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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-K**

**ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**For      the Fiscal year ended December 31, 2005**

**Commission      File No. 001-13797**

**Hawk      Corporation**

| **Delaware**                            | **34-1608156**                                      |
|-----------------------------------------|-----------------------------------------------------|
| (State                of incorporation) | (I.R.S.                Employer Identification No.) |

**200      Public Square, Suite 1500, Cleveland, Ohio 44114**

**(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                  |
| 8                3/4% Senior Notes due 2014         | American                Stock Exchange                  |

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

**DOCUMENTS      INCORPORATED BY REFERENCE**

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**PART        I**

**ITEM        1. BUSINESS**

**Our        Company**

**2005      Sales by Segment**

*•*
*Friction      Products *

| ·    | a                leading domestic and international supplier of friction products                for                construction and mining equipment, agricultural equipment and                trucks,                                                                                                                                                    |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | the                leading North American independent supplier of friction materials                for                braking systems for new and existing series of many commercial aircraft                models, including the Boeing 737 and 757 and the MD-80, and several                regional jets including the Canadair regional jet series,  |
| ·    | the                largest supplier of friction materials for the growing general aviation                market, including numerous new and existing series of Gulfstream,                Cessna,                Lear and Beech aircraft, and                                                                                                              |
| ·    | a                leading domestic supplier of friction products into performance and                specialty markets such as motorcycles, race cars, performance automobiles,                military Hummers, ATV’s and snowmobiles.                                                                                                                |

*Precision      Components*

| ·    | tight                tolerance fluid power components such as pump elements and                gears,                                     |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | large                powder metal components used primarily in construction equipment,                agricultural equipment and trucks,  |

| ·    | high                volume parts for the lawn and garden, appliance and other markets,                and                                                           |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | metal                injection molded parts for a variety of industries, including small                hand                tools, medical and telecommunications.  |

*Performance      Racing*

**Discontinued      Operations**

|                                                     |   | **2005**                             |    | **2004** |   | **2003** |   |
|----------------------------------------------------------|--------|--------------------------------------|---------|----------|--------|----------|--------|
|                                                          |   | (dollars                in millions) |
| Net                sales                                 |   | **$**                                | **8.9** |     | $      | 13.0     |   | $ | 14.5 |   |
| Income                (loss) from operations, net of tax |   | **$**                                | **0.0** |     | $      | (0.3     | )      | $ | (5.0 | ) |

**Business      Strategy**

| ·    | *Continued                  Product Innovation.*We                  believe that we are an industry leader in the development of systems,                  processes and technologies that enable the manufacturing of friction                  products with numerous performance advantages, such as greater                  wear                  resistance, increased stopping power, lower noise and smoother                  engagement.                  We are committed to maintaining our technological advantages. As                  a result,                  we are focusing our research and development efforts on improving                  our                  existing products and developing materials and technologies for                  new                  applications for our existing end markets. For example, in our                  precision                  components segment, we have embarked on a strategic initiative                  by                  investing in advanced equipment that enables us to manufacture                  parts in                  higher densities and more complex shapes than our competitors.                  Across all                  of our business segments, we seek new product developments and                  production                  techniques that will enable us to develop new applications for                  our                  existing end markets. For the year ended December 31, 2005, we                  spent $6.5                  million, or 2.5% of our net sales, on research and development                  which                  represents a 16.1% increase from                  2004. |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Focus                on High-Margin, Specialty Applications.*We                focus on markets that require sophisticated engineering and production                techniques and in which we have achieved a significant market share.                We                seek to compete in markets requiring a high level of engineering                expertise                and technical capability, rather than in markets in which the primary                competitive factor is product pricing. We believe margins for our                products                in these markets are higher than in other manufacturing markets that                use                standardized products and that this strategy will continue to provide                market stability going forward. Our gross margins were 19.7% for                the year                ended December 31, 2005 and 23.4% for the year ended December 31,                2004.                Our margins in 2005 were negatively impacted by costs related to                the                relocation of one of our friction products manufacturing facilities                from                Ohio to Oklahoma and production inefficiencies associated with the                start-up of operations in Oklahoma.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|       | *Capitalize                  on Aftermarket Opportunities.*We                  estimate that aftermarket sales of friction products have comprised                  approximately 40% of friction product sales in recent years. Our                  aftermarket sales enable us to reduce our exposure to adverse economic                  cycles. Sales of our friction products can offer decades of continued                  sales for products such as aircraft brakes, heavy duty trucks and                  construction equipment. We have expanded our friction products                  segment                  aftermarket sales force to focus on increasing direct aftermarket                  sales to                  fleets and retail customers. For the year ended December 31, 2005                  our                  direct aftermarket sales were $27.1 million, or 16.2% of our friction                  products sales, an increase of 5.7% from 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·          | *Institute                  Cost-Reduction Initiatives.*To                  maintain our profit margins in highly competitive markets and in                  periods                  of rising raw material costs, we aggressively manage our operating                  cost                  structure. Through various cost reduction programs, lean manufacturing                  initiatives and Six Sigma projects, we continue to look for ways                  to lower                  the total cost of producing our products. We use an incentive based                  compensation system to further align our employees with our focus                  on                  providing products of the highest quality and at the lowest                  cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ·          | *Globalization.*We                  have manufacturing facilities in Italy, Canada and China and a                  sales                  office in Argentina. Through our friction products segment’s worldwide                  distribution network, we continue to selectively expand our international                  operations in established markets throughout Europe, Asia, North                  America,                  South America and Australia. In 2003, we constructed our second                  facility                  in China giving us the ability to manufacture powder metal components                  in                  addition to the friction products we were already manufacturing                  in China.                  We experienced our first sales from this facility at the end of                  2003, and                  achieved rapid sales growth at this facility in 2005, which we                  expect to                  continue into the future, as many of our existing customers are                  looking to                  us to provide a high quality source of products for their facilities                  located in Asia. We also market to domestic Asian customers from                  our                  facilities in China. Our international net sales represented $55.9                  million, or 21.1%, of our consolidated net sales for the year ended                  December 31, 2005, and $48.4 million, or 20.1%, of our consolidated                  net                  sales in 2004. |

**Our      Principal Markets and Products**

**2005      Sales by Principal Markets**

***Friction      Products***

*Construction/Mining/Agriculture/Trucks/Performance      and Specialty.*

| ·    | *Construction                and Mining Equipment.*We                supply friction products such as transmission discs, clutch facings                and                brake components to manufacturers of construction and mining equipment,                including Caterpillar. We believe we are one of the largest domestic                supplier of these types of friction products. Replacement components                for                construction equipment are sold through original equipment manufacturers                as well as directly to aftermarket                distributors. |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Agriculture                Equipment.*We                supply friction products such as clutch facings, transmission discs                and                brake components to manufacturers of agriculture equipment, including                John                Deere and CNH. We believe we are the one of the largest domestic                suppliers                of these types of friction products. Replacement components for                agricultural equipment are sold through original equipment manufacturers,                as well as directly to aftermarket distributors.                                                                                                                                                                                                                                                                            |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Medium                and Heavy Trucks.*We                supply friction products for clutch buttons and facings used in medium                and                heavy trucks to original equipment manufacturers, such as Eaton and                ZF                Sachs. We believe we are the leading domestic supplier of replacement                friction products used in these applications. Replacement components                are                sold through original equipment manufacturers and directly to aftermarket                distributors.                                                                                                                                                                                                                                                                                                          |
| ·    | *Performance                and Specialty Friction.*We                supply friction products for use in specialty applications, such                as brake                pads for Harley-Davidson motorcycles, Bombardier, Polaris and Arctic                Cat                snowmobiles, race cars and performance automotive vehicles and the                military version of the Hummer. We believe that these markets are                experiencing significant growth, and that we have increased our market                share with our combination of superior quality and product performance.                Our replacement components are sold through original equipment                manufacturers, directly to aftermarket distributors and through                relationships with national automotive retailers such as Pep                Boys.  |

*Aerospace.      *

***Precision      Components***

| ·    | fluid                power applications, such as pumps and other hydraulic                mechanisms,                                                                                           |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | transmissions,                other drive mechanisms and anti-lock braking systems used in trucks,                off-road and lawn and garden equipment,                                       |
| ·    | gears                and other components for use in home appliances, small hand tools,                office                equipment, medical, and telecommunication equipment,                and |
| ·    | components                used in automotive applications.                                                                                                                                      |

| ·    | *High                Precision.*Our                pressing and finishing capabilities enable us to specialize in tight                tolerance fluid power components such as pump elements and gears.                In                addition, we believe that our machining capabilities provide us with                a                competitive advantage by giving us the ability to supply a completed                part                to our customers, typically without any subcontracted precision machining.                We expect that our growth in this niche will be driven by customers’ new                design requirements and new product applications primarily for pumps,                motors and transmissions.                                                                                                                                                                                       |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Large                Size Capability.*We                have the capability to make powder metal components that are among                the                largest used in North America. For example, we make reactor plates,                which                serve as an opposing surface to friction disks made by us, having                diameters of up to 19 inches for use in transmissions in construction                and                mining equipment. We expect our sales of large powder metal components                to                continue to grow as we create new designs for existing customers                and                benefit from market growth, primarily in construction, mining,                agricultural and truck applications.                                                                                                                                                        |
| ·    | *Large                Size Capability.*We                have the capability to make powder metal components that are among                the                largest used in North America. For example, we make reactor plates,                which                serve as an opposing surface to friction disks made by us, having                diameters of up to 19 inches for use in transmissions in construction                and                mining equipment. We expect our sales of large powder metal components                to                continue to grow as we create new designs for existing customers                and                benefit from market growth, primarily in construction, mining,                agricultural and truck applications.                                                                                                                                                        |
| ·    | *High                Volume.*We                also target smaller, high volume parts where we can use efficient                pressing                and sintering capabilities to our best advantage. In this niche,                our                primary markets have been powder metal components for the lawn and                garden,                home appliance, power hand tool, truck, automotive and business equipment                markets. We believe that our high volume capabilities provide us                with                opportunities to cross-sell numerous of our other precision components                to                customers of high precision and large size parts. Several of our                leading                original equipment customers have a variety of applications that                we supply                from both our friction and precision components segments.  |
| ·    | *Metal                Injection Molding.*We                also manufacture small, complex metal injection molded parts for                a variety                of industries, such as small hand tools, medical and telecommunications.                We believe that many traditional powder metal customers may also                be                attractive prospects for metal injected molded parts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

***Performance      Racing***

**Our      Business Segments**

|                                                        |   | **Year                  ended December 31**  |      |
|-------------------------------------------------------------|--------|---------------------------------------------------|-----------|
|                                                        |   | **2005**                                          |      | **2004** |   | **2003** |   |
|                                                        |   | (dollars                  in millions)            |      |
| Net                  sales to external customers:           |   |                                              |      |   |   |   |   |   |   |   |   |   |   |
| Friction                  products                          |   | **$**                                             | **167.0** |   |   | **62.9** | **%** | $ | 148.3 |   |   | 61.5 | % | $ | 121.6 |   |   | 60.0 | % |
| Precision                  components (1)                   |   |                                              | **83.6**  |   |   | **31.5** | **%** |   | 78.6 |   |   | 32.6 | % |   | 68.1 |   |   | 33.6 | % |
| Performance                  racing                         |   |                                              | **14.8**  |   |   | **5.6** | **%** |   | 14.3 |   |   | 5.9 | % |   | 12.9 |   |   | 6.4 | % |
| Consolidated                                                |   | **$**                                             | **265.4** |   |   | **100.0** | **%** | $ | 241.2 |   |   | 100.0 | % | $ | 202.6 |   |   | 100.0 | % |
|                                                        |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                  profit:                              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                  products                          |   | **$**                                             | **33.6**  |   |   | **64.1** | **%** | $ | 36.5 |   |   | 64.6 | % | $ | 29.5 |   |   | 62.2 | % |
| Precision                  components (1)                   |   |                                              | **15.8**  |   |   | **30.2** | **%** |   | 16.6 |   |   | 29.4 | % |   | 14.5 |   |   | 30.6 | % |
| Performance                  racing                         |   |                                              | **3.0**   |   |   | **5.7** | **%** |   | 3.4 |   |   | 6.0 | % |   | 3.4 |   |   | 7.2 | % |
| Consolidated                                                |   | **$**                                             | **52.4**  |   |   | **100.0** | **%** | $ | 56.5 |   |   | 100.0 | % | $ | 47.4 |   |   | 100.0 | % |
|                                                        |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from operations              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                  products                          |   | **$**                                             | **5.7**   |   |   | **61.3** | **%** | $ | 13.1 |   |   | 75.7 | % | $ | 8.3 |   |   | 76.1 | % |
| Precision                  components (1)                   |   |                                              | **4.1**   |   |   | **44.1** | **%** |   | 3.5 |   |   | 20.2 | % |   | 2.2 |   |   | 20.2 | % |
| Performance                  racing                         |   |                                              | **(0.5**  | **)** |   | **(5.4)** | **%** |   | 0.7 |   |   | 4.1 | % |   | 0.4 |   |   | 3.7 | % |
| Consolidated                                                |   | **$**                                             | **9.3**   |   |   | **100.0** | **%** | $ | 17.3 |   |   | 100.0 | % | $ | 10.9 |   |   | 100.0 | % |
|                                                        |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted                  income (loss) from operations (2) |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                  products                          |   | **$**                                             | **11.3**  |   |   | **73.4** | **%** | $ | 14.6 |   |   | 76.4 | % | $ | 10.2 |   |   | 79.7 | % |
| Precision                  components                       |   |                                              | **4.5**   |   |   | **29.2** | **%** |   | 3.8 |   |   | 19.9 | % |   | 2.2 |   |   | 17.2 | % |
| Performance                  racing                         |   |                                              | **(0.4**  | **)** |   | **(2.6)** | **%** |   | 0.7 |   |   | 3.7 | % |   | 0.4 |   |   | 3.1 | % |
| Consolidated                                                |   | **$**                                             | **15.4**  |   |   | **100.0** | **%** | $ | 19.1 |   |   | 100.0 | % | $ | 12.8 |   |   | 100.0 | % |

|                                   |   | **December                31**  |        |
|----------------------------------------|--------|--------------------------------------|-------------|
|                                   |   | **2005**                        |        | **2004**  |   |
| Total                assets:           |   |                                 |        |   |   |
| Friction                products       |   | **$**                                | **121,128** |   | $ | 114,608 |   |
| Precision                components    |   |                                 | **89,210**  |   |   | 85,545 |   |
| Performance                racing      |   |                                 | **12,257**  |   |   | 12,365 |   |
| Continuing                operations   |   |                                 | **222,595** |   |   | 212,518 |   |
| Discontinued                operations |   |                                 | **3,633**   |   |   | 4,499 |   |
| Consolidated                           |   | **$**                                | **226,228** |   | $ | 217,017 |   |

| (1)   | A                line of business formerly associated with our motor segment, which                was                discontinued as of December 31, 2003, was retained by us and production                was transferred to a facility within our precision components segment                effective July 1, 2004. Net sales from this line of business were                $0.8                million through the date of transfer effective July 1, 2004 and $1.2                million for the year ended December 31, 2003. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | See                the disclosure set forth in the following section captioned “Hawk’s Use of                Non-GAAP Financial Measures” for further explanation. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Hawk’s      Use of Non-GAAP Financial Measures**

|                                                                         |   | **Year                  ended December 31**  |     |
|------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|
|                                                                         |   | **2005**                                     |     | **2004**  |   | **2003**  |   |
| Income                  from operations - Friction products:                 |   | **$**                                             | **5.7**  |   | $ | 13.1 |   | $ | 8.3 |   |
| Restructuring                  costs                                         |   |                                              | **5.5**  |   |   | 1.1 |   |   |   |   |
| Employee                  benefit curtailment (income) expense               |   |                                              | **(0.4** | **)** |   |   |   |   | 1.9 |   |
| Loan                  forgiveness costs                                      |   |                                              | **0.5**  |   |   | 0.4 |   |   |   |   |
| Adjusted                  income from operations - Friction products         |   | **$**                                             | **11.3** |   | $ | 14.6 |   | $ | 10.2 |   |
|                                                                         |   |                                              |     |   |   |   |   |   |   |   |
| Income                  from operations - Precision components:              |   | **$**                                             | **4.1**  |   | $ | 3.5 |   | $ | 2.2 |   |
| Loan                  forgiveness costs                                      |   |                                              | **0.4**  |   |   | 0.3 |   |   |   |   |
| Adjusted                  income from operations - Precision components      |   | **$**                                             | **4.5**  |   | $ | 3.8 |   | $ | 2.2 |   |
|                                                                         |   |                                              |     |   |   |   |   |   |   |   |
| (Loss)                  income from operations - Performance racing:         |   | **$**                                             | **(0.5** | **)** | $ | 0.7 |   | $ | 0.4 |   |
| Loan                  forgiveness costs                                      |   |                                              | **0.1**  |   |   |   |   |   |   |   |
| Adjusted                  (loss) income from operations - Performance racing |   | **$**                                             | **(0.4** | **)** | $ | 0.7 |   | $ | 0.4 |   |

**Our      Manufacturing Processes**

| ·    | *Blending/compounding:*Composite                metal alloys in powder form are blended with lubricants and other                additives according to scientific formulas, many of which are proprietary.                The formulas are designed to produce precise performance characteristics                necessary for a customer’s particular application. We often work together                with our customers to develop new formulas that will produce materials                with greater energy absorption characteristics, durability and                strength.                                                                                   |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Molding/compacting:*At                room temperature, a specific amount of a powder alloy is compacted                under                pressure into a desired shape. Our molding presses are capable of                producing pressures of up to 3,000 tons. We believe that we have                some of                the largest presses in the powder metal industry, enabling us to                produce                large, complex components. We can also create complex shapes not                obtainable with conventional powder metal presses with our metal                injection                molding and advanced technology equipment.  |

| ·    | *Sintering:*After                compacting, molded parts are heated in furnaces to specific temperatures                slightly below melting, enabling metal powders to metallurgically                bond,                harden and strengthen while retaining their desired shape. For friction                materials, the friction composite part is also bonded directly to                a steel                plate or core, creating a strong continuous metallic part.                                                              |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Secondary                machining/treatment:*If                required by customer specifications, a sintered part undergoes additional                processing. This processing is generally necessary to attain increased                hardness or strength, tighter dimensional tolerances or corrosion                resistance. To achieve these specifications, parts are heat or steam                treated, precision coined or flattened, ground, machined or treated                with a                corrosion resistant coating. |

**Our      Quality Control Procedures**

**Our      Global Operations**

| ·    | foreign                countries may impose additional withholding taxes or otherwise tax                our                foreign income, impose tariffs or adopt other restrictions on foreign                trade or investment, including exchange controls,                                                                   |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | fluctuations                in exchange rates may affect product demand and may adversely affect                the                profitability in U. S. dollars of products and services provided                by us in                foreign markets where payment for our products is made in local                currency,  |
| ·    | unexpected                adverse changes in foreign laws or regulatory requirements may                occur,                                                                                                                                                                                                                       |
| ·    | compliance                with a variety of foreign laws and regulations may be difficult,                and                                                                                                                                                                                                                        |
| ·    | overlap                of different tax laws may subject us to additional taxes.                                                                                                                                                                                                                                                     |

**Our        Technology**

**Our      Customers**

**How      We Market and Sell Our Products**

**Our      Competition**

**The      Suppliers and Prices of Raw Materials We Use**

**Government      Regulation of Our Businesses**

**Environmental,      Health and Safety Matters**

**Our      Intellectual Property**

**Personnel**

**ITEM        1A. **
**RISK        FACTORS**

**Cautionary        Note Regarding Forward-Looking Statements**

|   | **We                continue to experience manufacturing inefficiencies at our Oklahoma                friction products facility** |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|

| ·    | hire,                train and retain a qualified workforce,                                                                                             |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | manufacture                friction products without causing customer delays or                dissatisfaction, and                                 |
| ·    | achieve                the projected cost savings including whether the cost savings can                be                achieved in a timely fashion.  |

**We            have incurred losses in the past and may incur losses in future            years.**

**We          may be unable to generate sufficient taxable income from future operations          to          fully utilize our significant tax net operating loss carryforwards or maintain          our deferred tax assets.**

*Accounting          for Income Taxes*

**Our            China precision component facility and metal injection molding operation            have            yet to achieve profitability.**

| **Our                precision components segment may be adversely affected by low-cost                production in China.** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|

| **Our                net income may be impacted by the sale of our motor segment.** |   |
|-------------------------------------------------------------------------------------|--------|

| **Work                stoppages by union employees may negatively impact our business.** |   |
|------------------------------------------------------------------------------------------|--------|

| **Our                    gross margins are subject to fluctuation because of product mix.** |   |
|---------------------------------------------------------------------------------------------|--------|

**We          operate in a highly competitive industry, which may prevent us from growing          and          may decrease our business.**

| **Our                debt could adversely affect our financial condition and prevent us                from                fulfilling our obligations.** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| ·    | it                may make it difficult for us to satisfy our obligations under our                debt and                contractual and commercial commitments,                                                                                       |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | we                must use a substantial portion of our cash flow from operations to                pay                interest on our debt, which reduces funds available to us for other                purposes,                                      |
| ·    | all                of the debt outstanding under our Bank Facility is secured by certain                of                our assets,                                                                                                                    |
| ·    | our                Bank Facility has a variable rate of interest, which exposes us to                the                risk of increased interest rates,                                                                                                |
| ·    | our                ability to obtain additional debt financing in the future for working                capital, capital expenditures, acquisitions or general corporate                purposes                may be limited,                          |
| ·    | our                high level of debt could limit our flexibility in reacting to changes                in                the industry and make us more vulnerable to adverse changes in our                business or economic conditions in general,  |

| ·    | our                high level of debt could place us at a competitive disadvantage to                those                of our competitors who operate on a less leveraged                basis, and |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | our                    high level of debt could place us at a competitive disadvantage                    to those                    of our competitors who operate on a less leveraged                    basis, and |
|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | if                    we fail to comply with the covenants in the instruments governing                    our                    other debt, such failure could have material adverse effect on                    our                    business and our ability to repay our debt.  |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We              may require significant ongoing and recurring additional capital expenditures              and investment in research and development, manufacturing and other              areas to              remain competitive.**

**Our              goodwill may be subject to asset impairment charges.**

*Goodwill        and Other Intangible Assets*

| **We                are subject to governmental regulations that may affect our ability                to                implement our business objectives.** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| **Environmental                and health and safety liabilities and requirements could require                us to                incur material costs.** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| ·    | discharges                of pollutants into the air and water,               |
|--------------------------|------------------------------------------------------------------------------------|
| ·    | the                management and disposal of hazardous substances, and  |
| ·    | the                cleanup of contaminated properties.                        |

| ·    | the                discovery of new information concerning past releases of hazardous                substances, |
|--------------------------|------------------------------------------------------------------------------------------------------------------|

| ·    | the                  discovery or occurrence of compliance problems relating to our                  operations, and |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·    | changes                  in existing environmental laws or their                  interpretation. |
|--------------------------|---------------------------------------------------------------------------------------------------|

**We            are dependent upon the availability of raw materials, and we may not            be able to            receive favorable prices for, or continued supplies of, raw materials,            which may            affect our ability to obtain enough supplies to conduct our            business.**

| **We                are subject to risks associated with international operations.** |   |
|--------------------------------------------------------------------------------------|--------|

| ·    | foreign                countries may impose additional withholding taxes or otherwise tax                our                foreign income, impose tariffs or adopt other restrictions on foreign                trade or investment, including exchange controls,                                                        |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | fluctuations                in exchange rates may affect product demand and may adversely affect                the                profitability in U.S. dollars of products and services provided by us                in foreign markets where payment for our products is made in local                currency,  |
| ·    | unexpected                adverse changes in foreign laws or regulatory requirements may                occur,                                                                                                                                                                                                            |
| ·    | compliance                with a variety of foreign laws and regulations may be difficult,                and                                                                                                                                                                                                             |
| ·    | overlap                of different tax laws may subject us to additional taxes.                                                                                                                                                                                                                                          |

| **We                depend on our key personnel.** |   |
|----------------------------------------------------|--------|

|   |
|--------|

**Our          existing preferred shareholders have the ability to exert voting control          with          respect to the election of directors.**

**ITEM      1B. UNRESOLVED STAFF COMMENTS**

**ITEM      2. PROPERTIES**

**ITEM      3. LEGAL PROCEEDINGS**

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

**PART      II**

**ITEM      5.**
**MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS      AND**
** **
**ISSUER      PURCHASES OF EQUITY SECURITIES**

**Quarterly          Stock Prices**

| **Quarter                    Ended**  |   | **High**  |      | **Low**  |   |
|--------------------------------------------|--------|----------------|-----------|---------------|--------|
| **2005**                                   |   |           |      |          |   |
| **December                    31, 2005**   |   | **$**          | **14.99** |          | **$**  | **12.45** |   |
| **September                    30, 2005**  |   | **$**          | **13.64** |          | **$**  | **11.48** |   |
| **June                    30, 2005**       |   | **$**          | **11.80** |          | **$**  | **10.15** |   |
| **March                    31, 2005**      |   | **$**          | **10.20** |          | **$**  | **8.01** |   |
| **2004**                                   |   |           |      |          |   |   |   |
| December                    31, 2004       |   | $              | 8.98      |          | $      | 7.42 |   |
| September                    30, 2004      |   | $              | 8.19      |          | $      | 6.26 |   |
| June                    30, 2004           |   | $              | 6.99      |          | $      | 4.25 |   |
| March                    31, 2004          |   | $              | 5.90      |          | $      | 3.62 |   |

**ITEM      6. SELECTED FINANCIAL DATA**

| **Years                ended December 31**                                                                 |   | **2005**                                       |      | **2004**  |   | **2003**  |   | **2002**  |   | **2001**  |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|----------------|--------|----------------|--------|----------------|--------|----------------|--------|
|                                                                                                            |   | (in                millions, except per share data) |      |
| **Statement                of Operations Data:**                                                                |   |                                                |      |           |   |           |   |           |   |           |   |
| Net                sales                                                                                        |   | **$**                                               | **265.4** |           | $      | 241.2          |   | $              | 202.6  |           | $      | 185.9 |   | $ | 176.9 |   |
| Gross                profit                                                                                     |   |                                                | **52.4**  |           |   | 56.5           |   |           | 47.4   |           |   | 44.2 |   |   | 40.7 |   |
| Restructuring                costs (1)                                                                          |   |                                                | **5.5**   |           |   | 1.1            |   |           |   |           |   |   |   |   | 1.1 |   |
| Employee                benefit curtailment (income) (2)                                                        |   |                                                | **(0.4**  | **)**          |   |           |   |           |   |           |   |   |   |   |   |   |
| Pension                curtailment and contractual termination benefit costs (3)                                |   |                                                |      |           |   |           |   |           | 1.9    |           |   |   |   |   |   |   |
| Income                from operations (4)                                                                       |   |                                                | **9.3**   |           |   | 17.3           |   |           | 10.9   |           |   | 13.0 |   |   | 7.2 |   |
| Adjusted                income from operations (5)                                                              |   |                                                | **15.5**  |           |   | 19.1           |   |           | 12.8   |           |   | 13.0 |   |   | 7.2 |   |
| (Loss)                income from continuing operations before income taxes                                     |   |                                                | **(1.2**  | **)**          |   | 1.5            |   |           | (0.4   | )              |   | 0.8 |   |   | (2.2 | ) |
| Discontinued                operations, net of tax                                                              |   |                                                |      |           |   | (0.3           | )      |           | (5.0   | )              |   | (1.9 | ) |   | (2.1 | ) |
| Cumulative                effect of change in accounting principle, net of tax (6)                              |   |                                                |      |           |   |           |   |           |   |           |   | (17.2 | ) |   |   |   |
| Net                (loss) income                                                                                |   | **$**                                               | **(1.3**  | **)**          | $      | 1.1            |   | $              | (5.4   | )              | $      | (18.3 | ) | $ | (4.3 | ) |
| **Earnings                (Loss) Per Share:**                                                                   |   |                                                |      |           |   |           |   |           |   |           |   |   |   |   |   |   |
|                   Basic (loss) earnings per share                                                     |   | **$**                                               | **(.17**  | **)**          | $      | .11            |   | $              | (.65   | )              | $      | (2.15 | ) | $ | (.52 | ) |
|                   Diluted (loss) earnings per share                                                   |   | **$**                                               | **(.17**  | **)**          | $      | .11            |   | $              | (.65   | )              | $      | (2.14 | ) | $ | (.52 | ) |
| **Other                Data:**                                                                                  |   |                                                |      |           |   |           |   |           |   |           |   |   |   |   |   |   |
| Depreciation                                                                                                    |   | **$**                                               | **10.7**  |           | $      | 10.1           |   | $              | 10.1   |           | $      | 10.2 |   | $ | 10.7 |   |
| Amortization(7)                                                                                                 |   |                                                | **0.7**   |           |   | 0.7            |   |           | 0.8    |           |   | 0.8 |   |   | 3.8 |   |
| Capital                expenditures (including capital leases and financed capital                expenditures) |   |                                                | **14.2**  |           |   | 18.3           |   |           | 11.2   |           |   | 9.7 |   |   | 8.5 |   |

| **December                  31**                          |   | **2005**                  |      | **2004**  |   | **2003**  |   | **2002**  |   | **2001**  |   |
|----------------------------------------------------------------|--------|--------------------------------|-----------|----------------|--------|----------------|--------|----------------|--------|----------------|--------|
|                                                           |   | (In                  millions) |      |
| **Balance                  Sheet Data:**                       |   |                           |      |           |   |           |   |           |   |           |   |
| Cash                  and cash equivalents                     |   | **$**                          | **7.1**   |           | $      | 6.8            |   | $              | 3.4    |           | $      | 1.7 |   | $ | 3.1 |   |
| Working                  capital (8)                           |   |                           | **50.3**  |           |   | 51.1           |   |           | 13.5   |           |   | 9.1 |   |   | 31.5 |   |
| Property                  plant and equipment, net             |   |                           | **70.9**  |           |   | 70.0           |   |           | 63.1   |           |   | 61.8 |   |   | 61.7 |   |
| Assets                  of discontinued operations             |   |                           | **3.6**   |           |   | 4.5            |   |           | 4.3    |           |   | 10.4 |   |   | 14.7 |   |
| Total                  assets                                  |   |                           | **226.2** |           |   | 220.9          |   |           | 193.5  |           |   | 192.9 |   |   | 204.1 |   |
| Liabilities                  of discontinued operations        |   |                           | **3.3**   |           |   | 4.3            |   |           | 3.7    |           |   | 2.8 |   |   | 1.4 |   |
| Total                  indebtedness (including capital leases) |   |                           | **117.6** |           |   | 113.0          |   |           | 95.0   |           |   | 108.3 |   |   | 97.8 |   |
| Shareholders’                  equity                    |   |                           | **40.7**  |           |   | 45.0           |   |           | 41.7   |           |   | 44.8 |   |   | 66.4 |   |

| (1)   | In                  2005 and 2004, reflects planning, travel, severance and moving                  costs                  associated with the closure of the Brook Park, Ohio facility and                  the                  construction of the new facility in Tulsa, Oklahoma (see “Note 4 —                  Restructuring” to the accompanying Consolidated Financial Statements of                  this Form 10-K). In 2001, reflects primarily a work force reduction                  at our                  domestic facilities of approximately 160 salaried and production                  personnel. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Reflects                  a one-time, non-cash gain related to an employee benefit curtailment                  as a                  result of employment terminations at the Brook Park, Ohio friction                  segment                  facility. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | In                2003, reflects a one-time, non-cash charge related to the pension                curtailment and contractual termination benefit costs associated                with the                announced closure of the Brook Park, Ohio friction segment                facility. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | In                accordance with the non-amortization provisions of SFAS 142 we                discontinued the amortization of goodwill in 2002 (see “Note 2 —                Significant Accounting Policies” to the accompanying Consolidated                Financial Statements of this Form                10-K). |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Adjusted                income from operations is considered to be a “non-GAAP financial measure”                under the rules and regulations of the Securities Exchange Commission                (SEC). See “Hawk’s Use of Non-GAAP Financial Measures” of Item 7 of this                Form 10-K for more detailed disclosure. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | In                2002, the Company changed the accounting for goodwill and other                indefinite-lived intangible assets from an amortization methodology                to an                impairment-only methodology. The Company, with the assistance of                independent valuation experts, concluded that certain of its goodwill                was                impaired at January 1, 2002 by $21.5 million ($17.2 million after                tax)                (see Note 2 - “Significant Accounting Policies” to the accompanying                Consolidated Financial Statements of this Form                10-K). |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Amortization                outlined in this table does not include deferred financing amortization                of                $0.4 million in 2005, $0.4 million in 2004, $0.8 million in 2003,                $0.6                million in 2002 and $0.6 million in 2001, which is included in interest                expense on the Consolidated Statement of                Operations. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)   | Working                capital is defined as current assets less current liabilities. Beginning                in 2002 and through its retirement in the fourth quarter of 2004,                our then                existing Bank Facility was included as a current liability in working                capital, as required by EITF 95-22. As of December 31, 2003 and 2002                there                was $24.1 million and $36.3 million outstanding under the then existing                Bank Facility, respectively. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Results          of Operations**

**Outlook      for 2006**

**Critical                Accounting Policies**

**                    **

**    **

| ·    | *Revenue                              Recognition.*                              We                              recognize revenues when products are shipped and title                              has transferred to                              our customer.  |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Goodwill.*                          Goodwill represents the excess of the cost of companies                          we acquired over                          the fair value of their net assets as of the date of acquisition.                          In                          accordance with SFAS 142, our policy is to evaluate the                          carrying value of                          our goodwill and indefinite-lived intangible assets at                          least annually, or                          more frequently if there is a significant adverse event                          or change in the                          environment in which one of our business unit operates.                          We will record an                          impairment loss in the period such determination is made.                          In assessing the                          recoverability of our goodwill, we consider changes in                          economic conditions                          and make assumptions regarding estimated future cash flows                          and other                          factors. Estimates of future discounted cash flows are                          highly subjective                          judgments based on our experience and knowledge of operations.                          These                          estimates can be significantly impacted by many factors                          including changes                          in global and local business and economic conditions, operating                          costs,                          inflation and competitive trends. If actual results are                          materially                          different than the assumptions used, impairment could result.                          We did not                          record any impairment charges in the periods ended December                          31, 2005, 2004                          and 2003.  |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Asset                          Impairment*.                          We review long-lived assets (excluding goodwill) for impairment                          whenever                          events or changes in circumstances indicate that the carrying                          amount of an                          asset may not be recoverable. In assessing the recoverability                          of our                          long-lived assets, we consider changes in economic conditions                          and make                          assumptions regarding estimated future cash flows and other                          factors.                          Estimates of future undiscounted cash flows are highly                          subjective                          judgments based on our experience and knowledge of our                          operations. These                          estimates can be significantly impacted by many factors                          including changes                          in global and local business and economic conditions, operating                          costs,                          inflation and competitive trends. If our estimates or underlying                          assumptions change in the future, we may be required to                          record impairment                          charges. We did not record any impairment charges in any                          of the periods                          ended December 31, 2005, 2004 or 2003.  |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Pension                              Benefits.*                              We                              account for our defined benefit pension plans in accordance                              with SFAS No.                              87, *Employers'                              Accounting for Pensions*                              (SFAS 87), which requires that amounts recognized in                              financial statements                              be determined on an actuarial basis. The most significant                              elements in                              determining our pension income (expense) in accordance                              with SFAS 87 are                              the expected return on plan assets and appropriate                              discount rates. We                              assumed that the expected weighted average long-term                              rate of return on                              plan assets will be 8.6% for 2006. Based on our existing                              and forecasted                              asset allocation and related long-term investment performance                              results, we                              believe that our assumption of future returns is reasonable.                              However,                              should the rate of return differ materially from our                              assumed rate we could                              experience a material adverse effect on the funded                              status of our plans and                              our future pension expense. The assumed long-term rate                              of return on assets                              is applied to a calculated value of plan assets, which                              recognizes changes                              in the fair value of plan assets in a systematic manner                              over five years.                              This produces the expected return on plan assets that                              is included in                              pension income (expense). The difference between this                              expected return and                              the actual return on plan assets is deferred. The net                              deferral of past                              asset gains (losses) affects the calculated value of                              plan assets and,                              ultimately, future pension income (expense). Our cumulative                              unrecognized                              net actuarial loss on pension assets as of December                              31, 2005 and 2004 was                              $13.5 million and $7.8 million, respectively. |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     | We                          determine the discount rate to be used to discount plan                          liabilities at                          their measurement date, December 31. The discount rate                          reflects the                          current rate at which the pension liabilities could be                          effectively settled                          at the end of the year. At December 31, 2005, we determined                          this rate to                          be 5.5%. Changes in discount rates over the past three                          years have not                          materially affected pension income (expense), and the net                          effect of                          changes in the discount rate, as well as the net effect                          of other changes                          in actuarial assumptions and experience, has been deferred                          as permitted by                          SFAS 87.  |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Income                            Taxes.*                            Our effective tax rate, taxes payable and other tax assets                            and liabilities                            reflect the current tax rates in the domestic and foreign                            tax                            jurisdictions in which we operate. Deferred income taxes                            reflect the net                            effect of temporary differences between the carrying                            amounts of assets and                            liabilities for reporting and income tax purposes. Our                            effective tax rate                            is substantially driven by the impact of the mix of our                            foreign and                            domestic income and losses and the federal and local                            tax rate differences                            on each. |
|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     | SFAS                            No. 109,                            provides certain guidelines to follow in making the determination                            of the                            need for a valuation allowance. We must show that taxable                            income is                            expected to be available for future periods sufficient                            to realize the                            benefits of temporary differences and carryforwards to                            not record an                            allowance. We have identified strategies which, if implemented,                            would                            enable us to realize the aforementioned tax benefits,                            and therefore, we                            have determined that no valuation allowance is required                            as of December 31,                            2005. On                            June 30, 2005, the Governor of Ohio signed House Bill                            66 into law which                            significantly changed the corporate tax structure in                            Ohio.  The major                            provisions of the bill include phasing-out the Ohio Franchise                            Tax and                            phasing-in a Commercial Activities Tax. The tax changes                            did not have a                            material effect on our tax provision for the year ended                            December 31,                            2005.                                      |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·             | *Foreign                            Currency Translation and Transactions. *Assets                            and liabilities of our foreign operations are translated                            using period-end                            exchange rates and revenues and expenses are translated                            using exchange                            rates as determined throughout the year.  Gains or losses                            resulting from translation are included in a separate                            component of our                            shareholders' equity.  Other comprehensive income includes                            a translation loss of $1.4 million for the year ended December                            31,                            2005.  Gains or losses resulting from foreign currency transactions                            are translated to local currency at the rates of exchange prevailing                            at the dates of the transactions.  Sales or purchases in foreign                            currencies, other than the subsidiary's local currency,                            are exchanged at                            the date of the transation.  The effect of transaction gains or                            losses are included in "Other (expense) income, net"                            in our Consolidated                            Statements of Operations.  Foreign currency transaction gains and                            losses were not material to the results of operations in 2005 and                            2004.     |

| ·    | *Recent                            Accounting Developments.*In                            December 2004, the FASB issued SFAS No. 123(R), *Share-Based                            Payment*                            (SFAS 123(R)), which is a revision of SFAS 123*.*                            This statement addresses the accounting transactions                            in which a company                            exchanges its equity instruments for goods or services.                            It also addresses                            transactions in which a company incurs liabilities in                            exchange for goods                            or services that are based on the fair value of the entity’s equity                            instruments or that may be settled by the issuance of                            those equity                            instruments. SFAS 123(R) eliminates the ability to account                            for share-based                            compensation transactions using the intrinsic value method                            and requires                            instead that such transactions be accounted for using                            a fair-value-based                            method. SFAS 123(R) covers a wide range of share-based                            compensation                            arrangements, including share options, restricted share                            plans,                            performance-based awards, share appreciation rights and                            employee share                            purchase plans. On April 14, 2005, the U.S. Securities                            and Exchange                            Commission (SEC) announced a deferral of the effective                            date of SFAS 123(R)                            for calendar year companies until the beginning of 2006.                            Effective January                            1, 2006, we have elected to expense employee stock-based                            compensation                            using the fair value based method prospectively for all                            awards granted,                            modified, or settled on or after January 1, 2006. The                            fair value at the                            grant date of the stock options is estimated using the                            Black-Scholes                            option pricing model. Expense associated with share-based                            paymentsissued                            to employees will be included in our Consolidated Statement                            of Operations                            beginning on January 1, 2006. We expect that our pre-tax                            compensation                            expense for the year ended December 31, 2006 related                            to the implementation                            of SFAS 123(R) will be approximately $0.2 million.  |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     | Section                                404 of the Sarbanes-Oxley Act of 2002 (Section 404)                                contains provisions                                requiring an annual assessment by management, as                                of the end of the fiscal                                year, of the effectiveness of internal control for                                financial reporting.                                Section 404 also requires attestation and reporting                                by independent                                auditors on management’s assessment as well as other control-related                                matters. On March 2, 2005, the SEC published a final                                rule extending for                                one year the compliance dates for non-accelerated                                filers to report on                                internal control over financial reporting. For these                                issuers, Section 404                                now will be effective for fiscal years ending on                                or after July 15, 2006.                                At this time, we continue to qualify for non-accelerated                                filer status and                                therefore, will not need to comply with Section 404                                until December 31,                                2006. Our compliance initiatives are moving forward                                and we anticipate                                being compliant with requirements of Section 404                                as of December 31,                                2006. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |  In                          November 2004, the FASB issued SFAS No. 151, *Inventory                          Costs*(SFAS                          151). SFAS 151 amends the guidance in ARB No. 43, Chapter                          4, Inventory                          Pricing, to clarify the accounting for abnormal amounts                          of idle facility                          expense, freight, handling costs and wasted material (spoilage),                          and                          requires such costs to be recognized as current period                          charges. In                          addition, this statement requires that the allocation of                          fixed production                          overheads to the costs of conversion be based on the normal                          capacity of                          the production facilities. SFAS 151 will be effective for                          us beginning                          January 1, 2006 and we do not believe the adoption will                          have a material                          effect on our results of operations, financial condition                          or                          liquidity. |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Year          Ended December 31, 2005 Compared to Year Ended December 31,          2004**

*Net          Sales. *

|  **Net                    Segment Sales:**  |   | **2005**                            |      | **2004**  |   | **$****Change**  |   | **%****Change**  |   |
|-------------------------------------------------------|--------|------------------------------------------|-----------|----------------|--------|-----------------------|--------|-----------------------|--------|
|                                                  |   | (dollars                    in millions) |      |
| Friction                    products                  |   | **$**                                    | **167.0** |           | $      | 148.3                 |   | $                     | 18.7   |   |   | 12.6 | % |
| Precision                    components               |   |                                     | **83.6**  |           |   | 78.6                  |   |                  | 5.0    |   |   | 6.4 | % |
| Performance                    racing                 |   |                                     | **14.8**  |           |   | 14.3                  |   |                  | 0.5    |   |   | 3.5 | % |
| Consolidated                                          |   | **$**                                    | **265.4** |           | $      | 241.2                 |   | $                     | 24.2   |   |   | 10.0 | % |

| ·    | *Friction                  Products.*Net                  sales in the friction products segment, our largest, were $167.0                  million                  in 2005, an increase of $18.7 million, or 12.6%, compared to $148.3                  million in 2004. As a result of new product introductions, general                  economic expansion and market share gains, we experienced increases                  in                  most of our major markets, including construction and mining, heavy                  truck                  and aerospace, increased sales to the direct aftermarket. This                  segment                  continued to experience strong sales growth from our international                  operations in 2005. Net sales at our Italian facility, on a local                  currency                  basis, increased 10.3% in 2005 compared to 2004, as a result of                  new                  product introductions and market share gains. Total shipments at                  our                  Chinese facility, on a local currency basis, were up 36.0% in 2005                  compared to 2004. Our sales to the construction and mining, our                  largest                  market, were up 16.4% in 2005 compared to 2004, as a result of                  strong                  economic conditions in that market as well as market share gains                  achieved                  by us. Our sales to the truck market increased by 22.5% in 2005                  compared                  to 2004 as our customers supported the continued growth in new                  truck                  builds and aftermarket service requirements to existing truck fleets                  during the year. Our sales to the aerospace market were up 12.4%                  in 2005                  compared to 2004 as world-wide commercial air travel continued                  its                  positive growth trend. Our sales to the agriculture market decreased                  3.2%                  during the year as a result of a weak farm economies in North America                  and                  Europe. During 2005, we continued to focus our efforts on the friction                  direct aftermarket that we service through the Velvetouch® and Hawk                  Performance® brand names. Sales in this product category were up 5.7% to                  $27.1 million in 2005 compared to                  2004. |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Precision                  Components.*Net                  sales in our precision components segment were $83.6 million in                  2005, an                  increase of 6.4% compared to 2004. The increase in net sales was                  primarily                  attributable to continued improving conditions in the general industrial                  segments of the domestic economy served by this segment. We experienced                  sales increases in the fluid power, automotive and power tool markets                  served by this segment. These increases were partially offset by                  a slight                  decline in the lawn and garden and appliance markets during the                  year due                  primarily to a customer-designed engineering change that eliminated                  a                  product previously supplied by us. Our precision component segment                  began                  production and sale of product from its new powder metal production                  facility in China during the fourth quarter of 2003. For the year                  ended                  December 31, 2005, total shipments from this facility, on a local                  currency                  basis, were up 211.5% for the comparable period of 2004.  |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Performance                  Racing.*Net                  sales in our performance racing segment were $14.8 million, an                  increase of                  3.5% compared to net sales of $14.3 million in 2004. The increase                  in                  revenues was primarily attributable to the introduction of new                  clutch and                  transmission products during the                  year. |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Gross          Profit. *

| **Gross                    Profit Margin:**  |   | **2005**  |   | **2004**  |   | **Change**  |   |
|---------------------------------------------------|--------|----------------|--------|----------------|--------|------------------|--------|
| Friction                    products              |   | **20.1%**      |   | 24.6           | %      |             | (4.5   | %) |
| Precision                    components           |   | **18.9%**      |   | 21.1           | %      |             | (2.2   | %) |
| Performance                    racing             |   | **20.3%**      |   | 23.8           | %      |             | (3.5   | %) |
| Consolidated                                      |   | **19.7%**      |   | 23.4           | %      |             | (3.7   | %) |

| ·    | *Friction                  Products.*Our                  friction products segment reported gross profit of $33.7 million                  or 20.1%                  of its net sales in 2005 compared to $36.5 million or 24.6% of                  its net                  sales in 2004. The decrease in our gross profit margin was primarily                  the                  result of operating inefficiencies and direct restructuring costs                  associated with the transition of operations to our new facility                  in                  Oklahoma. The decrease was partially offset by the impact of sales                  volume                  increases during the period and favorable product mix.                                                                       |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Precision                  Components.*Gross                  profit in our precision components segment was $15.8 million or                  18.9% of                  its net sales in 2005 compared to $16.6 million or 21.1% of its                  net sales                  in 2004. The decrease in this segment’s margins was primarily the result                  of phase-in costs associated with our new technology initiative,                  higher                  raw material and energy costs, continuing start-up costs associated                  with                  this segment’s operations in China and outsourcing costs required as a                  result of the overall segments’ sales volume increase to meet customer                  delivery schedules.  |

| ·    | *Performance                Racing.*Our                performance racing segment reported gross profit of $3.0 million                or 20.3%                of net sales in 2005 compared to $3.4 million or 23.8% of net sales                in                2004. The decline in gross profit in 2005 was primarily the result                of cost                increases on certain driveline components, reserves created to reflect                inventory rendered obsolete as a result of rule changes increased                employee                benefit costs and product mix. |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Selling,        Technical and Administrative Expenses.*

*Restructuring        Costs.*

*Employee        Benefit Curtailment*

*Income      from Operations.*

| **Income                    (loss) from operations by segment:**  |   | **2005**                            |     | **2004**  |   | **$                    Change**  |   | **%                    Change**  |   |
|------------------------------------------------------------------------|--------|------------------------------------------|----------|----------------|--------|---------------------------------------|--------|---------------------------------------|--------|
|                                                                   |   | (dollars                    in millions) |     |
| Friction                    products                                   |   | **$**                                    | **5.7**  |           | $      | 13.1                                  |   | $                                     | (7.4   | ) |   | (56.5 | %) |
| Precision                    components                                |   |                                     | **4.1**  |           |   | 3.5                                   |   |                                  | 0.6    |   |   | 17.1 | % |
| Performance                    racing                                  |   |                                     | **(0.5** | **)**          |   | 0.7                                   |   |                                  | (1.2   | ) |   | (171.4 | %) |
| Consolidated                                                           |   | **$**                                    | **9.3**  |           | $      | 17.3                                  |   | $                                     | (8.0   | ) |   | (46.2 | %) |

|                                  |   | **Years                  ended****December                  31**       |     |
|---------------------------------------|--------|------------------------------------------------------------------------|----------|
|                                  |   | **Income                  (loss) from operations, as reported (GAAP)** |     | **Restructuring                  costs****(1)** |   | **Other                  costs, net****(2)** |   | **Adjusted                  income (loss) from operations** |   |
|                                  |   | **2005**                                                               |     | **2004** |   | **2005** |   | **2004** |   | **2005** |   | **2004** |   | **2005** |   | **2004** |   |
|                                  |   | (dollars                  in millions)                                 |     |
| Friction                  products    |   | **$**                                                                  | **5.7**  |   | $ | 13.1 |   | **$** | **5.5** |   | $ | 1.1 |   | **$** | **0.1** |   | $ | 0.4 |   | **$** | **11.3** |   | $ | 14.6 |   |
| Precision                  components |   |                                                                   | **4.1**  |   |   | 3.5 |   |   |   |   |   |   |   |   | **0.4** |   |   | 0.3 |   |   | **4.5** |   |   | 3.8 |   |
| Performance                  racing   |   |                                                                   | **(0.5** | **)** |   | 0.7 |   |   |   |   |   |   |   |   | **0.1** |   |   |   |   |   | **(0.4** | **)** |   | 0.7 |   |
| Total                                 |   | **$**                                                                  | **9.3**  |   | $ | 17.3 |   | **$** | **5.5** |   | $ | 1.1 |   | **$** | **0.6** |   | $ | 0.7 |   | **$** | **15.4** |   | $ | 19.1 |   |
|                                  |   |                                                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  margin     |   |                                                                   | **3.5**  | **%** |   | 7.2 | % |   |   |   |   |   |   |   |   |   |   |   |   |   | **5.8** | **%** |   | 7.9 | % |

*Interest        Expense.*

*Income        Taxes*

*Discontinued              Operations, net of tax. *

|                                                                                                                             |   | **Years                                  ended****December                                  31**  |    |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                             |   | **2005**                                                                                               |    | **2004** |   |
|                                                                                                                             |   | (dollars                                  in millions)                                                 |    |
| Net                                  sales                                                                                       |   | **$**                                                                                                  | **8.9** |   | $ | 13.0 |   |
| Income                                  (loss) from discontinued operations before income                                  taxes |   |                                                                                                   | **0.0** |   |   | (0.5 | ) |
| Income                                  tax provision (benefit)                                                                  |   |                                                                                                   | **0.0** |   |   | (0.2 | ) |
| Income                                  (loss) from discontinued operations, net of tax                                          |   | **$**                                                                                                  | **0.0** |   | $ | (0.3 | ) |

*Net                    Income (Loss).*

**Year                      Ended December 31, 2004 Compared to Year Ended December 31,                      2003**

*Net            Sales. *

| **Net                    Segment Sales:**  |   | **2004**                            |      | **2003**  |   | **$****Change**  |   | **%****Change** |   |
|-------------------------------------------------|--------|------------------------------------------|-----------|----------------|--------|-----------------------|--------|-----------------|--------|
|                                            |   | (dollars                    in millions) |      |
| Friction                    products            |   | **$**                                    | **148.3** |           | $      | 121.6                 |   | $               | 26.7   |   |   | 22.0 | % |
| Precision                    components         |   |                                     | **78.6**  |           |   | 68.1                  |   |            | 10.5   |   |   | 15.4 | % |
| Performance                    racing           |   |                                     | **14.3**  |           |   | 12.9                  |   |            | 1.4    |   |   | 10.9 | % |
| Consolidated                                    |   | **$**                                    | **241.2** |           | $      | 202.6                 |   | $               | 38.6   |   |   | 19.1 | % |

| ·    | *Friction                    Products.*Net                    sales in the friction products segment, our largest, were $148.3                    million                    in 2004, an increase of $26.7 million, or 22.0%, compared to                    $121.6                    million 2003. As a result of new product introductions, and market                    share                    gains, we experienced increases in most of our major markets,                    including                    construction and mining, agriculture, heavy truck, aerospace,                    and direct                    aftermarket. This segment continued to experience strong sales                    growth from                    our international operations in 2004. At our Italian facility,                    net sales,                    exclusive of any translation gains increased 27.2% in 2004 compared                    to                    2003, as a result of new product introductions and market share                    gains. Net                    sales at our Chinese facility were up 206.4% in 2004 compared                    to 2003.                    Foreign currency exchange rates caused the friction segment’s sales for                    the full year 2004 to increase by 3.3%. Our sales to the construction                    and                    mining markets were up 40.8% in 2004 compared to 2003, as a result                    of                    strong economic conditions in that market as well as market share                    gains                    achieved by us. Our sales to the truck market increased by 28.2%                    in 2004                    compared to 2003 as our customers supported the continued growth                    in new                    truck builds and aftermarket service requirements to existing                    truck fleets                    during the year. Our sales to the agriculture market increased                    19.7%                    during the year as we benefited from a strong farm economy in                    North                    America. Our sales to the aerospace market were up 6.8% in 2004                    compared                    to 2003 as commercial air travel continued to show a positive                    growth                    trend. During                    2004, we refocused our efforts on the friction direct aftermarket                    that we                    service through the Velvetouch® and Hawk Performance® brand names. Sales                    in this product category were up 19.4% to $25.2 million in 2004                    compared                    to 2003. In the second quarter of 2004, we shipped an initial                    stocking                    order to Pep Boys automotive retail outlets for the national                    rollout of                    Hawk Performance® brand brake pads throughout their chain.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Precision                  Components.*Net                  sales in our precision components segment were $78.6 million in                  2004, an                  increase of 15.4% compared to 2003. The increase in net sales was                  primarily attributable to continued improving conditions in the                  general                  industrial segments of the domestic economy served by this segment.                  We                  experienced sales increases in the fluid power, automotive, appliance,                  truck and power tool markets served by this segment. These increases                  were                  partially offset by a slight decline in the lawn and garden market                  during                  the year due primarily to an engineering change that eliminated                  a product                  previously supplied by us. Our precision component segment began                  production and sale of product from its new powder metal production                  facility in China during the fourth quarter of                  2003. |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Performance                  Racing.*Net                  sales in our performance racing segment were $14.3 million, an                  increase of                  10.9% compared to net sales of $12.9 million in 2003. The increase                  in                  revenues was primarily attributable to the introduction of new                  clutch and                  transmission products during the year. |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Gross          Profit. *

| **Gross                    Profit Margin:**  |   | **2004**  |     | **2003**  |   | **Change**  |   |
|---------------------------------------------------|--------|----------------|----------|----------------|--------|------------------|--------|
| Friction                    products              |   |           | **24.6** | **%**          |   | 24.3             | %      |   | 0.3 | % |
| Precision                    components           |   |           | **21.1** | **%**          |   | 21.3             | %      |   | (0.2 | %) |
| Performance                    racing             |   |           | **23.8** | **%**          |   | 26.4             | %      |   | (2.6 | %) |
| Consolidated                                      |   |           | **23.4** | **%**          |   | 23.4             | %      |   | 0.0 | % |

| ·    | *Friction                    Products.*Our                    friction products segment reported gross profit of $36.5 million                    or 24.6%                    of its net sales in 2004 compared to $29.5 million or 24.3% of                    its net                    sales in 2003. The increase in our gross profit margin was primarily                    the                    result of sales volume increases that provided a higher absorption                    of                    fixed manufacturing costs and continued emphasis on operational                    efficiencies. We achieved an increase in gross margin in 2004                    despite                    increased raw material costs, changes in product mix and increased                    operating costs to support the higher sales volumes during the                    year.                                          |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Precision                    Components.*Gross                    profit in our precision components segment was $16.6 million                    or 21.1% of                    its net sales in 2004 compared to $14.5 million or 21.3% of its                    net sales                    in 2003. The slight decrease in this segment’s margins was primarily the                    result of raw material cost increases in 2004 as well as continuing                    start-up costs associated with this segment’s new operation in China and                    start up costs associated with our new technology initiatives.                    We will                    continue to provide start-up support to the China operation and                    expect                    this operation to achieve profitability at the gross profit line                    during                    2005.  |
| ·    | *Performance                    Racing.*Our                    performance racing segment reported gross profit of $3.4 million                    or 23.8%                    of net sales in 2004 compared to $3.4 million or 26.4% of net                    sales in                    2003. The decline in gross profit in 2004 was primarily the result                    of                    product mix.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

*Selling,          Technical and Administrative Expenses.*

*Restructuring          Costs.*

*Income          from Operations.*

| **Income                    from Operations by Segment:**  |   | **2004**                            |     | **2003**  |   | **$                    Change**  |   | **%                    Change**  |   |
|-----------------------------------------------------------------|--------|------------------------------------------|----------|----------------|--------|---------------------------------------|--------|---------------------------------------|--------|
|                                                            |   | (dollars                    in millions) |     |
| Friction                    Products                            |   | **$**                                    | **13.1** |           | $      | 8.3                                   |   | $                                     | 4.8    |   |   | 57.8 | % |
| Precision                    Components                         |   |                                     | **3.5**  |           |   | 2.2                                   |   |                                  | 1.3    |   |   | 59.1 | % |
| Performance                    Racing                           |   |                                     | **0.7**  |           |   | 0.4                                   |   |                                  | 0.3    |   |   | 75.0 | % |
| Consolidated                                                    |   | **$**                                    | **17.3** |           | $      | 10.9                                  |   | $                                     | 6.4    |   |   | 58.7 | % |

|                                  |   | **Years                  ended****December                  31** |     |
|---------------------------------------|--------|------------------------------------------------------------------|----------|
|                                  |   | **Income                  from operations, as reported (GAAP)**  |     | **Restructuring                  costs** |   | **Other                  costs,****net****1** |   | **Adjusted                  income from operations** |   |
|                                  |   | **2004**                                                         |     | **2003** |   | **2004** |   | **2003** |   | **2004** |   | **2003** |   | **2004** |   | **2003** |   |
|                                  |   | (dollars                  in millions)                           |     |
| Friction                  products    |   | **$**                                                            | **13.1** |   | $ | 8.3 |   | **$** | **1.1** |   |   |   |   | **$** | **0.4** |   | $ | 1.9 |   | **$** | **14.6** |   | $ | 10.2 |   |
| Precision                  components |   |                                                             | **3.5**  |   |   | 2.2 |   |   |   |   |   |   |   |   | **0.3** |   |   |   |   |   | **3.8** |   |   | 2.2 |   |
| Performance                  racing   |   |                                                             | **0.7**  |   |   | 0.4 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | **0.7** |   |   | 0.4 |   |
| Total                                 |   | **$**                                                            | **17.3** |   | $ | 10.9 |   | **$** | **1.1** |   |   |   |   | **$** | **0.7** |   | $ | 1.9 |   | **$** | **19.1** |   | $ | 12.8 |   |
|                                  |   |                                                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  margin     |   |                                                             | **7.2**  | **%** |   | 5.4 | % |   |   |   |   |   |   |   |   |   |   |   |   |   | **7.9** | **%** |   | 6.3 | % |

*Interest        Expense.*

*Income        Taxes.*

*Discontinued        Operations, net of tax.*

*Net        Income (Loss).*

**Liquidity        and Capital Resources**

| ·    | for                  capital expenditures for maintenance, replacement and acquisition                  of                  equipment, expansion of capacity, productivity improvements and                  product                  development,  |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | for                  funding our day-to-day working capital requirements, and                                                                                                                                                                       |
| ·    | to                  pay interest on, and to repay principal of, our indebtedness.                                                                                                                                                                   |

**Selected        Measures of Liquidity and Capital Resources from Continuing        Operations**

|                                                                 |   | **December                  31**  |                            |
|----------------------------------------------------------------------|--------|----------------------------------------|---------------------------------|
|                                                                 |   | **2005**                          |                            | **2004**  |   |
|                                                                 |   | (dollars                  in millions) |                            |
| Cash                  and cash equivalents                           |   | **$**                                  | **7.1**                         |   | $ | 6.8 |   |
| Working                  capital (1)                                 |   | **$**                                  | **50.3**                        |   | $ | 51.1 |   |
| Current                  ratio (2)                                   |   |                                   | **1.9                  to 1.0** |   |   | 2.0                  to 1.0 |   |
| Net                  debt as a % of capitalization (30               |   |                                   | **73.1**                        | **%** |   | 70.2 | % |
| Average                  number of days sales in accounts receivable |   |                                   | **51                  days**    |   |   | 61                  days |   |
| Average                  number of days sales in inventory           |   |                                   | **77                  days**    |   |   | 78                  days |   |

| (1)   | Working                  capital is defined as current assets minus current liabilities. |
|-----------------|------------------------------------------------------------------------------------------|

| (2)   | Current                  ratio is defined as current assets divided by current liabilities. |
|-----------------|---------------------------------------------------------------------------------------------|

| (3)   | Debt                  is defined as long-term debt, including current portion,                  and short-term borrowings, less cash. Capitalization is defined                  as debt                  plus shareholders’ equity. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Debt**

|                               |   | **December                    31**       |      |
|------------------------------------|--------|------------------------------------------|-----------|
|                               |   | **2005**                                 |      | **2004** |   |
|                               |   | (dollars                    in millions) |      |
| Short-term                    debt |   | **$**                                    | **1.4**   |   | $ | 1.0 |   |
| Senior                    Notes    |   |                                     | **110.0** |   |   | 110.0 |   |
| Bank                    facility   |   |                                     | **5.0**   |   |   | 0.2 |   |
| Other                              |   |                                     | **1.2**   |   |   | 1.8 |   |
| Total                    debt      |   | **$**                                    | **117.6** |   | $ | 113.0 |   |

**Senior          Notes**

| **For                    the period below**  |   | **Percentage**  |    |
|---------------------------------------------------|--------|----------------------|---------|
| On                    or after November 1, 2009   |   |                 | 104.375 | % |
| On                    or after November 1, 2010   |   |                 | 103.281 | % |
| On                    or after November 1, 2011   |   |                 | 102.188 | % |
| On                    or after November 1, 2012   |   |                 | 101.094 | % |
| On                    or after November 1, 2013   |   |                 | 100.000 | % |

| ·    | incur                  or guarantee additional debt or issue disqualified capital                  stock,     |
|--------------------------|--------------------------------------------------------------------------------------------------------------------|
| ·    | pay                  dividends, redeem subordinated debt or make other restricted                  payments,  |

| ·    | issue                preferred stock of our                subsidiaries, |
|--------------------------|--------------------------------------------------------------------------|

| ·    | transfer                or sell assets, including capital stock of our subsidiaries,                               |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------|
| ·    | incur                dividend or other payment restrictions affecting certain of our                subsidiaries,  |
| ·    | make                certain investments or acquisitions,                                                           |
| ·    | grant                liens on our assets,                                                                          |
| ·    | enter                into certain transactions with affiliates, and                                                |
| ·    | merge,                consolidate or transfer substantially all of our                assets.                           |

| ·    | there                  is no default or event of default,                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | we                  meet the cash flow ratio, and                                                                                                                                                                                                                                                                                                                                                                                                           |
| ·    | the                  amount of the dividend payment plus certain other payments is not                  in                  excess of a formula based on the sum of our consolidated net income                  after                  November 1, 2004, the cash proceeds of certain equity offerings                  by us                  after November 1, 2004 and the return on certain investments made                  by                  us.  |

**Bank          Facility**

**Other        Debt**

**Cash        Flow**

|                                                                            |   | **Year                  ended December 31** |      |
|---------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                                            |   | **2005**                               |      | **2004**  |   |
|                                                                            |   | (in                  millions)              |      |
| Cash                  provided by operating activities of continuing operations |   | **$**                                       | **10.0**  |   | $ | 6.0 |   |
| Cash                  used in investing activities of continuing operations     |   |                                        | **(14.1** | **)** |   | (17.4 | ) |
| Cash                  provided by financing activities of continuing operations |   |                                        | **5.2**   |   |   | 14.3 |   |
| Effect                  of exchange rates on cash                               |   |                                        | **(0.7**  | **)** |   | 0.3 |   |
| Cash                  (used) provided by discontinued operations                |   |                                        | **(0.1**  | **)** |   | 0.2 |   |
| Net                  increase in cash and cash equivalents                      |   | **$**                                       | **0.3**   |   | $ | 3.4 |   |

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

*Market          Risk          Disclosres. *

*Interest      Rate      Sensitivity.*

|                                           |   | **Total**  |   | **2006**  |   | **2007                  - 2010**  |   | **Thereafter**  |   |
|------------------------------------------------|--------|-----------------|--------|----------------|--------|----------------------------------------|--------|----------------------|--------|
| Contractual                  obligations (1):  |   |            |   |           |   |                                   |   |                 |   |
| Short-term                  debt (2)           |   | $               | 1.4    |           | $      | 1.4                                    |   |                 |   |   |   |   |   |
| Bank                  Facility (2)             |   |            | 5.0    |           |   |                                   |   | $                    | 5.0    |   |   |   |   |
| Senior                  Notes (3)              |   |            | 110.0  |           |   |                                   |   |                 |   |   | $ | 110.0 |   |
| Operating                  leases              |   |            | 32.5   |           |   | 3.0                                    |   |                 | 12.5   |   |   | 17.0 |   |
| Purchase                  obligations (4)      |   |            | 46.0   |           |   | 41.1                                   |   |                 | 3.3    |   |   | 1.6 |   |
| Total                  contractual obligations |   | $               | 194.9  |           | $      | 45.5                                   |   | $                    | 20.8   |   | $ | 128.6 |   |
| Stand-by                  letters of credit    |   | $               | 2.4    |           | $      | 2.4                                    |   |                 |   |   |   |   |   |

| (1)   | This                    contractual obligation table does not include our defined benefit                    pension                    obligations. An analysis of our obligations under our defined                    benefit                    plans is contained in “Note 8 — Employee Benefits” in the accompanying                    audited Consolidated Financial Statements of this Form                    10-K. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Variable                    rate obligations |
|-----------------|----------------------------------------------|

| (3)   | The                    Senior Notes due November 1, 2014, accrue interest at a fixed                    rate of 8                    3/4% per annum or $9.6 million per                    year. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Purchase                    obligations primarily represent commitments for inventory purchases,                    services and capital expenditures under purchase                    order. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Inflation          Risk. *

*Foreign          Currency Exchange Risk.*

**ITEM        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Hawk        Corporation and subsidiaries**

**December        31, 2005, 2004 and 2003**

| Report                of Independent Registered Public Accounting Firm  |  37 |
|------------------------------------------------------------------------------|----------|
| Consolidated                Balance Sheets                              |  38 |
| Consolidated                Statements of Operations                    |  40 |
| Consolidated                Statements of Shareholders’ Equity    |  41 |
| Consolidated                Statements of Cash Flows                    |  42 |
| Notes                to Consolidated Financial Statements                    |  43 |

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**HAWK      CORPORATION**

**CONSOLIDATED      BALANCE SHEETS**

**(In      Thousands, except share data)**

|                                                                                                 |   | **December                31**  |        |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                                 |   | **2005**                        |        | **2004**  |   |
| **Assets**                                                                                           |   |                                 |        |   |   |
| Current                assets:                                                                       |   |                                 |        |   |   |
| Cash                and cash equivalents                                                             |   | **$**                                | **7,111**   |   | $ | 6,785 |   |
| Accounts                receivable, less allowance of $1,046 in 2005 and $970 in                2004 |   |                                 | **36,225**  |   |   | 39,044 |   |
| Inventories:                                                                                         |   |                                 |        |   |   |   |   |
| Raw                materials and work-in-process                                                     |   |                                 | **28,314**  |   |   | 24,043 |   |
| Finished                products                                                                     |   |                                 | **18,065**  |   |   | 17,507 |   |
| Total                inventories                                                                     |   |                                 | **46,379**  |   |   | 41,550 |   |
| Deferred                income taxes                                                                 |   |                                 | **4,430**   |   |   | 4,583 |   |
| Taxes                receivable                                                                      |   |                                 | **347**     |   |   | 373 |   |
| Shareholder                notes                                                                     |   |                                 |        |   |   | 600 |   |
| Assets                held for sale                                                                  |   |                                 | **1,644**   |   |   |   |   |
| Other                current assets                                                                  |   |                                 | **5,660**   |   |   | 3,460 |   |
| Assets                of discontinued operations                                                     |   |                                 | **3,633**   |   |   | 4,499 |   |
| Total                current assets                                                                  |   |                                 | **105,429** |   |   | 100,894 |   |
|                                                                                                 |   |                                 |        |   |   |   |   |
| Property,                plant and equipment:                                                        |   |                                 |        |   |   |   |   |
| Land                and improvements                                                                 |   |                                 | **1,340**   |   |   | 1,850 |   |
| Buildings                and improvements                                                            |   |                                 | **18,539**  |   |   | 20,705 |   |
| Machinery                and equipment                                                               |   |                                 | **126,201** |   |   | 116,663 |   |
| Furniture                and fixtures                                                                |   |                                 | **9,365**   |   |   | 9,220 |   |
| Construction                in progress                                                              |   |                                 | **5,317**   |   |   | 8,469 |   |
|                                                                                                 |   |                                 | **160,762** |   |   | 156,907 |   |
| Less                accumulated depreciation                                                         |   |                                 | **89,844**  |   |   | 86,879 |   |
| Total                property, plant and equipment                                                   |   |                                 | **70,918**  |   |   | 70,028 |   |
|                                                                                                 |   |                                 |        |   |   |   |   |
| Other                assets:                                                                         |   |                                 |        |   |   |   |   |
| Goodwill                                                                                             |   |                                 | **32,495**  |   |   | 32,495 |   |
| Other                intangible assets                                                               |   |                                 | **8,435**   |   |   | 9,170 |   |
| Deferred                income taxes                                                                 |   |                                 | **916**     |   |   |   |   |
| Other                                                                                                |   |                                 | **8,035**   |   |   | 8,279 |   |
| Total                other assets                                                                    |   |                                 | **49,881**  |   |   | 49,944 |   |
| Total                assets                                                                          |   | **$**                                | **226,228** |   | $ | 220,866 |   |

|                                                                                                                                                                                                                                                      |   | **December                31**  |        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                                                                                                                                                                                      |   | **2005**                             |        | **2004**  |   |
| **Liabilities                and shareholders’ equity**                                                                                                                                                                                             |   |                                 |        |   |   |
| Current                liabilities:                                                                                                                                                                                                                       |   |                                 |        |   |   |
| Accounts                payable                                                                                                                                                                                                                           |   | **$**                                | **30,444**  |   | $ | 25,554 |   |
| Accrued                compensation                                                                                                                                                                                                                       |   |                                 | **6,102**   |   |   | 8,173 |   |
| Accrued                interest                                                                                                                                                                                                                           |   |                                 | **4,895**   |   |   | 1,630 |   |
| Accrued                taxes                                                                                                                                                                                                                              |   |                                 | **664**     |   |   | 2,877 |   |
| Other                accrued expenses                                                                                                                                                                                                                     |   |                                 | **7,968**   |   |   | 5,597 |   |
| Short-term                debt                                                                                                                                                                                                                            |   |                                 | **1,386**   |   |   | 980 |   |
| Current                portion of long-term debt                                                                                                                                                                                                          |   |                                 | **307**     |   |   | 639 |   |
| Liabilities                of discontinued operations                                                                                                                                                                                                     |   |                                 | **3,334**   |   |   | 4,297 |   |
| Total                current liabilities                                                                                                                                                                                                                  |   |                                 | **55,100**  |   |   | 49,747 |   |
|                                                                                                                                                                                                                                                      |   |                                 |        |   |   |   |   |
| Long-term                liabilities:                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |
| Long-term                debt                                                                                                                                                                                                                             |   |                                 | **115,892** |   |   | 111,402 |   |
| Deferred                income taxes                                                                                                                                                                                                                      |   |                                 | **885**     |   |   | 3,631 |   |
| Pension                liabilities                                                                                                                                                                                                                        |   |                                 | **10,522**  |   |   | 7,358 |   |
| Other                                                                                                                                                                                                                                                     |   |                                 | **3,113**   |   |   | 3,701 |   |
| Total                long-term liabilities                                                                                                                                                                                                                |   |                                 | **130,412** |   |   | 126,092 |   |
|                                                                                                                                                                                                                                                      |   |                                 |        |   |   |   |   |
| 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 8,935,659 and 8,782,121 outstanding in 2005 and 2004,                respectively                                                 |   |                                 | **92**      |   |   | 92 |   |
| Class                B common stock, $.01 par value; 10,000,000 shares authorized; none                issued                or outstanding                                                                                                               |   |                                 |        |   |   |   |   |
| Additional                paid-in-capital                                                                                                                                                                                                                 |   |                                 | **53,349**  |   |   | 53,867 |   |
| Retained                earnings (deficit)                                                                                                                                                                                                                |   |                                 | **(4,845**  | **)** |   | (3,353 | ) |
| Accumulated                other comprehensive loss                                                                                                                                                                                                       |   |                                 | **(5,986**  | **)** |   | (2,431 | ) |
| Treasury                stock, at cost, 252,091 and 405,629 shares in 2005 and 2004,                respectively                                                                                                                                          |   |                                 | **(1,895**  | **)** |   | (3,149 | ) |
| Total                shareholders’ equity                                                                                                                                                                                                           |   |                                 | **40,716**  |   |   | 45,027 |   |
| Total                liabilities and shareholders’ equity                                                                                                                                                                                           |   | **$**                                | **226,228** |   | $ | 220,866 |   |

*See      notes to consolidated financial statements.*

**HAWK      CORPORATION**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**(In      Thousands, except per share data)**

|                                                                                                                                                |   | **Year                ended December 31**  |        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|-------------|
|                                                                                                                                                |   | **2005**                                   |        | **2004**  |   | **2003**  |   |
| Net                sales                                                                                                                            |   | **$**                                           | **265,434** |   | $ | 241,188 |   | $ | 202,551 |   |
| Cost                of sales                                                                                                                        |   |                                            | **213,013** |   |   | 184,662 |   |   | 155,182 |   |
| Gross                profit                                                                                                                         |   |                                            | **52,421**  |   |   | 56,526 |   |   | 47,369 |   |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| Operating                expenses:                                                                                                                  |   |                                            |        |   |   |   |   |   |   |   |
| Selling,                technical and administrative expenses                                                                                       |   |                                            | **37,874**  |   |   | 37,405 |   |   | 33,731 |   |
| Restructuring                costs                                                                                                                  |   |                                            | **4,962**   |   |   | 1,117 |   |   |   |   |
| Employee                benefit curtailment (income) expense                                                                                        |   |                                            | **(424**    | **)** |   |   |   |   | 1,920 |   |
| Amortization                of finite-lived intangibles assets                                                                                      |   |                                            | **734**     |   |   | 734 |   |   | 800 |   |
| Total                operating expenses                                                                                                             |   |                                            | **43,146**  |   |   | 39,256 |   |   | 36,451 |   |
| Income                from operations                                                                                                               |   |                                            | **9,275**   |   |   | 17,270 |   |   | 10,918 |   |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| Interest                expense                                                                                                                     |   |                                            | **(10,588** | **)** |   | (10,265 | ) |   | (10,752 | ) |
| Interest                income                                                                                                                      |   |                                            | **40**      |   |   | 54 |   |   | 57 |   |
| Exchange                offer costs                                                                                                                 |   |                                            |        |   |   | (2,431 | ) |   |   |   |
| Other                income (expense), net                                                                                                          |   |                                            | **98**      |   |   | (244 | ) |   | 183 |   |
| (Loss)                income from continuing operations, before income taxes                                                                        |   |                                            | **(1,175**  | **)** |   | 4,384 |   |   | 406 |   |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| Income                tax provision                                                                                                                 |   |                                            | **201**     |   |   | 2,899 |   |   | 855 |   |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| (Loss)                income from continuing operations, after income taxes                                                                         |   |                                            | **(1,376**  | **)** |   | 1,485 |   |   | (449 | ) |
| Income                (loss) from discontinued operations, net of tax of $17 in 2005, $186                in                2004 and $2,700 in 2003 |   |                                            | **32**      |   |   | (344 | ) |   | (4,973 | ) |
| Net                (loss) income                                                                                                                    |   | **$**                                           | **(1,344**  | **)** | $ | 1,141 |   | $ | (5,422 | ) |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| (Loss)                earnings per share:                                                                                                           |   |                                            |        |   |   |   |   |   |   |   |
| Basic                (loss) earnings per share:                                                                                                     |   |                                            |        |   |   |   |   |   |   |   |
| (Loss)                earnings from continuing operations, after income taxes                                                                       |   | **$**                                           | **(.17**    | **)** | $ | .15 |   | $ | (.07 | ) |
| Discontinued                operations                                                                                                              |   |                                            |        |   |   | (.04 | ) |   | (.58 | ) |
| Net                (loss) earnings per basic share                                                                                                  |   | **$**                                           | **(.17**    | **)** | $ | .11 |   | $ | (.65 | ) |
|                                                                                                                                                |   |                                            |        |   |   |   |   |   |   |   |
| Diluted                earnings (loss) per share:                                                                                                   |   |                                            |        |   |   |   |   |   |   |   |
| (Loss)                earnings from continuing operations, after income taxes                                                                       |   | **$**                                           | **(.17**    | **)** | $ | .15 |   | $ | (.07 | ) |
| Discontinued                operations                                                                                                              |   |                                            |        |   |   | (.04 | ) |   | (.58 | ) |
| Net                (loss) earnings per diluted shares                                                                                               |   | **$**                                           | **(.17**    | **)** | $ | .11 |   | $ | (.65 | ) |

*See      notes to consolidated financial statements.*

**HAWK      CORPORATION**

**CONSOLIDATED      STATEMENTS OF SHAREHOLDERS’ EQUITY**

**(In      Thousands)**

|                                                                                                     |   |               |   |            |   |                             |   |                              |       | **Accumulated                Other****Comprehensive                Income****(Loss)**  |   |                            |   |              |       |
|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|---------------------------|--------|--------------------------------------------|--------|---------------------------------------------|------------|---------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------|------------|
|                                                                                                     |   | **Preferred****Stock**  |   | **Common****Stock**  |   | **Additional****Paid-in****Capital**  |   | **Retained****Earnings****(Deficit)**  |       | **Foreign****Currency****Translation**                                                 |   | **Minimum****Pension****Liability**  |   | **Treasury****Stock**  |       |  **Total**  |   |
| 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:                                                                         |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   |   |   |
| Minimum                pension liability, net  of                tax $14                                      |   |                         |        |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |            |   |   | 23 |   |   |   |   |   | 23 |   |
| Foreign                currency translation                                                                        |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        | 2,330      |   |   |   |   |   |   |   |   | 2,330 |   |
| Total                comprehensive income                                                                          |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   | 2,353 |   |
| 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 |   |
| Net                income                                                                                          |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   | 1,141                                     |   |                        |       |   |   |   |   |   |   |   |   | 1,141 |   |
| Other                comprehensive income:                                                                         |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   |   |   |
| Minimum                pension liability, net of tax of $378                                                       |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   | 605 |   |   |   |   |   | 605 |   |
| Foreign                currency translation                                                                        |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        | 1,047      |   |   |   |   |   |   |   |   | 1,047 |   |
| Total                comprehensive income                                                                          |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   | 1,652 |   |
| Preferred                stock dividends                                                                           |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   | (150                                      | )      |                        |       |   |   |   |   |   |   |   |   | (150 | ) |
| Issuance                of common stock from treasury as compensation and exercise of stock                options |   |                         |   |                      |   |                                       |   |                                        | (616       | )                                                                                           |   |                                      |   |                        |       |   |   |   |   |   | 1,295 |   |   | 679 |   |
| Balance                at December 31, 2004                                                                        |   | $                            | 1      |                      | $      | 92                                         |   | $                                           | 53,867     |                                                                                        | $      | (3,353                                    | )      | $                           | 1,420      |   | $ | (3,851 | ) | $ | (3,149 | ) | $ | 45,027 |   |
| Net                loss                                                                                            |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   | **(1,344**                                | **)**  |                        |       |   |   |   |   |   |   |   |   | **(1,344** | **)** |
| Other                comprehensive (loss):                                                                         |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   |   |   |
| Minimum                pension liability, net of tax of $1,337                                                |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   | **(2,135** | **)** |   |   |   |   | **(2,135** | **)** |
| Foreign                currency translation                                                                        |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        | **(1,420** | **)** |   |   |   |   |   |   |   | **(1,420** | **)** |
| Total                comprehensive (loss)                                                                          |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   |                                      |   |                        |       |   |   |   |   |   |   |   |   | **(3,555** | **)** |
| Preferred                stock dividends                                                                           |   |                         |   |                      |   |                                       |   |                                        |       |                                                                                        |   | **(148**                                  | **)**  |                        |       |   |   |   |   |   |   |   |   | **(148** | **)** |
| Issuance                of common stock from treasury as compensation and exercise of stock                options |   |                         |   |                      |   |                                       |   |                                        | **(518**   | **)**                                                                                       |   |                                      |   |                        |       |   |   |   |   |   | **1,254** |   |   | **736** |   |
| Balance                at December 31, 2005                                                                        |   | **$**                        | **1**  |                      | **$**  | **92**                                     |   | **$**                                       | **53,349** |                                                                                        | **$**  | **(4,845**                                | **)**  |                        |       |   | $ | $**(5,986** | **)** | **$** | **(1,895** | **)** | **$** | **40,716** |   |

*See      notes to consolidated financial statements.*

**HAWK      CORPORATION**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**(In      Thousands)**

|                                                                                                                       |   | **Year                  ended December 31**  |            |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------------|
|                                                                                                                       |   | **2005**                                     |            | **2004**  |   | **2003**  |   |
| **Cash                  flows from operating activities**                                                                  |   |                                              |            |   |   |   |   |
| Net                  (loss) income                                                                                         |   | **$**                                             | **(1,344**      | **)** | $ | 1,141 |   | $ | (5,422 | ) |
| Adjustments                  to reconcile net (loss) income to net cash provided by operating                  activities: |   |                                              |            |   |   |   |   |   |   |   |
| Income                  from discontinued operations, net of tax                                                           |   |                                              | **32**          |   |   | 344 |   |   | 4,973 |   |
| Depreciation                  and amortization                                                                             |   |                                              | **11,880**      |   |   | 11,180 |   |   | 11,674 |   |
| Write-off                  of unamortized consent payments and deferred financing                                          |   |                                              |            |   |   | 1,521 |   |   |   |   |
| Deferred                  income taxes                                                                                     |   |                                              | **(2,141**      | **)** |   | (1,602 | ) |   | (3,699 | ) |
| Loss                  on fixed assets                                                                                      |   |                                              | **962**         |   |   | 996 |   |   | 204 |   |
| Changes                  in operating assets and liabilities:                                                              |   |                                              |            |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                                       |   |                                              | **1,487**       |   |   | (5,949 | ) |   | (949 | ) |
| Inventories                                                                                                                |   |                                              | **(5,669**      | **)** |   | (5,657 | ) |   | (1,656 | ) |
| Other                  assets                                                                                              |   |                                              | **(1,930**      | **)** |   | 2,122 |   |   | 3,048 |   |
| Accounts                  payable                                                                                          |   |                                              | **5,246**       |   |   | 3,311 |   |   | 4,494 |   |
| Accrued                  expenses                                                                                          |   |                                              | **(1,680**      | **)** |   | 125 |   |   | 4,214 |   |
| Other                  liabilities and other                                                                               |   |                                              | **3,136**       |   |   | (1,516 | ) |   | 6,904 |   |
| Net                  cash provided by operating activities of continuing                  operations                       |   |                                              | **9,979**       |   |   | 6,016 |   |   | 23,785 |   |
| Net                  cash (used in) provided by operating activities of discontinued                  operations           |   |                                              | **(85**         | **)** |   | 368 |   |   | 2,299 |   |
|                                                                                                                       |   |                                              |            |   |   |   |   |   |   |   |
| **Cash                  flows from investing activities**                                                                  |   |                                              |            |   |   |   |   |   |   |   |
| Purchases                  of property, plant and equipment                                                                |   |                                              | **(14,232**     | **)** |   | (18,297 | ) |   | (10,677 | ) |
| Proceeds                  from sale of property, plant and equipment                                                       |   |                                              | **104**         |   |   | 881 |   |   | 568 |   |
| Net                  cash used in investing activities of continuing operations                                            |   |                                              | **(14,128**     | **)** |   | (17,416 | ) |   | (10,109 | ) |
| Net                  cash used in investing activities of discontinued                  operations                         |   |                                              | **(44**         | **)** |   | (173 | ) |   | (308 | ) |
|                                                                                                                       |   |                                              |            |   |   |   |   |   |   |   |
| **Cash                  flows from financing activities**                                                                  |   |                                              |            |   |   |   |   |   |   |   |
| Deferred                  financing                                                                                        |   |                                              |            |   |   | (4,096 | ) |   |   |   |
| Payments                  on short-term debt                                                                               |   |                                              | **(940**        | **)** |   | (342 | ) |   |   |   |
| Proceeds                  from short-term debt                                                                             |   |                                              | **899**         |   |   |   |   |   | 1,326 |   |
| Proceeds                  from long-term debt                                                                              |   |                                              | **84,245**      |   |   |   |   |   | 503 |   |
| Payments                  on long-term debt                                                                                |   |                                              | **(79,610**     | **)** |   | (1,629 | ) |   | (2,960 | ) |
| Proceeds                  from Senior Notes                                                                                |   |                                              |            |   |   | 110,000 |   |   |   |   |
| Proceeds                  from Bank Facility                                                                               |   |                                              |            |   |   | 13,575 |   |   |   |   |
| Payments                  on Bank Facility                                                                                 |   |                                              |            |   |   | (13,355 | ) |   |   |   |
| Payment                  on Old Senior Notes                                                                               |   |                                              |            |   |   | (66,267 | ) |   | (583 | ) |
| Proceeds                  from Old Bank Facility                                                                           |   |                                              |            |   |   | 92,336 |   |   | 68,173 |   |
| Payments                  on Old Bank Facility                                                                             |   |                                              |            |   |   | (116,395 | ) |   | (80,441 | ) |
| Net                  proceeds from exercise of stock options                                                               |   |                                              | **736**         |   |   | 679 |   |   | 59 |   |
| Payments                  of preferred stock dividends                                                                     |   |                                              | **(148**        | **)** |   | (150 | ) |   | (150 | ) |
| Net                  cash provided by (used in) financing activities of continuing                  operations             |   |                                              | **5,182**       |   |   | 14,356 |   |   | (14,073 | ) |
|                                                                                                                       |   |                                              |            |   |   |   |   |   |   |   |
| Effect                  of exchange rate changes on cash                                                                   |   |                                              | **(578**        | **)** |   | 269 |   |   | 69 |   |
|                                                                                                                       |   |                                              |            |   |   |   |   |   |   |   |
| Net                  cash provided by (used in) continuing operations                                                      |   |                                              | **455**         |   |   | 3,225 |   |   | (328 | ) |
| Net                  cash (used in) provided by discontinued operations                                                    |   |                                              | **(129**        | **)** |   | 195 |   |   | 1,991 |   |
| Net                  increase in cash and cash equivalents                                                                 |   |                                              | **326**         |   |   | 3,420 |   |   | 1,663 |   |
| Cash                  and cash equivalents at beginning of year                                                            |   |                                              | **6,785**       |   |   | 3,365 |   |   | 1,702 |   |
| Cash                  and cash equivalents at end of year                                                                  |   | **$**                                             | **7,111**       |   | $ | 6,785 |   | $ | 3,365 |   |
|                                                                                                                       |   |                                              |            |   |   |   |   |   |   |   |
| **Supplemental                  cash flow information**                                                                    |   |                                              |            |   |   |   |   |   |   |   |
| Cash                  payments for interest                                                                                |   | **$**                                        |  **6,849** |   | $ | $12,189 |   | $ | 5,556 |   |
| Cash                  payments (refunds) for income taxes, net                                                             |   | **$**                                             | **4,540**       |   | $ | 3,252 |   | $ | (1,879 | ) |
| Noncash                  investing and financing activities:                                                               |   |                                              |            |   |   |   |   |   |   |   |
| Equipment                  purchased with capital leases and notes payable                                                 |   |                                              |            |   |   |   |   | $ | 546 |   |
| Issuance                  of common stock from treasury                                                                    |   | **$**                                             | **40**          |   | $ | 40 |   | $ | 30 |   |
| Issuance                  of payment in kind (PIK) payments in the form of Old Senior                  Notes               |   |                                              |            |   | $ | $83 |   | $ | 124 |   |

*See      notes to consolidated financial statements.*

**HAWK      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**Years      Ended December 31, 2005, 2004 and 2003**

**(In      Thousands, except share data)**

**1.      Basis of Presentation**

**2.      Significant Accounting Policies**

***Use      of Estimates***

***Cash      Equivalents***

***Trade      Receivables***

***Inventories***

***Long-Lived      Assets***

***Goodwill***

***Insurance***

***Contingencies***

***Foreign      Currency***

***Revenue      Recognition***

***Significant        Concentrations***

***Product        Research and Development***

***Advertising***

***Income      Taxes***

***Stock      Compensation***

*Accounting      for Stock-Based Compensation,*

|                                                                                                                          |   | **Year                Ended December 31**  |       |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                                          |   | **2005**                                   |       | **2004**  |   | **2003**  |   |
| Net                (loss) income as reported                                                                                  |   | **$**                                           | **(1,344** | **)** | $ | 1,141 |   | $ | (5,422 | ) |
| Employee                stock-based compensation expense determined under fair value based                methods, net of tax |   |                                            | **213**    |   |   | 237 |   |   | 663 |   |
| Pro                forma net (loss) income                                                                                    |   | **$**                                           | **(1,577** | **)** | $ | 904 |   | $ | (6,085 | ) |
| Basic                (loss) earnings per share:                                                                               |   |                                            |       |   |   |   |   |   |   |   |
| As                reported                                                                                                    |   | **$**                                           | **(.17**   | **)** | $ | .11 |   | $ | (.65 | ) |
| Pro                forma                                                                                                      |   | **$**                                           | **(.19**   | **)** | $ | .09 |   | $ | (.73 | ) |
| Diluted                (loss) earnings per share:                                                                             |   |                                            |       |   |   |   |   |   |   |   |
| As                reported                                                                                                    |   | **$**                                           | **(.17**   | **)** | $ | .11 |   | $ | (.65 | ) |
| Pro                forma                                                                                                      |   | **$**                                           | **(.19**   | **)** | $ | .08 |   | $ | (.73 | ) |

|                                             |   | **Year                  Ended December 31**  |                           |
|--------------------------------------------------|--------|---------------------------------------------------|--------------------------------|
|                                             |   | **2005**                                     |                           | **2004**  |   | **2003**  |   |
| Dividend                  yield                  |   |                                              | **0**                          | **%** |   | 0 | % |   | 0 | % |
| Expected                  volatility             |   |                                              | **57.1**                       | **%** |   | 54.7 | % |   | 54.0 | % |
| Risk                  free interest rate         |   |                                              | **4.86**                       | **%** |   | 4.33 | % |   | 4.00 | % |
| Expected                  average holding period |   |                                              | **7.1                  years** |   |   | 7.3                  years |   |   | 7.3                  years |   |

*Share-Based      Payment*
*.*

***Fair      Value of Financial Instruments***

***Recent      Accounting Developments***

*Inventory      Costs *

**3.      Discontinued Operations**

|                                                             |   | **Year                Ended December 31**  |      |
|------------------------------------------------------------------|--------|-------------------------------------------------|-----------|
|                                                             |   | **2005**                                   |      | **2004**  |   | **2003**  |   |
| Net                sales                                         |   | **$**                                           | **8,892** |   | $ | 12,978 |   | $ | 14,463 |   |
|                                                             |   |                                            |      |   |   |   |   |   |   |   |
| Income                (loss) from operations before income taxes |   | **$**                                           | **49**    |   | $ | (530 | ) | $ | (7,673 | ) |
| Income                tax expense                                |   |                                            | **17**    |   |   | 186 |   |   | 2,700 |   |
| Income                (loss) from operations, net of tax         |   | **$**                                           | **32**    |   | $ | (344 | ) | $ | (4,973 | ) |

|                                                        |   | **December                31** |      |
|-------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                        |   | **2005**                  |      | **2004**  |   |
| Accounts                receivable                          |   | **$**                          | **1,926** |   | $ | 3,069 |   |
| Inventory                                                   |   |                           | **490**   |   |   | 673 |   |
| Other                current assets                         |   |                           | **889**   |   |   | 418 |   |
| Property,                plant and equipment                |   |                           | **328**   |   |   | 289 |   |
| Other                assets                                 |   |                           |      |   |   | 50 |   |
|                                                        |   |                           |      |   |   |   |   |
| Total                assets of discontinued operations      |   | **$**                          | **3,633** |   | $ | 4,499 |   |
|                                                        |   |                           |      |   |   |   |   |
| Accounts                payable                             |   | **$**                          | **3,135** |   | $ | 3,973 |   |
| Other                accrued expenses                       |   |                           | **199**   |   |   | 324 |   |
|                                                        |   |                           |      |   |   |   |   |
| Total                liabilities of discontinued operations |   | **$**                          | **3,334** |   | $ | 4,297 |   |

**4.      Restructuring**

*Accounting      for Costs Associated with Exit or Disposal Activities *

| Amounts                    recognized as restructuring costs (including $501 recorded in“Cost of                    sales”) through December 31, 2005 |   | **$**  | **5,464** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
| Cash                    payments through December 31, 2005                                                                                                        |   |   | **4,991** |   |
| Restructuring                    cost accrual as of December 31, 2005                                                                                             |   | **$**  | **473**   |   |

*Accounting          for the Impairment or Disposal of Long-Lived Assets*

**5.          Intangible Assets**

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

|                                   |   | **December                31, 2005**  |       | **December                31, 2004**  |   |
|----------------------------------------|--------|--------------------------------------------|------------|--------------------------------------------|--------|
|                              |   | **Gross**                             |       | **Accumulated****Amortization**       |   | **Net**  |   | **Gross**  |   | **Accumulated****Amortization**  |   | **Net**  |   |
| Product                certifications  |   | **$**                                      | **20,820** |                                       | **$**  | **12,441** |   | **$** | **8,379** |   | $ | 20,820 |   | $ | 11,716 |   | $ | 9,104 |   |
| Other                intangible assets |   |                                       | **2,719**  |                                       |   | **2,663** |   |   | **56** |   |   | 2,719 |   |   | 2,653 |   |   | 66 |   |
|                                   |   | **$**                                      | **23,539** |                                       | **$**  | **15,104** |   | **$** | **8,435** |   | $ | 23,539 |   | $ | 14,369 |   | $ | 9,170 |   |

**6.          Financing Arrangements**

|                                                      |   | **December                  31**  |        |
|-----------------------------------------------------------|--------|----------------------------------------|-------------|
|                                                      |   | **2005**                          |        | **2004**  |   |
| Short-term                  debt                          |   | **$**                                  | **1,386**   |   | $ | 980 |   |
| Senior                  Notes                             |   |                                   | **110,000** |   |   | 110,000 |   |
| Bank                  Facility                            |   |                                   | **5,041**   |   |   | 220 |   |
| Other                                                     |   |                                   | **1,158**   |   |   | 1,821 |   |
|                                                      |   |                                   | **117,585** |   |   | 113,021 |   |
| Less                  current portion and short-term debt |   |                                   | **1,693**   |   |   | 1,619 |   |
|                                                      |   | **$**                                  | **115,892** |   | $ | 111,402 |   |

| **For                  the period below**  |   | **Percentage**  |    |
|-------------------------------------------------|--------|----------------------|---------|
| On                  or after November 1, 2009   |   |                 | 104.375 | % |
| On                  or after November 1, 2010   |   |                 | 103.281 | % |
| On                  or after November 1, 2011   |   |                 | 102.188 | % |
| On                  or after November 1, 2012   |   |                 | 101.094 | % |
| On                  or after November 1, 2013   |   |                 | 100.000 | % |

| ·    | incur                  or guarantee additional debt or issue disqualified capital                  stock,     |
|--------------------------|--------------------------------------------------------------------------------------------------------------------|
| ·    | pay                  dividends, redeem subordinated debt or make other restricted                  payments,  |
| ·    | issue                  preferred stock of our subsidiaries,                                                   |

| ·    | transfer                or sell assets, including capital stock of our subsidiaries,                               |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------|
| ·    | incur                dividend or other payment restrictions affecting certain of our                subsidiaries,  |
| ·    | make                certain investments or acquisitions,                                                           |
| ·    | grant                liens on our assets,                                                                          |
| ·    | enter                into certain transactions with affiliates, and                                                |
| ·    | merge,                consolidate or transfer substantially all of our                assets.                           |

| ·    | there                    is no default or event of default,                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | the                    Company meets the cash flow ratio, and                                                                                                                                                                                                                                                                                                                                                                                                             |
| ·    | the                    amount of the dividend payment plus certain other payments is                    not in                    excess of a formula based on the sum of the Company’s consolidated net                    income after November 1, 2004, the cash proceeds of certain equity                    offerings by the Company after November 1, 2004 and the return                    on certain                    investments made by the Company.  |

| ·    | there                  is no event of default, and       |
|--------------------------|---------------------------------------------------------------|
| ·    | availability                  is not less than $10,000.  |

**7.        Accounts Receivables Factoring Agreement**

*Accounting        for Transfers and Servicing of Financial Assets and Extinguishment of        Liabilities*

**8.        Shareholders’ Equity**

**9.        Employee Stock Option Plan**

|                                                                            |   | **2005**           |          | **2004**                                      |   | **2003**                 |   |
|---------------------------------------------------------------------------------|--------|-------------------------|---------------|----------------------------------------------------|--------|-------------------------------|--------|
|                                                                            |   |  **Options**  |          | **Weighted****Average****Exercise****Price**  |   |   **Options**  |   | **Weighted****Average****Exercise****Price**  |   |   **Options**  |   | **Weighted****Average****Exercise****Price**  |   |
| Options                  outstanding at beginning of year                       |   |                    | **1,111,300** |                                               | **$**  | **5.09**                      |   |   | 821,781 |   | $ | 4.54 |   |   | 1,217,729 |   | $ | 6.63 |   |
| Granted                                                                         |   |                    |          |                                               |   |                          |   |   | 523,630 |   |   | 5.62 |   |   |   |   |   |   |   |
| Exercised                                                                       |   |                    | **(149,370**  | **)**                                              |   | **4.70**                      |   |   | (185,353 | ) |   | 3.66 |   |   | (17,094 | ) |   | 3.40 |   |
| Forfeited                  or expired                                           |   |                    | **(19,850**   | **)**                                              |   | **5.82**                      |   |   | (48,758 | ) |   | 6.90 |   |   | (378,854 | ) |   | 11.41 |   |
| Options                  outstanding at end of year                             |   |                    | **942,080**   |                                               | **$**  | **5.13**                      |   |   | 1,111,300 |   | $ | 5.09 |   |   | 821,781 |   | $ | 4.54 |   |
| Exercisable                  at the end of the year                             |   |                    | **729,916**   |                                               | **$**  | **4.85**                      |   |   | 793,910 |   | $ | 4.72 |   |   | 718,306 |   | $ | 4.42 |   |
| Weighted                  average fair value of options granted during the year |   |                    |          |                                               |   |                          |   |   |   |   | $ | 3.49 |   |   |   |   |   |   |   |
| Shares                  available for future grant                              |   |                    | **106,103**   |                                               |   |                          |   |   | 86,253 |   |   |   |   |   | 578,219 |   |   |   |   |

*Accounting        for Stock-Based Compensation*

|                                         |   | **Outstanding**  |    | **Exercisable**                      |   |
|----------------------------------------------|--------|-----------------------|---------|-------------------------------------------|--------|
|                                         |   |                  |    |                                      |   | **Weighted                  Average** |   |   |   |   |   |
|                                         |   |                  |    | **Weighted                  Average**     |   | **Remaining                  Contractual** |   |   |   | **Weighted                  Average** |   |
| **Range                  of Exercise Price** |   | **Options**      |    | **Exercise                  Price**  |   | **Life                  (years)**  |   | **Options**  |   | **Exercise                  Price**  |   |
| $                  3.40 to $ 3.50            |   |                  | 123,256 |                                      | $      | 3.40 |   |   | 5.8 |   |   | 123,256 |   | $ | 3.40 |   |
| $                  3.51 to $ 5.00            |   |                  | 269,367 |                                      | $      | 3.85 |   |   | 5.7 |   |   | 264,763 |   | $ | 3.84 |   |
| $                  5.01 to $ 6.00            |   |                  | 313,457 |                                      | $      | 5.16 |   |   | 7.2 |   |   | 233,897 |   | $ | 5.20 |   |
| $                  6.01 to $17.00            |   |                  | 236,000 |                                      | $      | 7.46 |   |   | 6.9 |   |   | 108,000 |   | $ | 8.24 |   |

**10.        Employee Benefits**

|                                                                               |   | **December                  31**  |        |
|------------------------------------------------------------------------------------|--------|----------------------------------------|-------------|
|                                                                               |   | **2005**                          |        | **2004**  |   |
| Accumulated                  benefit obligation                                    |   | **$**                                  | **29,383**  |   | $ | 24,956 |   |
|                                                                               |   |                                   |        |   |   |   |   |
| Change                  in benefit obligation:                                     |   |                                   |        |   |   |   |   |
| Benefit                  obligation at beginning of year                           |   | **$**                                  | **26,115**  |   | $ | 24,159 |   |
| Service                  cost                                                      |   |                                   | **1,061**   |   |   | 1,073 |   |
| Interest                  cost                                                     |   |                                   | **1,516**   |   |   | 1,490 |   |
| Actuarial                  losses                                                  |   |                                   | **6,064**   |   |   | 480 |   |
| Foreign                  currency exchange rate impact                             |   |                                   | **45**      |   |   | 102 |   |
| Benefits                  paid                                                     |   |                                   | **(1,638**  | **)** |   | (1,189 | ) |
| Benefit                  obligation at end of year                                 |   | **$**                                  | **33,163**  |   | $ | 26,115 |   |
|                                                                               |   |                                   |        |   |   |   |   |
| Change                  in plan assets:                                            |   |                                   |        |   |   |   |   |
| Fair                  value of plan assets at beginning of year                    |   | **$**                                  | **20,948**  |   | $ | 18,415 |   |
| Actual                  return on plan assets                                      |   |                                   | **1,874**   |   |   | 2,022 |   |
| Foreign                  currency exchange rate impact                             |   |                                   | **32**      |   |   | 95 |   |
| Company                  contributions                                             |   |                                   | **1,612**   |   |   | 1,605 |   |
| Benefits                  paid                                                     |   |                                   | **(1,638**  | **)** |   | (1,189 | ) |
| Fair                  value of plan assets at end of year                          |   | **$**                                  | **22,828**  |   | $ | 20,948 |   |
|                                                                               |   |                                   |        |   |   |   |   |
| Funded                  status of the plans                                        |   | **$**                                  | **(10,335** | **)** | $ | (5,167 | ) |
| Unrecognized                  net actuarial losses                                 |   |                                   | **13,479**  |   |   | 7,813 |   |
| Unrecognized                  initial net obligation                               |   |                                   | **41**      |   |   | 110 |   |
| Foreign                  currency exchange rate impact                             |   |                                   | **36**      |   |   | 61 |   |
| Unamortized                  prior service cost                                    |   |                                   | **111**     |   |   | 120 |   |
| Net                  prepaid benefit cost                                          |   | **$**                                  | **3,332**   |   | $ | 2,937 |   |
|                                                                               |   |                                   |        |   |   |   |   |
| Amounts                  recognized in the balance sheet consist of the following: |   |                                   |        |   |   |   |   |
| Prepaid                  benefit cost                                              |   | **$**                                  | **3,968**   |   | $ | 3,857 |   |
| Accrued                  benefit liability                                         |   |                                   | **(10,522** | **)** |   | (7,356 | ) |
| Intangible                  asset                                                  |   |                                   | **159**     |   |   | 175 |   |
| Cumulative                  other comprehensive loss                               |   |                                   | **9,727**   |   |   | 6,261 |   |
| Net                  amount recognized                                             |   | **$**                                  | **3,332**   |   | $ | 2,937 |   |

|                                                             |   | **December                31**  |       |
|------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                             |   | **2005**                        |       | **2004**  |   |
| Projected                benefit obligation                      |   | **$**                                | **33,163** |   | $ | 26,115 |   |
| Accumulated                benefit obligation                    |   | **$**                                | **29,383** |   | $ | 24,956 |   |
| Fair                value of plan assets                         |   | **$**                                | **22,828** |   | $ | 20,948 |   |
| Amounts                recognized as accrued benefit liabilities |   | **$**                                | **10,522** |   | $ | 7,943 |   |
| Amounts                recognized as intangible asset            |   | **$**                                | **159**    |   | $ | 175 |   |

|                                                      |   | **Year                  ended December 31**  |       |
|-----------------------------------------------------------|--------|---------------------------------------------------|------------|
|                                                      |   | **2005**                                     |       | **2004** |   | **2003**  |   |
| Components                  of net periodic pension cost: |   |                                              |       |   |   |   |   |
| Service                  cost                             |   | **$**                                             | **1,061**  |   | $ | 1,073 |   | $ | 840 |   |
| Interest                  cost                            |   |                                              | **1,516**  |   |   | 1,490 |   |   | 1,329 |   |
| Expected                  return on plan assets           |   |                                              | **(1,813** | **)** |   | (1,610 | ) |   | (1,269 | ) |
| Amortization                  of prior service cost       |   |                                              | **9**      |   |   | 74 |   |   | 71 |   |
| Contractual                  termination benefit cost     |   |                                              |       |   |   |   |   |   | 1,836 |   |
| Pension                  settlement/curtailment           |   |                                              | **194**    |   |   |   |   |   | 386 |   |
| Recognized                  net actuarial loss            |   |                                              | **266**    |   |   | 251 |   |   | 362 |   |
|                                                      |   | **$**                                             | **1,233**  |   | $ | 1,278 |   | $ | 3,555 |   |

|                                           |   | **December                  31**  |    |
|------------------------------------------------|--------|----------------------------------------|---------|
|                                           |   | **2005**                          |    | **2004**  |   |
| **Asset                  Category**            |   |                                   |    |   |   |
| Equity                  securities             |   |                                   | **74**  | **%** |   | 73 | % |
| Debt                  securities               |   |                                   | **20**  | **%** |   | 21 | % |
| Hawk                  Corporation common stock |   |                                   | **4**   | **%** |   | 3 | % |
| Other                                          |   |                                   | **2**   | **%** |   | 3 | % |
| Total                                          |   |                                   | **100** | **%** |   | 100 | % |

|                                                                                                                                          |   | **2005**  |     | **2004**  |   | **2003**  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|----------|----------------|--------|----------------|--------|
| Weighted                  average rates used to compute the projected benefit obligation                  as of                  December 31: |   |           |     |           |   |           |   |
| Discount                  rate                                                                                                                |   |           | **5.50** | **%**          |   | 6.00           | %      |   | 6.25 | % |
| Rate                  of compensation increase                                                                                                |   |           | **3.04** | **%**          |   | 3.04           | %      |   | 3.03 | % |

|                                                                                                                                                       |   |   |     |   |   |   |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|
| Weighted                  average rates used to determine the net periodic benefit cost for                  the                  years ended December 31: |   |   |     |   |   |   |   |   |   |   |
| Discount                  rate                                                                                                                             |   |   | **6.00** | **%**  |   | 6.25   | %      |   | 6.75   | %      |
| Rate                  of compensation increase                                                                                                             |   |   | **3.06** | **%**  |   | 3.02   | %      |   | 3.02   | %      |
| Expected                  long-term return on plan assets                                                                                                  |   |   | **8.60** | **%**  |   | 8.57   | %      |   | 8.59   | %      |

| **Year**  |   | **Benefit                  Payments** |   |
|----------------|--------|---------------------------------------|--------|
| 2006           |   | $                                     | 1,361  |   |
| 2007           |   | $                                     | 1,457  |   |
| 2008           |   | $                                     | 1,447  |   |
| 2009           |   | $                                     | 1,502  |   |
| 2010           |   | $                                     | 1,560  |   |
| 2011-2015      |   | $                                     | 9,303  |   |

**11.        Lease Obligations**

|                                                |   | **December                    31**  |      |
|-----------------------------------------------------|--------|------------------------------------------|-----------|
|                                                |   | **2005**                            |      | **2004**  |   |
| Buildings                    and improvements       |   | **$**                                    | **969**   |   | $ | 1,107 |   |
| Machinery                    and equipment          |   |                                     | **1,012** |   |   | 1,119 |   |
| Gross                    assets under capital lease |   |                                     | **1,981** |   |   | 2,226 |   |
| Accumulated                    amortization         |   |                                     | **752**   |   |   | 521 |   |
| Net                    assets under capital lease   |   | **$**                                    | **1,229** |   | $ | 1,705 |   |

*Accounting            for Operating*
*Leases            with Scheduled Rent Increases*

**12.          Income Taxes**

|                                          |   | **Year                    ended December 31**  |       |
|-----------------------------------------------|--------|-----------------------------------------------------|------------|
|                                          |   | **2005**                                       |       | **2004**  |   | **2003**  |   |
| Current:                                      |   |                                                |       |   |   |   |   |   |   |   |
| Federal                                       |   |                                                |       |   |   |   |   |   |   |   |
| State                    and local            |   | **$**                                               | **232**    |   | $ | 744 |   | $ | 45 |   |
| Foreign                                       |   |                                                | **2,929**  |   |   | 3,630 |   |   | 1,885 |   |
|                                          |   |                                                | **3,161**  |   |   | 4,374 |   |   | 1,930 |   |
| Deferred:                                     |   |                                                |       |   |   |   |   |   |   |   |
| Federal                                       |   |                                                | **(3,099** | **)** |   | (1,248 | ) |   | (1,059 | ) |
| State                    and local            |   |                                                | **(503**   | **)** |   | (135 | ) |   | (12 | ) |
| Foreign                                       |   |                                                | **642**    |   |   | (92 | ) |   | (4 | ) |
|                                          |   |                                                | **(2,960** | **)** |   | (1,475 | ) |   | (1,075 | ) |
| Total                    income tax provision |   | **$**                                               | **201**    |   | $ | 2,899 |   | $ | 855 |   |

|                                              |   | **2005**  |       | **2004**  |   |
|---------------------------------------------------|--------|----------------|------------|----------------|--------|
| Deferred                    tax assets:           |   |           |       |           |   |   |   |
| NOL                    and AMT carryforward       |   | **$**          | **10,607** |           | $      | 6,735 |   |
| Accrued                    vacation               |   |           | **601**    |           |   | 627 |   |
| Employee                    benefits              |   |           | **2,494**  |           |   | 2,459 |   |
| Other                    accruals                 |   |           | **3,039**  |           |   | 3,521 |   |
| Inventory                                         |   |           | **2,037**  |           |   | 1,320 |   |
| Total                    deferred tax assets      |   |           | **18,778** |           |   | 14,662 |   |
| Deferred                    tax liabilities:      |   |           |       |           |   |   |   |
| Tax                    over book depreciation     |   |           | **11,068** |           |   | 10,909 |   |
| Tax                    over book amortization     |   |           | **2,834**  |           |   | 1,964 |   |
| Foreign                    leased property        |   |           | **339**    |           |   | 353 |   |
| Debt                    financing costs           |   |           |       |           |   | 28 |   |
| Other                                             |   |           | **76**     |           |   | 456 |   |
| Total                    deferred tax liabilities |   |           | **14,317** |           |   | 13,710 |   |
| Net                    deferred tax assets        |   | **$**          | **4,461**  |           | $      | 952 |   |

*Accounting        for Income Taxes, *

|                                                                                                          |   | **December                    31**  |     |
|---------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|
|                                                                                                          |   | **2005**                            |     | **2004**  |   | **2003**  |   |
| Income                    tax (benefit) expense at federal statutory rate                                     |   | **$**                                    | **(413** | **)** | $ | 1,534 |   | $ | 142 |   |
| State                    and local tax, net of federal tax benefit                                            |   |                                     | **(176** | **)** |   | 396 |   |   | 21 |   |
| Nondeductible                    intangible amortization                                                      |   |                                     | **38**   |   |   | 53 |   |   | 60 |   |
| Taxes                    on foreign income which differs from United States statutory                    rate |   |                                     | **595**  |   |   | 505 |   |   | 560 |   |
| Foreign                    tax withholding                                                                    |   |                                     | **183**  |   |   | 294 |   |   | 87 |   |
| Adjustment                    to worldwide tax accrual and other                                              |   |                                     | **(26**  | **)** |   | 117 |   |   | (15 | ) |
| Provision                    for income taxes                                                                 |   | **$**                                    | **201**  |   | $ | 2,899 |   | $ | 855 |   |

|                                                                             |   | **Year                    ended December 31**  |       |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                                             |   | **2005**                                       |       | **2004**  |   | **2003**  |   |
| (Loss)                    income from continuing operations before income taxes: |   |                                                |       |   |   |   |   |
| Domestic                                                                         |   | **$**                                               | **(9,163** | **)** | $ | (2,911 | ) | $ | (2,185 | ) |
| Foreign                                                                          |   |                                                | **7,988**  |   |   | 7,295 |   |   | 2,591 |   |
| As                    reported                                                   |   | **$**                                               | **(1,175** | **)** | $ | 4,384 |   | $ | 406 |   |

**13.          (Loss) Earnings Per Share**

|                                                                                                                                             |   | **Year                  Ended December 31**  |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|------------|
|                                                                                                                                             |   | **2005**                                     |       | **2004**  |   | **2003**  |   |
| (Loss)                  income from continuing operations, after income taxes                                                                    |   | **$**                                             | **(1,376** | **)** | $ | 1,485 |   | $ | (449 | ) |
| Less:                  Preferred stock dividends                                                                                                 |   |                                              | **148**    |   |   | 150 |   |   | 150 |   |
| (Loss)                  income from continuing operations, after income taxes available                  to common                  shareholders |   | **$**                                             | **(1,524** | **)** | $ | 1,335 |   | $ | (599 | ) |
|                                                                                                                                             |   |                                              |       |   |   |   |   |   |   |   |
| Net                  (loss) income                                                                                                               |   | **$**                                             | **(1,344** | **)** | $ | 1,141 |   | $ | (5,422 | ) |
| Less:                  Preferred stock dividends                                                                                                 |   |                                              | **148**    |   |   | 150 |   |   | 150 |   |
| Net                  (loss) income available to common shareholders                                                                              |   | **$**                                             | **(1,492** | **)** | $ | 991 |   | $ | (5,572 | ) |
|                                                                                                                                             |   |                                              |       |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding *(in                  thousands)*:                                                          |   |                                              |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares outstanding                                                                                       |   |                                              | **8,869**  |   |   | 8,691 |   |   | 8,571 |   |
| Diluted:                                                                                                                                         |   |                                              |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares outstanding                                                                                       |   |                                              | **8,869**  |   |   | 8,691 |   |   | 8,571 |   |
| Dilutive                  effect of stock options (1)                                                                                            |   |                                              |       |   |   | 281 |   |   |   |   |
| Diluted                  weighted average shares outstanding                                                                                     |   |                                              | **8,869**  |   |   | 8,972 |   |   | 8,571 |   |
|                                                                                                                                             |   |                                              |       |   |   |   |   |   |   |   |
| (Loss)                  earnings per share:                                                                                                      |   |                                              |       |   |   |   |   |   |   |   |
| Basic                  (loss) earnings from continuing operations, after income                  taxes                                           |   | **$**                                             | **(.17**   | **)** | $ | .15 |   | $ | (.07 | ) |
| Discontinued                  operations                                                                                                         |   |                                              |       |   |   | (.04 | ) |   | (.58 | ) |
| Net                  (loss) earnings per basic share                                                                                             |   | **$**                                             | **(.17**   | **)** | $ | .11 |   | $ | (.65 | ) |
|                                                                                                                                             |   |                                              |       |   |   |   |   |   |   |   |
| Diluted                  (loss) earnings from continuing operations, after income                  taxes                                         |   | **$**                                             | **(.17**   | **)** | $ | .15 |   | $ | (.07 | ) |
| Discontinued                  operations                                                                                                         |   |                                              |       |   |   | (.04 | ) |   | (.58 | ) |
| Net                  (loss) earnings per diluted share                                                                                           |   | **$**                                             | **(.17**   | **)** | $ | .11 |   | $ | (.65 | ) |

**14.        Related Parties**

**15.        Business Segments**

|                                                               |   | **Year                  ended December 31**  |        |
|--------------------------------------------------------------------|--------|---------------------------------------------------|-------------|
|                                                               |   | **2005**                                     |        | **2004**  |   | **2003**  |   |
| Net                  sales to external customers:                  |   |                                              |        |   |   |   |   |
| Friction                  products                                 |   | **$**                                             | **167,059** |   | $ | 148,242 |   | $ | 121,569 |   |
| Precision                  components (1)                          |   |                                              | **83,576**  |   |   | 78,629 |   |   | 68,123 |   |
| Performance                  racing                                |   |                                              | **14,799**  |   |   | 14,317 |   |   | 12,859 |   |
| Consolidated                                                       |   | **$**                                             | **265,434** |   | $ | 241,188 |   | $ | 202,551 |   |
|                                                               |   |                                              |        |   |   |   |   |   |   |   |
| Depreciation                  and amortization: (2)                |   |                                              |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                             | **6,955**   |   | $ | 6,792 |   | $ | 7,135 |   |
| Precision                  components (1)                          |   |                                              | **4,259**   |   |   | 3,791 |   |   | 3,511 |   |
| Performance                  racing                                |   |                                              | **229**     |   |   | 210 |   |   | 227 |   |
| Consolidated                                                       |   | **$**                                             | **11,443**  |   | $ | 10,793 |   | $ | 10,873 |   |
|                                                               |   |                                              |        |   |   |   |   |   |   |   |
| Gross                  profit:                                     |   |                                              |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                             | **33,661**  |   | $ | 36,483 |   | $ | 29,510 |   |
| Precision                  components (1)                          |   |                                              | **15,760**  |   |   | 16,605 |   |   | 14,458 |   |
| Performance                  racing                                |   |                                              | **3,000**   |   |   | 3,438 |   |   | 3,401 |   |
| Consolidated                                                       |   | **$**                                             | **52,421**  |   | $ | 56,526 |   | $ | 47,369 |   |
|                                                               |   |                                              |        |   |   |   |   |   |   |   |
| Income                  (loss) from operations:                    |   |                                              |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                             | **5,652**   |   | $ | 13,051 |   | $ | 8,284 |   |
| Precision                  components (1)                          |   |                                              | **4,131**   |   |   | 3,508 |   |   | 2,254 |   |
| Performance                  racing                                |   |                                              | **(508**    | **)** |   | 711 |   |   | 380 |   |
| Consolidated                                                       |   | **$**                                             | **9,275**   |   | $ | 17,270 |   | $ | 10,918 |   |
|                                                               |   |                                              |        |   |   |   |   |   |   |   |
| Capital                  expenditures: (including capital leases): |   |                                              |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                             | **7,482**   |   | $ | 9,126 |   | $ | 5,151 |   |
| Precision                  components (1)                          |   |                                              | **6,465**   |   |   | 8,983 |   |   | 5,889 |   |
| Performance                  racing                                |   |                                              | **285**     |   |   | 188 |   |   | 183 |   |
| Consolidated                                                       |   | **$**                                             | **14,232**  |   | $ | 18,297 |   | $ | 11,223 |   |
|                                                               |   |                                              |        |   |   |   |   |   |   |   |

|                                        |   | **December                    31**  |        |
|---------------------------------------------|--------|------------------------------------------|-------------|
|                                        |   | **2005**                            |        | **2004**  |   |
| Total                    assets:            |   |                                     |        |   |   |
| Friction                    products        |   | **$**                                    | **121,128** |   | $ | 116,684 |   |
| Precision                    components (1) |   |                                     | **89,210**  |   |   | 87,094 |   |
| Performance                    racing       |   |                                     | **12,257**  |   |   | 12,589 |   |
| Continuing                    operations    |   |                                     | **222,595** |   |   | 216,367 |   |
| Discontinued                    operations  |   |                                     | **3,633**   |   |   | 4,499 |   |
| Consolidated                                |   | **$**                                    | **226,228** |   | $ | 220,866 |   |

| (1)   | A                        line of business formerly associated with the Company’s motors segment,                        which was discontinued as of December 31, 2003, was retained                        by the                        Company and production was transferred to a facility within                        the Company’s                        precision components segment effective July 1, 2004. Net                        sales from this                        line of business were $802 through the date of transfer effective                        July 1,                        2004, and $1,235 for the year ended December 31, 2003. All                        prior periods                        have been reclassified to reflect this                        change. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Depreciation                      and amortization outlined in this table does not include deferred                      financing amortization of $435 in 2005, $387 in 2004, and $801                      in 2003,                      which is included in Interest expense on the Statement of                      Operations. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | **2005**                     |        | **2004**                   |   | **2003**   |   |
|----------------------------------------------------------|--------|-----------------------------------|-------------|---------------------------------|--------|-----------------|--------|
|                                                |   | **Domestic****Operations**   |        | **Foreign****Operations**  |   | **Total**  |   | **Domestic****Operations**  |   | **Foreign****Operations**  |   | **Total**  |   | **Domestic****Operations**  |   | **Foreign****Operations**  |   | **Total**  |   |
|                                                     |   | (In                    thousands) |        |
| Net                    sales                             |   | **$**                             | **209,578** |                            | **$**  | **55,856**      |   | **$** | **265,434** |   | $ | 192,836 |   | $ | 48,352 |   | $ | 241,188 |   | $ | 165,451 |   | $ | 37,100 |   | $ | 202,551 |   |
| Income                    from operations                |   |                              | **508**     |                            |   | **8,767**       |   |   | **9,275** |   |   | 10,298 |   |   | 6,972 |   |   | 17,270 |   |   | 7,818 |   |   | 3,100 |   |   | 10,918 |   |
| Discontinued                    operations, net of tax   |   |                              |        |                            |   | **32**          |   |   | **32** |   |   | (662 | ) |   | 318 |   |   | (344 | ) |   | (620 | ) |   | (4,353 | ) |   | (4,973 | ) |
| Net                    (loss) income                     |   |                              | **(6,091**  | **)**                           |   | **4,747**       |   |   | **(1,344** | **)** |   | (2,019 | ) |   | 3,160 |   |   | 1,141 |   |   | (1,866 | ) |   | (3,556 | ) |   | (5,422 | ) |
| Total                    assets of continuing operations |   | **$**                             | **183,513** |                            | **$**  | **39,082**      |   | **$** | **222,595** |   | $ | 176,269 |   | $ | 36,249 |   | $ | 212,518 |   | $ | 159,406 |   | $ | 29,841 |   | $ | 189,247 |   |

|                                                                           |   | **Years                    ended** ** ** |       |
|--------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                                           |   | **2005**                                      |       | **2004**  |   | **2003**  |   |
| (Loss)                    income from operations - Friction products:          |   | **$**                                              | **5,652**  |   | $ | 13,051 |   | $ | 8,284 |   |
| Restructuring                    costs                                         |   |                                               | **5,464**  |   |   | 1,117 |   |   |   |   |
| Employee                    benefit curtailment (income) expense               |   |                                               | **(424**   | **)** |   |   |   |   | 1,920 |   |
| Loan                    forgiveness costs                                      |   |                                               | **593**    |   |   | 389 |   |   |   |   |
| Adjusted                    income from operations - Friction products         |   | **$**                                              | **11,285** |   | $ | 14,557 |   | $ | 10,204 |   |
| Income                    from operations - Precision components:              |   | **$**                                              | **4,131**  |   | $ | 3,508 |   | $ | 2,254 |   |
| Loan                    forgiveness costs                                      |   |                                               | **443**    |   |   | 300 |   |   |   |   |
| Adjusted                    income from operations - Precision components      |   | **$**                                              | **4,574**  |   | $ | 3,808 |   | $ | 2,254 |   |
| (Loss)                    income from operations - Performance racing:         |   | **$**                                              | **(508**   | **)** | $ | 711 |   | $ | 380 |   |
| Loan                    forgiveness costs                                      |   |                                               | **64**     |   |   | 43 |   |   |   |   |
| Adjusted                    (loss) income from operations - Performance racing |   | **$**                                              | **(444**   | **)** | $ | 754 |   | $ | 380 |   |

*.*

**16.        Supplemental Guarantor Information**

| ·   | Consolidating                  condensed balance sheets as of December 31, 2005 and December 31,                  2004,                  consolidating condensed statements of income for the years ended                  December                  31, 2005, 2004 and 2003 and consolidating condensed statements                  of cash                  flows for the years ended December 31, 2005, 2004 and                  2003. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 financial statements of the                  Parent                  and all of its subsidiaries. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Supplemental      Consolidating Condensed**

**Balance      Sheet**

|                                                            |   | **December                31, 2005**  |         |
|-----------------------------------------------------------------|--------|--------------------------------------------|--------------|
|                                                  |   |  **Parent**                      |         | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Elimination** |   |  **Consolidated** |   |
| **Assets**                                                      |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                assets:                                  |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents                        |   | **$**                                      | **229**      |   | **$** | **45** |   | **$** | **6,837** |   |   |   |   | **$** | **7,111** |   |
| Accounts                receivable, net                         |   |                                       |         |   |   | **25,989** |   |   | **10,236** |   |   |   |   |   | **36,225** |   |
| Inventories                                                     |   |                                       | **(716**     | **)** |   | **37,119** |   |   | **10,543** |   | **$** | **(567** | **)** |   | **46,379** |   |
| Deferred                income taxes                            |   |                                       | **4,112**    |   |   |   |   |   | **318** |   |   |   |   |   | **4,430** |   |
| Taxes                receivable                                 |   |                                       | **347**      |   |   |   |   |   |   |   |   |   |   |   | **347** |   |
| Assets                held for sale                             |   |                                       |         |   |   | **1,644** |   |   |   |   |   |   |   |   | **1,644** |   |
| Other                current assets                             |   |                                       | **1,258**    |   |   | **2,481** |   |   | **2,038** |   |   | **(117** | **)** |   | **5,660** |   |
| Current                assets of discontinued operations        |   |                                       |         |   |   | **5** |   |   | **3,628** |   |   |   |   |   | **3,633** |   |
| Total                current assets                             |   |                                       | **5,230**    |   |   | **67,283** |   |   | **33,600** |   |   | **(684** | **)** |   | **105,429** |   |
| Investment                in subsidiaries                       |   |                                       | **793**      |   |   |   |   |   |   |   |   | **(793** | **)** |   |   |   |
| Inter-company                advances, net                      |   |                                       | **(800**     | **)** |   | **2,593** |   |   | **(1,793** | **)** |   |   |   |   |   |   |
| Property,                plant and equipment, net               |   |                                       |         |   |   | **60,856** |   |   | **10,062** |   |   |   |   |   | **70,918** |   |
| Other                assets:                                    |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                and other intangible assets             |   |                                       | **286**      |   |   | **40,644** |   |   |   |   |   |   |   |   | **40,930** |   |
| Other                                                           |   |                                       | **916**      |   |   | **8,034** |   |   | **897** |   |   | **(896** | **)** |   | **8,951** |   |
| Total                other assets                               |   |                                       | **1,202**    |   |   | **48,678** |   |   | **897** |   |   | **(896** | **)** |   | **49,881** |   |
| Total                assets                                     |   | **$**                                      | **6,425**    |   | **$** | **179,410** |   | **$** | **42,766** |   | **$** | **(2,373** | **)** | **$** | **226,228** |   |
| **Liabilities                and shareholders’ equity**   |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                liabilities:                             |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                payable                                 |   |                                       |         |   | **$** | **20,620** |   | **$** | **9,824** |   |   |   |   | **$** | **30,444** |   |
| Accrued                compensation                             |   | **$**                                      | **286**      |   |   | **3,987** |   |   | **1,829** |   |   |   |   |   | **6,102** |   |
| Accrued                interest                                 |   |                                       | **4,863**    |   |   |   |   |   | **32** |   |   |   |   |   | **4,895** |   |
| Accrued                taxes                                    |   |                                       | **603**      |   |   | **197** |   |   | **37** |   | **$** | **(173** | **)** |   | **664** |   |
| Other                accrued expenses                           |   |                                       | **1,203**    |   |   | **6,164** |   |   | **601** |   |   |   |   |   | **7,968** |   |
| Short-term                debt                                  |   |                                       |         |   |   |   |   |   | **1,386** |   |   |   |   |   | **1,386** |   |
| Current                portion of long-term debt                |   |                                       |         |   |   | **165** |   |   | **142** |   |   |   |   |   | **307** |   |
| Current                liabilities of discontinued operations   |   |                                       |         |   |   | **67** |   |   | **3,267** |   |   |   |   |   | **3,334** |   |
| Total                current liabilities                        |   |                                       | **6,955**    |   |   | **31,200** |   |   | **17,118** |   |   | **(173** | **)** |   | **55,100** |   |
| Long-term                liabilities:                           |   |                                       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt                                   |   |                                       | **115,041**  |   |   | **689** |   |   | **162** |   |   |   |   |   | **115,892** |   |
| Deferred                income taxes                            |   |                                       |         |   |   |   |   |   | **885** |   |   |   |   |   | **885** |   |
| Other                                                           |   |                                       |         |   |   | **10,156** |   |   | **3,479** |   |   |   |   |   | **13,635** |   |
| Inter-company                advances, net                      |   |                                       | **(186,777** | **)** |   | **178,420** |   |   | **8,846** |   |   | **(489** | **)** |   |   |   |
| Total                long-term liabilities                      |   |                                       | **(71,736**  | **)** |   | **189,265** |   |   | **13,372** |   |   | **(489** | **)** |   | **130,412** |   |
| Shareholders’                equity                       |   |                                       | **71,206**   |   |   | **(41,055** | **)** |   | **12,276** |   |   | **(1,711** | **)** |   | **40,716** |   |
| Total                liabilities and shareholders’ equity |   | **$**                                      | **6,425**    |   | **$** | **179,410** |   | **$** | **42,766** |   | **$** | **(2,373** | **)** | **$** | **226,228** |   |

**Supplemental      Consolidating Condensed**

**Balance      Sheet**

|                                                            |   | **December                31, 2004**  |     |
|-----------------------------------------------------------------|--------|--------------------------------------------|----------|
|                                                  |   |  **Parent**                      |     | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliminations** |   |  **Consolidated** |   |
| **Assets**                                                      |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                assets:                                  |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents                        |   | $                                          | 1,967    |   | $ | 49 |   | $ | 4,769 |   |   |   |   | $ | 6,785 |   |
| Accounts                receivable, net                         |   |                                       |     |   |   | 26,491 |   |   | 12,553 |   |   |   |   |   | 39,044 |   |
| Inventories                                                     |   |                                       | (974     | ) |   | 31,316 |   |   | 12,081 |   | $ | (873 | ) |   | 41,550 |   |
| Deferred                income taxes                            |   |                                       | 3,698    |   |   |   |   |   | 885 |   |   |   |   |   | 4,583 |   |
| Taxes                receivable                                 |   |                                       | 373      |   |   |   |   |   |   |   |   |   |   |   | 373 |   |
| Other                current assets                             |   |                                       | 1,809    |   |   | 1,771 |   |   | 480 |   |   |   |   |   | 4,060 |   |
| Current                assets of discontinued operations        |   |                                       |     |   |   | 84 |   |   | 4,415 |   |   |   |   |   | 4,499 |   |
| Total                current assets                             |   |                                       | 6,873    |   |   | 59,711 |   |   | 35,183 |   |   | (873 | ) |   | 100,894 |   |
| Investment                in subsidiaries                       |   |                                       | 793      |   |   |   |   |   |   |   |   | (793 | ) |   |   |   |
| Inter-company                advances, net                      |   |                                       | 162      |   |   | 2,531 |   |   | (4,970 | ) |   | 2,277 |   |   |   |   |
| Property,                plant and equipment, net               |   |                                       |     |   |   | 60,299 |   |   | 9,729 |   |   |   |   |   | 70,028 |   |
| Other                assets:                                    |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                and other intangible assets             |   |                                       | 72       |   |   | 41,593 |   |   |   |   |   |   |   |   | 41,665 |   |
| Other                                                           |   |                                       | 228      |   |   | 8,341 |   |   | 720 |   |   | (1,010 | ) |   | 8,279 |   |
| Total                other assets                               |   |                                       | 300      |   |   | 49,934 |   |   | 720 |   |   | (1,010 | ) |   | 49,944 |   |
| Total                assets                                     |   | $                                          | 8,128    |   | $ | 172,475 |   | $ | 40,662 |   | $ | (399 | ) | $ | 220,866 |   |
| **Liabilities                and shareholders’ equity**   |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                liabilities:                             |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                payable                                 |   |                                       |     |   | $ | 15,749 |   | $ | 9,805 |   |   |   |   | $ | 25,554 |   |
| Accrued                compensation                             |   | $                                          | 1,395    |   |   | 5,052 |   |   | 1,726 |   |   |   |   |   | 8,173 |   |
| Accrued                interest                                 |   |                                       | 1,623    |   |   |   |   |   | 7 |   |   |   |   |   | 1,630 |   |
| Accrued                taxes                                    |   |                                       | 778      |   |   | 408 |   |   | 2,077 |   | $ | (386 | ) |   | 2,877 |   |
| Other                accrued expenses                           |   |                                       | 1,840    |   |   | 3,993 |   |   | (236 | ) |   |   |   |   | 5,597 |   |
| Short-term                debt                                  |   |                                       |     |   |   |   |   |   | 980 |   |   |   |   |   | 980 |   |
| Current                portion of long-term debt                |   |                                       |     |   |   | 362 |   |   | 277 |   |   |   |   |   | 639 |   |
| Current                liabilities of discontinued operations   |   |                                       |     |   |   | 257 |   |   | 4,040 |   |   |   |   |   | 4,297 |   |
| Total                current liabilities                        |   |                                       | 5,636    |   |   | 25,821 |   |   | 18,676 |   |   | (386 | ) |   | 49,747 |   |
| Long-term                liabilities:                           |   |                                       |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt                                   |   |                                       | 110,000  |   |   | 887 |   |   | 515 |   |   |   |   |   | 111,402 |   |
| Deferred                income taxes                            |   |                                       | 2,820    |   |   |   |   |   | 810 |   |   |   |   |   | 3,631 |   |
| Other                                                           |   |                                       | 313      |   |   | 7,920 |   |   | 2,826 |   |   |   |   |   | 11,059 |   |
| Inter-company                advances, net                      |   |                                       | (180,565 | ) |   | 170,490 |   |   | 8,388 |   |   | 1,688 |   |   |   |   |
| Total                long-term liabilities                      |   |                                       | (67,432  | ) |   | 179,297 |   |   | 12,539 |   |   | 1,688 |   |   | 126,092 |   |
| Shareholders’                equity                       |   |                                       | 69,924   |   |   | (32,643 | ) |   | 9,447 |   |   | (1,701 | ) |   | 45,027 |   |
| Total                liabilities and shareholders’ equity |   | $                                          | 8,128    |   | $ | 172,475 |   | $ | 40,662 |   | $ | (399 | ) | $ | 220,866 |   |

**Supplemental      Consolidating Condensed**

**Statement      of Operations**

|                                                                        |   | **Year                ended December 31, 2005**  |       |
|-----------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
|                                                              |   |  **Parent**                                 |       | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliminations** |   |  **Consolidated** |   |
| Net                sales                                                    |   |                                                  |       |   | **$** | **211,487** |   | **$** | **65,242** |   | **$** | **(11,295** | **)** | **$** | **265,434** |   |
| Cost                of sales                                                |   |                                                  |       |   |   | **173,709** |   |   | **50,599** |   |   | **(11,295** | **)** |   | **213,013** |   |
| Gross                profit                                                 |   |                                                  |       |   |   | **37,778** |   |   | **14,643** |   |   |   |   |   | **52,421** |   |
| Operating                expenses:                                          |   |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                technical and administrative expenses               |   | **$**                                                 | **1,005**  |   |   | **30,993** |   |   | **5,876** |   |   |   |   |   | **37,874** |   |
| Restructuring                costs                                          |   |                                                  |       |   |   | **4,962** |   |   |   |   |   |   |   |   | **4,962** |   |
| Employee                benefit curtailment                                 |   |                                                  |       |   |   | **(424** | **)** |   |   |   |   |   |   |   | **(424** | **)** |
| Amortization                of intangibles                                  |   |                                                  |       |   |   | **734** |   |   |   |   |   |   |   |   | **734** |   |
| Total                operating expenses                                     |   |                                                  | **1,005**  |   |   | **36,265** |   |   | **5,876** |   |   |   |   |   | **43,146** |   |
| (Loss)                income from operations                                |   |                                                  | **(1,005** | **)** |   | **1,513** |   |   | **8,767** |   |   |   |   |   | **9,275** |   |
| Interest                income (expense), net                               |   |                                                  | **3,577**  |   |   | **(14,017** | **)** |   | **(108** | **)** |   |   |   |   | **(10,548** | **)** |
| Income                from equity investee                                  |   |                                                  | **(2,394** | **)** |   | **4,744** |   |   |   |   |   | **(2,350** | **)** |   |   |   |
| Other                (expense) income, net                                  |   |                                                  | **(34**    | **)** |   | **678** |   |   | **(546** | **)** |   |   |   |   | **98** |   |
| Income                (loss) from continuing operations before income taxes |   |                                                  | **144**    |   |   | **(7,082** | **)** |   | **8,113** |   |   | **(2,350** | **)** |   | **(1,175** | **)** |
| Income                tax provision (benefit)                               |   |                                                  | **1,488**  |   |   | **(4,684** | **)** |   | **3,397** |   |   |   |   |   | **201** |   |
| (Loss)                income from continuing operations, after income taxes |   |                                                  | **(1,344** | **)** |   | **(2,398** | **)** |   | **4,716** |   |   | **(2,350** | **)** |   | **(1,376** | **)** |
| Discontinued                operations, net of tax                          |   |                                                  |       |   |   | **4** |   |   | **28** |   |   |   |   |   | **32** |   |
| Net                (loss) income                                            |   | **$**                                                 | **(1,344** | **)** | **$** | **(2,394** | **)** | **$** | **4,744** |   | **$** | **(2,350** | **)** | **$** | **(1,344** | **)** |

**Supplemental      Consolidating Condensed**

**Statement      of Operations**

|                                                                        |   | **Year                ended December 31, 2004**  |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                              |   |  **Parent**                                 |   | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliminations** |   |  **Consolidated** |   |
| Net                sales                                                    |   |                                                  |   |   | $ | 195,942 |   | $ | 56,361 |   | $ | (11,115 | ) | $ | 241,188 |   |
| Cost                of sales                                                |   | $                                                     | 42     |   |   | 151,744 |   |   | 43,991 |   |   | (11,115 | ) |   | 184,662 |   |
| Gross                profit                                                 |   |                                                  | (42    | ) |   | 44,198 |   |   | 12,370 |   |   |   |   |   | 56,526 |   |
| Expenses:                                                                   |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                technical and administrative expenses               |   |                                                  | 406    |   |   | 31,589 |   |   | 5,410 |   |   |   |   |   | 37,405 |   |
| Restructuring                costs                                          |   |                                                  |   |   |   | 1,117 |   |   |   |   |   |   |   |   | 1,117 |   |
| Amortization                of finite-lived intangible assets               |   |                                                  |   |   |   | 734 |   |   |   |   |   |   |   |   | 734 |   |
| Total                operating expenses                                     |   |                                                  | 406    |   |   | 33,440 |   |   | 5,410 |   |   |   |   |   | 39,256 |   |
| (Loss)                income from operations                                |   |                                                  | (448   | ) |   | 10,758 |   |   | 6,960 |   |   |   |   |   | 17,270 |   |
| Interest                income (expense), net                               |   |                                                  | 3,666  |   |   | (13,777 | ) |   | (100 | ) |   |   |   |   | (10,211 | ) |
| Exchange                offer costs                                         |   |                                                  | (1,464 | ) |   | (967 | ) |   |   |   |   |   |   |   | (2,431 | ) |
| Income                from equity investee                                  |   |                                                  | 748    |   |   | 3,160 |   |   |   |   |   | (3,908 | ) |   |   |   |
| Other                (expense) income, net                                  |   |                                                  | (172   | ) |   | 702 |   |   | (774 | ) |   |   |   |   | (244 | ) |
| Income                (loss) from continuing operations before income taxes |   |                                                  | 2,330  |   |   | (124 | ) |   | 6,086 |   |   | (3,908 | ) |   | 4,384 |   |
| Income                tax provision (benefit)                               |   |                                                  | 1,189  |   |   | (1,534 | ) |   | 3,244 |   |   |   |   |   | 2,899 |   |
| Income                before discontinued operations                        |   |                                                  | 1,141  |   |   | 1,410 |   |   | 2,842 |   |   | (3,908 | ) |   | 1,485 |   |
| Discontinued                operations, net of tax                          |   |                                                  |   |   |   | (662 | ) |   | 318 |   |   |   |   |   | (344 | ) |
| Net                income                                                   |   | $                                                     | 1,141  |   | $ | 748 |   | $ | 3,160 |   | $ | (3,908 | ) | $ | 1,141 |   |

**Supplemental      Consolidating Condensed**

**Statement      of Operations**

|                                                                         |   | **Year                ended December 31, 2003**  |   |
|------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                               |   |  **Parent**                                 |   | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****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                from equity investee                                     |   |                                                  | (9,001 | ) |   | (3,556 | ) |   |   |   |   | 12,557 |   |   |   |   |
| Other                (expense) income, net                                   |   |                                                  | (278   | ) |   | 497 |   |   | (36 | ) |   |   |   |   | 183 |   |
| (Loss)                income from continuing operations before income taxes  |   |                                                  | (5,503 | ) |   | (9,037 | ) |   | 2,591 |   |   | 12,355 |   |   | 406 |   |
| Income                tax (benefit) provision                                |   |                                                  | (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 | ) |

**Supplemental      Consolidating Condensed**

**Cash      Flow Statement**

|                                                                                                         |   | **Year                ended December 31, 2005**  |        |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|-------------|
|                                                                                               |   |  **Parent**                                 |        | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliminations** |   |  **Consolidated** |   |
| Net                cash (used in) provided by operating activities of continuing                operations   |   | **$**                                                 | **(7,145**  | **)** | **$** | **12,163** |   | **$** | **4,961** |   |   |   |   | **$** | **9,979** |   |
| Net                cash (used in) provided by operating activities of discontinued                operations |   |                                                  |        |   |   |   |   |   | **(85** | **)** |   |   |   |   | **(85** | **)** |
| Cash                flows from investing activities:                                                         |   |                                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases                of property, plant and equipment                                                    |   |                                                  |        |   |   | **(12,088** | **)** |   | **(2,144** | **)** |   |   |   |   | **(14,232** | **)** |
| Proceeds                from sale or property, plant and equipment                                           |   |                                                  |        |   |   | **92** |   |   | **12** |   |   |   |   |   | **104** |   |
| Net                cash used in investing activities of continuing operations                                |   |                                                  |        |   |   | **(11,996** | **)** |   | **(2,132** | **)** |   |   |   |   | **(14,128** | **)** |
| Net                cash used in investing activities of discontinued                operations               |   |                                                  |        |   |   |   |   |   | **(44** | **)** |   |   |   |   | **(44** | **)** |
| Cash                flows from financing activities:                                                         |   |                                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                on short-term debt                                                                   |   |                                                  |        |   |   |   |   |   | **899** |   |   |   |   |   | **899** |   |
| Payments                on short-term debt                                                                   |   |                                                  |        |   |   | **(138** | **)** |   | **(802** | **)** |   |   |   |   | **(940** | **)** |
| Proceeds                from long-term debt                                                                  |   |                                                  | **84,095**  |   |   | **150** |   |   |   |   |   |   |   |   | **84,245** |   |
| Payments                on long-term debt                                                                    |   |                                                  | **(79,276** | **)** |   | **(183** | **)** |   | **(151** | **)** |   |   |   |   | **(79,610** | **)** |
| Net                proceeds from exercise of stock options                                                   |   |                                                  | **736**     |   |   |   |   |   |   |   |   |   |   |   | **736** |   |
| Payments                of preferred stock dividends                                                         |   |                                                  | **(148**    | **)** |   |   |   |   |   |   |   |   |   |   | **(148** | **)** |
| Net                cash provided by (used in) financing activities of continuing                operations   |   |                                                  | **5,407**   |   |   | **(171** | **)** |   | **(54** | **)** |   |   |   |   | **5,182** |   |
| Effect                of exchange rate changes on cash                                                       |   |                                                  |        |   |   |   |   |   | **(578** | **)** |   |   |   |   | **(578** | **)** |
| Net                cash (used in) provided by continuing operations                                          |   |                                                  | **(1,738**  | **)** |   | **(4** | **)** |   | **2,197** |   |   |   |   |   | **455** |   |
| Net                cash (used in) provided by discontinued operations                                        |   |                                                  |        |   |   |   |   |   | **(129** | **)** |   |   |   |   | **(129** | **)** |
| Net                (decrease) increase in cash and cash equivalents                                          |   |                                                  | **(1,738**  | **)** |   | **(4** | **)** |   | **2,068** |   |   |   |   |   | **326** |   |
| Cash                and cash equivalents, at beginning of period                                             |   |                                                  | **1,967**   |   |   | **49** |   |   | **4,769** |   |   |   |   |   | **6,785** |   |
| Cash                and cash equivalents, at end of period                                                   |   | **$**                                                 | **229**     |   | **$** | **45** |   | **$** | **6,837** |   |   |   |   | **$** | **7,111** |   |

**Supplemental      Consolidating Condensed**

**Cash      Flow Statement**

|                                                                                                         |   | **Year                ended December 31, 2004**  |     |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|----------|
|                                                                                               |   |  **Parent**                                 |     | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliinations** |   |  **Consolidated** |   |
| Net                cash (used in) provided by operating activities of continuing                operations   |   | $                                                     | (15,678  | ) | $ | 18,172 |   | $ | 3,522 |   |   |   |   | $ | 6,016 |   |
| Net                cash (used in) provided by operating activities of discontinued                operations |   |                                                  |     |   |   | (1,084 | ) |   | 1,452 |   |   |   |   |   | 368 |   |
| Cash                flows from investing activities:                                                         |   |                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                from sale of assets                                                                  |   |                                                  |     |   |   | 881 |   |   |   |   |   |   |   |   | 881 |   |
| Purchases                of property, plant and equipment                                                    |   |                                                  |     |   |   | (16,691 | ) |   | (1,606 | ) |   |   |   |   | (18,297 | ) |
| Net                cash used in investing activities of continuing operations                                |   |                                                  |     |   |   | (15,810 | ) |   | (1,606 | ) |   |   |   |   | (17,416 | ) |
| Net                cash used in investing activities of discontinued                operations               |   |                                                  |     |   |   |   |   |   | (173 | ) |   |   |   |   | (173 | ) |
| Cash                flows from financing activities:                                                         |   |                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred                financing                                                                            |   |                                                  | (4,096   | ) |   |   |   |   |   |   |   |   |   |   | (4,096 | ) |
| Payments                on short-term debt                                                                   |   |                                                  |     |   |   |   |   |   | (342 | ) |   |   |   |   | (342 | ) |
| Payments                on long-term debt                                                                    |   |                                                  |     |   |   | (1,358 | ) |   | (271 | ) |   |   |   |   | (1,629 | ) |
| Payment                on Bank Facility                                                                      |   |                                                  | (13,355  | ) |   |   |   |   |   |   |   |   |   |   | (13,355 | ) |
| Proceeds                from Bank Facility                                                                   |   |                                                  | 13,575   |   |   |   |   |   |   |   |   |   |   |   | 13,575 |   |
| Proceeds                from Senior Notes                                                                    |   |                                                  | 110,000  |   |   |   |   |   |   |   |   |   |   |   | 110,000 |   |
| Payment                on Old Senior Notes                                                                   |   |                                                  | (66,267  | ) |   |   |   |   |   |   |   |   |   |   | (66,267 | ) |
| Proceeds                from Old Bank Facility                                                               |   |                                                  | 92,336   |   |   |   |   |   |   |   |   |   |   |   | 92,336 |   |
| Payments                on Old Bank Facility                                                                 |   |                                                  | (116,395 | ) |   |   |   |   |   |   |   |   |   |   | (116,395 | ) |
| Proceeds                from exercise of stock options                                                       |   |                                                  | 679      |   |   |   |   |   |   |   |   |   |   |   | 679 |   |
| Payments                of preferred stock dividends                                                         |   |                                                  | (150     | ) |   |   |   |   |   |   |   |   |   |   | (150 | ) |
| Net                cash provided by (used in) financing activities of continuing                operations   |   |                                                  | 16,327   |   |   | (1,358 | ) |   | (613 | ) |   |   |   |   | 14,356 |   |
| Effect                of exchange rate changes on cash                                                       |   |                                                  |     |   |   |   |   |   | 269 |   |   |   |   |   | 269 |   |
| Net                cash provided by continuing operations                                                    |   |                                                  | 649      |   |   | 1,004 |   |   | 1,572 |   |   |   |   |   | 3,225 |   |
| Net                cash (used in) provided by discontinued operations                                        |   |                                                  |     |   |   | (1,084 | ) |   | 1,279 |   |   |   |   |   | 195 |   |
| Net                increase (decrease) in cash and cash equivalents                                          |   |                                                  | 649      |   |   | (80 | ) |   | 2,851 |   |   |   |   |   | 3,420 |   |
| Cash                and cash equivalents, at beginning of period                                             |   |                                                  | 1,318    |   |   | 129 |   |   | 1,918 |   |   |   |   |   | 3,365 |   |
| Cash                and cash equivalents, at end of period                                                   |   | $                                                     | 1,967    |   | $ | 49 |   | $ | 4,769 |   |   |   |   | $ | 6,785 |   |

**Supplemental      Consolidating Condensed**

**Cash      Flow Statement**

|                                                                                                       |   | **Year                ended December 31, 2003**  |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|---------|
|                                                                                             |   |  **Parent**                                 |    | **Combined****Guarantor****Subsidiaries** |   | **Combined****Non-Guarantor****Subsidiaries**  |   |  **Eliminations** |   |  **Consolidated** |   |
| Net                cash provided by operating activities of continuing                operations           |   | $                                                     | 13,890  |   | $ | 8,982 |   | $ | 913 |   |   |   |   | $ | 23,785 |   |
| 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 |   |   | 478 |   |   |   |   |   | 503 |   |
| Payments                on long-term debt                                                                  |   |                                                  |    |   |   | (2,775 | ) |   | (185 | ) |   |   |   |   | (2,960 | ) |
| Payment                on Old Senior Notes                                                                 |   |                                                  | (583    | ) |   |   |   |   |   |   |   |   |   |   | (583 | ) |
| Proceeds                from Old Bank Facility                                                             |   |                                                  | 68,173  |   |   |   |   |   |   |   |   |   |   |   | 68,173 |   |
| Payments                on Old Bank Facility                                                               |   |                                                  | (80,441 | ) |   |   |   |   |   |   |   |   |   |   | (80,441 | ) |
| Proceeds                from exercise of stock options                                                     |   |                                                  | 59      |   |   |   |   |   |   |   |   |   |   |   | 59 |   |
| Payments                of preferred stock dividends                                                       |   |                                                  | (150    | ) |   |   |   |   |   |   |   |   |   |   | (150 | ) |
| Net                cash provided by (used in) financing activities of continuing                operations |   |                                                  | (12,942 | ) |   | (2,750 | ) |   | 1,619 |   |   |   |   |   | (14,073 | ) |
| Effect                of exchange rate changes on cash                                                     |   |                                                  |    |   |   |   |   |   | 69 |   |   |   |   |   | 69 |   |
| Net                cash (used in) provided by 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 |   |

**16.      Summary of Quarterly Results of Operations (Unaudited)**

|                                                          |   | **March                31,****2005**  |       | **June                30,****2005**  |   | **September                30,****2005**  |   | **December                31,****2005**  |       | March                31, 2004  |   | June                30, 2004  |   | September                30, 2004  |   | December                31, 2004  |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|------------|-------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|------------|-------------------------------------|--------|------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
| Net                sales                                           |   | **$**                                      | **72,071** |                                      | **$**  | **70,874**                                     |   | **$**                                         | **62,808** |                                | **$**  | **59,681**                         |   | $                                       | 60,295 |                                   | $      | 63,376 |   | $ | 59,367 |   | $ | 58,150 |   |
| Gross                profit                                        |   |                                       | **18,686** |                                      |   | **17,518**                                     |   |                                          | **9,856**  |                                |   | **6,361**                          |   |                                    | 15,724 |                                   |   | 15,761 |   |   | 13,639 |   |   | 11,402 |   |
| Income                (loss) from continuing operations            |   |                                       | **1,871**  |                                      |   | **1,667**                                      |   |                                          | **(1,707** | **)**                               |   | **(3,209**                         | **)**  |                                    | 1,755  |                                   |   | 1,467 |   |   | 1,051 |   |   | (2,788 | ) |
| Discontinued                operations, net of tax                 |   |                                       | **73**     |                                      |   | **38**                                         |   |                                          | **14**     |                                |   | **(93**                            | **)**  |                                    | 5      |                                   |   | 4 |   |   | (424 | ) |   | 71 |   |
| Net                income (loss)                                   |   | **$**                                      | **1,944**  |                                      | **$**  | **1,705**                                      |   | **$**                                         | **(1,693** | **)**                               | **$**  | **(3,300**                         | **)**  | $                                       | 1,760  |                                   | $      | 1,471 |   | $ | 627 |   | $ | (2,717 | ) |
| Basic                earnings (loss) per share:                    |   |                                       |       |                                      |   |                                           |   |                                          |       |                                |   |                               |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Earnings                (loss) per share from continuingoperations |   | **$**                                      | **.21**    |                                      | **$**  | **.18**                                        |   | **$**                                         | **(.19**   | **)**                               | **$**  | **(.36**                           | **)**  | $                                       | .20    |                                   | $      | .16 |   | $ | .12 |   | $ | (.32 | ) |
| Discontinued                operations                             |   |                                       | **.01**    |                                      |   | **.00**                                        |   |                                          | **.00**    |                                |   | **(.01**                           | **)**  |                                    | .00    |                                   |   | .00 |   |   | (.05 | ) |   | .01 |   |
| Net                earnings (loss) per basic share                 |   | **$**                                      | **.22**    |                                      | **$**  | **.18**                                        |   | **$**                                         | **(.19**   | **)**                               | **$**  | **(.37**                           | **)**  | $                                       | .20    |                                   | $      | .16 |   | $ | .07 |   | $ | (.31 | ) |
| Diluted                earnings (loss) per share:                  |   |                                       |       |                                      |   |                                           |   |                                          |       |                                |   |                               |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Earnings                (loss) per share from continuingoperations |   | **$**                                      | **.20**    |                                      | **$**  | **.17**                                        |   | **$**                                         | **(.19**   | **)**                               | **$**  | **(.36**                           | **)**  | $                                       | .20    |                                   | $      | .16 |   | $ | .11 |   | $ | (.32 | ) |
| Discontinued                operations                             |   |                                       | **.01**    |                                      |   | **.00**                                        |   |                                          | **.00**    |                                |   | **(.01**                           | **)**  |                                    | .00    |                                   |   | .00 |   |   | (.05 | ) |   | .01 |   |
| Net                earnings (loss) per diluted share               |   | **$**                                      | **.21**    |                                      | **$**  | **.17**                                        |   | **$**                                         | **(.19**   | **)**                               | **$**  | **(.37**                           | **)**  | $                                       | .20    |                                   | $      | .16 |   | $ | .06 |   | $ | (.31 | ) |

**Schedule      II - Valuation and Qualifying Accounts**

|                                                      |   |                                                              |      | **Additions**                                                         |   |                       |   |                                                              |      |
|-----------------------------------------------------------|--------|-------------------------------------------------------------------|-----------|-----------------------------------------------------------------------|--------|----------------------------|--------|-------------------------------------------------------------------|-----------|
|                                                      |   | **Balance                at Beginning****of                Year** |      | **Charged                to****Costs                and****Expenses** |   |   **Deductions** |   |  **Balance                at****End                of Year** |      |
| Year                ended December 31, 2005:              |   |                                                              |      |                                                                  |   |                       |   |                                                              |      |
| Allowance                for uncollectible accounts  |   | **$**                                                             | **970**   |                                                                  | **$**  | **482**                    |   | **$**                                                             | **404(1** | **)** | **$** | **1,046** |   |
| Slow                moving and obsolete inventory reserve |   |                                                              | **2,546** |                                                                  |   | **1,320**                  |   |                                                              | **492(2** | **)** |   | **3,375** |   |
|                                                      |   |                                                              |      |                                                                  |   |                       |   |                                                              |      |   |   |   |   |
| Year                ended December 31, 2004:              |   |                                                              |      |                                                                  |   |                       |   |                                                              |      |   |   |   |   |
| Allowance                for uncollectible accounts       |   | $                                                                 | 429       |                                                                  | $      | 787                        |   | $                                                                 | 246(1     | **)** | $ | 970 |   |
| Slow                moving and obsolete inventory reserve |   |                                                              | 2,462     |                                                                  |   | 720                        |   |                                                              | 635(2     | **)** |   | 2,546 |   |
|                                                      |   |                                                              |      |                                                                  |   |                       |   |                                                              |      |   |   |   |   |
| Year                ended December 31, 2003:              |   |                                                              |      |                                                                  |   |                       |   |                                                              |      |   |   |   |   |
| Allowance                for uncollectible accounts       |   | $                                                                 | 502       |                                                                  | $      | 397                        |   | $                                                                 | 471(1     | **)** | $ | 429 |   |
| Slow                moving and obsolete inventory reserve |   |                                                              | 2,285     |                                                                  |   | 784                        |   |                                                              | 607(2     | **)** |   | 2,462 |   |

| (1)   | Uncollectible                accounts written off, net of                recoveries. |
|-----------------|--------------------------------------------------------------------------------------|

| (2)   | Inventory                items written off against the reserve                account |
|-----------------|---------------------------------------------------------------------------------------|

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

**ITEM      9A. CONTROLS AND PROCEDURES **

*Evaluation      of Disclosure Controls and Procedures*

*Changes      in Internal Control*

**ITEM      9B. OTHER INFORMATION**

**PART      III**

**ITEM      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

**Code      of Ethics**

**ITEM      11. EXECUTIVE COMPENSATION**

**ITEM      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS**

**Equity      Compensation Plan Information at December 31, 2005 **

|       **Plan                category**  |   | **Number                of****securities****to                be issued upon****exercise                of****outstanding****options,****warrants                and****rights(a)**  |    |    **Weighted-average****exercise                price of****outstanding                options,****warrants                and rights(b)**  |   | **Number                of****securities****remaining                available****for                future issuance****under                equity****compensation                plans****(excluding                securities****reflected                in****column(a)                (c)**  |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity                compensation plans approved by security holders      |   |                                                                                                                                                                                      | 729,916 |                                                                                                                                                             | $      | 4.85                                                                                                                                                                                                                                                                                                    |   |   | 106,103 |   |
| Equity                compensation plans not approved by security holders  |   |                                                                                                                                                                                      | 0       |                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                    |   |   | 0 |   |
| Total                                                                      |   |                                                                                                                                                                                      | 729,916 |                                                                                                                                                             | $      | 4.85                                                                                                                                                                                                                                                                                                    |   |   | 106,103 |   |

**ITEM      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

**ITEM      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

**PART        IV**

**ITEM        15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 National City Bank as                successor, 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    | 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))                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.3    | 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)) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.4    | Indenture,                dated as of November 1, 2004, among Hawk Corporation, the Guarantors                named                therein, and HSBC Bank USA, National Association, as Trustee (Incorporated                by reference to the Company’s Form 8-K, dated November 1, 2004, as filed                with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.5    | Registration                Rights Agreement, dated as of November 1, 2004, among Hawk Corporation,                the Guarantors named therein, and Jefferies & Company, Inc.                (Incorporated by reference to the Company’s Form 8-K, dated November 1,                2004, as filed with the Securities and Exchange                Commission)                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6    | Form                of 8 3/4% Senior Exchange Note due 2014 (Incorporated by reference                to the                Company’s Registration Statement on Form S-4 as filed with the Securities                and Exchange Commission (Reg. No. 333-120991)                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1   | 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))                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2   | 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))                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3   | 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))                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4   | 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)                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.5   | 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)                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| 10.6   | 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) |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.7   | Credit                    and Security Agreement, dated November 1, 2004, among Hawk Corporation,                    Allegheny Clearfield, Inc., Friction Products Co., Hawk MIM,                    Inc., Hawk                    Motors, Inc., Hawk Precision Components, Inc., Helsel, Inc.,                    Logan Metal                    Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries,                    Inc., Sinterloy Corporation, S.K. Wellman Corp., S.K. Wellman                    Holdings,                    Inc., Tex Racing Enterprises, Inc., Wellman Products Group, Inc.,                    and                    Wellman Products, LLC, as Borrowers, and KeyBank National Association,                    as                    Administrative Agent and LC Issuer (Incorporated by reference                    to the                    Company’s Form 8-K, dated November 1, 2004, as filed with the Securities                    and Exchange Commission)                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.8   | Form                    of Pledge and Security Agreement — Borrower in favor of KeyBank National                    Association (Incorporated by reference to the Company’s Form 10-Q for the                    quarterly period ended September 30, 2004 as filed with the Securities                    and                    Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.9   | Form                    of Collateral Assignment of Security Interest in Trademarks and                    Licenses,                    dated as of November 1, 2004, among Hawk Corporation and the                    other                    Grantors named therein and KeyBank National Association (Incorporated                    by                    reference to the Company’s Form 10-Q for the quarterly period ended                    September 30, 2004 as filed with the Securities and Exchange                    Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.10  | Form                    of Collateral Assignment of Security Interest in Patents and                    Patent                    Applications, dated as of November 1, 2004, among Hawk Corporation                    and the                    other Grantors named therein and KeyBank National Association                    (Incorporated by reference to the Company’s Form 10-Q for the quarterly                    period ended September 30, 2004 as filed with the Securities                    and Exchange                    Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.11  | Form                    of Collateral Assignment of Security Interest in Copyrights,                    dated as of                    November 1, 2004, among Hawk Corporation and the other Grantors                    named                    therein and KeyBank National Association (Incorporated by reference                    to the                    Company’s Form 10-Q for the quarterly period ended September 30, 2004                    as                    filed with the Securities and Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.12  | Form                    of Limited License Agreement (Borrower) in favor of KeyBank National                    Association (Incorporated by reference to the Company’s Form 10-Q for the                    quarterly period ended September 30, 2004 as filed with the Securities                    and                    Exchange Commission)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.13  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.14  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.15* | Amended                    and Restated Common Stock Selling Plan of Norman C. Harbert pursuant                    to                    Rule 10b5-1 of the Securities Exchange Act of 1934, dated March                    22,                    2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.16  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.17  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.18  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

| 10.19  | 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)                                           |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.20  | 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)                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.21  | 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) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.22  | Agreement                of Employment, Confidentiality and Non-Competition, dated January                27,                2000, between Friction Products Co. and Steven J. Campbell Securities                (Incorporated by reference to the Company’s Form 10-Q for the quarterly                period ended March 31, 2003 as filed with the Securities and Exchange                Commission)                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.23  | First                Amendment to Agreement of Employment, Confidentiality and Non-Competition,                dated October 5, 2004, between Friction Products Co. and Steven J.                Campbell (Incorporated by reference to the Company’s Form 10-Q for the                quarterly period ended September 30, 2004 as filed with the Securities                and                Exchange Commission)                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.24  | Depositary                Agreement appointing HSBC Bank USA, National Association, as exchange                agent (Incorporated by reference to Amendment No. 1 to the Company’s                Registration Statement on Form S-4 as filed with the Securities and                Exchange Commission (Reg. No. 333-120991)                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                                                                                                                                                                                                                                   |

**SIGNATURES**

| **SIGNATURE**                                                       | **TITLE**                                              | **DATE**                 |
|--------------------------------------------------------------------------|-------------------------------------------------------------|-------------------------------|
| /s/                Ronald                E. Weinberg                | Chairman                of the Board, Chief Executive       | March                29, 2006 |
| Ronald                E. Weinberg                                        | Officer,                President and Director              |                          |
|                                                                     | (principal                executive officer)                |                          |
|                                                                     |                                                        |                          |
| /s/                Norman                C. Harbert                 | Chairman                Emeritus,                           | March                29, 2006 |
| Norman                C. Harbert                                         | Founder                and Director                         |                          |
|                                                                     |                                                        |                          |
| /s/                Joseph                J. Levanduski              | Chief                Financial Officer                      | March                29, 2006 |
| Joseph                J. Levanduski                                      | (principal                financial and accounting officer) |                          |
|                                                                     |                                                        |                          |
| /s/                Byron                S. Krantz              | Secretary                and Director                       | March                29, 2006 |
| Byron                S. Krantz                                           |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Paul                R. Bishop               | Director                                                    | March                29, 2006 |
| Paul                R. Bishop                                            |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Jack                F. Kemp                 | Director                                                    | March                29, 2006 |
| Jack                F. Kemp                                              |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Dan                T. Moore,                III  | Director                                                    | March                29, 2006 |
| Dan                T. Moore, III                                         |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Andrew                T. Berlin                  | Director                                                    | March                29, 2006 |
| Andrew                T. Berlin                                          |                                                        |                          |