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, 2001        Commission File Number 333-19257

                               KINETEK, 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
                     Former Name: Motors & Gears, Inc.
        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

         Indicate 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 29, 2002:  10,000.


<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 Holders             9

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 Operations                            11
Item 7A.     Quantitative and Qualitative Disclosures About Market Risks    17
Item 8.      Financial Statements and Supplementary Data                    18
Item 9.      Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                       40

Part III

Item 10.     Directors and Executive Officers                               41
Item 11.     Executive Compensation                                         44
Item 12.     Security Ownership of Certain Beneficial Owners
             and Management                                                 45
Item 13.     Certain Relationships and Related Transactions                 46

Part IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports
             on Form 8-K                                                    49

             Signatures                                                     50




                                     2
<PAGE>

Part I

Item 1.  BUSINESS

The Company

Kinetek, Inc. (the "Company") was incorporated in the State of Illinois on
September 8, 1995 (The Company was incorporated as Motors and Gears, Inc., and
changed its name to Kinetek, Inc. on January 8, 2001). 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 a
majority ownership interest in 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 industries. The Company and
its subsidiaries are included in JII's consolidated financial statements.

     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"). See
Note 12 to the Company's consolidated financial statements for financial
segment data.

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.

     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


                                     3
<PAGE>

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.

                                     4
<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 software to configure and
control the system. The majority of the Company's motion control products
control elevators and automated conveyor systems used in automotive
manufacturing.

Acquisitions

     See Note 1 to the notes to consolidated financial statements in Item 8 for
a description of acquisitions made during the three year period ended
December 31, 2001.


Backlog

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

                                                     Backlog
                 Year Ended                        (Dollars in
               December 31,2001                     thousands)

                   Motors                            $40,952
                  Controls                            26,971
                                                     -------
                                                     $67,923


     The Company believes it will ship substantially its entire 2001 year-end
backlog during 2002.

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 account managers serve large national original equipment
manufacturers/OEM's such as General Electric, Whirlpool and the Raymond
Corporation. 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


                                     5
<PAGE>

representatives. The Company continues to add 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 seven manufacturing, research and
development, distribution and warehousing facilities in Europe and one
manufacturing facility in Mexico.

Employee and Labor Relations

     As of December 31, 2001, the Company employed approximately 1,974
employees, of which approximately 1,359 were non-union and 615 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 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.


                                     6
<PAGE>

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, handling,
use, emission, discharge and disposal of toxic, volatile or otherwise
hazardous materials used in our manufacturing processes. Moreover, the Company
anticipates that such environmental laws and regulations will become
increasingly stringent in the future. The Company believes that it is in
substantial compliance with such laws and regulations and 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 its 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 of
responding to any releases of hazardous substances at sites to which wastes
generated by our facilities were shipped for disposal. The Company may also be
liable for the remediation of environmental conditions and associated
liabilities at its facilities and the land on which its facilities are
situated, regardless of whether it leases or owns the facilities in question,
and regardless of whether such environmental conditions were created by our
company, by a prior owner or tenant, or by any other person. In addition, any
failure to obtain and maintain permits that may be required for the Company's
manufacturing operations could subject it 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.

     Many, but not all, of the Company's properties (including those formerly
owned, leased or operated by it) have been the subject to compliance audits or
Phase I environmental site assessments (or equivalents) to identify conditions
that may cause the Company to incur obligations or liabilities (including
remediation costs) under applicable environmental laws. While the Company is
not aware of any existing conditions that are likely to result in material
costs or liabilities to it, given the nature of the past industrial operations
conducted by the Company and others at these properties, there can be no
assurance that all potential instances of soil or groundwater contamination
have been identified, even where such environmental site assessments have been
conducted. The Company's subsidiary, FIR's property in Casalmaggiore, Italy is
the subject of an investigation and remediation under the review of government
authorities with regard to soil and groundwater contamination caused by
historic waste handling practices. In connection with the FIR acquisition, the
Company obtained indemnification from the former owners for this investigation
and remediation and believes that the funds escrowed pursuant to the indemnity
are adequate to cover the presently anticipated remedial activities.
Accordingly, the Company does not believe that the current remediation project
will have a material adverse effect upon its business, results of operations
or financial condition. However, future events relating to any of its
properties (whether presently or formerly owned or operated), such as changes
in existing laws or policies or their enforcement, or the discovery of
currently unknown contamination, may give rise to additional remediation costs
which may be material.



                                     7
<PAGE>

Item 2.  PROPERTIES

     The Company's headquarters are located in an approximately 37,400 square
foot office space in Deerfield, Illinois that is provided by JII and for which
we are allocated certain charges. (See Item 13 "Certain Relationships and
Related Transactions").

     The principal properties of the Company, the location, the primary use,
the square feet and the ownership status thereof as of December 31, 2001, are
set forth in the table below:


                                               Square    Owned/       Lease
    Location                  Use               Feet     Leased     Expiration

Des Plaines, IL            Design/             38,000    Leased  September 2002
                           Administration
Darlington, WI             Manufacturing       68,000    Leased  September 2005
Richland Center, WI        Manufacturing       45,000    Leased  September 2003
Des Plaines, IL            Administration/    112,000    Leased  December 2003
                           Manufacturing
San Luis Potosi, Mexico    Manufacturing       46,000    Leased  December 2007
Akron, OH                  Manufacturing      106,000    Leased  August 2005
Middleport, OH             Manufacturing       85,000    Owned
Cuyahoga Falls, OH         Manufacturing       58,000    Leased  July 2003
Alamagordo, NM             Manufacturing       40,200    Leased  February 2005
Grand Rapids, MI           Manufacturing/      45,000    Owned
                           Administration
Oakwood Village, OH        Manufacturing/      25,000    Leased  December 2003
                           Administration
Casalmaggiore, Italy       Administration/    100,000    Owned
                           Manufacturing
Varano, Italy              Manufacturing       30,000    Owned
Bedonia, Italy             Manufacturing        8,000    Leased  March 2005
Genova, Italy              Research &          33,000    Leased  July 2002
                           Development/
                           Manufacturing
Reggio Emilia, Italy       Manufacturing/      30,000    Leased  August 2002
                           Distribution
Carrollton, TX             Warehouse           29,000    Leased  September 2004
Dewitt, NY                 Manufacturing       18,700    Leased  July 2005
Eternoz, France            Manufacturing/      19,000    Leased  October 2004
                           Administration
Syracuse, NY               Manufacturing       45,600    Leased  July 2003
Syracuse, NY               Manufacturing/      49,600    Owned
                           Administration
Putzbrunn, Germany         Warehouse            1,200    Leased  July 2002
Troy, MI                   Manufacturing/      33,700    Leased  October 2005
                           Administration
Rancho Cordova, CA         Manufacturing/     108,300    Leased  March 2011
                           Administration
New York, NY               Sales                  600    Leased  January 2003



     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.

                                     8
<PAGE>

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, 2001.

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, 2001, the Parent held all
common stock of the Company.

         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 3/4% 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).

                                     9
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

     The following table presents selected financial information derived
from the Company's financial statements.


    (Dollars in thousands)                   Year Ended December 31,
                                  ---------------------------------------------
                               2001       2000       1999      1998      1997
                               ----       ----       ----      ----      ----
Statement of Operations
Data:  (1)
 Net Sales                    $287,362   $316,666  $307,877  $275,833 $148,669
Gross profit, excluding
depreciation                   104,065    116,781   111,119    95,380   51,585

  Depreciation                   6,120      6,162     5,549     4,492    4,311
  Amortization                   8,491     23,802     9,045     8,235    4,704
  Operating income              37,272     36,497    50,597    42,324   27,684
  Interest expense              32,174     33,115    33,802    32,994   22,363
  Income taxes (2)               4,705      9,469     8,698    (3,072)   2,429
  Net (loss) income (3)            606     (6,102)    8,618    13,098    3,355


Balance sheet data
(at end of period): (1)
   Working capital              71,705     44,786  $ 69,363  $ 67,922 $ 65,074
   Total assets                359,415    361,082   382,586   388,821  335,144
   Long-term debt
    including
    current portion            308,755    312,652   313,179   325,816  283,672
   Stockholder's equity         10,684      7,139    24,159    22,613    7,552


(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)  The Company's taxes reflect a reversal of the Company's valuation
     allowance of $9,714 for certain deferred tax assets in 1998.

(3)  The Company's net loss for 2000 reflects a $14,636 write-down of
     goodwill relating to one of its businesses (see Note 13 to the
     Company's consolidated financial statements).

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<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
perations 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

     Information regarding acquisitions made by the Company during the three
year period ended December 31, 2001 is included in Note 1 to the notes to
financial statements. The results of acquired operations are included in the
Company's consolidated results from the respective date of acquisition.

Consolidated Results of Operations

     The following financial information presents the consolidated results of
operations of the Company for the years ended December 31, 2001, 2000 and 1999.

                                               Year Ended December 31,
                              -------------------------------------------------
                                  2001(1)        2000(1)              1999(1)
                                  ----           ----                 ----
                                            (Dollars in thousands)
Net sales                        $287,362       $316,666             $307,877
Gross profit
  (excluding depreciation)        104,065        116,781              111,119
EBITDA (2)                         51,883         66,461               65,191
Operating income (3)               37,272         36,497               50,597
Interest expense                   32,174         33,115               33,802

Gross margin
  (excluding depreciation)(4)       36.2%          36.9%                36.1%
EBITDA margin (4)                   18.1           21.0                 21.2
Operating margin (4)                13.0           11.5                 16.4

(1)       The results of operations include operations for both the motors and
          controls segments. The controls segment accounted for $81,211,
          $83,556 and $72,503 of net sales, $33,187, $33,180 and $27,545 of
          gross profit (excluding depreciation), $13,651, $13,291 and $11,291
          of EBITDA (earnings before interest, income taxes, depreciation and
          amortization) and $10,386, $(4,566), and $8,367 of operating (loss)
          income for the years ended December 31, 2001, 2000 and 1999,
          respectively. The motors segment accounted for $206,151, $233,110 and
          $235,374 of net sales, $70,878, $83,601 and $83,574 of gross profit
          (excluding depreciation), $48,476, $62,996 and $62,746 of EBITDA and
          $37,130, $50,889, and $51,076 of operating income for the years ended
          December 31, 2001, 2000 and 1999, 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)       The Company's operating income for 2000 reflects a $14,636 write-down
          of goodwill relating to one of its businesses (see Note 13 to the
          Company's consolidated financial statements).

(4)       All margins are calculated as a percentage of net sales.

                                    11
<PAGE>

Year ended December 31, 2001 compared to year ended December 31, 2000

Consolidated net sales decreased $29.3 million or 9.3% from $316.7 million in
2000 to $287.4 million in 2001. Sales of the Company's Motors segment declined
11.6%, from $233.1 million in 2000 to $206.2 million in 2001.  Sales of the
Controls segment declined 2.8% from $83.6 million in 2000 to $81.2 million in
2001. Sales in all of the company's principal markets were down in 2001
primarily as a result of the recessionary conditions experienced in the U.S.
and Europe. Subfractional motor sales decreased 17.4% in 2001 as compared with
2000, driven by continued contraction of the bottle and can vending market in
addition to general economic weakness that hurt the division's appliance,
general vending, and other product lines.  Sales of fractional/integral motor
products declined 7.5% from 2000 levels, mainly due to sharp declines in demand
for DC powered motors sold to material handling customers in the last nine
months of 2001. Sales to customers of floor care, elevator, and other
fractional/integral motor products in the U.S. and Europe were down by modest
rates in line with the general industrial economic recession. The fall in sales
of the Controls segment was a result of lower sales in the elevator
modernization market caused by a flat market and a shift in product mix toward
demand for lower priced units.

Consolidated operating income increased $0.8 million or 2.1%, from $36.5
million in 2000 to $37.3 million in 2001. The increase in operating income was
a result of three key factors: 1) Amortization of goodwill and other
intangible assets was $15.3 million lower in 2001, due to a $14.6 million
goodwill impairment charge at ED&C in 2000. See Note 13 to the Company's
consolidated financial statements regarding the circumstances that
triggered the impairment and how the impairment was determined. 2) The
Company's gross profit declined $12.7 million or 10.9% as a result of the sales
declines discussed above. Gross margins fell from 36.9% of sales in 2000 to
36.2% in 2001 due to unfavorable manufacturing cost leverage caused by the
lower volume and to sales declines concentrated in the Company's higher margin
product lines. 3) Selling, general, and administrative expenses increased $2.2
million, or 4.6% in 2001 compared with 2000 as a result of costs incurred by
the Company for facility closures and the Company's continued focus on research
and development of new products and markets.

Year ended December 31, 2000 compared to year ended December 31, 1999

Consolidated net sales increased $8.8 million or 2.9% from $307.9 million in
1999 to $316.7 million in 2000. Subfractional motor sales decreased 6.4% in
2000 as compared to 1999 largely due to weakness in the bottle and can vending
market. Shifts in distribution strategies of the major beverage companies are
the primary reason for this decline. In 2000, sales of fractional/integral
products increased 3.4% including the effects of acquisition. The growth for
fractional/integral products was a result of strong performance in the material
handling, utility vehicle, and European markets, partially offset by an
unfavorable Euro exchange rate. Sales of electronic motion control systems
increased by 15.2% mainly attributed to continued strength in the elevator
modernization market.

Consolidated operating income decreased $14.1 million or 27.9% from $50.6
million in 1999 to $36.5 million in 2000. The decrease was the result of the
$14.6 million goodwill impairment charge at ED&C. See Note 13 to the Company's
consolidated financial statements regarding the circumstances that triggered
the impairment and how the impairment was determined. Excluding the impact of
the goodwill impairment, operating income increased 1.1%, primarily as a result
of the increase in sales discussed above coupled with an improvement in gross


                                    12
<PAGE>

margin (excluding depreciation) from 36.1% in 1999 to 36.9% in 2000. The
improvement in gross margin is a result of the Company's continued product
design changes, manufacturing process improvements, and outsourcing and
in-sourcing of component purchases. Improvements in gross margin were offset
by increases in selling, general and administrative expenses related to the
Company's focus on product development and corporate initiatives directed at
e-commerce and development of the Kinetek brand.


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 the Credit Agreement.

     Operating activities. Net cash provided by operating activities for the
year ended December 31, 2001 was $19.8 million, compared to $20.3 million
during the year ended December 31, 2000. The decrease in cash from operating
activities is mainly a result of the decrease in operating performance
discussed above.

     Investing activities. Net cash used in investing activities was $5.4
million in 2001 and $15.8 million in 2000. Cash used in investing activities in
2001 reflects the acquisition of Koford Engineering for $0.7 million, and $4.8
million for net capital expenditures.

     Financing activities. Net cash used in financing activities was $6.3
million in 2001 and $2.6 million in 2000.

     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.

     The Company's Loan and Security Agreement (Credit Agreement), expiring
December 18, 2005, is in the form of a revolving credit facility and provides
for borrowings of up to $50,000 to fund acquisitions and provide working
capital, and for other general corporate purposes. Borrowings are limited by a
borrowing base formula consisting of accounts receivable, inventory, machinery
and equipment and real estate. Borrowings bear interest at a floating rate of
LIBOR plus 2.85% or at a rate of prime plus 1.35% (6.1% at December 31, 2001)
at the company's option, subject to change based on the Company's interest
coverage ratio, as defined. Unused commitments under the revolving credit
facility are subject to an availability fee of 0.375% per annum subject to
change based on the Company's interest coverage ratio, as defined. Borrowings
are secured by the stock and substantially all of the assets of the Company.
The Company had $13,261 of additional borrowing capacity under the Credit
Agreement as of December 31, 2001.

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

                                    13
<PAGE>

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.
Fluctuations in the value of foreign currencies relative to the U.S. dollar
have resulted in gains (losses) from foreign currency translation (which are
deferred and classified as a separate component of shareholder's equity) of
$2.9 million, $(10.9) million and $(7.1) million in 2001, 2000, and 1999,
respectively. There can be no assurance that foreign currency fluctuations in
the future will not have a significant 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.

Adoption of Accounting Principles

     On January 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. The adoption of Statement 133 did not have a
significant impact on the Company. As a result of the adoption of Statement
133, the Company must recognize derivative instruments as either assets or
liabilities in the balance sheet at fair value. The accounting for changes
in fair value (i.e., gains or losses) of a derivative financial instrument
depends on whether it has been designated and whether it qualifies as part of
an effective hedging relationship and, further, on the type of hedging
relationship. The fair value of derivative financial instruments was not
significant as of December 31, 2001 and 2000.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives. We will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an
increase in pretax income of $8.5 million per year. During 2002, we will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and we have not yet determined
what the effect of these tests will be on our earnings and financial position.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. Statement 144 is effective for the
Company beginning on January 1, 2002. The Company does not expect that the


                                    14
<PAGE>

adoption of Statement 144 will have a significant impact on the Company's
financial position or results of operations.

Critical Accounting Policies and Estimates

     Our significant accounting policies are described in Note 2 to the
consolidated financial statements included in Item 8 of this Form 10-K. Our
discussion and analysis of financial condition and results from operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of the financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses. On an on-going basis, we evaluate the estimates that we have
made. These estimates have been based upon historical experience and on various
other assumptions that we believe to be reasonable under the circumstances.
However, actual results may differ from these estimates under different
assumptions or conditions.

     We believe the following critical accounting policies affect the more
significant judgments and estimates we have used in the preparation of the
consolidated financial statements.

Goodwill and Other Intangible Assets

     The valuation and classification of goodwill and other intangible assets
and the assignment of useful amortization lives involves significant judgments
and the use of estimates. The testing of these intangibles for impairment also
requires significant use of judgment and assumptions.

     We assess the impairment of goodwill and other identifiable intangibles
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Some factors we consider important which could trigger
an impairment review include: (1) Significant underperformance relative to
expected historical or projected future operating results, (2) Significant
changes in the manner of our use of the acquired assets or the strategy for our
overall business, and (3) Significant negative industry or economic trends.
When we determine that the carrying value of goodwill and other identified
intangibles may not be recoverable based upon the existence of one or more
indicators of impairment, we measure any impairment based upon the undiscounted
forecasted cash flows of the business to which the goodwill and other
identified intangibles relate. During 2000, we recorded a goodwill impairment
charge of $14.6 million related to ED&C. See Note 13 to the consolidated
financial statements.

     In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
on January 1, 2002 we will cease to amortize goodwill arising from acquisitions
we completed prior to July 1, 2001. In lieu of amortization, we are required to
perform an initial impairment review of our goodwill in 2002 and an annual
impairment review thereafter. If we determine through the impairment review
process that goodwill has been impaired, we must record the impairment charge
in our statement of operations.

Investment in Affiliate

     We have made a strategic investment in the Preferred Units of JZ
International, LLC, an affiliated company. See Note 10 to the consolidated
financial statements for details of this investment. These equity
securities are not currently publicly traded on any major exchange. The cost


                                    15
<PAGE>

method of accounting is used to account for this investment as we hold a
non-material ownership percentage. Each quarter, we assess the value of this
investment by using information acquired from industry trends, the management
of this company and other external sources. Based on the information acquired,
we record an impairment charge when we believe an investment has experienced a
decline in value that is other than temporary. Future adverse changes in market
conditions or poor operating results could result in losses or an inability to
recover the carrying value of this investment that may not be reflected in the
investment's current carrying value, thereby possibly requiring an impairment
charge in the future.

Allowance for Doubtful Accounts

     Allowances for doubtful accounts are estimated at the individual
operating companies based on estimates of losses on customer receivable
balances. Estimates are developed by using standard quantitative measures
based on historical losses, adjusting for current economic conditions and,
in some cases, evaluating specific customer accounts for risk of loss. The
establishment of reserves requires the use of judgment and assumptions
regarding the potential for losses on receivable balances. Though we consider
our allowance for doubtful accounts balance to be adequate and proper, changes
in economic conditions in specific markets in which we operate could have a
material effect on reserve balances required.

Excess and Obsolete Inventory

     We record reserves for excess and obsolete inventory equal to the
difference between the cost of inventory and its estimated market value using
assumptions about future product life-cycles, product demand and market
conditions. If actual product life-cycles, product demand and market conditions
are less favorable than those projected by management, additional inventory
reserves may be required.

Income Taxes

     As part of the process of preparing our consolidated financial statements,
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets
will be recovered from future taxable income and to the extent we believe that
recovery is not likely, we must establish a valuation allowance. Increases
(decreases) in the valuation allowance are included as an increase (decrease)
to our consolidated income tax provision in the statement of operations.

                                    16
<PAGE>

Contractual Obligations

The following table summarizes our contractual obligations as of December
31, 2001 (in millions):

                                           Payments by Period
                        ------------------------------------------------------
                                     Less
                                    than 1       1-3        4-5      After 5
                         Total       year        years      years     years
                        ------------------------------------------------------

Long-term debt and
  capital leases       $308,755   $  8,135    $  2,936    $297,668   $    16
Operating leases         16,636      3,401       5,285       3,240     4,710
                    ----------------------------------------------------------
Total                  $325,391   $ 11,536    $  8,221    $300,908   $ 4,726
                    ----------------------------------------------------------

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     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, 2001 the
Company had variable rate debt outstanding of $24.8 million with an interest
rate of approximately 6.1%. A one percentage point increase in interest rates
would increase the amount of annual interest paid by approximately $0.3 million.
The Company does not believe that its market risk financial instruments on
December 31, 2001 would have a material effect on future operations or cash
flow.

     The Company is exposed to market risk from changes in foreign currency
exchange rates, including fluctuations in the functional currency of foreign
operations. The functional currency of operations outside the United States is
the respective local currency. Foreign currency translation effects are
included in accumulated other comprehensive income in shareholder's equity.

                                    17
<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                       PAGE NO.
                                                                     ----------

Reports of Independent Auditors                                          19

Consolidated Balance Sheets as of December 31, 2001 and 2000             22

Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999                                         23

Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 2001, 2000 and 1999                     24

Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999                                         25

Notes to Consolidated Financial Statements                               26

                                    18
<PAGE>

REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholder
Kinetek, Inc.


We have audited the accompanying consolidated balance sheets of Kinetek,
Inc. (formerly Motors and Gears, Inc.) as of December 31, 2001 and 2000 and
the related consolidated statements of operations, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
2001. 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 schedule based on our
audits. We did not audit the financial statements of certain subsidiaries
whose statements reflect net sales constituting 33% for the year ended
December 31, 1999 of the related consolidated total. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits 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 Kinetek, Inc. at December
31, 2001 and 2000, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.


ERNST & YOUNG LLP


Chicago, Illinois
March 15, 2002








                                    19

<PAGE>



                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Motion Control Engineering, Inc.:



We have audited the balance sheet of MOTION CONTROL ENGINEERING, INC. (a
California corporation and a wholly-owned subsidiary of Kinetek, Inc.
formerly known as Motors & Gears, Inc.) as of December 31, 1999, and the
related statements of income, shareholders' equity and cash flows for the
year then ended (not presented herein). 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 audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides 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, 1999 and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.


                            ARTHUR ANDERSEN LLP


Sacramento, California
January 21, 2000
















                                    20
<PAGE>



                        INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
FIR Group Holding Italia S.p.A.


         We have audited the consolidated balance sheet of FIR Group Holding
Italia S.p.A. (a wholly-owned subsidiary of Kinetek, Inc., formerly Motors
& Gears, Inc.) as of October 31, 1999, and the related consolidated
statements of income, shareholders' equity and cash flows for the year then
ended. 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 audit 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 audit
provides 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
FIR Group Holding Italia S.p.A. as of October 31, 1999, and the results of
its operations and its cash flow for the year then ended in conformity with
generally accepted accounting principles.


                       PRICEWATERHOUSECOOPERS S.p.A.


Bologna, 26 January 2000










                                    21
<PAGE>

<TABLE>
<CAPTION>

                               KINETEK, INC.
                        CONSOLIDATED BALANCE SHEETS
                     (ALL DOLLAR AMOUNTS IN THOUSANDS)

                                                                     December 31,
                                                        -------------------------------------
                                                             2001                   2000
                                                             ----                   ----

<S>                                                       <C>                     <C>
ASSETS
Current Assets
     Cash and cash equivalents                             $ 17,558                $   8,490
     Accounts receivable, net of allowance of
       $2,907 and $1,891 at December 31, 2001
       and 2000, respectively                                50,875                   51,402
     Inventories                                             41,313                   44,548
     Prepaid expenses and other current assets                1,695                    3,941
     Due from affiliated company                              5,370                    5,414
                                                           --------                ---------
          Total current assets                              116,811                  113,795


Property, plant and equipment, net                           19,651                   19,933
Goodwill, net                                               196,469                  202,007
Deferred financing costs, net                                10,693                   10,601
Deferred income taxes                                         2,510                    1,060
Investment in affiliate                                      12,344                   12,344
Other non-current assets                                        937                    1,342
                                                           --------                ---------
          Total assets                                     $359,415                 $361,082
                                                           ========                 ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
     Accounts payable                                       $21,853                  $20,965
     Accrued interest payable                                 4,292                    4,860
     Accrued expenses and other current liabilities          10,826                   12,829
     Current portion of long term debt                        8,135                   30,355
                                                           --------                ---------
          Total current liabilities                          45,106                   69,009


Long term debt                                              300,620                  282,297
Other non-current liabilities                                 3,005                    2,637

Shareholder's equity:
     Common stock, $1 par value, 10,000 shares
      authorized, issued and outstanding                         10                       10
     Additional paid-in capital                              49,996                   49,996
     Accumulated deficit                                    (26,218)                 (26,824)
     Accumulated other comprehensive loss                   (13,104)                 (16,043)
                                                            -------                  -------
          Total shareholder's equity                         10,684                    7,139
                                                            -------                  -------

          Total liabilities and shareholder's equity       $359,415                 $361,082
                                                           ========                 ========



      See accompanying notes to consolidated financial statements.



                                    22
<PAGE>

<CAPTION>

                               KINETEK, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                     (ALL DOLLAR AMOUNTS IN THOUSANDS)

                                                                  Year Ended December 31,
                                                       ------------------------------------------------
                                                           2001               2000             1999
                                                           ----               ----             ----

<S>                                                     <C>                <C>              <C>
Net sales                                                $287,362           $316,666         $307,877
Cost of sales, excluding depreciation                     183,297            199,885          196,758
Selling, general and administrative
 expenses, excluding depreciation                          49,302             47,136           42,862
Depreciation                                                6,120              6,162            5,549
Amortization of goodwill and other intangibles              8,491             23,802            9,045
Management fees to affiliated company                       2,880              3,184            3,066
                                                         --------           --------         --------
Operating income                                           37,272             36,497           50,597

Other (income) expense:
     Interest expense                                      32,174             33,115           33,802
     Interest income                                         (403)              (406)            (390)
     Miscellaneous, net                                       190                421             (131)
                                                         --------           --------         --------
Income before income taxes                                  5,311              3,367           17,316
Provision for income taxes                                  4,705              9,469            8,698
                                                         --------           --------         --------

Net income (loss)                                        $    606           $ (6,102)          $8,618
                                                         ========           =========          ======

</TABLE>



     See accompanying notes to consolidated financial statements.



                                    23
<PAGE>

                               KINETEK, INC.

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

                     (ALL Dollar amounts in thousands)

                                Common Stock

<TABLE>
<CAPTION>
<S>                                           <C>       <C>      <C>           <C>          <C>             <C>

                                             Number           Additional      Other                       Total
                                               of              Paid-In    Comprehensive  Accumulated   Shareholder's
                                             Shares    Amount  Capital    (Loss) Income    Deficit        Equity
                                             ------    ------ ----------  -------------  -----------   -------------

Balance at December 31, 1998                 10,000     $ 10   $ 49,996     $   1,947      $ (29,340)     $  22,613
     Foreign currency translation adjustment      -        -          -        (7,072)             -         (7,072)
     Net income                                   -        -          -             -          8,618          8,618
     Comprehensive income                         -        -          -             -              -          1,546
                                             ------     ----   --------     ----------     ----------     ---------

Balance at December 31, 1999                 10,000       10     49,996        (5,125)       (20,722)       24,519
     Foreign currency translation adjustment      -        -          -       (10,918)             -       (10,918)
     Net income                                   -        -          -             -         (6,102)       (6,102)
     Comprehensive loss                           -        -          -             -              -       (17,020)
                                             ------     ----     ------     ----------     ----------   -----------

Balance at December 31, 2000                 10,000       10     49,996       (16,043)     $ (26,824)    $   7,139
     Foreign currency translation adjustment      -        -          -         2,939              -         2,939
     Net income                                   -        -          -             -            232           232
     Comprehensive loss                           -        -          -             -              -         3,171
                                             ------     ----     ------     ----------     ----------    ----------

Balance at December 31, 2001                 10,000      $ 10  $ 49,996     $ (13,104)     $ (26,592)    $  10,310
                                             ======     =====  ========     ==========     ==========    ==========

</TABLE>


                                    24
<PAGE>

<TABLE>
<CAPTION>


                               KINETEK, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (ALL DOLLAR AMOUNTS IN THOUSANDS)


                                                                           Year Ended December 31,
                                                                 --------------------------------------------
                                                                    2001            2000            1999
                                                                    ----            ----            ----

<S>                                                               <C>            <C>             <C>
Cash flows from operating activities:
        Net income (loss)                                          $    606       $  (6,102)      $  8,618
Adjustments to reconcile net income (loss) to net
 cash provided by operating activities:
        Depreciation and amortization                                15,997          31,256         15,884
        Deferred income taxes                                           994           2,319          1,133

Changes in operating assets and liabilities (net
 of effects from acquisitions):
        Accounts receivable                                             571           2,071         (1,503)
        Inventories                                                   3,436             834           (828)
        Prepaid expenses and other current assets                      (225)           (435)           (95)
        Accounts payable                                                875          (1,705)        (1,161)
        Accrued expenses                                             (2,653)            624          5,037
        Non-current assets & liabilities                                148            (991)           (54)
        Due from affiliated company                                      44          (7,599)           969
                                                                  ----------      ----------      ---------
        Net cash provided by operating activities                    19,793          20,272         28,000

Cash flows from investing activities:
        Capital expenditures, net                                    (4,754)         (5,103)        (4,171)
        Acquisition of subsidiaries                                    (690)         (5,661)        (3,596)
        Investment in affiliate                                           -          (5,059)             -
                                                                  ----------      ----------      ---------
        Net cash used in investing activities                        (5,444)        (15,823)        (7,767)

Cash flows from financing activities:
        Borrowings (repayments) on revolving credit facility         (1,166)         (2,000)       (13,000)
        Repayment of long-term debt                                  (3,218)           (625)          (414)
        Payment of financing cost                                    (1,924)              -              -
                                                                  ----------       ---------      ---------
        Net cash used in financing activities                        (6,308)         (2,625)        (13,414)
Effect of exchange rate changes on cash                               1,027          (4,594)         (2,575)
                                                                  ----------       ---------      ----------

Net increase (decrease) in cash and cash equivalents                  9,068          (2,770)          4,244

Cash and cash equivalents at beginning of year                        8,490          11,260           7,016
                                                                  ----------       ---------      ---------
Cash and cash equivalents at end of year                           $ 17,558          $8,490         $11,260
                                                                  ==========       =========      =========


Supplemental disclosures of cash flow information:
Cash paid during the period for:
        Interest                                                   $ 31,226        $ 31,970        $ 32,275
        Income taxes                                                  6,928           7,219           5,576
Non cash investing activities:
        Capital leases                                                  873             392           1,284



</TABLE>



           See accompanying notes to consolidated financial statements.



                                    25
<PAGE>



                               KINETEK, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (ALL DOLLAR AMOUNTS IN THOUSANDS)


1.       Description of Business and Acquisitions


         Kinetek, Inc. (Company), a wholly-owned subsidiary of Motors and
Gears Holdings, Inc. (Parent), a majority-owned subsidiary of Jordan
Industries, Inc. (JII), operates in the motion control industry.

         On December 31, 1999, the Company, through its wholly-owned
subsidiary FIR (consisting of FIR Group Holdings, Inc.; FIR Group Holdings
Italia, S.r.L.; Construgioni Italiane Motori Elettrici, S.p.A.; Selin
Sistemi, S.p.A.; FIR Electromeccanica, S.p.A.; T.E.A. Technologie
Electromeccaniche ed Automazione, S.r.l., and Beta), acquired certain net
assets of the L'Europea Electric Hoist division ("L'Europea") from Pramac
Industriale for $2,568 in cash and a $2,632 subordinated seller note
payable in annual installments through 2002. The purchase price, including
costs incurred directly related to the transaction, was allocated to
working capital of $1,236 and resulted in an excess purchase price over net
identifiable assets of $3,964. L'Europea hoists are electric pulleys and
elevators used for lifting applications mainly found at construction sites.

         On April 6, 2001, the Company, through its wholly-owned subsidiary
Merkle Korff, acquired substantially all of the assets, properties and
business of Koford Engineering, Inc. for $690.

         These acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the operating results of the acquired
businesses have been included in the consolidated operating results of the
Company since their dates of acquisition.


2.       Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. 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 the
timely preparation of the Company's consolidated financial statements.

Reclassifications

         Certain amounts in the prior years financial statements have been
reclassified to conform to the 2001 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.


                                    26
<PAGE>



Inventories

         Inventories are stated at the lower of cost or market.
Inventories, which are valued at either average or first-in, first-out
(FIFO) cost, accounted for approximately 76% and 77% of the Company's
inventories at December 31, 2001 and 2000, respectively. All other
inventories are valued using last-in, first-out (LIFO) cost, which
approximated current cost at December 31, 2001 and 2000.

Property, Plant, and Equipment

         Property, plant, and equipment are 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 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                    2 to 5  years
          Furniture and fixtures              3 to 7  years
          Vehicles                            3 to 5  years


Foreign Currency Translation

         In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation", the functional currencies of the
Company's foreign operations are the local currencies. Accordingly, assets
and liabilities of the Company's foreign operations are translated from
foreign currencies into U.S. dollars at the exchange rates in effect at the
balance sheet date while income and expenses are translated at the
weighted-average exchange rates for the year. The Company is exposed to
market risk from changes in foreign currency exchange rates, including
fluctuations in the functional currency of foreign operations. Adjustments
resulting from the translations of foreign currency financial statements
are classified as a separate component of shareholder's equity.

Intangible Assets

         Goodwill is amortized using the straight-line method over 30 to 40
years (See "New Pronouncements" for future changes). Goodwill at December
31, 2001 and 2000 is net of accumulated amortization of $60,040 and
$52,049, 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, 2001 and 2000 are net of
accumulated amortization of $2,923 and $2,612, 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, 2001
and 2000 are net of accumulated amortization of $8,429 and $6,598,
respectively. Amortization of deferred financing costs is included in
interest expense.



                                    27
<PAGE>

         The Company evaluates its long-lived assets, including goodwill,
on an ongoing basis. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
related asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the asset to
future undiscounted cash flows expected to be generated by the asset. If
the asset is determined to be impaired, the impairment recognized is
measured by the amount by which the carrying value of the asset exceeds its
fair value.

         The Company recorded a $14,636 goodwill impairment charge during
the third quarter of 2000 related to one of its businesses. See Note 13 for
additional details.

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. 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 recognized when products are shipped and title passes
to customers.

Use of Estimates

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

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. Other
than the Senior Notes (see Note 7), the fair values of the Company's
financial instruments are not materially different from their carrying
values at December 31, 2001 and 2000.

Concentration of Credit Risk

         Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents, accounts receivable and the investment in affiliate (see Note
10). 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.



                                    28
<PAGE>

Shipping and Handling Costs

         Shipping and handling costs are classified in cost of sales in the
statements of operations.

Derivative Financial Instruments

         On January 1, 2001, the Company adopted Financial Accounting
Standards Board Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. The adoption of Statement 133 did not
have a significant impact on the Company. As a result of the adoption of
Statement 133, the Company must recognize derivative instruments as either
assets or liabilities in the balance sheet at fair value. The accounting
for changes in fair value (i.e., gains or losses) of a derivative financial
instrument depends on whether it has been designated and whether it
qualifies as part of an effective hedging relationship and, further, on the
type of hedging relationship. The fair value of derivative financial
instruments was not significant as of December 31, 2001 and 2000.

New Pronouncements

         In June 2001, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations, and No. 142 Goodwill and Other Intangible Assets,
effective for fiscal year's beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to
be amortized over their useful lives.

         The Company will apply the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of 2002.
Application of the non-amortization provisions of Statement 142 is expected
to result in an increase in pretax income of approximately $8,500 per year.
During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1,
2002 and has not yet determined what the effect of these tests will be on
the earnings and financial position of the Company.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Statement
144 is effective for the Company beginning on January 1, 2002. The Company
does not expect that the adoption of Statement 144 will have a significant
impact on the Company's financial position or results of operations.






                                    29
<PAGE>


3.   Inventories
     Inventories consist of the following:

                                                   December 31,
                                            ---------------------------
                                                2001           2000
                                                ----           ----

      Raw materials                           $22,268        $26,599
      Work in process                          12,864         12,564
      Finished goods                            6,181          5,385
                                            ----------      ---------
                                              $41,313        $44,548
                                            ==========      =========

4.   Property, Plant, and Equipment

     Property, plant, and equipment consist of the following:


                                                        December 31,
                                              ---------------------------------
                                                   2001             2000
                                                   ----             ----

      Land, buildings and improvements           $  8,227         $  7,714
      Machinery and equipment                      32,484           29,566
      Furniture and fixtures                       10,350            9,098
      Other (vehicles, dies and tooling)            6,373            5,610
                                                 ---------        ---------
                                                   57,434           51,988

      Less:  Accumulated depreciation and
      amortization                                (37,783)         (32,055)
                                                 ---------        ---------
                                                  $19,651         $ 19,933
                                                 =========        =========
5.   Short Term Notes Payable

     FIR has a number of short-term borrowing facilities available from
     various banks. The total amount available under these facilities is
     approximately $6,073 at an average interest rate of 4.9% for the year
     ending December 31, 2001. There were no outstanding borrowings under
     these arrangements at December 31, 2001 and 2000. A portion of these
     facilities are secured by FIR's assets and a portion are in the form
     of overdraft coverage.


6.   Income Taxes

     Pretax income (loss) was taxed in the following jurisdictions:

                                        Year Ended December 31,
                           ----------------------------------------------
                              2001               2000             1999
                              ----               ----             ----

     Domestic               $   532            $  (833)         $14,328
     Foreign                  4,779              4,200            2,988
                            --------           --------         --------

                            $ 5,311            $ 3,367          $17,316
                            ========           ========        =========


                                    30
<PAGE>


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

                                              Year Ended December 31,
                                  -------------------------------------------
                                     2001           2000            1999
                                     ----           ----            ----
Current:
       Federal                      $   325        $ 2,903         $ 4,167
       State                          1,000          1,084             981
       Foreign                        2,386          3,163           2,417
                                    --------       --------        --------

       Total current                  3,711          7,150           7,565

Deferred:
       Federal                          351          1,806           1,037
       State                            157            400             211
       Foreign                          486            113            (115)
                                    --------       --------        --------

       Total deferred                   994          2,319           1,133
                                    --------       --------        --------

Provision for income taxes           $4,705        $ 9,469         $ 8,698
                                    ========       ========        ========

         The provision 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:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                            ----------------------------------------------
                                                               2001              2000            1999
                                                               ----              ----            ----
<S>                                                         <C>               <C>             <C>
Computed statutory tax provision                              $1,859            $1,178          $6,061
     Increase/(decrease) resulting from:
        State and local taxes, net of federal benefit            752               964             800
        Higher effective foreign tax rate                      1,200             1,806           1,305
        Previously unrecorded deferred taxes                       -              (281)              -
        Nondeductible amortization                               788             5,986             833
        Other                                                    106              (184)           (301)
                                                             --------          --------         -------

Provision for income taxes                                    $4,705            $9,469          $8,698
                                                             ========          ========         =======

</TABLE>

         For the year ended December 31, 2000, non-deductible amortization
increased as a result of the Company's write-down of goodwill associated
with one of its businesses (see Note 13).



                                    31
<PAGE>


Deferred tax liabilities and assets are comprised of the following:

                                                      December 31,
                                            --------------------------------
                                                 2001             2000
                                                 ----             ----

Deferred tax liabilities:
     Goodwill                                 $10,055          $ 8,233
     Property, plant and equipment                 25              269
     Foreign deferred taxes                     1,372              889
     Other                                          -              109
                                              -------          -------
Total deferred tax liabilities                 11,452            9,500

Deferred tax assets:
     Property, plant and equipment              4,367            4,385
     Intangibles other than goodwill            4,473            4,925
     Vacation accrual                             434              471
     Franchise tax                                274              273
     Employee benefits                            160              403
     Uniform capitalization                       556              301
     Allowance for doubtful accounts              959              165
     Inventory obsolescence reserve             1,019              747
     Warranty reserve                             341              266
     Reserve for plant closing                    139                -
     Other                                        408              236
                                              -------          -------
Total deferred tax assets                      13,130           12,172
                                              -------          -------
Net deferred tax assets                       $ 1,678          $ 2,672
                                              =======          =======

As of December 31, 2001 there was $2,846 of accumulated unremitted earnings
from the Company's foreign subsidiaries on which deferred taxes have not
been provided as undistributed earnings on foreign subsidiaries are
considered to be indefinitely reinvested.


7.   Long Term Debt

     Long-term debt consists of the following:

                                                           December 31,
                                                  ----------------------------
                                                      2001           2000
                                                      ----           ----
 10.75% Senior Notes, including $2,556
    and $3,000 of unamortized premium at
    December 31, 2001 and 2000,
    respectively (A)                               $272,556        $273,000
 Revolving Credit Facility (B)                       24,834          26,000
 Subordinated Notes Payable (C)                       8,690          11,055
 Capital leases (D)                                   2,675           2,597
                                                  ----------      ----------
 Current Portion                                                    312,652
                                                    308,755
                                                     (8,135)        (30,355)
                                                  ----------      ----------
                                                   $300,620       $ 282,297
                                                  ==========      ==========



                                    32
<PAGE>

(A)      Interest on the Senior Notes is payable in arrears on May 15 and
         November 15 of each year. The Senior Notes are unsecured
         obligations of the Company and mature on November 15, 2006. The
         Senior Notes are redeemable at the option of the Company, in whole
         or in part, at any time on or after November 15, 2001. The
         Indenture relating to the Senior 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 approximately $234,900 at
         December 31, 2001. The fair value was calculated by multiplying
         the face amount by the market price at December 31, 2001.

(B)      The Company's Loan and Security Agreement (Credit Agreement),
         expiring December 18, 2005, is in the form of a revolving credit
         facility and provides for borrowings of up to $50,000 to fund
         acquisitions and provide working capital, and for other general
         corporate purposes. Borrowings are limited by a borrowing base
         formula consisting of accounts receivable, inventory, machinery
         and equipment and real estate. Borrowings bear interest at a
         floating rate of LIBOR plus 2.85% or at a rate of prime plus
         1.35% (6.1% at December 31, 2001) at the company's option,
         subject to change based on the Company's interest coverage ratio,
         as defined. Unused commitments under the revolving credit
         facility are subject to an availability fee of 0.375% per annum
         subject to change based on the Company's interest coverage ratio,
         as defined. Borrowings are secured by the stock and substantially
         all of the assets of the Company. The Company had $13,261 of
         additional borrowing capacity under the Credit Agreement as of
         December 31, 2001.

         The 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.

(C)      The Subordinated Notes Payable substantially consists of a $4,000
         note payable to the former shareholder of Merkle-Korff and $3,850
         of notes 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 (December 31, 2001
         installment was paid on January 2, 2002) through December 31, 2003
         and bears interest at 9% per annum. The notes payable to the
         former ED&C shareholders are due December 31, 2002 and bear
         interest at 9% per annum subject to a two-year cap on accrued and
         unpaid interest. These notes are unsecured obligations of the
         Company.

(D)      Interest rates on capital leases range from 7.2% to 8.7% and mature
         in installments through 2007.

              The future minimum lease payments as of December 31, 2001
         under capital leases consist of the following:

          2002                                             $1,098
          2003                                                940
          2004                                                621
          2005                                                246
          2006                                                 52
          Thereafter                                           18
                                                         ---------
             Total                                          2,975
          Less amount representing interest                  (300)
                                                         ---------
          Present value of future minimum lease payments   $2,675
                                                         =========


                                    33
<PAGE>

         The present value of the future minimum lease payments
approximates the book value of property, plant and equipment under capital
leases at December 31, 2001 and 2000.

         Aggregate maturities of long-term debt at December 31, 2001 are as
follows:

          2002                              $8,135
          2003                               2,351
          2004                                 585
          2005                              25,064
          2006                             270,048
          Thereafter                            16
                                     --------------
                                          $306,199
                                     ==============

8. Operating Leases

         The Company leases certain land, buildings, and equipment under
noncancellable operating lease agreements expiring in various years through
2011. Minimum future lease payments, by year, under noncancellable
operating leases, including those with related parties (Note 10), are as
follows at December 31, 2001:

          2002                              $ 3,401
          2003                                3,046
          2004                                2,240
          2005                                1,912
          2006                                1,327
          Thereafter                          4,710
                                        ------------
                                            $16,636
                                        ============

         Total rent expense was $3,764, $3,184 and $3,586 for the years
ended December 31, 2001, 2000 and 1999, respectively.

9.   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 $1,483, $1,756 and $1,451 for the years ended
December 31, 2001, 2000 and 1999, 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 $2,609 and $2,277 at
December 31, 2001 and 2000, respectively.


                                    34
<PAGE>




10.   Related Party Transactions

      Services Agreements. The Company and each of its subsidiaries are
      subject to the following four agreements and arrangements with JII:

         First, the Company and each of its subsidiaries are parties to a
      transaction advisory agreement (the "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 $15, $0 and $36
      in 2001, 2000, and 1999, respectively); (ii) financial advisory fees
      of up to 1.0% of debt, equity, or other financing or refinancing
      involving the Company or such subsidiary, in each case, arranged with
      the assistance of JII or its affiliates (which were $500, $0 and $0
      in 2001, 2000 and 1999, respectively); and (iii) reimbursement for
      JII's out-of-pocket costs in connection with providing such services
      (which were $0 in 2001, 2000 and 1999). Mssrs. Jordan, Quinn, Boucher
      and Zalaznick, directors of Parent, are directors and shareholders of
      JII.

         Second, the Company and each of its subsidiaries is party to a
      management consulting agreement (the "Subsidiary Consulting
      Agreement") with JII, pursuant to which the Company and its
      subsidiaries pay JII annual consulting fees of 1.0% of the Company's
      net sales for such services and are required to reimburse JII for its
      out-of-pocket costs related to its services. 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 $2,880, $3,184 and $3,066 for the years ended December
      31, 2001, 2000 and 1999, respectively, and are reflected as
      Management Fees to Affiliated Company in the Consolidated Statement
      of Operations.

         Third, 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
      $2,132, $1,995 and $1,593 for the years ended December 31, 2001, 2000
      and 1999, respectively, and are reflected within Selling, General,
      and Administrative expenses in the Consolidated Statement of
      Operations.

         Fourth, 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 facilitate the operations of the Company. Also, 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. The Company reimburses JII for services provided
     pursuant to the Transition Agreement on an allocated cost basis. Under
     this agreement, the Company's allocable portion of corporate expenses
     was $2,939, $2,434 and $2,152 for the years ended December 31, 2001,
     2000 and 1999 respectively, and are reflected within Selling, General,
     and Administrative expenses in the Consolidated Statement of
     Operations.


                                    35
<PAGE>

         Each of the above agreements was replaced on December 14, 2001
     with new agreements, which are substantially the same as the previous
     agreements. The new agreements expire in December 2011, but are
     automatically renewed for successive one-year terms, unless either
     party provides written notice of termination 60 days prior to the
     scheduled renewal date.

        The terms of the Company's agreement to acquire Imperial, Scott,
     and Gear provided for additional consideration to be paid to the
     Seller, JII, if these entities' results of operations exceeded certain
     targeted levels. Subject to the terms and conditions of the agreement,
     the Company paid approximately $174 to JII in 2001, based on the
     acquired entities' cumulative cash flow (as defined) for January 1,
     1996 to December 31, 2000. All obligations have been satisfied under
     this agreement.

         Tax Sharing Agreement. The Company and each of its subsidiaries
     are parties to a Tax Sharing Agreement (the "Tax Sharing Agreement")
     between JII and each of its consolidated subsidiaries for income tax
     purposes. Pursuant to the Tax Sharing Agreement, the Company and each
     of its consolidated subsidiaries pays to JII an amount determined by
     reference to each entity's separate return tax liability as defined in
     Treasury Regulation ss.1.1552-1(a) (2) (ii). For the years ended
     December 31, 2001 and 2000, income tax payments made by the Company to
     JII under the Tax Sharing Agreement were $3,110 and $3,308,
     respectively

         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 $1,588, $1,544 and $1,657 for the years ended
     December 31, 2001, 2000 and 1999, respectively. Future minimum rental
     payments required under these leases are as follows:

               2002                         $1,433
               2003                          1,191
               2004                          1,041
               2005                          1,041
               2006                          1,041
               Thereafter                   $4,424

            Investment in Affiliate. In April 2000, the Company invested an
      additional $5,059 in Class A Preferred Units of JZ International,
      LLC. This increased the Company's investment in JZ International, LLC
      to $12,344 at December 31, 2001 and 2000. JZ International's Chief
      Executive Officer is David W. Zalaznick, and its members include
      Messrs. Jordan, Quinn, Zalaznick and Boucher, who are the Company's
      directors and stockholders, as well as other members. JZ
      International and its subsidiaries are focused on making European and
      other international investments. The Company is accounting for this
      investment under the cost method.

         Legal Fees. An individual who is a shareholder, General Counsel
      and Assistant Secretary of the Parent is also a partner in a law firm
      used by the Company. The firm was paid $219, $229 and $180 in fees
      and expenses during the years ended December 31, 2001, 2000 and 1999,
      respectively. The rates charged to the Company were at arms-length.



                                    36
<PAGE>

         Due from Affiliate. The Company has net receivables due from JII
      and parent of $5,370 and $5,414 as of December 31, 2001 and 2000,
      respectively, that are reflected in the consolidated balance sheets
      as "due from affiliated company."

11.   Additional Purchase Price Arrangements

         The terms of the Company's 1997 Motion Control Engineering ("MCE")
      acquisition agreement provide for additional consideration to be paid
      to the sellers. The agreement is exercisable at the seller's option
      during a five year period beginning in 2003. When exercised, the
      additional consideration will be based on MCE's operating results
      over the two preceding fiscal years. Payments, if any, under the
      contingent agreement will be placed in a trust and paid out in cash
      over a four-year period, in annual installments according to a
      schedule, which is included in the agreement. Additional
      consideration, if any, will be recorded as an addition to goodwill.

         The terms of the Company's 1998 ADC acquisition agreement provided
      for additional consideration to be paid to the sellers if ADC's
      results of operations during 1998 and 1999 exceeded certain targeted
      levels. Targeted levels were set substantially above the historical
      experience of ADC at the time of acquisition. The Company made
      payments of $3,093 and $3,200 during 2000 and 1999 in full
      satisfaction of this agreement. These contingent payments were
      recorded as an addition to goodwill.



12.   Segment Data

       Description of Segments

         The Company operates in two separate business segments; electric
       motors ("Motors") and electronic motion control systems
       ("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. 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.

         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.



                                    37
<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.


       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 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, due from affiliate, investment in affiliate and deferred
       financing fees.

       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.















                                    38
<PAGE>


Summary financial information by business segment is as follows:


                                                 Year Ended
                                                December 31,
                                 ---------------------------------------------
                                    2001          2000              1999
                                    ----          ----              ----
Net Sales
Motors                             $206,151      $233,110         $235,374
Controls                             81,211        83,556           72,503
                                   --------     ---------         --------
                                   $287,362      $316,666         $307,877
                                   ========     =========         ========

Operating Income (Loss)
Motors                             $ 37,130      $ 50,889        $ 51,076
Controls (1)                         10,386        (4,566)          8,367
Corporate Expenses (2)              (10,244)       (9,826)         (8,846)
                                    -------       -------        ---------
   Total Operating Income            37,272        36,497          50,597
Interest Expense                    (32,174)      (33,115)        (33,802)
Interest Income                         403           406             390
Miscellaneous, net                     (190)         (421)            131
                                    -------       --------        -------
   Income before Income Tax         $ 5,311       $ 3,367        $ 17,316
                                    =======       ========        ========

Identifiable Assets
Motors                             $254,866      $257,567        $267,489
Controls                             69,521        70,144          87,207
Corporate                            35,028        33,371          27,890
                                   --------      --------       ---------
                                   $359,415      $361,082        $382,586
                                   ========      ========       =========

Capital Expenditures
Motors                              $ 3,341      $ 3,886         $  3,002
Controls                              1,413        1,217            1,169
                                    -------      -------         --------
                                    $ 4,754      $ 5,103         $  4,171
                                    =======      =======         =========


Depreciation
Motors                              $ 4,438      $ 4,943         $  4,726
Controls                              1,682        1,219              823
                                    -------      -------         --------
                                    $ 6,120      $ 6,162         $  5,549
                                    =======      =======         ========

Amortization of Intangibles
Motors                              $ 6,908     $ 7,163          $ 6,945
Controls                              1,583      16,639            2,100
                                    -------     --------         --------
                                    $ 8,491     $ 23,802         $ 9,045
                                    =======     ========         ========



(1)  Operating  loss in 2000 for the  Controls  segment  reflects  the
     goodwill impairment charge of $14,636 (see Note 13).

(2) Management fees paid to affiliated company are included in corporate
    expenses.


                                      39
<PAGE>



     Summary financial information by geographic area is as follows:

                                                    Year Ended
                                                   December 31,
                                       -----------------------------------------

                                         2001            2000          1999
                                         ----            ----          ----

  Net sales to unaffiliated customers
  United States                          $246,204       $275,633       $263,242
  Europe                                   41,158         41,033         44,635
                                        ----------     ---------      ----------
                                         $287,362       $316,666       $307,877
                                        ==========     ==========     ==========


  Identifiable long-lived assets
 (including intangible
  assets)
  United States                        $ 198,853       $ 206,293      $ 221,691
  Europe                                  30,548          29,333         32,738
                                       ----------     -----------    -----------
                                       $ 229,401       $ 235,626      $ 254,429
                                       ===========    ===========    ===========


13.  Goodwill Impairment


          During the three months ended September 30, 2000, the Company recorded
     a non-cash impairment loss of $14,636 associated with the write-down of
     goodwill relating to one of the businesses, ED&C. This write-down of
     goodwill is presented in the Consolidated Statements of Operations in
     Amortization of goodwill and other intangibles , and is not deductible for
     income tax purposes. Significant adverse changes in ED&C's business
     environment as well as historical, current and projected cash flow losses
     led management to evaluate the operations of ED&C. As a result of this
     evaluation, management concluded that ED&C's goodwill was impaired, and
     accordingly, it has been written down to zero, the Company's best estimate
     of its fair value as determined using expected future cash flows.
     Considerable management judgment is necessary to determine fair value.
     Accordingly, actual results could vary significantly from these estimates.

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.




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

         None.





                                      40
<PAGE>

      Part III
      --------

      Item 10.    DIRECTORS AND EXECUTIVE OFFICERS
                  ---------------------------------

          The following sets forth the names and ages of the Company's
     directors, executive officers (and those of our Parent) 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         54   Chairman of Company and Parent
     Ron A. Sansom           42   Chief Executive Officer, President and
                                  a Director of Company and Parent
     Daniel Drury            40   Chief Financial Officer of Company and Parent
     Norman Bates            40   Vice President, Business Development
                                  of Company and Parent
     John W. Brown           65   Vice President, Programs
     Randall Bays            46   President, Imperial
     G. Barry Lawrence       55   President, Gear
     Paul Boggs              53   President, Merkle-Korff
     Paolo Bergamaschi       32   President, FIR
     Todd Williams           44   President, Electrical Design
     Javad Rahimian          51   President, Motion Control
     James M. Jackson        42   President, Advanced DC Motors
     Jonathan F. Boucher     45   Director of Parent
     John W. Jordan, II      54   Director of Company and Parent
     David W. Zalaznick      47   Director of Parent
     John D. Simms, Sr.      74   Director of Parent

     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 Archibald Candy Corporation, as well as a director of
AmeriKing, Inc., Welcome Home, Inc., and a number of other privately held
companies.

     Mr. Sansom has served as Chief Executive Officer, President 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. Drury has served as Chief Financial Officer since April, 2000. Prior
to joining the Company, Mr. Drury held a succession of financial management
positions with various divisions of General Electric from 1982 to 2000, most
recently as Finance Manager - Control Products at GE Industrial Systems.

     Mr. Bates has served as Vice President of Business Development of the
Company and Parent since April, 2000. Mr. Bates was the Company's Chief
Financial Officer from April 1997 until that time. 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.


                                      41
<PAGE>

     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 electronic 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.

     Mr. Brown has served as Chairman of Merkle-Korff since 2000. From 1993 to
2000 Mr. Brown served as Merkle-Korff's President. Prior to that, Mr. Brown
held several senior management positions with Merkle-Korff since the 1950's,
including Executive Vice President until 1993.

     Mr. Boggs has served as President of Merkle-Korff since 2000. From 1996
through 2000, Mr. Boggs was a Business Team leader for certain motors and
controls divisions of General Electric. Prior to that Mr. Boggs held several
management and engineering positions with General Electric.

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

     Mr. Jackson has served as President of ADC since July 2000. From 1995
until joining ADC, Mr. Jackson held several senior management positions with
VAPOR, a division of WABTEC. Prior to that, Mr. Jackson held various
management positions at GE, Square D, and a variety of other companies.

     Mr. Boucher has served as director of the Parent 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 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., Carmike Cinemas, Inc., Archibald Candy Corporation,
Welcome Home, Inc., GFSI, Inc., GFSI Holdings, Inc., Rockshox, Inc. and
Apparel Ventures, Inc. as well as other privately held companies.

     Mr. Zalaznick has served as a director of the Parent 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., Marisa Christina, Inc., Apparel Ventures, 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 Parent 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.


                                      42
<PAGE>




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 form which
the director will personally receive a benefit in money, property, or
services to 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.



                                      43
<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, 2001 to those persons who were,
at December 31, 2001: (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)
     Chairman of the Board         2001      $ -       $ -         $ -
Ron A. Sansom (2)
     Chief Executive Officer       2001        -         -           -
Daniel D. Drury (2)
     Chief Financial Officer       2001        -         -           -
Norman R. Bates (2)
     V.P. - Business Development   2001        -         -           -


(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, Drury 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 2001, however, Messrs. Boucher, Jordan and Quinn participated in
deliberations of the Board of Directors concerning executive officer
compensation. During 2001, 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.



                                      44
<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 29, 2002 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 of        Percentage
                                                  Shares           Owned
Executive Officers and Directors:                 ------           ------
Ron A. Sansom                                      300.000          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
JII Partners Limited Partnership (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 29,
     2002, 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 JII
     Partners Limited Partnership 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 mother 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 approximately 82% 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)  JII Partners Limited Partnership 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.




                                      45
<PAGE>



 Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            ----------------------------------------------

     Service Agreements. Each of the following agreements was entered into on
December 14, 2001. Prior to that time we operated pursuant to similar
agreements. The Company, our parent, and substantially all of our subsidiaries
are parties to a transaction advisory agreement (the "Subsidiary Advisory
Agreement") with JII, pursuant to which we and our subsidiaries pay JII
(through our Parent and Holdings) (i) investment banking and sponsorship fees
of up to 2.0% of the purchase price of acquisitions, joint ventures, minority
investments or sales involving us and our subsidiaries or their respective
businesses or properties (which were $15 in 2001 and $0 in each of 2000 and
1999 pursuant to the predecessor agreement); (ii) financial advisory fees of
up to 1.0% of any debt, equity or other financing or refinancing involving us
or such subsidiary, in each case, arranged with the assistance of JII or its
affiliates (which were $0.5 million in 2001 and $0 in each of 2000 and 1999
pursuant to the predecessor agreement); and (iii) reimbursement of JII's
out-of-pocket costs in connection with providing such services (which were $0
in each of 2001, 2000 and 1999, pursuant to the predecessor agreement). The
amount of such fees payable in each such transaction will be no less favorable
to us than those that could be obtained from comparable, unaffiliated third
parties. We are not required to pay such fees (a) if and to the extent
expressly prohibited by the provisions of any credit or financing
arrangements, (b) if we have not paid cash interest on any interest payment
date, or (c) we have not paid cash dividends on any dividend payment date or
have not made redemptions on any redemption date, as applicable under our
certificate of incorporation or other governing documents. Any required
payment which is not paid when due shall accrue and bear interest at 10% per
annum. If we acquire or create any new subsidiaries, we will cause them to be
subject to this agreement. The Subsidiary Advisory Agreement expires in
December 2011, 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, Quinn, Boucher and Zalaznick,
directors of Holdings, are directors and shareholders of JII.

The Company, our parent and substantially all of our subsidiaries are
parties to a management consulting agreement (the "Subsidiary Consulting
Agreement"), pursuant to which we pay JII annual consulting fees (directly
and through our Parent) of the greater of (i) 3.0% of our net income before
interest, tax, depreciation and amortization and other non-cash charges of
ours, and (ii) 1.0% of our net sales, and are required to reimburse JII for
its out-of-pocket costs related to its services. We are not required to pay
such fees (a) if and to the extent expressly prohibited by the provisions
of any credit or financing arrangements, (b) if we have not paid cash
interest on any interest payment date, or (c) we have not paid cash
dividends on any dividend payment date or have not made redemptions on any
redemption date, as applicable under our certificate of incorporation or
other governing documents. Any required payment which is not paid when due
shall accrue and bear interest at 10% per annum. If we acquire or create
any new subsidiaries, we will cause them to be subject to this agreement.
The Subsidiary Consulting Agreement expires in December 2011, 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. In accordance with the predecessor of this agreement pursuant
to which we only paid under clause (ii) above, we were charged
approximately $2,880, $3,184 and $3,066 for the years ended December 31,
2001, 2000 and 1999, respectively.

The Company, our parent and substantially all of our subsidiaries are
parties to a properties services agreement (the "JI Properties Services
Agreement") with JI Properties, Inc. ("JI Properties"), a subsidiary of
JII, pursuant to which JI Properties provides to us the use of certain real

                                      46
<PAGE>

estate and other assets, transportation and related services. Pursuant to
the JI Properties Services Agreement, we are charged for our allocable
portion of such services based upon (i) our usage of such services and (ii)
our relative revenues, as compared to JII and its other subsidiaries. The
Company is also required to reimburse JI Properties for all reasonable out
of pocket expenses it incurs (unless such expenses are already included in
the charges described above). In accordance with the predecessor of this
agreement, such charges were $2,132, $1,995 and $1,593 for the years ended
December 31, 2001, 2000 and 1999, respectively. The JI Properties Services
Agreement expires in December 2011, 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 our
subsidiaries. Under this agreement, our allocable portion of corporate
expenses was $2,939, $2,434 and $2,152 for the years ended December 31, 2001,
2000 and 1999, respectively.

     Tax Sharing Agreement. The Company and each of its subsidiaries are
parties to a Tax Sharing Agreement (the "Tax Sharing Agreement") between JII
and each of its consolidated subsidiaries for income tax purposes. Pursuant to
the Tax Sharing Agreement, the Company and each of its consolidated
subsidiaries pays to JII an amount determined by reference to each entity's
separate return tax liability as defined in Treasury Regulation ss.
1.1552-1(a)(2)(ii). For the year ended December 31, 2001 the income tax
payment by the Company to JII under the Tax Sharing Agreement were $3,110.

     If the Tax Sharing Agreement is terminated, then the Company and its
subsidiaries will remain contingently liable to JII under the Tax Sharing
Agreement in respect of any increases in their separate return tax liability
for periods prior to such termination.

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

     Additional Purchase Price Arrangement. The terms of the Company's
agreement to acquire Imperial, Scott, and Gear provided for additional
consideration to be paid to the Seller, JII, if these entities' results of
operations exceeded certain targeted levels. Subject to the terms and
conditions of the agreement, we paid approximately $174 to JII in 2001, based
on the acquired entities' cumulative cash flow (as defined) for January 1,
1996 to December 31, 2000. All obligations have been satisfied under this
agreement.

     Investment in Affiliate. In April 2000, the Company invested an
additional $5,059 in Class A Preferred Units of JZ International, LLC. This
increased the Company's investment in JZ International, LLC to $12,344 at
December 31, 2001 and 2000. JZ International's Chief Executive Officer is
David W. Zalaznick, and its members include Messrs. Jordan, Quinn, Zalaznick
and Boucher, who are the Company's directors and stockholders, as well as
other members. JZ International and its subsidiaries are focused on making
European and other international investments. The Company is accounting for
this investment under the cost method.

                                      47
<PAGE>

     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., a Director of the Company. Rent
expenses, including real estate taxes attributable to the Merkle-Korff
Leases, amounted to approximately $500 for the year ended December 31,
2001. The Company has agreed to pay future minimum rental payments under
the Merkle-Korff Leases amounting to approximately $400 for the year ended
December 31, 2002. The Company has the right of first refusal to buy these
facilities from Mr. Simms. See Note 10 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 approximately $1,000
for the year ended December 31, 2001. 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 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.





                                      48
<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, 2001, 2000 and 1999 is submitted herewith:

          Item                                             Page Number
          ----                                             -----------
Schedule II - Valuation and qualifying accounts                 52

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.



                                      49
<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.


                                  KINETEK, INC.


                                  By      /s/ Thomas H. Quinn
                                         --------------------------------------
Dated:  March 29, 2002                   Thomas H. Quinn
                                         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
                                          -------------------------------------
Dated:  March 29, 2002                        Thomas H. Quinn
                                              Chairman of the Board

                                  By       /s/ Ron A. Sansom
                                           ------------------------------------
Dated:  March 29, 2002                        Ron A. Sansom
                                              Chief Executive Officer
                                              and a Director

                                  By       /s/ John W. Jordan II
                                          -------------------------------------
Dated:  March 29, 2002                        John W. Jordan II
                                              Director

                                  By       /s/ Daniel D. Drury
                                           ------------------------------------
Dated:  March 29, 2002                        Daniel D. Drury
                                              Chief Financial Officer




                                      50
<PAGE>


                               EXHIBIT INDEX


Exhibit                        Description
 Number

2.1        Contingent Earnout Agreement, dated as of November 7, 1996, by
           and among Kinetek, Inc., Kinetek 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 Kinetek, 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. (incorporated by reference to exhibit 2.1 to Form 8-K
           of Kinetek, Inc., date 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
           Kinetek, 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 Kinetek, 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 Kinetek, Inc., dated
           January 28, 2000)

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 Kinetek, Inc., dated January 28, 2000)

3.1        Certificate of Amendment of Certificate of Incorporation of Motors
           And Gears, Inc. and Certificate of Incorporation of Motors And
           Gears, Inc. (incorporated by reference to Exhibit 3.1 to Kinetek
           Inc.'s Form 10-K Annual Report, dated March 28, 2001)

3.2        Bylaws of Kinetek, Inc. (incorporated by reference to Exhibit
           3.2 to the 1996 S-4)

4.1        Indenture,  dated  November 7, 1996,  between  Kinetek,  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
           Kinetek,  Inc. and State Street Bank and Trust Company,  as Trustee
           (incorporated by reference to Kinetek Inc.'s Form S-4 Registration
           Statement) (File No. 333-44057) (the "1998 S-4")

                                      52
<PAGE>

4.3        Indenture, dated December 17, 1997, between Kinetek, Inc. and
           State Street Bank and Trust Company, as Trustee (incorporated by
           reference to Exhibit 4.3 to the 1998 S-4)

10.1 *     Loan and Security Agreement, dated December 18, 2001 by and among
           Kinetek  Industries,  Inc., the lenders listed thereto and Fleet
           Capital Corporation, as Agent.

10.2 *     Management  Consulting  Agreement,  dated  December 14, 2001, by and
           among Jordan  Industries,  Inc.,  the  Company and the other
           signatories thereto.

10.3 *     Properties Services Agreement, dated December 14, 2001, by and
           among JI Properties,  Inc., the Company and the other signatories
           thereto.

10.4 *     Transaction Advisory Agreement, dated December 14, 2000, by
           and among Jordan Industries, Inc., the Company and the other
           signatories thereto.

10.5 *     Agreement to Join in the Filing of  Consolidated  Tax Return,  dated
           December 14, 2001 by and among Jordan Industries, Inc., the Company
           and the other signatories thereto.

10.6       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 S-4).

10.7       Indemnification Agreement,  dated  November 7, 1996, between
           Kinetek,  Inc. and Thomas H. Quinn (incorporated by reference to
           Exhibit 10.1(a) to the 1998 S-4)

10.8       Indemnification  Agreement,  dated  November 7, 1996,  between
           Kinetek,  Inc.  and  Jonathan  F.  Boucher (incorporated by
           reference to Exhibit 10.1(b) to the 1996 S-4)

10.9       Indemnification Agreement, dated November 7, 1996, between Kinetek,
           Inc. and David W. Zalaznick (incorporated by reference to Exhibit
           10.1(c) to the 1996 S-4)

10.10      Indemnification Agreement, dated November 7, 1996, between Kinetek,
           Inc. and John W. Jordan II (incorporated by reference to Exhibit
           10.1(d) to the 1996 S-4)

10.11      Indemnification Agreement, dated November 7, 1996, between
           Kinetek, Inc. and Ron A. Sansom (incorporated by reference to
           Exhibit 10.1(e) to the 1996 S-4)

10.12      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)

10.13      Electrical Design and Control Company,  Inc.  Non-negotiable
           Subordinated Note in the principal aggregate amount of $1,333,333
           payable to Tina Levire  (incorporated by reference to Exhibit 10.13
           to the 1998 Form  S-4)

                                      53
<PAGE>

10.14      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)

10.15      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)

10.16      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)

10.17      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)

10.18      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)

12.1*      Computations of the Ratios of Earnings to Fixed Charges

21.1*      Subsidiaries of Kinetek, Inc.


* filed herewith



                                      54
<PAGE>






                                                                 Schedule II

                                 KINETEK, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                            (dollars in thousands)

<TABLE>
<CAPTION>

                                                                     Additions
                                 Balance at          Additions       Charged to     Write Offs              Balance at
                                  Beginning           due to         Costs and        Net of                  end of
                                  of Period        acquisitions       Expenses      Recoveries     Other      Period
                                  ----------       ------------       ---------     ----------     -----      -------
<S>                               <C>                   <C>           <C>             <C>         <C>       <C>

December 31, 2001:
  Allowance for
  doubtful accounts                $1,891                0             1,500          (299)       (187)      $2,907

    Reserve for
    inventory obsolescence         $2,009                0             1,020           (39)       (360)      $2,630

  Warranty reserve                  $625                 0              172           (227)          -         $570

December 31, 2000:
  Allowance for
  doubtful accounts                 $850                 0             1,433          (300)       (92)       $1,891

   Reserve for
    inventory
    obsolescence                   $1,211                0             1,180          (302)       (80)       $2,009

  Warranty reserve                  $487                 0              150            (12)        -           $625


December 31, 1999:
  Allowance for
  doubtful accounts                 $734                 0              784           (592)       (76)        $850

    Reserve for inventory
    obsolescence                    $761                 0              902           (415)       (37)      $1,211

  Warranty reserve                  $312                 0              209            (34)         0         $487


</TABLE>


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