TABLE OF CONTENTS




|                                      |                                                     |  |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------- |  |  |  |  |  |  | 
|EXPLANATION OF AMENDMENT             
|                                      | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|                                      | Audited Consolidated Financial Statements          
|REPORT OF INDEPENDENT AUDITORS       
|Part IV                              
|SIGNATURES                           
|EXHIBIT 23.1 CONSENT OF ERNST & YOUNG
|EXHIBIT 31.1 302 CERT OF CEO         
|EXHIBIT 31.2 302 CERT OF CFO         
|EXHIBIT 32.1 906 CERT OF CEO         
|EXHIBIT 32.2 906 CERT OF CFO         



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K/AAmendment No. 1

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934




|                                            |                              
|------------------------------------------- | -----------------------------
|For the fiscal year ended December 31, 2003 | Commission File No. 001-13797

HAWK CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                   |  |                                     
|-------------------------------------------------- |  | ------------------------------------
|Delaware                                           |  | 34-1608156                          
|                                                   |  |                                     
|(State of Incorporation)                           |  | (I.R.S. Employer Identification No.)
|                                                  
|200 Public Square, Suite 1500,
    Cleveland, Ohio |  | 44114-2301                          
|                                                   |  |                                     
|(Address of principal executive offices)           |  | (Zip Code)                          

Registrants telephone number, including
area code: (216) 861-3553

Securities registered pursuant to
Section 12(b) of the Act:

|                                     |  |                                     
|------------------------------------ |  | ------------------------------------
|Title of Each Class                  |  | Name of Exchange on Which Registered
|                                     |  |                                     
|Class A Common Stock, par value $.01 |  | American Stock Exchange             

Securities registered pursuant to
Section 12(g) of the Act: None

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such report(s)), and
(2) has been subject to such filing requirements for the
past
90 days.   YES x  NO o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. x

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).  YES o  NO x

The aggregate market value of the voting common
equity held by non-affiliates as of June 30, 2003 was
$19,469,887 (based on the closing price as quoted on the New
York Stock Exchange on that date).

As of February 27, 2004, the Registrant had
8,624,826 shares of Class A Common Stock, net of treasury
shares, and 0 shares of Class B non-voting Common Stock
outstanding. As of that date, non-affiliates held 5,705,003
shares of Class A Common Stock and 0 shares of Class B
non-voting Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

As used in this Form 10-K/A, the terms
Company, Hawk, Registrant,
we, us and our mean Hawk
Corporation and its consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise. Except as otherwise
stated, the information contained in this Form 10-K is as
of December 31, 2003.



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##### Table of Contents






EXPLANATION OF AMENDMENT

Hawk Corporation is filing this Form 10-K/A as Amendment No. 1 (the
Amendment) to its Annual Report on Form 10-K for the year ended December 31,
2003 that was filed with the Securities and Exchange Commission on March 26,
2004 for the purpose of correcting immaterial typographical errors which were
inadvertently included in the Form 10-K. The typographical errors are
summarized below and were included in Hawks Consolidated Financial Statements
in Item 8 of the Form 10-K.

The corrections made in this Amendment effect only certain line items in
segment and supplemental guarantor information in Hawks Consolidated Financial
Statements and have no effect on the consolidated statement of operations,
balance sheets, statements of shareholders equity or cash flows, as previously
reported. Without limitation, the corrections have no effect on Hawks net
loss, loss per share, total assets, total liabilities or total equity as
previously reported.

Summary of Corrections



|1. |  | Item 8. Note 14  Business Segments on page 59 in Notes to the
Consolidated Financial Statements:                                            
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Net sales to external customers  precision components was corrected to
$68,123 from $68,213.                                          
|  
|2. |  | Item 8. Note 15  Supplemental Guarantor Information on page 63 in Notes
to the Consolidated Financial Statements:                           
|  
|   |  | The amount of $793 in Assets  other current assets was correctly
moved to Combined Non-Guarantor Subsidiaries from Eliminations.    
|  
|   |  | The amount of ($794) in Assets  Investment in subsidiaries was
correctly moved to Eliminations from Combined Guarantor Subsidiaries.
|  
|   |  | Assets  Property, plaint and equipment, net was corrected to $54,695
from 4,695.                                                      

In connection with the filing of this Amendment and pursuant to Rules 12b-15
and 13a-14 under the Securities Exchange Act of 1934, as amended, we are
including with this Amendment certain currently dated certifications and the
update of the independent auditors consent. Except as described above, no
other amendments are being made to the Form 10-K. This Amendment does not
reflect events occurring after the March 26, 2004 filing of the Form 10-K, or
modify or update the disclosure contained in the Form 10-K in any way other
than as required to reflect the corrections discussed above and reflected
below.





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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

AUDITED CONSOLIDATED FINANCIAL
STATEMENTS

Hawk Corporation and subsidiaries

December 31, 2003, 2002 and 2001


32



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##### Table of Contents






Audited Consolidated Financial
Statements

|                                                    |  |  |    | 
|--------------------------------------------------- |  |  | -- | 
|Report of Independent Auditors                      |  |  | 34 | 
|Consolidated Balance Sheets                         |  |  | 35 | 
|Consolidated Statements of Operations               |  |  | 37 | 
|Consolidated Statements of
    Shareholders Equity |  |  | 38 | 
|Consolidated Statements of Cash Flows               |  |  | 39 | 
|Notes to Consolidated Financial Statements          |  |  | 40 | 

33



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REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors

Hawk Corporation


We have audited the accompanying consolidated
balance sheets of Hawk Corporation and subsidiaries as of
December 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Hawk
Corporation and subsidiaries at December 31, 2003 and 2002,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 2 to the consolidated
financial statements, in 2002 the Company changed its method of
accounting for goodwill.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Cleveland, Ohio

February 27, 2004


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HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS

(In Thousands, except share data)

|                                    |                                                                          |                                   |         |         |        |   |         |        |        | 
|----------------------------------- | ------------------------------------------------------------------------ | --------------------------------- | ------- | ------- | ------ | - | ------- | ------ | ------ | 
|                                    |                                                                          |                                  
|                                    |                                                                          | December 31                      
|                                    |                                                                          |                                  
|                                    |                                                                          | 2003                              |         | 2002   
|                                    |                                                                          |                                   |         |        
|Assets                              |                                                                          |                                   |         |         |        |   |         |       
|Current assets:                     |                                                                          |                                   |         |         |        |   |         |       
|                                    | Cash and cash equivalents                                                |                                   | $       | 3,365   |        |   | $       | 1,702  |       
|                                    | Accounts receivable, less allowance of $429 in
    2003 and $502 in 2002 |                                   |         | 32,272  |        |   |         | 29,475 |       
|                                    | Inventories:                                                             |                                   |         |         |        |   |         |        |       
|                                    |                                                                          | Raw materials and work-in-process |         |         | 21,277 |   |         |        | 20,211 | 
|                                    |                                                                          | Finished products                 |         |         | 14,147 |   |         |        | 12,470 | 
|                                    |                                                                          |                                   |         |         |        |   |         |       
|                                    |                                                                          |                                   | 35,424  |         |        |   | 32,681  |       
|                                    | Deferred income taxes                                                    |                                   |         | 3,551   |        |   |         | 745    |       
|                                    | Taxes receivable                                                         |                                   |         | 521     |        |   |         | 3,333  |       
|                                    | Other current assets                                                     |                                   |         | 4,032   |        |   |         | 3,909  |       
|                                    | Current assets of discontinued operations                                |                                   |         | 4,302   |        |   |         | 3,965  |       
|                                    |                                                                          |                                   |         |         |        |   |         |       
|Total current assets                |                                                                          |                                   | 83,467  |         |        |   | 75,810  |       
|Property, plant and equipment:      |                                                                          |                                   |         |         |        |   |         |       
|                                    | Land and improvements                                                    |                                   |         | 1,944   |        |   |         | 1,676  |       
|                                    | Buildings and improvements                                               |                                   |         | 19,937  |        |   |         | 19,415 |       
|                                    | Machinery and equipment                                                  |                                   |         | 104,370 |        |   |         | 93,180 |       
|                                    | Furniture and fixtures                                                   |                                   |         | 8,405   |        |   |         | 7,693  |       
|                                    | Construction in progress                                                 |                                   |         | 5,622   |        |   |         | 6,247  |       
|                                    |                                                                          |                                   |         |         |        |   |         |       
|                                    |                                                                          |                                   | 140,278 |         |        |   | 128,211 |       
|                                    | Less accumulated depreciation
    and amortization                       |                                   |         | 77,142  |        |   |         | 66,391 |       
|                                    |                                                                          |                                   |         |         |        |   |         |       
|Total property, plant and equipment |                                                                          |                                   | 63,136  |         |        |   | 61,820  |       
|Other assets:                       |                                                                          |                                   |         |         |        |   |         |       
|                                    | Goodwill                                                                 |                                   |         | 32,495  |        |   |         | 32,495 |       
|                                    | Other intangible assets                                                  |                                   |         | 9,904   |        |   |         | 10,701 |       
|                                    | Shareholder notes                                                        |                                   |         | 1,000   |        |   |         | 1,010  |       
|                                    | Other                                                                    |                                   |         | 3,547   |        |   |         | 4,636  |       
|                                    | Long-term assets of discontinued operations                              |                                   |         |         |        |   |         | 6,408  |       
|                                    |                                                                          |                                   |         |         |        |   |         |       
|Total other assets                  |                                                                          |                                   | 46,946  |         |        |   | 55,250  |       
|                                    |                                                                          |                                   |         |         |        |   |         |       
|Total assets                        |                                                                          | $                                 | 193,549 |         |        | $ | 192,880 |       
|                                    |                                                                          |                                   |         |         |        |   |         |       



See notes to consolidated financial
statements.


35



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HAWK CORPORATION


CONSOLIDATED BALANCE SHEETS 
(continued)

|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------- | ------ | - | - | ------- | ------ | -
|                                               |                                                                                                                                                                                                           |            
|                                               |                                                                                                                                                                                                           | December 31
|                                               |                                                                                                                                                                                                           |            
|                                               |                                                                                                                                                                                                           | 2003        |         | 2002  
|                                               |                                                                                                                                                                                                           |             |         |       
|Liabilities and shareholders
    equity       |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|Current liabilities:                           |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|                                               | Accounts payable                                                                                                                                                                                          |             | $       | 21,569 |   |   | $       | 16,104 |  
|                                               | Accrued compensation                                                                                                                                                                                      |             |         | 5,736  |   |   |         | 4,068  |  
|                                               | Accrued interest                                                                                                                                                                                          |             |         | 4,153  |   |   |         | 372    |  
|                                               | Other accrued expenses                                                                                                                                                                                    |             |         | 8,296  |   |   |         | 4,655  |  
|                                               | Short-term debt                                                                                                                                                                                           |             |         | 1,326  |   |   |         |        |  
|                                               | Bank Facility                                                                                                                                                                                             |             |         | 24,059 |   |   |         | 36,327 |  
|                                               | Current portion of long-term debt                                                                                                                                                                         |             |         | 1,148  |   |   |         | 3,103  |  
|                                               | Current liabilities of
    discontinued operations                                                                                                                                                        |             |         | 3,652  |   |   |         | 2,126  |  
|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|Total current liabilities                      |                                                                                                                                                                                                           |             | 69,939  |        |   |   | 66,755  |       
|Long-term liabilities:                         |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|                                               | Long-term debt                                                                                                                                                                                            |             |         | 68,443 |   |   |         | 68,890 |  
|                                               | Deferred income taxes                                                                                                                                                                                     |             |         | 4,360  |   |   |         | 5,245  |  
|                                               | Other                                                                                                                                                                                                     |             |         | 9,102  |   |   |         | 6,523  |  
|                                               | Long-term debt of discontinued operations                                                                                                                                                                 |             |         |        |   |   |         | 633    |  
|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|Total long-term liabilities                    |                                                                                                                                                                                                           |             | 81,905  |        |   |   | 81,291  |       
|Shareholders equity:                          |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|                                               | Series D preferred stock, $.01 par value; an
    aggregate liquidation value of $1,530, plus any unpaid dividends
    with 9.8% cumulative dividend (1,530 shares authorized, issued
    and outstanding) |             |         | 1      |   |   |         | 1      |  
|                                               | Series E preferred stock, $.01 par value;
    100,000 shares authorized; none issued or outstanding                                                                                                       |             |         |        |   |   |         |        |  
|                                               | Class A common stock, $.01 par value;
    75,000,000 shares authorized; 9,187,750 issued; and 8,588,720
    and 8,557,990 outstanding in 2003 and 2002, respectively                                      |             |         | 92     |   |   |         | 92     |  
|                                               | Class B common stock, $.01 par value;
    10,000,000 shares authorized; none issued or outstanding                                                                                                        |             |         |        |   |   |         |        |  
|                                               | Additional paid-in capital                                                                                                                                                                                |             |         | 54,483 |   |   |         | 54,616 |  
|                                               | Retained (deficit) earnings                                                                                                                                                                               |             |         | (4,344 | ) |   |         | 1,228  |  
|                                               | Accumulated other comprehensive loss                                                                                                                                                                      |             |         | (4,083 | ) |   |         | (6,436 | )
|                                               | Treasury stock, at cost, 599,030 and 629,760
    shares in 2003 and 2002, respectively                                                                                                                    |             |         | (4,444 | ) |   |         | (4,667 | )
|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|Total shareholders equity                     |                                                                                                                                                                                                           |             | 41,705  |        |   |   | 44,834  |       
|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |       
|Total liabilities and
    shareholders equity |                                                                                                                                                                                                           | $           | 193,549 |        |   | $ | 192,880 |       
|                                               |                                                                                                                                                                                                           |             |         |        |   |   |         |       



See notes to consolidated financial
statements.


36



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HAWK CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In Thousands, except per share
data)

|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |        |      |  
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------- | ------ | ---- | ---- | ------- | ------ | ----- | - | ------- | ------ | ---- | -
|                                                                                                                           |                                                                   |                                                                                                           
|                                                                                                                           |                                                                   | Year ended December 31                                                                                    
|                                                                                                                           |                                                                   |                                                                                                           
|                                                                                                                           |                                                                   | 2003                                                                                                       |         | 2002   |      | 2001
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |     
|Net sales                                                                                                                  |                                                                   | $                                                                                                          | 202,551 |        |      | $    | 185,912 |        |       | $ | 176,888 |       
|Cost of sales                                                                                                              |                                                                   |                                                                                                            | 155,182 |        |      |      | 141,716 |        |       |   | 136,140 |       
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|Gross profit                                                                                                               |                                                                   |                                                                                                            | 47,369  |        |      |      | 44,196  |        |       |   | 40,748  |       
|Operating expenses:                                                                                                        |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|                                                                                                                           | Selling, technical and
    administrative expenses                |                                                                                                            |         | 33,731 |      |      |         | 30,474 |       |   |         | 28,782 |     
|                                                                                                                           | Restructuring costs                                               |                                                                                                            |         |        |      |      |         |        |       |   |         | 1,055  |     
|                                                                                                                           | Pension curtailment and contractual termination
    benefit costs |                                                                                                            |         | 1,920  |      |      |         |        |       |   |         |        |     
|                                                                                                                           | Amortization of finite-lived
    intangible assets                |                                                                                                            |         | 800    |      |      |         | 767    |       |   |         | 3,733  |     
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|Total operating expenses                                                                                                   |                                                                   |                                                                                                            | 36,451  |        |      |      | 31,241  |        |       |   | 33,570  |       
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|Income from operations                                                                                                     |                                                                   |                                                                                                            | 10,918  |        |      |      | 12,955  |        |       |   | 7,178   |       
|Interest expense                                                                                                           |                                                                   |                                                                                                            | (10,752 | )      |      |      | (10,366 | )      |       |   | (10,081 | )     
|Interest income                                                                                                            |                                                                   |                                                                                                            | 57      |        |      |      | 116     |        |       |   | 229     |       
|Exchange offer costs                                                                                                       |                                                                   |                                                                                                            |         |        |      |      | (1,851  | )      |       |   |         |       
|Other income (expense), net                                                                                                |                                                                   |                                                                                                            | 183     |        |      |      | (718    | )      |       |   | (480    | )     
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|Income (loss) before income taxes,
    discontinued operations and cumulative effect of change in
    accounting principle |                                                                   |                                                                                                            | 406     |        |      |      | 136     |        |       |   | (3,154  | )     
|Income tax provision (benefit)                                                                                             |                                                                   |                                                                                                            | 855     |        |      |      | (669    | )      |       |   | (937    | )     
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|(Loss) income before discontinued operations
    and cumulative effect of change in accounting principle                   |                                                                   |                                                                                                            | (449    | )      |      |      | 805     |        |       |   | (2,217  | )     
|Discontinued operations, net of tax of $2,700 in
    2003, $825 in 2002 and $921 in 2001                                   |                                                                   |                                                                                                            | (4,973  | )      |      |      | (1,850  | )      |       |   | (2,119  | )     
|Cumulative effect of change in accounting
    principle, net of tax of $4,252                                              |                                                                   |                                                                                                            |         |        |      |      | (17,200 | )      |       |   |         |       
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|Net loss                                                                                                                   |                                                                   | $                                                                                                          | (5,422  | )      |      | $    | (18,245 | )      |       | $ | (4,336  | )     
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|(Loss) earnings per share:                                                                                                 |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|                                                                                                                           | Basic (loss) earnings per share:                                  |                                                                                                            |         |        |      |      |         |        |       |   |         |        |     
|                                                                                                                           |                                                                   | (Loss) earnings before discontinued operations
    and cumulative effect of change in accounting principle |         | $      | (.07 | )    |         | $      | .08   |   |         | $      | (.27 | )
|                                                                                                                           |                                                                   | Discontinued operations                                                                                    |         |        | (.58 | )    |         |        | (.22  | ) |         |        | (.25 | )
|                                                                                                                           |                                                                   | Cumulative effect of change in
    accounting principle                                                    |         |        |      |      |         |        | (2.01 | ) |         |        |      |  
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|                                                                                                                           | Net loss per basic share                                          |                                                                                                            | $       | (.65   | )    |      | $       | (2.15  | )     |   | $       | (.52   | )   
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|                                                                                                                           | Diluted (loss) earnings per share:                                |                                                                                                            |         |        |      |      |         |        |       |   |         |        |     
|                                                                                                                           |                                                                   | (Loss) earnings before discontinued operations
    and cumulative effect of change in accounting principle |         | $      | (.07 | )    |         | $      | .08   |   |         | $      | (.27 | )
|                                                                                                                           |                                                                   | Discontinued operations                                                                                    |         |        | (.58 | )    |         |        | (.22  | ) |         |        | (.25 | )
|                                                                                                                           |                                                                   | Cumulative effect of change in accounting
    principle                                                    |         |        |      |      |         |        | (2.00 | ) |         |        |      |  
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       
|                                                                                                                           | Net loss per diluted share                                        |                                                                                                            | $       | (.65   | )    |      | $       | (2.14  | )     |   | $       | (.52   | )   
|                                                                                                                           |                                                                   |                                                                                                            |         |        |      |      |         |        |       |   |         |       



See notes to consolidated financial
statements.


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HAWK CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(In Thousands)

|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |         |        |  
|---------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | - | ------ |  | ---------- | -- | --------- |  | -------------------- | ------ | --------- | - | -------- | ------ | ------- | - | - | ------ | - | ----- | - | ------ | - | ------ | - | ------ | --- |  | - | ------ | ------- | ------ | -
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |         
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  | Accumulated Other    |        |           |   |         
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  | Comprehensive Income |        |           |   |         
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  | (Loss)               |        |           |   |         
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |         
|                             |                                                                                          |                                                     |   |        |  | Additional |    | Retained  |  | Foreign              |        | Minimum   |   |          |        |        
|                             |                                                                                          | Preferred                                           |   | Common |  | Paid-in    |    | Earnings  |  | Currency             |        | Pension   |   | Treasury |        |        
|                             |                                                                                          | Stock                                               |   | Stock  |  | Capital    |    | (Deficit) |  | Translation          |        | Liability |   | Stock    |        | Total  
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |        
|Balance at January 1, 2001   |                                                                                          | $                                                   | 1 |        |  | $          | 92 |           |  | $                    | 54,631 |           |   | $        | 24,109 |         |   | $ | (2,326 | ) |       | $ | (83    | ) |        | $ | (4,735 | )   |  | $ | 71,689 |        
|                             | Net loss                                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (4,336  | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (4,336  | )     
|                             | Other comprehensive loss:                                                                |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |         |       
|                             |                                                                                          | Minimum pension liability, net of tax of $310       |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   | (495   | ) |        |     |  |   |        |         | (495   | )
|                             |                                                                                          | Foreign currency translation                        |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   | (297  | ) |        |   |        |   |        |     |  |   |        |         | (297   | )
|                             | Total comprehensive loss                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (5,128  | )     
|                             | Preferred stock dividends                                                                |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (150    | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (150    | )     
|                             | Issuance of common stock from treasury
    as compensation                               |                                                     |   |        |  |            |    |           |  |                      |        | (5        | ) |          |        |         |   |   |        |   |       |   |        |   |        |   |        | 31  |  |   |        | 26      |       
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        
|Balance at December 31, 2001 |                                                                                          | $                                                   | 1 |        |  | $          | 92 |           |  | $                    | 54,626 |           |   | $        | 19,623 |         |   | $ | (2,623 | ) |       | $ | (578   | ) |        | $ | (4,704 | )   |  | $ | 66,437 |        
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        
|                             | Net loss                                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (1,045  | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (1,045  | )     
|                             | Other comprehensive income (loss):                                                       |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |         |       
|                             |                                                                                          | Minimum pension liability, net of tax of
    $2,435 |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   | (3,901 | ) |        |     |  |   |        |         | (3,901 | )
|                             |                                                                                          | Foreign currency translation                        |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   | 666   |   |        |   |        |   |        |     |  |   |        |         | 666    |  
|                             | Cumulative change in accounting principle, net
    of tax                                |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (17,200 | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (17,200 | )     
|                             | Total comprehensive loss                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (21,480 | )     
|                             | Preferred stock dividends                                                                |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (150    | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (150    | )     
|                             | Issuance of common stock from treasury
    as compensation                               |                                                     |   |        |  |            |    |           |  |                      |        | (10       | ) |          |        |         |   |   |        |   |       |   |        |   |        |   |        | 37  |  |   |        | 27      |       
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        
|Balance at December 31, 2002 |                                                                                          | $                                                   | 1 |        |  | $          | 92 |           |  | $                    | 54,616 |           |   | $        | 1,228  |         |   | $ | (1,957 | ) |       | $ | (4,479 | ) |        | $ | (4,667 | )   |  | $ | 44,834 |        
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        
|                             | Net loss                                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (5,422  | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (5,422  | )     
|                             | Other comprehensive income (loss):                                                       |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |         |       
|                             |                                                                                          | Minimum pension liability, net of tax of $14        |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   | 23     |   |        |     |  |   |        |         | 23     |  
|                             |                                                                                          | Foreign currency translation                        |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   | 2,330 |   |        |   |        |   |        |     |  |   |        |         | 2,330  |  
|                             | Total comprehensive loss                                                                 |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (3,069  | )     
|                             | Preferred stock dividends                                                                |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        | (150    | ) |   |        |   |       |   |        |   |        |   |        |     |  |   |        | (150    | )     
|                             | Issuance of common stock from treasury as
    compensation and exercise of stock options |                                                     |   |        |  |            |    |           |  |                      |        | (133      | ) |          |        |         |   |   |        |   |       |   |        |   |        |   |        | 223 |  |   |        | 90      |       
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        
|Balance at December 31, 2003 |                                                                                          | $                                                   | 1 |        |  | $          | 92 |           |  | $                    | 54,483 |           |   | $        | (4,344 | )       |   | $ | 373    |   |       | $ | (4,456 | ) |        | $ | (4,444 | )   |  | $ | 41,705 |        
|                             |                                                                                          |                                                     |   |        |  |            |    |           |  |                      |        |           |   |          |        |         |   |   |        |   |       |   |        |   |        |   |        |     |  |   |        |        



See notes to consolidated financial
statements.


38



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##### Table of Contents



HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In Thousands)

|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |        |        |  
|----------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                    |                                                                            |                            
|                                                                                    |                                                                            | Year ended December 31     
|                                                                                    |                                                                            |                            
|                                                                                    |                                                                            | 2003                        |         | 2002   |        | 2001
|                                                                                    |                                                                            |                             |         |        |        |     
|Cash flows from operating activities                                                |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net loss                                                                            |                                                                            | $                           | (5,422  | )      |        | $    | (18,245 | )      |        | $ | (4,336  | )     
|Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|                                                                                    | Loss from discontinued operations, net of tax                              |                             |         | 4,973  |        |      |         | 1,850  |        |   |         | 2,119  |       
|                                                                                    | Cumulative effect of change in accounting
    principle, net of tax        |                             |         |        |        |      |         | 17,200 |        |   |         |        |       
|                                                                                    | Depreciation and amortization                                              |                             |         | 11,674 |        |      |         | 11,657 |        |   |         | 15,071 |       
|                                                                                    | Deferred income taxes                                                      |                             |         | (3,699 | )      |      |         | 1,406  |        |   |         | (637   | )     
|                                                                                    | Loss on fixed assets                                                       |                             |         | 204    |        |      |         | 47     |        |   |         | 385    |       
|                                                                                    | Changes in operating assets and liabilities:                               |                             |         |        |        |      |         |        |        |   |         |        |       
|                                                                                    |                                                                            | Accounts receivable         |         |        | (949   | )    |         |        | (4,047 | ) |         |        | 4,063  |  
|                                                                                    |                                                                            | Inventories                 |         |        | (1,656 | )    |         |        | (3,110 | ) |         |        | 2,552  |  
|                                                                                    |                                                                            | Other assets                |         |        | 3,048  |      |         |        | (6,962 | ) |         |        | (2,841 | )
|                                                                                    |                                                                            | Accounts payable            |         |        | 4,494  |      |         |        | 2,922  |   |         |        | 1,896  |  
|                                                                                    |                                                                            | Accrued expenses            |         |        | 4,090  |      |         |        | (7,208 | ) |         |        | 830    |  
|                                                                                    |                                                                            | Other liabilities and other |         |        | 6,904  |      |         |        | (3,161 | ) |         |        | (2,251 | )
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net cash provided by (used in) operating
    activities of continuing operations    |                                                                            |                             | 23,661  |        |        |      | (7,651  | )      |        |   | 16,851  |       
|Net cash provided by (used in) operating
    activities of discontinued operations  |                                                                            |                             | 2,299   |        |        |      | 4,861   |        |        |   | (2,397  | )     
|Cash flows from investing activities                                                |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Purchases of property, plant and equipment                                          |                                                                            |                             | (10,677 | )      |        |      | (9,729  | )      |        |   | (8,053  | )     
|Proceeds from sale of assets                                                        |                                                                            |                             | 568     |        |        |      |         |        |        |   |         |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net cash used in investing activities of
    continuing operations                  |                                                                            |                             | (10,109 | )      |        |      | (9,729  | )      |        |   | (8,053  | )     
|Net cash used in investing activities of
    discontinued operations                |                                                                            |                             | (308    | )      |        |      | (1,075  | )      |        |   | (1,043  | )     
|Cash flows from financing activities                                                |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Proceeds from short-term debt                                                       |                                                                            |                             | 1,326   |        |        |      |         |        |        |   |         |       
|Proceeds from long-term debt                                                        |                                                                            |                             | 627     |        |        |      | 53,370  |        |        |   | 40,457  |       
|Payments on long-term debt                                                          |                                                                            |                             | (2,960  | )      |        |      | (47,615 | )      |        |   | (46,520 | )     
|Payment on Old Senior Notes                                                         |                                                                            |                             | (583    | )      |        |      |         |        |        |   |         |       
|Pay off of Term Loan and Revolving
    Credit Facility                              |                                                                            |                             |         |        |        |      | (29,784 | )      |        |   |         |       
|Proceeds from Bank Facility                                                         |                                                                            |                             | 68,173  |        |        |      | 52,165  |        |        |   |         |       
|Payments on Bank Facility                                                           |                                                                            |                             | (80,441 | )      |        |      | (15,838 | )      |        |   |         |       
|Proceeds from exercise of stock options                                             |                                                                            |                             | 59      |        |        |      |         |        |        |   |         |       
|Payments of preferred stock dividends                                               |                                                                            |                             | (150    | )      |        |      | (150    | )      |        |   | (150    | )     
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net cash (used in) provided by financing
    activities of continuing operations    |                                                                            |                             | (13,949 | )      |        |      | 12,148  |        |        |   | (6,213  | )     
|Effect of exchange rate changes on cash                                             |                                                                            |                             | 69      |        |        |      | 64      |        |        |   | (71     | )     
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net cash (used in) provided by
    continuing operations                            |                                                                            |                             | (328    | )      |        |      | (5,168  | )      |        |   | 2,514   |       
|Net cash provided by (used in)
    discontinued operations                          |                                                                            |                             | 1,991   |        |        |      | 3,786   |        |        |   | (3,440  | )     
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Net increase (decrease) in cash and
    cash equivalents                            |                                                                            |                             | 1,663   |        |        |      | (1,382  | )      |        |   | (926    | )     
|Cash and cash equivalents at beginning
    of year                                  |                                                                            |                             | 1,702   |        |        |      | 3,084   |        |        |   | 4,010   |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Cash and cash equivalents at end of year                                            |                                                                            | $                           | 3,365   |        |        | $    | 1,702   |        |        | $ | 3,084   |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Supplemental cash
    flow information                                              |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Cash payments for interest                                                          |                                                                            | $                           | 5,556   |        |        | $    | 9,975   |        |        | $ | 8,940   |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Cash (refunds) payments for income
    taxes, net                                   |                                                                            | $                           | (1,879  | )      |        | $    | (2,371  | )      |        | $ | 871     |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|Noncash investing and financing activities:                                         |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|                                                                                    | Equipment purchased with capital leases and notes
    payable              |                             | $       | 546    |        |      | $       | 20     |        |   | $       | 422    |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|                                                                                    | Issuance of common stock from treasury                                     |                             | $       | 30     |        |      | $       | 27     |        |   | $       | 26     |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|                                                                                    | Issuance of payment in kind (PIK) payments in the
    form of Senior Notes |                             | $       | 124    |        |      |         |        |        |   |         |        |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       
|                                                                                    | Issuance of consent payments in the form of
    Senior Notes               |                             |         |        |        |      | $       | 1,642  |        |   |         |        |       
|                                                                                    |                                                                            |                             |         |        |        |      |         |        |        |   |         |       



See notes to consolidated financial
statements.


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##### Table of Contents



HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Years Ended December 31, 2003, 2002 and
2001

(In Thousands, Except Share Data)




|   |                      
|-- | ---------------------
|1. | Basis of Presentation

Hawk Corporation (the Company) designs,
engineers, manufactures and markets specialized components used
in a wide variety of aerospace, industrial and commercial
applications.

The consolidated financial statements of the
Company include its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in the
accompanying financial statements.

Certain amounts have been reclassified in prior
periods to conform to the 2003 presentation.



|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates

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



| |                 
| | ----------------
| | Cash Equivalents

The Company considers investments in highly
liquid investments with an initial maturity of three months or
less when purchased to be cash equivalents.



| |                  
| | -----------------
| | Trade Receivables

The Company has the intent and the ability to
hold all trade receivables until payments are received from
customers. Trade receivables are stated at outstanding amounts
as adjusted for an allowance for credits and doubtful accounts.
Trade receivables are evaluated on an ongoing basis and written
off to current operations when collection is no longer
reasonable assured.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost or
market. Cost includes materials, labor and overhead and is
determined by the first-in, first-out (FIFO) method.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost
and include expenditures for additions and major improvements.
Expenditures for repairs and maintenance are charged to
operations as incurred. The Company uses the straight-line and
double declining methods of depreciation for financial reporting
purposes. Buildings and improvements are depreciated over
periods ranging from 15 to 33 years. Machinery and equipment are
depreciated over periods ranging from 4 to 12 years.
Furniture and fixtures are depreciated over periods ranging from
3 to 10 years. Accelerated methods of depreciation are used
for federal income tax purposes. When assets are sold or
otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in
the Statement of Operations. The Companys depreciation
expense was $10,073 in 2003, $10,247 in 2002 and $10,720 in 2001.

Long-lived assets, except goodwill, are reviewed
for impairment whenever events or circumstances indicate the
carrying amount may not be recoverable. Events or circumstances
that would result in an impairment review primarily include
operations reporting losses, a significant change in the use of
an asset, or the planned disposal or sale of the asset. The
asset would be considered impaired when the future net
undiscounted cash flows

40



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

generated by the asset are less then its carrying
value. An impairment loss would be recognized based on the
amount by which the carrying value of the asset exceeds its fair
value.



| |                  
| | -----------------
| | Intangible Assets

In June 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 142 Goodwill and
Other Intangible Assets(SFAS 142). This Statement
eliminated the requirement to amortize goodwill and
indefinite-lived intangibles for 2002 and future years. The
Company adopted SFAS 142 as of January 1, 2002. The effect
of applying the non-amortization provisions of SFAS 142 for the
year ended December 31, 2001 would have been to decrease
amortization expense by approximately $2,928 ($2,354 after tax).

The following table illustrates the effect of
applying the non-amortization provisions of SFAS 142 on net
income and earnings per share before discontinued operations and
cumulative effect of change in accounting principle as of
December 31, 2001:

|                                                               |  |   |        |  
|-------------------------------------------------------------- |  | - | ------ | -
|Loss before discontinued operations,
    as reported           |  | $ | (2,217 | )
|Add back: Goodwill amortization, net of tax                    |  |   | 2,354  |  
|                                                               |  |   |        |  
|Adjusted income before discontinued operations                 |  | $ | 137    |  
|                                                               |  |   |        |  
|Earnings per share (basic and diluted):                        |  |   |        |  
|Loss per share before discontinued operations,
    as reported |  | $ | (.27   | )
|Goodwill amortization, net of tax                              |  |   | .27    |  
|                                                               |  |   |        |  
|Adjusted earnings per share before
    discontinued operations |  | $ | .00    |  
|                                                               |  |   |        |  

Upon adoption of SFAS 142, the Company changed
its accounting for goodwill and other indefinite-lived
intangible assets from an amortization methodology to an
impairment-only methodology. SFAS 142 provided for a six-month
transitional period, from the effective date of adoption, for
the Company to perform an initial assessment of whether goodwill
was impaired. The Company performed the assessment during the
second quarter of 2002, by comparing the fair value of each of
its reporting units to their respective carrying values as of
January 1, 2002. The Company, with the assistance of
independent valuation experts, concluded that as of
January 1, 2002 certain of its goodwill was impaired by
$21,452 ($17,200 after tax) or a loss of $2.01 per basic share
and $2.00 per diluted share, and such amount was reflected as a
cumulative effect of change in accounting principle. The
following is a summary of the pre-tax impairment charge by
affected business segment:

|                   |  |   |        | 
|------------------ |  | - | ------ | 
|Friction products  |  | $ | 11,100 | 
|Performance racing |  |   | 4,007  | 
|Motor              |  |   | 6,345  | 
|                   |  |   |        | 
|Total              |  | $ | 21,452 | 
|                   |  |   |        | 

The fair value of goodwill was estimated using a
combination of a discounted cash flow valuation model and a
market approach comparing the Companys reporting units to
similar peer group companies, as well as acquisitions having
similar characteristics. The discounted cash flow valuation
model was based on future estimated operating cash flows,
incorporating a discount rate commensurate with the risks for
each reporting unit and assumptions that were consistent with
the Companys operating plans and estimates used to manage
each of the underlying reporting units. The impairment resulted
from the carrying value exceeding the fair value of certain
reporting units, and was primarily due to a shortfall in current
and projected sales from levels anticipated at the time of the
respective acquisitions and other costs associated with the
Companys global expansion initiatives, as well as market
conditions as of January 1, 2002.

41



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

In accordance with SFAS No. 121
Accounting for the Impairment of Long-Lived Assets to be
Disposed Of(SFAS 121), management concluded that no asset
impairment charges were deemed necessary in 2001. The Company
determined that the estimated future undiscounted cash flows
associated with each unit tested exceeded the carrying values of
their respective long-lived assets. Consequently, no impairment
existed under SFAS 121.

SFAS 142 requires a review at least annually of
the carrying value of indefinite-lived assets and goodwill. The
Company performed the annual impairment test as of
October 31, 2003 and 2002 and concluded the fair value of
the reporting units exceeded their respective carrying values.



| |          
| | ---------
| | Insurance

The Company uses a combination of insurance and
self-insurance for a number of risks including property, general
liability, directors and officers liability,
workers compensation, vehicle liability and
employee-related health care benefits. Liabilities associated
with the risks that are retained are estimated by considering
various historical trends and forward-looking assumptions. The
estimated accruals for these self-insured liabilities at
December 31, 2003 and 2002 of $1,127 and $581,
respectively, could be significantly affected if future
occurrences and claims differ from these assumptions and
historical trends.



| |              
| | -------------
| | Contingencies

The Companys treatment of contingent
liabilities in the financial statements is based on the expected
outcome of the applicable contingency. In the ordinary course of
business the Company consults with legal counsel on matters
related to litigation and other experts both within and outside
of the Company. The Company will accrue a liability if the
likelihood of an adverse outcome is probable of occurrence and
the amount is estimable. The Company will not accrue a liability
if either the likelihood of an adverse outcome is only
reasonably possible or an estimate is not determinable.



| |                 
| | ----------------
| | Foreign Currency

The Companys primary functional currency is
the U.S. dollar. Assets and liabilities of the Company
denominated in foreign currencies are translated into U.S.
dollars at the balance sheet date, while revenues and expenses
are translated at weighted average exchange rates. Gains and
losses from foreign currency transactions are included in the
Statement of Operations. Gains and losses resulting from
translation are included in accumulated other comprehensive
loss, a component of shareholders equity.



| |                    
| | -------------------
| | Revenue Recognition

Revenue from the sale of the Companys
products is recognized upon shipment to the customer and when
title has transferred. Substantially all of the Companys
revenues are derived from fixed price purchase orders. Costs and
related expenses to manufacture the products are recorded as
costs of sales when the related revenue is recognized. Shipping
and handling are included in cost of products sold and are
included in the sales price when billed to customers. The
Company establishes bad debt reserves based on historical
experience and believes that the collection of receivables, net
of the bad debt reserves, is reasonably assured.



| |                           
| | --------------------------
| | Significant Concentrations

The Company provides credit, in the normal course
of its business, to original equipment and aftermarket
manufacturers. The Companys customers are not concentrated
in any specific geographic region. The Company performs ongoing
credit evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within
the range of managements expectations.

42



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



| |                                     
| | ------------------------------------
| | Product Research and
    Development

Product research and development costs are
expensed as incurred. The Companys expenditures for
product research and development and engineering were
approximately $4,102 in 2003, $3,470 in 2002, and $3,893 in 2001.



| |            
| | -----------
| | Advertising

All advertising costs are expensed as incurred.
The Companys expenditures for advertising were
approximately $400 in 2003, $610 in 2002, and $670 in 2001.



| |             
| | ------------
| | Income Taxes

The Company uses the liability method in
measuring the provision for income taxes and recognizing
deferred tax assets and liabilities in the balance sheet. The
liability method requires that deferred income taxes reflect the
tax consequences of currently enacted tax laws and rates for
differences between the tax and financial reporting basis of
assets and liabilities.



| |                   
| | ------------------
| | Stock Compensation

In accordance with the provisions of SFAS
No. 123, Accounting for Stock-Based Compensation,
(SFAS 123) the Company has elected to continue applying the
provisions of Accounting Principles Board Opinion No. 25
(APB 25) and related interpretations in accounting for its
stock-based compensation plans. Under the provisions of APB 25,
because the exercise price of the stock option equals the market
price of the underlying stock on the date of grant, no
compensation expense is recognized. The following illustrates
the pro forma effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of
SFAS 123 for the years ended 2003, 2002, and 2001:

|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |        |  
|----------------------- | --------------------------------------------------------------------------------------------------- | ---------------------- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|                        |                                                                                                     |                       
|                        |                                                                                                     | Year ended December 31
|                        |                                                                                                     |                       
|                        |                                                                                                     | 2003                   |        | 2002   |   | 2001
|                        |                                                                                                     |                        |        |        |   |     
|Net loss as reported    |                                                                                                     | $                      | (5,422 | )      |   | $    | (18,245 | )       |   | $ | (4,336 | )     
|                        | Employee stock-based compensation expense
    determined under fair value based methods, net of tax |                        |        | 663    |   |      |         | 1,020   |   |   |        | 822    |  
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|                        | Pro forma net loss                                                                                  |                        | $      | (6,085 | ) |      | $       | (19,265 | ) |   | $      | (5,158 | )
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|Basic loss per share:   |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|                        | As reported                                                                                         |                        | $      | (.65   | ) |      | $       | (2.15   | ) |   | $      | (.52   | )
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|                        | Pro forma                                                                                           |                        | $      | (.73   | ) |      | $       | (2.27   | ) |   | $      | (.62   | )
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|Diluted loss per share: |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|                        | As reported                                                                                         |                        | $      | (.65   | ) |      | $       | (2.14   | ) |   | $      | (.52   | )
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       
|                        | Pro forma                                                                                           |                        | $      | (.73   | ) |      | $       | (2.26   | ) |   | $      | (.62   | )
|                        |                                                                                                     |                        |        |        |   |      |         |         |   |   |        |       

43



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

The fair value of the options granted used to
compute pro forma net loss and loss per share is the estimated
present value at the grant date using the Black-Scholes
option-pricing model with the following assumptions:

|                                |  |                        |           |      |  |      |           |  |  |  |         | 
|------------------------------- |  | ---------------------- | --------- | ---- |  | ---- | --------- |  |  |  | ------- | 
|                                |  |                       
|                                |  | Year ended December 31
|                                |  |                       
|                                |  | 2003                   |           | 2002 |  | 2001
|                                |  |                        |           |      |  |     
|Dividend yield                  |  |                        | 0%        |      |  |      | 0%        |  |  |  | 0%      | 
|Expected volatility             |  |                        | 54.0%     |      |  |      | 66.5%     |  |  |  | 58.4%   | 
|Risk free interest rate         |  |                        | 4.00%     |      |  |      | 4.00%     |  |  |  | 5.00%   | 
|Expected average holding period |  |                        | 7.5 years |      |  |      | 7.5 years |  |  |  | 7 years | 



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The Companys financial instruments include
cash and cash equivalents, short-term trade receivables,
long-term notes receivable, notes payable and debt instruments.
For short-term instruments, the historical carrying value is a
reasonable estimate of fair value. Fair values for long-term
financial instruments that are not readily marketable are
estimated based upon the discounted future cash flows at
prevailing market interest rates. Based on these assumptions,
management believes that the fair market values of the
Companys financial instruments are not materially
different from their respective carrying values as of
December 31, 2003.



| |                                              
| | ---------------------------------------------
| | Recently Issued Accounting
    Pronouncements

In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities(SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) No. 94-3, Liability Recognition for Certain
Employee termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)(EITF 94-3). SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
and measured initially at the fair value only when the liability
is incurred. Under EITF 94-3, a liability for an exit cost was
recognized at the date of an entitys commitment to an exit
plan. SFAS 146 is effective for exit and disposal activities
that are initiated after December 31, 2002, with no effect on
charges recorded for exit activities begun prior to 2003. The
adoption of this statement did not have a material effect on the
Companys financial position or results of operations.

In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No. 51 (the Interpretation). The Interpretation
requires the consolidation of variable interest entities in
which an enterprise is the primary beneficiary. The primary
beneficiary absorbs a majority of the entitys expected
losses, receives a majority of the entitys expected
residual returns, or both, as a result of ownership, contractual
or other financial interest in the entity. Currently, entities
are generally consolidated by an enterprise that has a
controlling financial interest through ownership of a majority
voting interest in the entity. In December 2003, the FASB
issued a revised Interpretation that, among other things,
deferred the implementation date of the Interpretation until
periods ending after March 15, 2004 for variable interest
entities, other than those entities commonly referred to as
special purpose entities. The Company does not currently
maintain any relationships with variable interest entities and,
therefore, does not expect the adoption of FIN 46 to have a
material effect on the Companys financial position or
results of operations.



|   |                        
|-- | -----------------------
|3. | Discontinued Operations

During the fourth quarter of 2003, the Company
committed to a plan to sell its motor segment, which has
operations in Monterrey, Mexico and Alton, Illinois. This
segment, which manufactures die-cast aluminum rotors for
fractional and subfractional horsepower electric motors, failed
to achieve a certain level of profitability and, after
completing an extensive analysis, the Company determined that a
divestiture of this segment would allow

44



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

the Company to concentrate on its major business
segments. The Company has initiated an active marketing plan and
anticipates selling the segment within the next twelve months.

Results of operations of the Company have been
restated to reclassify the net earnings, assets, and liabilities
of the motors segment as discontinued operations for all periods
presented. Corporate expenses previously allocated to this
segment have been reallocated to the remaining continuing
operations, resulting in a restatement of operating profit by
segment (see Note 14). The loss from discontinued
operations in 2003 includes a pre-tax, non-cash charge of $4,530
to reduce the net assets of this business to its estimated fair
value, less costs to sell.

Operating results from discontinued operations
are summarized as follows:

|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|---------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                         |  |                       
|                                         |  | Year ended December 31
|                                         |  |                       
|                                         |  | 2003                   |        | 2002 |  | 2001
|                                         |  |                        |        |      |  |     
|Net sales                                |  | $                      | 14,463 |      |  | $    | 11,374 |   |  | $ | 7,500  |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Loss from operations before income taxes |  | $                      | (7,673 | )    |  | $    | (2,675 | ) |  | $ | (3,040 | )
|Income tax benefit                       |  |                        | 2,700  |      |  |      | 825    |   |  |   | 921    |  
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  
|Loss from operations, net of tax         |  | $                      | (4,973 | )    |  | $    | (1,850 | ) |  | $ | (2,119 | )
|                                         |  |                        |        |      |  |      |        |   |  |   |        |  

The assets and liabilities of this segment, which
have been classified as assets and liabilities of discontinued
operations in the Consolidated Balance Sheets, consist of the
following at December 31, 2003 and 2002:

|                                             |  |      |       |      |  |   |        | 
|-------------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                                             |  | 2003 |       | 2002
|                                             |  |      |       |     
|Accounts receivable                          |  | $    | 2,801 |      |  | $ | 3,286  | 
|Inventory                                    |  |      | 739   |      |  |   | 580    | 
|Other current assets                         |  |      | 40    |      |  |   | 99     | 
|Property, plant and equipment                |  |      | 320   |      |  |   | 6,072  | 
|Other long-term assets                       |  |      | 402   |      |  |   | 336    | 
|                                             |  |      |       |      |  |   |        | 
|Total assets of discontinued operations      |  | $    | 4,302 |      |  | $ | 10,373 | 
|                                             |  |      |       |      |  |   |        | 
|Accounts payable                             |  | $    | 2,870 |      |  | $ | 1,747  | 
|Other accrued expenses                       |  |      | 465   |      |  |   | 379    | 
|Current portion of long-term debt            |  |      | 317   |      |  |   |        | 
|Long-term debt                               |  |      |       |      |  |   | 633    | 
|                                             |  |      |       |      |  |   |        | 
|Total liabilities of discontinued operations |  | $    | 3,652 |      |  | $ | 2,759  | 
|                                             |  |      |       |      |  |   |        | 



|   |              
|-- | -------------
|4. | Restructuring

In the fourth quarter of 2003, the Company
committed to a restructuring program to achieve cost savings in
its friction products segment by moving operations at its Brook
Park, Ohio location to a new U.S. production facility. The
Company has signed a formal, non-binding letter of intent
agreeing to the terms on the construction of a new approximately
240,000 square foot leased facility. The letter of intent is
subject to due diligence and other customary terms and
conditions. In connection with the planned closure of the Brook
Park, Ohio facility, the Company recorded a $1,920 charge in the
fourth quarter of 2003 related to the curtailment and
contractual termination benefit costs of a defined benefit
pension plan covering certain union employees of the facility.
In addition, the Company anticipates future pre-tax charges of
approximately $2,000 in 2004 and $3,000 to $3,500 in 2005
related to the relocation of the Brook Park, Ohio facility and
employee severance expense.

45



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

In June 2001, the Company announced a
restructuring program to reduce its production capacity to meet
expected near-term product demand levels in each of its
segments. The involuntary severance plan that was part of the
restructuring program resulted in employee reductions in almost
all areas of the Company, including operations, marketing, sales
and administrative areas. As a result of this plan, the Company
reduced its work force in the friction products and precision
components segments by approximately 160 positions. During 2001,
the Company recorded a charge of $1,055 consisting of employee
severance and related benefit costs as a result of this
restructuring program. The majority of the costs associated with
this program were paid in cash and charged against the
liability. Employee reductions and related benefit payments
under this plan were completed during 2002.

The following table sets forth the restructuring
accrual activity from June 30, 2001 to December 31,
2002:

|                                                                                            |  |   |       | 
|------------------------------------------------------------------------------------------- |  | - | ----- | 
|Amounts recognized as restructuring charges in
    the consolidated statement of operations |  | $ | 1,055 | 
|Payments in 2001                                                                            |  |   | 605   | 
|                                                                                            |  |   |       | 
|Accrued restructuring charge as of
    December 31, 2001                                    |  | $ | 450   | 
|                                                                                            |  |   |       | 
|Payments in 2002                                                                            |  |   | 378   | 
|Other                                                                                       |  |   | 72    | 
|                                                                                            |  |   |       | 
|Accrued restructuring charge as of
    December 31, 2002                                    |  | $ | 0     | 
|                                                                                            |  |   |       | 



|   |                  
|-- | -----------------
|5. | Intangible Assets

A summary of the Companys goodwill at
December 31, 2003 and 2002 by reportable operating segment
is as follows:

|                     |  |   |        | 
|-------------------- |  | - | ------ | 
|Precision components |  | $ | 28,109 | 
|Performance racing   |  |   | 4,386  | 
|                     |  |   |        | 
|Total                |  | $ | 32,495 | 
|                     |  |   |        | 

The components of finite-lived intangible assets
are as follows:

|                        |  |                   |        |                   |  |     |        |       |  |              |       |     |  |   |        |  |  |   |        |  |  |   |        | 
|----------------------- |  | ----------------- | ------ | ----------------- |  | --- | ------ | ----- |  | ------------ | ----- | --- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                        |  |                   |        |                  
|                        |  | December 31, 2003 |        | December 31, 2002
|                        |  |                   |        |                  
|                        |  |                   |        | Accumulated       |  |     |        |       |  | Accumulated  |       |    
|                        |  | Gross             |        | Amortization      |  | Net |        | Gross |  | Amortization |       | Net
|                        |  |                   |        |                   |  |     |        |       |  |              |       |    
|Product certifications  |  | $                 | 20,820 |                   |  | $   | 10,984 |       |  | $            | 9,836 |     |  | $ | 20,820 |  |  | $ | 10,264 |  |  | $ | 10,556 | 
|Other intangible assets |  |                   | 2,719  |                   |  |     | 2,651  |       |  |              | 68    |     |  |   | 2,719  |  |  |   | 2,574  |  |  |   | 145    | 
|                        |  |                   |        |                   |  |     |        |       |  |              |       |     |  |   |        |  |  |   |        |  |  |   |        | 
|                        |  | $                 | 23,539 |                   |  | $   | 13,635 |       |  | $            | 9,904 |     |  | $ | 23,539 |  |  | $ | 12,838 |  |  | $ | 10,701 | 
|                        |  |                   |        |                   |  |     |        |       |  |              |       |     |  |   |        |  |  |   |        |  |  |   |        | 

Product certifications were acquired and valued
based on the acquired companys position as a certified
supplier of friction materials to the major manufacturers of
commercial aircraft brakes.

The Company estimates that amortization expense
for finite-lived intangible assets for each of the next five
years will be approximately $800.

The weighted average amortization period for
product certifications and other intangible assets is
29 years and 14 years, respectively.

46



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



|   |                       
|-- | ----------------------
|6. | Financing Arrangements

|                                         |  |             |        |      |  |   |         | 
|---------------------------------------- |  | ----------- | ------ | ---- |  | - | ------- | 
|                                         |  |            
|                                         |  | December 31
|                                         |  |            
|                                         |  | 2003        |        | 2002
|                                         |  |             |        |     
|Short-term debt                          |  | $           | 1,326  |      |  |   |         | 
|Old Senior Notes                         |  |             |        |      |  | $ | 583     | 
|Senior Notes                             |  |             | 66,183 |      |  |   | 66,059  | 
|Bank Facility                            |  |             | 24,059 |      |  |   | 36,327  | 
|Other                                    |  |             | 3,408  |      |  |   | 5,351   | 
|                                         |  |             |        |      |  |   |         | 
|                                         |  |             | 94,976 |      |  |   | 108,320 | 
|Less current portion and short-term debt |  |             | 26,533 |      |  |   | 39,430  | 
|                                         |  |             |        |      |  |   |         | 
|                                         |  | $           | 68,443 |      |  | $ | 68,890  | 
|                                         |  |             |        |      |  |   |         | 

In October 2002, the Company entered into a
new senior secured credit facility (Bank Facility). The Bank
Facility has a maximum commitment of $53,000, including a letter
of credit facility of up to $5,000, comprised of a $50,000
revolving credit component and a $3,000 capital expenditure loan
component. The capital expenditure loan component, available to
the Company after December 31, 2002, is being used to
finance 80% of the cost of new equipment purchased after
October 18, 2002. The Bank Facility matures 120 days
prior to the maturity of the Senior Notes (described below) in
2006. As of December 31, 2003 and 2002, $24,059 and $36,327
were outstanding under the Bank Facility, respectively,
including $2,000 and $0 outstanding under the capital
expenditure loan component, respectively.

The Bank Facility is collateralized by a security
interest in the accounts receivable, inventory, equipment and
real estate and other assets of the Company and its domestic
subsidiaries. The Company has also pledged the stock of all of
its domestic subsidiaries and up to 65% of the stock of certain
of its foreign subsidiaries as collateral. Restrictive terms of
the Bank Facility require that the Company maintain specified
financial ratios including leverage and fixed charge ratios, and
comply with other loan covenants. The interest rates on the Bank
Facility range from 225 to 375 basis points over the London
Interbank Offered Rates (LIBOR), or alternatively,
0 to 100 basis points over the prime rate. At
December 31, 2003 and 2002, the average interest rate on
the borrowings outstanding under the Bank Facility was 4.0% and
4.4%, respectively. The Company is required to pay a commitment
fee equal to 0.375% per annum on the unused amount of the Bank
Facility, payable quarterly, in arrears. As of December 31,
2003 and 2002, the Company had approximately $15,900 and $5,500,
respectively, available for future borrowings, as determined
under the borrowing base formula. Additionally, as of
December 31, 2003, the Company was in compliance with all
of the loan covenants under the Bank Facility.

The revolving credit component of the Bank
Facility is subject to a borrowing base formula. The borrowing
base formula is comprised of the Companys domestic
accounts receivable, domestic inventory and the Companys
domestic real estate, machinery and equipment. The components of
the borrowing base under the Bank Facility are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 85% of eligible accounts receivable, plus;                                                                                                                                                                                                                                                                                           
|
| |  | 65% of the cost of eligible inventory, excluding
    work-in-process, plus 25% of the cost of eligible
    work-in-process (limited to $4.0 million), plus;                                                                                                                                                                          
|
| |  | $13,000  The availability under this
    component of the borrowing base reduces on a 7 year
    straight-line amortization basis beginning March 31, 2003.
    Any reductions in the availability under this component of the
    borrowing base may be reborrowed, subject to availability, under
    the receivable and inventory

47



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



| |  |                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | components of the borrowing base. The amortized
    availability under the borrowing base was $11,607 and $13,000 at
    December 31, 2003 and 2002.

Borrowings under the capital expenditure loan
component of the Bank Facility are available to the Company in
the following increments: a) up to $2,000 through
December 31, 2003, beginning January 1, 2003 and, b)
up to $1,000 thereafter. At the end of each borrowing period,
the principal amount of all borrowings under the capital
expenditure loan component borrowed during the applicable
borrowing period will begin to amortize monthly over a seven
year, straight-line basis. Any remaining unamortized principal
balance under the capital expenditure loan component is due and
payable on the final maturity date of the Bank Facility.

Pursuant to the guidance of EITF No. 95-22,
Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements That Include both a Subjective
Acceleration Clause and a Lock-Box Arrangement, the Company
is required to classify all of its outstanding debt under the
Bank Facility as a current liability. However, it is the
intention of the Company to manage the Bank Facility as
long-term debt with a final maturity date in 2006. The Company
expects the long-term availability under the revolving credit
portion of the Bank Facility to be $50,000 for the next
twelve-month period, subject to the borrowing base.

In October 2002, the Company exchanged
$64,417 of its $65,000, 10 1/4% Senior Notes due
December 1, 2003 (Old Senior Notes), for 12% Senior Notes
due December 1, 2006 (Senior Notes). The Senior Notes were
issued on October 23, 2002. The remaining outstanding
principal of the Old Senior Notes in the amount of $583 matured
and were paid on December 1, 2003. The holders of the Old
Senior Notes that participated in the exchange for Senior Notes
received a consent payment of $25.63, in the form of Senior
Notes, for each $1,000 of Old Senior Notes held as of
October 23, 2002. The entire debt refinancing transaction
was accounted for as a debt exchange in accordance with EITF
96-19, Debtors Accounting for a Modification or
Exchange of Debt Instruments. Accordingly, the Company
recorded the aggregate consent payments of $1,642 as additional
Senior Notes, and is amortizing the consent payments to interest
expense over the remaining life of the Senior Notes. In
connection with the debt exchange, the Company also expensed
$1,851 in third party transaction costs in 2002. The Senior
Notes are general unsecured senior obligations of the Company
and are fully and unconditionally guaranteed, on a joint and
several basis, by all domestic wholly-owned subsidiaries of the
Company. The Senior Notes accrue interest at a rate of 12% per
annum on the principal amount commencing October 23, 2002.
Interest payments are due semi-annually. In addition, in the
event that the Companys leverage ratio (as defined)
exceeds 4.0 to 1.0 for the most recently ended four quarters
beginning with the semi-annual period ended December 31,
2002, the Company will be required to pay additional payment in
kind (PIK) interest at a rate ranging from .25% to 2.00% until
the next semi-annual test period. Any interest payment under
this test will be made by issuing additional Senior Notes. As of
December 31, 2003 and 2002, the leverage ratio test
required the Company to issue $82 and $124 of PIK interest as
debt in 2004 and 2003, respectively, calculated at a rate of
..25% and 1.00%, respectively, in the form of additional Senior
Notes.

The Company has the option to redeem the Senior
Notes in whole or in part during the twelve months beginning
December 1, 2002 at 105% of the aggregate principal amount
thereof, beginning December 1, 2003 at 102.5% of the
aggregate principal amount thereof and beginning
December 1, 2004 at 100% of the aggregate principal amount
thereof together with any interest accrued and unpaid to the
redemption date. Upon a change of control as defined in the
Senior Note indenture, each holder of the notes will have the
right to require the Company to repurchase all or any part of
such holders notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase.

The Senior Notes permit the Company and its
subsidiaries to incur additional indebtedness without
limitation, provided that it meets a cash flow coverage ratio
and adjusted consolidated leverage ratio. As of
December 31, 2003 and 2002, the Company did not meet these
prescribed ratios. The failure to meet these ratios does not
constitute a default under the Senior Note indenture. Rather,
the Senior Note indenture continues to permit certain other
types of indebtedness subject to certain limitations. The
Companys Bank Facility, which is secured by liens on all
of the assets and the assets of the subsidiaries, is permitted.
The Company does not believe

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

that its operations will be materially impacted
by the limitation on indebtedness arising under the Senior Note
indenture.

The Senior Notes prohibit the payment of cash
dividends on the Companys Class A Common Stock. The
Senior Notes also contain other covenants limiting the
Companys ability and its subsidiaries to, among other
things, make certain other restricted payments, make certain
investments, permit liens, incur dividend and other payment
restrictions affecting subsidiaries, enter into consolidation,
merger, conveyance, lease or transfer transactions, make asset
sales, enter into transactions with affiliates or engage in
unrelated lines of business. These covenants are subject to
certain exceptions and qualifications. The Senior Notes
considers non-compliance with the limitations events of default.
In addition to non-payment of interest and principal amounts,
the Senior Notes also considers default with respect to other
indebtedness in excess of $5,000 an event of default. In the
event of a default, the principal and interest could be
accelerated upon written notice by 25% or more of the holders of
the notes.

At December 31, 2003 and 2002, the Company
had issued stand-by Letters of Credit totaling $3,468 and
$1,284, respectively.

Aggregate principal payments due on long-term
debt exclusive of the Bank Facility, which matures in 2006, as
of December 31, 2003 are as follows: 2004  $1,148;
2005  $1,374; 2006  $66,434;
2007  $168; 2008  $50; and thereafter
 $417.



|   |                     
|-- | --------------------
|7. | Shareholders Equity

Dividends on the Series D preferred stock
are cumulative at a rate of 9.8%. Each share of Series D
preferred stock is (1) entitled to a liquidation preference
equal to $1,000 per share plus any accrued or unpaid dividends,
(2) not entitled to vote, except in certain circumstances,
and (3) redeemable in whole, at the option of the Company,
for $1,000 per share plus all accrued dividends to the date of
redemption. The Company also has 100,000 authorized shares of
$.01 par value, Series E preferred stock, of which no
shares are issued or outstanding. Each share of Series E
preferred stock is (1) not redeemable and is entitled to
dividends in the amount of 1,000 times the per share dividend
received by the holders of common stock, (2) entitled to
1,000 votes per share, and (3) entitled to a liquidation
right of 1,000 times the aggregate amount distributed per share
to the holder of common stock.

On November 13, 1997, the Board of Directors
declared a dividend of one Series E preferred share
purchase right (a Right) for each outstanding share of common
stock. The dividend was payable to the shareholders of record as
of January 16, 1998, and with respect to common stock,
issued thereafter until the Distribution Date, as defined in the
Rights Agreement, and in certain circumstances, with respect to
common stock issued after the Distribution Date. Except as set
forth in the Rights Agreement, each Right, when it becomes
exercisable, entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series E preferred
stock at a price of $70 per one one-thousandth share of a
Series E preferred stock, subject to adjustment.



|   |                           
|-- | --------------------------
|8. | Employee Stock Option Plan

The Company grants stock options to certain key
employees and non-employee directors under various plans, to
purchase shares of Class A common stock. During 2003, there
were no stock option grants issued under the Companys
plans. During 2002 and 2001, the Company granted stock options
to purchase an aggregate of 53,418, and 701,594 shares,
respectively, at exercise prices representing the closing market
price of the Companys common stock at the date of grant.
The options vest ratably over specific defined periods. Canceled
options are available for future issuance under the provisions
of the stock option plans.

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

The following table summarizes the stock option
activity for the years ended December 31, 2003, 2002 and
2001:

|                                                                   |  |         |           |          |  |         |       |          |  |         |           |          |  |   |      |  |  |  |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ------- | --------- | -------- |  | ------- | ----- | -------- |  | ------- | --------- | -------- |  | - | ---- |  |  |  | --------- | - |  | - | ----- | 
|                                                                   |  |         |           |          |  |        
|                                                                   |  | 2003    |           | 2002     |  | 2001   
|                                                                   |  |         |           |          |  |        
|                                                                   |  |         |           | Weighted |  |         |       | Weighted |  |         |           | Weighted
|                                                                   |  |         |           | Average  |  |         |       | Average  |  |         |           | Average 
|                                                                   |  |         |           | Exercise |  |         |       | Exercise |  |         |           | Exercise
|                                                                   |  | Options |           | Price    |  | Options |       | Price    |  | Options |           | Price   
|                                                                   |  |         |           |          |  |         |       |          |  |         |           |         
|Options outstanding at beginning of year                           |  |         | 1,217,729 |          |  | $       | 6.63  |          |  |         | 1,324,646 |          |  | $ | 6.73 |  |  |  | 766,267   |   |  | $ | 10.51 | 
|Granted                                                            |  |         |           |          |  |         |       |          |  |         | 53,418    |          |  |   | 4.89 |  |  |  | 701,594   |   |  |   | 3.64  | 
|Exercised                                                          |  |         | (17,094   | )        |  |         | 3.40  |          |  |         |           |          |  |   |      |  |  |  |           |   |  |   |       | 
|Forfeited or Expired                                               |  |         | (378,854  | )        |  |         | 11.41 |          |  |         | (160,335  | )        |  |   | 6.81 |  |  |  | (143,215  | ) |  |   | 10.45 | 
|                                                                   |  |         |           |          |  |         |       |          |  |         |           |          |  |   |      |  |  |  |           |   |  |   |       | 
|Options outstanding at end of year                                 |  |         | 821,781   |          |  | $       | 4.54  |          |  |         | 1,217,729 |          |  | $ | 6.62 |  |  |  | 1,324,646 |   |  | $ | 6.73  | 
|Exercisable at the end of the year                                 |  |         | 718,306   |          |  | $       | 4.42  |          |  |         | 636,632   |          |  | $ | 7.69 |  |  |  | 242,169   |   |  | $ | 12.36 | 
|Weighted average fair value of options granted
    during the year |  |         |           |          |  |         |       |          |  |         |           |          |  | $ | 4.34 |  |  |  |           |   |  | $ | 2.56  | 
|Shares available for future grant                                  |  |         | 578,219   |          |  |         |       |          |  |         | 182,271   |          |  |   |      |  |  |  | 75,354    |   |  |   |       | 

On July 29, 2003, the Company offered its
employees who are not members of the Board of Directors the
opportunity to cancel all options outstanding with an exercise
price greater than $6.00 per share, in exchange for new options
to be granted at the closing price of the Companys common
stock as reported by the American Stock Exchange as of
January 30, 2004. As of December 31, 2003, 268,850
options had been forfeited and as a result, are included in the
caption forfeited or expired and in shares available for future
grant in the above table. On January 30, 2004, 254,630
options were granted at an exercise price of $5.05 per share.

Exercise prices for options outstanding as of
December 31, 2003 ranged from $3.40 to $17.94. A summary of
the options by range of exercise prices is as follows:

|                        |  |             |         |             |  |              |       |         |  |          |     |  |  |  |         |  |  |   |       | 
|----------------------- |  | ----------- | ------- | ----------- |  | ------------ | ----- | ------- |  | -------- | --- |  |  |  | ------- |  |  | - | ----- | 
|                        |  |             |         |             |  |             
|                        |  | Outstanding |         |            
|                        |  |             |         | Exercisable
|                        |  |             |         | Weighted    |  |             
|                        |  |             |         | Weighted    |  | Average      |       |         |  | Weighted
|                        |  |             |         | Average     |  | Remaining    |       |         |  | Average 
|                        |  |             |         | Exercise    |  | Contractual  |       |         |  | Exercise
|Range of Exercise Price |  | Options     |         | Price       |  | Life (years) |       | Options |  | Price   
|                        |  |             |         |             |  |              |       |         |  |         
|$ 3.40 to $ 3.50        |  |             | 312,542 |             |  | $            | 3.40  |         |  |          | 7.7 |  |  |  | 312,542 |  |  | $ | 3.40  | 
|$ 3.51 to $ 5.00        |  |             | 285,177 |             |  | $            | 3.85  |         |  |          | 7.7 |  |  |  | 263,966 |  |  | $ | 3.81  | 
|$ 5.01 to $ 6.00        |  |             | 135,362 |             |  | $            | 5.42  |         |  |          | 6.8 |  |  |  | 66,198  |  |  | $ | 5.46  | 
|$ 6.01 to $16.99        |  |             | 66,700  |             |  | $            | 6.86  |         |  |          | 5.6 |  |  |  | 53,600  |  |  | $ | 6.87  | 
|$17.00 to $17.94        |  |             | 22,000  |             |  | $            | 17.09 |         |  |          | 3.0 |  |  |  | 22,000  |  |  | $ | 17.09 | 



|   |                  
|-- | -----------------
|9. | Employee Benefits

The Company has several defined benefit pension
plans that cover certain employees. Benefits payable are based
primarily on compensation and years of service or a fixed annual
benefit for each year of service. Certain hourly employees are
also covered under collective bargaining agreements. The Company
funds the plans in amounts sufficient to satisfy the minimum
amounts required under the Employee Retirement Income Security
Act of 1974.

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

The components of the defined benefit pension
plans are as follows:

|                                                                      |                                   |                                                                   |                                     |        |        |        |        |        |        |        |  
|--------------------------------------------------------------------- | --------------------------------- | ----------------------------------------------------------------- | ----------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                                      |                                   |                                                                  
|                                                                      |                                   | December 31                                                      
|                                                                      |                                   |                                                                  
|                                                                      |                                   | 2003                                                              |                                     | 2002  
|                                                                      |                                   |                                                                   |                                     |       
|Accumulated benefit obligation                                        |                                   | $                                                                 | 21,208                              |        |        | $      | 17,925 |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Change in benefit obligation:                                         |                                   |                                                                   |                                     |        |        |        |        |       
|                                                                      |                                   | Benefit obligation at beginning of year                           |                                     | $      | 19,268 |        |        | $      | 17,528 |       
|                                                                      |                                   | Service cost                                                      |                                     |        | 840    |        |        |        | 732    |       
|                                                                      |                                   | Interest cost                                                     |                                     |        | 1,329  |        |        |        | 1,292  |       
|                                                                      |                                   | Actuarial losses                                                  |                                     |        | 1,683  |        |        |        | 406    |       
|                                                                      |                                   | Plan amendments                                                   |                                     |        | 54     |        |        |        | 152    |       
|                                                                      |                                   | Foreign currency exchange rate impact                             |                                     |        | 162    |        |        |        | 11     |       
|                                                                      |                                   | Pension curtailment and contractual termination
    benefit costs |                                     |        | 2,093  |        |        |        |        |       
|                                                                      |                                   | Benefits paid                                                     |                                     |        | (1,024 | )      |        |        | (853   | )     
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|                                                                      | Benefit obligation at end of year |                                                                   | $                                   | 24,405 |        |        | $      | 19,268 |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Change in plan assets:                                                |                                   |                                                                   |                                     |        |        |        |        |       
|                                                                      |                                   | Fair value of plan assets at beginning
    of year                |                                     | $      | 14,170 |        |        | $      | 19,399 |       
|                                                                      |                                   | Actual return on plan assets                                      |                                     |        | 3,516  |        |        |        | (5,371 | )     
|                                                                      |                                   | Foreign currency exchange rate impact                             |                                     |        | 193    |        |        |        | 17     |       
|                                                                      |                                   | Company contributions                                             |                                     |        | 1,560  |        |        |        | 978    |       
|                                                                      |                                   | Benefits paid                                                     |                                     |        | (1,024 | )      |        |        | (853   | )     
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Fair value of plan assets at end of year                              |                                   | $                                                                 | 18,415                              |        |        | $      | 14,170 |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Funded status of the plans                                            |                                   | $                                                                 | (5,990                              | )      |        | $      | (5,098 | )     
|Unrecognized net actuarial losses                                     |                                   |                                                                   | 7,975                               |        |        |        | 8,904  |       
|Unrecognized initial net obligation                                   |                                   |                                                                   | 92                                  |        |        |        | 98     |       
|Foreign currency exchange rate impact                                 |                                   |                                                                   | 40                                  |        |        |        |        |       
|Unamortized prior service cost                                        |                                   |                                                                   | 440                                 |        |        |        | 572    |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Net prepaid benefit cost                                              |                                   | $                                                                 | 2,557                               |        |        | $      | 4,476  |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Amounts recognized in the balance sheet consist
    of the following: |                                   |                                                                   |                                     |        |        |        |        |       
|                                                                      |                                   |                                                                   | Prepaid benefit cost                |        | $      | 701    |        |        | $      | 604    |  
|                                                                      |                                   |                                                                   | Accrued benefit liability           |        |        | (5,891 | )      |        |        | (4,069 | )
|                                                                      |                                   |                                                                   | Intangible asset                    |        |        | 502    |        |        |        | 659    |  
|                                                                      |                                   |                                                                   | Cumulative other comprehensive loss |        |        | 7,245  |        |        |        | 7,282  |  
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       
|Net amount recognized                                                 |                                   | $                                                                 | 2,557                               |        |        | $      | 4,476  |       
|                                                                      |                                   |                                                                   |                                     |        |        |        |        |       

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

Amounts applicable to the Companys
under-funded pension plans at December 31, 2003 and 2002 are as
follows:

|                                                      |  |             |        |      |  |   |        | 
|----------------------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                                                      |  |            
|                                                      |  | December 31
|                                                      |  |            
|                                                      |  | 2003        |        | 2002
|                                                      |  |             |        |     
|Projected benefit obligation                          |  | $           | 23,415 |      |  | $ | 18,522 | 
|Accumulated benefit obligation                        |  | $           | 20,435 |      |  | $ | 17,333 | 
|Fair value of plan assets                             |  | $           | 17,263 |      |  | $ | 13,264 | 
|Amounts recognized as accrued
    benefit liabilities |  | $           | 5,891  |      |  | $ | 4,069  | 
|Amounts recognized as intangible asset                |  | $           | 502    |      |  | $ | 659    | 

|                                         |                                      |                        |       |        |   |      |     |        |   |   |     |        |  
|---------------------------------------- | ------------------------------------ | ---------------------- | ----- | ------ | - | ---- | --- | ------ | - | - | --- | ------ | -
|                                         |                                      |                       
|                                         |                                      | Year ended December 31
|                                         |                                      |                       
|                                         |                                      | 2003                   |       | 2002   |   | 2001
|                                         |                                      |                        |       |        |   |     
|Components of net periodic pension cost: |                                      |                        |       |        |   |      |     |        |   |   |     |       
|                                         | Service cost                         |                        | $     | 840    |   |      | $   | 732    |   |   | $   | 550    |  
|                                         | Interest cost                        |                        |       | 1,329  |   |      |     | 1,292  |   |   |     | 1,148  |  
|                                         | Expected return on plan assets       |                        |       | (1,269 | ) |      |     | (1,798 | ) |   |     | (1,585 | )
|                                         | Amortization of prior service cost   |                        |       | 71     |   |      |     | 80     |   |   |     | 76     |  
|                                         | Contractual termination benefit cost |                        |       | 1,836  |   |      |     |        |   |   |     |        |  
|                                         | Pension curtailment                  |                        |       | 386    |   |      |     |        |   |   |     |        |  
|                                         | Recognized net actuarial loss        |                        |       | 362    |   |      |     | 60     |   |   |     | 10     |  
|                                         |                                      |                        |       |        |   |      |     |        |   |   |     |       
|                                         |                                      | $                      | 3,555 |        |   | $    | 366 |        |   | $ | 199 |       
|                                         |                                      |                        |       |        |   |      |     |        |   |   |     |       

The plans assets are primarily invested in
fixed income and equity securities. In addition, one of the
Companys defined benefit plans also contains investments
in the Companys stock. As of December 31, 2003,
60,000 shares of the Companys Class A common stock
were held by a defined benefit plan at a cost of $717. The
market value of such investment as of December 31, 2003, was
$219. The Company does not pay dividends on its Class A
common stock.

The weighted-average plan asset allocation at
December 31, 2003 and 2002, by asset category are as
follows:

|                              |       |             |    |      |   |  |    |     |  
|----------------------------- | ----- | ----------- | -- | ---- | - |  | -- | --- | -
|                              |       |            
|                              |       | December 31
|                              |       |            
|                              |       | 2003        |    | 2002
|                              |       |             |    |     
|Asset Category                |       |             |    |      |   |  |    |    
|Equity securities             |       |             | 75 | %    |   |  | 68 | %  
|Debt securities               |       |             | 21 | %    |   |  | 27 | %  
|Hawk Corporation common stock |       |             | 1  | %    |   |  | 1  | %  
|Other                         |       |             | 3  | %    |   |  | 4  | %  
|                              |       |             |    |      |   |  |    |    
|                              | Total |             |    | 100  | % |  |    | 100 | %
|                              |       |             |    |      |   |  |    |    

The objectives of the Companys investment
strategies are as follows: (a) to provide a total return that,
over the long term, maximizes investment return on assets, at a
level of risk deemed appropriate, (b) to maximize return on
assets by investing primarily in equity securities, and
(c) to diversify investments within asset classes to reduce
the impact of losses in any single investment. The range of
target asset allocations have been determined after giving
consideration to the expected returns of each asset class, the
expected variability or volatility of the asset class returns
over time, and the complementary nature or correlation of the
asset classes within the portfolio. The Company also employs an
active management approach for the portfolio. Each asset class
is managed by one

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

or more external money managers with the
objective of generating returns, net of management fees that
exceed market-based benchmarks.

The following assumptions were used in accounting
for the defined benefit plans:

|                                                                                                            |                                          |      |  |      |   |  |  |      |  
|----------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ---- |  | ---- | - |  |  | ---- | -
|                                                                                                            |                                          | 2003 |  | 2002
|                                                                                                            |                                          |      |  |     
|Weighted average rates used to compute the
    projected benefit obligation as of December 31:              |                                          |      |  |      |   |  |  |     
|                                                                                                            | Discount rate                            |      |  | 6.25 | % |  |  | 6.75 | %
|                                                                                                            | Rate of compensation increase            |      |  | 3.03 | % |  |  | 3.02 | %
|                                                                                                            | Expected long-term return on plan assets |      |  | 8.59 | % |  |  | 8.59 | %
|Weighted average rates used to determine the net
    periodic benefit cost for the years ended December 31: |                                          |      |  |      |   |  |  |     
|                                                                                                            | Discount rate                            |      |  | 6.75 | % |  |  | 7.26 | %
|                                                                                                            | Rate of compensation increase            |      |  | 3.02 | % |  |  | 3.06 | %
|                                                                                                            | Expected long-term return on plan assets |      |  | 8.59 | % |  |  | 9.34 | %

The measurement date used to determine the
pension benefit measurements for all plans in all periods
presented is December 31. The Company has reviewed
historical rates of return specific to its respective plans to
determine the expected long-term rate of return on assets.

The Company expects to contribute a total of
$1,927 to the defined benefit plans in 2004.

Estimated benefit payments for the next five
years and in the aggregate for the five years thereafter are:

|     |           |                  |  |   |       | 
|---- | --------- | ---------------- |  | - | ----- | 
|Year |           | Pension Benefits
|     |           |                 
|     | 2004      |                  |  | $ | 1,193 | 
|     | 2005      |                  |  | $ | 1,325 | 
|     | 2006      |                  |  | $ | 1,368 | 
|     | 2007      |                  |  | $ | 1,434 | 
|     | 2008      |                  |  | $ | 1,540 | 
|     | 2009-2013 |                  |  | $ | 8,876 | 

The Company also sponsors several defined
contribution plans which provide voluntary employee
contributions and, in certain plans, matching and discretionary
employer contributions. Aggregate defined contribution plan
expenses were approximately $1,272 in 2003, which included $992
in discretionary employer contributions, $241 in 2002 and $581
in 2001. In 2002 and 2001, the Company made no discretionary
employer contributions.



|    |                  
|--- | -----------------
|10. | Lease Obligations

The Company has capital lease commitments for
buildings, machinery and equipment. Assets recorded under
capital lease agreements included in property, plant and
equipment consist of the following:

|                                 |  |             |       |      |  |   |       | 
|-------------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                                 |  |            
|                                 |  | December 31
|                                 |  |            
|                                 |  | 2003        |       | 2002
|                                 |  |             |       |     
|Buildings and improvements       |  | $           | 1,026 |      |  | $ | 846   | 
|Machinery and equipment          |  |             | 1,056 |      |  |   | 507   | 
|                                 |  |             |       |      |  |   |       | 
|Gross assets under capital lease |  |             | 2,082 |      |  |   | 1,353 | 
|Accumulated amortization         |  |             | 350   |      |  |   | 250   | 
|                                 |  |             |       |      |  |   |       | 
|Net assets under capital lease   |  | $           | 1,732 |      |  | $ | 1,103 | 
|                                 |  |             |       |      |  |   |       | 

53



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

Amortization of assets recorded under capital
leases is included with depreciation expense. Future minimum
annual rentals are: 2004  $391; 2005  $320; 2006
 $168; 2007  $116; 2008  $50 and thereafter
 $0. Amount representing interest is $67. Total capital
lease obligations are included in other long-term debt.

The Company leases certain office and warehouse
facilities and equipment under operating leases. Certain of
these operating leases provide the Company with a renewal option
after the initial lease term. Rental expense was approximately
$2,212 in 2003, $2,117 in 2002, and $2,045 in 2001. Future
non-cancelable minimum lease commitments under these agreements
that have an original or existing term in excess of one year as
of December 31, 2003 are as follows: 2004  $2,577;
2005  $2,064; 2006  $1,484; 2007  $1,048; 2008
 $986; and thereafter  $1,952.

11. Income Taxes

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

|                                     |                 |                        |        |        |   |      |        |        |   |   |        |        |  
|------------------------------------ | --------------- | ---------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                     |                 |                       
|                                     |                 | Year ended December 31
|                                     |                 |                       
|                                     |                 | 2003                   |        | 2002   |   | 2001
|                                     |                 |                        |        |        |   |     
|Current:                             |                 |                        |        |        |   |      |        |        |   |   |        |       
|                                     | Federal         |                        |        |        |   |      | $      | (3,602 | ) |   | $      | (1,842 | )
|                                     | State and local |                        | $      | 45     |   |      |        | (38    | ) |   |        | (55    | )
|                                     | Foreign         |                        |        | 1,885  |   |      |        | 574    |   |   |        | 297    |  
|                                     |                 |                        |        |        |   |      |        |        |   |   |        |       
|                                     |                 |                        | 1,930  |        |   |      | (3,066 | )      |   |   | (1,600 | )     
|Deferred:                            |                 |                        |        |        |   |      |        |        |   |   |        |       
|                                     | Federal         |                        |        | (1,059 | ) |      |        | 2,333  |   |   |        | 1,118  |  
|                                     | State and local |                        |        | (12    | ) |      |        | 18     |   |   |        | 62     |  
|                                     | Foreign         |                        |        | (4     | ) |      |        | 46     |   |   |        | (517   | )
|                                     |                 |                        |        |        |   |      |        |        |   |   |        |       
|                                     |                 |                        | (1,075 | )      |   |      | 2,397  |        |   |   | 663    |       
|                                     |                 |                        |        |        |   |      |        |        |   |   |        |       
|Total income tax provision (benefit) |                 | $                      | 855    |        |   | $    | (669   | )      |   | $ | (937   | )     
|                                     |                 |                        |        |        |   |      |        |        |   |   |        |       

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

Deferred income taxes reflect the net effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes.
Significant components of the Companys deferred tax assets
and liabilities as of December 31 are as follows:

|                               |                                          |      |        |        |  |   |        |       | 
|------------------------------ | ---------------------------------------- | ---- | ------ | ------ |  | - | ------ | ----- | 
|                               |                                          | 2003 |        | 2002  
|                               |                                          |      |        |       
|Deferred tax assets:           |                                          |      |        |        |  |   |        |      
|                               | NOL and AMT carryforward                 |      | $      | 3,755  |  |   | $      | 988   | 
|                               | Accrued vacation                         |      |        | 618    |  |   |        | 555   | 
|                               | Employee benefits                        |      |        | 2,616  |  |   |        | 1,852 | 
|                               | Other accruals                           |      |        | 3,484  |  |   |        | 1,498 | 
|                               | Foreign net operating loss carryforwards |      |        |        |  |   |        | 352   | 
|                               | Book over tax goodwill amortization      |      |        | 1,109  |  |   |        | 2,161 | 
|                               | Inventory                                |      |        | 557    |  |   |        | 527   | 
|                               |                                          |      |        |        |  |   |        |      
|Total deferred tax assets      |                                          |      | 12,139 |        |  |   | 7,933  |      
|Deferred tax liabilities:      |                                          |      |        |        |  |   |        |      
|                               | Tax over book depreciation               |      |        | 10,066 |  |   |        | 9,409 | 
|                               | Tax over book intangibles amortization   |      |        | 2,192  |  |   |        | 1,708 | 
|                               | Foreign leased property                  |      |        | 353    |  |   |        | 340   | 
|                               | Debt financing costs                     |      |        | 178    |  |   |        | 746   | 
|                               | Other                                    |      |        | 159    |  |   |        | 230   | 
|                               |                                          |      |        |        |  |   |        |      
|Total deferred tax liabilities |                                          |      | 12,948 |        |  |   | 12,433 |      
|                               |                                          |      |        |        |  |   |        |      
|Net deferred tax liabilities   |                                          | $    | 809    |        |  | $ | 4,500  |      
|                               |                                          |      |        |        |  |   |        |      

As of December 31, 2003 and 2002 the Company
had net federal operating loss (NOL) carryforwards of
$7,883 and $0, respectively. The NOL expires in 2023. At
December 31, 2003 and 2002, the Company had alternative
minimum tax carryforwards (AMT) of $1,075 and $988,
respectively. The AMT has no date of expiration.

The provision (benefit) for income taxes
from continuing operations differs from the amounts computed by
applying the federal statutory rate as follows:

|                                                                            |  |             |     |      |  |      |      |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ----------- | --- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                                                                            |  |            
|                                                                            |  | December 31
|                                                                            |  |            
|                                                                            |  | 2003        |     | 2002 |  | 2001
|                                                                            |  |             |     |      |  |     
|Income tax expense (benefit) at federal
    statutory rate                  |  | $           | 142 |      |  | $    | 47   |   |  | $ | (1,104 | )
|State and local tax, net of federal
    tax benefit                         |  |             | 21  |      |  |      | (16  | ) |  |   | 48     |  
|Nondeductible goodwill amortization                                         |  |             |     |      |  |      |      |   |  |   | 251    |  
|Nondeductible intangible amortization                                       |  |             | 60  |      |  |      | 52   |   |  |   | 55     |  
|Taxes on foreign income which differs from United
    States statutory rate |  |             | 560 |      |  |      | 99   |   |  |   | 81     |  
|Foreign tax withholding                                                     |  |             | 87  |      |  |      | 128  |   |  |   |        |  
|Adjustment to worldwide tax accrual and other                               |  |             | (15 | )    |  |      | (979 | ) |  |   | (268   | )
|                                                                            |  |             |     |      |  |      |      |   |  |   |        |  
|Provision for income taxes                                                  |  | $           | 855 |      |  | $    | (669 | ) |  | $ | (937   | )
|                                                                            |  |             |     |      |  |      |      |   |  |   |        |  

55



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

The following table illustrates the domestic and
foreign components of the Companys continuing income
(loss) before income taxes:

|                                                                                                                            |          |                        |     |        |   |      |     |    |  |   |        |        |  
|--------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------- | --- | ------ | - | ---- | --- | -- |  | - | ------ | ------ | -
|                                                                                                                            |          |                       
|                                                                                                                            |          | Year ended December 31
|                                                                                                                            |          |                       
|                                                                                                                            |          | 2003                   |     | 2002   |   | 2001
|                                                                                                                            |          |                        |     |        |   |     
|Income (loss) before income taxes,
    discontinued operations and cumulative effect of change in
    accounting principle: |          |                        |     |        |   |      |     |    |  |   |        |       
|                                                                                                                            | Domestic |                        | $   | (2,185 | ) |      | $   | 41 |  |   | $      | (1,441 | )
|                                                                                                                            | Foreign  |                        |     | 2,591  |   |      |     | 95 |  |   |        | (1,713 | )
|                                                                                                                            |          |                        |     |        |   |      |     |    |  |   |        |       
|As reported                                                                                                                 |          | $                      | 406 |        |   | $    | 136 |    |  | $ | (3,154 | )     
|                                                                                                                            |          |                        |     |        |   |      |     |    |  |   |        |       

In accordance with accounting principles
generally accepted in the United States, the Company established
an accrual prior to 2001, in the amount of $1,041 for tax
exposures related to certain deductions taken on its income tax
returns. The Company believed that the deductions were valid
under applicable tax laws and regulations. During 2002, the
applicable statute of limitations expired and the Company
reversed the tax accrual, which resulted in substantially all of
the $979 adjustment in the Companys reconciliation of its
effective 2002 tax rate.

Undistributed earnings of the Companys
foreign subsidiaries amounted to approximately $8,885 and $7,053
at December 31, 2003 and 2002. These earnings are
considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been
provided. The Company cannot determine in any practical manner
the amount of income tax liability that would result if such
earnings would be repatriated. Upon distribution of these
earnings in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes, which may be offset
by foreign tax credits, and withholding taxes payable to various
foreign countries.

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



|    |                          
|--- | -------------------------
|12. | (Loss) Earnings Per Share

Basic and diluted (loss) earnings per share
are computed as follows:

|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |      |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------ | ---- | ----- | ---- | ------- | ----- | ----- | - | ------ | ---- | ----- | -
|                                                                                                                                              |                            |                                                                                                                       
|                                                                                                                                              |                            | Year ended December 31                                                                                                
|                                                                                                                                              |                            |                                                                                                                       
|                                                                                                                                              |                            | 2003                                                                                                                   |        | 2002 |       | 2001
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |     
|(Loss) income before discontinued operations
    and cumulative effect of change in accounting principle                                      |                            | $                                                                                                                      | (449   | )    |       | $    | 805     |       |       | $ | (2,217 | )   
|Less: Preferred stock dividends                                                                                                               |                            |                                                                                                                        | 150    |      |       |      | 150     |       |       |   | 150    |     
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|(Loss) income before discontinued operations
    and cumulative effect of change in accounting principle
    available to common shareholders |                            | $                                                                                                                      | (599   | )    |       | $    | 655     |       |       | $ | (2,367 | )   
|Net loss                                                                                                                                      |                            | $                                                                                                                      | (5,422 | )    |       | $    | (18,245 | )     |       | $ | (4,336 | )   
|Less: Preferred stock dividends                                                                                                               |                            |                                                                                                                        | 150    |      |       |      | 150     |       |       |   | 150    |     
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|Net loss available to common shareholders                                                                                                     |                            | $                                                                                                                      | (5,572 | )    |       | $    | (18,395 | )     |       | $ | (4,486 | )   
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|Weighted average shares outstanding (in
    thousands):                                                                                       |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|Basic weighted average shares outstanding                                                                                                     |                            |                                                                                                                        | 8,571  |      |       |      | 8,557   |       |       |   | 8,552  |     
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|                                                                                                                                              |                            | Diluted:                                                                                                               |        |      |       |      |         |       |       |   |        |      |       |  
|                                                                                                                                              |                            | Basic from above outstanding                                                                                           |        |      | 8,571 |      |         |       | 8,557 |   |        |      | 8,552 |  
|                                                                                                                                              |                            | Dilutive effect of stock options                                                                                       |        |      |       |      |         |       | 40    |   |        |      |       |  
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|Diluted weighted average shares outstanding                                                                                                   |                            |                                                                                                                        | 8,571  |      |       |      | 8,597   |       |       |   | 8,552  |     
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|(Loss) earnings per share:                                                                                                                    |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|                                                                                                                                              |                            | Basic (loss) earnings before discontinued
    operations and cumulative effect of change in
    accounting principle   |        | $    | (.07  | )    |         | $     | .08   |   |        | $    | (.27  | )
|                                                                                                                                              |                            | Discontinued operations                                                                                                |        |      | (.58  | )    |         |       | (.22  | ) |        |      | (.25  | )
|                                                                                                                                              |                            | Cumulative effect of change in accounting
    principle                                                                |        |      |       |      |         |       | (2.01 | ) |        |      |       |  
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|                                                                                                                                              | Net loss per basic share   |                                                                                                                        | $      | (.65 | )     |      | $       | (2.15 | )     |   | $      | (.52 | )    
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|                                                                                                                                              |                            | Diluted (loss) earnings before discontinued
    operations and cumulative effect of change in
    accounting principle |        | $    | (.07  | )    |         | $     | .08   |   |        | $    | (.27  | )
|                                                                                                                                              |                            | Discontinued operations                                                                                                |        |      | (.58  | )    |         |       | (.22  | ) |        |      | (.25  | )
|                                                                                                                                              |                            | Cumulative effect of change in accounting
    principle                                                                |        |      |       |      |         | $     | (2.00 | ) |        |      |       |  
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     
|                                                                                                                                              | Net loss per diluted share |                                                                                                                        | $      | (.65 | )     |      | $       | (2.14 | )     |   | $      | (.52 | )    
|                                                                                                                                              |                            |                                                                                                                        |        |      |       |      |         |       |       |   |        |     

All outstanding stock options at
December 31, 2003 and 2001 are antidilutive.



|    |                
|--- | ---------------
|13. | Related Parties

In July 1995, certain shareholders of the
Company issued interest-bearing notes to the Company in the
amount of $2,000, enabling them to repay certain indebtedness
incurred by them with respect to an acquisition. The notes are
due and payable on July 1, 2005, with the exception of $10,
which is due and payable on July 1, 2004. The notes bear
interest at the prime rate. The balance of current and long-term
shareholder notes outstanding at December 31, 2003 and 2002
was $1,010.

57



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



|    |                  
|--- | -----------------
|14. | Business Segments

The Company operates in three primary business
segments: friction products, precision components and
performance racing. The Companys reportable segments are
strategic business units that offer different products and
services. They are managed separately based on fundamental
differences in their operations.

The friction products segment engineers,
manufactures and markets specialized components, used in a
variety of aerospace, industrial and commercial applications.
The Company, through this segment, is a worldwide supplier of
friction components for brakes, clutches and transmissions.

The precision components segment engineers,
manufactures and markets specialized powder metal components,
used primarily in industrial applications. The Company, through
this segment, targets four areas of the powder metal component
marketplace: high precision components that are used in fluid
power applications, large structural powder metal parts used in
construction, agricultural and truck applications, smaller
high-volume parts and metal injected molded parts for a variety
of industries.

The performance racing segment engineers,
manufactures and markets high performance friction material for
use in racing car brakes in addition to premium branded clutch
and drive train components. The Company, through this segment,
targets leading teams in the NASCAR racing series, as well as
high-performance street vehicles and other road race and oval
track competition cars.

58



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

Information by segment is as follows:

|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------- | ----------------------- | ---------------------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                  |                         |                             
|                                                  |                         | Year ended December 31(1)(4)
|                                                  |                         |                             
|                                                  |                         | 2003                         |         | 2002    |  | 2001
|                                                  |                         |                              |         |         |  |     
|Net sales to external customers:                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|                                                  | Friction products(1)    |                              | $       | 121,569 |  |      | $       | 106,134 |  |   | $       | 104,127 | 
|                                                  | Precision components(4) |                              |         | 68,123  |  |      |         | 67,151  |  |   |         | 59,794  | 
|                                                  | Performance racing(1)   |                              |         | 12,859  |  |      |         | 12,627  |  |   |         | 12,967  | 
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Consolidated                                      |                         | $                            | 202,551 |         |  | $    | 185,912 |         |  | $ | 176,888 |        
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Depreciation and amortization:(2)(3)              |                         |                              |         |         |  |      |         |         |  |   |         |        
|Friction products(1)                              |                         | $                            | 7,135   |         |  | $    | 7,277   |         |  | $ | 8,772   |        
|                                                  | Precision components(4) |                              |         | 3,511   |  |      |         | 3,537   |  |   |         | 4,939   | 
|                                                  | Performance racing(1)   |                              |         | 227     |  |      |         | 200     |  |   |         | 742     | 
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Consolidated                                      |                         | $                            | 10,873  |         |  | $    | 11,014  |         |  | $ | 14,453  |        
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Gross profit:                                     |                         |                              |         |         |  |      |         |         |  |   |         |        
|                                                  | Friction products(1)    |                              | $       | 29,510  |  |      | $       | 25,403  |  |   | $       | 24,899  | 
|                                                  | Precision components(4) |                              |         | 14,458  |  |      |         | 15,082  |  |   |         | 11,995  | 
|                                                  | Performance racing(1)   |                              |         | 3,401   |  |      |         | 3,711   |  |   |         | 3,854   | 
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Consolidated                                      |                         | $                            | 47,369  |         |  | $    | 44,196  |         |  | $ | 40,748  |        
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Income from operations:(2)                        |                         |                              |         |         |  |      |         |         |  |   |         |        
|Friction products(1)                              |                         | $                            | 8,284   |         |  | $    | 7,794   |         |  | $ | 6,643   |        
|                                                  | Precision components(4) |                              |         | 2,254   |  |      |         | 4,287   |  |   |         | 282     | 
|                                                  | Performance racing(1)   |                              |         | 380     |  |      |         | 874     |  |   |         | 253     | 
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Consolidated                                      |                         | $                            | 10,918  |         |  | $    | 12,955  |         |  | $ | 7,178   |        
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Capital expenditures: (including capital leases): |                         |                              |         |         |  |      |         |         |  |   |         |        
|                                                  | Friction products(1)    |                              | $       | 5,151   |  |      | $       | 5,742   |  |   | $       | 5,000   | 
|                                                  | Precision components(4) |                              |         | 5,889   |  |      |         | 3,486   |  |   |         | 3,304   | 
|                                                  | Performance racing(1)   |                              |         | 183     |  |      |         | 521     |  |   |         | 171     | 
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        
|Consolidated                                      |                         | $                            | 11,223  |         |  | $    | 9,749   |         |  | $ | 8,475   |        
|                                                  |                         |                              |         |         |  |      |         |         |  |   |         |        

59



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                      |                         |             |         |         |  |   |         |        | 
|--------------------- | ----------------------- | ----------- | ------- | ------- |  | - | ------- | ------ | 
|                      |                         |            
|                      |                         | December 31
|                      |                         |            
|                      |                         | 2003        |         | 2002   
|                      |                         |             |         |        
|Total assets:         |                         |             |         |         |  |   |         |       
|                      | Friction products(1)    |             | $       | 101,169 |  |   | $       | 95,668 | 
|                      | Precision components(4) |             |         | 77,026  |  |   |         | 75,743 | 
|                      | Performance racing(1)   |             |         | 11,052  |  |   |         | 11,096 | 
|                      |                         |             |         |         |  |   |         |       
|Continuing operations |                         |             | 189,247 |         |  |   | 182,507 |       
|                      | Discontinued operations |             |         | 4,302   |  |   |         | 10,373 | 
|                      |                         |             |         |         |  |   |         |       
|Consolidated          |                         | $           | 193,549 |         |  | $ | 192,880 |       
|                      |                         |             |         |         |  |   |         |       



---



|    |                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | An operating unit formerly associated with the
    Companys performance racing segment was reclassified as of
    January 1, 2002 to the Companys friction products
    segment as a result of changes in the internal operating
    responsibility of that unit. All prior periods have been
    reclassified to reflect this change.
|   
|(2) | In accordance with the non-amortization
    provisions of SFAS 142 (see Note 2), the Company discontinued
    the amortization of goodwill in 2002.                                                                                                                                                                                     

The following table illustrates the pro forma
effect by operating segment, on depreciation and amortization,
and income from operations had the Company applied the
non-amortization provisions of SFAS 142 for the year ended
December 31, 2001:

|                                         |                      |   |        |       | 
|---------------------------------------- | -------------------- | - | ------ | ----- | 
|Pro forma depreciation and amortization: |                      |   |        |      
|                                         | Friction products    |   | $      | 7,620 | 
|                                         | Precision components |   |        | 3,751 | 
|                                         | Performance racing   |   |        | 154   | 
|                                         |                      |   |        |      
|Consolidated                             |                      | $ | 11,525 |      
|                                         |                      |   |        |      
|Pro forma income (loss) from operations: |                      |   |        |      
|                                         | Friction products    |   | $      | 7,795 | 
|                                         | Precision components |   |        | 1,470 | 
|                                         | Performance racing   |   |        | 841   | 
|                                         |                      |   |        |      
|Consolidated                             |                      | $ | 10,106 |      
|                                         |                      |   |        |      



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Depreciation and amortization outlined in this
    table does not include deferred financing amortization of $801
    in 2003, $643 in 2002, and $618 in 2001, which is included in
    Interest expense on the Statement of Operations.                                                                                                                                                                                                                                 
|   
|(4) | A line of business formerly associated with the
    Companys motors segment, which was discontinued as of
    December 31, 2003, will be retained by the Company and has
    been reclassified to the Companys precision components
    segment. Net sales from this line of business were $1,235,
    $1,341, and $1,522 for the years ended December 31, 2003,
    2002, and 2001, respectively. All prior periods have been
    reclassified to reflect this change.

60



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

Geographic information for the years ended
December 31, 2003, 2002 and 2001 is as follows:

|                                                                    |  |                |         |            |  |       |        |            |  |            |         |       |  |            |         |            |  |       |        |   |  |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------- |  | -------------- | ------- | ---------- |  | ----- | ------ | ---------- |  | ---------- | ------- | ----- |  | ---------- | ------- | ---------- |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                    |  |                |         |            |  |      
|                                                                    |  | 2003           |         | 2002       |  | 2001 
|                                                                    |  |                |         |            |  |      
|                                                                    |  | Domestic       |         | Foreign    |  |       |        | Domestic   |  | Foreign    |         |       |  | Domestic   |         | Foreign    |  |      
|                                                                    |  | Operations     |         | Operations |  | Total |        | Operations |  | Operations |         | Total |  | Operations |         | Operations |  | Total
|                                                                    |  |                |         |            |  |       |        |            |  |            |         |       |  |            |         |            |  |      
|                                                                    |  |               
|                                                                    |  | (In thousands)
|Net sales                                                           |  | $              | 160,262 |            |  | $     | 42,289 |            |  | $          | 202,551 |       |  | $          | 158,497 |            |  | $     | 27,415 |   |  | $ | 185,912 |   |  | $ | 154,815 |   |  | $ | 22,073 |   |  | $ | 176,888 |  
|Income (loss) from operations                                       |  |                | 7,818   |            |  |       | 3,100  |            |  |            | 10,918  |       |  |            | 12,163  |            |  |       | 792    |   |  |   | 12,955  |   |  |   | 8,311   |   |  |   | (1,133 | ) |  |   | 7,178   |  
|Discontinued operations, net of tax                                 |  |                | (620    | )          |  |       | (4,353 | )          |  |            | (4,973  | )     |  |            | (77     | )          |  |       | (1,773 | ) |  |   | (1,850  | ) |  |   | 513     |   |  |   | (2,632 | ) |  |   | (2,119  | )
|Cumulative effect of change in accounting
    principle, net of tax |  |                |         |            |  |       |        |            |  |            |         |       |  |            | (17,200 | )          |  |       |        |   |  |   | (17,200 | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Net (loss) income                                                   |  |                | (1,866  | )          |  |       | (3,556 | )          |  |            | (5,422  | )     |  |            | (16,075 | )          |  |       | (2,170 | ) |  |   | (18,245 | ) |  |   | (211    | ) |  |   | (4,125 | ) |  |   | (4,336  | )
|Total assets of continuing operations                               |  | $              | 159,406 |            |  | $     | 29,841 |            |  | $          | 189,247 |       |  | $          | 165,702 |            |  | $     | 16,805 |   |  | $ | 182,507 |   |  | $ | 167,733 |   |  | $ | 21,701 |   |  | $ | 189,434 |  

The Company has continuing foreign operations in
Canada, Italy, and China. Included in discontinued operations is
the Companys operation in Mexico.



|    |                                   
|--- | ----------------------------------
|15. | Supplemental Guarantor Information

As discussed in Note 6, each of the Guarantor
Subsidiaries has fully and unconditionally guaranteed, on a
joint and several basis, to pay principal, premium, and interest
with respect to the Senior Notes. The Guarantor Subsidiaries are
direct or indirect wholly-owned subsidiaries of the Company.



| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following supplemental consolidating
    condensed financial statements present consolidating condensed
    balance sheets as of December 31, 2003 and December 31,
    2002, consolidating condensed statements of operations for the
    years ended December 31, 2003, 2002 and 2001 and
    consolidating condensed statements of cash flows for the years
    ended December 31, 2003, 2002 and 2001.
|
| | Hawk Corporation (Parent), combined Guarantor
    Subsidiaries and combined Non-Guarantor Subsidiaries consisting
    of the Companys subsidiaries in Canada, Italy, and China
    with their investments in subsidiaries accounted for using the
    equity method.                                                                                                                                         
|
| | Elimination entries necessary to consolidate the
    Parent and all of its subsidiaries.                                                                                                                                                                                                                                                                                                                      
|
| | Management does not believe that separate
    financial statements of the Guarantor Subsidiaries are material
    to investors. Therefore, separate financial statements and other
    disclosures concerning the Guarantor Subsidiaries are not
    presented.                                                                                                                                               

61



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |        | 
|---------------------------------------------- | -------------------------------------------------- | ----------------- | ------- | ------------ | - | ------------- | ------- | ------------ |  | ------------ | ------ | ------ |  | - | -------- | -------- | - | - | ------- | ------ | 
|                                               |                                                    |                  
|                                               |                                                    | December 31, 2003
|                                               |                                                    |                  
|                                               |                                                    |                   |         | Combined     |   | Combined      |         |             
|                                               |                                                    |                   |         | Guarantor    |   | Non-Guarantor |         |             
|                                               |                                                    | Parent            |         | Subsidiaries |   | Subsidiaries  |         | Eliminations |  | Consolidated
|                                               |                                                    |                   |         |              |   |               |         |              |  |             
|Assets                                         |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Current assets:                                |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|                                               | Cash and cash equivalents                          |                   | $       | 39           |   |               | $       | 129          |  |              | $      | 3,197  |  |   |          |          |   |   | $       | 3,365  | 
|                                               | Accounts receivable, net                           |                   |         |              |   |               |         | 20,718       |  |              |        | 11,554 |  |   |          |          |   |   |         | 32,272 | 
|                                               | Inventories                                        |                   |         |              |   |               |         | 26,036       |  |              |        | 9,789  |  |   | $        | (401     | ) |   |         | 35,424 | 
|                                               | Deferred income taxes                              |                   |         | 3,089        |   |               |         |              |  |              |        | 462    |  |   |          |          |   |   |         | 3,551  | 
|                                               | Taxes receivable                                   |                   |         | 521          |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         | 521    | 
|                                               | Other current assets                               |                   |         | 1,428        |   |               |         | 1,690        |  |              |        | 914    |  |   |          |          |   |   |         | 4,032  | 
|                                               | Current assets of discontinued operations          |                   |         |              |   |               |         | 1,730        |  |              |        | 2,572  |  |   |          |          |   |   |         | 4,302  | 
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total current assets                           |                                                    |                   | 5,077   |              |   |               | 50,303  |              |  |              | 28,488 |        |  |   | (401     | )        |   |   | 83,467  |       
|Investment in subsidiaries                     |                                                    |                   | 794     |              |   |               |         |              |  |              |        |        |  |   | (794     | )        |   |   |         |       
|Inter-company advances, net                    |                                                    |                   | 157,379 |              |   |               | 14,062  |              |  |              | (6,322 | )      |  |   | (165,119 | )        |   |   |         |       
|Property, plant and equipment, net             |                                                    |                   | 628     |              |   |               | 52,962  |              |  |              | 9,546  |        |  |   |          |          |   |   | 63,136  |       
|Other assets:                                  |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|                                               | Goodwill and other intangible assets               |                   |         | 72           |   |               |         | 42,327       |  |              |        |        |  |   |          |          |   |   |         | 42,399 | 
|                                               | Other                                              |                   |         | 1,143        |   |               |         | 3,713        |  |              |        | 701    |  |   |          | (1,010   | ) |   |         | 4,547  | 
|                                               | Long-term assets of discontinued operations        |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |        | 
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total other assets                             |                                                    |                   | 1,215   |              |   |               | 46,040  |              |  |              | 701    |        |  |   | (1,010   | )        |   |   | 46,946  |       
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total assets                                   |                                                    | $                 | 165,093 |              |   | $             | 163,367 |              |  | $            | 32,413 |        |  | $ | (167,324 | )        |   | $ | 193,549 |       
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Liabilities and shareholders
    equity       |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Current liabilities:                           |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|                                               | Accounts payable                                   |                   |         |              |   |               | $       | 14,100       |  |              | $      | 7,469  |  |   |          |          |   |   | $       | 21,569 | 
|                                               | Accrued compensation                               |                   | $       | 1,099        |   |               |         | 3,393        |  |              |        | 1,244  |  |   |          |          |   |   |         | 5,736  | 
|                                               | Accrued interest                                   |                   |         | 4,153        |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         | 4,153  | 
|                                               | Other accrued expenses                             |                   |         | 2,410        |   |               |         | 4,047        |  |              |        | 1,910  |  |   | $        | (71      | ) |   |         | 8,296  | 
|                                               | Short-term debt                                    |                   |         |              |   |               |         |              |  |              |        | 1,326  |  |   |          |          |   |   |         | 1,326  | 
|                                               | Bank Facility                                      |                   |         | 24,059       |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         | 24,059 | 
|                                               | Current portion of long-term debt                  |                   |         |              |   |               |         | 866          |  |              |        | 282    |  |   |          |          |   |   |         | 1,148  | 
|                                               | Current liabilities of
    discontinued operations |                   |         |              |   |               |         | 1,437        |  |              |        | 2,215  |  |   |          |          |   |   |         | 3,652  | 
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total current liabilities                      |                                                    |                   | 31,721  |              |   |               | 23,843  |              |  |              | 14,446 |        |  |   | (71      | )        |   |   | 69,939  |       
|Long-term liabilities:                         |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|                                               | Long-term debt                                     |                   |         | 66,184       |   |               |         | 1,040        |  |              |        | 1,219  |  |   |          |          |   |   |         | 68,443 | 
|                                               | Deferred income taxes                              |                   |         | 3,860        |   |               |         | 1            |  |              |        | 499    |  |   |          |          |   |   |         | 4,360  | 
|                                               | Other                                              |                   |         | (2,782       | ) |               |         | 9,594        |  |              |        | 2,290  |  |   |          |          |   |   |         | 9,102  | 
|                                               | Long-term liabilities of discontinued operations   |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |        | 
|                                               | Inter-company advances, net                        |                   |         | 847          |   |               |         | 155,978      |  |              |        | 8,438  |  |   | $        | (165,263 | ) |   |         |        | 
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total long-term liabilities                    |                                                    |                   | 68,109  |              |   |               | 166,613 |              |  |              | 12,446 |        |  |   | (165,263 | )        |   |   | 81,905  |       
|Shareholders equity                           |                                                    |                   | 65,263  |              |   |               | (27,089 | )            |  |              | 5,521  |        |  |   | (1,990   | )        |   |   | 41,705  |       
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       
|Total liabilities and
    shareholders equity |                                                    | $                 | 165,093 |              |   | $             | 163,367 |              |  | $            | 32,413 |        |  | $ | (167,324 | )        |   | $ | 193,549 |       
|                                               |                                                    |                   |         |              |   |               |         |              |  |              |        |        |  |   |          |          |   |   |         |       

62



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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |        | 
|---------------------------------------------- | ---------------------------------------------------- | ----------------- | ------- | ------------ |  | ------------- | ------- | ------------ | - | ------------ | ------ | ------ |  | - | -------- | -------- | - | - | ------- | ------ | 
|                                               |                                                      |                  
|                                               |                                                      | December 31, 2002
|                                               |                                                      |                  
|                                               |                                                      |                   |         | Combined     |  | Combined      |         |             
|                                               |                                                      |                   |         | Guarantor    |  | Non-Guarantor |         |             
|                                               |                                                      | Parent            |         | Subsidiaries |  | Subsidiaries  |         | Eliminations |   | Consolidated
|                                               |                                                      |                   |         |              |  |               |         |              |   |             
|Assets                                         |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Current assets:                                |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|                                               | Cash and cash equivalents                            |                   | $       | 116          |  |               | $       | 351          |   |              | $      | 1,235  |  |   |          |          |   |   | $       | 1,702  | 
|                                               | Accounts receivable, net                             |                   |         |              |  |               |         | 20,629       |   |              |        | 8,846  |  |   |          |          |   |   |         | 29,475 | 
|                                               | Inventories                                          |                   |         |              |  |               |         | 24,513       |   |              |        | 8,412  |  |   | $        | (244     | ) |   |         | 32,681 | 
|                                               | Deferred income taxes                                |                   |         | 577          |  |               |         |              |   |              |        | 168    |  |   |          |          |   |   |         | 745    | 
|                                               | Taxes receivable                                     |                   |         | 3,333        |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         | 3,333  | 
|                                               | Other current assets                                 |                   |         | 2,427        |  |               |         | 689          |   |              |        | 793    |  |   |          |          |   |   |         | 3,909  | 
|                                               | Current assets of discontinued operations            |                   |         |              |  |               |         | 2,254        |   |              |        | 1,711  |  |   |          |          |   |   |         | 3,965  | 
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total current assets                           |                                                      |                   | 6,453   |              |  |               | 48,436  |              |   |              | 21,165 |        |  |   | (244     | )        |   |   | 75,810  |       
|Investment in subsidiaries                     |                                                      |                   | 794     |              |  |               |         |              |   |              |        |        |  |   | (794     | )        |   |   |         |       
|Inter-company advances, net                    |                                                      |                   | 167,162 |              |  |               | 7,491   |              |   |              | (9,725 | )      |  |   | (164,928 | )        |   |   |         |       
|Property, plant and equipment, net             |                                                      |                   | 653     |              |  |               | 54,695  |              |   |              | 6,472  |        |  |   |          |          |   |   | 61,820  |       
|Other assets:                                  |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|                                               | Goodwill and other intangible assets                 |                   |         | 72           |  |               |         | 43,124       |   |              |        |        |  |   |          |          |   |   |         | 43,196 | 
|                                               | Other                                                |                   |         | 1,240        |  |               |         | 4,812        |   |              |        | 604    |  |   |          | (1,010   | ) |   |         | 5,646  | 
|                                               | Long-term assets of discontinued operations          |                   |         |              |  |               |         | 2,076        |   |              |        | 4,332  |  |   |          |          |   |   |         | 6,408  | 
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total other assets                             |                                                      |                   | 1,312   |              |  |               | 50,012  |              |   |              | 4,936  |        |  |   | (1,010   | )        |   |   | 55,250  |       
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total assets                                   |                                                      | $                 | 176,374 |              |  | $             | 160,634 |              |   | $            | 22,848 |        |  | $ | (166,976 | )        |   | $ | 192,880 |       
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Liabilities and shareholders
    equity       |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Current liabilities:                           |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|                                               | Accounts payable                                     |                   |         |              |  |               | $       | 12,240       |   |              | $      | 3,864  |  |   |          |          |   |   | $       | 16,104 | 
|                                               | Accrued compensation                                 |                   | $       | 4            |  |               |         | 3,018        |   |              |        | 1,046  |  |   |          |          |   |   |         | 4,068  | 
|                                               | Accrued interest                                     |                   |         | 372          |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         | 372    | 
|                                               | Other accrued expenses                               |                   |         | 986          |  |               |         | 2,943        |   |              |        | 820    |  |   | $        | (94      | ) |   |         | 4,655  | 
|                                               | Short-term debt                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |        | 
|                                               | Bank Facility                                        |                   |         | 36,327       |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         | 36,327 | 
|                                               | Current portion of long-term debt                    |                   |         | 583          |  |               |         | 2,250        |   |              |        | 270    |  |   |          |          |   |   |         | 3,103  | 
|                                               | Current liabilities of
    discontinued operations   |                   |         |              |  |               |         | 1,360        |   |              |        | 766    |  |   |          |          |   |   |         | 2,126  | 
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total current liabilities                      |                                                      |                   | 38,272  |              |  |               | 21,811  |              |   |              | 6,766  |        |  |   | (94      | )        |   |   | 66,755  |       
|Long-term liabilities:                         |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|                                               | Long-term debt                                       |                   |         | 66,059       |  |               |         | 2,552        |   |              |        | 279    |  |   |          |          |   |   |         | 68,890 | 
|                                               | Deferred income taxes                                |                   |         | 7,813        |  |               |         | (2,777       | ) |              |        | 209    |  |   |          |          |   |   |         | 5,245  | 
|                                               | Other                                                |                   |         | 852          |  |               |         | 4,050        |   |              |        | 1,621  |  |   |          |          |   |   |         | 6,523  | 
|                                               | Long-term liabilities of
    discontinued operations |                   |         |              |  |               |         | 333          |   |              |        | 300    |  |   |          |          |   |   |         | 633    | 
|                                               | Inter-company advances, net                          |                   |         | 1,754        |  |               |         | 152,944      |   |              |        | 10,332 |  |   |          | (165,030 | ) |   |         |        | 
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total long-term liabilities                    |                                                      |                   | 76,732  |              |  |               | 157,102 |              |   |              | 12,487 |        |  |   | (165,030 | )        |   |   | 81,291  |       
|Shareholders equity                           |                                                      |                   | 61,624  |              |  |               | (18,279 | )            |   |              | 3,341  |        |  |   | (1,852   | )        |   |   | 44,834  |       
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       
|Total liabilities and
    shareholders equity |                                                      | $                 | 176,374 |              |  | $             | 160,634 |              |   | $            | 22,848 |        |  | $ | (166,976 | )        |   | $ | 192,880 |       
|                                               |                                                      |                   |         |              |  |               |         |              |   |              |        |        |  |   |          |          |   |   |         |       

63



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |        | 
|----------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------- | ------ | ------------ | - | ------------- | ------- | ------------ |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | ------ | 
|                                                                  |                                                                   |                             
|                                                                  |                                                                   | Year ended December 31, 2003
|                                                                  |                                                                   |                             
|                                                                  |                                                                   |                              |        | Combined     |   | Combined      |         |             
|                                                                  |                                                                   |                              |        | Guarantor    |   | Non-Guarantor |         |             
|                                                                  |                                                                   | Parent                       |        | Subsidiaries |   | Subsidiaries  |         | Eliminations |  | Consolidated
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |             
|Net sales                                                         |                                                                   |                              |        |              |   | $             | 169,770 |              |  | $            | 42,289 |       |  | $ | (9,508 | ) |  | $ | 202,551 |       
|Cost of sales                                                     |                                                                   |                              |        |              |   |               | 129,655 |              |  |              | 34,833 |       |  |   | (9,306 | ) |  |   | 155,182 |       
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Gross profit                                                      |                                                                   |                              |        |              |   |               | 40,115  |              |  |              | 7,456  |       |  |   | (202   | ) |  |   | 47,369  |       
|Expenses:                                                         |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|                                                                  | Selling, technical and administrative expenses                    |                              | $      | (229         | ) |               |         | 29,604       |  |              |        | 4,356 |  |   |        |   |  |   |         | 33,731 | 
|                                                                  | Pension curtailment and contractual termination
    benefit costs |                              |        |              |   |               |         | 1,920        |  |              |        |       |  |   |        |   |  |   |         | 1,920  | 
|                                                                  | Amortization of finite-lived intangible assets                    |                              |        | 9            |   |               |         | 791          |  |              |        |       |  |   |        |   |  |   |         | 800    | 
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Total expenses                                                    |                                                                   |                              | (220   | )            |   |               | 32,315  |              |  |              | 4,356  |       |  |   |        |   |  |   | 36,451  |       
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Income from operations                                            |                                                                   |                              | 220    |              |   |               | 7,800   |              |  |              | 3,100  |       |  |   | (202   | ) |  |   | 10,918  |       
|Interest income (expense), net                                    |                                                                   |                              | 3,556  |              |   |               | (13,778 | )            |  |              | (473   | )     |  |   |        |   |  |   | (10,695 | )     
|(Loss) income from equity investee                                |                                                                   |                              | (9,001 | )            |   |               | (3,556  | )            |  |              |        |       |  |   | 12,557 |   |  |   |         |       
|Other income (expense), net                                       |                                                                   |                              | (278   | )            |   |               | 497     |              |  |              | (36    | )     |  |   |        |   |  |   | 183     |       
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|(Loss) income before income taxes and
    discontinued operations |                                                                   |                              | (5,503 | )            |   |               | (9,037  | )            |  |              | 2,591  |       |  |   | 12,355 |   |  |   | 406     |       
|Income tax provision (benefit)                                    |                                                                   |                              | (201   | )            |   |               | (656    | )            |  |              | 1,794  |       |  |   | (82    | ) |  |   | 855     |       
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|(Loss) income before discontinued operations                      |                                                                   |                              | (5,302 | )            |   |               | (8,381  | )            |  |              | 797    |       |  |   | 12,437 |   |  |   | (449    | )     
|Discontinued operations, net of tax                               |                                                                   |                              |        |              |   |               | (620    | )            |  |              | (4,353 | )     |  |   |        |   |  |   | (4,973  | )     
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Net loss                                                          |                                                                   | $                            | (5,302 | )            |   | $             | (9,001  | )            |  | $            | (3,556 | )     |  | $ | 12,437 |   |  | $ | (5,422  | )     
|                                                                  |                                                                   |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       

64



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------- | ------- | ------------ | - | ------------- | ------- | ------------ |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | ------ | 
|                                                                                                                           |                                                |                             
|                                                                                                                           |                                                | Year ended December 31, 2002
|                                                                                                                           |                                                |                             
|                                                                                                                           |                                                |                              |         | Combined     |   | Combined      |         |             
|                                                                                                                           |                                                |                              |         | Guarantor    |   | Non-Guarantor |         |             
|                                                                                                                           |                                                | Parent                       |         | Subsidiaries |   | Subsidiaries  |         | Eliminations |  | Consolidated
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |             
|Net sales                                                                                                                  |                                                |                              |         |              |   | $             | 163,693 |              |  | $            | 27,415 |       |  | $ | (5,196 | ) |  | $ | 185,912 |       
|Cost of sales                                                                                                              |                                                |                              |         |              |   |               | 123,942 |              |  |              | 22,970 |       |  |   | (5,196 | ) |  |   | 141,716 |       
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Gross profit                                                                                                               |                                                |                              |         |              |   |               | 39,751  |              |  |              | 4,445  |       |  |   |        |   |  |   | 44,196  |       
|Expenses:                                                                                                                  |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|                                                                                                                           | Selling, technical and administrative expenses |                              | $       | (121         | ) |               |         | 26,942       |  |              |        | 3,653 |  |   |        |   |  |   |         | 30,474 | 
|                                                                                                                           | Amortization of finite-lived intangible assets |                              |         |              |   |               |         | 767          |  |              |        |       |  |   |        |   |  |   |         | 767    | 
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Total expenses                                                                                                             |                                                |                              | (121    | )            |   |               | 27,709  |              |  |              | 3,653  |       |  |   |        |   |  |   | 31,241  |       
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Income from operations                                                                                                     |                                                |                              | 121     |              |   |               | 12,042  |              |  |              | 792    |       |  |   |        |   |  |   | 12,955  |       
|Interest income (expense), net                                                                                             |                                                |                              | 3,495   |              |   |               | (13,157 | )            |  |              | (588   | )     |  |   |        |   |  |   | (10,250 | )     
|(Loss) income from equity investee                                                                                         |                                                |                              | (20,656 | )            |   |               | (2,170  | )            |  |              |        |       |  |   | 22,826 |   |  |   |         |       
|Other income (expense), net                                                                                                |                                                |                              | (2,239  | )            |   |               | (221    | )            |  |              | (109   | )     |  |   |        |   |  |   | (2,569  | )     
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|(Loss) income before income taxes,
    discontinued operations and cumulative effect of change in
    accounting principle |                                                |                              | (19,279 | )            |   |               | (3,506  | )            |  |              | 95     |       |  |   | 22,826 |   |  |   | 136     |       
|Income tax (provision) benefit                                                                                             |                                                |                              | (1,113  | )            |   |               | (48     | )            |  |              | 492    |       |  |   |        |   |  |   | (669    | )     
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|(Loss) income before discontinued operations                                                                               |                                                |                              | (18,166 | )            |   |               | (3,458  | )            |  |              | (397   | )     |  |   | 22,826 |   |  |   | 805     |       
|Discontinued operations, net of tax                                                                                        |                                                |                              |         |              |   |               | (77     | )            |  |              | (1,773 | )     |  |   |        |   |  |   | (1,850  | )     
|Cumulative effect of change in accounting
    principle, net of tax                                                        |                                                |                              | (79     | )            |   |               | (17,121 | )            |  |              |        |       |  |   |        |   |  |   | (17,200 | )     
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Net loss                                                                                                                   |                                                | $                            | (18,245 | )            |   | $             | (20,656 | )            |  | $            | (2,170 | )     |  | $ | 22,826 |   |  | $ | (18,245 | )     
|                                                                                                                           |                                                |                              |         |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       

65



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |        | 
|-------------------------------------------------------- | ---------------------------------------------- | ---------------------------- | ------ | ------------ | - | ------------- | ------- | ------------ |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | ------ | 
|                                                         |                                                |                             
|                                                         |                                                | Year ended December 31, 2001
|                                                         |                                                |                             
|                                                         |                                                |                              |        | Combined     |   | Combined      |         |             
|                                                         |                                                |                              |        | Guarantor    |   | Non-Guarantor |         |             
|                                                         |                                                | Parent                       |        | Subsidiaries |   | Subsidiaries  |         | Eliminations |  | Consolidated
|                                                         |                                                |                              |        |              |   |               |         |              |  |             
|Net sales                                                |                                                |                              |        |              |   | $             | 158,517 |              |  | $            | 22,073 |       |  | $ | (3,702 | ) |  | $ | 176,888 |       
|Cost of sales                                            |                                                |                              |        |              |   |               | 120,243 |              |  |              | 19,599 |       |  |   | (3,702 | ) |  |   | 136,140 |       
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Gross profit                                             |                                                |                              |        |              |   |               | 38,274  |              |  |              | 2,474  |       |  |   |        |   |  |   | 40,748  |       
|Expenses:                                                |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|                                                         | Selling, technical and administrative expenses |                              | $      | (545         | ) |               |         | 25,720       |  |              |        | 3,607 |  |   |        |   |  |   |         | 28,782 | 
|                                                         | Restructuring costs                            |                              |        |              |   |               |         | 1,055        |  |              |        |       |  |   |        |   |  |   |         | 1,055  | 
|                                                         | Amortization of finite-lived intangible assets |                              |        | 9            |   |               |         | 3,724        |  |              |        |       |  |   |        |   |  |   |         | 3,733  | 
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Total expenses                                           |                                                |                              | (536   | )            |   |               | 30,499  |              |  |              | 3,607  |       |  |   |        |   |  |   | 33,570  |       
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Income (loss) from operations                            |                                                |                              | 536    |              |   |               | 7,775   |              |  |              | (1,133 | )     |  |   |        |   |  |   | 7,178   |       
|Interest income (expense), net                           |                                                |                              | 3,686  |              |   |               | (13,011 | )            |  |              | (527   | )     |  |   |        |   |  |   | (9,852  | )     
|Loss from equity investees                               |                                                |                              | (7,520 | )            |   |               | (4,125  | )            |  |              |        |       |  |   | 11,645 |   |  |   |         |       
|Other (expense) income                                   |                                                |                              | (579   | )            |   |               | 152     |              |  |              | (53    | )     |  |   |        |   |  |   | (480    | )     
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Loss before income taxes and discontinued
    operations |                                                |                              | (3,877 | )            |   |               | (9,209  | )            |  |              | (1,713 | )     |  |   | 11,645 |   |  |   | (3,154  | )     
|Income tax provision (benefit)                           |                                                |                              | 459    |              |   |               | (1,176  | )            |  |              | (220   | )     |  |   |        |   |  |   | (937    | )     
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Loss before discontinued operations                      |                                                |                              | (4,336 | )            |   |               | (8,033  | )            |  |              | (1,493 | )     |  |   | 11,645 |   |  |   | (2,217  | )     
|Discontinued operations, net of tax                      |                                                |                              |        |              |   |               | 513     |              |  |              | (2,632 | )     |  |   |        |   |  |   | (2,119  | )     
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       
|Net loss                                                 |                                                | $                            | (4,336 | )            |   | $             | (7,520  | )            |  | $            | (4,125 | )     |  | $ | 11,645 |   |  | $ | (4,336  | )     
|                                                         |                                                |                              |        |              |   |               |         |              |  |              |        |       |  |   |        |   |  |   |         |       

66



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |         |  
|-------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------- | ------- | ------------ | - | ------------- | ------ | ------------ | - | ------------ | ------ | ------ | - |  |  |  |  | - | ------- | ------- | -
|                                                                                 |                                            |                             
|                                                                                 |                                            | Year ended December 31, 2003
|                                                                                 |                                            |                             
|                                                                                 |                                            |                              |         | Combined     |   | Combined      |        |             
|                                                                                 |                                            |                              |         | Guarantor    |   | Non-Guarantor |        |             
|                                                                                 |                                            | Parent                       |         | Subsidiaries |   | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |             
|Net cash provided by operating activities
    of continuing operations           |                                            | $                            | 13,890  |              |   | $             | 8,982  |              |   | $            | 789    |        |   |  |  |  |  | $ | 23,661  |        
|Net cash provided by operating activities of
    discontinued operations         |                                            |                              |         |              |   |               | 912    |              |   |              | 1,387  |        |   |  |  |  |  |   | 2,299   |        
|Cash flows from investing activities:                                            |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|                                                                                 | Proceeds from sale of assets               |                              |         |              |   |               |        | 568          |   |              |        |        |   |  |  |  |  |   |         | 568     |  
|                                                                                 | Purchases of property, plant and equipment |                              |         |              |   |               |        | (7,818       | ) |              |        | (2,859 | ) |  |  |  |  |   |         | (10,677 | )
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|Net cash used in investing activities of
    continuing operations               |                                            |                              |         |              |   |               | (7,250 | )            |   |              | (2,859 | )      |   |  |  |  |  |   | (10,109 | )      
|Net cash used in investing activities of
    discontinued operations             |                                            |                              |         |              |   |               | (116   | )            |   |              | (192   | )      |   |  |  |  |  |   | (308    | )      
|Cash flows from financing activities:                                            |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|                                                                                 | Proceeds from short-term debt              |                              |         |              |   |               |        |              |   |              |        | 1,326  |   |  |  |  |  |   |         | 1,326   |  
|                                                                                 | Proceeds from long-term debt               |                              |         |              |   |               |        | 25           |   |              |        | 602    |   |  |  |  |  |   |         | 627     |  
|                                                                                 | Payments on long-term debt                 |                              |         |              |   |               |        | (2,775       | ) |              |        | (185   | ) |  |  |  |  |   |         | (2,960  | )
|                                                                                 | Payment on Old Senior Notes                |                              |         | (583         | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |         | (583    | )
|                                                                                 | Proceeds from Bank Facility                |                              |         | 68,173       |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         | 68,173  |  
|                                                                                 | Payments on Bank Facility                  |                              |         | (80,441      | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |         | (80,441 | )
|                                                                                 | Proceeds from exercise of stock options    |                              |         | 59           |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         | 59      |  
|                                                                                 | Payments of preferred stock dividends      |                              |         | (150         | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |         | (150    | )
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|Net cash (used in) provided by financing
    activities of continuing operations |                                            |                              | (12,942 | )            |   |               | (2,750 | )            |   |              | 1,743  |        |   |  |  |  |  |   | (13,949 | )      
|Effect of exchange rate changes on cash                                          |                                            |                              |         |              |   |               |        |              |   |              | 69     |        |   |  |  |  |  |   | 69      |        
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|Net cash provided by (used in)
    continuing operations                         |                                            |                              | 948     |              |   |               | (1,018 | )            |   |              | (258   | )      |   |  |  |  |  |   | (328    | )      
|Net cash provided by discontinued operations                                     |                                            |                              |         |              |   |               | 796    |              |   |              | 1,195  |        |   |  |  |  |  |   | 1,991   |        
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|Net increase (decrease) in cash and
    cash equivalents                         |                                            |                              | 948     |              |   |               | (222   | )            |   |              | 937    |        |   |  |  |  |  |   | 1,663   |        
|Cash and cash equivalents, at beginning
    of period                            |                                            |                              | 370     |              |   |               | 351    |              |   |              | 981    |        |   |  |  |  |  |   | 1,702   |        
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        
|Cash and cash equivalents, at end of period                                      |                                            | $                            | 1,318   |              |   | $             | 129    |              |   | $            | 1,918  |        |   |  |  |  |  | $ | 3,365   |        
|                                                                                 |                                            |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |         |        

67



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##### Table of Contents



HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |         |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------- | ------- | ------------ | - | ------------- | ------ | ------------ | - | ------------ | ------ | ------ | - |  |  |  |  | - | ------ | ------- | -
|                                                                                   |                                                        |                             
|                                                                                   |                                                        | Year ended December 31, 2002
|                                                                                   |                                                        |                             
|                                                                                   |                                                        |                              |         | Combined     |   | Combined      |        |             
|                                                                                   |                                                        |                              |         | Guarantor    |   | Non-Guarantor |        |             
|                                                                                   |                                                        | Parent                       |         | Subsidiaries |   | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |             
|Net cash provided by (used in) operating
    activities of continuing operations   |                                                        | $                            | (14,567 | )            |   | $             | 4,105  |              |   | $            | 2,811  |        |   |  |  |  |  | $ | (7,651 | )      
|Net cash provided by (used in) operating
    activities of discontinued operations |                                                        |                              |         |              |   |               | 6,276  |              |   |              | (1,415 | )      |   |  |  |  |  |   | 4,861  |        
|Cash flows from investing activities:                                              |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|                                                                                   | Purchases of property, plant and equipment             |                              |         |              |   |               |        | (8,491       | ) |              |        | (1,238 | ) |  |  |  |  |   |        | (9,729  | )
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash used in investing activities of
    continuing operations                 |                                                        |                              |         |              |   |               | (8,491 | )            |   |              | (1,238 | )      |   |  |  |  |  |   | (9,729 | )      
|Net cash used in investing activities of
    discontinued operations               |                                                        |                              |         |              |   |               | (209   | )            |   |              | (866   | )      |   |  |  |  |  |   | (1,075 | )      
|Cash flows from financing activities:                                              |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|                                                                                   | Proceeds from long-term debt                           |                              |         | 53,160       |   |               |        | 75           |   |              |        | 135    |   |  |  |  |  |   |        | 53,370  |  
|                                                                                   | Payments on long-term debt                             |                              |         | (45,825      | ) |               |        | (1,588       | ) |              |        | (202   | ) |  |  |  |  |   |        | (47,615 | )
|                                                                                   | Pay off of Term Loan and Revolving
    Credit Facility |                              |         | (29,784      | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |        | (29,784 | )
|                                                                                   | Proceeds from Bank Facility                            |                              |         | 52,165       |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        | 52,165  |  
|                                                                                   | Payments on Bank Facility                              |                              |         | (15,838      | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |        | (15,838 | )
|                                                                                   | Payments of preferred stock dividends                  |                              |         | (150         | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |        | (150    | )
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash provided by (used in) financing
    activities of continuing operations   |                                                        |                              | 13,728  |              |   |               | (1,513 | )            |   |              | (67    | )      |   |  |  |  |  |   | 12,148 |        
|Effect of exchange rate changes on cash                                            |                                                        |                              |         |              |   |               |        |              |   |              | 64     |        |   |  |  |  |  |   | 64     |        
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash (used in) provided by
    continuing operations                           |                                                        |                              | (839    | )            |   |               | (5,899 | )            |   |              | 1,570  |        |   |  |  |  |  |   | (5,168 | )      
|Net cash provided by discontinued operations                                       |                                                        |                              |         |              |   |               | 6,067  |              |   |              | (2,281 | )      |   |  |  |  |  |   | 3,786  |        
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net (decrease) increase in cash and
    cash equivalents                           |                                                        |                              | (839    | )            |   |               | 168    |              |   |              | (711   | )      |   |  |  |  |  |   | (1,382 | )      
|Cash and cash equivalents, at beginning
    of period                              |                                                        |                              | 1,209   |              |   |               | 183    |              |   |              | 1,692  |        |   |  |  |  |  |   | 3,084  |        
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Cash and cash equivalents, at end of period                                        |                                                        | $                            | 370     |              |   | $             | 351    |              |   | $            | 981    |        |   |  |  |  |  | $ | 1,702  |        
|                                                                                   |                                                        |                              |         |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)

|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |         |  
|-------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------- | ------ | ------------ | - | ------------- | ------ | ------------ | - | ------------ | ------ | ------ | - |  |  |  |  | - | ------ | ------- | -
|                                                                                 |                                            |                             
|                                                                                 |                                            | Year ended December 31, 2001
|                                                                                 |                                            |                             
|                                                                                 |                                            |                              |        | Combined     |   | Combined      |        |             
|                                                                                 |                                            |                              |        | Guarantor    |   | Non-Guarantor |        |             
|                                                                                 |                                            | Parent                       |        | Subsidiaries |   | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |             
|Net cash provided by (used in) operating
    activities of continuing operations |                                            | $                            | 8,639  |              |   | $             | 9,463  |              |   | $            | (1,251 | )      |   |  |  |  |  | $ | 16,851 |        
|Net cash used in operating activities of
    discontinued operations             |                                            |                              |        |              |   |               | (2,079 | )            |   |              | (318   | )      |   |  |  |  |  |   | (2,397 | )      
|Cash flows from investing activities:                                            |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|                                                                                 | Purchases of property, plant and equipment |                              |        |              |   |               |        | (6,957       | ) |              |        | (1,096 | ) |  |  |  |  |   |        | (8,053  | )
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash used in investing activities of
    continuing operations               |                                            |                              |        |              |   |               | (6,957 | )            |   |              | (1,096 | )      |   |  |  |  |  |   | (8,053 | )      
|Net cash used in investing activities of
    discontinued operations             |                                            |                              |        |              |   |               | (226   | )            |   |              | (817   | )      |   |  |  |  |  |   | (1,043 | )      
|Cash flows from financing activities:                                            |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|                                                                                 | Proceeds from long-term debt               |                              |        | 35,820       |   |               |        | 1,126        |   |              |        | 3,511  |   |  |  |  |  |   |        | 40,457  |  
|                                                                                 | Payments on long-term debt                 |                              |        | (44,015      | ) |               |        | (2,168       | ) |              |        | (337   | ) |  |  |  |  |   |        | (46,520 | )
|                                                                                 | Payment of preferred stock dividends       |                              |        | (150         | ) |               |        |              |   |              |        |        |   |  |  |  |  |   |        | (150    | )
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash (used in) provided by financing
    activities of continuing operations |                                            |                              | (8,345 | )            |   |               | (1,042 | )            |   |              | 3,174  |        |   |  |  |  |  |   | (6,213 | )      
|Effect of exchange rate changes on cash                                          |                                            |                              |        |              |   |               |        |              |   |              | (71    | )      |   |  |  |  |  |   | (71    | )      
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net cash provided by continuing operations                                       |                                            |                              | 294    |              |   |               | 1,464  |              |   |              | 756    |        |   |  |  |  |  |   | 2,514  |        
|Net cash used in discontinued operations                                         |                                            |                              |        |              |   |               | (2,305 | )            |   |              | (1,135 | )      |   |  |  |  |  |   | (3,440 | )      
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Net increase (decrease) in cash and
    cash equivalents                         |                                            |                              | 294    |              |   |               | (841   | )            |   |              | (379   | )      |   |  |  |  |  |   | (926   | )      
|Cash and cash equivalents, at beginning
    of period                            |                                            |                              | 915    |              |   |               | 1,024  |              |   |              | 2,071  |        |   |  |  |  |  |   | 4,010  |        
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        
|Cash and cash equivalents, at end of period                                      |                                            | $                            | 1,209  |              |   | $             | 183    |              |   | $            | 1,692  |        |   |  |  |  |  | $ | 3,084  |        
|                                                                                 |                                            |                              |        |              |   |               |        |              |   |              |        |        |   |  |  |  |  |   |        |        

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HAWK CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)



|    |                                                           
|--- | ----------------------------------------------------------
|16. | Summary of Quarterly Results of Operations
    (Unaudited)

|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |      |   | 
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | --------- | ------ | -------- | - | ------------- | ------ | ------------ | - | --------- | ------ | -------- |  | ------------- | ------ | ------------ | - | - | ------- | ----- | - | - | ------ | ---- | - | - | ------ | ---- | - | - | ------ | ---- | - | 
|                                                                                                                |                                                                                                                          | March 31, |        | June 30, |   | September 30, |        | December 31, |   | March 31, |        | June 30, |  | September 30, |        | December 31,
|                                                                                                                |                                                                                                                          | 2003      |        | 2003     |   | 2003          |        | 2003         |   | 2002      |        | 2002     |  | 2002          |        | 2002        
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |             
|Net sales(1)                                                                                                    |                                                                                                                          | $         | 54,661 |          |   | $             | 52,193 |              |   | $         | 48,161 |          |  | $             | 47,536 |              |   | $ | 47,510  |       |   | $ | 48,203 |      |   | $ | 46,009 |      |   | $ | 44,190 |     
|Gross profit(1)                                                                                                 |                                                                                                                          |           | 12,986 |          |   |               | 13,202 |              |   |           | 11,233 |          |  |               | 9,948  |              |   |   | 10,730  |       |   |   | 11,905 |      |   |   | 10,291 |      |   |   | 11,270 |     
|(Loss) income before discontinued operations
    and cumulative effect of change in accounting
    principle(1) |                                                                                                                          |           | 396    |          |   |               | 1,206  |              |   |           | 131    |          |  |               | (2,182 | )            |   |   | (262    | )     |   |   | 740    |      |   |   | 207    |      |   |   | 120    |     
|Discontinued operations, net of tax                                                                             |                                                                                                                          |           | (277   | )        |   |               | (737   | )            |   |           | (48    | )        |  |               | (3,911 | )            |   |   | (338    | )     |   |   | (501   | )    |   |   | (484   | )    |   |   | (527   | )   
|Cumulative effect of change in accounting
    principle, net of tax                                             |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   | (17,200 | )     |   |   |        |      |   |   |        |      |   |   |        |     
|Net income (loss)(1)                                                                                            |                                                                                                                          | $         | 119    |          |   | $             | 469    |              |   | $         | 83     |          |  | $             | (6,093 | )            |   | $ | (17,800 | )     |   | $ | 239    |      |   | $ | (277   | )    |   | $ | (407   | )   
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|Basic (loss) earnings per share:(1)                                                                             |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|                                                                                                                | (Loss) earnings per share before discontinued
    operations and cumulative effect of change in
    accounting principle |           | $      | .04      |   |               | $      | .14          |   |           | $      | .01      |  |               | $      | (.26         | ) |   | $       | (.03  | ) |   | $      | .08  |   |   | $      | .02  |   |   | $      | .01  |  
|                                                                                                                | Discontinued operations, net of tax                                                                                      |           |        | (.03     | ) |               |        | (.09         | ) |           |        | .00      |  |               |        | (.45         | ) |   |         | (.04  | ) |   |        | (.06 | ) |   |        | (.06 | ) |   |        | (.06 | )
|                                                                                                                | Cumulative effect of change in accounting
    principle, net of tax                                                      |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         | (2.01 | ) |   |        |      |   |   |        |      |   |   |        |      |  
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|                                                                                                                | Net (loss) earnings per basic share                                                                                      |           | $      | .01      |   |               | $      | .05          |   |           | $      | .01      |  |               | $      | (.71         | ) |   | $       | (2.08 | ) |   | $      | .02  |   |   | $      | (.04 | ) |   | $      | (.05 | )
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|Diluted (loss) earnings
    per share:(1)                                                                       |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|                                                                                                                | (Loss) earnings per share before discontinued
    operations and cumulative effect of change in accounting
    principle |           | $      | .04      |   |               | $      | .14          |   |           | $      | .01      |  |               | $      | (.26         | ) |   | $       | (.03  | ) |   | $      | .08  |   |   | $      | .02  |   |   | $      | .01  |  
|                                                                                                                | Discontinued operations, net of tax                                                                                      |           |        | (.03     | ) |               |        | (.09         | ) |           |        | .00      |  |               |        | (.45         | ) |   |         | (.04  | ) |   |        | (.06 | ) |   |        | (.06 | ) |   |        | (.06 | )
|                                                                                                                | Cumulative effect of change in accounting
    principle, net of tax                                                      |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         | (2.01 | ) |   |        |      |   |   |        |      |   |   |        |      |  
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     
|                                                                                                                | Net (loss) earnings per diluted share                                                                                    |           | $      | .01      |   |               | $      | .05          |   |           | $      | .01      |  |               | $      | (.71         | ) |   | $       | (2.08 | ) |   | $      | .02  |   |   | $      | (.04 | ) |   | $      | (.05 | )
|                                                                                                                |                                                                                                                          |           |        |          |   |               |        |              |   |           |        |          |  |               |        |              |   |   |         |       |   |   |        |      |   |   |        |      |   |   |        |     



---



|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Results of operations of the Company have been
    restated to reclassify the net earnings of the motors segment as
    discontinued operations for all periods presented. See
    Note 3.

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Part IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K

(a) Financial Statements

The following consolidated financial statements
of Hawk are included in Item 8:



| |       |                                                                                                         
| | ----- | --------------------------------------------------------------------------------------------------------
| | (i)   | Consolidated Balance Sheets at December 31,
    2003 and 2002                                           
|
| | (ii)  | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001          
|
| | (iii) | Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2003, 2002 and 2001
|
| | (iv)  | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001          
|
| | (v)   | Notes to Consolidated Financial Statements for
    the years ended December 31, 2003, 2002 and 2001     

All consolidated financial schedules are omitted
because they are inapplicable, not required by the instructions
or the information is included in the consolidated financial
statements or notes thereto.

(b) Reports on Form 8-K:

We have filed five reports on Form 8-K since
September 30, 2003:

A report dated October 29, 2003 reporting a
temporary limitation in distribution and diversification in
employees individual accounts of various 401(k) plans
during the period beginning December 5, 2003, through
December 22, 2003, as a result of the consolidation of the
plans into a new Hawk Corporation 401(k) Savings and Retirement
Plan on January 1, 2004.

A report dated November 3, 2003 reporting
our financial results for the 3rd quarter of 2003 and for the
nine months ended September 30, 2003.

A report dated January 5, 2004, reporting
that we had been informed by the American Stock Exchange
(AMEX) that our application to list our shares of Class A
common stock on the AMEX was approved and that it was expected
that shares of our Common Stock would commence trading on
Wednesday January 7, 2004.

A report dated January 7, 2004, announcing a
strategic repositioning plan to focus on our two primary
business segments, Friction Products and Precision Components.

A report dated February 17, 2004, reporting
our financial results for the 4th quarter of 2003 and for the
full year of 2003.

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(c) Exhibits:

| |    |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1 |  | Form of the Companys Second Amended
    and Restated Certificate of Incorporation (Incorporated by
    reference to the Companys Registration Statement on
    Form S-1 as filed with the Securities and Exchange
    Commission (Reg. No. 333-40535))                                                                                                                                                                                                                                                                                                    
| | 3  | .2 |  | The Companys Amended and Restated By-laws
    (Incorporated by reference to the Companys Current Report
    on Form 8-K as filed with the Securities and Exchange
    Commission (Reg. No. 001-13797))                                                                                                                                                                                                                                                                                                                                                    
| | 4  | .1 |  | Form of Rights Agreement between the Company
    and Continental Stock Transfer & Trust Company, as Rights
    Agent (Incorporated by reference to the Companys
    Registration Statement on Form S-1 as filed with the
    Securities and Exchange Commission (Reg. No. 333-40535))                                                                                                                                                                                                                                                                      
| | 4  | .2 |  | Form of 10 1/4% Senior Note due 2003
    (Incorporated by reference to the Companys Registration
    Statement on Form S-4 as filed with the Securities and
    Exchange Commission(Reg. No. 333-18433))                                                                                                                                                                                                                                                                                                                                                   
| | 4  | .3 |  | Form of Series B 10 1/4% Senior Note
    due 2003 (Incorporated by reference to the Companys
    Registration Statement on Form S-4 as filed with the
    Securities and Exchange Commission(Reg. No. 333-18433))                                                                                                                                                                                                                                                                                                                                          
| | 4  | .4 |  | Stockholders Voting Agreement, effective as
    of November 27, 1996, by and among the Company, Norman C.
    Harbert, the Harbert Family Limited Partnership, Ronald E.
    Weinberg, the Weinberg Family Limited Partnership, Byron S.
    Krantz and the Krantz Family Limited Partnership (Incorporated
    by reference to the Companys Registration Statement on
    Form S-4 as filed with the Securities and Exchange
    Commission (Reg. No. 333-18433))                                                                                        
| | 4  | .5 |  | Letter agreement, dated January 5, 1998, amending
    the Stockholders Voting Agreement, effective as of
    November 27, 1996, by and among the Company, Norman C. Harbert,
    the Harbert Family Limited Partnership, Ronald E. Weinberg, the
    Weinberg Family Limited Partnership, Byron S. Krantz and the
    Krantz Family Limited Partnership (Incorporated by reference to
    the Companys Registration Statement on Form S-1 as
    filed with the Securities and Exchange Commission (Reg.
    No. 333-40535))                              
| | 4  | .6 |  | Supplemental Indenture among the Company, certain
    of its domestic subsidiaries from time to time a party thereto,
    as Guarantors, and HSBC Bank USA, as successor trustee to Bank
    One Trust Company, N.A., relating to the Companys Series A
    10.25% Senior Notes due December 1, 2003, and Series B 10.25%
    Senior Notes due December 1, 2002 (incorporated herein by
    reference to Amendment No. 1 to the Registration Statement
    on Form S-4 (Registration Number 333-90556), as filed with
    the Commission on August 1, 2002)
| | 4  | .7 |  | Indenture among the Company, certain of its
    domestic subsidiaries from time to time a party thereto, as
    Guarantors, and HSBC Bank USA, as trustee, relating to the
    Companys 12% Senior Notes due 2006 (Incorporated by
    reference to the Companys Form 10-K for the period
    ended December 31, 2002 as filed with the Securities and
    Exchange Commission)                                                                                                                                                                           
| | 10 | .1 |  | Employment Agreement, dated as of November 1,
    1996, between the Company and Norman C. Harbert (Incorporated by
    reference to the Companys Registration Statement on
    Form S-4 as filed with the Securities and Exchange
    Commission (Reg. No. 333-18433))                                                                                                                                                                                                                                                                                     
| | 10 | .2 |  | Form of Amended and Restated Wage
    Continuation Agreement between the Company and Norman C. Harbert
    (Incorporated by reference to the Companys Registration
    Statement on Form S-1 as filed with the Securities and
    Exchange Commission (Reg. No. 333-40535))                                                                                                                                                                                                                                                                                
| | 10 | .3 |  | Employment Agreement, dated as of November 1,
    1996, between the Company and Ronald E. Weinberg (Incorporated
    by reference to the Companys Registration Statement on
    Form S-4 as filed with the Securities and Exchange
    Commission (Reg. No. 333-18433))                                                                                                                                                                                                                                                                                    
| | 10 | .4 |  | Amendment No. 1 to the Employment Agreement,
    dated as of October 24, 2000, between the Company and Norman C.
    Harbert (Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended March 31, 2001 as
    filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                              
| | 10 | .5 |  | Amendment No. 1 to the Employment Agreement,
    dated as of October 24, 2000, between the Company and Ronald E.
    Weinberg (Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended March 31, 2001 as
    filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                             
| | 10 | .6 |  | Amended and Restated Employment Agreement, dated
    as of December 31, 2001, by and among the Company, Friction
    Products Co. and Ronald E. Weinberg (Incorporated by reference
    to the Companys Form 10-K for the period ended
    December 31, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                     

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| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .7  |  | Amended and Restated Employment Agreement, dated
    as of December 31, 2001, by and among the Company, Friction
    Products Co. and Norman C. Harbert (Incorporated by reference to
    the Companys Form 10-K for the period ended
    December 31, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .8  |  | Amended and Restated Wage Continuation Agreement,
    dated as of December 31, 2001, by and among the Company,
    Friction Products Co. and Norman C. Harbert (Incorporated by
    reference to the Companys Form 10-K for the period
    ended December 31, 2001 as filed with the Securities and
    Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 10 | .9  |  | Consultant Agreement, dated as of December 31,
    2001, by and among the Company, Friction Products Co. and Norman
    C. Harbert (Incorporated by reference to the Companys
    Form 10-K for the period ended December 31, 2001 as
    filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 10 | .10 |  | Form of the Promissory Notes, each dated
    June 30, 1995, issued by of Norman C. Harbert and Ronald E.
    Weinberg to the Company (Incorporated by reference to the
    Companys Registration Statement on Form S-4 as filed
    with the Securities and Exchange Commission (Reg.
    No. 333-18433))                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 10 | .11 |  | Letter agreement, dated October 1, 1996, amending
    the Promissory Notes, dated June 30, 1995, issued by each of
    Norman C. Harbert and Ronald E. Weinberg to the Company
    (Incorporated by reference to the Companys Registration
    Statement on Form S-4 as filed with the Securities and
    Exchange Commission (Reg. No. 333-18433))                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10 | .12 |  | Credit Agreement, dated as of May 1, 1998, among
    the Company and KeyBank National Association, as Swing Line
    Lender, Administrative Agent and as Syndication Agent
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended June 30, 1998 as filed with the
    Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .13 |  | Subsidiary Guaranty, dated as of May 1, 1998,
    among the subsidiaries of the Company, as guarantors, and
    KeyBank National Association, as Administrative Agent
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended June 30, 1998 as filed with the
    Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 10 | .14 |  | Amendment No. 1, dated as of November 22,
    2000 to Credit Agreement among the Company and KeyBank National
    Association, as Lender, the Swing Line Lender, a Letter of
    Credit Issuer and as the Syndication Agent and the
    Administrative Agent (Incorporated by reference to the
    Companys Form 10-K for the period ended
    December 31, 2000 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                                                                                                                            
| | 10 | .15 |  | Hawk Corporation 1997 Stock Option Plan
    (Incorporated by reference to the Companys Registration
    Statement on Form S-1 as filed with the Securities and
    Exchange Commission (Reg. No. 333-40535))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 10 | .16 |  | Hawk Corporation 2000 Long Term Incentive Plan
    (Incorporated by reference to the Companys Form 10-K
    for the period ended December 31, 2000 as filed with the
    Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 10 | .17 |  | Hawk Corporation Annual Incentive Compensation
    Plan (Incorporated by reference to the Companys
    Form 10-K for the period ended December 31, 2000 as
    filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10 | .18 |  | Amendment No. 2 to Credit Agreement, dated
    as of July 31, 2001, by and among the Company, the Lenders
    identified therein and KeyBank National Association, a national
    banking association, as the Administrative Agent under the
    Credit Agreement (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .19 |  | Form of Security Agreement, dated as of
    August 10, 2001, by and between KeyBank National Association,
    the Company and each of the following subsidiaries of the
    Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered
    Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM,
    Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings,
    Inc., Net Shape Technologies LLC, Quarter Master Industries,
    Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy
    Corporation, Tex Racing Enterprises, Inc. and Wellman Friction
    Products U.K. Corp (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)

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| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .20 |  | Form of Pledge Agreement, dated as of August
    10, 2001, by and between KeyBank National Association, the
    Company and each of the following subsidiaries of the Company:
    Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals,
    Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc.,
    Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc.,
    Net Shape Technologies LLC, Quarter Master Industries, Inc.,
    S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy
    Corporation, Tex Racing Enterprises, Inc. and Wellman Friction
    Products U.K. Corp (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)                
| | 10 | .21 |  | Form of Intellectual Property Security
    Agreement, dated as of August 10, 2001, by and between the
    Company and each of the following subsidiaries of the Company:
    Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals,
    Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc.,
    Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc.,
    Net Shape Technologies LLC, Quarter Master Industries, Inc.,
    S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy
    Corporation, Tex Racing Enterprises, Inc. and Wellman Friction
    Products U.K. Corp. (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)                     
| | 10 | .22 |  | Form of Guaranty Agreement of Payment of
    Obligations, dated as of August 10, 2001, by and between KeyBank
    National Association and each of the following subsidiaries of
    the Company: Allegheny Powder Metallurgy, Inc., Clearfield
    Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc.,
    Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal
    Stampings, Inc., Net Shape Technologies LLC, Quarter Master
    Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings,
    Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and
    Wellman Friction Products U.K. Corp. (Incorporated by reference
    to the Companys Form 10-Q for the quarterly period
    ended June 30, 2001 as filed with the Securities and
    Exchange Commission)
| | 10 | .23 |  | Form of Open Ended Ohio Mortgage, executed
    as of August 10, 2001, in favor of KeyBank National
    Association by each of the following subsidiaries of the
    Company: Friction Products Co., Logan Metal Stampings, Inc. and
    S.K. Wellman Corp. (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .24 |  | Form of Open Ended Pennsylvania Mortgage,
    executed as of August 10, 2001, in favor of KeyBank National
    Association by each of the following subsidiaries of the
    Company: Allegheny Powder Metallurgy, Inc. and Clearfield
    Powdered Metals, Inc. (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    June 30, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .25 |  | Form of Mortgage, Assignment of Leases and
    Rents and Fixture Filing, executed as of August 10, 2001, in
    favor of KeyBank National Association by each of the following
    subsidiaries of the Company: Hawk Motors, Inc. and Helsel, Inc.
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended June 30, 2001 as filed with the
    Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                              
| | 10 | .26 |  | Common Stock Selling Plan of Thomas A. Gilbride
    pursuant Rule 10b5-1 of the Securities Exchange Act of 1934, as
    amended, effective as of June 6, 2001 (Incorporated by reference
    to the Companys Form 10-Q for the quarterly period
    ended June 30, 2001 as filed with the Securities and
    Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10 | .27 |  | Amendment No. 3 to Credit Agreement, dated
    as of November 9, 2001, by and among the Company, the
    Lenders identified therein and KeyBank National Association, a
    national banking association, as the Administrative Agent under
    the Credit Agreement (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    September 30, 2001 as filed with the Securities and
    Exchange Commission)                                                                                                                                                                                                                                                                                                                                                       
| | 10 | .28 |  | Form of Pledge Agreement, dated as of
    November 9, 2001, by and between KeyBank National
    Association, the Company and each of the following subsidiaries
    of the Company: Allegheny Powder Metallurgy, Inc., Clearfield
    Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc.,
    Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal
    Stampings, Inc., Net Shape Technologies LLC, Quarter Master
    Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings,
    Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and
    Wellman Friction Products U.K. Corp (Incorporated by reference
    to the Companys Form 10-Q for the quarterly period
    ended September 30, 2001 as filed with the Securities and
    Exchange Commission)          

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| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .29 |  | Amendment No. 4 to Credit Agreement, dated
    as of March 25, 2002, by and among the Company, the Lenders
    identified therein and KeyBank National Association, a national
    banking association, as the Administrative Agent under the
    Credit Agreement (Incorporated by reference to the
    Companys Form 10-K for the period ended
    December 31, 2001 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                        
| | 10 | .30 |  | Credit Agreement, dated as of October 18,
    2002, among the Company, and certain of its domestic
    subsidiaries from time to time party thereto, as Borrowers and
    Guarantors, the Lending Institutions party thereto, as Lenders,
    J.P. Morgan Business Credit Corp., as Advisor, JPMorgan Chase
    Bank, as Administrative Agent and Collateral Agent, Issuing Bank
    and Arranger, PNC Bank, National Association as a Documentation
    Agent and Fleet Capital Corp. as a Documentation Agent
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended September 30, 2002 as filed with
    the Securities and Exchange Commission)
| | 10 | .31 |  | Security and Pledge Agreement, dated as of
    October 18, 2002, among the Company, and its certain
    Subsidiaries as Grantors, the other Grantors from time to time
    party thereto, and JPMorgan Chase Bank, as Administrative and
    Collateral Agent (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    September 30, 2002 as filed with the Securities and Exchange
    Commission)                                                                                                                                                                                                                                                  
| | 10 | .32 |  | Form of Ohio Open Ended Mortgage, Assignment
    of Leases and Rents and Fixture Filing, each dated as of October
    18, 2002, issued by each of Friction Products Co., Logan Metal
    Stampings, Inc. and S.K. Wellman Corp. and in Favor of JPMorgan
    Chase Bank (Incorporated by reference to the Companys
    Form 10-Q for the quarterly period ended September 30,
    2002 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                            
| | 10 | .33 |  | Form of Pennsylvania Open Ended Mortgage
    Securing Future and/or Revolving Advances up to a Maximum
    Principal Amount of Fifty Three Million Dollars ($53,000,000)
    plus accrued interest and other Indebtedness as described in 42
    PA. C.S.A.ss.8143, dated as of October 18, 2002, issued by
    Allegheny Clearfield, Inc. in favor of JPMorgan Chase Bank
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended September 30, 2002 as filed
    with the Securities and Exchange Commission)                                                                                                                                     
| | 10 | .34 |  | Form of Illinois Mortgage, Assignment of
    Leases and Rents and Fixture Filing, dated as of
    October 18, 2002, issued by Hawk Motors, Inc. in favor of
    JPMorgan Chase Bank (Incorporated by reference to the
    Companys Form 10-Q for the quarterly period ended
    September 30, 2002 as filed with the Securities and
    Exchange Commission)                                                                                                                                                                                                                                                                                                                            
| | 10 | .35 |  | Form of Indiana Mortgage, Assignment of
    Leases and Rents and Fixture Filing, dated as of October 18,
    2002, issued by Helsel, Inc. in favor of JPMorgan Chase Bank
    (Incorporated by reference to the Companys Form 10-Q
    for the quarterly period ended September 30, 2002 as filed
    with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                      
| | 10 | .36 |  | Amendment No. 1 to the Credit Agreement,
    dated as of February 27, 2004, by and among the Company and
    certain of its domestic subsidiaries from time to time party
    thereto, as Borrowers and Guarantors, the Lending Institutions
    party thereto, as Lenders, and JPMorgan Chase Bank, as
    Administrative Agent and Collateral Agent and issuing Bank
(Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                
| | 10 | .37 |  | Settlement Agreement, Release and Waiver, dated
    as of October 27, 2003, by and between the Company and Jeffrey
    H. Berlin (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .38 |  | Transition Agreement, Release and Waiver, dated
    as of January 7, 2004, by and between the Company and Michael J.
    Corkran (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .39 |  | Common Stock Selling Plan of the Harbert
    Foundation pursuant to Rule 10b5-1 of the Securities Exchange
    Act of 1934, as amended, effective January 9, 2004 (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                     
| | 10 | .40 |  | Amendment No. 1 to Amended and Restated
    Employment Agreement, dated as of March 3, 2004, by and
    among the Company, Friction Products Co. and Ronald E. Weinberg (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                               
| | 10 | .41 |  | First Amendment to Amended and Restated
    Employment Agreement, dated as of December 31, 2003, by and
    among the Company, Friction Products Co. and Norman C. Harbert (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                            
| | 14 |     |  | Code of Business Conduct and Ethics (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 21 | .1  |  | Subsidiaries of the Registrant (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2003 as filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 23 | .1* |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 31 | .1* |  | Certification of the Chairman of the Board, Chief
    Executive Officer and President pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |    |     |  |                                                                                                                                                                                                       
| | -- | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31 | .2* |  | Certification of the Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                            
| | 32 | .1* |  | Certification of the Chairman of the Board, Chief
    Executive Officer and President pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002
| | 32 | .2* |  | Certification of the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                         



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|  |                            
|- | ---------------------------
|* | Filed or Furnished herewith

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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.



| |                 
| | ----------------
| | HAWK CORPORATION



| |     |                         
| | --- | ------------------------
| | BY: | /s/ JOSEPH J. LEVANDUSKI

| |                        
| | -----------------------
| |                        
| | Joseph J. Levanduski   
| | Chief Financial Officer

Date: May 14, 2004

78