SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

                    For the quarterly period March 31, 2005

                         Commission file number 1-3919


                     Keystone Consolidated Industries, Inc.
             (Exact name of registrant as specified in its charter)


          Delaware                                        37-0364250
-------------------------------                       -------------------
(State or other jurisdiction of                        I.R.S. Employer
 incorporation or organization)                       Identification No.)

5430 LBJ Freeway, Suite 1740, Three Lincoln Centre, Dallas, TX     75240-2697
--------------------------------------------------------------     ----------
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code:    (972) 458-0028
                                                       --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during  the  preceding  12  months,  and (2) has  been  subject  to such  filing
requirements for the past 90 days.

                Yes                                No   X

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                Yes                                No   X

Indicate by a check mark whether the  Registrant  is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X

Number of shares of common stock outstanding at March 31, 2006: 10,000,000

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                                      INDEX


                                                                        Page
                                                                       number

PART I.      FINANCIAL INFORMATION

  Item 1.  Financial Statements

                  Consolidated Balance Sheets - December 31, 2004;
                   March 31, 2005 (Unaudited)                              3-4

                  Consolidated Statements of Operations - Three months
                   ended March 31, 2004 and 2005 (Unaudited)               5

                  Consolidated Statements of Cash Flows - Three months
                   ended March 31, 2004 and 2005 (Unaudited)               6

                  Consolidated Statement of Stockholders'
                   Equity - Three months ended March 31, 2005 (Unaudited)  7

                  Notes to Consolidated Financial Statements (Unaudited)   8-25

  Item 2.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                     27-38

  Item 4.         Controls and Procedures                                  39-40


PART II. OTHER INFORMATION

  Item 1.         Legal Proceedings                                        41

  Item 6.         Exhibits                                                 41

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            December 31,          March 31,
                                 ASSETS                                         2004                2005
                                                                            -----------           ---------
                                                                             (Restated)

 Current assets:
<S>                                                                              <C>                <C>
   Notes and accounts receivable                                                 $ 26,729           $ 39,674
   Inventories                                                                     53,017             62,948
   Restricted investments                                                           5,373              5,385
   Prepaid expenses and other                                                       2,017              2,289
                                                                                 --------           --------

      Total current assets                                                         87,136            110,296
                                                                                 --------           --------

 Property, plant and equipment                                                    369,036            370,628
 Less accumulated depreciation                                                    275,003            278,732
                                                                                 --------           --------

      Net property, plant and equipment                                            94,033             91,896
                                                                                 --------           --------

 Other assets:
   Restricted investments                                                           5,965              6,126
   Prepaid pension cost                                                           133,443            136,668
   Deferred financing costs                                                         1,226                986
   Goodwill                                                                           752                752
   Other                                                                              727                627
                                                                                 --------           --------

      Total other assets                                                          142,113            145,159
                                                                                 --------           --------

                                                                                 $323,282           $347,351
                                                                                 ========           ========
</TABLE>

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                            December 31,           March 31,
                                                                                 2004                2005
                                                                            -----------           ---------
                                                                             (Restated)

 Current liabilities not subject to compromise:
   Notes payable and current maturities of
<S>                                                                              <C>                <C>
     long-term debt                                                              $ 51,640           $  76,836
   Accounts payable                                                                 3,801               2,168
   Accounts payable to affiliates                                                     821               1,076
   Other accrued liabilities                                                       18,964              18,218
                                                                                 --------           ---------

       Total current liabilities not subject
        to compromise                                                              75,226              98,298
                                                                                 --------           ---------

 Noncurrent liabilities not subject to compromise:
   Long-term debt                                                                  14,345              14,017
   Accrued OPEB cost                                                               13,478              16,686
   Other                                                                              988                 597
                                                                                 --------           ---------

       Total noncurrent liabilities not subject
        to compromise                                                              28,811              31,300
                                                                                 --------           ---------

 Liabilities subject to compromise                                                212,346             212,130
                                                                                 --------           ---------

 Redeemable Series A preferred stock                                                2,112               2,112
                                                                                 --------           ---------

 Stockholders' equity:
   Common stock                                                                    10,798              10,798
   Additional paid-in capital                                                      41,225              41,225
   Accumulated deficit                                                            (47,224)            (48,500)
   Treasury stock, at cost                                                            (12)                (12)
                                                                                 --------           ---------

       Total stockholders' equity                                                   4,787               3,511
                                                                                 --------           ---------

                                                                                 $323,282           $ 347,351
                                                                                 ========           =========
</TABLE>


Commitments and contingencies (Notes 11 and 12).

          See accompanying notes to consolidated financial statements.

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        Three months ended
                                                                                            March 31,
                                                                                       ------------------------
                                                                                         2004            2005
                                                                                       --------        --------

<S>                                                                                    <C>             <C>
 Net sales                                                                             $ 67,177        $ 89,537
 Cost of goods sold                                                                      68,610          84,482
                                                                                       --------        --------
   Gross margin (loss)                                                                   (1,433)          5,055
                                                                                       --------        --------

 Selling expense                                                                          1,258           1,435
 General and administrative expense                                                       2,706           2,704
 Defined benefit pension credit                                                          (1,500)         (3,225)
                                                                                       --------        --------

                                                                                          2,464             914
                                                                                       --------        --------

 Operating income (loss)                                                                 (3,897)          4,141
                                                                                       --------        --------

 General corporate income (expense):
   Corporate expense                                                                       (873)         (1,296)
   Interest expense                                                                      (1,064)           (857)
   Interest income                                                                           10              35
   Other income, net                                                                        113              88
                                                                                       --------        --------

                                                                                         (1,814)         (2,030)
                                                                                       --------        --------

       Income (loss) before income taxes
        and reorganization costs                                                         (5,711)          2,111

 Reorganization costs                                                                     1,927           3,294
                                                                                       --------        --------

   Income (loss) before income taxes                                                     (7,638)         (1,183)

 Provision for income taxes                                                                -                 93
                                                                                       --------        --------

       Net loss                                                                          (7,638)         (1,276)

 Dividends on preferred stock                                                             1,223            -
                                                                                       --------        --------

 Net loss available for common shares                                                  $ (8,861)       $ (1,276)
                                                                                       ========        ========

 Basic and diluted loss per share available for
  common shares                                                                        $   (.88)       $  ( .13)
                                                                                       ========        ========

 Basic and diluted shares outstanding                                                    10,068          10,068
                                                                                       ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        Three months ended
                                                                                             March 31,
                                                                                       -------------------------
                                                                                         2004            2005
                                                                                       -------          --------

 Cash flows from operating activities:
<S>                                                                                    <C>              <C>
   Net loss                                                                            $ (7,638)        $(1,276)
   Depreciation and amortization                                                          3,971           3,927
   Amortization of deferred financing costs                                                 182             247
   Non-cash defined benefit pension credit                                               (1,500)         (3,225)
   Non-cash OPEB expense                                                                  3,517           3,209
   Reorganization costs accrued                                                           1,927           3,294
   Reorganization costs paid                                                               (933)         (2,368)
   Other, net                                                                                11              20
   Change in assets and liabilities:
     Notes and accounts receivable                                                       (7,767)        (12,952)
     Inventories                                                                         (3,896)         (9,931)
     Accounts payable                                                                     5,518          (1,379)
     Other, net                                                                           1,229          (2,527)
                                                                                       --------        ---------

       Net cash used by operating activities                                             (5,379)        (22,961)
                                                                                       --------        ---------

 Cash flows from investing activities:
   Capital expenditures                                                                    (279)         (1,960)
   Collection of notes receivable                                                             -              75
   Restricted investments                                                                (4,479)           (173)
   Other, net                                                                                38             157
                                                                                       --------        ---------

       Net cash used by investing activities                                             (4,720)         (1,901)
                                                                                       --------        ---------

 Cash flows from financing activities:
   Revolving credit facilities, net                                                      (5,001)         25,484
   Other notes payable and long-term debt:
     Additions                                                                           15,819              45
     Principal payments                                                                    (524)           (660)
   Deferred financing costs paid                                                           (195)             (7)
                                                                                       --------        ---------

       Net cash provided by financing activities                                         10,099          24,862
                                                                                       --------        ---------

 Net change in cash and cash equivalents                                                      -            -

 Cash and cash equivalents, beginning of period                                            -               -
                                                                                       --------        ---------

 Cash and cash equivalents, end of period                                             $    -           $   -
                                                                                      =========        =========

 Supplemental disclosures:
   Cash paid for:
     Interest, net of amount capitalized                                              $     470        $    597
     Income taxes, net                                                                        -             600
</TABLE>


          See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                        Three months ended March 31, 2005
                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            Additional
                                                Common        paid-in   Accumulated        Treasury
                                                 stock        capital     deficit            stock            Total
                                                -------       -------    --------           -------         ---------

<S>                                             <C>           <C>        <C>                  <C>             <C>
 Balance - December 31, 2004                    $10,798       $41,225    $(47,224)            $(12)           $ 4,787

 Net loss                                          -             -         (1,276)              -              (1,276)
                                                -------       -------    --------             ----            -------

 Balance - March 31, 2005                       $10,798       $41,225    $(48,500)            $(12)           $ 3,511
                                                =======       =======    ========             ====            =======
</TABLE>



          See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
                             (DEBTOR-IN-POSSESSION)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - Restatement, organization and basis of presentation:

Restatement.

     In connection with finalizing the preparation of the Company's consolidated
financial  statements  for  the  year  ended  December  31,  2005,  the  Company
determined  that cash  overdrafts,  which  currently  are financed by borrowings
under the Company's revolving credit facility,  and cash receipts which would be
applied against the revolving  credit  facility,  were improperly  classified as
part of accounts payable.  Under accounting principles generally accepted in the
United  States of  America  ("GAAP"),  such  cash  overdrafts  should  have been
classified as part of the current  portion of long-term  debt. In addition,  the
relative  changes  in such  cash  overdrafts  were  improperly  included  in the
determination of cash flows from operating activities,  while under GAAP changes
in such cash overdrafts  should have been included in the  determination of cash
flows from financing activities.

     Accordingly, the Company has restated its consolidated financial statements
at  December  31,  2004,  as  contained  in this  Form  10-Q,  to  reflect  this
correction. The $2.7 million adjustment to the 2004 balance sheet is a result of
$3.8 million of cash receipts net of $1.1 million of cash overdrafts.

     The following table shows (i) selected  consolidated  balance sheet data as
of  December  31,  2004,  as  previously  reported,  (ii)  adjustments  to  such
consolidated  financial statement data to reflect the effect of this restatement
and (iii) such consolidated financial statement data, as restated.

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                    SELECTED CONSOLIDATED BALANCE SHEET DATA
                                December 31, 2004
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                December 31, 2004
                                                              ---------------------------------------------------
                                                              Previously
                                                               Reported           Adjustments         As restated
                                                              -----------         -----------         -----------

Selected balance sheet items:

Notes payable and current maturities
<S>                                                              <C>                 <C>                  <C>
 of long-term debt                                               $ 54,336            $ (2,696)            $ 51,640
                                                                 ========            ========             ========

Accounts payable                                                 $  1,105            $  2,696             $  3,801
                                                                 ========            ========             ========

Total current liabilities                                        $ 75,226            $   -                $ 75,226
                                                                 ========            ========             ========
</TABLE>

Organization and basis of presentation.

     The consolidated balance sheet of Keystone  Consolidated  Industries,  Inc.
("Keystone"  or the  "Company") at December 31, 2004 has been condensed from the
Company's audited consolidated financial statements at that date included in the
Company's 2005 Form 10-K. The  consolidated  balance sheet at March 31, 2005 and
the consolidated statements of operations and cash flows for the interim periods
ended  March  31,  2004 and  2005,  and the  consolidated  statement  of  common
stockholders' equity for the interim period ended March 31, 2005, have each been
prepared by the Company,  without audit, in accordance with GAAP. In the opinion
of management, all adjustments,  consisting only of normal recurring adjustments
necessary to present  fairly the  consolidated  financial  position,  results of
operations and cash flows, have been made. However, it should be understood that
accounting  measurements  at interim dates may be less precise than at year end.
The results of operations for the interim periods are not necessarily indicative
of the operating results for a full year or of future operations.

     Certain information  normally included in financial  statements prepared in
accordance  with GAAP has been  condensed  or omitted,  and  certain  prior year
amounts have been reclassified to conform to the current year presentation.  The
accompanying  consolidated  financial  statements  should be read in conjunction
with the  consolidated  financial  statements  included in the Company's  Annual
Report on Form 10-K for the year ended December 31, 2005 (the "Annual Report").

     At March 31,  2005,  Contran  Corporation  ("Contran")  and other  entities
related to Mr. Harold C. Simmons,  beneficially  owned  approximately 50% of the
outstanding  common  stock  of  the  Company.  Substantially  all  of  Contran's
outstanding  voting  stock is held by  trusts  established  for the  benefit  of
certain children and grandchildren of Mr. Simmons,  of which Mr. Simmons is sole
trustee,  or is held by Mr. Simmons or persons or other entities  related to Mr.
Simmons.  Keystone may be deemed to be controlled by Contran and Mr. Simmons. At
March 31, 2005,  Contran also owned  54,956  shares of the 71,899  shares of the
Company's outstanding  Redeemable Series A Preferred Stock. Each share of Series
A Preferred Stock is convertible,  at the option of the holder,  into 250 shares
of the Company's common stock (equivalent to a $4.00 per share exchange rate).

     The  accompanying   financial  statements  have  been  prepared  under  the
assumption the Company will continue to operate on a going concern basis,  which
contemplates continuity of operations,  realization of assets and liquidation of
liabilities  in the ordinary  course of business and do not reflect  adjustments
that might result if Keystone is unable to continue as a going concern. However,
on February 26, 2004, Keystone and five of its direct and indirect  subsidiaries
filed for voluntary  protection under Chapter 11 of the Federal Bankruptcy Code.
Keystone and its subsidiaries filed their petitions in the U.S. Bankruptcy Court
for the Eastern  District of Wisconsin in Milwaukee  (the  "Court").  Keystone's
amended plan of reorganization was accepted by the impacted  constitutencies and
confirmed by the Court on August 10, 2005. The Company  emerged from  bankruptcy
protection on August 31, 2005. See Note 2.

     Under  Chapter 11  proceedings,  actions by creditors to collect  claims in
existence at the filing date ("Pre-petition Claims") are stayed, absent specific
authorization  by the Court to pay such claims,  while the Company  continues to
manage the business as a  debtor-in-possession.  Keystone received approval from
the Court to pay certain of its Pre-petition Claims including employee wages and
certain employee benefits.

Note 2 - Bankruptcy

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S.
Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company
is managing  its business as a debtor-in  possession  subject to approval by the
Court.  Keystone  attributed  the need to  reorganize  to  weaknesses in product
selling prices over the last several years,  unprecedented  increases in ferrous
scrap costs, Keystone's primary raw material, and significant liquidity needs to
service retiree medical costs. These problems  substantially  limited Keystone's
liquidity and undermined its ability to obtain sufficient debt or equity capital
to operate as a going concern.

     Under Chapter 11 proceedings,  actions by creditors to collect Pre-petition
Claims in existence at the filing date are stayed, absent specific authorization
from the Court to pay such claims  while the Company  manages the  business as a
debtor-in-possession.

     Keystone filed a plan of reorganization on October 4, 2004 and amended that
plan on May 26, 2005, June 21, 2005 and June 27, 2005.  Keystone's  amended plan
of reorganization  was accepted by the impacted  constituencies and confirmed by
the Court on August 10, 2005. The Company emerged from bankruptcy  protection on
August  31,  2005.   Significant   provisions  of  Keystone's  amended  plan  of
reorganization included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"),  Keystone's  largest  labor union that  related  primarily to
          greater employee participation in healthcare costs;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries, will be sold at fair market value (fair market value and
          book value both approximate $2.0 million) to Keystone, which will then
          be used to form and operate a newly created wholly-owned subsidiary of
          reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate of Contran) converted $5 million of its DIP credit facility,
          certain  of  its   pre-petition   unsecured  claims  and  all  of  its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

     In addition,  Keystone has obtained a five-year, $80 million secured credit
facility  from Wachovia  Capital  Finance  (Central).  Proceeds from this credit
facility  were  used  to  extinguish  Keystone's  existing  Debtor-In-Possession
("DIP")  credit  facilities  and to  provide  working  capital  for  reorganized
Keystone.  Proceeds from this credit facility were used to extinguish Keystone's
existing  DIP credit  facilities,  the EWP Term Loan,  the EWP  Revolver  and to
provide working capital for reorganized  Keystone.  The facility includes a term
loan  in  the  amount  of up to  $25.0  million,  subject  to a  borrowing  base
calculation  based  on the  market  value of the  Company's  real  property  and
equipment.  To the extent  there is  sufficient  borrowing  base,  the term loan
portion of this credit  facility can be reloaded in the amount of $10.0 million.
The  portion  of the  credit  facility  in excess of the term  loan  balance  is
available to the Company as a revolving  credit facility  subject to a borrowing
base calculation based on eligible receivables and inventory balances.  Interest
rates on the  credit  facility  range from the prime rate to the prime rate plus
..5%  depending  on  Keystone's  excess  availability,  as  defined in the credit
agreement.  The facility also provides for a LIBOR  interest rate option.  Under
the terms of the credit  facility,  the Company is required to annually pay down
the term loan  portion of the facility in the amount of 25% of excess cash flow,
as defined in the agreement, subject to a $2.0 million annual and a $5.0 million
aggregate limit.  The facility also includes  performance  covenants  related to
minimum levels of cash flow and fixed charge coverage  ratio.  Keystone paid the
lender  approximately  $400,000 of  diligence,  commitment  and closing  fees in
connection with this facility.

     At March 31, 2005,  the net assets of the one  subsidiary of Keystone which
was  not  party  to  the  bankruptcy  proceeding,   included  in  the  Company's
consolidated net assets, was approximately $15.1 million,  consisting of current
assets  of  $25.0  million,   noncurrent  assets  (primarily  net  property  and
equipment) of $6.1 million,  current liabilities of $12.1 million and noncurrent
liabilities (primarily long-term debt) of $3.9 million.

Note 3 - Business Segment Information:

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include three  reportable  segments:  (i) Keystone Steel and Wire
("KSW")  which  manufacturers  and sells wire rod,  wire and wire  products  for
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail consumer markets, (ii) Engineered Wire Products ("EWP")
which  manufacturers and sells welded wire  reinforcement in both roll and sheet
form that is utilized in concrete construction products including pipe, pre-cast
boxes and  applications  for use in  roadways,  buildings  and bridges and (iii)
Sherman Wire ("Sherman")  which  manufacturers  and sells wire and wire products
for  agricultural,  industrial,  construction,  commercial,  original  equipment
manufacturers and retail consumer markets.


<TABLE>
<CAPTION>
Business Segment            Principal entities             Location
----------------            ------------------             --------

<S>                         <C>                            <C>
Keystone Steel & Wire       Keystone Steel & Wire          Peoria, Illinois

Engineered Wire Products    Engineered Wire Products       Upper Sandusky, Ohio

Sherman                     Sherman Wire                   Sherman, Texas
</TABLE>


<TABLE>
<CAPTION>
                                                                                                 GAAP
                                                                                             Adjustments,
                                                                                               Corporate
                                                                                                 Items
                                                                                Segment           and
                                         KSW           EWP        Sherman        Total       Eliminations       Total
                                         ---           ---        -------       -------      ------------       -----
                                                                        (In thousands)

Three months ended March 31, 2004:

<S>                                      <C>          <C>          <C>          <C>             <C>            <C>
  Third party net sales                  $55,228      $11,090      $   839      $ 67,157        $     20       $ 67,177
  Intercompany sales                       5,398         -           2,220         7,618          (7,618)          -
                                         -------      -------      -------      --------        --------       --------

                                         $60,626      $11,090      $ 3,059      $ 74,775        $ (7,598)      $ 67,177
                                         =======      =======      =======      ========        ========       ========

Operating income (loss)                  $(6,988)     $ 1,268      $  (575)     $ (6,295)       $  2,398       $ (3,897)
                                         =======      =======      =======      ========        ========       ========

Three months ended March 31, 2005:

  Third party net sales                  $75,874      $12,051      $ 1,612      $ 89,537           $   -       $ 89,537
  Intercompany sales                      13,320         -           3,441        16,761         (16,761)          -
                                         -------      -------      -------      --------        --------       --------

                                         $89,194      $12,051      $ 5,053      $106,298        $(16,761)      $ 89,537
                                         =======      =======      =======      ========        ========       ========

Operating income (loss)                  $(1,452)     $ 1,639      $  (169)     $     18        $  4,123       $  4,141
                                         =======      =======      =======      ========        ========       ========
</TABLE>


     In the above tables,  GAAP  adjustments  relate to operating profit (loss),
Corporate  items relate to  depreciation  and  amortization,  segment assets and
capital  expenditures and eliminations relate to net sales. GAAP adjustments are
principally  (i) the difference  between the defined  benefit pension expense or
credit and OPEB expense  allocated  to the  segments  and the actual  expense or
credit  included in the  determination  of  operating  profit or loss,  (ii) the
elimination  of  intercompany  profit or loss on ending  inventory  balances and
(iii) LIFO inventory reserve adjustments.

<TABLE>
<CAPTION>
                                                                                                   Three months ended
                                                                                                        March 31,
                                                                                                ------------------------
                                                                                                  2004            2005
                                                                                                -------          -------
                                                                                                     (In thousands)

<S>                                                                                              <C>             <C>
Operating income (loss)                                                                          $(3,897)        $ 4,141
General corporate items:
  Interest income                                                                                     10              35
  Other income                                                                                       113              88
  Corporate expense                                                                                 (873)         (1,296)
  Interest expense                                                                                (1,064)           (857)
                                                                                                 -------         -------

  Income (loss) before income taxes and
   reorganization costs                                                                          $(5,711)        $ 2,111
                                                                                                 =======         =======
</TABLE>


Note 4 - Inventories:


<TABLE>
<CAPTION>
                                                                                 December 31,      March 31,
                                                                                   2004              2005
                                                                                 ------------      ---------
                                                                                       (In thousands)

 Steel and wire products:
<S>                                                                               <C>               <C>
   Raw materials                                                                  $15,142           $14,365
   Work in process                                                                 21,305            26,739
   Finished goods                                                                  28,941            33,596
   Supplies                                                                        14,844            15,463
                                                                                  -------           -------
                                                                                   80,232            90,163
   Less LIFO reserve                                                               27,215            27,215
                                                                                  -------           -------
                                                                                  $53,017           $62,948
                                                                                  =======           =======
</TABLE>

Note 5 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                                              December 31,          March 31,
                                                                                 2004                 2005
                                                                               ----------           ----------
                                                                             (Restated)
                                                                                     (In thousands)

 DIP facilities:
<S>                                                                              <C>                  <C>
   Congress                                                                      $15,108              $38,193
   EWP                                                                             5,000                5,000
 EWP revolving credit facility                                                     1,989                4,087
 8% Notes                                                                         28,116               28,116
 Term loans:
   County                                                                         10,000               10,000
   EWP                                                                             5,513                5,175
   Other                                                                             259                  282
                                                                                 -------              -------
                                                                                  65,985               90,853
   Less current maturities                                                        51,640               76,836
                                                                                 -------              -------

                                                                                 $14,345              $14,017
                                                                                 =======              =======
</TABLE>

     The indenture  governing  Keystone's 8% Notes  provides the holders of such
Notes with the right to  accelerate  the maturity of the Notes in the event of a
default by Keystone  resulting in an  acceleration of the maturity of any of the
Company's other secured debt. As such, the 8% Notes were classified as a current
liability at December 31, 2004 and March 31, 2005.

     The Company has determined  there is  insufficient  collateral to cover the
interest portion of scheduled  payments on its  pre-petition  unsecured debt. As
such, the Company  discontinued  accruing interest on its unsecured 6% Notes and
unsecured 9 5/8% Notes as of February  26, 2004,  the filing  date.  Contractual
interest on those obligations during the first quarter of 2005 was approximately
$311,000.

Note 6 - Series A preferred stock:

     The Company discontinued accruing dividends on its Series A Preferred Stock
upon filing for Chapter 11 on February 26, 2004.

     All of the Company's  Series A Preferred  Stock was cancelled in connection
with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 2.

Note 7 - Income taxes:

     Summarized  below are (i) the differences  between the provision for income
taxes and the  amounts  that would be  expected  by  applying  the U.S.  federal
statutory  income tax rate of 35% and (ii) the  components of the  comprehensive
provision for income taxes.

<TABLE>
<CAPTION>
                                                         Three months ended
                                                              March 31,
                                                      -------------------------
                                                      2004                 2005
                                                      ----                 ----
                                                            (In thousands)

<S>                                                <C>                  <C>
Expected tax benefit, at statutory rate            $(2,673)             $  (414)
U. S. state income taxes, net                         (121)                  76
Deferred tax asset valuation allowance               2,382                 (703)
Capitalize reorganization costs                        674                1,133
Other, net                                            (262)                   1
                                                   -------              -------
Provision for income taxes                         $   -                $    93
                                                   =======              =======

Comprehensive provision for income taxes:
  Currently payable (refundable):
    U.S. federal                                   $    (6)             $    42
    U.S. state                                           6                   51
                                                   -------              -------
      Net currently payable (refundable)               -                     93

  Deferred income taxes, net                           -                    -
                                                   -------              -------

                                                   $   -                $    93
                                                   =======              =======
</TABLE>


     The Company's  emergence  from Chapter 11 on August 31, 2005 did not result
in an ownership change within the meaning of Section 382 of the Internal Revenue
Code.

     At March  31,  2005,  considering  all  factors  believed  to be  relevant,
including the Company's recent operating results,  its expected future near-term
productivity  rates;  cost of raw  materials,  electricity,  labor and  employee
benefits,  environmental  remediation,  and retiree medical  coverage;  interest
rates;  product mix; sales volumes and selling prices; and the fact that accrued
OPEB expenses will become deductible over an extended period of time and require
the  Company to  generate  significant  amounts of future  taxable  income,  the
Company  believes  its  gross  deferred  tax  assets do not  currently  meet the
"more-likely-than-not"  realizability  test. As such, at December 31, 2004,  the
Company had provided a deferred tax asset valuation  allowance of  approximately
$30.3 million.  As a result of the deferred tax asset valuation  allowance,  the
Company does not anticipate recognizing tax expense associated with its expected
pre-tax income during 2005 will be  appropriate.  Accordingly,  during the first
three months of 2005,  the Company  decreased  the deferred tax asset  valuation
allowance  by  approximately  $700,000.  Keystone  will  continue  to review the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
Keystone  could  recognize a change in the  valuation  allowance  related to its
deferred tax assets in the future.

Note 8 - Other accrued liabilities:



<TABLE>
<CAPTION>
                                                                              December 31,         March 31,
                                                                                 2004                 2005
                                                                            --------------         ---------
                                                                                       (In thousands)

Current:
<S>                                                                               <C>                  <C>
  Employee benefits                                                               $12,019              $ 9,997
  Reorganization costs                                                              2,883                3,809
  Self insurance                                                                    1,064                1,318
  Legal and professional                                                              358                  689
  Income taxes                                                                      1,405                1,017
  Other                                                                             1,235                1,388
                                                                                  -------              -------

                                                                                  $18,964              $18,218
                                                                                  =======              =======
Noncurrent:
  Workers compensation payments                                                   $   988              $   597
                                                                                  =======              =======
</TABLE>

Note 9 - Liabilities subject to compromise

<TABLE>
<CAPTION>
                                                                            December 31,               March 31,
                                                                                2004                     2005
                                                                            ------------               ----------
                                                                                       (In thousands)

<S>                                                                            <C>                       <C>
Accrued OPEB cost                                                              $123,425                  $123,425
Environmental                                                                    19,432                    19,394
6% Notes                                                                         16,031                    16,031
Accrued preferred stock dividends                                                11,846                    11,846
Accounts payable                                                                 10,776                    10,776
Deferred vendor payments                                                         10,518                    10,518
9 5/8% Notes                                                                      6,150                     6,150
Self insurance                                                                    4,549                     4,549
Accounts payable to affiliates                                                    3,027                     3,027
Workers compensation                                                              1,847                     1,847
Accrued and deferred interest                                                     1,237                     1,237
Legal and professional                                                              726                       726
Disposition of former facilities                                                    665                       665
Other                                                                             2,117                     1,939
                                                                               --------                  --------

                                                                               $212,346                  $212,130
                                                                               ========                  ========
</TABLE>

Note 10 - Employee benefit plans:

     Defined  benefit  plans.  The  components of net periodic  defined  benefit
pension credit are presented in the table below.

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                        -----------------------
                                                                                         2004            2005
                                                                                        ------          -------
                                                                                           (In thousands)

<S>                                                                                     <C>            <C>
Service cost                                                                            $   875        $    938
Interest cost                                                                             5,439           5,434
Expected return on plan assets                                                           (9,373)        (10,733)
Amortization of unrecognized:
  Prior service cost                                                                        221             221
  Actuarial losses                                                                        1,338             915
                                                                                        -------        --------

                                                                                        $(1,500)       $ (3,225)
                                                                                        =======        ========
</TABLE>

     Postretirement benefits other than pensions ("OPEB"). The components of net
periodic OPEB cost are presented in the table below.

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                         ----------------------
                                                                                          2004            2005
                                                                                         ------          ------
                                                                                           (In thousands)

<S>                                                                                       <C>            <C>
Service cost                                                                              $  725         $   740
Interest cost                                                                              3,496           3,026
Amortization of unrecognized:
  Prior service cost                                                                         (86)            (86)
  Prior service cost due to plan amendment                                                  (625)           (710)
  Actuarial losses                                                                         1,015           1,397
Settlement loss                                                                            1,250             -
                                                                                          ------          ------

                                                                                          $5,775          $4,367
                                                                                          ======          ======
</TABLE>

     During 2004, the Company  entered into an agreement (the "1114  Agreement")
with  certain  retiree  groups that  substantially  reduced the post  retirement
("OPEB") benefits that will be paid to these retiree groups in the future. Prior
to confirmation of Keystone's definitive plan of reorganization, the Court could
have  rescinded the 1114  Agreement  and  therefore  the 1114  Agreement was not
definitive  until it was  confirmed by the Court in connection  with  Keystone's
emergence  from Chapter 11 on August 31, 2005. As such,  and in accordance  with
GAAP,  the Company has continued to record OPEB expense  through August 31, 2005
at the  estimated  level  required as if Keystone  had not entered into the 1114
Agreement. The Company estimates OPEB expense for the first eight months of 2005
will approximate $11.6 million.  However, at the time of the Company's emergence
from  Chapter 11 on August 31, 2005,  and  concurrent  confirmation  of the 1114
Agreement,  GAAP then  requires  the effect of the  substantially  reduced  OPEB
benefits  agreed to as part of the 1114  Agreement to be accounted for as a Plan
amendment,  the benefit of which is amortized  into income over future  periods.
Accordingly,   Keystone  estimates  that  it  will  record  an  OPEB  credit  of
approximately  $2.7  million for the last four months of 2005,  resulting  in an
$8.9 million OPEB expense for the year 2005.

     Employer  Contributions.  Keystone  previously  disclosed in its  financial
statements  for the year ended  December  31,  2004,  that it expected not to be
required to contribute to its defined  benefit pension plan in 2005. As of March
31, 2005, Keystone had not made any contributions to its defined benefit pension
plan during  2005.  The  Company  also  previously  disclosed  in its  financial
statements for the year ended December 31, 2004,  that it expected to contribute
approximately  $8.3 million to its post retirement  benefit plans in 2005. As of
March 31,  2005,  Keystone  had  contributed  $1.2 million to these plans during
2005.


Note 11 - Environmental matters:

     As a result of the  Chapter 11 filings on  February  26,  2004,  litigation
relating to prepetition claims against the filing companies,  including Keystone
and Sherman Wire, has been stayed.

     Keystone  has been  named as a  defendant,  potentially  responsible  party
("PRP"),  or  both,  pursuant  to  the  Comprehensive   Environmental  Response,
Compensation and Liability Act ("CERCLA") or similar state laws in approximately
25 governmental  and private  actions  associated  with  environmental  matters,
including  waste disposal sites and  facilities  currently or previously  owned,
operated  or used  by  Keystone,  certain  of  which  are on the  United  States
Environmental Protection Agency's (the "U.S. EPA") Superfund National Priorities
List or similar state lists.  These proceedings seek cleanup costs,  damages for
personal  injury or  property  damage  and/or  damages  for  injury  to  natural
resources.  Certain of these proceedings involve claims for substantial amounts.
Although  Keystone may be jointly and severally  liable for such costs,  in most
cases,  it is only one of a number of PRPs who may also be jointly and severally
liable.

     On a  quarterly  basis,  Keystone  evaluates  the  potential  range  of its
liability  at sites where it has been named as a PRP or  defendant  by analyzing
and  estimating the range of reasonably  possible costs to Keystone.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,  managing,  studies,  certain  legal  fees,  clean-up,  removal  and
remediation.  Keystone believes it has provided adequate accruals ($19.4 million
at March  31,  2005,  substantially  all of which is  reflected  in  liabilities
subject to compromise on the Company's  March 31, 2005 balance  sheet) for these
matters at 13 sites for which  Keystone  believes its  liability is probable and
reasonably  estimable,  but Keystone's  ultimate  liability may be affected by a
number of factors,  including  the  imposition  of more  stringent  standards or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes in remedial  alternatives  and costs, the allocation of such costs among
PRPs, the solvency of other PRPs or a determination that Keystone is potentially
responsible for the release of hazardous substances at other sites, any of which
could  result in  expenditures  in  excess of  amounts  currently  estimated  by
Keystone to be required  for such  matters.  With  respect to other PRPs and the
fact  that the  Company  may be  jointly  and  severally  liable  for the  total
remediation  cost at certain sites,  the Company could  ultimately be liable for
amounts in excess of its accruals due to, among other  things,  reallocation  of
costs among PRPs or the insolvency of one or more PRPs. In addition,  the actual
timeframe for payments by Keystone for these matters may be substantially in the
future.

     Keystone  believes it is not  possible  to estimate  the range of costs for
seven  sites.  For these  sites,  generally  the  investigation  is in the early
stages,  and it is either unknown as to whether or not the Company  actually had
any association  with the site, or if the Company had association with the site,
the nature of its responsibility,  if any, for the contamination at the site and
the  extent of  contamination.  The  timing  on when  information  would  become
available  to the  Company to allow the  Company to  estimate a range of loss is
unknown and dependent on events outside the control of the Company, such as when
the party alleging liability provides information to the Company.

     The upper end of the range of  reasonably  possible  costs to Keystone  for
sites for which it is  possible to  estimate  costs (17 sites) is  approximately
$21.4 million. Keystone's estimates of such liabilities have not been discounted
to present value,  and other than certain  previously-reported  settlements with
respect to certain of Keystone's  former  insurance  carriers,  Keystone has not
recognized  any material  insurance  recoveries.  No assurance can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs  will not be  incurred  with  respect  to the  eight  sites as to which no
estimate  of  liability   can   presently   be  made   because  the   respective
investigations  are in early stages.  The extent of CERCLA  liability  cannot be
determined  until the  Remedial  Investigation/Feasibility  Study  ("RI/FS")  is
complete,  the U.S.  EPA  issues a Record  of  Decision  ("ROD")  and  costs are
allocated  among PRPs.  The extent of liability  under  analogous  state cleanup
statutes and for common law equivalents is subject to similar uncertainties.

     The exact time frame over which the Company makes  payments with respect to
its accrued  environmental  costs is unknown and is dependent upon,  among other
things,  the timing of the actual  remediation  process which in part depends on
factors  outside the control of the  Company.  At each balance  sheet date,  the
Company makes an estimate of the amount of its accrued environmental costs which
will be paid out over the subsequent 12 months,  and the Company classifies such
amount as a current liability.  The remainder of the accrued environmental costs
are classified as a noncurrent liability.

     More  detailed  descriptions  of  certain  legal  proceedings  relating  to
environmental  matters  are set  forth  below.  A  summary  of  activity  in the
Company's environmental accruals for the three months ended March 31, 2005 is as
follows:

<TABLE>
<CAPTION>
                                                      Three months ended
                                                          March 31,
                                                      ------------------
                                                        (In thousands)

<S>                                                          <C>
 Balance at December 31, 2004                                $19,432
 Expense                                                           -
 Payments                                                        (37)
 Reclassification                                                 30
                                                             -------

 Balance at March 31, 2005                                   $19,425
                                                             =======
</TABLE>

     Substantially  all of the Company's  $19.4 million  recorded  environmental
accrual at March 31, 2005 is included in  liabilities  subject to  compromise on
the  Company's  balance  sheet.  Approximately  $10.5  million  of the  recorded
environmental   liability   relates  to  sites  that  are  owned  by   Keystone.
Significantly  all of the remainder of the recorded $19.4 million  environmental
liability  relates to sites involving  Sherman Wire or one of its  predecessors.
Sherman  Wire's   environmental   liabilities  continue  to  be  negotiated  and
adjudicated  subsequent  to Keystone's  emergence  from Chapter 11 on August 31,
2005.

     The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan  provides  for the  in-place  treatment of seven  hazardous  waste  surface
impoundments  and two waste  piles to be  disposed  of as  special  wastes.  The
Company recorded an estimated  liability for remediation of the impoundments and
waste piles  based on a  six-phase  remediation  plan.  The Company  adjusts the
recorded  liability  for each Phase as actual  remediation  costs become  known.
During 1995,  the Company began  remediation  of Phases II and III and completed
these Phases,  as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant  remediation  efforts  relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney  General's office, the Company is
depositing  $75,000 per quarter  into a trust fund.  The Company  must  continue
these quarterly deposits and cannot withdraw funds from the trust fund until the
fund balance exceeds the sum of the estimated  remaining  remediation costs plus
$2  million.  At  December  31,  2004 and March 31,  2005,  the trust fund had a
balance of $5.7  million  and $5.9  million,  respectively,  which  amounts  are
included in other noncurrent  assets because the Company does not expect to have
access to any of these funds until after 2005.

     In  February  2000,  Keystone  received  a notice  from the  United  States
Environmental  Protection  Agency ("U.S.  EPA") giving formal notice of the U.S.
EPA's intent to issue a unilateral  administrative order to Keystone pursuant to
section  3008(h) of the Resource  Conservation  and Recovery Act  ("RCRA").  The
draft order enclosed with this notice would require Keystone to: (1) investigate
the nature and extent of hazardous  constituents  present at and  released  from
five  alleged  solid  waste  management  units  at  the  Peoria  facility;   (2)
investigate  hazardous  constituent  releases  from "any  other  past or present
locations at the Peoria facility where past waste treatment, storage or disposal
may pose an unacceptable risk to human health and the environment"; (3) complete
by  June  30,  2001  an  "environmental  indicators  report"  demonstrating  the
containment of hazardous  substances that could pose a risk to "human receptors"
and further  demonstrating  that  Keystone  "has  stabilized  the  migration  of
contaminated  groundwater  at or from the  facility;"  (4) submit by January 30,
2002 proposed "final corrective  measures  necessary to protect human health and
the environment  from all current and future  unacceptable  risks of releases of
hazardous waste or hazardous  constituents at or from the Peoria  facility;  and
(5)  complete  by June 30,  2001  the  closure  of the  sites  discussed  in the
preceding  paragraph now  undergoing  RCRA closure under the  supervision of the
IEPA. Keystone has complied with deadlines in the draft order. During the fourth
quarter  of 2000,  Keystone  entered  into a  modified  Administrative  Order on
Consent,  which may require the Company to conduct cleanup activities at certain
solid waste management units at its Peoria facility  depending on the results of
soil and  groundwater  sampling and risk  assessment to be conducted by Keystone
during future periods pursuant to the order.

     In March 2000, the Illinois Attorney General (the "IAG") filed and served a
seven-count  complaint  against Keystone for alleged  violations of the Illinois
Environmental  Protection Act, 415 ILCS 5/31, and regulations  implementing RCRA
at Keystone's  Peoria facility.  The complaint alleges Keystone violated RCRA in
failing  to  prevent  spills  of an  alleged  hazardous  waste on four  separate
occasions  during the period from June 1995 through  January 1999. The complaint
also alleges the Company  illegally  "stored",  "disposed of" and manifested the
same allegedly  hazardous waste on some or all of those occasions.  In addition,
the  complaint  alleges these  hazardous  waste spills  resulted in  groundwater
pollution  in  violation  of the  Illinois  Environmental  Protection  Act.  The
complaint further alleges Keystone improperly disposed of hazardous waste on two
occasions at a landfill not  permitted  to receive  such wastes.  The  complaint
seeks the maximum  statutory  penalties  allowed  which ranges up to $50,000 for
each violation and  additional  amounts up to $25,000 for each day of violation.
Keystone has answered the complaint and proceedings in the case have been stayed
pending the outcome of settlement  negotiations  between  Keystone and the IAG's
office.

     In June 2000, the IAG filed a Complaint For Injunction And Civil  Penalties
against  Keystone.  The complaint alleges the Company's Peoria facility violated
its National Pollutant Discharge  Elimination System ("NPDES") permit limits for
ammonia and zinc discharges from the facility's  wastewater  treatment  facility
into the Illinois River. The complaint alleges specific violations of the 30-day
average ammonia limit in the NPDES permit for three months in 1996, 11 months in
1997, 12 months in 1998, 11 months in 1999 and the first two months of 2000. The
complaint  further alleges two violations of the daily maximum limit for zinc in
October and December of 1999. In February 2004, the Company reached a settlement
agreement  with the IEPA which  provided for Keystone to make a $75,000  penalty
payment to the IEPA, and to implement  certain  corrective  actions to prevent a
recurrence of the NPDES violations.  The Company did not pay the $75,000 penalty
because the enforcement  action was stayed by Keystone's  Chapter 11 filing. The
Company  reached a  settlement  agreement  with the IEPA in 2005 to satisfy  the
penalty obligation through a RCRA trust fund controlled by the IEPA.

     In December 2005, the Company  received a Notice of Violation from the U.S.
EPA regarding air permit issues at its Peoria,  Illinois facility.  The U.S. EPA
alleges  Keystone  failed to perform  stack testing and conduct a review of best
available  emission control  technology in connection with the implementation of
plant construction modifications made pursuant to a 2001 air permit issued under
the Clean Air Act and the Illinois Environmental  Protection Act. During January
2006, the Company and the U.S. EPA reached a preliminary agreement on a plan for
addressing  the  U.S.  EPA's  concerns  without  referring  the  matter  for any
enforcement action.

"Superfund" sites

     The Company is subject to federal and state  "Superfund"  legislation  that
imposes  cleanup and remediation  responsibility  upon present and former owners
and  operators of, and persons that  generated  hazardous  substances  deposited
upon,  sites  determined  by state or federal  regulators  to contain  hazardous
substances.  Keystone  has been  notified  by U.S.  EPA that  the  Company  is a
potentially  responsible party ("PRP") under the federal "Superfund" legislation
for the alleged  release or threat of release of hazardous  substances  into the
environment at eight sites.  These  situations  involve cleanup of landfills and
disposal facilities which allegedly received hazardous  substances  generated by
discontinued   operations  of  the  Company.   Although  Keystone  believes  its
comprehensive  general liability insurance policies provide  indemnification for
certain costs the Company incurs at the "Superfund"  sites  discussed  below, it
has only recorded receivables for the estimated insurance recoveries at three of
those sites.  During 2002,  2003 and the first three months of 2005, the Company
received approximately $43,000, $32,000 and $30,000, respectively,  from certain
of its  insurers in exchange  for  releasing  such  insurers  from  coverage for
certain years of environmental related liabilities. Such amounts are included in
Keystone's self insurance accruals.  Keystone did not receive any such insurance
recoveries during 2004.

     In July 1991, the United States filed an action  against a former  division
of the Company and four other PRPs in the United States  District  Court for the
Northern  District of Illinois  (Civil  Action No.  91C4482)  seeking to recover
investigation  and  remediation  costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron,  Illinois.  In April 1992,  Keystone filed a third-party
complaint  in  this  civil  action   against  15  additional   parties   seeking
contribution  in the event the Company is held liable for any response  costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any  investigation  of the nature and extent of the  contamination.  In December
1996,  Keystone,  U.S. EPA and the Department of Justice  entered into the Fifth
Partial  Consent  Decree to settle  Keystone's  liability for EPA response costs
incurred at the site  through  April 1994 for a payment of  $690,000.  Under the
agreement  Keystone is  precluded  from  recovering  any portion of the $690,000
settlement payment from other parties to the lawsuit.  In January 1997, Keystone
paid the $690,000  settlement.  Keystone will remain  potentially liable for EPA
response  costs  incurred  after April 30,  1994,  and natural  resource  damage
claims, if any, that may be asserted in the future. Keystone recovered a portion
of the  $690,000  payment  from its  insurer.  In March 1997,  U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated  soils be performed at an  estimated  cost of $63,000,  that a soil
cover be placed over the site, an on-site  groundwater  pump and treat system be
installed  and  operated  for an  estimated  period of 15  years,  and that both
on-site and  off-site  groundwater  monitoring  be conducted  for an  indefinite
period. U.S. EPA's cost estimate for the recommended plan is $5.1 million.  U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately  $6 million.  The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a  Comprehensive   Environmental   Response,   Compensation  and  Liability  Act
("CERCLA")  special  notice  letter  notifying  them  for  the  first  time of a
September  1998 Record of Decision  ("ROD") and  requesting a  commitment  on or
before  May 19,  1999 to  perform  soils  work  required  by that  ROD  that was
estimated to cost approximately $300,000. In addition, the special notice letter
also  requested  the PRPs to reimburse  U.S. EPA for costs  incurred at the site
since May 1994 in the amount of $1.1  million,  as well as for all future  costs
the U.S.  EPA will incur at the site in  overseeing  the  implementation  of the
selected soils remedy and any future  groundwater  remedy.  Keystone  refused to
agree to the U.S.  EPA's past and future cost demand.  In August 1999,  U.S. EPA
issued a  groundwater  PRAP with an estimated  present value cost of $3 million.
Keystone filed public  comments  opposing the PRAP in September 1999. In October
2002, Keystone and the other remaining PRPs entered into a second Consent Decree
with the U.S. EPA, in order to resolve their  liability for  performance  of the
U.S.  EPA's  September  1998  ROD  for a  soils  remedy  at the  site,  for  the
performance of the U.S. EPA's  December 1999 ROD for remedial  action  regarding
the  groundwater  component of Operable  Unit No. 4 at the site,  for payment of
U.S.  EPA's  site  costs  incurred  since  May 1994 as well as future  U.S.  EPA
oversight  costs,  and  for the  transfer  of  certain  funds  that  may be made
available to the PRPs as a result of a consent decree  reached  between U.S. EPA
and another site PRP. Under the terms of the second Consent Decree,  and the PRP
Agreement  was executed to implement  the PRPs'  performance  under that decree,
Keystone is  required  to pay  approximately  $700,000  (of which  approximately
$600,000 has already  been paid into a PRP Group trust  fund),  and would remain
liable for 18.57% of future U.S. EPA oversight  costs as well as a similar share
of any  unanticipated  cost increases in the soils remedial action work.  (Under
the agreements, the City of Byron, Illinois, would assume responsibility for any
cost  overruns  associated  with the  municipal  water supply  components of the
groundwater contamination remedy.) The U.S. EPA served the PRP Group in February
2003 with its first oversight cost claim under the second Consent Decree, in the
amount of  $186,000  for the period  from March 1, 2000 to  November  25,  2002.
Keystone's share of that claim is approximately  $35,000.  The U.S. EPA has also
requested  changes to the  groundwater  monitoring  program at the site that may
require future increases in the PRP Group's groundwater  monitoring reserves. In
September  2002,  the IAG served a demand  letter on Keystone  and 3 other PRP's
seeking recovery of  approximately  $1.3 million in state cleanup costs incurred
at the Byron Salvage Yard site. The PRP's are currently negotiating with the IAG
in an attempt to settle  this claim.  The four PRP's named in the demand  letter
are also attempting to include other site PRP's in the negotiations.  It remains
possible  that  these  negotiations  could  fail  and that  Keystone's  ultimate
liability  for the  Byron  Salvage  Yard site  could  increase  in a  subsequent
settlement agreement or as a result of litigation.

     In September 1991, the Company along with 53 other PRPs, executed a consent
decree to undertake  the  immediate  removal of hazardous  wastes and initiate a
Remedial  Investigation/Feasibility  Study ("RI/FS") of the Interstate Pollution
Control site located in Rockford,  Illinois. The Company's percentage allocation
within  the group of PRPs  agreeing  to fund this  project is  currently  2.14%.
However, the Company's ultimate allocation,  and the ultimate costs of the RI/FS
and any remedial action, are subject to change depending, for example, upon: the
number and financial condition of the other participating PRPs, field conditions
and sampling  results,  results of the risk  assessment and  feasibility  study,
additional  regulatory  requirements,  and the success of a contribution  action
seeking to compel additional parties to contribute to the costs of the RI/FS and
any remedial action. The RI/FS began in 1993, was completed in 1997 and approved
by IEPA in 1998.  In the summer of 1999,  IEPA selected a capping and soil vapor
extraction  remedy  estimated  by the PRP group to have a present  value cost of
approximately  $2.5  million.  IEPA  may also  demand  reimbursement  of  future
oversight  costs.  The three largest PRPs at the site are  negotiating a consent
order with IEPA for the  performance  of the site  remedy.  Keystone  expects to
participate  with the larger PRPs in the performance of that remedy based on its
RI/FS allocation percentage.

     In  August  1987,  Keystone  was  notified  by  U.S.  EPA  that it is a PRP
responsible  for  the  alleged  hazardous  substance  contamination  of  a  site
previously  owned  by the  Company  in  Cortland,  New  York.  Four  other  PRPs
participated  in the RI/FS and a contribution  action is pending  against eleven
additional  viable  companies which  contributed  wastes to the site.  Following
completion  of the RI/FS,  U.S. EPA  published in November  1997, a PRAP for the
site  that  recommends  the  excavation  and  disposal  of  contaminated   soil,
installation  of an  impervious  cap over a portion of the site,  placement of a
surface  cover  over  the  remainder  of the site  and  semi-annual  groundwater
monitoring until drinking water standards are met by natural  attenuation.  U.S.
EPA estimates the costs of this recommended plan to be $3.1 million. The highest
cost remedy  evaluated by U.S. EPA but not  recommended in the PRAP is estimated
by U.S. EPA to have a cost of $19.8  million.  In September  1998,  Keystone and
four other PRPs who had funded the prior  remedial  actions  and RI/FS  signed a
proposed  Consent  Decree with U.S.  EPA  calling for them to be  "nonperforming
parties" for the  implementation of a March 1998 Record of Decision.  Under this
Consent Decree,  Keystone could be responsible for an unspecified  share of U.S.
EPA's future costs in the event that changes to the existing ROD are required.

     Prior to its acquisition by Keystone,  DeSoto, Inc. ("DeSoto") was notified
by U.S. EPA that it is one of approximately  50 PRPs at the Chemical  Recyclers,
Inc. site in Wylie,  Texas. In January 1999, DeSoto changed its name to Sherman.
Under a consent  order with the U.S.  EPA, the PRP group has performed a removal
action  and  an  investigation  of  soil  and  groundwater  contamination.  Such
investigation  revealed certain environmental  contamination.  It is anticipated
U.S. EPA will order further  remedial  action,  the exact extent of which is not
currently known. Sherman is paying on a non-binding interim basis, approximately
10% of the costs for this site.  Remediation  costs,  at Sherman  Wire's present
allocation level, are estimated at a range of from $1.5 million to $4 million.

     In 1984, U.S. EPA filed suit against DeSoto by amending a complaint against
Midwest  Solvent  Recovery,  Inc. et al ("Midco").  DeSoto was a defendant based
upon alleged  shipments to an industrial  waste  recycling  storage and disposal
operation site located in Gary,  Indiana.  The amended  complaint  sought relief
under CERCLA to force the  defendants to clean up the site,  pay  non-compliance
penalties and reimburse the  government  for past clean up costs.  In June 1992,
DeSoto  settled  its  portion  of the case by  entering  into a partial  consent
decree,  and all but one of the eight remaining primary  defendants and 93 third
party  defendants  entered  into a main consent  decree.  Under the terms of the
partial consent decree,  DeSoto agreed to pay its pro rata share (13.47%) of all
costs under the main consent decree.  In addition to certain amounts included in
the trust fund discussed below, Sherman Wire also has certain funds available in
other trust funds due to it under the partial consent decree.  These credits can
be  used  by  Sherman  Wire  (with  certain  limitations)  to  fund  its  future
liabilities under the partial consent decree.

     In 1995,  DeSoto was notified by the Texas  Natural  Resource  Conservation
Commission  ("TNRCC") that there were certain  deficiencies  in prior reports to
TNRCC relative to one of its  non-operating  facilities  located in Gainesville,
Texas. During 1999, Sherman Wire entered into TNRCC's Voluntary Cleanup Program.
Remediation  costs are  presently  estimated  to be between  $1.2 million and $2
million.  Investigation  activities are on-going  including  additional soil and
groundwater sampling.

     In December 1991,  DeSoto and  approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken,  New Jersey  municipal  landfill.  The plaintiffs in the complaint
were ordered by the court to show in what manner the  defendants  were connected
to the site. The  plaintiffs  provided an alleged nexus  indicating  garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such  waste  allegedly  contained  hazardous  material  to which
DeSoto objected.  The claim was dismissed  without  prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in  discovery  stage at March 31,  2005.  Sherman  Wire has denied any
liability  with  regard to this  matter  and  expects to  vigorously  defend the
action.

     Sherman Wire has received  notification  from the TNRCC stating that DeSoto
is a PRP at the  Material  Recovery  Enterprises  Site near Ovalo,  Texas,  with
approximately  3% of the total  liability.  The matter has been  tendered to the
Valspar  Corporation  ("Valspar")  pursuant to a 1990 agreement  whereby Valspar
purchased  certain assets of DeSoto.  Valspar has been handling the matter under
reservation  of rights.  At the  request of Valspar,  Sherman  Wire has signed a
participation  agreement which would require Sherman Wire to pay no less than 3%
of the remediation costs. Valspar continues to pay for legal fees in this matter
and has reimbursed Sherman Wire for all assessments.

     In November  2003,  Sherman  Wire  received a General  Notice of  Potential
Liability from the U.S. EPA advising them that the U.S. EPA believe Sherman Wire
is a PRP at the Lake  Calumet  Cluster Site in Chicago,  Illinois.  The U.S. EPA
advises the 200 acre site  consists  of areas of both  ground  water and surface
water contamination  located in a remnant wetland area. The U.S. EPA's effort at
this  site is part of a  larger  effort  undertaken  along  with  the  State  of
Illinois,  the City of Chicago,  the U.S. Army Corps of Engineers,  and the U.S.
Department of Energy to cleanup  contamination  in the Lake Calumet  basin.  The
U.S. EPA alleges the original  wetland area has been partially  filed by various
waste  handling and disposal  activities  which  started as early as the 1940's.
Incineration  of  hazardous  waste  including   paints,   thinners,   varnishes,
chlorinated solvents,  styrene,  ink, adhesives,  and antifreeze occurred on the
site from 1977 until 1982. In addition,  several landfills  operated in and near
the site from 1967 into the 1990s.  Approximately 1,600 ruptured drums have been
discovered  buried on the site. The U.S. EPA has undertaken or overseen  various
response actions at the site to mitigate remaining above ground contamination in
the site  vicinity.  The  U.S.  EPA  advises  these  activities  have led to the
formation of an extensive ground water  contamination plume and contamination in
the remaining wetland. The origin of the contamination cannot be associated with
any single  prior  activity.  The  ground  water is in direct  contact  with the
wetland waters, and the same contaminants of concern, certain of which are known
to  bioaccumulate,   and  their   concentrations  are  above  human  health  and
environmental  standards.  Sherman did not respond to the November  2003 Notice,
however,  Sherman notified their insurance  carriers and asked them to indemnify
and defend Sherman with respect to the Notice. At present, no carrier has agreed
to either  indemnify or defend.  In addition,  in November,  2003,  Sherman Wire
requested  the U.S. EPA to provide any  documentation  that  allegedly  connects
Sherman Wire to the site. Subsequently, the U.S. EPA produced documents that may
show that Sherman Wire wastes were sent to the site.  It is not possible at this
time to determine if Sherman Wire has any future  liability with respect to this
site.

     In  addition  to the  sites  discussed  above,  Sherman  Wire is  allegedly
involved at various other sites and in related toxic tort lawsuits which it does
not currently expect to incur significant liability.

     Sherman Wire has access to a trust fund  relative to another  environmental
site for any expenses or liabilities it incurs relative to environmental  claims
at that site.  The trust  fund is  included  in  restricted  investments  on the
balance  sheet.  At December  31, 2004 and March 31,  2005,  the balance in this
trust fund was approximately $248,000.

Note 12 -  Other commitments and contingencies:

Current litigation

     As a result of the  Chapter 11 filings on  February  26,  2004,  litigation
relating to prepetition claims against the filing companies,  including Keystone
and Sherman has been stayed.  These  liabilities that relate to Sherman continue
to be negotiated and adjudicated subsequent to Keystone's emergence from Chapter
11 on August 31, 2005.

     In July 2001,  Sherman Wire received a letter from a law firm advising them
that Sears Roebuck & Co. ("Sears") had been named as a defendant in a lead paint
personal injury case. Sears claimed  contractual  indemnity  against Sherman and
demanded that Sherman  defend and  indemnify  Sears with regard to any losses or
damages Sears may sustain in the case. Sears was named as an additional  insured
on insurance  policies,  in which DeSoto, the manufacturer of the paint, was the
named  insured.  Additional  demands  were made by Sears in 2002 with  regard to
additional lead paint cases.  DeSoto's  insurance  carriers were notified of the
action and asked to indemnify  Sherman with  respect to the  complaint.  Sherman
Wire has not  indemnified  Sears and is unaware if the  insurors  have agreed to
indemnify Sears.

     In May  2002,  the  Company  was  notified  by an  insurance  company  of a
declaratory  complaint  filed  in Cook  County  Illinois  by Sears  against  the
insurance  company and a second insurance  company  (collectively the "Insurance
Companies")  relative to a certain lead paint personal injury litigation against
Sears.  It is the Company's  understanding  that the  declaratory  complaint has
since been amended to include all lead paint cases where Sears has been named as
a defendant as a result of paint sold by Sears that was  manufactured  by DeSoto
(now  Sherman  Wire).  Sears was  allegedly  named as an  additional  insured on
insurance  policies  issued by the Insurance  Companies,  in which  DeSoto,  the
manufacturer  of  the  paint,   was  the  named  insured.   Sears  has  demanded
indemnification from the Insurance Companies. One of the Insurance Companies has
demanded  indemnification  and defense from Sherman Wire.  Sherman Wire believes
the request for indemnification is invalid.  However, such Insurance Company has
refused to accept  Sherman  Wire's  response and has demanded  that Sherman Wire
participate  in mediation  in  accordance  with the terms of a prior  settlement
agreement. Sherman Wire may be sued by the Insurance Companies and, as a result,
could be held  responsible for all costs incurred by the Insurance  Companies in
defending  Sears and paying for any claims against Sears as well as for the cost
of any  litigation  against  Sherman Wire.  The total amount of these lead paint
litigation related costs and claims could be significant.  However,  the Company
does not have a liability  recorded  with respect to these  matters  because the
liability that may result, if any, cannot be reasonably estimated at this time.

     The Company is also engaged in various legal proceedings  incidental to its
normal  business  activities.  In the  opinion  of the  Company,  none  of  such
proceedings  is material in relation  to the  Company's  consolidated  financial
position, results of operations or liquidity.

Note 13 - Earnings per share:

     Net loss per  share is based  upon the  weighted  average  number of common
shares  and  dilutive  securities.   A  reconciliation  of  the  numerators  and
denominators  used in the  calculations of basic and diluted  earnings per share
computations of loss is presented below. The effect of the assumed conversion of
the Series A Convertible  Preferred  Stock was  antidilutive in the three months
ended March 31, 2004 and 2005.  Keystone  stock  options  were  omitted from the
calculation because they were antidilutive in both periods presented.

<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                March 31,
                                                                                          ---------------------
                                                                                          2004             2005
                                                                                          ----             ----
                                                                                              (In thousands)

Numerator:
<S>                                                                                   <C>              <C>
  Net loss                                                                            $(7,638)         $(1,276)

  Less  Series A Preferred Stock dividends                                             (1,223)             -
                                                                                      -------          ---------
  Basic net loss                                                                       (8,861)          (1,276)
    Series A Preferred Stock dividends                                                   -                 -
                                                                                      -------          ---------

  Diluted net loss                                                                    $(8,861)          $(1,276)
                                                                                      =======           =======

Denominator:
  Average common shares outstanding                                                    10,068            10,068
  Dilutive effect of Series A Preferred Stock                                            -                 -
                                                                                      -------          ---------

  Diluted shares                                                                       10,068            10,068
                                                                                      =======           =======
</TABLE>

Note 14 - Accounting principles not yet adopted:


     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. Based on guidance issued by the U.S. Securities and Exchange
Commission,  the Company will adopt SFAS No. 123R,  "Share-Based Payment," as of
January 1, 2006. SFAS No. 123R,  among other things,  eliminates the alternative
in existing GAAP to use the intrinsic value method of accounting for stock-based
employee  compensation  under APBO No. 25. Upon  adoption of SFAS No. 123R,  the
Company will  generally be required to recognize  the cost of employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award,  with the cost  recognized over the period during which
an  employee  is  required  to  provide  services  in  exchange  for  the  award
(generally,  if the vesting period of the award).  No compensation  cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard  to all new  awards  granted on or after  January  1, 2006,  and to all
awards  existing  as of  December  31,  2005  which are  subsequently  modified,
repurchased or cancelled.  Additionally, as of January 1, 2006, the Company will
be required to  recognize  compensation  cost for the portion of any  non-vested
award  existing  as of  December  31, 2005 over the  remaining  vesting  period.
Because  the Company is not  expected  to grant any options  prior to January 1,
2006 and because the number of  non-vested  awards as of December  31, 2005 with
respect  to options  previously  granted by the  Company is not  expected  to be
material, the effect of adopting SFAS No. 123R is not expected to be significant
in so far as it relates to existing stock options. Should the Company,  however,
grant a significant number of options in the future, the effect on the Company's
consolidated financial statements could be material.



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

Bankruptcy:

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S.
Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company
is managing  its business as a debtor-in  possession  subject to approval by the
Court.  Keystone  attributed  the need to  reorganize  to  weaknesses in product
selling prices over the last several years,  unprecedented  increases in ferrous
scrap costs, Keystone's primary raw material, and significant liquidity needs to
service employee and retiree medical costs. These problems substantially limited
Keystone's  liquidity and  undermined its ability to obtain  sufficient  debt or
equity capital to operate as a going concern.

     Under Chapter 11 proceedings,  actions by creditors to collect Pre-petition
Claims are  stayed,  absent  specific  authorization  from the Court to pay such
claims  while  the  Company  manages  the  business  as a  debtor-in-possession.
Keystone  received  approval  from the Court to pay certain of its  pre-petition
liabilities, including employee wages and certain employee benefits.

     Keystone filed a plan of reorganization on October 4, 2004 and amended that
plan on May 26, 2005, June 21, 2005 and June 27, 2005.  Keystone's  amended plan
of reorganization  was accepted by the impacted  constituencies and confirmed by
the Court on August 10, 2005. The Company emerged from bankruptcy  protection on
August  31,  2005.   Significant   provisions  of  Keystone's  amended  plan  of
reorganization included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain operating assets and existing  operations of Sherman Wire will
          be sold at fair market value to  Keystone,  which will then be used to
          form  and  operate  a  newly   created   wholly-owned   subsidiary  of
          reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

In addition,  Keystone has obtained an $80 million  secured credit facility from
Wachovia Capital Finance (Central). Proceeds from this credit facility were used
to extinguish Keystone's existing  Debtor-In-Possession credit facilities and to
provide working capital for reorganized Keystone. See Note 2 to the Consolidated
Financial Statements.

Summary

     As discussed in Note 1 to the Consolidated  Financial Statements,  Keystone
restated its 2003 and 2004  consolidated  balance  sheets and statements of cash
flows to properly classify certain cash overdrafts.

     The Company  reported  net losses of $7.6  million in the first  quarter of
2004 and $1.3 million in the first quarter of 2005. The primary  reasons for the
decline  in  loss  from  2004  to  2005  were  due to  the  net  effects  of (i)
significantly  higher per-ton product selling prices  partially offset by higher
costs for ferrous scrap,  (ii) favorable  changes to the Company's medical plans
for both  active  and  retired  employees,  and (iii) a higher  defined  benefit
pension credit in 2005.

OVERALL RESULTS OF OPERATIONS:

     Keystone  believes it is a leading  manufacturer  of steel  fabricated wire
products, nails, industrial wire and wire rod for the agricultural,  industrial,
construction,  original  equipment  manufacturer and retail consumer markets and
believes it is one of the largest  manufacturers  of fabricated wire products in
the United States.  Historically,  the Company has experienced greater sales and
profits  during  the first half of the year due to the  seasonality  of sales in
principal wire products  markets,  including the  agricultural  and construction
markets.  Keystone is also engaged in the operation of a ferrous scrap recycling
facility.   The  operations  of  this  ferrous  scrap  recycling  facility  were
insignificant  when compared to the consolidated  operations of the Company.  As
such,  the  results  of its  operations  are  not  separately  addressed  in the
discussion that follows.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995,  the Company  cautions  that  statements in this
Quarterly  Report on Form 10-Q relating to matters that are not historical facts
including, but not limited to, statements found in this "Management's Discussion
And  Analysis  Of  Financial   Condition   And  Results  Of   Operations,"   are
forward-looking  statements that represent  management's beliefs and assumptions
based on currently  available  information.  Forward-looking  statements  can be
identified by the use of words such as "believes",  "intends",  "may", "should",
"could",  "anticipates," "expected" or comparable terminology, or by discussions
of strategies or trends.  Although Keystone believes the expectations  reflected
in such forward-looking statements are reasonable, it cannot give any assurances
that these  expectations  will prove to be  correct.  Such  statements  by their
nature involve  substantial  risks and  uncertainties  that could  significantly
impact expected results,  and actual future results could differ materially from
those described in such forward-looking statements.  While it is not possible to
identify all factors,  Keystone  continues to face many risks and uncertainties.
Among the factors that could cause actual  future  results to differ  materially
are the risks and  uncertainties  discussed in this  Quarterly  Report and those
described  from time to time in the Company's  other filings with the Securities
and Exchange Commission including, but not limited to;

     o    Future  supply  and  demand  for  the  Company's  products  (including
          cyclicality thereof),
     o    Customer inventory levels,
     o    Changes in raw  material  and other  operating  costs (such as ferrous
          scrap and energy)
     o    The possibility of labor disruptions,
     o    General global economic and political conditions,
     o    Competitive products and substitute products,
     o    Customer and competitor strategies,
     o    The impact of pricing and production decisions,
     o    The possibility of labor disruptions,
     o    Environmental  matters (such as those requiring emission and discharge
          standards for existing and new facilities),
     o    Government regulations and possible changes therein,
     o    Significant  increases  in the cost of providing  medical  coverage to
          employees and retirees,
     o    The ultimate resolution of pending litigation,
     o    International  trade policies of the United States and certain foreign
          countries,
     o    Operating  interruptions   (including,   but  not  limited  to,  labor
          disputes,  fires,  explosions,  unscheduled or unplanned  downtime and
          transportation interruptions),
     o    The ability of the Company to renew or refinance credit facilities,
     o    Any possible future litigation, and
     o    Other risks and  uncertainties  as discussed in this Quarterly  Report
          and the Annual  Report,  including,  without  limitation,  the section
          referenced above.

     Should one or more of these risks  materialize (or the consequences of such
a development  worsen),  or should the underlying  assumptions  prove incorrect,
actual  results  could  differ  materially  from those  forecasted  or expected.
Keystone  disclaims  any  intention  or  obligation  to  update  or  revise  any
forward-looking statement whether as a result of new information,  future events
or otherwise.

     The  following  table  sets  forth  Keystone's  steel and wire  production,
ferrous scrap costs, sales volume and pricing data for the periods indicated.

<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                March 31,
                                                                                           --------------------
                                                                                           2004            2005
                                                                                           ----            ----
                                                                                           (Tons in thousands)

Production volume (tons):
<S>                                                                                          <C>             <C>
 Billets                                                                                      119             141
 Wire rod                                                                                     117             134

Average per-ton ferrous scrap purchase cost                                                  $174            $252

Sales volume(tons):
 Fabricated wire products                                                                      50              46
 Nails                                                                                         10               5
 Industrial wire                                                                               17              16
 Wire rod                                                                                      29              43
 Billets                                                                                        4               2
                                                                                             ----          ------

                                                                                              110             112
                                                                                             ====          ======
Per-ton selling prices:
  Fabricated wire products                                                                   $757          $1,056
  Nails                                                                                      $646          $  778
  Industrial wire                                                                            $575          $  768
  Wire rod                                                                                   $415          $  567
  Billets                                                                                    $ 80          $  257
  All steel and wire products                                                                $606          $  798
</TABLE>

     The  following  table sets forth the  components of the Company's net sales
for the periods indicated.

<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                March 31,
                                                                                          ----------------------
                                                                                           2004            2005
                                                                                          ------          ------
                                                                                              (In millions)

<S>                                                                                       <C>              <C>
Fabricated wire products                                                                  $38.1            $48.0
Nails                                                                                       6.4              3.8
Industrial wire                                                                            10.2             12.5
Wire rod                                                                                   12.0             24.3
Billets                                                                                      .3               .6
Other                                                                                        .2               .3
                                                                                          -----            -----
                                                                                          $67.2            $89.5
                                                                                          =====            =====
</TABLE>



     The following table sets forth selected  operating data of the Company as a
percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                 March 31,
                                                                                          ------------------------
                                                                                            2004            2005
                                                                                          -------          -------

<S>                                                                                         <C>              <C>
Net sales                                                                                   100.0 %          100.0 %
Cost of goods sold                                                                          102.1             94.4
                                                                                            -----            -----
Gross margin (loss)                                                                          (2.1)%            5.6 %
                                                                                            =====            =====

Selling expense                                                                               1.9 %            1.6 %
General and administrative expense                                                            4.0 %            3.0 %
Defined benefit pension credit                                                               (2.2)%           (3.6)%
Corporate expense                                                                             1.3 %            1.4 %
Reorganization costs                                                                          2.9 %            3.7 %

Loss before income taxes                                                                    (11.4)%           (1.3)%
Income tax provision                                                                             -             (.1)
                                                                                            -----            -----

Net loss                                                                                    (11.4)%           (1.4)%
                                                                                            =====            =====
</TABLE>

Discussion of operating results

     Despite  only a 2,000 ton  increase  in  shipment  volume of steel and wire
products during the first quarter of 2005, net sales increased by $22.3 million,
or 33.3%,  from the first quarter of 2004 due  primarily to a 31.7%  increase in
overall per-ton steel and wire product selling prices.  As a result of a Company
initiative to discontinue  sales to its less profitable  fabricated wire product
and nail  customers  during the last  quarter  of 2003 and the first  quarter of
2004,  the  product  mix in the  first  quarter  of  2005  consisted  of a lower
percentage of  fabricated  wire products and nails than during the first quarter
of 2004.  Keystone  supplemented these lower shipment volumes of fabricated wire
products and nails during the 2005 quarter with increased shipments of wire rod.
However,  the Company  typically  realizes a lower gross margin on sales of wire
rod than it does on its other  products.  The 31.7% increase in overall  per-ton
steel and wire  product  selling  prices ($192 per ton)  favorably  impacted net
sales by approximately $21.5 million during the 2005 first quarter.

     During  the first  quarter of 2005,  Keystone  realized  increased  per-ton
selling  prices  over those of the 2004  first  quarter  in all  product  lines.
Fabricated  wire  products  per-ton  selling  prices  increased by 39.5%,  nails
increased 20.4%,  industrial wire increased 33.6%,  wire rod increased 36.6% and
the per-ton selling prices of billets during the first quarter of 2005 increased
221.3% as compared to the first quarter of 2004.  During the 2005 first quarter,
shipment  volumes  declined  as  compared  to 2004 first  quarter  levels in all
product lines except wire rod. Fabricated wire products shipment volume declined
8.0%,  nails declined 50.0%,  industrial wire declined 5.9% and billet shipments
declined 50.0%.  Wire rod shipment volume in the first quarter of 2005 increased
48.3% from the 2004 first quarter level. The Company believes the lower shipment
volumes  across the majority of its product  lines during the 2005 first quarter
was due to the Company  initiative to discontinue  sales to its less  profitable
customers.  Throughout  2004, the Company  implemented  several price  increases
primarily as a reaction to rapidly  increasing  ferrous scrap costs,  Keystone's
primary raw material. As a result of these efforts,  during the first quarter of
2005,  the  Company  was able to realize  significant  increases  in the per-ton
product  selling  prices of the  majority  of its  product  lines as compared to
per-ton selling prices during the first quarter of 2004.

     Billet production during the 2005 first quarter increased by 22,000 tons to
141,000  tons from  119,000  tons  during the first  quarter  of 2004.  Wire rod
production  during the first quarter of 2005 increased by 17,000 tons to 134,000
tons from  117,000  tons  during the first  quarter of 2004.  The lower wire rod
production in 2004 was due primarily to Keystone's limited production  schedules
during the period  preceding and  immediately  following  Keystone's  Chapter 11
filing.

     Cost of goods sold  increased by 23.1% during the first  quarter of 2005 to
$84.5 million from $68.6 million  during the 2004 first  quarter.  However,  the
cost of goods sold percentage  declined from 102.1% in the 2004 quarter to 94.4%
of net sales in the first  quarter  of 2005.  This  decline in the cost of goods
sold  percentage was due primarily to the  significantly  higher product per-ton
selling  prices  and lower  retiree  medical  costs in the 2005  first  quarter,
partially  offset by increased  costs for ferrous  scrap,  natural gas costs and
electrical power at the Company's Peoria, Illinois facility.  Keystone's per-ton
ferrous scrap costs increased 44.8% during the 2005 first quarter as compared to
the 2004 first  quarter.  During the 2005 first quarter,  the Company  purchased
151,000 tons of ferrous scrap at an average price of $252 per-ton as compared to
2004 first  quarter  purchases of 139,000  tons at an average  price of $174 per
ton.  This  increase in per-ton  ferrous scrap costs  adversely  impacted  gross
profit during the 2005 first quarter by approximately $11.8 million. The cost of
natural gas and electrical  power at the Company's  Peoria  facility in the 2005
first quarter was approximately $673,000 and $315,000, respectively, higher than
they  were in the 2004  first  quarter.  In  addition,  in  connection  with its
restructuring activities during the first quarter of 2004, Keystone modified its
health and  welfare  benefit  plans for active  employee.  These  changes to the
health  and  welfare   benefit  plans   resulted  in  a   significantly   higher
participation by the employees and a correspondingly lower required contribution
by the  Company  during the 2005 first  quarter  as  compared  to the 2004 first
quarter.

     As a result of the above  items,  the gross  margin loss of $1.4 million in
the 2004 first quarter improved to a positive margin of $5.1 million in the 2005
first quarter.  As a result, the gross margin percentage in the first quarter of
2004 of a 2.1% loss increased to a positive 5.6% in the 2005 first quarter.

     Selling  expense  during the 2005  first  quarter  increased  14.1% to $1.4
million from $1.3 million during the 2004 first quarter.

     General  and  administrative  expense  of $2.7  million  in the 2005  first
quarter approximated the general and administrative expense in the first quarter
of 2004.

     During the first  quarter  of 2005,  Keystone  recorded  a defined  benefit
pension  credit of $3.2  million as  compared  to  recording  a defined  benefit
pension credit in the 2004 first quarter of $1.5 million.  The increased pension
credit during the first  quarter of 2005 was a result of a $52 million  increase
in plan assets from the end of 2003 to the end of 2004.  In  addition,  Keystone
was not required to make any cash contributions for defined benefit pension plan
fundings during either 2005 or 2004. The Company  currently  anticipates  during
2005 it will record a defined  benefit  pension credit of $11.7 million and that
no plan fundings will be required during 2005.  However,  future  variances from
assumed  actuarial  rates,  including the rate of return on pension plan assets,
may result in increases  or  decreases  in pension  expense or credit and future
funding requirements.

     During 2004, the Company  entered into an agreement (the "1114  Agreement")
with  certain  retiree  groups that  substantially  reduced the post  retirement
("OPEB") benefits that will be paid to these retiree groups in the future. Prior
to confirmation of Keystone's definitive plan of reorganization, the Court could
have  rescinded the 1114  Agreement  and  therefore  the 1114  Agreement was not
definitive  until it was  confirmed by the Court in connection  with  Keystone's
emergence  from Chapter 11 on August 31, 2005. As such,  and in accordance  with
GAAP,  the Company  has  continued  to record  OPEB  expense for the first eight
months of 2005 at the  estimated  level  required as if Keystone had not entered
into the 1114 Agreement.  The Company  estimates OPEB expense through August 31,
2005 will  approximate  $11.6  million.  However,  at the time of the  Company's
emergence from Chapter 11 on August 31, 2005, and concurrent confirmation of the
1114 Agreement,  GAAP then requires the effect of the substantially reduced OPEB
benefits  agreed to as part of the 1114  Agreement  be  accounted  for as a plan
amendment,  the benefit of which is amortized  into income over future  periods.
Accordingly,   Keystone  estimates  that  it  will  record  an  OPEB  credit  of
approximately  $2.7  million for the last four months of 2005,  resulting  in an
$8.9 million OPEB expense for the year 2005.

     General corporate expenses during the 2005 first quarter were approximately
$423,000 higher than general corporate expenses during the first quarter of 2004
due   primarily   to  increased   legal  fees  not  related  to  the   Company's
reorganization activities.

     During the first quarters of 2005 and 2004,  Keystone incurred $3.3 million
and $1.9 million,  respectively of legal and  professional  fees relative to its
Chapter 11 proceedings and related reorganization activities.

     Interest  expense during the first quarter of 2005 was lower than the first
quarter of 2004 due  primarily to lower debt levels and slightly  lower  average
interest rates. The overall average interest rates were impacted by the fact the
Company  discontinued  accruing  interest on  pre-petition  unsecured  debt upon
filing for  Chapter 11 on February 2, 2004.  Average  borrowings  by the Company
approximated $76.5 million during the first quarter of 2005 as compared to $98.7
million during the first quarter of 2004.  During the first quarter of 2005, the
average interest rate on outstanding indebtedness was 3.0% per annum as compared
3.1% per annum during the 2004 first  quarter.  Keystone  currently  anticipates
average  interest  rates  and debt  levels in 2005  will be  higher  than  their
respective levels during 2004.

     The principal reasons for the difference between the U.S. federal statutory
income tax rate and the  Company's  effective  income tax rates are explained in
Note 7 to the Consolidated Financial Statements.  At March 31, 2005, the Company
had recorded a deferred tax asset valuation allowance of $30.1 million resulting
in no net deferred tax assets.  Keystone periodically reviews the recoverability
of  its  deferred  tax  assets  to  determine   whether  such  assets  meet  the
"more-likely-than-not" recognition criteria. The Company will continue to review
the  recoverability  of its  deferred  tax  assets,  and based on such  periodic
reviews,  Keystone could recognize a change in the recorded valuation  allowance
related to its  deferred tax assets in the future.  While the Company  currently
expects to report pre-tax income for financial  reporting  purposes during 2005,
it does not believe it will have sufficient  positive  evidence to conclude that
its  net  deferred  income  tax  assets  will  meet  the  "more-likely-than-not"
recognition  criteria anytime during 2005. As a result of the deferred tax asset
valuation allowance, the Company does not anticipate recognizing a tax provision
associated with its expected pre-tax income during 2005 will be appropriate.

     As a result of the items  discussed  above,  Keystone  recorded  a net loss
during the first  quarter of 2005 of $1.3  million as  compared to a net loss of
$7.6 million in the first quarter of 2004.


SEGMENT RESULTS OF OPERATIONS:

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include three  reportable  segments:  (i) Keystone Steel and Wire
("KSW")  which  manufacturers  and sells wire rod,  wire and wire  products  for
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail consumer markets, (ii) Engineered Wire Products ("EWP")
which  manufactures  and sells welded wire  reinforcement in both roll and sheet
form that is utilized in concrete construction products including pipe, pre-cast
boxes and  applications  for use in roadways,  buildings and bridges and,  (iii)
Sherman Wire ("Sherman")  which  manufacturers  and sells wire and wire products
for  agricultural,  industrial,  construction,  commercial,  original  equipment
manufacturers and retail consumer markets.


<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                        -----------------------
                                                                                        2004               2005
                                                                                        ----               ----
                                                                                           (In thousands)

Revenues:
<S>                                                                                     <C>             <C>
  Keystone Steel and Wire                                                               $60,626         $ 89,194
  Engineered Wire Products                                                               11,090           12,051
  Sherman                                                                                 3,059            5,053
  Elimination of intersegment
    revenues                                                                             (7,598)         (16,761)
                                                                                        -------         --------

                                                                                        $67,177         $ 89,537
                                                                                        =======         ========

Operating profit (loss):
  Keystone Steel and Wire                                                               $(6,988)         $(1,452)
  Engineered Wire Products                                                                1,268            1,639
  Sherman                                                                                  (575)            (169)
  GAAP adjustments and eliminations                                                       2,398            4,123
                                                                                        -------         --------

                                                                                        $(3,897)         $ 4,141
                                                                                        =======         ========
</TABLE>

     GAAP adjustments and eliminations in the above table consisted primarily of
adjustments to reflect the difference between the defined benefit pension credit
allocated  to the  segments  and the actual  expense or credit  included  in the
determination  of operating  profit or loss. GAAP  adjustments and  eliminations
included a defined  benefit  pension  credit of $4.1  million  and $2.4  million
during the three months ended March 31, 2005 and 2004, respectively.

Keystone Steel & Wire

     KSW's net sales in the 2005 first  quarter  increased  by $28.6  million or
47.1% to $89.2  million  from  $60.6  million  in the first  quarter of 2004 due
primarily to higher overall  per-ton  product selling prices and higher shipment
volumes.  KSW sold approximately  17,000 more tons of products in the 2005 first
quarter as compared to the first quarter of 2004 at selling  prices $154 per-ton
higher  than  per-ton  product  selling  prices in the 2004 first  quarter.  KSW
believes the lower  shipment  volume during the first quarter of 2004 was due to
its limited  production  schedules  during the period  preceding and immediately
following   Keystone's   Chapter  11  filing  combined  with  an  initiative  to
discontinue  sales to KSW's less  profitable  customers.  Throughout  2004,  KSW
implemented   several  price  increases  primarily  as  a  reaction  to  rapidly
increasing ferrous scrap costs, KSW's primary raw material. As a result of these
efforts,  during the 2005  first  quarter,  KSW was able to realize  significant
increases in its per-ton  product  selling  prices over the same period in 2004.
During 2005 and 2004 first quarters,  approximately 15% and 9%,  respectively of
KSW's net sales were made to other Keystone  entities.  Significantly all of the
sales to other Keystone entities were sales of wire rod.

     During the first  quarter of 2005,  KSW recorded an operating  loss of $1.5
million  as  compared  to an  operating  loss of $7.0  million in the 2004 first
quarter.  The primary reason for the decreased operating loss in the 2005 period
was the  significantly  higher per-ton  product selling prices and lower retiree
medical costs in 2005,  partially  offset by increased  costs for ferrous scrap,
natural gas costs and electrical power. In addition, changes to KSW's health and
welfare benefit plans resulted in a significantly  higher  participation  by the
employees and a  correspondingly  lower required  contribution by KSW during the
first quarter of 2005.

Engineered Wire Products

     EWP's net sales of $12.1  million  during  the first  quarter  of 2005 were
approximately  $1.0 million or 8.7% higher than during the first quarter of 2004
due primarily to higher overall per-ton product selling prices  partially offset
by lower shipment  volume.  During the 2005 first  quarter,  EWP sold 4,300 less
tons of  products  than  during the first  quarter  of 2004 at  per-ton  product
selling prices  approximately $287 per-ton higher than per-ton selling prices in
the 2004 first quarter.  EWP believes the 2004 first quarter shipment volume was
abnormally high. During 2004, EWP implemented  several price increases primarily
as a reaction to rapidly  increasing wire rod costs, EWP's primary raw material.
As a result of these efforts,  during the first quarter of 2005, EWP was able to
realize significant increases in its per-ton product selling prices. EWP sources
the majority of its wire rod requirements from KSW.

     As a result of  significantly  higher per-ton product selling prices during
the first quarter of 2005,  partially offset by the increased cost for wire rod,
EWP recorded a $371,000 increase over 2004's operating income to $1.6 million.

Sherman Wire

     Tons shipped by Sherman Wire during the first quarter of 2005  increased by
1,900 tons from shipment  levels during the first quarter of 2004.  Sherman Wire
believes its lower shipment  volume during the 2004 first quarter was due to its
limited  production  schedules  during  the  period  preceding  and  immediately
following   Keystone's   Chapter  11  filing  combined  with  an  initiative  to
discontinue  sales to Sherman  Wire's less  profitable  customers.  Sherman Wire
recorded net sales of $5.1 million in the 2005 first quarter, as compared to net
sales of $3.1  million  during  the first  quarter  of 2004.  This $2.0  million
increase was due primarily to  significant  increase in Sherman  Wire's  per-ton
product  selling  prices during the 2005 first  quarter.  Sherman Wire's overall
per-ton product selling price increased by approximately  $71 per-ton during the
2005 first quarter as compared to the per-ton  product selling prices during the
first  quarter of 2004.  During 2004,  Sherman Wire  implemented  several  price
increases primarily as a reaction to rapidly increasing wire rod costs,  Sherman
Wire's  primary raw  material.  As a result of these  efforts,  during the first
quarter of 2005, Sherman Wire was able to realize  significant  increases in its
per-ton product  selling  prices.  Sherman Wire sources the majority of its wire
rod  requirements  from  KSW.  During  the  first  quarter  of  2005  and  2004,
approximately 68% and 73%,  respectively,  of Sherman Wire's net sales were made
to other  Keystone  entities,  primarily  KSW.  The majority of these sales were
fabricated wire products.

     During  the  first  quarter  of 2005,  Sherman  Wire  recorded  a  $169,000
operating  loss as  compared  to a  $575,000  operating  loss in the 2004  first
quarter. The primary reason for this improved operating  performance in 2005 was
the higher overall  per-ton  product  selling  prices and lower retiree  medical
costs partially offset by the increased costs for wire rod. In addition, changes
to Sherman Wire's health and welfare  benefit plans resulted in a  significantly
higher  participation  by the employees  and a  correspondingly  lower  required
contribution by Sherman Wire during 2005.

Outlook for 2005

     During 2005, rod imports have  continued at high levels.  These high import
levels combined with increased  production from domestic mills has resulted in a
decline in per-ton sales prices of the Company's products. In addition, the late
winter and inclement  weather during the spring and summer of 2005 has adversely
impacted  sales. As a result,  management  believes these factors will result in
lower  shipment  volume  in  2005  as  compared  to  2004.  The  Company's  2005
performance  will also be adversely  impacted by higher costs for ferrous  scrap
and the  cost of legal  and  professional  fees  associated  with the  Company's
bankruptcy  and  related  restructuring  efforts.  However,  the  effects of the
Company's  restructuring  efforts in 2004 and 2005 will partially mitigate these
factors,  as the Company expects to report a significant gain upon  cancellation
of debt and other liabilities  concurrent with its emergence from Chapter 11. As
a result,  Keystone  expects it will report net income for  financial  reporting
purposes  although  it expects  to report  negative  cash  flows from  operating
activities  in 2005. In addition,  as a result of  significant  accumulated  net
operating  losses,  the benefit of which has not been previously  recognized for
financial reporting purposes as the Company does not currently believe meets the
"more-likely-than-not"  recognition  criteria,  the  Company  does not expect to
record  significant  net tax expense  associated  with its pre-tax income during
2005.

LIQUIDITY AND CAPITAL RESOURCES:

     The amount of available  borrowings under  Keystone's  revolving credit and
primary  DIP  facilities  is  based  on  formula-determined   amounts  of  trade
receivables and inventories,  less the amount of outstanding  letters of credit.
At March 31, 2005,  unused credit  available for borrowing under  Keystone's DIP
facilities and EWP's $7 million  revolving credit facility (the "EWP Revolver"),
were $11.9 million and $1.0  million,  respectively.  The Company's  primary DIP
facility requires daily cash receipts be used to reduce outstanding  borrowings,
which  results in the  Company  maintaining  zero cash  balances  when there are
balances  outstanding under this credit facility.  Accordingly,  any outstanding
balances  under the  primary DIP  facility  are always  classified  as a current
liability regardless of the maturity date of the facility.

     On August 31,  2005,  in  connection  with its  emergence  from Chapter 11,
Keystone  entered into a new five-year,  $80.0 million secured credit  facility.
Proceeds from this credit facility were used to extinguish  Keystone's  existing
DIP  credit  facilities,  the EWP Term  Loan,  the EWP  Revolver  and to provide
working capital for reorganized  Keystone.  The facility includes a term loan in
the amount of up to $25.0 million, subject to a borrowing base calculation based
on the market value of the Company's real property and equipment.  To the extent
there is  sufficient  borrowing  base,  the term  loan  portion  of this  credit
facility  can be  reloaded  in the amount of $10.0  million.  The portion of the
credit  facility in excess of the term loan  balance is available to the Company
as a revolving credit facility subject to a borrowing base calculation  based on
eligible  receivables  and  inventory  balances.  Interest  rates on the  credit
facility  range  from the prime  rate to the prime  rate plus .5%  depending  on
Keystone's excess availability, as defined in the credit agreement. The facility
also provides for a LIBOR  interest  rate option.  Under the terms of the credit
facility,  the Company is required to annually pay down the term loan portion of
the  facility  in the  amount of 25% of excess  cash  flow,  as  defined  in the
agreement,  subject to a $2.0 million annual and a $5.0 million aggregate limit.
The facility also includes  performance  covenants  related to minimum levels of
cash  flow  and  fixed  charge   coverage   ratio.   Keystone  paid  the  lender
approximately  $400,000 of diligence,  commitment and closing fees in connection
with this facility.

     Despite a $6.4 million  increase in earnings between the 2004 first quarter
and the first quarter of 2005, cash flow from operating  activities in the first
quarter of 2005 declined by $17.6 million as Keystone used $23.0 million of cash
in  operations  during the first  quarter of 2005 as compared to using only $5.4
million in operations  during the first  quarter of 2004.  This increase in cash
used in operations was due primarily to larger increases in accounts  receivable
and  inventory  levels  during  the 2005  first  quarter  than in the 2004 first
quarter.  Because of the seasonal  nature of the  Company's  business,  the 2005
increase  was typical.  The reason the 2004  increase was not as large as 2005's
increase was due to Keystone's  limited  liquidity  during the last half of 2003
and the first  portion  of 2004,  not  allowing  the  Company  to  operate  on a
continuous basis. As such, production levels declined and Keystone was forced to
substantially  reduce its normal inventory levels over the last half of 2003 and
the  first two  months of 2004 in order to meet  customer  shipment  demand.  In
addition, as the Company's liquidity deteriorated  throughout 2003 and the first
two months of 2004,  Keystone  liquidated as many of its accounts  receivable as
possible.  As such, at the end of 2003,  the Company's  accounts  receivable and
inventory  balances were both at abnormally  low levels.  Keystone's  operations
returned  to normal  levels  during  2004.  However,  the higher  inventory  and
receivable balances had not been restored by the end of the 2004 first quarter.

     During the first  quarter of 2005,  Keystone made capital  expenditures  of
approximately $2.0 million primarily related to upgrades of production equipment
at its facility in Peoria,  Illinois,  as compared to $300,000 in the 2004 first
quarter.  Capital  expenditures for 2005 are expected to be  approximately  $7.0
million and are related  primarily to upgrades of  production  equipment at EWP.
Such  capital  expenditures  are  expected  to be funded  using  cash flows from
operations   together  with  borrowing   availability  under  Keystone's  credit
facilities.

     At March 31, 2004, the Company's  financial  statements  reflected  accrued
liabilities  of  $19.4  million  (substantially  all of  which  is  included  in
liabilities  subject to compromise on the Company's balance sheet) for estimated
remediation  costs for those  environmental  matters which Keystone believes are
probable  and  reasonably  estimable.  Although the Company has  established  an
accrual for estimated future required environmental  remediation costs, there is
no  assurance  regarding  the  ultimate  cost of  remedial  measures  that might
eventually  be  required  by   environmental   authorities  or  that  additional
environmental  hazards,  requiring further remedial  expenditures,  might not be
asserted  by such  authorities  or private  parties.  Accordingly,  the costs of
remedial  measures may exceed the amounts accrued.  Keystone  believes it is not
possible to  estimate  the range of costs for  certain  sites.  The upper end of
range of reasonably  possible  costs to Keystone for sites for which the Company
believes it is possible to estimate costs is  approximately  $21.4 million.  See
Notes 11 and 12 to the Consolidated  Financial Statements for discussions of the
Company's environmental liabilities and current litigation.

     Keystone  is not  expected  to be  required  to make  contributions  to its
pension  plan during  2005.  Future  variances  from  assumed  actuarial  rates,
including the rate of return on pension plan assets,  may result in increases or
decreases  to  pension  expense  or credit and  funding  requirements  in future
periods.

     The Company  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria. At March 31, 2005, the Company expects that its long-term
profitability  should  ultimately  be  sufficient  to enable it to realize  full
benefit of its future tax deductions, in part due to the long-term nature of its
net  operating  loss  carryforwards,  which  expire in 2023 and 2024.  Although,
considering all factors believed to be relevant,  including the Company's recent
operating results, its expected future near-term productivity rates; cost of raw
materials,  electricity, labor and employee benefits, environmental remediation,
and retiree medical  coverage;  interest  rates;  product mix; sales volumes and
selling  prices and the fact that accrued OPEB expenses  will become  deductible
over an extended period of time and require the Company to generate  significant
amounts of future taxable  income,  the Company  believes its gross deferred tax
assets do not currently meet the  "more-likely-than-not"  realizability test. As
such,  the Company has  provided a deferred  tax asset  valuation  allowance  of
approximately  $30.1 million at March 31, 2005, or all of the Company's deferred
tax asset.  Keystone will continue to review the  recoverability of its deferred
tax assets,  and based on such  periodic  reviews,  the Company could change the
valuation  allowance  related  to its  deferred  tax assets in the  future.  The
Company  does not  currently  expect it will be  appropriate  to recognize a tax
provision associated with its expected pre-tax income during 2005.

     Keystone  incurs  significant  ongoing  costs for plant and  equipment  and
substantial employee medical benefits for both current and retired employees. As
such,  Keystone is vulnerable to business  downturns and increases in costs, and
accordingly,  routinely  compares its liquidity  requirements  and capital needs
against its  estimated  future  operating  cash  flows.  In  addition,  Keystone
currently  anticipates  incurring legal and  professional  fees of approximately
$10.0 million  during 2005 related to its  reorganization  efforts.  Keystone is
also taking additional action towards improving its liquidity. Keystone has also
considered,  and may in the future  consider,  the sale of certain  divisions or
subsidiaries that are not necessary to achieve the Company's  long-term business
objectives.  However,  there can be no assurance  Keystone will be successful in
any of  these  or  other  efforts,  or that if  successful,  they  will  provide
sufficient liquidity for the Company's operations during the next year.


ITEM 4.  CONTROLS AND PROCEDURES

     Evaluation of Disclosure  Controls and  Procedures.  The Company  maintains
disclosure   controls  and  procedures.   The  term  "disclosure   controls  and
procedures,"  as defined by Rule 13a-15(e) of the Securities and Exchange Act of
1934 as amended  ("the  Act"),  means  controls  and other  procedures  that are
designed to ensure that information required to be disclosed in the reports that
the Company files or submits to the Securities and Exchange  Commission ("SEC"),
is  recorded,  processed,  summarized  and  reported,  within  the time  periods
specified  in the SEC's  rules and forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information required to be disclosed by the Company in the reports that it files
or  submits  to the SEC under the Act is  accumulated  and  communicated  to the
Company's  management,   including  its  principal  executive  officer  and  its
principal  financial  officer,  or  persons  performing  similar  functions,  as
appropriate to allow timely decisions to be made regarding required  disclosure.
Each of David L. Cheek, the Company's President and Chief Executive Officer, and
Bert E. Downing,  Jr., the Company's Vice President,  Chief  Financial  Officer,
Corporate  Controller  and Treasurer,  have  evaluated the Company's  disclosure
controls and procedures as of March 31, 2005. Based upon their  evaluation,  and
solely as a result of the material  weaknesses  discussed below, these executive
officers have concluded the Company's  disclosure  controls and procedures  were
not effective as of March 31, 2005.

     Internal Control Over Financial Reporting. A material weakness is a control
deficiency, or a combination of control deficiencies,  that results in more than
a remote  likelihood  that a  material  misstatement  of the  annual or  interim
financial  statements  will not be  prevented  or  detected.  Management  of the
Company  has  concluded  that  the  following  control  deficiencies  constitute
material weaknesses in the Company's internal control over financial reporting:

(1)  As of March 31, 2005, the Company did not maintain  effective controls over
     the  completeness and accuracy of net sales and related cost of goods sold.
     Specifically,  the Company did not have  controls  designed and in place to
     detect  sales  made  under the terms  F.O.B.  at the  customer's  location.
     Additionally,  the Company did not  maintain  effective  controls  over the
     review and  monitoring  of the accuracy and  completeness  of net sales and
     costs of goods sold. This control deficiency resulted in adjustments to net
     sales and cost of goods sold in the third quarter of 2005.
(2)  As of March 31, 2005, the Company did not maintain  effective controls over
     the  presentation  and  classification  of cash  overdrafts.  Specifically,
     effective  controls  were not  designed  and in place to  ensure  that cash
     overdrafts  were  properly  classified  as  indebtedness  in the  Company's
     consolidated  balance sheet,  and that changes in its cash  overdrafts were
     properly  included  in the  determination  of  cash  flows  from  financing
     activities.  This control  deficiency  resulted in the  restatement  of the
     Company's 2003 and 2004 annual consolidated  financial statements and audit
     adjustments to both its 2004 interim consolidated  financial statements and
     its annual and interim 2005  consolidated  financial  statements  affecting
     accounts payable and the current portion of long-term debt.

     Each of these two control  deficiencies  could result in a misstatement  of
the aforementioned  accounts that would result in a material misstatement to the
Company's annual or interim consolidated  financial statements that would not be
prevented or detected.

     Accordingly,  management  of the  Company  determined  that  each of  these
control deficiencies constitutes a material weakness.

     The Company currently expects that Section 404 of the Sarbanes-Oxley Act of
2002 will  require  the  Company  to  annually  include a  management  report on
internal  control over financial  reporting  starting with the Company's  Annual
Report on Form 10-K for the year ended  December 31, 2007. The Company will have
to document,  test and evaluate its internal  control over financial  reporting,
using  a  combination  of  internal  and  external  resources.  The  process  of
documenting,   testing  and  evaluating  the  Company's  internal  control  over
financial  reporting  under the applicable  guidelines is expected to be complex
and time consuming,  and available internal and external resources  necessary to
assist the  Company in the  documentation  and  testing  required to comply with
Section 404 could be limited.  While the Company  currently  believes it will be
able to dedicate the  appropriate  resources,  and that it will be able to fully
comply  with  Section  404 in its Annual  Report on Form 10-K for the year ended
December 31, 2007 and be in a position to conclude that the  Company's  internal
control over financial  reporting is effective as of December 31, 2007,  because
the  applicable  requirements  are  complex  and  time  consuming,  and  because
currently  unforeseen events or circumstances beyond the Company's control could
arise,  there can be no assurance  that the Company will  ultimately  be able to
fully  comply with  Section  404 in its Annual  Report on Form 10-K for the year
ended  December  31,  2007 or  whether  it will be  able to  conclude  that  the
Company's internal control over financial  reporting is effective as of December
31, 2007.

     Remediation of Material Weakness.  In order to remediate the first material
weakness  discussed  above, in March 2006, the Company  modified its information
system  to  appropriately  identify  products  shipped  to its  customers  under
delivery  terms of F.O.B.  at the customer  location.  In addition,  the Company
intends to institute a quarterly  close  procedure,  to be  implemented  for the
first time for the quarter  ending March 31, 2006,  to review all sales within a
specified number of weeks prior to the end of the quarter to ensure the delivery
terms are consistent with revenue recognition in the quarter of shipment.

     In order to remediate the second  material  weakness  discussed  above,  in
March 2006 the Company revised the recurring reclassification journal entry used
in the preparation of its  consolidated  balance sheet to properly  classify the
amount of any cash  overdrafts as part of the current portion of long-term debt.
In addition, the Company intends to institute quarterly close procedures,  to be
implemented  for the first time for the quarter ending March 31, 2006, to ensure
(i) that an adequate review of the Company's balance sheet and statement of cash
flow consolidation occurs each quarter and (ii) the continued appropriateness of
the  reclassification  journal entry to classify bank  overdrafts as part of the
current portion of long-term debt.

     Changes in Internal  Control Over Financial  Reporting.  There have been no
changes in the Company's  internal  control over financial  reporting during the
quarter  ended March 31, 2005 that has  materially  affected,  or is  reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

     Reference  is  made to  disclosure  provided  under  the  caption  "Current
litigation" in Note 12 to the Consolidated Financial Statements.


ITEM 6. Exhibits

(a)  The Company has retained a signed original of any exhibit listed below that
     contains  signatures,  and the Company will provide any such exhibit to the
     Commission  or its staff upon request.  The  following  exhibit is included
     herein:

     31.1 Chief Executive Officer's Certification Pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     31.2 Chief Financial Officer's Certification Pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     32.1 Chief Executive and Chief Financial Officers'  Certification  Pursuant
          to 18 U.S.C.  Section  1350 as Adopted  Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.



<PAGE>

                               S I G N A T U R E S



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                        Keystone Consolidated Industries, Inc.
                                    (Registrant)



Date:  March 31, 2006               By /s/Bert E. Downing, Jr.
                                       -------------------------------------
                                       Bert E. Downing, Jr.
                                       Vice President, Chief Financial
                                       Officer, Corporate Controller
                                       and Treasurer
                                       (Principal Financial and Accounting
                                       Officer)