SECURITIES AND EXCHANGE COMMISSION
                       WASHINGTON, D.C. 20549
                                  
                        _____________________
                                  
                              FORM 10-K
                                  
          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934
                                  
For fiscal year ended December 31, 1998 Commission File Number 333-19257

                       MOTORS AND GEARS, INC.
         (Exact name of registrant as specified in charter)
                                  
          Illinois                                36-4109641
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)

ArborLake Centre, Suite 550                              60015
1751 Lake Cook Road                               (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)

         Registrant's telephone number, including Area Code:
                           (847) 945-5591
                                  
     Securities registered pursuant to Section 12(b) of the Act:
                                  
                                        Name of Each Exchange
        Title of Each Class                   On Which Registered
             None                               N/A

     Securities registered pursuant to Section 12(g) of the Act:
                                  
                                None
                                  
     Indicated by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or for
such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the
past ninety (90) days.

          Yes  x         No

     The aggregate market value of voting stock held by non-
affiliates of the Registrant is not determinable as such shares were
privately placed and there is currently no public market for such
shares.

     The number of shares outstanding of Registrant's Common Stock as
of March 31, 1999: 100,000.

<PAGE>


                       TABLE OF CONTENTS                    
                                                            
                                                          PAGE
                                                            
Part I                                                 

Item 1.   Business                                         3
Item 2.   Properties                                       8
Item 3.   Legal Proceedings                                9
Item 4.   Submission of Matters to a Vote of Security      9
          Holders
          
                                                            
Part II

Item 5.   Market for the Registrant's Common Equity         
          and Related Stockholder Matters                  9
Item 6.   Selected Financial Data                          10
Item 7.   Management's Discussion and Analysis of           
          Financial Condition and Results of               11
          Operations
Item 7A.  Quantitative and Qualitative Disclosures          
          About Market Risks                               16
Item 8.   Financial Statements and Supplementary Data      17
Item 9.   Changes In and Disagreements with                 
          Accountants on  Accounting and Financial         42
          Disclosure
          
                                                            
Part III

Item 10.  Directors and Executive Officers                 42
Item 11.  Executive Compensation                           45
Item 12.  Security Ownership of Certain Beneficial         46
          Owners and Management
Item 13.  Certain Relationships and Related                47
          Transactions
          
                                                            
Part IV

Item 14.  Exhibits, Financial Statement Schedules,          
          and Reports On Form 8-K                          50
                                                            
          Signatures                                       51

<PAGE>


                               PART I

Item 1.   BUSINESS

The Company

   Motors  and  Gears, Inc. (the "Company") was incorporated  in  the
State  of  Illinois on September 8, 1995.  On November 1,  1996,  the
Company effected a reincorporation merger whereby MK Group, Inc.,  an
Illinois corporation, was merged with and into the Company, with  the
Company being the surviving entity.  The Company is a direct, wholly-
owned  subsidiary  of  Motors and Gears Holdings,  Inc.,  a  Delaware
corporation ("Parent").  The Parent is a majority owned subsidiary of
Jordan Industries, Inc. ("JII"), a private holding company which owns
and  manages  a  widely  diversified group  of  operating  companies.
Preferred  shares  of  stock of the Parent  owned  by  JII  represent
approximately  80% ownership interest of the Parent.   All  remaining
preferred  stock and common stock is owned by executive officers  and
directors of the Company and other employees of JII.  The Company was
organized  by  JII to acquire and operate companies  in  the  motors,
gears  and motion control industry.  The Company and its subsidiaries
are  included  in JII's consolidated financial statements,  and  will
continue  to  be  part  of the JII consolidated group  for  financial
reporting  and  tax  purposes until the redemption  of  the  Parent's
Junior  Preferred  Stock or until such time as  the  Company  can  no
longer be consolidated for federal income tax purposes.

   The Company's principal executive offices are located at ArborLake
Centre,  Suite  550, 1751 Lake Cook Road, Deerfield, Illinois  60015,
and its telephone number is (847)945-5591.

Business

  The Company is a manufacturer of specialty purpose electric motors,
gearmotors,  gearboxes,  gears,  transaxles  and  electronic   motion
controls  for  a wide variety of consumer, commercial and  industrial
markets.   The  Company  has  a diverse base  of  customers  and  its
products are used in a broad range of applications including  vending
machines,  golf carts, lift trucks, industrial ventilation equipment,
automated  material  handling systems  and  elevators.   The  Company
competes  primarily  in  the electric motors  and  electronic  motion
control systems industries.

Business Segment Information

   The  Company operates in two separate business segments;  electric
motors ("motors") and electronic motion control systems ("controls").
The  Company  entered  the  controls  business  segment  through  the
acquisition of two companies during 1997(see Note 1 to the  Company's
consolidated financial statements).  Accordingly, segment information
for controls is not applicable for the years prior to 1997.  See Note
13 to the Company's consolidated financial statements.

Products

  The Company has established itself as a reliable niche manufacturer
of  high-quality,  economical,  custom electric  motors,  gearmotors,
gears and electronic motion control systems used in a wide variety of
applications including vending machines, refrigerator ice dispensers,
commercial dishwashers, commercial floor care equipment, golf  carts,
lift trucks, automated material handling systems and elevators.   The
Company's  products are custom designed to meet specific  application
requirements.   Less than 5% of the Company's products  are  sold  as
stock products.

<PAGE>


   The  Company  offers a wide variety of options to provide  greater
flexibility  in  its custom designs.  These options  include  thermal
protectors,  special mounting brackets, custom leads  and  terminals,
single  or  double  shaft extensions, brakes, cooling  fans,  special
heavy  gearing, custom shaft machining and custom software solutions.
The  Company  also provides value-added assembly work,  incorporating
some  of the above options into its final motor and control products.
All of the custom-tailored motors, gearmotors and control systems are
designed for long life, quiet operation, and superior performance.

Electric Motors

   Electric  motors  are  devices that convert  electric  power  into
rotating  mechanical  energy.   The amount  of  energy  delivered  is
determined by the level of input power supplied to the electric motor
and  the  size of the motor itself.  An electric motor can be powered
by  alternating current ("AC") or direct current ("DC").  AC power is
generally supplied by power companies directly to homes, offices  and
industrial sites whereas DC power is supplied either through the  use
of  batteries or by converting AC power to DC power.  Both AC  motors
and   DC  motors  can  be  used  to  power  most  applications;   the
determination  is  made  through the consideration  of  power  source
availability,  speed variability requirements, torque considerations,
and noise constraints.

   The  power  output of electric motors is measured  in  horsepower.
Motors  are produced in power outputs that range from less  than  one
horsepower up to thousands of horsepower.

   Subfractional  Motors.   The  Company's  subfractional  horsepower
products   are  comprised  of  motors  and  gearmotors  which   power
applications  up to 30 watts (1/25 horsepower).  These small,  "fist-
size"  AC and DC motors are used in light duty applications  such  as
snack and beverage vending machines, refrigerator ice dispensers  and
photocopy machines.

   Fractional/Integral  Motors.   The  Company's  fractional/integral
horsepower  products are comprised of AC and DC motors and gearmotors
having  power ranges from 1/8 to 100 horsepower.  Primary end markets
for  these motors include commercial floor care equipment, commercial
dishwashers,  commercial  sewing  machines,  industrial   ventilation
equipment, golf carts, lift trucks and elevators.

  Gears and Gearboxes.  Gears and gearboxes are mechanical components
used to transmit mechanical energy from one source to another source.
They are normally used to change the speed and torque characteristics
of  a  power  source such as an electric motor.  Gears and  gearboxes
come  in  various configurations such as helical gears, bevel  gears,
worm  gears,  planetary  gearboxes, and right-angle  gearboxes.   For
certain  applications, an electric motor and a gear box are  combined
to create a gearmotor.

   The Company's precision gear and gearbox products are produced  in
sizes  of  up  to  16  inches in diameter and in  various  customized
configurations  such as pump, bevel, worm and helical gears.  Primary
end   markets   for   these  products  include   original   equipment
manufacturers  ("OEMs") of motors, commercial floor  care  equipment,
aerospace and food processing product equipment.

<PAGE>

Electronic Motion Control Systems

   Electronic motion control systems are assemblies of electronic and
electromechanical components that are configured  in  such  a  manner
that the systems have the capability to control various commercial or
industrial  processes  such as conveyor systems,  packaging  systems,
elevators and automated assembly operations.  The components utilized
in  a  motion  control  system are typically  electric  motor  drives
(electronic  controls that vary the speed and torque  characteristics
of   electric   motors),   programmable  logic   controls   ("PLCs"),
transformers,  capacitors, switches and various  types  of  software.
The  majority  of  the  Company's  motion  control  products  control
automated  conveyor  systems  used in  automotive  manufacturing  and
elevators.

   The  Company's  motion  control  systems  are  used  primarily  in
automated  conveyor systems within the automotive  industry  and  the
elevator modernization market.  The systems typically control several
components  such  as electric motors, hydraulic or pneumatic  valves,
actuators and switches that are required for the conveyor or elevator
systems to function properly.

Acquisitions

   In  March 1996 the Company acquired the net assets of Colman, Inc.
and Colman Motor Products, Inc. (collectively, "Barber-Colman").   In
November  1996, the Company acquired the business and net  assets  of
Imperial  Electric Company ("Imperial") and Imperial's  subsidiaries,
Scott  Motor Company ("Scott") and Gear Research, Inc. ("Gear")  from
JII.  In June 1997, the Company purchased all of the common stock  of
FIR  Group Companies ("FIR") consisting of CIME S.p.A., SELIN, S.p.A.
and   FIR  S.p.A.   In  October  1997,  the  Company  purchased   all
outstanding  stock  of E.D. and C. Company, Inc.  through  its  newly
formed wholly owned subsidiary, Electrical Design and Control Company
("ED&C").  In December 1997, the Company acquired all of the stock of
Motion  Control Engineering, Inc. ("Motion Control").  In  May  1998,
the  Company purchased all of the outstanding stock of Advanced  D.C.
Motors,  Inc. and its affiliated corporations ("ADC").   In  December
1998,  the  Company,  through its wholly-owned  subsidiary  Imperial,
acquired all of the stock of Euclid Universal Corporation ("Euclid").
Euclid  was  subsequently merged into Imperial.  See Note  1  to  the
consolidated financial statements.

Backlog

   The Company's approximate backlog of unfilled orders at the dates
specified was as follows:

                                 Backlog
          Year Ended             (Dollars
         December 31,               in
                                thousands)
                                         
             1998                        
            Motors               $57,831
           Controls               19,079
                                 $76,910
             1997                        
            Motors               $33,936
           Controls               16,843
                                 $50,779

   The  Company  will  ship substantially all of its  1998  year-end
backlog during 1999.

<PAGE>


Marketing and Support Services

  The Company's sales and marketing success is characterized by long-
term  customer  relationships which are the result of  continuity  of
management, outstanding delivery records, high-quality products,  and
competitive  pricing.  The Company utilizes a combination  of  direct
sales  personnel  and manufacturers' representatives  to  market  the
Company's product lines.  Generally, the inside sales organization is
compensated   through  a  fixed  salary  while   the   manufacturers'
representative organizations receive commission.

   National  Accounts  Managers serve large  national  OEMs  such  as
General  Electric,  Whirlpool  and  Vendo.   More  than  95%  of  the
Company's  sales are to OEM customers.  However, the  Company  has  a
distribution  program  with four distributors  in  its  subfractional
horsepower  product  line  to  increase coverage  and  generate  more
revenue growth.

   The  Company's motion control systems business is served primarily
through  internal  sales  and  marketing  professionals  as  well  as
independent representatives.  The Company has added sales  talent  to
this  product  group in order to expand its presence into  additional
motion control markets.

   The  Company's  advertising efforts consist  of  specific  product
literature which is printed and provided to customers as applications
are  developed.  In addition, the Company attends various trade shows
to  market products and to stay abreast of industry trends.  It  also
advertises in trade magazines on a periodic basis.

International Operations

   The  Company currently operates six manufacturing facilities,  one
research  and development facility and one warehouse in Europe.   See
Note 13 to the Company's consolidated financial statements.

Employee and Labor Relations

   As  of December 31, 1998, the Company employed approximately 2,100
employees, of which approximately 1,450 were non-union and  650  were
represented by unions.  The Company has experienced no work stoppages
since inception.  It considers its relations with its employees to be
excellent.

Competition

   The  electric motor and electronic motion control systems  markets
are  highly  fragmented  with a multitude of manufacturing  companies
servicing  numerous markets.  Motor manufacturers  range  from  small
local  producers serving a specific application or end user, to  high
volume  manufacturers offering general-purpose "off the shelf" motors
to   a  wide  variety  of  end  users.    While  there  are  numerous
manufacturers of gears and gearboxes that service a wide  variety  of
industries  and applications, the Company competes in  certain  niche
markets.

   The  Company's motion control systems business competes  primarily
within  the  automated conveyor system controls market and  sells  to
conveyor   manufacturers  that  serve  the  automotive  manufacturing
industry and the elevator modernization market.  These niche  markets
consist of four to five major competitors.

   The  principal  competitive factors  in  the  electric  motor  and
electronic motion control systems markets include price, quality  and
service.   Major  manufacturers  include  General  Electric,   Baldor
Electric  Company,  Emerson Electric Company  and  Reliance  Electric

<PAGE>


Company;  however,  the  Company  generally  competes  with  smaller,
specialized   manufacturers.   While  many   of   the   major   motor
manufacturers   have  substantially  greater  assets  and   financial
resources, the Company believes that its leading position in  certain
niche  markets, its high-quality products and its value-added  custom
applications are adequate to meet competition.

Raw Materials and Suppliers

   The  primary  raw  materials used by the Company  to  produce  its
products are steel, copper, and miscellaneous purchased parts such as
endshield  castings,  powdered metal gears,  commutators,  electronic
components  and  packaging  supplies.   All  materials  are   readily
available in the marketplace.  The Company is not dependent upon  any
single supplier in its operations for any materials essential to  its
business or not otherwise commercially available to the Company.  The
Company  has been able to obtain an adequate supply of raw materials,
and   no   shortage  of  raw  materials  is  currently   anticipated.
Surcharges  and/or  raw material price escalation clauses  are  often
used to insulate the Company from fluctuations in prices.

Intellectual Property

   The Company's patents and trademarks taken individually, and as  a
whole, are not critical to the ongoing success of its business.   The
proprietary nature of the Company's products is attributable  to  the
custom  application  designs for particular customers'  needs  rather
than attributable to proprietary patented or licensed technology.

Environmental Regulation

   The  Company  is  subject  to a variety of  U.S.  Federal,  state,
provincial, local and foreign governmental regulations related to the
storage,  use, discharge and disposal of toxic, volatile or otherwise
hazardous  materials used in its manufacturing processes.   Moreover,
the  Company  anticipates that such laws and regulations will  become
increasingly stringent in the future.  The Company does not currently
anticipate  any  material adverse effect on its  business,  financial
condition  or  results of operations as a result of  compliance  with
U.S.  Federal, state, provincial, local or foreign environmental laws
or   regulations  or  remediation  costs.   However,  some  risk   of
environmental liability and other costs is inherent in the nature  of
the  Company's  business.  For example, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act  of  1980,  as
amended,  the  Company could be responsible for the  necessary  costs
responding to any releases of hazardous substances for disposal.   In
addition,  any failure by the Company to obtain and maintain  permits
that  may be required for manufacturing operations could subject  the
Company   to  suspension  of  its  operations.   Such  liability   or
suspension of manufacturing operations could have a material  adverse
effect   on   the  Company's  results  of  operations  and  financial
condition.

   Soils  and  groundwater, contaminated by historic  waste  handling
practices at the FIR property in Casalmaggiore, Italy are the subject
of  an  investigation and remediation under the review of  government
authorities.   In  connection with the FIR Acquisition,  the  Company
obtained   indemnification   from  the   former   owners   for   this
investigation and remediation.

<PAGE>




Item 2.   PROPERTIES

   The  Company's headquarters are located in an approximately 31,700
square  foot office space in Deerfield, Illinois that is provided  by
JII  pursuant  to  the  Transition Agreement (see  Item  13  "Certain
Relationships  and Related Transactions").  The Transition  Agreement
expires in December 2007.

   The principal properties of the Company, the location, the primary
use,  the square feet and the ownership status thereof as of December
31, 1998, are set forth in the table below:

                                             Square    Owned/   Lease
               Location         Use           Feet     Leased   Expiration
            Des Plaines, IL   Design/        38,000    Leased   September
                              Administration                    2000

Sub-        Des Plaines, IL   Manufacturing  45,000    Leased  September
 fractional                                                    2000
 Products   Darlington, WI    Manufacturing  68,000    Leased  September
                                                               2005
            Richland          Manufacturing  45,000    Leased  September
            Center, WI                                         2000

            Des Plaines, IL   Administration/ 112,000  Leased  January
            IL                Manufacturing                    2004
                                  
            Akron, OH         Manufacturing   43,000   Owned
                           
            Stow, OH          Administration   7,000   Leased  September
                                                               2000
            Middleport, OH    Manufacturing   85,000   Owned  
            
            Cuyahoga          Manufacturing   63,000   Leased  October
            Falls, OH                                          2003

Fractional/ Alamagordo, NM    Manufacturing   25,800   Leased  October
 Integral                                                      2002
Horsepower
 Products   Casalmaggiore,     Administration/ 100,000  Owned  
             Italy             Manufacturing

            Varano, Italy      Manufacturing    30,000   Owned  
                         
            Bedonia, Italy     Manufacturing     8,000   Leased  February
                                                                 2005

            Genova, Italy      Research &       33,000   Leased  July 2002
                               Development/
                               Manufacturing
                           
            Reggio Emilia,     Manufacturing    35,000   Leased  August
             Italy                                               2002
              
            Reggio Emilia,     Manufacturing    30,000   Leased  November
             Italy             Distribution                      2000
              
            Palo Alto, CA      Product Design &   1,00   Leased  April
                               Development                       1999
                           
            Carrollton, TX     Manufacturing/    29,000  Leased  September
                               Administration                    1999
                                   
            Dewitt, NY         Manufacturing     18,500  Leased  July 2000
                           
            Eternoz,           Manufacturing/    10,000  Leased  October
             France            Administration                    2004
                           
            Syracuse, NY       Manufacturing     45,000  Leased  December
                                                                 2004
            Syracuse, NY       Manufacturing/     49,600  Owned  
                               Administration

            Putzbrunn,         Warehouse           1,200  Leased  July 1999
    
            Troy, MI           Manufacturing/     29,000  Leased  January
  Motion                                                          2003
  Control   Rancho             Manufacturing/     40,000  Leased  May 2001
 Systems     Cordova, CA       Adiministration
                          
            Rancho             Administration     45,000  Leased  May 2001
             Cordova, CA
                                                      
Gears and   Grand Rapids,      Manufacturing/     45,000   Owned       
Gearboxes    MI                Administration

            Oakwood            Manufacturing/     25,000   Leased  January
             Village, OH       Administration                      2004
                           
                        
<PAGE>

   The  Company  believes  that its existing  leased  facilities  are
adequate for the operations of the Company and its subsidiaries.  The
Company  does not believe that any single leased facility is material
to  its operations and that, if necessary, it could readily obtain  a
replacement facility.


Item 3.   LEGAL PROCEEDINGS

   The  Company  is not a party to any pending legal  proceeding  the
resolution  of  which, the management of the Company believes,  would
have a material adverse effect on the Company's results of operations
or  financial  condition, nor to any other pending legal  proceedings
other than ordinary, routine litigation incidental to its business.


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

   No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1998.


                               PART II


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

   The only authorized, issued and outstanding class of capital stock
of  the  Company  is  common stock.  There is no  established  public
trading market for the Company's common stock.  At December 31, 1998,
all common stock of the Company was held by the Parent.

   The  Company  has not declared or paid any cash dividends  on  its
common  stock since the Company's formation in September  1995.   The
Indenture  (the  "Indenture") by and between the  Company  and  State
Street  Bank and Trust Company, as Trustee, with respect to the  10_%
Senior Notes due 2006, contains restrictions on the Company's ability
to  declare  or  pay  dividends on its common stock.   The  Indenture
prohibits  the declaration or payment of any dividends or the  making
of  any distribution by the Company, or any Restricted Subsidiary (as
defined in the Indenture).



<PAGE>


Item 6.   SELECTED FINANCIAL DATA
                                  
   The  following  table  presents  selected  financial  information
derived   from   the  Company's  and  its  predecessor's   financial
statements  as  well as the combined results of  operations  of  the
predecessor  from  January 1, 1995 to September  22,  1995  and  the
Company from September 23, 1995 to December 31, 1995.

                                Predecessor
                                And Company
                Compan  y       Combined (2)    Company (3)     Predecessor (4)
                                     September 23,   January 1  Year
                                       through       through    Ended
            Year Ended December 31,   December 31, September 22, December 31,
              1998       1997     1996     1995     1995    1995     1994

Statement of Operations
Data:  (1)
  Net  Sales  $275,833 $148,669 $117,571 $ 63,979 $ 24,684 $39,295 $49,340
  Gross profit, 
   excluding
   Depreciation 95,380   51,585   41,820   23,437    8,255  15,182  18,022
  Depreciation   4,492    4,311    2,960      516      415     101     324
  Amortization   8,235    4,704    4,118      840      840       -       -
  Operating 
   income       42,324   27,684   23,229   16,369    4,753  11,616  12,309
  Interest 
   expense      32,994   22,363   11,134    2,412    2,412       -       -
  Income 
   taxes (5)    (3,072)   2,429    5,290    1,232      948     284      171
  Net income    13,098    3,355    4,834   12,964    1,360  11,604   11,921

Supplemental Pro Forma and
Other Data:
  Pro forma income
   Taxes (6)  $     -   $    -   $    -  $  4,755   $    - $ 4,755  $ 4,837
  Pro forma 
   net income   13,098    3,355    4,834    8,493     1,360  7,133    7,255

Balance Sheet Data (at end
of period):  (1)
   Working 
    capital   $ 67,922  $ 65,074 $ 25,632 $ 14,747  $ 14,747 $ 7,697 $11,546
  Total 
   assets      388,821   335,144  175,530  145,387   145,387  14,409  18,952
  Long-term obligations
   Including current
   Portion     325,816   283,672  175,067   83,547    83,547      -       -
  Stockholder's equity
   (net capital
    deficiency) 22,613     7,552  (15,787)  45,925    45,925   9,218  14,332

(1)   The  Company  has  acquired a diversified group  of  operating
  companies over the five-year period, which significantly affects the
  comparability of the information shown.

(2)   Reflects the combined results of operations of the Predecessor
  from  January  1, 1995 to September 22, 1995 and the Company  from
  September 23, 1995 to December 31, 1995. The results of operations of
  Imperial, Scott and Gear are included in the Company's consolidated
  operating  results from September 23, 1995, the date at which  the
  Company and Imperial, Scott and Gear came under the common control of
  JII.

(3)  Reflects the Company's results of operations from September 23,
  1995 through December 31, 1995.

(4)     Reflects the results of operations of the Predecessor  prior
  to its acquisition by the Company on September 22, 1995.

(5)  For the Predecessor, historical net income reflects only certain
  state  income taxes attributable to Merkle-Korff's income for  the
  historical periods presented prior to its acquisition by the Company
  on September 22, 1995, during which it elected to be a subchapter S
  corporation and therefore was not subject to U.S. Federal and certain
  state income taxes.  The Company's taxes reflect a reversal of the
  Company's  valuation allowance of $9,714 for certain deferred  tax
  assets in 1998.

(6)  Prior to its acquisition by the Company, the Predecessor was an
  S  corporation and therefore was not subject to U.S.  Federal  and
  certain state income taxes.  The pro forma data presented includes an
  unaudited pro forma adjustment for income taxes which would have been
  recorded if the Predecessor had been a C corporation.

<PAGE>

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

Overview

   The following discussion and analysis of the Company's results  of
operations and of its liquidity and capital resources should be  read
in  conjunction with the financial statements and the  related  notes
thereto appearing elsewhere in this annual report.

Acquisitions

   A  substantial  portion of the Company's growth during  the  past
three years is the result of acquisitions.  Each of the acquisitions
have been accounted for under the purchase method of accounting  and
are included in the Company's consolidated financial statements from
their  respective  dates  of  acquisition,  excluding  the  Imperial
Electric  Company acquisition which was accounted for  in  a  manner
similar  to the pooling-of-interests method.  As a result  of  these
acquisitions, the Company's combined results for 1998, 1997 and 1996
are not directly comparable.

Results of Operations

   The  following  financial information  presents  the  results  of
operations  of  the Company for the years ended December  31,  1998,
1997  and  1996.  The results of operations of Barber Colman  Motors
are  included  in  the  consolidated results of  operations  of  the
Company  since  its acquisition on March 8, 1996.   The  results  of
operations  of  FIR, ED&C, and Motion Control are  included  in  the
consolidated results of operations since their acquisition  on  June
12,  1997, October 27, 1997 and December 18, 1997, respectively. The
results  of  operations  of  ADC are included  in  the  consolidated
results of operations since its acquisition on May 15, 1998.
                                                             
                                                   
                                       Year Ended December 31,
                                    1998 (1)  1997 (1)   1996
                                        (Dollars in thousands)
Net sales                           $275,833  $148,669   $117,571
Gross profit (excluding               95,380    51,585       41,820
depreciation)
EBITDA(2)                             55,051    36,699       30,307
Operating income                      42,324    27,684       23,229
Interest expense                      32,994    22,363       11,134
                                                         
Gross margin (excluding     
depreciation)(3)                        34.6%     34.7%        35.6%
EBITDA margin(3)                        20.0      24.7         25.8
Operating margin(3)                     15.3      18.6         19.8

(1)     With the acquisition of ED&C and Motion Control during 1997,
  the  results  of  operations for 1998 and 1997 include  operations
  for  both the motors and controls segments.  The controls  segment
  accounted for $61,603 and $3,030 of net sales, $23,403 and  $1,201
  of  gross  profit  (excluding depreciation), $9,605  and  $645  of
  EBITDA  (earnings before interest, income taxes, depreciation  and
  amortization)  and  $7,124 and $458 of operating  income  for  the
  year  ended December 31, 1998 and 1997, respectively.   Note  that
  the  segment  analysis  does  not  include  unallocated  corporate
  overhead  and  management fees in the EBITDA and operating  income
  calculations.
(2)     EBITDA  is included herein because management believes  that
  certain  investors find it to be a useful tool for  measuring  the
  ability of the Company to service its debt.
(3)    All margins are calculated as a percentage of net sales.

<PAGE>



Year  ended  December 31, 1998 compared to year ended  December  31,
1997

   Net sales increased $127.2 million or 85.5% from $148.7 million in
1997  to  $275.8 million in 1998.  The increase in sales was  largely
due  to the 1998 acquisition of ADC, accounting for $27.2 million  of
the  increase, and the three 1997 acquisitions, accounting for  $85.9
million of the increase.  Subfractional motors sales increased  13.0%
in  1998. The growth in subfractional motors was primarily attributed
to continued strength in the vending and appliance markets. Gears and
gearbox  sales decreased 8.4% in 1998 as a result of a  weaker  floor
care   market  after  a  stronger  than  expected  1997.   Sales   of
fractional/integral  motors  in 1998 increased  121.2%  mainly  as  a
result of the 1998 acquisition of ADC and the 1997 acquisition of the
FIR  Group.   Sales of fractional/integral motors excluding  the  ADC
acquisition  and  the  FIR  acquisition  increased  6.6%   in   1998,
reflecting  market share gains in floor care and a stronger  elevator
market.  The two Controls acquisitions in the fourth quarter of  1997
accounted for $58.6 million of the increased sales.

   Operating  income  increased $14.6 million  or  52.9%  from  $27.7
million  in  1997 to $42.3 million in 1998.  The primary increase  in
operating  income  was due to the increase in sales discussed  above.
Gross  margins  remained relatively constant with a 34.6%  margin  in
1998  versus  a 34.7% margin in 1997.  Increases in selling,  general
and  administrative expenses, depreciation and amortization were  due
principally  to the three 1997 acquisitions and the 1998  acquisition
of  ADC.   These  increases were partially offset by  a  decrease  in
depreciation and other expenses.

  Interest expense increased $10.6 million from $22.4 million in 1997
to  $33.0 million in 1998, reflecting higher debt levels relating  to
the  financing  of new acquisitions and the Company's  December  1997
$100.0 million debt offering.

  The income tax benefit for the current year is primarily the result
of reducing the Company's valuation allowance by $9.7 million related
to  deferred  tax  assets arising from the Company's  acquisition  of
Imperial  on  November 7, 1996 from an affiliate.  The  deferred  tax
assets  pertain to additional tax bases in certain assets related  to
this  transaction.   The  valuation allowance  was  reversed  due  to
continued  profitable  domestic  operating  results  and   based   on
management's assessment that it is more likely than not that  all  of
the  net  deferred tax assets will be realized through future taxable
earnings, or implementation of tax planning strategies.

Year Ended December 31, 1997 compared to year ended December 31, 1996

   Net sales increased $31.1 million or 26.5% from $117.6 million  in
1996  to  $148.7 million in 1997.  The increase in sales was  largely
due  to the three 1997 acquisitions, accounting for $17.8 million  of
the  increase.  Subfractional motors sales increased 18.2%  in  1997.
The  growth in subfractional motors was primarily attributable to the
inclusion  of  Barber-Colman in the 1996 period only  from  March  8,
1996,  as  well  as continued strength in the vending  and  appliance
markets.   Gears and gearbox sales increased 24% in 1997 as a  result
of  strong sales of planetary gears in the floor care market.   Sales
of  fractional/integral motors in 1997 increased 36.5% reflecting the
acquisition   of   the  FIR  Group  in  June  of  1997.    Sales   of
fractional/integral  motors excluding the FIR  acquisition  decreased
6.6% in 1997, reflecting the unusually strong sales in the first half
of 1996, principally due to a substantial reduction in the backlog of
orders  accumulated in the fourth quarter of 1995.  The two  Controls
acquisitions in the fourth quarter of 1997 accounted for $3.0 million
of the increased sales.


<PAGE>

  Operating income increased $4.5 million or 19.2% from $23.2 million
in  1996 to $27.7 million in 1997.  The primary increase in operating
income  was  due  to  the increase in sales discussed  above.   Gross
margins decreased slightly from 35.6% to 34.7% due the acquisition of
FIR, which operates at slightly lower gross margins than the rest  of
the  Company.   Increases  in  selling, general,  and  administrative
expenses, depreciation and amortization were due principally  to  the
Barber-Colman  acquisition and the three  1997  acquisitions.   These
increases were partially offset by reduced management fees and  other
expenses related to Imperial.  The two controls acquisitions  in  the
fourth  quarter of 1997 accounted for $0.5 million of  the  increased
operating income.

  Interest expense increased $11.3 million from $11.1 million in 1996
to  $22.4 million in 1997, reflecting higher debt levels relating  to
the  financing  of new acquisitions and the Company's  December  1997
$100.0 million debt offering.

Liquidity and Capital Resources

   In  general,  the Company requires liquidity for working  capital,
capital  expenditures,  interest,  taxes,  debt  repayment  and   its
acquisition  strategy.   Of  primary  importance  are  the  Company's
working  capital  requirements, which increase whenever  the  Company
experiences strong incremental demand or geographical expansion.  The
Company  expects  to  satisfy its liquidity  requirements  through  a
combination  of  funds generated from operating  activities  and  the
funds available under its revolving credit facility.

   Operating  activities.  Net cash provided by operating  activities
for  the year ended December 31, 1998 was $11.7 million, compared  to
$19.2  million  provided from operating activities  during  the  same
period  in  1997.   1998 working capital requirements  exceeded  1997
working capital requirements due to growth of the business.

  Investing activities.  Capital expenditures of $5.0 million for the
year  ended  December  31, 1998 were $3.5 million  greater  than  the
comparable  period  in 1997.  The majority of the  expenditures  were
related to machinery and equipment and tooling in the motors segment.
The  Company anticipated its capital investment in 1998 to be greater
than   the  1997  spending  level  as  a  result  of  its  late  1997
acquisitions.

   The  Company made two acquisitions in 1998 for approximately $58.5
million,  offset  by  $0.4  million of cash  acquired  through  these
acquisitions.  The Company plans to fund future acquisitions  through
its  revolving  line-of-credit agreement and  excess  operating  cash
flow.

      During 1998, the Company invested $7.3 million in the Preferred
Stock  of  JZ  International, Ltd.  The Chief Executive  Officer  and
certain  shareholders  of JZ International, Ltd.  are  the  Company's
directors  and shareholders.  The Company plans to make an additional
investment  of  approximately  $5.0  million  in  JZ  International's
Preferred  Stock which the Company plans to fund from operating  cash
flow.

   Financing activities.  The Company's annual cash interest  expense
on  the  Senior  Notes,  which are due 2006, is  approximately  $29.0
million.   Interest on the Senior Notes is payable  semi-annually  on
May  15  and November 15 of each year.  Interest on the Junior Seller
Notes will be approximately $0.8 million in 1999.

   The Company is party to a Credit Agreement under which the Company
is  able  to borrow up to approximately $75.0 million over a term  of
five  years to fund acquisitions and provide working capital and  for

<PAGE>

other  general  corporate  purposes.  Obligations  under  the  Credit
Agreement are guaranteed by M&G Industries' subsidiaries, and secured
by  pledges of the stock of M&G Industries' subsidiaries and liens in
respect of certain assets of M&G Industries and its subsidiaries.  As
of  March  31, 1999, the Company has approximately $38.7  million  of
available funds under this Credit Agreement.  In addition, under  the
terms  of  the  Series D Notes, the Company is able to  increase  the
credit facility to approximately $115.0 million.

   The  Company expects its principal sources of liquidity to be from
its  operating  activities and funding from  the  revolving  line-of-
credit  agreement.   The Company further expects that  these  sources
will  enable  it to meet its long-term cash requirements for  working
capital,  capital expenditures, interest, taxes, and  debt  repayment
for at least the next 12 months.

Foreign Currency Impact

   The  Company's  exposure to decreases in  the  value  of  foreign
currency  is protected by its investment in manufacturing facilities
overseas  whose costs, including labor and raw materials,  are  also
denominated  in local currency.  Decreases in the value  of  foreign
currencies  relative  to  the  U.S.  dollar  have  not  resulted  in
significant  losses  from  foreign currency  translation.   However,
there can be no assurance that foreign currency fluctuations in  the
future  would not have an adverse effect on the Company's  business,
financial condition and results of operations.

Seasonality and Inflation

   The  Company's  net  sales typically show no significant  seasonal
variations.

   The  impact of inflation on the Company's operations has not  been
significant to date.  However, there can be no assurance that a  high
rate  of inflation in the future would not have an adverse effect  on
the Company's operating results.

Year 2000 Disclosure

   Introduction.   The  Year 2000 issue is  the  result  of  computer
programs  being written using two digits rather than four  to  define
the  applicable  year.   Any of the Company's  computer  programs  or
hardware  that  have  date-sensitive software or embedded  chips  may
recognize  a  date using "00" as the year 1900 rather than  the  year
2000.   This  could  result  in a system failure  or  miscalculations
causing  disruptions of operations, including, among other things,  a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

   State  of  Readiness.   Based on recent assessments,  the  Company
determined  that it will be required to modify or replace significant
portions  of its software and certain hardware so that those  systems
will  properly  utilize dates beyond December 31, 1999.  The  Company
presently  believes  that  with  modifications  or  replacements   of
existing  software and certain hardware, the Year 2000 issue  can  be
mitigated.  However, if such modifications and replacements  are  not
made,  or are not completed timely, the Year 2000 issue could have  a
material impact on the operations of the Company.

   The  Company's  plan to resolve the Year 2000 issue  involves  the
following   four  phases:   assessment,  remediation,   testing   and
implementation.  The Company has assembled an internal  project  team

<PAGE>


that  is  in  the  process of assessing all  systems  that  could  be
significantly  affected by the Year 2000 issue.  Preliminary  results
of  this  assessment indicated that some of the Company's significant
information  technology systems could be affected,  particularly  the
general  ledger,  billing,  and inventory systems.   The  preliminary
assessment also indicated that software and hardware (embedded chips)
used in production and manufacturing systems (hereafter also referred
to  as  operating equipment) may also be at risk.  In addition, based
on  a  review  of its product lines, the Company has determined  that
most  of  the products it has sold and will continue to sell  do  not
require  remediation  to be Year 2000 issue compliant.   Accordingly,
the  Company  does  not believe that the Year 2000 issue  presents  a
material  exposure  as  it  relates to the Company's  products.   The
internal project team is contacting each of the Company's significant
customers and suppliers and requesting that they apprise the  Company
of  the  status of their Year 2000 compliance programs.  The  Company
has  targeted the beginning of the second quarter of 1999 as the date
for  receiving  substantially all customer  and  supplier  responses,
although minimal responses have been received to date.  There can  be
no assurance as to when this process will be completed.

   For its information technology exposures, to date the Company  has
completed a majority of the remediation phase and expects to complete
software  reprogramming and replacement no later than June 30,  1999.
Once  software is reprogrammed or replaced for a system, the  Company
begins  testing  and implementation.  The testing and  implementation
phases  for  all significant systems are expected to be completed  by
September  30,  1999.   The four phases of the  Company's  Year  2000
program  in relation to operating equipment is on-going and  expected
to be completed before December 31, 1999.

   Cost.   The  Company  will  utilize  both  internal  and  external
resources  to reprogram or replace, test, and implement the  software
and  operating equipment for Year 2000 modifications.  The total cost
of  the  Year 2000 project is estimated at $3.1 million and is  being
funded through operating cash flows and capital leases.  To date, the
company has incurred approximately $2.0 million related to all phases
of  the  Year  2000 project.  The majority of these costs  have  been
capitalized as they relate to new software and equipment.

   Risks.   Management of the Company believes it  has  an  effective
program  in place to resolve the Year 2000 issue in a timely  manner.
As  noted  above,  the  Company has not yet completed  all  necessary
phases of the Year 2000 program.  In the event that the Company  does
not  complete any additional phases, the Company could be  materially
adversely   affected.   In  addition,  disruptions  in  the   economy
generally  resulting from the Year 2000 issue could  also  materially
adversely affect the Company.  The amount of potential liability  and
lost revenue cannot be reasonably estimated at this time.

   Contingency Plans.  The Company is in the process of developing  a
contingency plan in the event it does not complete all phases of  the
Year  2000 program.  The Company expects to have the contingency plan
completed by the end of 1999.

<PAGE>


Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

   The  Company does not engage in hedging or other market  structure
derivative  trading  activities.  Additionally,  the  Company's  debt
obligations are primarily fixed-rate in nature and, as such, are  not
sensitive  to  changes in interest rates.  At December 31,  1998  the
Company does have variable rate debt outstanding of $41.0 million.  A
one  percentage point increase in interest rates would  increase  the
amount  of  annual  interest  paid by  approximately  $0.4 million.   The
Company  does not believe that its market risk financial  instruments
on  December  31,  1998  would  have  a  material  effect  on  future
operations or cash flow.

<PAGE>


Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                                     PAGE
                                                      NO.

Reports of Independent Auditors                       18

Consolidated  Balance Sheets as  of  December  31,     
1998 and 1997                                         21


Consolidated  Statements of Income for  the  years     
ended December 31, 1998, 1997 and 1996                22
                                                       
Consolidated    Statements    of    Changes     in  
Shareholder's Equity (Net Capital Deficiency)  for    23
the years ended December 31, 1998, 1997 and 1996

Consolidated  Statements of  Cash  Flows  for  the     
years ended December 31, 1998, 1997 and 1996          24

Notes to Consolidated Financial Statements            25

<PAGE>


                    REPORT OF INDEPENDENT AUDITORS
                                  
                                  
                                  
The Board of Directors and Shareholders
Motors and Gears, Inc.


We  have  audited  the accompanying consolidated  balance  sheets  of
Motors  and  Gears, Inc. as of December 31, 1998  and  1997  and  the
related consolidated statements of income, shareholder's equity,  and
cash  flows for each of the three years in the period ended  December
31, 1998.   Our audits also included the financial statement schedule
listed  in the index at Item 14 (a).  These financial statements  and
schedule  are  the responsibility of the Company's  management.   Our
responsibility is to express an opinion on these financial statements
and the schedule based on our audits.  We did not audit the financial
statements  of  certain subsidiaries whose statements  reflect  total
assets  constituting 34% and 37% as of December 31,  1998  and  1997,
respectively,  and net sales constituting 34% and 11% for  the  years
ended  December  31,  1998  and 1997, respectively,  of  the  related
consolidated totals.  Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar  as
it  relates to data included for these subsidiaries, is based  solely
on the reports of the other auditors.

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

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


                              ERNST & YOUNG LLP


Chicago, Illinois
March 31, 1999
                                  
                                  
<PAGE>
                                  
                                  
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                  
                                  
To the Board of Directors of
Motion Control Engineering, Inc.:



We  have  audited the balance sheets of MOTION CONTROL  ENGINEERING,
INC.  (a  California  corporation and a wholly-owned  subsidiary  of
Motors  &  Gears, Inc.) as of December 31, 1998 and  1997,  and  the
related  statements of income, shareholders' equity and  cash  flows
for  the  year  ended December 31, 1998 and for the  13  days  ended
December   31,   1997.    These   financial   statements   are   the
responsibility  of the Company's management.  Our responsibility  is
to  express  an opinion on these financial statements based  on  our
audits.

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

In  our  opinion, the financial statements referred to above present
fairly,  in all material respects, the financial position of  Motion
Control  Engineering, Inc. as of December 31, 1998 and 1997 and  the
results  of  its  operations and its cash flows for the  year  ended
December  31, 1998 and for the 13 days ended December  31,  1997  in
conformity with generally accepted accounting principles.


                              ARTHUR ANDERSEN LLP



Sacramento, California
  February 9, 1999

<PAGE>

                    INDEPENDENT AUDITOR'S REPORT


The Board of Directors
FIR Group


          We have audited the consolidated balance sheets of Fir
Group  (the "Company") composed of FIR Elettromeccanica S.p.A., CIME
S.p.A., Selin Sistemi S.p.A. and TEA S.r.l. as of October 31, 1998
and 1997, and the related consolidated statements of income,
retained earnings, and cash flows for the year and for the five
months then ended, respectively.  These financial statements are the
responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on our
audit.

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

          In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of October 31, 1998 and 1997,
and the results of its operations and its cash flows for the year
and for the five months then ended, in conformity with generally
accepted accounting principles.


                              COOPERS & LYBRAND S.p.A.


Bologna, 5 February 1999


<PAGE>

                       MOTORS AND GEARS, INC.
                     CONSOLIDATED BALANCE SHEETS
                  (ALL DOLLAR AMOUNTS IN THOUSANDS)
                                  

                                                      December 31,
                                                    1998       1997
ASSETS                                                          
Current assets:                                           
  Cash and cash equivalents                      $   7,016    $  28,880
  Accounts receivable, net of allowance of $734             
    and $529                                        
    at December 31, 1998 and 1997, respectively     51,969       40,679
  Inventories                                       43,318       31,665
  Prepaid expenses and other current assets          3,058        1,300
     Total current assets                          105,361      102,524
                                                            
Property, plant and equipment-Net                   22,268       15,201
Goodwill-Net                                       232,058      195,424
Deferred financing costs-Net                        14,182       15,877
Deferred income taxes                                4,868        3,825
Investment in affiliate                              7,285           -
Other non-current assets                             2,799        2,293
     Total assets                                 $388,821     $335,144
                                                            
LIABILITIES AND SHAREHOLDER'S EQUITY                                    
Current liabilities:                                        
  Notes payable                                  $      -      $  2,009
  Accounts payable                                  23,832       17,424
  Accrued interest payable                           4,756        4,232
  Accrued expenses and other current liabilities     7,274        9,688
  Due to affiliated company                          1,216        1,488
  Accrued consent fee to bondholders                    -         2,550
  Current portion of long term debt                    361           59
     Total current liabilities                      37,439       37,450
                                                            
Long term debt                                     325,455      283,613
Deferred income taxes                                   -         3,880
Other non-current liabilities                        3,314        2,649
                                                            
Shareholder's equity:                                       
  Common stock, $.01 par value, 100,000 shares              
    authorized, issued and outstanding                   1            1
  Additional paid-in capital                        50,005       50,005
  Accumulated other comprehensive income             1,947          (16)
  Accumulated deficit                              (29,340)     (42,438)
     Total shareholder's equity                     22,613        7,552
     Total liabilities and shareholder's equity   $388,821     $335,144

                                  
                                  
    See accompanying notes to consolidated financial statements.
<PAGE>


                       MOTORS AND GEARS, INC.
                  CONSOLIDATED STATEMENTS OF INCOME
                  (ALL DOLLAR AMOUNTS IN THOUSANDS)
                                  
                                  
                                  
                                                 Year Ended December 31,
                                              1998        1997        1996
                                                                      
Net sales                                  $275,833     $148,669   $117,571
Cost of sales, excluding depreciation       180,453       97,084     75,751
Selling, general, and administrative                          
 expenses, excluding depreciation            37,559       13,370      8,796
Depreciation                                  4,492        4,311      2,960
Amortization   of   goodwill   and    other              
intangibles                                   8,235        4,704      4,118
Management fees to affiliated company         2,770        1,516      2,717
Operating income                             42,324       27,684     23,229
                                                              
Other (income) expense:                                       
  Interest expense:                                           
     Affiliated company                           -            -        732
     Other                                   32,994       22,363     10,402
  Interest income                              (463)        (148)      (806)
  Miscellaneous, net                            110            -        (67)
Income before income taxes and
 extraordinary item                          10,026        5,784     12,310
Provision/(benefit) for income taxes         (3,072)       2,429      5,290
Income before extraordinary item             13,098        3,355      7,020
Extraordinary  loss, net of income tax                   
 benefit of $1,620                                -            -      2,186
                                                                     
Net income                                 $ 13,098     $  3,355   $  4,834
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                                                   
    See accompanying notes to consolidated financial statements.
                             
<PAGE> 
<TABLE>


                              MOTORS AND GEARS, INC.
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (NET CAPITAL
                                   DEFICIENCY)
                        (ALL DOLLAR AMOUNTS IN THOUSANDS)
                                        
                                        
                                                  
                                                                             
                                                                                       Total
                              Common Stock              Accumulated      Retained  Shareholder's                 
                              Number        Additional     Other         Earnings     Equity          
                                of            Paid-in  Comprehensive  (Accumulated   Net Capital
                              Shares  Amount  Capital     Income          Deficit     Deficency      
<S>                           <C>      <C>    <C>      <C>        <C>        <C>
Balance at December 31, 1995  100,000  $   1  $30,005   $    -     $ 15,919   $ 45,925
 Acquisition of Imperial            -      -        -        -      (66,546)   (66,546)
 Net income                         -      -        -        -        4,834      4,834
 Comprehensive Income               -      -        -        -           -       4,834
                                                                            
Balance at December 31, 1996  100,000      1   30,005        -      (45,793)   (15,787)
 Capital  contribution  from 
 Parent                             -      -   20,000        -           -      20,000 
 Foreign currency translation
  adjustment                        -      -        -      (16)          -         (16)
 Net Income                         -      -        -        -        3,355      3,355
 Comprehensive Income               -      -        -        -        3,339         -

Balance at December 31, 1997  100,000      1   50,005      (16)     (42,438)     7,552
 Foreign currency translation
 adjustment                         -      -        -    1,963           -       1,963
 Net Income                         -      -        -        -       13,098     13,098
 Comprehensive Income               -      -        -        -           -      15,061
                                                                            
Balance at December 31,1998   100,000  $   1  $50,005  $ 1,947     $(29,340)   $22,613
                                                                               
</TABLE>                                                                    
                                                                               
                                                                               
                                                                               
          See accompanying notes to consolidated financial statements.


<PAGE>

                       MOTORS AND GEARS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (ALL DOLLAR AMOUNTS IN THOUSANDS)
                                  


                                              Year Ended December 31,
                                              1998      1997      1996
Cash flows from operating activities:
 Net income                                  $13,098  $  3,355  $  4,834
Adjustments to reconcile net income to net
 cash provided by operating activities:
   Depreciation and amortization              14,018    10,070     7,877
   Provision/(benefit) for deferred 
    income taxes                              (5,917)      772       701
   Extraordinary Loss                              -         -     3,806

Changes in operating assets and liabilities (net
 of effects from acquisitions):
   Accounts receivable                        (6,897)   (3,645)    3,190
   Inventories                                (3,017)    1,323       128
   Prepaid expenses and other                 (1,482)    2,205       187
   Accounts payable                            3,648       593    (3,500)
   Accrued expenses and other                 (2,603)    4,813     4,359
   Non-current assets & liabilities            1,081       (29)      (12)
   Payables to affiliated company               (272)     (218)   (3,433)
   Net cash provided by operating activities  11,657    19,239    18,137

Cash flows from investing activities:
   Capital expenditures, net                  (4,964)   (1,497)   (1,304)
   Acquisitions of subsidiaries              (58,486) (121,053)  (90,692)
   Cash acquired in acquisition of 
    subsidiaries                                 412     4,462         -
   Investment in affiliate                    (7,285)        -         -
   Net cash used in investing activities     (70,323) (118,088)  (91,996)


Cash flows from financing activities:
   Proceeds from revolving credit facility    59,000    72,500     1,700
   Repayment of long-term debt                (2,307)      (33)  (90,230)
   Repayment of borrowings under revolving
    credit facility                          (18,000)  (72,500)   (2,200)
   Proceeds from debt issuances - Senior Notes     -   104,500   190,000
   Payment of financing costs                      -    (6,749)  (10,354)
   Payment on note payable to affiliated company   -         -    (7,827)
   Proceeds from capital contribution from parent  -    20,000         -
   Payment of consent fee to bondholders      (2,550)        -         -
   Net cash provided by financing 
    activities                                36,143   117,718    81,089
Effect of exchange rate changes on cash          659         -         -
Net increase/(decrease) in cash and cash
  equivalents                                (21,864)   18,869     7,230

Cash and cash equivalents at beginning 
  of period                                   28,880    10,011     2,781
Cash and cash equivalents at end of 
  period                                   $   7,016  $ 28,880  $ 10,011

Supplemental disclosures of cash flow information:
Cash paid during the period for:
   Interest:
   Affiliated company                      $      -   $      -  $  1,066
   Other                                     31,286     20,981     7,117
   Income taxes                               5,257        515       781
Non cash investing activities:
   Capital leases                             1,325        107        77


    See accompanying notes to consolidated financial statements.

<PAGE>

                       MOTORS AND GEARS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (ALL DOLLAR AMOUNTS IN THOUSANDS)
                                  
                                  
1. Formation of the Company and Acquisitions

   Motors  and  Gears, Inc. (Company), a wholly-owned subsidiary  of
Motors   and   Gears  Holdings,  Inc.  (Parent),  a   majority-owned
subsidiary of Jordan Industries, Inc. (JII), was formed to combine a
group   of  companies  engaged  in  the  manufacture  and  sale   of
reversible,   permanent   split-capacitor,   shaded-pole,   and   DC
subfractional  horsepower  motors  and  gear  motors  primarily   to
customers  located throughout the United States.   The  Company  has
also entered into the electronic motion control industry.

   On  March 8, 1996, the Company acquired the net assets of Barber-
Colman  Motors  Division  (Division), a  division  of  Barber-Colman
Company,   which  was  wholly-owned  by  Siebe,  plc.  The  Division
consisted  of  Colman  OEM and Colman Motor  Products,  wholly-owned
subsidiaries  of Barber-Colman Company, and the motors  division  of
Barber-Colman  Company.  The  Division is  a  vertically  integrated
manufacturer of subfractional horsepower AC and DC motors  and  gear
motors,  with  applications in such products  as  vending  machines,
copiers,  printers, ATM machines, currency changers, X-ray machines,
peristaltic pumps, HVAC actuators, and other products.  The Division
was subsequently merged into Merkle-Korff.

   On  November  7,  1996,  the Company acquired  Imperial  Electric
Company (Imperial), a wholly-owned subsidiary of JII, and Imperial's
wholly-owned  subsidiaries, Scott Motors Company  (Scott)  and  Gear
Research,  Inc.  (Gear)  (Imperial, Scott  and  Gear  are  hereafter
collectively referred to as Imperial), for $75,000 of cash  payments
from  the offering proceeds, which included the repayment of  $6,008
in  Imperial  liabilities  owed to JII,  and  a  contingent  payment
payable  pursuant  to  a contingent earnout arrangement.  Under  the
terms  of the contingent earnout arrangement, 50% of Imperial, Scott
and  Gear's cumulative earnings before interest, taxes, depreciation
and  amortization,  as defined, exceeding $50,000  during  the  five
fiscal years ended December 31, 1996 through December 31, 2000  will
be  paid  to  an  affiliate  of JII. Payments,  if  any,  under  the
contingent earnout arrangement will be determined and made on  April
30,  2001. Imperial designs, manufactures, and distributes specialty
electric motors, generators, and gears for industrial and commercial
use.  Scott  manufactures specialty electric motors and  was  merged
with  Imperial effective December 31, 1997. Gear manufactures  gears
and  precision gear assemblies. Imperial, Scott and Gear's customers
are located mainly in the United States.  The consolidated financial
statements  give retroactive effect to the acquisition of  Imperial,
which  has been accounted for in a manner similar to the pooling-of-
interests  method.  As  a  result of the Imperial  acquisition,  the
Company recorded a $66,546 charge to retained earnings in 1996. This
amount  represents the $75,000 of cash payments to JII, less  $6,008
in  Imperial  liabilities owed to JII and $2,446 of deferred  income
taxes recorded in connection with the acquisition.

  On June 12, 1997, the Company purchased all of the common stock of
the  FIR  Group Companies, consisting of CIME S.p.A., SELIN,  S.p.A.
and  FIR  S.p.A.  (collectively "FIR") for  $51,082.   The  purchase
price, including costs incurred directly related to the transaction,
was  allocated to working capital of $16,562; property and equipment
of  $4,918; other long-term assets and liabilities of ($3,442);  and
resulted in an excess purchase price over net identifiable assets of
$33,044.   FIR  is a manufacturer of electric motors and  pumps  for
niche  applications such as pumps for commercial dishwashers, motors

<PAGE>

for  industrial sewing machines and motors for industrial  fans  and
ventilators.   FIR's  operations  are  located  in  Italy  and   its
customers are located mainly in Europe.

   On  October 27, 1997, the Company acquired all of the outstanding
stock  of  Electrical Design and Control Company, Inc. ("ED&C")  for
$15,931  in cash and a $3,850 Subordinated Junior Seller  Note.  The
purchase  price, including costs incurred directly  related  to  the
transaction,  was  allocated to working capital of $3,514;  property
and equipment of $81; covenants not to compete of $120; and resulted
in an excess purchase price over net identifiable assets of $16,066.
ED&C is a full-service electrical engineering company which designs,
engineers and manufactures electrical control systems and panels for
material  handling  systems  and  other  like  applications.    ED&C
provides comprehensive design, build and support services to produce
electronic  control panels which regulate the speed and movement  of
conveyor  systems used in a variety of automotive plants  and  other
industrial applications.  ED&C's customers are located mainly in the
United States.

   On  December 18, 1997, the Company purchased all of the stock  of
Motion Control Engineering, Inc. ("Motion Control") for $53,942. The
purchase  price, including costs incurred directly  related  to  the
transaction,  was allocated to working capital of $10,071;  property
and  equipment of $1,428; covenants not to compete of $1,005;  other
long-term assets and liabilities of ($12); and resulted in an excess
purchase price over net identifiable assets of $41,450.  The Company
also  has  a  contingent purchase price agreement  relating  to  the
acquisition  of  Motion Control.  The contingent purchase  price  is
dependent upon the acquired entity's results of operations exceeding
certain   targeted   levels  substantially  above   the   historical
experience  of  Motion Control at the time of  acquisition.   Motion
Control manufactures electronic motion control products for elevator
markets,  primarily  the  elevator  modernization  market.    Motion
Control's customers are located mainly in the United States.

  On May 15, 1998, the Company acquired all of the outstanding stock
of  Advanced  D.C.  Motors,  Inc. and  its  affiliated  corporations
(collectively  "ADC")  for $55,500.  The purchase  price,  including
costs incurred directly related to the transaction, was allocated to
working  capital  of  $9,345;  property  and  equipment  of  $4,088;
covenants  not  to  compete  of $662;  other  long-term  assets  and
liabilities of $(51); and resulted in an excess purchase price  over
net  identifiable  assets  of  $41,456.   The  Company  also  has  a
contingent  purchase  price agreement of up to approximately  $5,600
relating  to the acquisition of ADC.  The contingent purchase  price
is  dependent  upon  the  acquired entity's  results  of  operations
exceeding certain targeted levels substantially above the historical
experience  of  ADC  at the time of acquisition.   ADC  designs  and
manufactures  special purpose, custom designed  motors  for  use  in
electric  lift  trucks, power sweepers, electric  utility  vehicles,
golf  carts,  electric boats, and other niche  products.   ADC  also
designs  and manufactures its own production equipment  as  well  as
electric motor components known as commutators.

   On  December  31,  1998,  the Company, through  its  wholly-owned
subsidiary Imperial, acquired all of the outstanding stock of Euclid
Universal  Corporation ("Euclid") for $2,100.  The  purchase  price,
including  costs  incurred directly related to the transaction,  was
preliminarily  allocated to working capital of  $772;  property  and
equipment of $953; other long-term assets and liabilities of ($498);
and  resulted  in  an  excess purchase price over  net  identifiable
assets  of  $873.   Euclid designs and manufactures speed  reducers,
customer gearing, right angle gearboxes and transaxles for use in  a
wide array of industries including material handling, healthcare and
floor  care.  Euclid has strong technical expertise in the areas  of
worm, spur and helical gearing.


<PAGE>

   Acquisitions of the Company have been financed primarily  through
the  use of the revolving line of credit and the issuance of  Senior
Debt.  These acquisitions have been accounted for using the purchase
method  of  accounting (except for Imperial which has been accounted
for  in  a  manner similar to a pooling-of-interests).  Accordingly,
the  operating  results  of  each of these  acquisitions  have  been
included in the consolidated operating results of the Company  since
the date of their acquisition.

  Unaudited annual pro forma information with respect to the Company
as  if  the  1998 and 1997 acquisitions had occurred on  January  1,
1997, is as follows:

                                    Unaudited
                               Year Ended December 31,
                                 1998         1997
     Net Sales                 $296,234     $262,991
     Income before income      
      taxes                      11,954        7,963
     Net Income                $  6,574     $  4,383


2. Summary of Significant Accounting Policies

Principles of Consolidation

   The consolidated financial statements include the accounts of the
Company   and  its  wholly-owned  subsidiaries,  Motors  and   Gears
Industries, Inc., Merkle-Korff, Imperial, FIR, ED&C, Motion  Control
and ADC. All significant intercompany transactions and accounts have
been  eliminated.   Operations of certain subsidiaries  outside  the
United  States are included for periods ending two months  prior  to
the   Company's  year-end  and  interim  periods  to  ensure  timely
consolidated financial statements.

Reclassifications

  Certain reclassifications have been made to prior years' financial
statements  in  order  for  them to  conform  to  the  current  year
presentation.

Cash and Cash Equivalents

   Cash  equivalents  consist of highly liquid investments  with  an
initial maturity of three months or less at the time of purchase.

Inventories

  Inventories are stated at the lower of cost or market. Inventories
valued  at  either  average  or  first-in,  first-out  (FIFO)  cost,
accounted for approximately 74% and 71% of the Company's inventories
at  December 31, 1998 and 1997, respectively.  All other inventories
are   valued  using  the  last-in,  first-out  (LIFO)  cost,   which
approximated current cost at December 31, 1998.

Property, Plant, and Equipment

  Property, plant, and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided using either straight-line or
accelerated  methods over the estimated useful lives of the  assets.
Leasehold improvements and assets under capital leases are amortized
using the straight-line method over the shorter of the lease term or
their   estimated  productive  lives.  Amortization   of   leasehold

<PAGE>

improvements  and  assets  under  capital  leases  is  included   in
depreciation expense.

   The  useful  lives  of plant and equipment  for  the  purpose  of
computing book depreciation are as follows:

              Buildings                 5 to 33 years
              Machinery and equipment   3 to 10 years
              Dies and tooling           3 to 5 years
              Furniture and fixtures    5 to 10 years
              Vehicles                   3 to 5 years

Foreign Currency Translation

  In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," assets and liabilities of the
Company's foreign operations are translated from foreign currencies
into U.S. dollars at year-end rates while income and expenses are
translated at the weighted-average exchange rates for the year.
Gains or losses resulting from the translations of foreign currency
financial statements are deferred and classified as a separate
component of shareholder's equity.

Intangible Assets

  Goodwill is being amortized using the straight-line method over 30
years  at Merkle-Korff, FIR, ED&C, Motion Control and ADC and up  to
40  years at Imperial. Goodwill at December 31, 1998 and 1997 is net
of  accumulated  amortization of $20,900 and $13,274,  respectively.
The covenants not to compete are being amortized using the straight-
line  method  over  the  respective terms  of  the  agreements.  The
covenants  not to compete at December 31, 1998 and 1997 are  net  of
accumulated amortization of $1,174 and $601, respectively.  Deferred
financing  costs are amortized using the straight-line  method  over
the  shorter  of the terms of the related loans or the  period  such
loans  are expected to be outstanding. Deferred financing  costs  at
December  31,  1998 and 1997 are net of accumulated amortization  of
$3,016  and $1,226, respectively. Amortization of deferred financing
costs is included in interest expense.

Income Taxes

   Deferred  tax  assets  and liabilities are  determined  based  on
differences between the financial reporting and tax bases of  assets
and  liabilities and are measured using the enacted  tax  rates  and
laws that are expected to be in effect when the differences reverse.
The   operating  results  of  the  Company  are  included   in   the
consolidated  federal  income tax return of JII.  In  addition,  the
Company  is party to a tax-sharing agreement with JII. However,  the
Company's income tax provision has been calculated as if the Company
would have filed a separate federal income tax return.

Revenue Recognition

  Revenues are primarily recognized when products are shipped to
customers.

<PAGE>


Use of Estimates

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

Adoption of Accounting Principles

   As  of  January  1,  1998,  the  Company  adopted  the  Financial
Accounting  Standards  Board's  Statement  of  Financial  Accounting
Standards No. 130, "Reporting Comprehensive Income" (Statement 130).
Statement 130 establishes new rules for the reporting and display of
comprehensive  income and its components; however, the  adoption  of
this  Statement  had  no  impact on  the  Company's  net  income  or
shareholders'  equity.   The  Company's  only  comprehensive  income
relates  to  foreign currency translation.  Statement  130  requires
foreign  currency translation adjustments, which prior  to  adoption
were reported separately in shareholders' equity, to be included  in
other comprehensive income.  Certain amounts in prior year financial
statements have been reclassified to conform to the requirements  of
Statement 130.

   As  of  January 1, 1998, the Company adopted Financial Accounting
Standards  Board's Statement of Financial Accounting  Standards  No.
131,  "Disclosures  about  Segments of  an  Enterprise  and  Related
Information"  (Statement 131).  Statement 131 establishes  standards
for  the  way  that  public business enterprises report  information
about operating segments in annual financial statements and requires
that  those enterprises report selected information about  operating
segments   in   interim  financial  reports.   It  also  establishes
standards  for  related  disclosures about  products  and  services,
geographic areas and major customers.  The adoption of Statement 130
is  solely  a  reporting requirement and therefore did not  have  an
effect on the Company's financial position or results of operations.

   In  June  1998,  the  FASB issued SFAS No.  133,  Accounting  for
Derivative Instruments and Hedging Activities (Statement 133), which
is  required to be adopted in fiscal years beginning after June  15,
1999.   Statement 133 requires all derivatives to be  recognized  in
the  balance  sheet as either assets or liabilities at  fair  value.
Derivatives  that  are  not hedges must be adjusted  to  fair  value
through  income.   In  addition, all hedging relationships  must  be
designated, reassessed and documented pursuant to the provisions  of
SFAS  No.  133.  Management believes the adoption of this  statement
will not have a material effect on the Company.

Financial Instruments

   The  Company's  financial instruments include  cash  equivalents,
trade  accounts receivable, accounts payable, accrued expenses,  the
Senior  Notes,  the  Subordinated Notes, and  the  revolving  credit
facility.   The fair values of the Company's financial  instruments,
except  for the Senior Notes (Note 7), are not materially  different
from their carrying values at December 31, 1998.


<PAGE>

Concentration of Credit Risk
     
           Financial instruments which potentially subject  the
     Company   to   concentration  of   credit   risk   consist
     principally  of  cash  and cash equivalents  and  accounts
     receivable.    The   Company  deposits   cash   and   cash
     equivalents   with  high-quality  financial  institutions,
     which  are  federally  insured up  to  prescribed  limits.
     Cash balances may exceed these limits at any given time.
     
          The  Company closely monitors the credit  quality  of
     its  customers  and  maintains  allowances  for  potential
     credit   losses   which,  historically,  have   not   been
     significant   and   have  been   within   the   range   of
     management's  expectations.  The  Company  generally  does
     not   require  collateral  or  other  security  on   trade
     receivables.
     
3. Inventories

  Inventories consist of the following:

                                                   December 31,
                                               1998           1997
     Raw materials                           $27,101        $21,639
     Work in process                          10,626          7,375
     Finished goods                            5,591          2,651
                                             $43,318        $31,665

4. Property, Plant, and Equipment

  Property, plant, and equipment consists of the following:

                                                    December 31,
                                                 1998      1997
         Land, buildings and improvements     $ 8,069    $ 6,380
         Machinery and equipment               25,716     17,745
         Furniture and fixtures                 3,127      1,089
         Other (vehicles, dies and tooling)     7,965      6,731
                                               44,877     31,945
                                             
         Less: Accumulated depreciation                
           and amortization                   (22,609)   (16,744)
                                                       
                                               $22,268   $15,201

5. Short Term Notes Payable

   FIR  has  a  number of unsecured short-term borrowing  facilities
available  from  approximately 17 banks in  the  form  of  overdraft
coverage.  The total amount available under the overdraft facilities
is approximately $14,000 at interest rates ranging from 4.5% to 6.5%
at  December  31,  1998.  Total outstanding borrowings  under  these
arrangements  were  $0 and $2,009 at December  31,  1998  and  1997,
respectively.

<PAGE>


6. Income Taxes

  Pretax income was taxed in the following jurisdictions:


                                         Year Ended December 31,
                                       1998       1997      1996
      Domestic                        $ 4,738    $4,679    $12,310
      Foreign                           5,288     1,105          -
                                                          
                                      $10,026    $5,784    $12,310

    The  provision/(benefit)  for  income  taxes  consists  of   the
following:


                                         Year Ended December 31,
                                       1998      1997      1996
          Current:                                               
            Federal                   $  (954)  $  898    $1,594
            State                         (40)     217       572
            Foreign                     3,839      542         -
                                                          
            Total current               2,845    1,657     2,166
                                                          
          Deferred:                                       
            Federal                    (5,223)     684     1,228
            State                        (667)     151       276
            Foreign                       (27)     (63)        -
                                                          
            Total deferred             (5,917)     772     1,504
                                                          
          Provision/(benefit) for     
           income taxes               $(3,072)  $2,429    $3,670

   The  provision/(benefit) for income taxes differs from the amount
of income tax provision computed by applying the U.S. federal income
tax  rate  to  income before income taxes. A reconciliation  of  the
differences is as follows:


                                             Year Ended December 31,
                                              1998      1997      1996
      Computed statutory tax provision      $  3,409   $1,967    $2,891
        Increase resulting from:
           State and local taxes, net of                      
            federal benefit                      463      243       560
           Higher effective foreign tax                        
            rate                               2,014      103         -
           Change in valuation allowance      (9,714)       -         -
        Previously unrecorded deferred                      
                 Taxes                           448        -         -
        Nondeductible amortization               674      181       145
        Other                                   (366)     (65)       74
                                                          
      Provision/(benefit) for income taxes   $(3,072)  $2,429    $3,670
      
                                                                 
<PAGE>
                                  
                                  
    Deferred  tax  liabilities  and  assets  are  comprised  of  the
following:

                                             December 31,
                                           1998        1997
          Deferred tax liabilities:                        
             Goodwill                     $5,075      $2,686
             Property, plant and
              equipment                      232         900
             Other                            66         294
                                                           
          Total deferred tax liabilities   5,373       3,880
                                                           
          Deferred tax assets:                             
             Property, plant and
              equipment                    4,173       5,505
             Intangibles other than
              goodwill                     5,785       6,928
             Vacation accrual                364         141
             Franchise tax                   269         128
             Employee benefits               363         196
             Uniform capitalization          133         243
             Allowance for doubtful 
              accounts                        89         121
             Inventory obsolescence 
              reserve                         84          18
             Warranty reserve                117           -
             Other                           120         259
             Valuation allowance               -      (9,714)
                                                           
          Total deferred tax assets       11,497       3,825
          Net deferred tax assets/
           (liabilities)                 $ 6,124     $   (55)

   During 1998, the Company recorded $262 of net deferred tax  assets
in connection with acquisitions.

   The  increase  in deferred tax assets is primarily the  result  of
reducing  the  Company's valuation allowance related to deferred  tax
assets arising from the Company's acquisition of Imperial on November
7,  1996   from  an  affiliate.  The deferred tax assets  pertain  to
additional  tax bases in certain assets related to this  transaction.
The  valuation  allowance  was reversed due to  continued  profitable
domestic operating results and based on management's assessment  that
it  is  more likely than not that all of the net deferred tax  assets
will  be  realized through future taxable earnings, or implementation
of tax planning strategies.

7. Long Term Debt

  Long-term debt consists of the following:
                                                 December 31
                                               1998        1997
   Series B Senior Notes (A)                $       -   $170,000
   Series C Senior Notes, including                    
     $4,500 of Unamortized premium (A)              -    104,500
   Series D Senior Notes, including                    
     $4,000 of Unamoritzed premium (A)        274,000          -
   Subordinated Notes Payable (B)               8,850      9,000
   Revolving Credit Facility (A)               41,000          -
   Capital leases (C)                           1,966        172
                                              325,816    283,672
   Current Portion                               (361)       (59)
                                             $325,455   $283,613


<PAGE>

   (A)On  November  7,  1996, the Company issued $170,000  aggregate
     principal amount of 10 3/4% Series A Senior Notes ("A  Notes").
     In  April  1997, the Company completed an exchange offer  under
     which  $170,000 of 10 _ Series B Senior Notes ("B Notes")  were
     exchanged for the $170,000 of Series A Notes.  The terms of the
     A  Notes  were substantially identical to the terms  of  the  B
     Notes.

           Interest on the B Notes is payable in arrears on  May  15
     and November 15 of each year and commenced May 15, 1997. The  B
     Notes  are  unsecured obligations of the Company and mature  on
     November 15, 2006.

     Concurrent  with  the consummation of the above  offering,  the
     Company used a portion of the net proceeds to repay all of  its
     outstanding  indebtedness under the existing Credit  Agreement,
     canceled the existing Credit Agreement, and entered into a  new
     Credit   Agreement  (New  Credit  Agreement)   with   a   bank.
     Accordingly,  the  unamortized balance  of  deferred  financing
     costs  related to the previous credit agreement of  $3,806  was
     written-off  as  an  extraordinary  charge.  The   New   Credit
     Agreement  is  in the form of a revolving credit  facility  and
     provides for borrowings of up to $75,000 over a five year term.
     Borrowings bear interest at a floating rate of LIBOR plus  2.5%
     (8.125%  at December 31, 1998) or base rate plus 1.5% (9.0%  at
     December 31, 1998), subject to reduction based on the Company's
     leverage  ratio,  as  defined.  Unused  commitments  under  the
     revolving credit facility are subject to an availability fee of
     1/2 of 1% per annum subject to reduction based on the Company's
     leverage ratio, as defined. Borrowings are secured by the stock
     and  substantially all of the assets of the Company. Borrowings
     outstanding under the revolving credit facility at December 31,
     1998 and 1997 were $41,000 and $0, respectively.

     The  New Credit Agreement contains covenants which, among other
     things,  provide for a minimum level of interest  coverage,  as
     defined,  and  limit the Company's ability to incur  additional
     indebtedness, create liens, make restricted payments, engage in
     affiliate transactions or mergers and consolidations, and  make
     asset sales.

     On  December  10,  1997, the Company issued $100,000  aggregate
     principal amount of 10 3/4% Series C Senior Notes ("C  Notes").
     Interest  on the C Notes is payable in arrears on  May  15  and
     November  15 of each year, and commenced May 15, 1998.   The  C
     Notes were issued at a premium of 4.5% which is being amortized
     over  the  remaining term of the C Notes. Concurrent  with  the
     issuance  of the C Notes, the Company's Parent made  a  capital
     contribution of $20,000 to the Company.

     In  conjunction with the consummation of the C Notes  offering,
     the   Company   used  the  net  proceeds  to   repay   existing
     indebtedness  under  the New Credit Agreement,  acquire  Motion
     Control,  provide additional working capital and pay  fees  and
     expenses incurred in connection with the offering.
     
     On  January  9,  1998, the Company completed an exchange  offer
     under which $270,000 of 10 3/4% Series D Senior Notes ("D Notes")
     were exchanged for the $170,000 of B Notes and the $100,000  of
     C  Notes.  The terms of the D Notes are substantially identical
     to the terms of the B and C Notes.
     
     The D Notes are unsecured obligations of the Company and mature
     on  November 15, 2006. The D Notes are redeemable at the option
     of  the  Company, in whole or in part, at any time on or  after

<PAGE>     

     November  15, 2001. In addition, notwithstanding the foregoing,
     the  Company  may  redeem up to 35% of the  original  aggregate
     principal  amount  prior  to November 15,  1999  under  certain
     circumstances.  The Indenture relating to the D Notes  contains
     certain  covenants  which, among other  things,  restricts  the
     ability of the Company to incur additional indebtedness, to pay
     dividends   or  make  other  restricted  payments,  engage   in
     transactions  with affiliates, to complete certain  mergers  or
     consolidations,  or  to  enter  into  certain   guarantees   of
     indebtedness.
     
     The fair value of the Senior Notes was $275,400 at December 31,
     1998.   The fair value was calculated by multiplying  the  face
     amount by the market price at December 31, 1998.
  
  (B)The  Subordinated  Notes  Payable  consist  of  a  $5,000  note
     payable to the former shareholder of Merkle-Korff and a  $3,850
     note  payable  to the former shareholders of  ED&C.   The  note
     payable  to the former shareholder of Merkle-Korff  is  due  in
     installments  beginning December 31, 2000 through December  31,
     2003  and bears interest at 9% per annum.  The note payable  to
     the former ED&C shareholders is due December 31, 2002 and bears
     interest   at   9%  per  annum.   These  notes  are   unsecured
     obligations of the Company.
  
  (C)Interest  rates on capital leases range from 3.9% to 15.6%  and
     mature in installments through 2004.
  
     The  future  minimum  lease payments as of  December  31,  1998
     under capital leases consist of the following:
               
               1999                    $  408
               2000                       529
               2001                       479
               2002                       385
               2003                       355
               Thereafter                 229
                 Total                  2,385
               
               Less amount representing
                 Interest                (419)
               Present value of future
                 Minimum lease 
                  payments             $1,966

    The   present  value  of  the  future  minimum  lease  payments
    approximates the book value of property, plant and equipment under 
    capital leases at December 31, 1998.
               
  Aggregate maturities of long-term debt at December 31, 1998 are as
follows:


                1999                      $     361
                2000                          1,405
                2001                          1,605
                2002                          5,422
                2003                         42,818
                Thereafter                 $270,205


<PAGE>

8. Leases

   The  Company leases certain land, buildings, and equipment  under
noncancellable operating lease agreements expiring in various  years
through  2007.   Minimum  future  lease  payments,  by  year,  under
noncancellable operating leases including those with related parties
(Note 11), are as follows at December 31, 1998:

                 1999                       $ 3,042     
                 2000                         2,591     
                 2001                         1,766     
                 2002                         1,783     
                 2003                         1,220     
                 Thereafter                   2,406    

   Total  rent expense was $3,777, $1,951 and $1,680 for  the  years
ended December 31, 1998, 1997 and 1996, respectively.

9. Capital Stock

       On   December  10,  1997,  the  Company  received  a  capital
contribution  of  $20,000 from its Parent  in  connection  with  the
issuance of $100,000 of Series C Notes, as described in Note 7.

10. Benefit Plans

    Certain  of the Company's subsidiaries participate  in  the  JII
401(k)  Savings Plan (the "Plan"), a defined-contribution  plan  for
salaried and hourly employees.  In order to participate in the Plan,
employees  must  be at least 21 years old and have worked  at  least
1,000 hours during the first 12 months of employment.  Each eligible
employee  may  contribute from 1% to 15% of their  before-tax  wages
into  the  Plan.   In  addition  to the  JII  401(k)  Plan,  certain
subsidiaries  have additional defined contribution  plans  in  which
employees may participate.  The Company made contributions to  these
plans  totaling approximately $1,353, $671 and $449  for  the  years
ended December 31, 1998, 1997 and 1996, respectively.

   FIR  provides for a severance liability for all employees at 7.4%
of  each  respective  employee's annual salary.   In  addition,  the
amount accrued is adjusted each year according to an official  index
(equivalent to 0.75% of the retail price index).  This obligation is
payable  to employees when they leave the employ of the Company  and
approximated  $3,069  and  $2,712 at December  31,  1998  and  1997,
respectively.

11.  Related Party Transactions
     
  Services  Agreements.   Until July 24, 1997,  the  Parent  and  its
subsidiaries  (including  the Company) had  been  charged  an  annual
management  and advisory fee by JII equal to 1.0% of  its  net  sales
payable  quarterly.   Management and advisory  fees  charged  to  the
Company  were  approximately  $800 and $2,700  for  the  period  from
January  1,  1997  to July 24, 1997 and the year ended  December  31,
1996,  respectively.  The Company was also obligated to  pay  to  The
Jordan Company (i) an investment banking and sponsorship fee of up to
2.0% of the purchase price of certain acquisitions or sales involving
the  Company or any of its subsidiaries, (ii) a financial  consulting
fee of up to 1.0% of any debt, equity or other financing arranged  by
the  Company  with  the assistance of The Jordan  Company  and  (iii)
reimbursement for out-of-pocket costs; provided, that such  fees  may
be  paid,  in whole or in part, to JII, upon the mutual agreement  of
the  board  of  directors  of  JII  and  The  Jordan  Company.  These
arrangements  were terminated as of July 25, 1997 and  replaced  with

<PAGE>

five  new  types of agreements and arrangements which  are  described
below.
     
   First, the Company and each of its subsidiaries entered into a new
advisory  agreement  (the "New Subsidiary Advisory  Agreement")  with
JII,  pursuant to which the Company and its subsidiaries are  charged
by  JII (i) investment banking and sponsorship fees of up to 2.0%  of
the   purchase  price  of  acquisitions,  joint  ventures,   minority
investments  or  sales involving the Company and its subsidiaries  or
their  respective  businesses or properties (which  were  $1,092  and
$2,379 in 1998 and 1997, respectively); (ii) financial advisory  fees
of  up  to 1.0% of any debt, equity or other financing or refinancing
involving the Company or such subsidiary, in each case, arranged with
the  assistance of The Jordan Company or its affiliates  (which  were
$400   and  $1,045  in  1998  and  1997,  respectively);  and   (iii)
reimbursement  for The Jordan Company's or JII's out-of-pocket  costs
in connection with providing such services (which were $100 and $0 in
1998  and 1997, respectively).  The New Subsidiary Advisory Agreement
expires in December 2007, but is automatically renewed for successive
one-year  terms,  unless  either party  provides  written  notice  of
termination 60 days prior to the scheduled renewal date.

   Second,  the Company and each of its subsidiaries entered  into  a
management  consulting  agreement  (the  "New  Subsidiary  Consulting
Agreement"),  pursuant  to  which they  are  charged  by  JII  annual
consulting fees of 1.0% of the Company's net sales for such services,
payable  quarterly, and are required to reimburse JII for its out-of-
pocket  costs related to its services.  The New Subsidiary Consulting
Agreement expires in December 2007, but is automatically renewed  for
successive  one-year  terms,  unless either  party  provides  written
notice  of  termination 60 days prior to the scheduled renewal  date.
Pursuant  to  the New Subsidiary Consulting Agreement, JII  (but  not
JII's  affiliates) is obligated to present all acquisition,  business
and  investment opportunities that relate to manufacturing, assembly,
distribution  or marketing of products and services  in  the  motors,
gears  and motion control industries to the Company, and JII  is  not
permitted  to  pursue  such opportunities or present  them  to  third
parties   unless   the  Company  determines  not   to   pursue   such
opportunities   or  consents  thereto.   In  accordance   with   this
agreement,  the Company paid approximately $2,770 and  $700  for  the
year ended December 31, 1998 and for the period from July 25, 1997 to
December 31, 1997, respectively.

   Third,  the  Company and each of its subsidiaries entered  into  a
services agreement (the "JI Properties Services Agreement")  with  JI
Properties, Inc. ("JI Properties"), a subsidiary of JII, pursuant  to
which  JI  Properties provides certain real estate and other  assets,
transportation and related services to the Company.  Pursuant to  the
JI  Properties  Services Agreement, the Company is  charged  for  its
allocable  portion  of such services based upon  its  usage  of  such
services and its relative revenues, as compared to JII and its  other
subsidiaries.  In accordance with this agreement, such  charges  were
$1,214  and  $341 for the year ended December 31, 1998  and  for  the
period from July 25, 1997 to December 31, 1997, respectively.  The JI
Properties  Services  Agreement expires  in  December  2007,  but  is
automatically  renewed for successive one-year terms,  unless  either
party  provides written notice of termination 60 days  prior  to  the
scheduled renewal date.

   Fourth,  JII refined the allocation of its overhead,  general  and
administrative  charges and expense among JII and  its  subsidiaries,
including the Company, in order to more closely match these  overhead
charges with the revenues and usage of corporate overhead by JII  and

<PAGE>

its  subsidiaries.  Under  this agreement,  the  Company's  allocable
portion of corporate expenses was $2,136 and $690 for the year  ended
December  31, 1998 and for the period from July 25, 1997 to  December
31, 1997, respectively.

   Fifth,  the Company and JII entered into the transition  agreement
(the  "Transition Agreement") pursuant to which JII  provides  office
space  and  certain  administrative and accounting  services  to  the
Company  to facilitate the transition of the Company as a stand-alone
company.   The Company reimburses JII for services provided  pursuant
to  the  Transition  Agreement  on  an  allocated  cost  basis.   The
Transition   Agreement  expires  on  December  31,   1999,   but   is
automatically renewed for successive one year periods (unless  either
party  provides  prior  written notice of  non-renewal)  and  may  be
terminated by the Company on 90 days' written notice.

   Tax  Sharing  Agreement.  The Company and each of its subsidiaries
are  party  to a Tax Sharing Agreement (the "Tax Sharing  Agreement")
among  JII  and  each  of its consolidated subsidiaries  for  federal
income tax purposes.  Pursuant to the Tax Sharing Agreement, each  of
the consolidated subsidiaries of JII pays to JII, on an annual basis,
an  amount  determined  by  reference  to  the  separate  return  tax
liability of the subsidiary as defined in Treasury Regulation 1.1552-
1(a)(2)(ii).   For the years ended December 31, 1998  and  1997,  the
income  tax  payments  by the Company to JII under  the  Tax  Sharing
Agreement  were  $2,087  and  $0,  respectively.   These  income  tax
payments   reflected  a  federal  and  state  income  tax   rate   of
approximately 39% of each U.S. subsidiaries' pre-tax income.

    Related  Party  Leases.   The  Company  leases  certain   plants,
warehouses,  and  offices under net leases from affiliated  entities.
Rent  expense,  including  real estate taxes  attributable  to  these
leases,  amounted  to  $1,602, $951 and  $736  for  the  years  ended
December  31,  1998,  1997 and 1996, respectively.    Future  minimum
rental payments required under these leases are as follows:

                1999            $1,565
                2000             1,378
                2001               581
                2002               581
                2003               544
                Thereafter      $2,115

   Investment in Affiliate.   In November 1998, the Company invested
$5,600  in  Class A Preferred Stock and $1,700 in Class B  Preferred
Stock  of  JZ International, Ltd.  The Company expects  to  make  an
additional  $5,000  of  investments in JZ  International's  Class  A
Preferred  Stock.   JZ  International's Chief Executive  Officer  is
David  W.  Zalaznick, and its stockholders include  Messrs.  Jordan,
Quinn,  Zalaznick and Boucher, who are the Company's  directors  and
stockholders, as well as other partners, principals and  associates.
JZ  International is a merchant bank located in London, England that
is  focused  on making European and other international investments.
The Company is accounting for this investment under the cost method.
At  December 31, 1998 the cost of the investment approximates market
value.

  Legal Fees.  An individual who is a shareholder, Director, General
Counsel and Secretary of the Parent is also a partner in a law  firm
used  by the Company. The firm was paid $388, $202 and $201 in  fees
and  expenses  during the years ended December 31,  1998,  1997  and
1996,  respectively. The rates charged to the Company were at  arms-
length.

<PAGE>

  Due to affiliated company (JII) consists of:

                                         December 31
                                        1998      1997
                   Management fee      $   232   $  298
                   Federal income  
                    taxes                    -    1,087
                   Overhead allocation
                    and other              984      103
                                       $ 1,216   $1,488


12.  Additional Purchase Price Arrangements

   The  terms  of the Company's Motion Control acquisition  agreement
provides  for  additional consideration to be paid  if  the  acquired
entity's  results  of  operations  exceed  certain  targeted  levels.
Targeted levels are set substantially above the historical experience
of  the  acquired entity at the time of acquisition.   The  agreement
becomes  exercisable in 2003 and payments if any under the contingent
agreement  will be placed in a trust and paid out in  cash  in  equal
annual installments over a four year period.

   The terms of the Company's ADC acquisition agreement provides  for
additional consideration to be paid if the acquired entity's  results
of  operations exceed certain targeted levels.  Targeted  levels  are
set  substantially above the historical experience  of  the  acquired
entity  at  the  time  of  acquisition.  Subject  to  the  terms  and
conditions  of the agreement, the Company will make payments  to  the
sellers on or before April first immediately following the respective
fiscal year during which each such contingent payment is earned.  The
contingent  payments  apply to operations of fiscal  years  1998  and
1999.  The Company made a payment of $3,100 to the sellers of ADC  in
March 1999 related to this agreement.

13.  Segment Data

Description of Segments
  
   The Company operates in two separate business segments; motors and
controls.   The  motors  segment consists  of  subfractional  motors,
fractional/integral  motors, and gears and gearboxes.   The  controls
segment consists of motion control systems.
     
   The  Company's subfractional horsepower products are comprised  of
motors  and gearmotors which power applications up to 30 watts  (1/25
horsepower).  These small, "fist-size" AC and DC motors are  used  in
light  duty applications such as snack and beverage vending machines,
refrigerator ice dispensers and photocopy machines.

  The Company's fractional/integral horsepower products are comprised
of  AC  and DC motors and gearmotors having power ranges from 1/8  to
300  horsepower.  Key end markets for these motors include commercial
floor  care  equipment,  commercial  dishwashers,  commercial  sewing
machines,  industrial ventilation equipment, golf carts, lift  trucks
and elevators.
     
   The Company's precision gear and gearbox products are produced  in
sizes  of  up  to  16  inches in diameter and in  various  customized
configurations such as pump, bevel, worm and helical gears.  Key  end
markets  for  these products include original equipment manufacturers
("OEMs")  of  motors, commercial floor care equipment, aerospace  and
food processing product equipment.


<PAGE>

   The  Company's  motion  control  systems  are  used  primarily  in
automated  conveyor systems within the automotive  industry  and  the
elevator modernization market.  The systems typically control several
components  such  as electric motors, hydraulic or pneumatic  valves,
actuators and switches that are required for the conveyor or elevator
systems to function properly.
     
   The  Company  entered the controls business  segment  through  the
acquisition  of  two  companies during  1997(Note  1).   Accordingly,
segment information for controls is not available for the years prior
to 1997.

Measurement of Segment Operating Income and Segment Assets

   The Company evaluates performance and allocates resources based on
operating income.  The accounting policies of the reportable segments
are  the  same as those described in Note 2, "Summary of  Significant
Accounting  Policies."   No  intrasegment  sales  exist.   No  single
customer  accounts  for  10%  or  more  of  consolidated  net  sales.
Identifiable assets are those used by each segment in its operations.
Corporate  assets  consist primarily of cash and  deferred  financing
fees.


<PAGE>

Factors Used to Identify the Enterprise's Reportable Segments

   The  Company's reportable segments are business units  that  offer
different  products.   The  reportable  segments  are  each   managed
separately because they manufacture  and distribute distinct products
with different production processes.

     Summary financial information by business segment is as follows:

                                            Year Ended
                                            December 31,
                                      1998       1997       1996
Net Sales                                      
Motors                             $214,230     $145,639   $117,571
Controls                             61,603        3,030        N/A
                                   $275,833     $148,669   $117,571
Operating Income                               
Motors                             $ 43,850     $ 30,588   $ 26,165
Controls                              7,124          458        N/A
Corporate Expenses (1)               (8,650)      (3,362)    (2,936)
 Total Operating Income              42,324       27,684     23,229
Interest Expense                     (32,99)     (22,363)   (11,134)
Interest Income                         806          463        148
Miscellaneous, net                     (110)           -         67
 Income before Income Tax and                  
Extraordinary Items                $ 10,026        5,784     12,310
Identifiable Assets                            
Motors                             $284,215     $211,135   $157,796
Controls                             80,039       79,263        N/A
Corporate                            24,567       44,746     17,734
                                   $388,821     $335,144   $175,530
                                               
Capital Expenditures                           
Motors                             $  4,164        1,392      1,304
Controls                              1,011          105        N/A
                                   $  5,175        1,497      1,304
                                               
Depreciation                                   
Motors                             $  4,101        4,283      2,960
Controls                                391           28        N/A
                                   $  4,492        4,311      2,960
                                               
Amortization                                   
Motors                             $  6,146        4,544      4,118
Controls                              2,089          160        N/A
                                   $  8,235        4,704      4,118
                                               
     
     (1)   Management fees paid to affiliated company have been included
       in corporate expenses.


<PAGE>

  Summary financial information by geographic area is as follows:
                                            
                                       Year Ended
                                      December 31,
                                 1998     1997     1996
                                                 
                                                 
Net sales to unaffiliated                        
customers                      $232,880  $133,912  $117,571
United States                    42,953    14,757       N/A
                               $275,833  $148,669  $117,571

Identifiable assets                              
United States                  $ 22,548  $ 10,371  $ 11,442
Europe                            6,383     5,075       N/A
                               $ 28,931  $ 15,446  $ 11,442


14. Legal Proceedings

  The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business.  The Company believes that
the final disposition of such matters will not have a material
adverse effect on the financial position or results of operations of
the Company.


<PAGE>

  


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

     None.

                              PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS

   The  following  sets forth the names and ages  of  the  Company's
directors,  executive  officers and  other  key  employees  and  the
positions they hold as of the date of this annual report:

    Name              Age     Position with Company
Thomas H. Quinn       51   Chairman
Ron A. Sansom         39   Chief Executive Officer and a
                           Director
Norman Bates          37   Chief Financial Officer
Randall Bays          43   President, Imperial
G. Barry Lawrence     52   President, Gear
John W. Brown         62   Chairman and Chief Executive
                           Officer, Merkle-Korff
Paolo Bergamaschi     29   President, FIR
Todd Williams         41   President, Electrical Design
Javad Rahimian        48   President, Motion Control
William Rodgers       64   President, Advanced DC Motors
Jonathan F. Boucher   42   Vice President and a Director
John W. Jordan, II    51   Director
David W. Zalaznick    44   Director
John D. Simms, Sr.    71   Director

   Set forth below is a brief description of the business experience
of each director and executive officer of the Company.

   Mr.  Quinn  has  served  as Chairman of  the  Company  since  its
inception. Since 1988, Mr. Quinn has been President, Chief Operating
Officer and a director of JII. Mr. Quinn is also the Chairman of the
Board  and Chief Executive Officer of American Safety Razor  Company
and  Archibald  Candy Corporation, Chairman of the Board  of  Jordan
Telecommunication Products, Inc. as well as a director of AmeriKing,
Inc., Welcome Home, and a number of other privately held companies.

  Mr. Sansom has served as Chief Executive Officer and a director of
the  Company  since  June 1996. Prior to joining  the  Company,  Mr.
Sansom   held  several  senior  management  positions  with  General
Electric  from  1981 to 1996, including General Manager  of  General
Electric's Appliance Components business.

   Mr.  Bates  has served as Chief Financial Officer of the  Company
since April, 1997.   Prior to that, Mr. Bates held several financial
management  positions  with  General Electric  from  1984  to  1997,
including Finance Manager of General Electric's Appliance Components
business.

   Mr.  Bays  has served as the President of Imperial  since  April,
1997.   Prior  to  that,  Mr.  Bays held several  senior  management
positions in General Electric's motor and control business from 1991
to  1997.   Prior to that, Mr. Bays held senior management positions
in Bomar, Inc.'s electronics business.

   Mr. Lawrence has served as President of Gear since 1991. Prior to
that,  Mr.  Lawrence held several senior management  positions  with
Gear since 1978.

<PAGE>

   Mr. Brown has served as President of Merkle-Korff since 1993  and
of  Barber-Colman Motors since March 1996. Prior to that, Mr.  Brown
held several senior management positions with Merkle-Korff since the
1950's, including Executive Vice President until 1993.

   Mr.  Bergamaschi has served as the President of FIR  since  1998.
Prior  to  that,  Mr. Bergamaschi held several management  positions
within FIR.

   Mr.  Williams has served as the President of ED&C since September
1998.   Prior  to  that,  Mr. Williams was a  partner  and  original
founder of a consulting company providing management, operating  and
marketing support activities for a variety of companies.  From  1985
to  1992, Mr. Williams held senior management positions at McDonnell
Douglas Corporation.

   Mr. Rahimian has served as President of Motion Control since  its
inception  in  1983.  Prior to that, Mr. Rahimian  was  employed  by
Elevator Industries as an engineering specialist.

   Mr. Rodgers has served as President of ADC since its inception in
1989.   Prior to 1989, Mr. Rodgers held several management positions
at Prestolite.

   Mr. Boucher has served as a Vice President and a director of  the
Company  since its inception.  Since 1983, Mr. Boucher  has  been  a
partner of The Jordan Company, a private merchant banking firm.  Mr.
Boucher   is  also  a  director  of  JII,  Jordan  Telecommunication
Products,  Inc. and American Safety Razor Company as well  as  other
privately held companies.

   Mr.  Jordan  has  served as a director of the Company  since  its
inception. Mr. Jordan is a managing partner of The Jordan Company, a
private  merchant banking firm which he founded in 1982. Mr.  Jordan
is  also  a director of JII, AmeriKing, Inc., American Safety  Razor
Company, Carmike Cinemas, Inc., Archibald Candy Corporation, Welcome
Home,    Inc.,    GFSI,   Inc.,   GFSI   Holdings,   Inc.,    Jordan
Telecommunication  Products,  Inc.,  Rockshox,  Inc.   and   Apparel
Ventures, Inc. as well as other privately held companies.

   Mr.  Zalaznick has served as a director of the Company since June
1996.  Since 1982, Mr. Zalaznick has been a managing partner of  The
Jordan  Company. Mr. Zalaznick is also a director of JII, AmeriKing,
Inc.,  Carmike Cinemas, Inc., American Safety Razor Company,  Marisa
Christina,  Inc.,  Apparel Ventures, Inc., Jordan  Telecommunication
Products,  Inc.,  Jackson  Products,  Inc.,  GFSI,  Inc.  and   GFSI
Holdings, Inc. as well as other privately held companies.

  Mr. Simms has served as a director of the Company since 1998.  Mr.
Simms  was  the owner of Merkle-Korff from 1966 until September  22,
1995 when Merkle-Korff was purchased by the Company.  Mr. Simms  has
nearly fifty years of experience in the electric motor business.

Board of Directors

   Liability  Limitation. The Certificate of Incorporation  provides
that a director of the Company shall not be personally liable to  it
or  its  stockholders  for monetary damages to  the  fullest  extent
permitted  by Delaware Corporation Law. In accordance with  Delaware
Corporation Law, the Certificate of Incorporation does not eliminate
or  limit  the  liability of a director for acts or  omissions  that
involve  intentional misconduct by a director or a knowing violation
of  law  by  a  director  for  voting or assenting  to  an  unlawful
distribution,  or for any transaction from which the  director  will
personally  receive  a benefit in money, property,  or  services  to

<PAGE>

which the director is not legally entitled. Delaware Corporation Law
does  not affect the availability of equitable remedies such  as  an
injunction or rescission based upon a director's breach of his  duty
of   care.  Any  amendment  to  these  provisions  of  the  Delaware
Corporation Law will automatically be incorporated by reference into
the Certificate of Incorporation and the Bylaws, without any vote on
the part of its stockholders, unless otherwise required.

   Indemnification Agreements. The Company and each of its directors
and  certain  executive officers have entered  into  indemnification
agreements. The indemnification agreements provide that the  Company
will  indemnify the directors against certain liabilities (including
settlements) and expenses actually and reasonably incurred  by  them
in   connection  with  any  threatened  or  pending  legal   action,
proceeding or investigation (other than actions brought by or in the
right  of the Company) to which any of them is, or is threatened  to
be, made a party by reason of their status as a director, officer or
agent  of  the Company, or serving at the request of the Company  in
any  other  capacity for or on behalf of the Company; provided  that
(i) such director acted in good faith and in a manner not opposed to
the  best interest of the Company, (ii) with respect to any criminal
proceedings  had no reasonable cause to believe his or  her  conduct
was  unlawful,  (iii) such director is not finally  adjudged  to  be
liable for negligence or misconduct in the performance of his or her
duty  to  the  Company,  unless the court  views  in  light  of  the
circumstances   the   director   is   nevertheless    entitled    to
indemnification, and (iv) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act
of   1934,  as  amended  (the  "Exchange  Act"),  or  the  rules  or
regulations  promulgated  thereunder. With  respect  to  any  action
brought  by  or  in  the right of the Company,  directors  are  also
indemnified to the extent not prohibited by applicable  laws  or  as
determined  by  a court of competent jurisdiction, against  expenses
actually  and  reasonably incurred by them in connection  with  such
action  if  they acted in good faith and in a manner they reasonably
believed  to  be  in  or not opposed to the best  interests  of  the
Company.


<PAGE>

Item 11.  EXECUTIVE COMPENSATION

Directors' Compensation

  Directors of the Company receive $20,000 per year for serving as a
director  of  the  Company.  In  addition,  the  Company  reimburses
directors for their travel and other expenses incurred in connection
with attending meetings of the Board of Directors.

Executive Compensation

   The  following table sets forth a summary of certain  information
regarding  compensation paid or accrued by the Company for  services
rendered to the Company for the fiscal year ended December 31,  1998
to  those  persons who were, at December 31, 1998: (i) the Company's
chief  executive  officer and (ii) the Company's  four  most  highly
compensated  executive  officers  other  than  the  chief  executive
officer  whose total salary and bonus exceeded $100,000 during  such
period.

                                 Annual
                                Compensation
                                                           Other Annual
  Name and Principal Position     Year    Salary   Bonus   Compensation(1)
Thomas H. Quinn(2)                1998    $ 0       $ 0     $ -
 Chairman of the Board
Ron A. Sansom(2)                  1998      0         0       -
 Chief Executive Officer
Norman R. Bates(2)                1998      0         0       -
  Chief Financial Officer

(1)     For the periods indicated, no executive officer named in the
  table  received  any Other Annual Compensation  in  an  amount  in
  excess  of  the lesser of either $50,000 or 10% of  the  total  of
  Annual  Salary  and  Bonus reported for him in the  two  preceding
  columns.
(2) Does not reflect compensation paid to Messrs. Quinn, Sansom, and
  Bates by JII.

   The  Company  does not maintain a stock option or stock  purchase
plan  and  has  not  awarded any of its employees  individual  stock
option grants.

Compensation Committee Interlock and Insider Participation

  The Board of Directors does not maintain a Compensation Committee.
During  fiscal  1998,  however, Messrs. Boucher,  Jordan  and  Quinn
participated  in deliberations of the Board of Directors  concerning
executive  officer  compensation.   During  1998,  certain  of   the
foregoing  executive  officers of the Company served  and  currently
serve as directors, executive officers and members of a compensation
committee of another entity, one of whose executive officers  served
and currently serves as a director of the Company.

<PAGE>


Item  12.   SECURITY  OWNERSHIP  OF CERTAIN  BENEFICIAL  OWNERS  AND
MANAGEMENT
                                  
   All  of  the outstanding common stock of the Company is owned  by
Parent.  The  table below sets forth as of March  31,  1999  certain
information  regarding beneficial ownership of the common  stock  of
Parent held by (i) each of its directors and executive officers  who
own  shares  of  common  stock of Parent,  (ii)  all  directors  and
executive officers of Parent as a group and (iii) each person  known
by  Parent to own beneficially more than 5% of its common stock. The
Company  believes  that  each individual or entity  named  has  sole
investment  and voting power with respect to shares of common  stock
of  Parent  indicated  as  beneficially owned  by  them,  except  as
otherwise noted.

                                                  Amount of
                                                  Beneficial
                                                 Ownership(1)
                                               Number   Percent
                                                 of       age
                                               Shares    Owned
Executive Officers and Directors:                       
Ron A. Sansom                                  300.0000    1.5%
John W. Jordan II(2)(3)(4)(5)                7,136.8809   36.2
David W. Zalaznick(2)(4)(6)                  3,531.2473   17.9
Jonathan F. Boucher(2)                       1,116.5587    5.7
Thomas H. Quinn(2)                           1,799.7294    9.1
All directors and executive officers as a                   
 Group (12 persons)                         13,884.4163   70.5
                                                            
Other Principal Stockholders:                               
Jordan Industries, Inc(7)                        0.0000    0.0%
Leucadia Investors, Inc.                     2,019.7802   10.3%
JI Partners(8)                               1,500.0000    7.6

(1)     Calculated pursuant to Rule 13d-3(d) under the Exchange Act.
  Under  Rule 13d-3(d), shares not outstanding which are subject  to
  options,  warrants,  rights or conversion  privileges  exercisable
  within  60  days  are  deemed  outstanding  for  the  purpose   of
  calculating  the number and percentage owned by such  person,  but
  not   deemed  outstanding  for  the  purpose  of  calculating  the
  percentage  owned by each other person listed.  As  of  March  31,
  1999,  there  were 19,700 shares of common stock of Parent  issued
  and outstanding.
(2)     Does  not include shares of common stock of Parent owned  by
  JI  Partners as to which the named individuals disclaim beneficial
  ownership.
(3)     Includes 0.1650 shares held personally and 7,136.7159 shares
  held  by  the John W. Jordan II Revocable Trust.  Does not include
  51.025  shares  held by Daly Jordan O'Brien,  the  sister  of  Mr.
  Jordan.  51.025  shares  held  by Elizabeth  O'Brien  Jordan,  the
  sister  of  Mr. Jordan or 51.025 shares held by George C.  Jordan,
  Jr., the brother of Mr. Jordan.
(4)     Does not include 16.4973 shares held by the Jordan/Zalaznick
  Capital  Company  or  577.4053 shares held by JZ  Equity  Partners
  PLC,  a  publicly  traded  U.K. investment  trust  advised  by  an
  affiliate  of The Jordan Company (which is controlled  by  Messrs.
  Jordan and Zalaznick).
(5)Does not include 535.8871 shares held by The Jordan Family Trust,
   of  which John W. Jordan II, George C. Jordan, Jr. and G.  Robert
   Fisher are the Trustees.
(6)Does  not include 13.5558 shares held by Bruce H. Zalaznick,  the
   brother of Mr. Zalaznick.
(7)JII owns all of the issued and outstanding junior preferred stock
   of Parent.  The junior preferred stock entitles JII to 80% of the
   voting power as of the date hereof.  The principal address of JII
   is  ArborLake Centre, Suite 550, 1751 Lake Cook Road,  Deerfield,
   IL 60015.
(8)JI  Partners is an investment partnership whose partners  include
   certain  officers and employees of JII and its  affiliates.   The
   principal address of JI Partners is ArborLake Centre, Suite  550,
   1751 Lake Cook Road, Deerfield, IL 60015.


<PAGE>

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Services Agreements.  The Company and each of its subsidiaries are
parties   to   an   advisory  agreement  (the  "Subsidiary   Advisory
Agreement")  with  JII,  pursuant  to  which  the  Company  and   its
subsidiaries will pay JII (i) investment banking and sponsorship fees
of  up to 2.0% of the purchase price of acquisitions, joint ventures,
minority  investments  or  sales  involving  the  Company   and   its
subsidiaries or their respective businesses or properties (which were
$1.1 million in 1998); (ii) financial advisory fees of up to 1.0%  of
any  debt,  equity  or other financing or refinancing  involving  the
Company  or  such  subsidiary,  in  each  case,  arranged  with   the
assistance  of  The  Jordan  Company or its  affiliates  (which  were
$400,000  in 1998); and (iii) reimbursement for The Jordan  Company's
or  JII's  out-of-pocket  costs  in connection  with  providing  such
services  (which  were  $100,000 in 1998).  The  Subsidiary  Advisory
Agreement expires in December 2007, but is automatically renewed  for
successive  one-year  terms,  unless either  party  provides  written
notice  of  termination 60 days prior to the scheduled renewal  date.
Mssrs.  Jordan, Boucher and Zalaznick, directors of the Company,  are
partners of The Jordan Company.

   The  Company  and  each  of  its subsidiaries  are  parties  to  a
management   consulting   agreement   (the   "Subsidiary   Consulting
Agreement"), pursuant to which pay JII annual consulting fees of 1.0%
of  the Company's net sales for such services, payable quarterly, and
are required to reimburse JII for its out-of-pocket costs related  to
its  services.   The  Subsidiary  Consulting  Agreement  expires   in
December  2007, but is automatically renewed for successive  one-year
terms, unless either party provides written notice of termination  60
days   prior  to  the  scheduled  renewal  date.   Pursuant  to   the
Subsidiary  Consulting Agreement, JII (but not JII's  affiliates)  is
obligated   to  present  all  acquisition,  business  and  investment
opportunities that relate to manufacturing, assembly, distribution or
marketing  of products and services in the motors, gears  and  motion
control industries to the Company, and JII is not permitted to pursue
such  opportunities  or  present them to  third  parties  unless  the
Company  determines  not  to  pursue such opportunities  or  consents
thereto.   In  accordance  with  this  agreement,  the  Company  paid
approximately $2.8 million for the year ended December 31, 1998.

   The Company and each of its subsidiaries are parties to a services
agreement   (the   "JI  Properties  Services  Agreement")   with   JI
Properties, Inc. ("JI Properties"), a subsidiary of JII, pursuant  to
which  JI  Properties provides certain real estate and other  assets,
transportation and related services to the Company.  Pursuant to  the
JI  Properties  Services Agreement, the Company is  charged  for  its
allocable  portion  of such services based upon  its  usage  of  such
services and its relative revenues, as compared to JII and its  other
subsidiaries.  In accordance with this agreement, such  charges  were
$1.2 million for the year ended December 31, 1998.  The JI Properties
Services  Agreement  expires in December 2007, but  is  automatically
renewed  for successive one-year terms, unless either party  provides
written  notice of termination 60 days prior to the scheduled renewal
date.

   JII allocates its overhead, general and administrative charges and
expense among JII and its subsidiaries, including the Company,  based
on the respective revenues and usage of corporate overhead by JII and
its  subsidiaries.  Under  this agreement,  the  Company's  allocable
portion  of  corporate expenses was  $2.1 million for the year  ended
December 31, 1998.

   The  Company  and JII are parties to a transition  agreement  (the
"Transition  Agreement") pursuant to which JII provides office  space
and certain administrative and accounting services to the Company  to

<PAGE>

facilitate  the  transition of the Company as a stand-alone  company.
The  Company  reimburses JII for services provided  pursuant  to  the
Transition  Agreement  on an allocated cost  basis.   The  Transition
Agreement expires on December 31, 1999, but is automatically  renewed
for  successive one year periods (unless either party provides  prior
written  notice of non-renewal) and may be terminated by the  Company
on 90 days' written notice.

   Tax  Sharing  Agreement. The Company and each of its subsidiaries
are parties to a Tax Sharing Agreement (the "Tax Sharing Agreement")
among  JII  and  each of its consolidated subsidiaries  for  Federal
income tax purposes. Pursuant to the Tax Sharing Agreement, each  of
the  consolidated  subsidiaries of JII pays to  JII,  on  an  annual
basis, an amount determined by reference to the separate return  tax
liability  of  the  subsidiary  as defined  in  Treasury  Regulation
1.1552-1(a)(2)(ii).  For the year ended December 31, 1998 the income
tax  payments by the Company to JII under the Tax Sharing  Agreement
were  $2.1  million.  These income tax payments reflected a  federal
and  state income tax rate of approximately 39% of each subsidiary's
pre-tax income.

    Upon   redemption  of  the  Junior  Preferred  Stock  or   other
circumstances that cause the Company and its subsidiaries  to  cease
to  be  tax  consolidated  subsidiaries of  Jordan  Industries,  the
Company  and  its  subsidiaries will be  released  from  making  any
further payments under the Tax Sharing Agreement.  While the release
will  discharge the Company and its subsidiaries from making  future
income  tax  payments  to Jordan Industries,  the  Company  and  its
subsidiaries  will  remain contingently liable to Jordan  Industries
under the Tax Sharing Agreement in respect of any increases in their
separate  return tax liability for periods prior to the consummation
of the offerings.  The Company is not aware of any such liabilities.

   Directors  of the Company, John W. Jordan II, David W.  Zalaznick
and Thomas H. Quinn each have an ownership interest of more than 10%
of the common stock of Jordan Industries.

   Merkle-Korff  Leases. Merkle-Korff leases  some  of  its  plants,
warehouse and offices under a net lease (the "Merkle-Korff  Leases")
from  companies  controlled by John Simms, Sr., Chairman  and  Chief
Executive  Officer  of Merkle-Korff. Rent expenses,  including  real
estate  taxes attributable to the Merkle-Korff Leases,  amounted  to
$969 for the year ended December 31, 1998. The Company has agreed to
pay  the  following future minimum rental payments under the Merkle-
Korff  Leases:  (i) $800 for the year ended December 31,  1999;  and
(ii) $600 for the year ended December 31, 2000. The Company has  the
right  of first refusal to buy these facilities from Mr. Simms.  See
Note  11  to  the  Company's Consolidated Financial Statements.  The
Company believes the terms of the Merkle-Korff Leases are comparable
to the terms it would obtain from a non-affiliated party.

  Motion Control Leases.  Motion Control leases substantially all of
its  production  and  office  space under  noncancellable  operating
leases from a limited partnership whose partners include officers of
Motion  Control.  These leases expire in 2007.  Rent  expense  under
the  leases  was  $633 for the year ended December  31,  1998.   The
Company  believes  the  terms  of  the  Motion  Control  leases  are
comparable to the terms it would obtain from a non-affiliated party.

   Directors  and Officers Indemnification. The Company  has  entered
into  indemnification agreements with each member  of  the  Company's
Board of Directors and certain executive officers whereby the Company
agreed, subject to certain exceptions, to indemnify and hold harmless
each   director  and  certain  executive  officers  from  liabilities
incurred  as  a  result  of such person's status  as  a  director  or

<PAGE>

executive  officer  of  the  Company.  See  Item  10,  Directors  and
Executive Officers - Board of Directors - Indemnification Agreements.

   Future  Transactions. The Company has adopted a policy to provide
that   all  transactions  between  the  Company  and  its  officers,
directors and other affiliates must (i) be approved by a majority of
the  members  of  the Board of Directors and by a  majority  of  the
disinterested members of the Board of Directors and (ii) be on terms
no  less  favorable  to  the Company than  could  be  obtained  from
unaffiliated third parties.


<PAGE>

                               PART IV

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

(a)  Documents filed as part of this report:

(1)  Financial Statements

     Reference is made to the Index to Consolidated Financial
     Statements appearing in Item 8, which Index is incorporated
     herein by reference.

(2)  Financial Statement Schedule
     
     The following financial statement schedule for the years ended
     December 31, 1998, 1997 and 1996 is submitted herewith:
  
            Item                                         Page Number
  
  Schedule II - Valuation and qualifying accounts             55
     
     All other schedules for which provision is made is in the
     applicable accounting regulations of the Securities and Exchange
     Commission are not required under the related instructions, are
     not applicable and therefore have been omitted, or the
     information has been included in the consolidated financial
     statements or is considered immaterial.

(3)  Exhibits

     An index to the exhibits required to be listed under this Item
     14(a)(3) follows the "Signatures" section hereof and is
     incorporated herein by reference.

(a)  Reports on Form 8-K

     Not Applicable.

<PAGE>


                             SIGNATURES
                                  
                                  
  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
     
                                  MOTORS AND GEARS, INC.
     
     
                                  By  /s/ Thomas H. Quinn
                                     Thomas H. Quinn
Dated:  March 31, 1999               Chairman of the Board


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

                                  By  /s/ Thomas H. Quinn
                                     Thomas H. Quinn
Dated:  March 31, 1999               Chairman of the Board


                                  By  /s/ Ron A. Sansom
                                     Ron A. Sansom
Dated:  March 31, 1999               Director


                                  By  /s/ John W. Jordan II
                                     John W. Jordan II
Dated:  March 31, 1999               Director


                                  By  /s/ David W. Zalaznick
                                     David W. Zalaznick
Dated:  March 31, 1999               Director


                                  By  /s/ Jonathan F. Boucher
                                     Jonathan F. Boucher
Dated:  March 31, 1999               Director


                                  By  /s/ John D. Simms, Sr.
                                     John D. Simms, Sr.
Dated:  March 31, 1999               Director


                                  By  /s/ Norman R. Bates
                                      Norman R. Bates
Dated:  March 31, 1999                Chief Financial Officer


<PAGE>
     
     
     
     
                         EXHIBIT INDEX

        
Exhibit 
Number                       Description
        
2.1     Contingent Earnout Agreement, dated as of November 7,
        1996, by and among Motors and Gears, Inc., Motors and
        Gears Industries, Inc., The New Imperial Electric
        Company, The New Scott Motors Company, New Gear
        Research, Inc., The Imperial Electric Company, The
        Scott Motors Company and Gear Research, Inc.
        (incorporated by reference to Exhibit 2.2 to Motors and
        Gears Inc.'s Form S-4 Registration Statement (File No.
        333-19257) (the "1996 S-4")
        
2.2     Share Purchase Agreement, dated March 2, 1997, by and
        among Motors and Gears Holdings, Inc. and the
        stockholders of FIR Group Holdings Italia, S.r.l.
        (incorporate by reference to exhibit 2.1 to Form 8-K of
        Motors and Gears, Inc., dated March 31, 1998)
        
2.3     Purchase Agreement, dated November 17, 1997, by and
        among Motion Holdings, Inc. and the shareholders of
        Motion Control Engineering, Inc. (incorporated by
        reference to exhibit 2.2 to Form 8-K of Motors and
        Gears, Inc., dated March 31, 1998)
        
2.4     Agreement for purchase and sale of stock of Electrical
        Design and Control Company by and among ED&C Holdings,
        Inc. and the shareholders of Electrical Design and
        Control Company, (incorporated by reference to exhibit
        2.3 to Form 8-K of Motors and Gears, Inc., dated March
        31, 1998)
2.5     Share Purchase Agreement, dated April 9, 1998, for the
        direct and indirect sale of all the shares of Advanced
        DC (incorporated by reference to exhibit 99.1 to Form 8-
        K of Motors and Gears, Inc., dated January 28, 1999)
        
2.6     Amendment No. 1 to Agreement for Purchase and Sale of
        Stock, dated May 15, 1998, for the direct and indirect
        sale of all the shares of Advanced DC (incorporated by
        reference to exhibit 99.2 to Form 8-K of Motors and
        Gears, Inc., dated January 28, 1999)
        
3.1     Restated Certificate of Incorporation of Motors and
        Gears, Inc. (incorporated by reference to Exhibit 3.1
        to Motors and Gears Inc.'s Form S-4 Registration
        Statement (File No. 333-44057)  (the "1998 Form S-4" )
        
3.2     Bylaws of Motors and Gears, Inc. (incorporated by
        reference to Exhibit 3.2 to the 1996 S-4)
        
4.1     Indenture, dated November 7, 1996, between Motors and
        Gears, Inc. and Fleet National Bank (incorporated by
        reference to Exhibit 4.1 to the 1996 S-4)
        
4.2     First Supplemental Indenture, dated December 17, 1997,
        between Motors and Gears, Inc. and State Street Bank
        and Trust Company, as Trustee (incorporated by
        reference to Exhibit 4.2 to the 1998 Form S-4 )

<PAGE>
        
4.3     Indenture, dated December 17, 1997, between Motors and
        Gears, Inc. and State Street Bank and Trust Company, as
        Trustee (incorporated by reference to Exhibit 4.3 to
        the 1998 Form S-4 )
        
10.1    Credit Agreement, dated November 7, 1996 by and among
        Motors and Gears Industries, Inc., the lenders listed
        thereto and Bankers Trust Company, as Agent
        (incorporated by reference to Exhibit 4.5 to the 1996
        S-4)
        
10.2    Amendment No. 1 to Credit Agreement, dated June 3,
        1997, by and among Motors and Gears Industries, Inc.,
        the lenders listed thereto and Bankers Trust Company,
        as Agent (incorporated by reference to Exhibit 10.2 to
        the 1998 Form S-4)
        
10.3    Amendment No. 2 to Credit Agreement, dated October 27,
        1997, by and among Motors and Gears Industries, Inc.,
        the lenders listed thereto and Bankers Trust Company,
        as Agent (incorporated by reference to Exhibit 10.3 to
        the 1998 Form S-4)
        
10.4    Amendment No. 3 to Credit Agreement, dated November 21,
        1997, by and among Motors and Gears Industries, Inc.,
        the lenders listed thereto and Bankers Trust Company,
        as Agent (incorporated by reference to Exhibit 10.4 to
        the 1998 Form S-4)
        
10.5    Tax Sharing Agreement, dated June 28, 1994, by and
        among Jordan Industries, Inc. and each other
        corporation which is a signatory thereto (incorporated
        by reference to Exhibit 10.3 to the 1996 S-4)
        
10.6    Management Consulting Agreement, dated November 7,
        1996, by and among Motors and Gears, Inc. and TJC
        Management Corporation and the other signatories
        thereto (incorporated by reference to Exhibit 10.5 to
        the 1996 S-4)
        
10.7    Properties Services Agreement, dated July 25, 1997, by
        and among JI Properties, Inc., Jordan Industries, Inc.
        and the other signatories thereto (incorporated by
        reference to Exhibit 10.7 to the 1998 Form S-4 )
        
10.8    Transition Agreement, dated July 25, 1997, by and
        between Motors and Gears Holdings, Inc. and Jordan
        Industries, Inc. (incorporated by reference to Exhibit
        10.8 to the 1998 Form S-4 )
        
10.9    New Subsidiary Advisory Agreement, dated July 25, 1997,
        by and among Motors and Gears Holdings, Inc., Jordan
        Industries, Inc. and the other signatories thereto
        (incorporated by reference to Exhibit 10.9 to the 1998
        Form S-4 )
        
10.10   New Subsidiary Consulting Agreement, dated July 25,
        1997, by and among Motors and Gears Holdings, Inc.,
        Jordan Industries, Inc. and the other signatories
        thereto (incorporated by reference to Exhibit 10.10 to
        the 1998 Form S-4 )
        
10.11   Indemnification Agreement, dated November 7, 1996,
        between Motors and Gears, Inc. and Thomas H. Quinn
        (incorporated by reference to Exhibit 10.1(a) to the
        1996 S-4)

<PAGE>
        
10.12   Indemnification Agreement, dated November 7, 1996,
        between Motors and Gears, Inc. and Jonathan F. Boucher
        (incorporated by reference to Exhibit 10.1(b) to the
        1996 S-4)
        
10.13   Indemnification Agreement, dated November 7, 1996,
        between Motors and Gears, Inc. and David W. Zalaznick
        (incorporated by reference to Exhibit 10.1(c) to the
        1996 S-4)
        
10.14   
        Indemnification Agreement, dated November 7, 1996,
        between Motors and Gears, Inc. and John W. Jordan II
        (incorporated by reference to Exhibit 10.1(d) to the
        1996 S-4)
        
10.15   Indemnification Agreement, dated November 7, 1996,
        between Motors and Gears, Inc. and Ron A. Sansom
        (incorporated by reference to Exhibit 10.1(e) to the
        1996 S-4)
        
10.16   Merkle-Korff Industries, Inc. Non-negotiable
        Subordinated Note in the principal aggregate amount of
        $5,000,000 payable to John D. Simms Revocable Trust
        Under Agreement (incorporated by reference to Exhibit
        10.9 to the 1996 S-4)
        
10.17   Electrical Design and Control Company, Inc.
        Non-negotiable Subordinated Note in the principal
        aggregate amount of $1,333,333 payable to Tina Lavire
        (incorporated by reference to Exhibit 10.13 to the 1998
        Form S-4 )
        
10.18   Electrical Design and Control Company, Inc.
        Non-negotiable Subordinated Note in the principal
        aggregate amount of $1,333,333 payable to Marta Monson
        (incorporated by reference to Exhibit 10.14 to the 1998
        Form S-4 )
        
10.19   Electrical Design and Control Company, Inc.
        Non-negotiable Subordinated Note in the principal
        aggregate amount of $1,333,334 payable to Eric Monson
        (incorporated by reference to Exhibit 10.15 to the 1998
        Form S-4 )
        
10.20   Industrial Building Leases, each dated as of September
        22, 1996, by and between Merkle-Korff Industries, Inc.
        and the signatory thereto (incorporated by reference to
        Exhibits 10.16-10.19 to the 1996 S-4)
        
10.21   Employment and Non Competition Agreement, dated as of
        September 22, 1995, by and between Merkle-Korff
        Industries, Inc. and John D. Simms (incorporated by
        reference to Exhibit 10.20 to the 1996 S-4)
        
10.22   Employment and Non Competition Agreement, dated as of
        September 22, 1995, by and between Merkle-Korff
        Industries, Inc. and John W. Brown (incorporated by
        reference to Exhibit 10.21 to the 1996 S-4)
        
21.1    Subsidiaries of Motors and Gears, Inc. (incorporated by
        reference to Exhibit 21.1 to the 1998 Form S-4)
        
27.1    Financial Data Schedule


<PAGE>
          
          
                                                          SCHEDULE II
                       MOTORS AND GEARS, INC.
                                  
                  VALUATION AND QUALIFYING ACCOUNTS
                       (dollars in thousands)
     
     
                                               
                Balance               Additions                      Balance
                  at      Additions   Charged to  Write Offs           at
               Beginning   due to     Costs and     Net of            end of
               of Period Acquisitions  Expenses   Recoveries   Other  Period
                                                                         
December 31,                                                        
1998:                                                               
  Allowance    
  for doubtful
  accounts       $529        67         1,116      (1,001)       23    $734
                                                                         
  Reserve for                                                            
  Obsolescence   $ 46       258           417        (226)      266    $761
                                                                         
  Warranty    
  Reserve        $105        37          170            0         0    $312

                                                                         
December 31, 1997:                                                       
 Allowance for 
 doubtful
 accounts        $ 59       406         214         (145)       (5)    $529
                                                                          
 Reserve for                                                              
 obsolescence    $184         0          75         (213)        0     $ 46
                                                                          
 Warranty       
 Reserve         $  0       105           0            0         0     $105
                                                                          
December 31, 1996:                                                              
 Allowance for
 doubtful
 accounts        $ 29        28          40          (38)        0     $ 59
                                                                          
 Reserve for                                                              
 obsolescence    $184         0           0            0         0     $184