------         -------         -------       -------
  Net cash (used in) provided by financing
activities                                           1,507        (1,473)          1,148          (2,387)       (1,205)

  Effect of Foreign Exchange                            --            --            (157)           (177)         (334)
                                                   -------       -------         -------         -------       -------
Increase (decrease) in cash                         (1,443)          131             397              --          (915)

Cash at beginning of the period                      8,602           209             487              --         9,298
                                                   -------       -------         -------         -------       -------
Cash at end of the period                          $ 7,159       $   340         $   884              --       $ 8,383
                                                   =======       =======         =======         =======       =======
</TABLE>


(12)    FOREIGN EXCHANGE CONTRACTS

In order to reduce the impact of changes in foreign exchange rates on
consolidated results of operations and future cash flows, the Company enters
into foreign currency forward contracts with a major bank from time to time. The
majority of these contracts relate to intercompany accounts receivable, with
specified minimum amounts of foreign currency to be sold on a monthly basis
during the calendar year. These contracts qualify for hedge accounting. However,
a portion of the contracts entered into in 1999 did not qualify for hedge
accounting and were marked to market at the end of each accounting period. These
financial instruments were not held for trading purposes. They were entered into
to manage and reduce the impact of change in foreign currency rates. At January
1, 2000 there were no contracts in place.


                                      -53-

<PAGE>   54

(13) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following summarizes unaudited quarterly financial data for the years
     ended January 2, 1999, and January 1, 2000 (in thousands):



                                            1998
                                   For the Quarters Ended
                      ------------------------------------------------
                      March 28    June 27      Oct. 3     Jan. 2, 1999
                      --------    -------      ------     ------------

Net Sales             $30,546     $32,095      $33,170        $30,485
Gross Profit            9,794      10,533       10,604          8,615
Net Income (loss)       1,660       1,654       (2,527)            50


                                            1999

                                   For the Quarters Ended
                      ------------------------------------------------
                      April 3     July 3       Oct. 2     Jan. 1, 2000
                      -------     ------       ------     ------------
Net Sales             $31,419     $31,585      $32,072        $32,420
Gross Profit            9,742       9,930       10,001          9,431
Net Income (loss)         317         410          780            (73)


(14) COMMON STOCK

     The company has two classes of common stock outstanding: 68,391.48 shares
     of voting and 7,897.45 of nonvoting. Other than voting rights, all other
     terms of the common stock are the same.


                                      -54-

<PAGE>   55


                                                                     SCHEDULE II

                             SIMONDS INDUSTRIES INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                              FOR THE YEARS ENDED
             DECEMBER 27, 1997, JANUARY 2, 1999, AND JANUARY 1, 2000

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                             ADDITIONS      CURRENCY
                                         BEGINNING                 WRITE-       FROM       TRANSLATION       ENDING
                                          BALANCE   PROVISIONS      OFFS    ACQUISITIONS   ADJUSTMENTS       BALANCE
                                         ---------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS,
CASH DISCOUNTS AND CREDIT MEMOS

<S>                                       <C>         <C>         <C>           <C>            <C>           <C>
Year Ended December 27, 1997 (1)          $  798      $1,156      $(1,160)      $   25         $(13)         $  806
Year Ended January 2, 1999 (1)            $  806      $1,155      $(1,089)      $  126         $ (6)         $  992
Year Ended January 1, 2000 (1)            $  992      $1,113      $(1,093)      $    0         $(19)         $  993

ACCRUED RESTRUCTURING OF ACQUISITIONS

Year Ended January 2, 1999                $    0      $    0      $     0       $1,100         $  0          $1,100
Year Ended January 1, 2000                $1,100      $    0      $  (370)      $    0         $  0          $  730
</TABLE>


(1) Write-Offs includes credit memos, cash discounts and write-offs.


                                      -55-
<PAGE>   56


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Shareholders and Board of Directors of Simonds Industries Inc.:

We have audited the accompanying consolidated balance sheets of Simonds
Industries Inc. (a Delaware corporation) and subsidiaries listed in Item 14 (a)
of this Form 10-K as of January 1, 2000 and January 2, 1999, and the related
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended January 1, 2000. These consolidated
financial statements and the schedule referred to below 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
audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Simonds Industries Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 (a) is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 21, 2000


                                      -56-
<PAGE>   57



(b)        Reports on Form 8-K.

           None

(c)        Exhibits

Exhibit
Number                             Description


2.1      Stockholder Agreement dated as of July 7, 1998 among the Company and
         its stockholders*

2.2      Stock Purchase Agreement dated August 1, 1997 among Simonds Holding
         Company, Inc., Armstrong Manufacturing Company and Frederic B.
         Andrianoff*

2.3      Share Purchase Agreement dated May 7, 1998 among Time Eclipse Limited,
         SI Holding Corporation and the shareholders of W. Notting Limited*

3.1      Amended and Restated Certificate of Incorporation of Simonds*

3.2      By-laws of Simonds*

3.3      Certificate of Incorporation of Armstrong Manufacturing Company*

4.1      Indenture dated as of July 7, 1998 among the Company, the Guarantors
         and the Trustee*

4.3      Credit Agreement dated as of July 2, 1998 among the Company, certain of
         its Subsidiaries and First Union National Bank*

4.4      Pursuant to Item 601 (b) (4) (iii) of Regulation S-K, the registrant
         has not filed herewith any instrument with respect to long-term debt
         which does not exceed 10% of the total assets of the registrant and its
         subsidiaries on a consolidated basis. The registrant hereby agrees to
         furnish a copy of any such instrument to the Securities and Exchange
         Commission upon request.


4.5      Promissory Notes of Simonds UK Holdings Ltd.*

10.1     Employment and Non-Competition Agreement between the Company and Ross
         George dated May 26, 1995, as amended July 1998* and September 30,
         1999.

10.2     Employment and Non-Competition Agreement between the Company and Joseph
         Sylvia dated May 26, 1995, as amended July 7, 1998*

10.3     Employment agreement between the Company and Robert Deedrick dated June
         1, 1993*

10.4     Employment agreement between the Company and James Palmer dated March
         31, 1995*

10.5     Employment agreement between the Company and Roland Richard dated May
         7, 1992*

10.6     Employment agreement dated November 14, 1995 between the Company and
         F.A. DeVilling, III*

10.7     Employment Agreement dated March 31, 1998 between the Company and
         Ronald Owens*

10.8     Simonds Industries Inc. Amended and Restated 1998 Stock Incentive Plan*

10.9     Escrow Agreement dated May 26 1995 among SI Holding Corporation, the
         Company, Charles W. Doulton, the Massachusetts Capital Resource
         Company, the shareholders of Simonds Industries Inc., the option
         holders of the Company and Fleet Bank of Massachusetts, N.A.*


                                      -57-

<PAGE>   58



10.10    Labor Agreement dated May 5, 1997 between the Company and Local No.
         7896 of the United Steel Workers of America*

10.11    Agreement dated April 6, 1998 between the Company and Local 2737-16 of
         the United Steelworkers of America, AFL-CIO*

10.12    Agreement dated April 6, 1998 between the Company and Local 2737-17 of
         the United Steelworkers of America, AFL-CIO*

10.13    Employment Agreement between the Company and Harry Rogers dated
         February 23, 1994*

10.14    Employment and Non-Competition Agreement between the Company and
         Raymond Martino dated August 12, 1999

12.1     Statement regarding computation of ratios

21.1     Subsidiaries

27.1     Financial Data Schedule

--------------
*        The exhibits of the Company's Registration Statement on Form S-4, File
         No. 333-62795, are hereby incorporated by reference.


                                      -58-
<PAGE>   59






                                   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, on the 29th day of
March, 2000.

                                             Simonds Industries Inc.

                                             By: /s/ Raymond Martino
                                                 -------------------------------
                                                 Raymond Martino
                                                 Chief Executive Officer

           Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March, 2000.


       SIGNATURES                              TITLE
       ----------                              -----

   /s/ Raymond Martino           President, Chief Executive Officer and Director
-------------------------------  (principal executive officer)
       Raymond Martino

     /s/ Ross George             Chairman of the Board, Director
-------------------------------
         Ross George

     /s/ Habib Gorgi             Director
-------------------------------
         Habib Gorgi

   /s/ Gregory M. Barr           Director
-------------------------------
       Gregory M. Barr


                                      -59-